United States Economic History: 19th Century


Figure 1.--

Most of the population in the 19th century lived in rural areas on largely self-sufficent farms, recesions were thus of only limited impact. This gradually changed as the ecomomy became more urbanized and industrialized. The Napoleonic Wars raged in Europe at the time the young American Republic entered the 19th century. This created both opportunities and problems for the new American Republic. America remained neutral, but there were still enormous economic consequences. One American policy response was to prohibit trade with the European beligerants which caused a depression, especially in New England. The charter of the First Bank of the United States expired (1811). Congress chartered the Second Bank of the United States (1816). President Jackson's decision to destroy the Bank resulted in one of the most serious financial crisis of the 19th century. The Panic of 1837 caused a sharp economic decline resulting in wide spread bank failures. Econiomic tranactions were frozen because of lack of faith in paper currency, at the time issued by banks. Banks stopped payment in specie (gold and silver coinage). Ecomists estimate that iover 600 banks failed. The cotton market imploded in the South. The result was the Depression of 1839–43. Therewas a srious post-Civil War financial panic (The Panic of 1893 led to another Depression which affected the economy throughout much of the 1890s. America ended the 19th century with a very sophisticated, industrial economy, but still without a central babk.

1802–04 Recession

The Napoleonic Wars raged in Europe at the time the young American Republic entered the 19th century. This created both opportunities and problems for the new American Republic. America remained neutral, but there were still enormous economic consequences. Te American economy expanded because of war-time spending in Europee, creating ademand for American exports. The Peace of Amiens temporarily ended the war between Britain and France. Commodity prices which mde up the bulk of U.S. exports dropped also dramatically. Trade was disrupted by Barbary pirates which led to the First Barbary War. The UNoted States was able to fight the War because of the frigates built during the Adasdminiseation, a measure that Jefferson nd his allies had opposed.

1807 Depression (1807-10)

Peace between Britain and France did not last long. When war resumed, both sides began seizing American merchant hipping. President Jefferson's response was Embargo Act of 1807. The major problem was with Britain whivh had the largest navy. The Royal Navy wuld stop U.. merchantmen and impress American seamen. The Embarfo prohibit trade with the European beligerants and was meant to avoid war. The British also imposed trade restrictions. American merchants and shipping-related industries were adversely affected, espcially in New England. The declining Federalists opposed the Embargo and extensive smuggling occurred in New England. Trade volumes, commodity prices, and securities prices all plummeted, Macon's Bill Number 2 ended the embargoes (May 1810) and a recovery began. The British also escalated actions against American hipping and the impressment of American seamen. started.

1812 Recession (1812-13)

The charter of the First Bank of the United States expired (1811). The economic consequences +of not renewing the Bank chrterare not altogether clear. Merchants hoping to replace the First BAnk of the United States founded the City Bank of New York (1812). It would grow to become the most important bank in the United States. The United States experiebced a brief recession (early 1812). The United States declared war on Britain (June 18, 1812). The downturn proved brief largely because the Federal Government increased spending to fight the War of 1812, a War for which the country was totally unprepared.

1815–21 Depression

The War of 1812 ended (March 23, 1815). This was soon followed by a financial panic as bank notes rapidly depreciated because of the post-War inflation. Prtly in response, Congress chartered the Second Bank of the United states (1816). The 1815 panic was followed by several years of mild depression. This was climaxed by a sharp financial crisis. The Panic of 1819 caused numerous foreclosures, bank failures, and unemployment. Realestate prices collapse in and a slump occurred in both agriculture and manufacturing and demand fell. The lengthy depression was the longest in American history, although limited financial data leads some economists suspect that the depression may have been interupted.

1822–23 Recession

The United States never fully recovered from the long 1815-21 Depression. After the mild recover, commodity prices peaked (March 1822) and then began to decline.. Businesses began to fall and unemployment rose. Increasing imports aggrevated the country's rade balance.

1837 Panic

President Jackson's decision to destroy the Bank resulted in one of the most serious financial crisis of the 19th century. The Panic of 1837 caused a sharp economic decline resulting in wide spread bank failures. Economic tranactions were frozen because of lack of faith in paper currency, at the time issued by banks. Banks stopped payment in specie (gold and silver coinage). Economists estimate that iover 600 banks failed. City Bank was very nearly one of them. Fur trade magnate John Jacob Astor bailed out City and put Moses Taylor in charge. The banking powerhouse that Taylor created helped bank role the Federal Government during the Civil War. The cotton market imploded in the South. The result was the Depression of 1839–43.

