Today, Americans have grown familiar with the ebb and flow of the economy. The panic of 1819 can be pointed to as America's formal introduction into this endless cycle.
Examples of the economic princple often referred to as the "boom/bust" economy are very prevalent in the relatively short history of America. In recent days, weeks and months, particularly, Americans have become accutely aware that a booming economy is often followed by a slower one. To think that this is something new, however, shows a blatant disregard of history.
The first example of such an economic downturn took place in the earliest years of the new nation, resulting in a depression during the 1780's throughout the newly-united States. The reasons for this are fairly self-evident: War debts, fledgling government, sudden lack of overseas funding...
The Buildup of the Economy
With the sound fiscal policies of Alexander Hamilton, America's first Secretary of the Treasury under George Washington, the economic policy of the United States began to build itself up, developing a national bank (which Hamilton correctly figured would stabilize the economy, limit the amount of printed money (to reduce inflation), and aid the growth of American business.
Those opposed to the national bank saw it as a blatant disregard of state sovereignty and contrary to the implicity principles of the constitution. Thus, after the first bank's charter expired in 1811, President Madison refused to renew it.
As America's economy began to wane under the monetary strains of the War of 1812, however, Madison did eventually come to realize the necessity of having a national bank, and allowed a replacement to be chartered in 1814, enabling America's post-war economy to boom (just as it has after other wars since).
As Madison's time in office expired andJames Monroe's first term begain (in 1817), the American economy was booming.
Unfortunately, while the bank enabled several years of economic "boom," there were several areas of fiscal irresponsibility throughout the country which precipitated an impending downturn.
For one thing, the high demand of American products (a major cause of economic growth) had allowed many Americans to achieve a certain amount of financial security, and many of them began to invest in buying up extravegant amounts of western lands - more than they could practically afford. To encourage this, the government sold much of this land on credit.
Around 1819, the rapid market growth could not be sustained any longer and the economic growth began to slow - banks began to demand payment of the government loans issued to finance the war of 1812, initiating a period of economic contraction. This led, in some peoples' estimates, to a wave of bankruptcies and bank closures.
Along with the 1819 slowdown, many of the new western landowners suddenly found themselves unable to pay their debts to the government and banks, causing the slowdown to worsen considerably and foreclosures across the nation were added to the problem.
Resolution
Americans during this first national downturn failed to agree on any specific remedy to ease the recession (which should sound familiar to both those living today, and to those during any other major downturn in American history).
Northern manufacturers proposed a higher tariff in order to heighten revenues on imported goods).
Southern farmers proposed a reduced tariff in order to promote free trade to stimulate the economy.
Some opted for direct financial relief from the government, while others simply called for restrictions of bank lending or monetary expansion.
President Monroe responded conservatively to the panic, offering only to procede conservatively in order to provide sound fiscal policy in order to aid growth as much as possible.
Congress took a bit more action in the form of the Land Act of 1820 and the Relief Act of 1821 (both of which were signed by Monroe).
The land act lowered the cost and purchase requirements of western land in order to continue to encourage purchase and growth.
The relief act enabled the endebted wester land owners who could not pay their loans to simply return the land and garner a credit for themselves. These acts in the end proved to be moderately successful, and within a few years, the panic had waned, sending America into still another cycle of growth which would last until the panic of 1837.
Knowing the history of the American economy is crucial to provide a context to what is happening in today's world. Knowing that economic ups and downs are simply a part of history, and that each one can be learned from in order to provide help in dealing with the next, should truly prove beneficial to all concerned Americans.
References:
"Panic of 1819." Ohio History Central.
Rothbard, Murray. "The Panic of 1819."
