On this day in 1857, the New York branch of the Ohio Life Insurance and Trust Company (OLITC) failed, an event often (dis)credited with starting the Panic of 1857. But of course the Panic didn’t really begin there; as with all major financial catastrophes the story is more complicated than it initially appears.
For the origins of the 1857 meltdown, one might look abroad, to the Crimean War, which, starting in 1854, cut European markets off from Russian grain. American exporters rushed to fill the gap, leading to a speculative frenzy in Western lands. By 1856, a brewing specie crisis began causing profound unease in American markets. Summing up the mood of the day, a writer at the New York Tribune asked, “What can be the end of all this but another general collapse like that of 1837?”
Against that backdrop, on August 24, 1857 word spread that a cashier had embezzled money from the OLITC, and that the investment house, lacking funds, would have to suspend payments. With telegraph wires crisscrossing the United States, panic soon gripped the nation, and depositors made runs on banks throughout the country. Those banks had to call in loans to obtain hard currency. Then, shortly after a sell-off devastated Wall Street in September, a ship carrying $2 million from the California gold fields sank in a storm. By October, banks nationwide had suspended specie payments. Commodity prices plummeted, factories shut their doors, railroads declared bankruptcy, hundreds of thousands of people lost their jobs, and land prices deflated. As the economy ground to a halt, immigration dropped in 1858 to its lowest level in more than a decade.
In the end, the Panic of 1857 didn’t last long. By early 1858, the economy had begun to recover. But the political implications of the downturn endured. Republicans tarred Democratic opponents with the Panic brush. It seemed like an odd charge. Democrats, historically, had opposed banking interests — most notably during Andrew Jackson’s assault on the Bank of the United States. But Republicans turned the tables, arguing that a central bank would have kept local banks on a shorter leash, cooling speculative fires in the West. Republicans also insisted that Democrats opposed a variety of policies that would have either helped avoid the Panic or aided its victims — higher tariffs, a homestead act, a Pacific railroad act, and land grants to states that hoped to establish public universities — because they were beholden to the Slave Power. In the conspiratorial political culture of the day, the Panic of 1857 thus moved the nation one step closer to civil war.
9 comments
August 24, 2009 at 11:58 pm
ekogan
More on the causes of the Panic of 1857.
From the Wikipedia entry on the Dred Scott decision:
Activist Judges! Activist Judges!
And on the sunken ship of gold the SS Central America
Too bad they didn’t have shipfax.com in those days.
August 25, 2009 at 12:59 am
ari
I steered clear of Dred Scott, ekogan. I’m just not sure I buy that the link between Taney’s decision and the Panic was that overt. As for the relative merits of Northern versus Southern banks, I haven’t a clue.
August 25, 2009 at 1:04 am
Uncle Billy the Un-Cunctator
“In the conspiratorial political culture of the day…”
Meanwhile, 150 years later.
August 25, 2009 at 1:08 am
ari
Plus ça change, UBtUC.
August 25, 2009 at 3:09 am
Uncle Billy the Un-Cunctator
Ouai, plus c’est la même persiflage
August 25, 2009 at 5:39 am
Ahistoricality
Economist Charles Calomiris and historian Larry Schweikart discovered…
Schweikart? Author of the “Patriot’s History of the United States?” And people wonder why we don’t trust wikipedia.
August 25, 2009 at 6:00 am
kid bitzer
a lotta b.s.
everybody knows what caused the panic of 1857.
excess government regulation.
August 25, 2009 at 7:25 am
Western Dave
Both J. Mills Thornton and Lacy Ford argue that 1857 was key for turning Southern non-slaveholders towards secession because their credit was cut off from their relatively new engagement with the market economy causing massive disaster and resentment against the North. Southern banks may have been okay, but the plain folk were devastated.
August 25, 2009 at 8:44 am
PorJ
In the conspiratorial political culture of the day, the Panic of 1857 thus moved the nation one step closer to civil war.
Adding on to Western Dave’s comment – isn’t there an argument out there that the value of cotton (which remained steady while everything fell) emboldened southern politicians in their “King Cotton” strategy? I thought I read an argument for comps that said, basically, the Panic of 1857 increased (relatively) the strength of cotton as an international commodity, which led to more Southern political recalcitrance and tightened the bonds between the South and New York City, where a lot of speculative investment looking for safe harbor moved into the cotton trade (which would later explain Mayor Wood’s threats of secession in 1860-1861). I could be completely mistaken and will defer to experts.