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Panic of 1857
"In the life of a nation, every year has its failures and disappointments, but 1857 had more than its share." ~ Kenneth M. Stampp[footnoteRef:1] [1: Stampp, Kenneth M. America in 1857 a Nation on the Brink. New York: Oxford UP, 1990. Print.]
There have been many times in American history where the people of the country gave into fear and paranoia and subsequently made what could have been a minor difficulty into a crisis of epic proportions. During the middle of the 19th century, several incidents occurred which had a decidedly negative effect on the American economy and the nation's moral overall. The economic setbacks followed by the discovery that several executives in charge of government finance were corrupted caused American citizens to turn against the nation's authority figures. This feeling of distrust, accompanied by the panic of an unstable economy laid the groundwork for the American Civil War and nearly tore the United States of America asunder.
A year after the Panic of 1857, banker Robert Morris wrote the book The Banks of New York Their Dealers, the Clearing House, and the Panic of 1857. In this book, he illustrated what it was like for someone working in the financial industry to live through the crisis, but also used the publication to explain to the American people what a banking system was supposed to be and why it was integral. He wrote:
A bank is simply a plan of organizing capital, by which the full benefits of it are secured. The separate means of individuals are united together, and a large sum thus constituted, which is hired out on interest to those who need it. This combination, and the manner of its use, may be compared to a dam across a valley, and the accumulation in one body of the water of the separate springs, which otherwise would be of little service; but being united, they form a propelling power for extensive machinery. Without the organization of capital in some form, a community must remain in comparative barbarism. The few who possess wealth above their wants must either send it away for investment where it would enrich other places, or it would for the most part lie dead, while the poor would continue in ignorance and drudgery. A public school, a library, or a church, would be impossible without combination. It is therefore a social necessity to organize capital, and communities thrive in proportion as this organization is affected. They prosper, not only in material substance, but in education and morals (Morris 12).[footnoteRef:2] [2: Morris, Robert. The Banks of New York Their Dealers, the Clearing House, and the Panic of 1857, with a Financial Chart. New York: D. Appleton &, 1858. Print.]
After a financial crisis wherein the banks came out the villain, Morris and other economists tried to remind that American people that the banks served an important function in society and should be entrusted despite the incidents.
The Panic of 1857 began as an economic crisis stemming from the decline of the purchase of agricultural goods exported from the United States into foreign countries. With less and less money coming into the country from outside sources, more and more stress was being placed on the internal economy (Huston 4).[footnoteRef:3] Part of this was because during the Crimean War, Russian agriculture was cut off from Western Europe which led to a greater need for imports of vegetation from the United States. After the war ended, this agricultural boon came to a screeching halt as foreign countries began purchasing fruits, vegetables, and other agricultural goods from the East at a cheaper price (McPherson 189).[footnoteRef:4] Short-sided farmers and plantation owners failed to consider that this windfall may not be a permanent situation. Many people had gotten loans in order to buy more lands to plant crops in expectation of further sales, found themselves insolvent when the Crimean War ended and they had fewer buyers for their product. [3: Huston, James L. The Panic of 1857 and the Coming of the Civil War. Baton Rouge: Louisiana State UP, 1987. Print.] [4: McPherson, James M. Battle Cry of Freedom: the Civil War Era. New York: Oxford UP, 1988. Print.]
In the Southern states, all agriculture came from plantations which utilized slave labor. There was a growing movement in the United States were Abolitionists were trying to make the keeping of slaves illegal. In the American south, there were approximately four and a half million slaves, constituting one-third of the region's population. "Not only did the slaves constitute about one-third of the South's total population, they also represented an investment of roughly three billion dollars. That southern slavery stood for such a large portion of the South's inhabitants, involved such huge amounts of capital, and accounted for so much of the region's income, were more than ample reasons for southerners to defend the institution" (Huston 6).[footnoteRef:5] Questions over moral right or wrong were marginalized when compared to the consideration of financial and economic concerns. The American south had too much to lose economically if slavery were abolished. Given that the nation was already in a position of economic distress, the Southerners were even more against even discussing the topic of abolition. According to Edward Ayers: [5: Huston, James L. The Panic of 1857 and the Coming of the Civil War. ]
Southerners blamed northern financiers for brining on the Panic of 1857. Though the whites and free black working people of southern cities suffered along with their counterparts in the North, white Southerners bragged their region quickly recovered from the panic. They also boasted that their slaves, unlike white workers, never starved or went without a roof over their heads (337).[footnoteRef:6] [6: Ayers, Edward L. American Passages a History of the United States. New York [u.a.: Wadsworth, 2007. Print.]
The arguments over which part of the country were more adept at handling the financial crisis would spur on discussions between Abolitionists and Anti-Abolitionists over the question of the ethicality of slavery.
The Panic of 1857 was not the first in American history. In the first half of the 19th century, the average American citizen began to treat banks and the economic banking system with a degree of suspicion. According to historian James L. Huston:
As a result of banking troubles in the first half of the nineteenth century, the public perceived of and treated financial institutions differently from other business pursuits. Whereas ironmongers, textile owners, and farmers were generally left to their own devices with regard to labor policies and production techniques, state governments attempted to goad bankers into prudent behavior. Few Americans heeded the arguments of economic theorists that the law of supply and demand would regulate the issuance of currency just as surely as it determined the price of textile products. Banking operations seemed altogether mysterious to many citizens, and not a little sinister, and numerous Americans demanded that the financial community be regulated (Huston 1).[footnoteRef:7] [7: Huston, James L. The Panic of 1857 and the Coming of the Civil War. ]
It became the states, not the federal government that controlled the banks and consequently laws that would regulate one state's banking policies would be inapplicable in another state. Twenty years before the panic of 1857, the United States had another financial crisis which was based on the fact that each state not only regulated their banks, but had the power to print their own money rather than a uniform nationwide currency.
The rectifications made after the 1837 crisis were largely what would create problems later on. Newly settled lands brought in more wealth to the government and gold prospecting created a class of the newly wealthy. These individuals, having lived through the financial crisis of the past generation were reluctant to trust in banks or other corporations which dealt in large sums of money. Their lack of faith is what directly led to the 1857 panic and the ruin of many of these newly-rich people (Ticker 89).[footnoteRef:8] In 1857, there were few or no laws regarding depositing funds and withdrawal. A depositor could place as much money as they liked in the bank and then withdraw however much of that amount at any time (Leavitt 93).[footnoteRef:9] The bank would utilize cash on hand to make loans or to perform other transactions. The danger here was that when there would be a run on the bank and a large group of people all demanded the return of their money at the same time; the bank would be left insolvent (Huston 3).[footnoteRef:10] Without cash on hand enough to cover all the depositors, the bank would have to close due to bankruptcy. [8: The Ticker, Volume 1. Princeton, 1908. Print. ] [9: Leavitt, Samuel. Our Money Wars; the Example and Warning of American Finance. Boston: Arena Pub., 1894. Print.] [10: Huston, James L. The Panic of 1857 and the Coming of the Civil War. ]
Although there had been economic crises in the United States before 1857,…[continue]
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