2. Students of economic history in the early American republic often equate the Panic of 1819 with the name Murray Rothbard, the famous libertarian economist who wrote the definitive account of this subject as his 1962 doctoral dissertation.
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3. After nearly six decades, we finally have an update in Andrew Browning’s The Panic of 1819: The First Great Depression, the publication of which fell on the 200th anniversary of this watershed event.pic.twitter.com/r590A2linA
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4. In this ambitious and lively narrative, Browning argues that the panic “gave the country its first experience of nationwide waves of bankruptcies, business failures, foreclosures, and unemployment” (p. 3).
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5. Earlier crashes, he says, had mostly affected the wealthy. But by 1819, the economy was more connected through interregional and global networks. This depression was noteworthy for afflicting all economic classes and regions
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6. Most readers would naturally be interested in what caused the panic. And Browning spends a lot of time on this topic. He begins with Napoleon.
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7. Thomas Jefferson's 1803 deal with the French emperor for the Louisiana Purchase was a steal by any measure, but the United States lacked the hard currency to pay up front. Here's a political cartoon from a Federalist perspective.pic.twitter.com/IjEwBUgU3V
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8. So the U.S. would have to borrow money. Accordingly, the U.S. Treasury borrowed $11.25 million from domestic and foreign investors by issuing bonds bearing six percent interest (p. 20). The U.S. would have to pay the first installment in gold to France by December 1818.
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9. The Second Bank of the United States (BUS), recently chartered in 1816, served as the chief fiscal agent of the Treasury. This meant that the BUS helped manage the way in which the federal government collected and distributed public revenue.pic.twitter.com/NM8glUfaW8
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10. Since the Louisiana Purchase was a public expenditure, the BUS would have to come up with this money. As Browning writes, this was an immense challenge involving last-minute negotiating.
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11. Napoleon's rule came to an end at the hands of the British and their allies in 1815, but the British soon found themselves mired in a post-war depression. Fears of social and economic unrest rippled throughout the community.
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12. To keep their factories operating and prevent further militancy among the ranks of the unemployed, British business leaders started producing and exporting large quantities of manufactured goods, dumping them on American shores.
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13. While American consumers welcomed access to cheap goods, producers sought protection from job losses through higher tariffs. It is here, in New England and the mid-Atlantic states in 1815 and 1816, that Browning identifies some of the first warnings of panic.
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14. The post-war slump that struck the Northeast would eventually spread to cities like Pittsburgh and down the Ohio River to Lexington, Kentucky, harming nascent manufacturing sectors in the areas (p. 40-43).
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15. In the meantime (we're still talking about the panic's causes here), a number of different factors were coming together to inflate a land bubble in the West. First, there was a *MASSIVE* volcano eruption in the Dutch East Indies, now Indonesia.
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16. The eruption was 100 times more violent as the eruption of Mt. St. Helens in 1980. It created a thick atmospheric haze so disruptive to global weather systems that 1816 was remembered as “the year without a summer.”
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17. Freakish weather events led to poor wheat harvests in Europe, which in turn raised prices (p. 75). New England farmers, repelled by unusually cold temperatures and attracted by the prospect of profiting from high prices, moved West in large numbers to buy cheap land.
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18. What role did banks play in causing the panic? Well, their excessive lending helped inflate the bubble. There was an explosion in the number of banks between 1810 and 1820. The First BUS failed to secure a new 20-year charter in 1811.
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19. There was no longer any restraining influence on state banks in the absence of the 1BUS, which had acted as a central bank in some respects.
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20. At the Constitutional Convention in 1787, there were only 3 banks in existence. One of them was the Bank of North America in Philadelphia (here's my own photograph of a bank note from this institution, dated 1829). But by 1815 some 200 banks were in existence!pic.twitter.com/aW2w2s9cSM
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21. The high volume of bank loans in this era was tied to land and commodities like wheat and cotton. Federal legislation, in fact, helped encourage the boom. Browning doesn't emphasize this, but here is an example of govt institutions *shaping* markets (it's not a free market)
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22. A law passed in 1800 allowed farmers to buy land on credit for the first time at the low price of only two dollars per acre.
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23. The plan was for farmers to pledge one-quarter of the money they owed up front with the expectation that profits from the sale of commodities at high prices would allow them to comfortably pay back the remainder in four years (p. 93).
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24. As you might imagine, this plan can only work if commodity prices remained high and the bank notes farmers used to pay for their land retained their value, neither of which were true.
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25. Falling prices made it difficult, if not impossible, for farmers to meet their obligations while land offices and the Treasury Department were stuck with depreciated banknotes issued by western banks.
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26. Here is my own photograph of a $1 bank note issued by the Farming and Commercial Bank of Carlisle (Pennsylvania), dated November 24, 1819. If you look closely, it says chartered by the (PA) Legislature in 1818 and indeed, this relates to Browning's discussion.pic.twitter.com/tEVozoZ3BV
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27. Irresponsible practices at the BUS reinforced to this disorderly state of affairs (p. 109). During its early years, the BUS was chronically low on specie, which it needed to pay off the Louisiana Purchase, regulate the lending practices of state banks, and uphold the currency
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28. Why was the BUS low on specie? Because so many loans from its southern and western branches were fueling the boom in land and commodities.
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29. One of the ways in which the BUS lent was by issuing its own notes. Bank notes are credit instruments that circulate from hand to hand as cash. Look at the account book of any bank and you'll often see the column "circulation." That's the number of notes the bank issues.
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30. All the notes issued by the BUS branches eventually worked their way eastward through the regular course of trade, where merchants exchanged for them for specie. But this only depleted the Bank’s reserves and forced the institution to purchase gold and silver from abroad
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31. (As an aside, one of the things I'm trying to do here is walk the reader through this process, step by step. It can get very confusing if you don't know how this process works or if authors don't explain terms very well--looking at you one scholar in Louisiana)
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