Riding It Out On The Great Financial Roller Coaster - The United States" Early Panics: Part 2 of 4
In this 4 part series we will examine the rich history, no pun intended, of financial crises in the United States.
In part 1 of this 4 part series, we learned the definitions and terms used to explain financial crises in general.
Now we start with one of the most devastating financial crises to ever hit the U.
S.
, the panic of 1819, leading into the Roaring Twenties.
The Panic of 1819 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 raise enough crops to maintain a healthy family.
These farmers worked hard and generally did their own strenuous tasks of clearing and preparing their land for cultivation.
Though agriculture played a pivotal 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.
By 1807 the foreign trade of the United States was enormous, carried by American ships.
The total tonnage of American shipping engaged in this trade was seven hundred thousand tons, and of this tonnage Boston possessed a fair share.
Important merchants from Boston, such as the Perkinses, the Sargeants, the Cabots and the Higginsons, ranked high throughout the world thanks to their mercantile skills and their ethical character in regards to their operations.
Many of the ship owners, merchants and their associates had amassed immense fortunes during the Napoleonic wars beginning in 1804 as they provided supplies to an embattled Europe.
At President Jefferson's request to Congress, the embargo act of 1807 was passed wherein all U.
S.
ports were closed to export shipping from the U.
S.
It also restricted imports from Great Britain.
This act created a serious hardship for U.
S.
farmers as well as on New England and New York mercantile and maritime businesses.
The embargo of 1807 and the War of 1812 created a detrimental impact to our European trade.
This curbed the American merchant marine, leaving thousands of sailors without work.
New England, which had owned nearly half of the nation's ships, was able to avoid the economic disaster by switching to domestic industries such as cotton mills.
Among the first mills established were the Waltham Mills of Francis C.
Lowell.
The war conditions of 1812 accelerated the development of domestic manufacturers and commerce.
Capitalism was flourishing and the working class grew.
Textile factories began to expand to New England, New York and Pennsylvania.
The Waltham mill in Massachusetts was the first mill in both the United States and the world.
It combined under one roof all the necessary undertakings to convert natural fiber into cloth and it proved to be quite a success.
Many immigrants from Europe, including German craftsmen and artisans, would choose to leave their country on a temporary basis 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.
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.
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.
Farmers and land speculators purchased several acres of public land from the federal government, which they were able to purchase on credit.
Speculators would buy land as cheaply as possible on credit, inflating the sale price to potential buyers in order to make a profit.
Agricultural exports rose to $57 million in 1817 alone, reaching a peak of $63 million in 1818.
Benefiting from the boom period, quite commonly, the farmer was a speculator too.
He would purchase more land for the sake of a quick profitable sale, adding more to his accumulating bank debts.
Bankers were extending credit recklessly, assuming that the upturn would last forever.
The banks benefited enormously through capital ventures and risky lending.
Stock traders, bankers, and auctioneers all were filling their coffers with the rewards of their risky 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 frantic creditors demanding the repayment of their money.
Merchants in the big cities rushed to liquidate assets to pay the debts owed to foreign creditors.
They in turn would put the squeeze on smaller merchants and shopkeepers for payment on merchandise that had been purchased on credit.
Finally, it was the farmers turn to cough up money that he didn't have.
The falling crop prices and shortage of currency was making 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 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.
" As a result of nonpayment on loans, state-chartered banks began collapsing.
The primary difficulty of the 1819 panic was the absence of ready money.
In order to secure the items which they needed to survive the farmers and local inhabitants resorted 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 the wake of the Panic of 1819, wealthy factory owners experiencing monetary difficulties were forced to shut down, leaving skilled craftsmen, mechanics and other artisans without work.
"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.
" Real estate had depreciated to about half of its value.
During the Panic of 1819, financial hardship was suffered by all groups within the community, though the working group was not as hard-hit as those of great wealth.
Accustomed to a life where their earnings were scarcely more than sufficient to provide them a decent existence, they possessed little of considerable value.
Nevertheless, their suffering was not in any way less severe.
Unable to support themselves and their families or receive assistance from members of their church congregation, friends or relatives, many would become homeless or would go to "Poorhouses" for assistance.
However, those who would stand much more to lose because of these financial crises that occurred over the years were from the wealthy class.
Large numbers of families made enormous fortunes from their investments before the war of 1812 and throughout the second half of the 19th century.
This world of prominent people possessing exceptional wealth living in staggering opulence during the boom period was populated by those who inherited their fortunes.
Others became wealthy through real estate speculation or investments in transportation and industry.
Let's not forget the social ladder climbers who married someone with a title or a fat bank account in order to gain entrance to a highly competitive society.
They all had the money and leisure to indulge in conspicuous consumption.
Assuming their rich days would last forever, many of the wealthy families overindulged in the social treadmill.
