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Panic of 1857

Bank run on the Seamen's Savings' Bank during the panic of 1857

he Panic of 1857 was a financial panic in

e United States caused by the declining

ternational economy and over-expansion

the domestic economy. Indeed, because

the interconnectedness of the world

onomy by the time of the 1850s, the

nancial crisis which began in the autumn

1857 was the world's first world-wide

onomic crisis.[1]

In Britain, the

almerston government circumvented the

quirements of the Peel Banking Act of

844 which required gold and silver

serves to back up the amount of money in circulation. This circumvention set off the Panic in Britain.[2]

Beginnin

September 1857, the financial downturn did not last long; however, a proper recovery was not seen until th

merican Civil War.[3] After the failure of Ohio Life Insurance and Trust Company, the financial panic quickl

read as business began to fail, the railroad industry experienced financial declines and hundreds of workers wer

id off.[4]

Since the years immediately preceding the Panic of 1857 were prosperous, many banks, merchants, an

rmers had seized the opportunity to take risks with their investments and as soon as market prices began to fa

ey quickly began to experience the effects of financial panic.[3]

Causes

the early 1850s, there was much economic prosperity in the United States. However, in the beginning of 1857, th

uropean market for goods from western America began to decline, which caused western bankers and investors

come wary. Eastern banks became cautious with their loans to the west and some even refused to accept wester

rrencies.[5]

Prior to 1857, the railroad industry was booming due to vast migrations of people to the wes

pecially in Kansas. With the large influx of people moving, the railroads became a profitable industry and th

anks seized the opportunity and began to provide railroad companies with large loans. However, by late summe

e value of western land fell and migration drastically slowed causing railroad securities to fall in value.[6]

By th

ring, commercial credit had dried up, forcing already debt-ridden merchants of the West to curtail new purchase

inventory.[5]

As a result of limited purchasing in the west, merchants around the country began to see decrease

sales and profits.[5]

The railroads had created an interdependent national economy, and now an econom

ownturn in the West threatened [an] economic crisis.[5]

Since many banks had financed the railroads and lan

ing purchased, they began to feel the pressures of the falling railroad securities. The Illinois Central; Eri

ttsburgh, Fort Wayne and Chicago; and Reading Railroad lines were all forced to shut down owing to the financi

ownturn. The Delaware, Lackawanna and Western and the Fond du Lac Railroad Companies were forced to decla

ankruptcy.[5]

The Boston and Worcester Railroad Company also experienced heavy financial difficulties. Th

mployees were informed, in a memo written in late October 1857, the receipts from Passengers and Freight hav

llen of during [the] last month (as compared with the corresponding month of last year), over TWENT

HOUSAND DOLLARS, with very little prospect of any improvement during the coming winter.[7]

The compan

so announced that their workers would receive a reduction in pay of TEN PERCENT.[7]

In addition to th

creasing value of railroad securities, farmers began to default on their mortgaged lands in the west, which p

ore financial pressure on banks.[5]

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he tipping point to really set the Panic of 1857 in motion was the failure of Ohio Life Insurance and Trust Compan

August 24. Ohio Life was an Ohio based bank with a second main office in New York City. The company ha

rge mortgage holdings and was the liaison to other Ohio investment banks. Ohio Life failed due to fraudulen

tivities by the companys management and its failure threatened the failure of other Ohio banks or even worse,

n on the banks.[6]

According to an article printed in the New York Daily Times, Ohio Life Insurance and Tru

ompanys New York City and Cincinnati [branches were] suspended; with liabilities, it is said, of $7,000,000.[

uckily, the banks connected to Ohio Life Insurance and Trust Company were reimbursed and avoided suspendin

nvertibility by credibly coinsuring one another against runs.[9]

The failure of Ohio Life brought attention to th

nancial state of the railroad industry and land markets, thereby causing the financial panic to become a more publ

ue.[6]

he prices of grain also decreased significantly and farmers of 1857 experienced a loss in revenue causing them int

reclose on recently purchased lands. Grain prices in 1855 had skyrocketed to $2.19 a bushel so farmers had begu

purchase land to increase their crop supply, which in turn would increase their profits. However, by 1858, grai

ices dropped severely to $0.80 a bushel.[5]

Many Midwest towns felt the pressures of the Panic. For example, th

wn of Keokuk, Iowa experienced financial strife due to the economic downturns of 1857.

