Financial History Issue 129 (Spring 2019) | Page 27
blew itself up. The Tambora eruption
was the most violent in recorded history,
and its dust cloud spread through the
stratosphere, depressing temperatures and
disrupting weather patterns for two years.
Record cold in 1816—“the year without
a summer”—ruined harvests from Tibet
to Brazil; to avoid starvation, Europe was
forced to import American grain at any
cost. Meanwhile, England was buying
more and more American cotton to pro-
cess into textiles that were sold back to
America. As commodity prices climbed to
unheard-of heights, speculators rushed to
make their fortunes. A land boom was on
across the United States. First in Ohio and
Indiana and then in Alabama, both the
acreage sold and the prices paid at auction
defied belief.
The insatiable demand created an
enduring catch phrase: “doing a land-
office business.” In 1818, sales exceeded 2.5
million acres, and in 1819 over 3 million
acres were auctioned off at unprecedented
prices. It should have been obvious that a
real estate/banking bubble was inflating,
but the potential profits from wheat and
cotton were irresistible. Bank notes—with
next to nothing in the way of gold or silver
to back them—could not be printed fast
enough by the many new banks, and they
fueled the boom. Partly to impose some
sort of order and partly with an eye to
the Louisiana Purchase bonds (the first $3
million due for redemption in 1818), Con-
gress now chartered a second Bank of the
United States, 20% government-owned
but 80% private. Its stockholders, in the
United States and abroad, were all eager to
earn dividends. Unwilling to deny them,
for a year the Bank simply fed the borrow-
ing frenzy instead of trying to restrain it.
Manufacturing was just beginning to
recover when the commodity bubble
began losing air. The 1817 harvests in
Europe were abundant, and the price of
American wheat tumbled. Land sales in
the Northwest abruptly slowed in conse-
quence. In 1818 the BUS, after a year of
unrestrained lending, made a 180 degree
as soon as post-war trade resumed. A
moderately protective tariff in 1816 only
briefly slowed the flood of cheap imports.
The depression worked its way west
through the manufacturing towns of Pitts-
burgh and Lexington, Kentucky, but its ini-
tial impact was masked by a simultaneous
wave of real estate speculation. Demand
for western land was fueled by a combina-
tion of factors. In 1800, public land had
been made available for 25% down with
four years allowed to pay the balance;
the minimum price had been set at $2
per acre and had remained unchanged,
despite rapid inflation. With the defeat of
Tecumseh in the northwest and the end
of the Creek War in the Mississippi Terri-
tory, millions of acres of tribal lands were
opened to settlement. After Congress let
the charter of the first Bank of the United
States (BUS) expire in 1811, hundreds of
state chartered banks sprang up, all eager
to lend.
Then, in 1815, a volcano half-way
around the world in the Dutch East Indies
1894 Puck cartoon titled, “Another Hide to Be Taken,” which shows a wolf wearing a red cape labeled “Hard Times 1893,” standing on a rock outside a gate labeled
“US” with Uncle Sam standing inside the gate and pointing a rifle labeled “Business Revival” at the wolf. Hanging on the wall of a building in the background are
hides labeled Hard Times 1819, Hard Times 1837, Hard Times 1857 and Hard Times 1873. Columbia, carrying a rifle labeled “Prosperity,” is rushing to aid Uncle Sam.
www.MoAF.org | Spring 2019 | FINANCIAL HISTORY 25