1873 Panic

There was a serious post-Civil War financial panic (1873). It is probably best described as a depression lasing for the rest of the decade. Some economists mintain it lasted even longer bleeding into the Panic of 1893. It was not just an American phenomenon, but was experienced globally. Financial problems began in Europe. The initial impact in America was the failure of Jay Cooke & Company, at the time the largest bank in the United States. This suddenly burst the post-Civil War speculative bubble. As is often the case, Govrnment action exacerbated the the financial crisis. Congress passed the Coinage Act of 1873. This immediately depressed the price of silver, damaging North American mining companies. The resulting deflation and wage cuts of the era resulting in labor turmoil. Strongly capitalized banks easily weathered the crisis, but many weaker banks failed. This had casacading impactsbecause thevU.S. Government at the time had no depository insurance program ans state bank regulation varied widely from state to state. A major part of the panic was the railroad industry which now covered the country and had repaired the damage in the South as a result of the Civil War. The American rail system had grown at a meteoric rate since the 1840s. This included somevill conceivedand poorly financed projecrs. The industry consisted of some important rail companies and a large number of small lines. This created considerable complication for riders in traveling a long distance because you had to change to different company lines. Many of these small lines were not well capitalized. The Panic was the end of America's rapid rail expansion. The railroad were affected because of the economic down turn. This mean declining shipments and thus revenue. Many mostly small lines went bankrupt. Some just manahed to pay the interest on their bonds. Rail workers who had come to expect secure employment were laid off on a mass scale. Those who kept their jobs experienced substntial wage cuts. This led to many mostly local strikes by rail workers. Eventully rail workers organized the Great Railroad Strike of 1877. The United States returned to the gold standard with the Specie Payment Resumption Act. The Panic of 1873 was certainly the most severe contraction of the 19th century and dpending on how it is calculated mmay be the longest contraction in Ametican economic history. It also was more widely felt than any previous economic down turn. America's capitalist economy generated a massive expansion of the U.S. economy, turning the country into an industrial giant in only a few years. Itg also increased wages and living standards above European levels. This is a major reason atracting European immigration. The economic growth attracted many people from rural areas into the cities. Thus more people were dependent on wages rather than farm income. Earlier panic affected rural areas, but people living on family farms could survive on the food they produced and weayther out financial panics as long as they had not borrowed heavily. This was not the case for wage earners. Most did not have large savngs and if they lost their jobs, they and their families were in difficult straits.

1893 Panic

The Panic of 1893 led to another Depression which affected the economy throughout much of the 1890s. In the final days of the Harrison Administration (1889-93), the Reading Railroad, one of the major eastern railroads, went bankrupt and into receivership. Other railroads which had overbuilt were also having difficulties, but Reading went bankrupt. Because of its importance, many banks and businesses involved on the Reading and other railroads had to declare babkruptsy which caused many other concerns to go bankrupt. The stock market fell precipitously. European companies were not as tied to America as was the case in 1929, but America was already a major infustrial power and thus the American panic rippled across the Atlantic. European investors began selling American securities as well. American fell into a serious depression and European economices slumped as well, adversely affecting American export markets. The Panic began in the American Northeastern financial and industrial sectors, but spread to the more gricultital South and West. Several thousand business had to close and some 4 million workers lost their jobs. Earlier in a more agriculturl America, people could survive on the farm and could survive on the family farms of relatives. In the more industrial society of the 1890s, this was less possible. Newly elected Democratic Preident Cleveland did not react the the deepening economic crisis. Both Democrats and Republicans at the time strongly believed that the business cycle was a natural occurrence rather like the weather and politicans should not tamper with it. The result of tampering in 1929 showed that Government interevention if poorly conceived could make the situation worse, but it was beginning to become apparent by 1894 that in an industrial economy that the public was going to demand governmental action and there would be decided shift to the Republican Party after the Cleveland Administration. One development was Coxey's Army. They demanded that the Federal government assist unemployed workers by hiring them for infrastructure projects, roads and government buildings. Democrats and Republicans in Congress and President Grover Cleveland refused. President Cleveland did intervene in one area. The Republican Harrison administration and substantianlly increased Federal spending. The Democratic Congress which authorized the spending became known as the 'Billion Dollar Congress'. The Dependent Pension Act and naval expansion were the major dudget busting programs. Cleveland was concerned as a result of the gold drain. The Sherman Silver Purchase Act led to the gold drain. The United States gold reserves fell below $100 million level. This was a psychological barrier whhich disturbed the financial community and weakened public trust in papr currency. President Cleveland acted to support the gold standard. He ordered the Treasury to issue bonds to purchase gold. This divided the Democratic Party and alienated the silver forces of the South and West which had been supporting the Democrats. It would lead to William Jeanings Bryan winning the 1896 Democra=tic nomination and his 'Cross of gold' speech (1896). James Stillman who ran City Bank easily rode out the crisis, largely because he had amassed substantial gold holdings. Stillman and J.P. Morgan helped bail out the virtually babkrup Federal Government (1895). America ended the 19th century with a very sophisticated, industrial economy, but still without a central bank. The Panic of 1893 and the resulting Depression had a lasting impact on the economy. The economy did not recover from the Depression of the 1890s until 1897 and the advent of the Republican McKinnely Administration. Not that the Republicans disagreed with Cleveland, but the general public reaction to an economic downturn is to theow out the incumbents and vote in the other party. McKinely did not initiate new policies, but in the public mind was credited for the upswing. One significant response to the business failures was an numerous business consolidations. Many workers and the less affluent believed that their plight had been ignored and they were left at the mercy of events. Many blamed the expanding trusts and the Sherman Anti-Trust Act (1890) was not suffucent. Thus the idea that new leadership was needed as the new century approached acquired condiderable currency. Beginning with the 1896 Campaign, the Republicans would control the White House for three decasdes (ecept when President T. Roosevelt split the Reoublican Party alowing Democrat Wooddrow Wilson to be elected).









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Created: 6:17 AM 12/3/2012
Last updated: 7:33 PM 10/4/2017