A huge municipal debt magnified Keokuks problems. By 1858 the town owed $900,000, mostly on

railroad bonds, while the value of its taxable property dropped by $5.5 million. Lots that brought $1,000

before the crash now could not be sold for $10. Hard-hit property owners were unable to pay their taxes,

and thousands of properties slipped into tax delinquency.[5]

s a result of such price decreases, land sales declined vastly and westward expansion essentially halted until th

nic ended. Merchants and farmers both began to suffer for the investment risks they took when prices were high.[

he final event that led to the cause of the Panic of 1857 was the Supreme Court ruling in Dred Scott v. Sandford i

arch 1857. After Scott attempted to sue for his freedom, Chief Justice Roger Taney ruled that Dred Scott was not

izen because he was an African American and therefore did not have the right to sue in court. The ruling als

ade the Missouri Compromise unconstitutional and it was clear that the decision would have a lasting impact.[

on after the Dred Scott ruling, the political struggle between free soil and slavery in the territories began.[1

he western territories were now opened to the option of slavery and it was quickly evident that this would hav

astic financial and political effects. Kansas land warrants and western railroad securities prices declined slight

st after the Dred Scott decision in early March.[5]

This fluctuation in railroad securities proved that political new

out future territories called the tune in the land and railroad securities markets.[5]

Shortly after the Dred Sco

ling, the Panic of 1857 began to escalate to its peak.

emedies

y 1859, the Panic began to level off and the economy had begun to stabilize. President James Buchanan, aftenouncing that the paper-money system seemed to be at the root cause of the Panic, decided to withdraw the usag

all bank notes under twenty dollars. He also advised the State banks to break away from the banks [and urged

em to follow the example of the Federal Government.[11]

He felt this would decrease the paper money supply t

ow the species supply time to increase and reduce inflation rates. President Buchanan wanted the State banks t

llow the Federal Government specifically with the Independent Treasury System. This system allowed the Federa

overnment to keep up with specie payments, which helped alleviate some financial stress that the bank suspension

d brought on.[5]

In December of 1857, Buchanan revealed his new strategy of reform not relief, which focuse

the idea that the government sympathized but could do nothing to alleviate the suffering individuals.[12]

T

oid further financial panics, President Buchanan encouraged the United States Congress to pass a law to providimmediate forfeit of a bank charter in the event that the bank suspended specie payments. He also asked sta

nks to keep one dollar in specie for every three issued as paper and discouraged federal or state bonds to be used a

curity on a bank note to avoid future inflation.[12]

Additionally, the Tariff of 1857 was enacted. It was enacted as

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vision of the Tariff of 1846, which had, been slowly destroyingthousand[s] of industrial enterprises.[13]

Th

ariff of 1857 lowered the tax on the items from the Tariff of 1846, yet the tax was still in favor [of] the America

dustry to help improve the economy.[5]

Results

s a result of the Panic of 1857, the southern economy suffered little whereas the northern economy made a slo

covery. The area affected the most by the Panic was the Great Lakes region and the troubles of that region wer

uickly passed to those enterprises in the East that depended upon western sales.[14]

In about a year, much of thonomy in the north and the entire south recovered from the Panic.

[15]Near the end of the Panic, in about 185

nsions between the north and south regarding the issue of slavery were increasing. The Panic of 1857 encourage

e southern idea that the north needed the south to keep a stabilized economy and southern threats of secession we

mporarily quelled. Southerners believed the Panic of 1857 made the north more amenable to southern demand

hich would help to keep slavery alive in the United States.[14]

Notes

See the "Preface" contained in the Collected Works of Karl Marx and Frederick Engels: Volume 28 (International Publishers: New York,

1986) p. XIII.

