Panic of 1785

 

The panic of 1785, which lasted until 1788, ended the business boom
that followed the American Revolution. The causes of the crisis lay in
the overexpansion and debts incurred after the victory at Yorktown, a
postwar deflation, competition in the manufacturing sector from
Britain, and lack of adequate credit and a sound currency. The
downturn was exacerbated by the absence of any significant interstate
trade. Other factors were the British refusal to conclude a commercial
treaty, and actual and pending defaults among debtor groups. The panic
among business and propertied groups led to the demand for a stronger
federal government.

 

Panic of 1792

 

The panic of 1792 arose from speculative activity following the
adoption of the Federal Constitution, the founding of the First Bank
of the United States (BUS), and the emergence of securities markets
for bank shares and other government securities in New York City.
Almost immediately after its establishment in 1791, the BUS
overextended notes and discounts, and then sharply reversed its
course. Speculators in the bank's shares quickly sold their holdings,
which had risen markedly over previous months, and the nation's first
true securities market panic took hold.

 

Panic of 1819

 

The Second Bank of the United States, seeking to curb speculation in
commodities and western lands following the War of 1812, sharply
contracted its extension of credit, provoking the panic of 1819. The
downturn hit the southern and western states hardest, and many banks
suspended specie (coin money) payments or closed their doors. The BUS
went through a period of recrimination, congressional investigation,
and financial rehabilitation. Commodity prices declined, manufacturers
clamored for more protection, and debtors demanded relief legislation,
which was enacted in several western states. The economic picture had
improved by 1823.

 

Panic of 1837

 

A series of events led to the panic of 1837: On 11 July 1836,
President Andrew Jackson issued an executive order (the Specie
Circular) that attempted to end speculation in western lands by
requiring specie for their purchase; the Deposit Act, passed on 23
June 1836, ordered that the more than $34 million in surplus that had
accumulated in the Treasury be redistributed to the states, in
proportion to their relative populations; the Second Bank of the
United States dissolved following Jackson's veto of an act to
recharter in 1832; and England introduced a tightened monetary policy
designed to "recover" specie presumed lost to the United States. By
early 1837, these factors had dislocated the nation's specie reserves
out of New York City and into the interior and the hands of the
public. With its specie base depleted by more than 80 percent over a
six-month period, the public lost confidence in the New York banks and
withdrew their deposits. Within two weeks, all of the nation's banks
had suspended specie payments. This first general suspension in the
nation's history started a six-year economic downturn that was the
most severe of the nineteenth century.

 

Panic of 1857

 

The failure of the Ohio Life Insurance Company in August 1857 was the
catalyst that initiated the panic of 1857, which spread quickly from
the Ohio Valley to the eastern money centers. Unemployment grew,
breadlines formed, and ominous signs of social unrest appeared. The
depression was most serious in the industrial northeast and in the
western wheat belt, where the new Republican Party saw increasing
support. The cotton belt was less affected by the panic: cotton crops
were good, prices were high, and banks were sound. These factors
brought over-confidence in the South, an impulse to protection in the
East, and a drive for free land in the West. Economic conditions
became as potent an issue as slavery in the subsequent election of
1860.

 

Panic of 1873

 

The failure of several important eastern firms in September
1873—including the New York Warehouse and Securities Company; Kenyon,
Cox and Company; and the famous banking house, Jay Cooke and
Company—precipitated this panic. The stock exchange closed for ten
days, and bankruptcy overtook a host of other companies and
individuals. Some causes of the panic and ensuing depression were
international, including a series of wars and excessive railroad
construction in central Europe, Russia, South America, and the United
States. Domestic factors included currency and credit inflation,
losses from fires in Boston and Chicago, an adverse trade balance, and
overinvestment in railroads, factories, and buildings. In the
following depression, 18,000 firms failed during 1876 and 1877, a
majority of the American railroads declined into bankruptcy, and more
than two-thirds of the nation's iron mills and furnaces fell idle.
Wage reductions led to strikes among Pennsylvania coal miners and New
England textile workers, and to a railroad walkout in 1877. In 1878
the depression began to lift.

 

Panic of 1893

 

The panic of 1893 originated in the usual factors of the business
cycle, including overinvestment and falling prices in the 1880s. The
uneasy state of British securities markets in 1890—culminating in the
liquidation of the banking house of Baring Brothers and
Company—stopped the flow of foreign capital into American enterprise,
and the sale of European-held securities caused a stock market
collapse in New York, accompanied by substantial gold exports. The
financial crisis was postponed, however, by strong exports of
agricultural staples over the next two years that reestablished gold
imports. Uncertainty returned in the winter of 1892–1893 as renewed
gold exports raised the possibility that the nation would be forced
off the gold standard by a decline in the U.S. Treasury's holdings.
The nation also suffered with decreased federal revenues and heavy
expenditures, including the purchases of silver under the Sherman
Silver Purchase Act of 1890.

