"Hey Brother Can You Spare a Dime?"
By Miriam B. Medina


Part I
The Panic of 1819

Words such as Panics, Depressions and Economic Crisis were commonly used to describe periods of financial upheavals, occurring at  regular intervals, whose practices would have a devastating effect upon the entire nation as a whole.

While some were short-lived , those of long term were more complex. After the worst of the crisis was over, it would be back to business as usual, resuming its former prosperity and growth until a new economic crisis would eventually occur.

The United States has passed through several notable crisis, such as the ones in 1815,1819,1837, 1857,1869, 1873, 1893, 1901 and 1907, with the exception of 1837, 1893 and 1929.These years were defined as "major depressions because of the depth and duration of the collapse which occurred in American History."

Most of these panics would begin in New York City at the Stock Exchange and soon spread across the entire nation, leading to the closing of banks, businesses, mortgage forfeitures and not to mention mass unemployment as well.

Since a more in-depth analysis on the causes and effects of the abovementioned panic years is amply covered by available literature it will not be explored here.

However I will reflect briefly on the years of 1812-1819 which includes the Panic of 1819, before proceeding to the roaring twenties culminating in the Great Depression.

The Panic of 1819: A Brief Overview

Small scale family farming dominated America from early 17th century to the end of the 19th century. Prior to acquiring a market-economy status, most farmers managed to cultivate enough crops to sustain a healthy family. These farmers worked hard and usually did their own back-breaking job of clearing and preparing the land for cultivation. Occasionally some friends or other relatives would come over and give a helping hand. Farmers led simple lives by growing the crops that grew best on their small land holding and bartered their excess produce for their other needs... Families made their own clothes, candles, utensils and even simple tools. Though agriculture played an important role in early America, there also existed manufacturing and trading characterized by small-scale family-run or one man businesses. The manufacturers were skilled craftsmen and artisans, such as blacksmiths, cobblers, shoemakers, printers, tailors, carpenters and hatters.

Boston, in 1807, had a population of about thirty thousand, and the commercial position of the city was relatively much greater than other cities. The foreign trade of the United States was enormous, and was carried on in American ships. The total tonnage of American shipping engaged in this trade was seven hundred thousand tons, and of this Boston possessed a fair share. Her domestic trade was also important.  "The merchants of Boston had then high places in the estimation of the world. The Perkinses, the Sargeants, the Mays, the Cabots, the Higginsons, and others, were known throughout the world for their integrity, their mercantile skill, and the extent and beneficial character of their operations.(8)

The war conditions of 1812 accelerated the growth of domestic manufacturers and trade...Capitalism was flourishing and the working class grew. Textile factories began to expand to New England, New York and Pennsylvania. Waltham mills in Massachusetts was established in 1814 by Francis Lowell and Paul Moody.. "This was the first mill in the United States, and one of the first in the world, to combine under one roof all the operations necessary to convert raw fiber into cloth, and it proved a success. So great were the profits at Waltham that the Boston Associates  (the group of Boston investors that joined with Lowell) soon looked for new sites, first at East Chelmsford (renamed Lowell), and then Chicopee, Manchester, and Lawrence. (1)

"On the 15th of February, 1815, an effort was made to re-establish for the second time a United States Bank. It was authorized on the 10th of April 1816, the Act permitting the formation of a company, with a capital of $35,000,000, divided into 350,000 shares of $100 each, of which the Government took 70 shares and the public 180,000 shares. These last were payable in $7,000,000 of gold or silver, of the United States of North America, and  $21,000,000 in like money, or, in the funded debt of the United States either in the 6 percent. It had no right to contract any debt greater than $35,000,000, more than its deposits, unless by special act; the directors were made responsible for every violation, and could be sued by each creditor. The bank could lend no more than $500,000 to the United States, $50,000, to each state, and nothing to foreigners." (9)

Many immigrants from Europe which included German craftsmen and artisans would choose to leave their country on a temporary nature seeking better economic opportunities elsewhere before returning home. However, those that ventured to America prospered economically, thriving in the relatively free American atmosphere of economic experimentation and competitive spirit. They would remain in their adopted country. The Europeans settled in areas where farm land was reasonably priced. The majority of the German craftsmen and artisans settled in the states of Ohio, New Jersey and Pennsylvania as well as the cities of Pittsburgh, Cincinnati, Indianapolis, Louisville, Chicago, New York, Philadelphia and Baltimore.