They lived a life of luxurious idleness, spending fortunes annually on expensive dress, entertainment and luxurious homes, living beyond their actual resources to maintain their social profile.
These people were devastated by the financial crashes resulting in sudden reverses of fortune.
These serious financial storms would ruin many of the best of the city firms as well.
Wall Street has always been the commercial heart of America as well as the heart of Society's wealth.
The most expensive parties, and presentations of elegance in New York, Saratoga, and Newport, were connected with stock operations.
On Wall Street you would find the most daring and shrewd intellect from around the nation, people who could produce a panic in an instant and shock the world's foundation.
It has been remarked that the men who did business on Wall Street prematurely aged and that they died at a comparatively early age.
This was not unusual.
They lived too fast.
Their bodies and minds were taxed too severely to endure.
No man could tell one week to the next whether he would be a beggar or a millionaire.
While one man made a fortune by a sudden increase in stocks or gold, one thousand were ruined.
Even the soundest and most established firms fell with a thud, crashing under the sudden reverses.
The image of the once powerful, self-confident, rich men walking briskly to and from was replaced by that of nervous, pacing, anguished men as they watched their world crumble.
"Once they had palatial mansions on Fifth Avenue and were the favorites of fortune.
" Now they had no future, no hope.
They had fallen never to rise again.
Those who were once bankers, stock brokers and wealthy merchants had suffered staggering losses during the various panics that affected our nation, leaving them thoroughly destitute.
Much of their failure was attributed to stock speculations; business deals gone wrong and extravagant lifestyles.
Once respected amongst the world of prominent society, there were remarkably few that would offer help or express sympathy for the ruined businessmen and their families.
For these men and women who had only known wealth and comfort, the life of poverty was actually an extremely traumatic experience which they looked upon with aversion.
Unable to cope with their losses, there were those that suffered nervous breakdowns, heart attacks, or committed suicide, leaving their families financially unprotected and homeless.
Since 1819, the United States has experienced many economic and industrial depressions more extensive and severe than the ones preceding it.
Usually these would follow periods of speculation and abnormally inflated values just like 1819.
Banks, businesses, manufacturing plants and factories were failing in large numbers.
Money was becoming extremely scarce.
Farm and home foreclosures were at an all time high.
As for unemployment, it was inevitable for millions in the work force.
The fact is, each crisis with its dreadful consequences culminates in "Hard Times" for the American people.
After a short or long interval, the country manages to resume its former prosperity, ignoring the lessons of the past.
In part 3 of this 4 part series, we'll examine the Roaring Twenties.
In part 1 of this 4 part series, we learned the definitions and terms used to explain financial crises in general.
Now we start with one of the most devastating financial crises to ever hit the U.
S.
, the panic of 1819, leading into the Roaring Twenties.
The Panic of 1819 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 raise enough crops to maintain a healthy family.
These farmers worked hard and generally did their own strenuous tasks of clearing and preparing their land for cultivation.
Though agriculture played a pivotal 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.
By 1807 the foreign trade of the United States was enormous, carried by American ships.
The total tonnage of American shipping engaged in this trade was seven hundred thousand tons, and of this tonnage Boston possessed a fair share.
Important merchants from Boston, such as the Perkinses, the Sargeants, the Cabots and the Higginsons, ranked high throughout the world thanks to their mercantile skills and their ethical character in regards to their operations.
Many of the ship owners, merchants and their associates had amassed immense fortunes during the Napoleonic wars beginning in 1804 as they provided supplies to an embattled Europe.
At President Jefferson's request to Congress, the embargo act of 1807 was passed wherein all U.
S.
ports were closed to export shipping from the U.
S.
It also restricted imports from Great Britain.
This act created a serious hardship for U.
S.
farmers as well as on New England and New York mercantile and maritime businesses.
The embargo of 1807 and the War of 1812 created a detrimental impact to our European trade.
This curbed the American merchant marine, leaving thousands of sailors without work.
New England, which had owned nearly half of the nation's ships, was able to avoid the economic disaster by switching to domestic industries such as cotton mills.
Among the first mills established were the Waltham Mills of Francis C.
Lowell.
The war conditions of 1812 accelerated the development of domestic manufacturers and commerce.
Capitalism was flourishing and the working class grew.
Textile factories began to expand to New England, New York and Pennsylvania.
The Waltham mill in Massachusetts was the first mill in both the United States and the world.
It combined under one roof all the necessary undertakings to convert natural fiber into cloth and it proved to be quite a success.
Many immigrants from Europe, including German craftsmen and artisans, would choose to leave their country on a temporary basis 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.
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.
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.
Farmers and land speculators purchased several acres of public land from the federal government, which they were able to purchase on credit.
Speculators would buy land as cheaply as possible on credit, inflating the sale price to potential buyers in order to make a profit.
Agricultural exports rose to $57 million in 1817 alone, reaching a peak of $63 million in 1818.