The gold reserve had fallen below the accepted minimum of $100 million
by April 1893, and the failure of the National Cordage Company in May
touched off a stock market panic. By the end of 1893, about 4,000
banks and 14,000 businesses had failed. President Grover Cleveland
sought a repeal of the Silver Purchase Act as the one absolute cure
for the depression. By 30 October the repeal had passed both houses of
Congress. In the meantime, imports of gold had stabilized the monetary
situation in New York somewhat. The depression did not lift
substantially, however, until the poor European crops of 1897
stimulated American exports and the importation of gold.

 

Panic of 1907

 

Sometimes called the "rich man's panic," the panic of 1907 was
preceded by speculative excesses in life insurance, railroad and
coastal shipping combines, mining stocks, and inadequately regulated
trust companies. Several profit-dampening reforms were enacted in
1906, such as the Hepburn Act (giving the Interstate Commerce
Commission power to set maximum railroad rates) and the Pure Food and
Drug Act, yet the economy seemed healthy in January 1907. In fact,
most financiers believed that improved banking controls made it
impossible for panics like those of 1873 and 1893 to recur.

In early 1907, when Henry H. Rogers of Standard Oil had to pay 8
percent interest to float a $20 million bond issue, the stock market
dropped sharply—the so-called silent panic. The economy seemed to
recover, but failure of the United Copper Company in the summer of
1907 precipitated runs on the Heinze and Morse chain of banks. When
the Knickerbocker Trust Company closed in October, runs on the Trust
Company of America and several others followed, and there was panic on
the stock market. To halt the panic, Secretary of the Treasury George
B. Cortelyou authorized large deposits in several banks. Investment
banker J. P. Morgan headed a banking group that used a borrowed
emergency fund of nearly $40 million to rescue banks and firms they
deemed savable, and whose survival was crucial. To rescue the
brokerage house of Moore and Schley, Morgan arranged to have the
United States Steel Corporation buy the brokers' holdings of the stock
of a major rival, the Tennessee Coal, Iron, and Railroad Company. This
arrangement strengthened the steel trust. By the end of the year, the
financial situation was normal again.

Although the panic did not lead to heavy unemployment or a wave of
bankruptcies, it seriously damaged the image of the big financiers. It
also had repercussions over-seas, as the United States temporarily
imported a large amount of gold, and interest rates abroad rose. On 30
March 1908, Congress passed the Aldrich-Vreeland Currency Act, which
provided for contingency bank currency in the event of another
stringency. The act also created the National Monetary Commission,
which produced the Aldrich Report of 1911. This was a major step in
setting up the Federal Reserve System in 1913–1914.

 

Panic of 1929

 

The panic of 1929 had many causes, most importantly annual private and
corporate savings in excess of the demand for real capital formation,
a large export trade in manufactured goods supported by foreign
lending, a low discount Federal Reserve policy designed to support the
British pound, and increasing use of stock-exchange securities rather
than commercial paper for bank loans. The period of prosperity from
1924 to late 1926 had been largely aided by buying consumer durables
in installments, particularly automobiles, real estate, and
construction. When the automobile industry became temporarily
saturated in 1927, a downturn was to be expected, but the construction
boom showed surprising vitality until mid-1929. The Federal Reserve
pursued a relatively easy monetary policy, and exports continued to be
buoyed up by foreign lending. When opportunities for real investment
sagged after 1926, top-income investors poured cash into the stock,
bond, and mortgage markets. Banks made large loans on the security of
blocks of the common stock of a single company to keep their
depositors' money employed.

By June of 1929, some bankers had become alarmed by the continued rise
of the stock market, and in August the Federal Reserve raised the
discount rate. This move attracted more domestic and foreign capital
into the call loan market, thus applying a final lash of the whip to
the runaway boom in security prices. The stock market peaked right
after Labor Day, but on Friday, 18 October, it began to decline
rapidly; 29 October was the most devastating day in the history of the
stock exchange. Yet during the month-long decline, the Standard and
Poor Index fell by less than 40 percent, and public statements held
that no harm had been done to normal business. Unseen factors that led
to the nation's deepest depression, however, were large bank loans
that could not be liquidated and the accompanying pressure of failed
banks on healthy ones, the collapse of European finance in 1931, a
monetary policy by the Federal Reserve that vacillated between meeting
domestic and foreign needs, and the lack of any large
capital-consuming technological development to re-stimulate private
investment.