Germans became high profile businessmen and shopkeepers specializing in fields such as distillers, bakers, butchers, breweries, cabinet makers, blacksmiths, shoemakers, typesetters and printers. The women would dedicate themselves to domestic services.

By the late 1810s Cincinnati had breweries that turned 50,000 bushels of barley into beer in 1815. Added to their productions were lumber, glass, iron casting and cloth in growing quantities. Ohio had by the late 1810s 28 banks which included two branches of the national bank of the United States. Manufacturers, lawyers and wealthy merchants dominated high society and politics. (2)

About thirty thousand multi-ethnic immigrants from Europe entered the United States in 1818 alone. The cheap lands in the Ohio territory attracted large numbers of immigrants. There were also large flour mills that supplied the European market.

Public land sales continued to be controlled by the Federal land offices established throughout the Northwest.  After the war of 1812, the "greatest westward migration in the history of the young nation " took place. Approximately 42,000 people are believed to have immigrated to Indiana in 1815 alone, and from 1810 to 1820, Indiana's population more than quintupled from 24,520 inhabitants to 147,178. (3)

The population explosion in the Northwest Territory was sufficient to allow the creation of five new states including Indiana. By 1819 twenty two states had entered the Union which were the following: Alabama (1819), Connecticut (1788), Delaware (1787), Georgia (1788), Illinois (1818), Indiana (1816), Kentucky (1792), Louisiana (1812), Maryland (1788), Massachusetts (1788), Mississippi (1817), New Hampshire (1788), New Jersey (1787), New York (1788), North Carolina (1789), Ohio (1803), Pennsylvania (1787), Rhode Island (1790), South Carolina (1788), Tennessee (1796), Vermont (1791), and Virginia (1788).

Farmers and land speculators purchased many acres of public land from the federal government, which they were able to do on credit. Speculators, would buy land as cheaply as possible on credit inflating the sale price to prospective buyers in order to make a profit.. Agricultural exports rose to $57 million in 1817, reaching a peak of $63 million in 1818. Benefiting from the boom period, In some instances, quite commonly, the farmer was a speculator as well. He would buy additional land for the sake of a quick profitable turnover, adding more to his crushing burden of accumulative bank debts. Bankers were extending credit with wild abandon, assuming that the boom would last forever. The banks benefited greatly through capital ventures and speculative lending. Stock traders, bankers, and auctioneers all were filling their coffers, with the rewards of their services.

Farmers and speculators primarily used the loans to purchase federal land in the American West. When the economic crisis came in 1819, thousands of overextended farmers and laborers found themselves badgered by the frantic creditors demanding their money. Merchants in the big cities rushed to liquidate their assets  to pay the debts owed to foreign creditors. They in turn would  put the squeeze on the smaller merchants and the shopkeepers for payment on  merchandise which they purchased on credit. Finally, it was the farmers turn, to cough up the money which he didn't have. The  falling crop prices and shortage of currency made it impossible for them to repay the banks. This resulted in the loss of their property. Those who had purchased high-priced public land on credit during the boom time when cotton and grain prices were high, were saddled with a tremendous debt facing forfeiture of their land to the federal government.

"Reversions of land to the United States in 1819 totaled 365,000 acres, of which 153,000 were located in the Northwest Territory. The following year, the unpaid balance due on land sales reached more than $21 million, an amount equal to more than one-fifth of the total national debt. Of that amount, $6.6 million was for land in the Northwest. The situation was made more critical by a slump in agricultural prices." (3)

As a consequence of non-payments on the loans, state chartered banks began collapsing.

