Print this pageHistorical Text Archive © 1990 - 2016
The Panic of 1819 was the first severe economic crisis ever to affect the American people as a whole because the American economy had changed. This post-War of 1812 depression was part of the dislocation which followed the Napoleonic Wars. The US was a side show of these wars. In the US, the reckless expansion of credit, banks, and risk-taking investments.
The panic or depression had profound psychological and political effects as well as economic effects because the economy had shifted from the traditional agricultural society which was static to the dynamic national market economy of dazzling prosperity and then plunged into privation and despair. As a result, the 1820s were a decade of soul searching and despair. In difficult economic times, people become more selfish; consequently, economic and sectional or regional rivalries increased.
Given the hard times, a number of people yearned for the past, times they considered more simple and honest. To them, the Franklin adage, "never a borrower or a lender be," was gospel and the difficulty had come when people ignored it and started using credit. Thomas Jefferson had argued that self-sufficient farmers were the rightful basis of American life, not city folks or businessmen. His doctrines regained some of their popularity. A number of common people faulted politicians and business leaders for their problems. Bankers came under special attack for they did not work with their hands, as God's people were supposed to do and because baking was a complex activity that few understood. Besides, the collapse of banks had caused enormous amounts of distress.
Regional or sectional rivalries increased often taking the form of political battles over slavery, the chief difference between the South, on the one hand, and the Northeast and Northwest, on the other. Although slavery had been controversial enough that Jefferson had struck it from his list of indictments of George III in the Declaration of Independence in order to garner the support of slave owners, the issue had become quiescent in the ensuing years. Decent people hoped and assumed that it was dying a natural death .The invention of the cotton gin, which mechanically removed the seeds from the cotton bolls, changed all that. Cotton became a cheaper fiber which factories in the North and Europe bought as fast as they could. Men could become rich if they could acquire enough land on which to grow it and had the labor force to grow it. Slaves were that labor force. New lands were brought under cultivation as people moved westward across the South.
One of the areas into which they had been expanding was the Missouri territory, particularly the southern and eastern portions. Enough people had settled there in this land acquired as a result of the Louisiana Purchase that they applied for statehood in 1819. If it became a slave state, it would likely vote with the other slave states and against the manufacturing interests of the Northeast. The Northwest Ordinance, which had been passed under the first constitution in 1787, forbade slavery in the Northwest (then Ohio, Michigan, Indiana, Illinois, Wisconsin, and Minnesota). Senator rufus King of New York and other Northern Congressmen wanted the Northwest Ordinance extended one state further west to include Missouri. This created a fierce debate over the regulation of slavery. It was not slavery that they opposed but Southern political domination. Of the five presidents of the United States, four had been Southern. Although, the non-South had gained control of the House of Representatives by a 105-81 margin because its population was growing faster that the South, the South tied with it in the Senate. Which way Missouri became a state would, therefore, determine if the South could maintain control of the nation or become a minority. As it was, the South had gained an advantage in the Constitutional Convention in 1787 when it had been allowed to count slaves as 60% of a person even though it said they were not people! Thirty-one years later, that compromise chafed the rest of the country.
The Missouri Compromise of 1820 crafted a solution. Missouri would enter as a slave state and Maine, carved out of northern Massachusetts, would enter as a free state, thus preserving the balance in the Senate. From Missouri to the Rocky Mountains, an imaginary line along 300 30' would br drawn and slavery would not be allowed above it. The nation breathed a sigh of relief; war had been averted.
Sectional rivalry also manifested itself in the vote for a protective tariff, one of the ways the government could and did thwart free enterprise by intervening in the economy in favor some certain economic interests. In 1820, a bill to raise import taxes (tariffs) high enough to force the prices of imports high enough that all but the foolish would purchase domestically-manufactured goods failed as the slave states voted 5-1 against it. In 1824, however, a similar bill passed even though slaves states had cast 57 votes against it and only one for it. The Northeast voted overwhelmingly for it and was joined by the West whose farmers saw their economic future closely tied to the Northeast. The rate went as high as 33%. Southerners were furious because the tariff raised their costs because they purchased not made manufactured goods. Clearly, sectional politics were alive and well.
Farmers, particularly Western farmers, also wanted help from the national government, aid that was very direct. Farmers and land speculators (it was not uncommon for them to be the same) bought public land from the United States government on credit. Some farmed part of the land; some sold parts of the land to help make the payments. Land speculators, of course, bought good land as cheaply as possible and waited until buyers arrived, charging them more in order to make a profit. All these groups ran into trouble with the economic troubles that began in 1819. Part of the problem was that they assumed the land boom would continue indefinitely and, thus, carried a heavy debt load. Now, thousands could not meet the payments. They stood to lose everything so they pressured Congress to grant relief, that is, to favor them with concessions and other subsidies. Congress forgave interest charges, extended the repayment period, and allowed delinquents to keep land proportionate to the amount they had paid.
Chastened by this financial debacle, Congress sought a longer-term solution. The minimum amount of acreage sold was reduced from 160 to 80, thus allowing more people to buy. The price was dropped from $2 to $1.25 an acre, another boon. The credit system was abolished, reflecting the pre-market revolution values.
The Panic of 1819 saw the collapse of many state-chartered banks and the money they had issued. States varied as to what requirements they created for these businesses and, given the spirit of the times, they were seldom regulated. So many banks were flimsy in their structure; others had a sounder foundation but bankers had created money and extended credit with abandon. They assumed that the boom would last forever or that they could get out before an economic fall. But the collapse of the pyramid of debt left both groups in the lurch.
