Panic of 1819

The Panic of 1819 was the first widespread and durable financial crisis in the United States that slowed westward expansion in the Cotton Belt and was followed by a general collapse of the American economy that persisted through 1821. The Panic heralded the transition of the nation from its colonial commercial status with Europe toward an independent economy.

Though the downturn was driven by global market adjustments in the aftermath of the Napoleonic Wars, its severity was compounded by excessive speculation in public lands, fueled by the unrestrained issue of paper money from banks and business concerns.

The Second Bank of the United States (SBUS), itself deeply enmeshed in these inflationary practices, sought to compensate for its laxness in regulating the state bank credit market by initiating a sharp curtailment in loans by its western branches, beginning in 1818. Failing to provide gold specie from their reserves when presented with their own banknotes for redemption by the SBUS, the state-chartered banks began foreclosing on the heavily mortgaged farms and business properties they had financed. The ensuing financial panic, in conjunction with a sudden recovery in European agricultural production in 1817, led to widespread bankruptcies and mass unemployment. The financial disaster and recession provoked popular resentment against banking and business enterprise, along with a general belief that federal government economic policy was fundamentally flawed. Americans, many for the first time, became politically engaged so as to defend their local economic interests.^[1][2]

The New Republicans and their American System^[3]—tariff protection, internal improvements, and the SBUS—were exposed to sharp criticism, eliciting a vigorous defense.