 The wage of the agricultural worker in Massachusetts went from 60 cents a day in 1811 to fifty-three cents in 1819. The unskilled laborers that worked on the turnpikes were paid 75 cents a day in early 1818 and reduced to 12 cents a day in 1819.  (4) The chief difficulty of the panic of 1819 was the scarcity of ready money. In order to acquire the items which they needed to survive, the farmers and local inhabitants would resort to bartering.

 Factory owners in the United States had a difficult time competing with earlier established factories in Europe. Many American people could not afford the factories' goods due to the lack of money in circulation.  Spurred by economic distress in wake of the Panic of 1819 wealthy factory owners experiencing monetary difficulties would be forced to shut down, leaving skilled craftsmen, mechanics and other artisans unemployed.

Imprisonment for debt was a common punishment during the early 19th century. The debtor's prison overflowed and the courts of justice were not able to look after their cases. The plight of debtors in the west was well expressed by William Greene, secretary to Governor Ethan Allen Brown of Ohio, in a memorandum to the governor in April 1820:

 "One thing seems to be universally conceded that the greater part of our mercantile citizens are in a state of bankruptcy that those of them who have the largest possessions of real and personal estate.....find it almost impossible to raise sufficient funds to supply themselves with the necessities of life that the citizen of every class are uniformly delinquent in discharging even the most in fling of debts. " (5)

During the panic of 1819, real estate had depreciated to about half of its value. "In New York State, property values fell from $315 million in 1818 to $256 million in 1820. In Richmond, property values fell by half. In Pennsylvania, land values plunged from $150 an acre in 1815 to $35 in 1819. In Philadelphia, 1,808 individuals were committed to debtors' prison. In Boston, the figure was 3,500."  (6)

The Pittsburg Telegraph published a review telling the story of the disaster that befell the trade that year: 1819

"Fortunes were wiped out in a day, speculative companies that stood everywhere thick as shocks in a wheat field, vanished magically, and shareholders were aghast; suburban lands and city lots that were to return a hundredfold dropped to almost worthlessness. As an example of the effect of the panic on real estate here, an old citizen says that land on Boyd's Hill held at $2,000 and more dropped to $100: lots on Forth avenue held at $2,000 fell to $100; property in the region of Market-street, on which were good brick houses, only partly paid for, were wholly abandoned, as property quite as good could be bought for less than the sums due on these. But the United States Bank with its capital of $35,000,000 weathered the storm and by furnishing the country again with a stable currency of uniform value, won back coy confidence, and again compelled the State banks to go into liquidation, or to raise the value of the notes to the standard of the national bank notes."  (7)


(Continue with Page: 2  Part I: The Panic of 1819)

 

_____________Footnotes__________________

1. About.com: Inventors "The Textile Revolution"
http://inventors.about.com/od/indrevolution/a/Francis_Lowell.htm

2. Cayton, Andrew R. L.; Ohio, the History of a People; Columbus: Ohio State University Press, 2002.

3. Lincoln Boyhood: Settlement and Immigration.
http://www.nps.gov/archive/libo/hrs/hrs5a.htm

4. Rothbard, Murray; " The Panic of 1819:  Reactions and Policies (1962)  (The 209 page book is based on his doctoral dissertation which he wrote for his Ph.D. in economics at Columbia University during the mid-1950s.)

5.  Rothbard, Murray; " The Panic of 1819:  Reactions and Policies (1962)  Page: 15

6." The Era of Good Feeling"
http://www.digitalhistory.uh.edu/database/article_display.cfm?HHID=574

7. New York Times August 20, 1878

8. McCabe, James Dabney: Great Fortunes, and How They Were Made 1842-1883; George Maclean, Philadelphia, New York and Boston 1871.

9. Juglar, Clement; "A Brief History of Panics and Their Periodical Occurrence in the United States; Gutenberg Books 1889

Photo Credit: Library of Congress Prints and Photographs Division Washington, D.C. 20540 USA  LC-USZC4-591 "The War of Wealth"

 

 

 

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