State governments responded to the crisis in a variety of ways. Some created state-owned banks which issued state-backed paper money to be loaned to debtors or created state-owned loan agencies to do the same. Stay laws were passed to prevent the foreclosure of mortgages. In some states, property laws were passed whereby neighbors set the value of property below which the property could not be sold to satisfy a debt. If the neighbors set the value above the true market values, the property was not sold and the debtor continued to use it. The hope was that the debtor would eventually find enough money to pay off his obligations . Conservatives protested at this socialism as well as these pro-debtor, anti-capital acts but there were more debtors votes.
Politics were changing from the elitist model of Washington and Jefferson whereby people from the "best" families would be asked to lead a simple republican government which did very little except keep the peace and defend the nation from attacks from abroad. The Constitution written in 1787 had carefully maintained "aristocratic" control of the national government because the Electoral College, which elected the president and vice president, was selected by the states. US Senators were selected by state legislatures. Federal judges were appointed for life by the president but only with the consent of the Senate. Only for the House of Representatives could some adult males vote. Jefferson argued that the office should seek the man; trying to get the office would be "bad form."And people were to defer to their betters. Although there were political factions, as James Madison noted there would be, these divisions were within the same social class. In the 1820s, however, it was becoming clear that politics were becoming more democratic.
The national government, as well as state governments, had shown that they could do favors for people, enriching them or bailing them out from their bad judgment. They could force the average person to subsidize certain businesses via a protective tariff. As people realized the many ways government could help or hurt them, they became interested in politics.
The creation of the national market economy destroyed the homogeneous communities for which American politics had been designed for it had created numerous conflicting interests. For example, instead of people in a community farming to provide for their own needs and occasionally buying a few products they could not make for themselves, some switched to farming a cash crop to sell on national or international market. By doing so, they lost some independence but could, potentially, improve their economic circumstances significantly. Specialization occurred not only in agriculture but business as well. New jobs came into existence in making things or buying and selling them or handling the myriad legal issues generated by complexity.
When the post-war boom collapsed in 1819, people wanted to know where candidates stood on the role of government in the economy, that is, how public policy could help or hurt them. Now, candidates had to campaign and tell voters what they would do about tariffs and other taxes or public land sales or banks or any number of economic issues. Often, the elections resulted in "turning the rascals out," for the voters often blamed the established leadership for their economic problems.
Banks and their supporters came under special fire for they had overexpanded credit and issue currency as if there was no tomorrow, which many saw as the cause of the collapse. Banks refused to pay their own debts by redeeming their own bank notes with gold or silver specie. The depreciation of these bank notes was the most obvious cause of loss to the entire community. Worsening matters was the fact that banks foreclosed on debts, on the one hand, but paid dividends to investors, on the other. Although state-chartered banks managed to shift some of the blame to the Bank of the United States (which had also caught the boom fever), the bank business became one that most people suspected.
Politicians who wanted to get elected argued that they represented the "plain folk," the "common man," not the rich, and well-born, the very people that the Federalists and the Jeffersonians had wanted to rule. Put another way, US politics changed to class warfare. The banking class was an obvious target but the animus was widespread. The Anti-Masonic Party came into existence in the state of New York, a popular reaction to the belief that the Masonic Lodges, with their secrecy and exclusiveness, were cabals of the rich and famous. Such populism occurred in other states. Voter participation skyrocketed as the "plain folk" voted in large numbers.
Concurrent with this change in politics and also a cause of the change was the rise of more egalitarianism towards adult white males. Voting requirements for them were lowered in state afer state. People who were not well born ran for office and won. They passed laws to abolish many privileges. They made land, the basis of wealth in an agricultural society, easier to get. They were "democrats," and they changed the Republican party of Jefferson into the Democratic-Republican Party. For a short time, the US had a one-party state, for the Federalists, the conservatives, did not offer presidential candidates. .
These changes are illustrated by the presidential election of 1824. At the national level, one got nominated by a caucus of one's political party. The wise leaders of the group would decide which among their number should stand for president. After all, such an important decision should not be left to the masses, uneducated as they were. In 1824, Jeffersonian Republicans chose William Crawford of Georgia. Had it been four years earlier, Crawford would have been elected president but not in 1824. Crawford had support from North Carolina, eastern Virginia, the conservative Dutch along the Hudson River--areas not much affected by the market revolution and the collapse of the boom. Most people within the party thought he would not understand their peculiar problems. So the New England group nominated John Quincy Adams of Massachusetts, son of the former president. Westerners nominated one of their own, Henry Clay of Kentucky. John C. Calhoun of South Carolina was put forth to block Crawford, for South Carolina had fully participated in the boom and collapse.
The surprise candidate was General Andrew Jackson of Tennessee, a national war hero even though the Battle of New Orleans against the British was won after the war. He was a fighter and a planter and inexperienced in electoral politics. He had been suggested in the Tennessee legislature as a byproduct of a squabble there. Few considered him to be a serious contender but the public response was so favorable that he became one. The Pennsylvania convention ditched Calhoun (who then withdrew) in favor of Jackson, showing he had support in both the North and his native West.
Jackson's candidacy was ideal in a number of ways. He had name recognition. He was in the Washington tradition of being a planter and army general. No one knew where he stood on the issues and his supporters could assert different things in different places with impunity because communications allowed it. He had the "common touch."
Jackson received more votes than anyone else but not a majority in the popular not electoral vote. The election went to the House of Representatives where John Quincy Adams was elected. Adams had received only 10.5% of the popular vote, less than Jackson, Crawford, and Clay. In the wheeling and dealing in the House, Clay finally threw his support to Adams because he did not like nor trust Jackson. In return, Adams named Clay Secretary of State, the post one traditionally held before becoming president. The Jackson people protested, saying it was a "corrupt bargain." They were wrong. The system had been designed to select the most qualified man and it did. However, the nation was becoming democratic. The Jacksonians began campaigning to put their man in the White House in four years.063003