See note 238 contained in the Collected Works of Karl Marx and Frederick Engels: Volume 12 (International Publishers: New York, 1979) p

669-670.

Glasner, David (1997).Business Cycles and Depressions: An Encyclopedia. USA: Library of Congress. pp. 128132. ISBN 0824009444.

"A House Divided" (http://hd.housedivided.dickinson.edu/node/9600). Dickinson College. . Retrieved 2011-03-04.

Ross, Michael A..Justice of Shattered Dreams: Samuel Freeman Miller and the Supreme Court During the Civil War Era. Baton Rouge:

Louisiana State University Press, 2003. p. 41. ISBN 0807128686.

Calomiris, Charles W.; Schweikart, Larry. The Panic of 1857: Origins, Transmission, and Containment. The Journal of Economic History,

1991. pp. 808810. JSTOR 2123394.

Twichell, G..Labor Relations in 1857. Bulletin of the Business Historical Society, 1937. p. 28. JSTOR 3110999.

"Commercial Affairs,". New York Daily Times. Aug 28 1857. p. 8.

Calomiris, Charles W.; Schweikart, Larry. The Panic of 1857. p. 809. JSTOR 2123394.

0] Calomiris, Charles W.; Schweikart, Larry. The Panic of 1857. p. 816. JSTOR 2123394.

1] Rezneck, Samuel (1968).Business Depressions and Financial Panics. Connecticut: Greenwood Publishing Corporation. p. 113.

ISBN 0837115019.

2] Klein, Philip Shriver (1962).President James Buchanan. Pennsylvania: The Pennsylvania State University Press. pp. 314315.

ISBN 0271730935.

3]3] "A New Tariff". New York Daily Times. Feb 4, 1857. p. 4..

4] Huston, James L. (1987). The Panic of 1857 and the Coming of the Civil War. Baton Rouge: Louisiana State University Press. p. 262.

ISBN 0807113689.

5] Huston, James L. (1983). Western Grains and the Panic of 1857. Agricultural History. p. 32. JSTOR 3742656.

ibliography

A New Tariff. New York Daily Times, Feb 4, 1857. Accessed November 2, 2010. http://proquest.umi.com/

pqdweb?did=77070145&Fmt=10&clientId=44880&RQT=309&VName=HNP

Calomiris, Charles W.; Schweikart, Larry. The Panic of 1857: Origins, Transmission, and Containment. The

Journal of Economic History, 1991. pp. 807834. JSTOR 2123394.

Commercial Affairs. New York Daily Times, Aug 28, 1857. Accessed November 2, 2010. http://proquest.umi.

com/pqdweb?did=78505128&Fmt=10&clientId=44880&RQT=309&VName=HN

Dickinson College. House Divided. Accessed October 30, 2010. http://hd.housedivided.dickinson.edu/node/

9600.

Glasner, David, ed. Business Cycles and Depressions: An Encyclopedia. Library of Congress

Cataloging-in-publication data, USA. 1997.

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Huston, James L. The Panic of 1857 and the Coming of the Civil War. Baton Rouge: Louisiana State University

Press, 1987.

Huston, James L. Western Grains and the Panic of 1857. Agricultural History 57, no. 1 (1983): 14-32. Accesse

October 30, 2010. http://www.jstor.org/stable/3742656.

Klein, Philip Shriver. President James Buchanan. Pennsylvania: The Pennsylvania State University Press, 1962.

Rezneck, Samuel. Business Depressions and Financial Panics. Connecticut: Greenwood Publishing Corporation,

1968.

Ross, Michael A. Justice of Shattered Dreams: Samuel Freeman Miller and the Supreme Court During the CivilWar Era. Baton Rouge: Louisiana State University Press, 2003.

Twichell, G. Labor Relations in 1857. Bulletin of the Business Historical Society 11, no. 2 (1937): 28-29.

Accessed October 30, 2010. http://www.jstor.org/stable/3110999.

Visit to Dred Scott, 1857, Library of Congress, http://www.loc.gov/pictures/item/2002707034/.

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