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The Panic of 1857 was a notable 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 five thousand 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 War and the discovery of gold in California in the late 1840s. Gold pouring in 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 massive 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 soundness
- The fall of grain prices, which spread economic misery into rural areas due to the end of the Crimean War and Russian re-entry into global markets
- Russia's underselling of U.S. cotton on the open market (although the cotton market was not hit nearly as hard as others);
- The piling up of manufactured goods in warehouses, leading to layoffs
- Widespread railroad failures, indicating an over-built status of the American railroad system
- The collapse of land speculation programs which depended on new rail routes, ruining thousands of investors
Investor confidence was further shaken in mid-September when 30,000 pounds of gold were lost at sea in a shipment from the San Francisco Mint to eastern banks. 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.
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 percent — another reduction that was warmly greeted in the South and roundly derided in the North. The tariff was one of a number of 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.
Further reading
- 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 0195039025)
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
"Panic of 1857"