Panic of 1857

The Panic of 1857 was a sudden downturn in the economy of the United States that occurred in 1857. The downturn was brief and the recovery strong, so that the impact was small. Over 5,000 businesses failed within a year. Unemployment was accompanied by protest meetings in urban areas.

Causes

The recession ended a period of prosperity and speculation that had followed the Mexican-American War and the discovery of gold in California in the late 1840s. Gold pouring in the economy played its part by helping inflate the currency. The immediate event that touched off the panic was the failure on August 24 of the New York City branch of the Ohio Life Insurance and Trust Co., a major financial force that collapsed following widespread embezzlement. In the wake of this event, a series of other setbacks shook the public's confidence, including:

• The decision of British investors to remove funds from U.S. banks, which raised questions about overall U.S. economic soundness
• The fall of grain prices, which spread economic misery into rural areas, because of the end of the Crimean War and Russian re-entry into global markets
• The collapse of land speculation programs that depended on new rail routes, ruining thousands of investors

Investor confidence was further shaken in mid-September when 30,000 pounds (13,500 kg) of gold were lost at sea in a shipment from the San Francisco Mint to eastern banks. The gold and more than 400 lives were lost when the SS Central America sank during the North Carolina Hurricane of 1857. Public confidence in the government's ability to back its paper currency with specie was shaken as well.

However, recent research by Charles Calomiris and Larry Schweikart has suggested that the political fallout of the Dred Scott decision, which threatened to open up all of the western territories to slavery. As a result, the bonds of east-west running railroads plummeted (but not those of the north-south railroads) and when those bond assets collapsed, it provoked a run on the major New York banks.

Remedies

At the suggestion of Howell Cobb, Secretary of the Treasury, President James Buchanan proposed to Congress that the Treasury be authorized to sell revenue bonds for the first time since the Mexican-American War.

In October, a bank holiday was declared in New England and New York in a vain effort to avert runs on those institutions. Eventually the panic and depression spread to Europe, South America and the Far East. No recovery was evident in the United States for a year and a half, and the full impact did not dissipate until the American Civil War.

The Tariff Act of 1857 that followed reduced the average rate to about 20% — another reduction that was warmly greeted in the South and roundly derided in the North. The tariff was one of several major issues that was dangerously increasing the tension between the two regions.

The South was much less hard-hit than other regions because of the stability of the cotton market.

See also

• Panic of 1819
• Panic of 1837
• Panic of 1873
• Panic of 1884
• Panic of 1890
• Panic of 1893
• Panic of 1896
• Panic of 1901
• Panic of 1907
• Panic of 1910-1911

Further reading

• Charles Calomiris and Larry Schweikart, "The Panic of 1857: Origins, Transmission, Containment," Journal of Economic History, December 1990, 807-834.
• Huston, James L. The Panic of 1857 and The Coming of the Civil War (1987)
• Stampp, Kenneth. America in 1857: A Nation on the Brink (1990) (ISBN 0-19-503902-5)