Benefiting from the boom period, quite commonly, the farmer was a speculator too.
He would purchase more land for the sake of a quick profitable sale, adding more to his accumulating bank debts.
Bankers were extending credit recklessly, assuming that the upturn would last forever.
The banks benefited enormously through capital ventures and risky lending.
Stock traders, bankers, and auctioneers all were filling their coffers with the rewards of their risky 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 frantic creditors demanding the repayment of their money.
Merchants in the big cities rushed to liquidate assets to pay the debts owed to foreign creditors.
They in turn would put the squeeze on smaller merchants and shopkeepers for payment on merchandise that had been purchased on credit.
Finally, it was the farmers turn to cough up money that he didn't have.
The falling crop prices and shortage of currency was making 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 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.
" As a result of nonpayment on loans, state-chartered banks began collapsing.
The primary difficulty of the 1819 panic was the absence of ready money.
In order to secure the items which they needed to survive the farmers and local inhabitants resorted 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 the wake of the Panic of 1819, wealthy factory owners experiencing monetary difficulties were forced to shut down, leaving skilled craftsmen, mechanics and other artisans without work.
"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.
" Real estate had depreciated to about half of its value.
During the Panic of 1819, financial hardship was suffered by all groups within the community, though the working group was not as hard-hit as those of great wealth.
Accustomed to a life where their earnings were scarcely more than sufficient to provide them a decent existence, they possessed little of considerable value.
Nevertheless, their suffering was not in any way less severe.
Unable to support themselves and their families or receive assistance from members of their church congregation, friends or relatives, many would become homeless or would go to "Poorhouses" for assistance.
However, those who would stand much more to lose because of these financial crises that occurred over the years were from the wealthy class.
Large numbers of families made enormous fortunes from their investments before the war of 1812 and throughout the second half of the 19th century.
This world of prominent people possessing exceptional wealth living in staggering opulence during the boom period was populated by those who inherited their fortunes.
Others became wealthy through real estate speculation or investments in transportation and industry.
Let's not forget the social ladder climbers who married someone with a title or a fat bank account in order to gain entrance to a highly competitive society.
They all had the money and leisure to indulge in conspicuous consumption.
Assuming their rich days would last forever, many of the wealthy families overindulged in the social treadmill.
They lived a life of luxurious idleness, spending fortunes annually on expensive dress, entertainment and luxurious homes, living beyond their actual resources to maintain their social profile.
These people were devastated by the financial crashes resulting in sudden reverses of fortune.
These serious financial storms would ruin many of the best of the city firms as well.
Wall Street has always been the commercial heart of America as well as the heart of Society's wealth.
The most expensive parties, and presentations of elegance in New York, Saratoga, and Newport, were connected with stock operations.
On Wall Street you would find the most daring and shrewd intellect from around the nation, people who could produce a panic in an instant and shock the world's foundation.
It has been remarked that the men who did business on Wall Street prematurely aged and that they died at a comparatively early age.
This was not unusual.
They lived too fast.
Their bodies and minds were taxed too severely to endure.
No man could tell one week to the next whether he would be a beggar or a millionaire.
While one man made a fortune by a sudden increase in stocks or gold, one thousand were ruined.
Even the soundest and most established firms fell with a thud, crashing under the sudden reverses.
The image of the once powerful, self-confident, rich men walking briskly to and from was replaced by that of nervous, pacing, anguished men as they watched their world crumble.
"Once they had palatial mansions on Fifth Avenue and were the favorites of fortune.
" Now they had no future, no hope.
They had fallen never to rise again.
Those who were once bankers, stock brokers and wealthy merchants had suffered staggering losses during the various panics that affected our nation, leaving them thoroughly destitute.
Much of their failure was attributed to stock speculations; business deals gone wrong and extravagant lifestyles.
Once respected amongst the world of prominent society, there were remarkably few that would offer help or express sympathy for the ruined businessmen and their families.
For these men and women who had only known wealth and comfort, the life of poverty was actually an extremely traumatic experience which they looked upon with aversion.
Unable to cope with their losses, there were those that suffered nervous breakdowns, heart attacks, or committed suicide, leaving their families financially unprotected and homeless.
Since 1819, the United States has experienced many economic and industrial depressions more extensive and severe than the ones preceding it.
Usually these would follow periods of speculation and abnormally inflated values just like 1819.
Banks, businesses, manufacturing plants and factories were failing in large numbers.
Money was becoming extremely scarce.
Farm and home foreclosures were at an all time high.
As for unemployment, it was inevitable for millions in the work force.
The fact is, each crisis with its dreadful consequences culminates in "Hard Times" for the American people.
After a short or long interval, the country manages to resume its former prosperity, ignoring the lessons of the past.
In part 3 of this 4 part series, we'll examine the Roaring Twenties.
Source...