Panic of 1857

The Panic of 1857 was a financial crisis in the United States caused by the declining international economy and over-expansion of the domestic economy. Because of the invention of the telegraph by Samuel F. Morse in 1844, the Panic of 1857 was the first financial crisis to spread rapidly throughout the United States.^[1] The world economy was more interconnected by the 1850s, which made the Panic of 1857 the first worldwide economic crisis.^[2] In Britain, the Palmerston government circumvented the requirements of the Bank Charter Act 1844, which required gold and silver reserves to back up the amount of money in circulation. Surfacing news of this circumvention set off the Panic in Britain.^[3]

Beginning in September 1857, the financial downturn did not last long, but a proper recovery was not seen until the onset of the American Civil War in 1861.^[4] The sinking of SS Central America in September 1857 contributed to the panic, since New York City banks were waiting on a much-needed shipment of gold that was being transported by the ship. After the failure of Ohio Life Insurance and Trust Company, the financial panic quickly spread with businesses beginning to fail, the railroad industry experiencing financial declines, and hundreds of thousands of workers being laid off.^[5]

Because the years immediately preceding the Panic of 1857 were prosperous, many banks, merchants, and farmers had seized the opportunity to take risks with their investments, and, as soon as market prices began to fall, they quickly began to experience the effects of financial panic.^[4] American banks did not recover until after the Civil War.^[6]