Free «The Panic of 1819 in the United States» UK Essay Sample
The Panic of 1819 is usually referred to as the first major depression in the United States (McNamara n.p.; Sobel 45). It struck the U.S. economy during the presidency of James Monroe. The Americans went through harsh challenges, as a result of the crash of the economy, which had lasted for a period from 1819 to 1821.
Various causes are believed to be behind the Panic of 1819. The primary cause of the depression is believed to be the changes that were implemented by the Second Bank of the United States to provide more conservative credit policies as the some western banks were associated with unconventional practices. Consequently, however, the Second Bank of the United States was forced to recall all its loans (Haulman 23; Murphy 414). Other US banks followed and recalled their loans, as well. Many creditors were land speculators; therefore, they were unable to repay their loans. The consequences were tragic: many banks exhausted their depositories, went bankrupt, and closed down. The economic conditions in the country were worsened by the large influx of imported goods, which flooded the American market (Murphy 414). This fact consequently led to the decline of the cotton industry in the South.
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The second reason behind the recession was the war of 1812. It is believed that prior to the war, the US was a young country with a flourishing economy. Its territory was sparsely populated with a population of only seven million people, who were primarily engaged in agriculture. Therefore, there was large export of agricultural goods such as cotton, wheat, meat, and tobacco. However, as a result of the war, the U.S. economy was affected significantly. It was forced to make many sudden and rapid adjustments. Consequently, the country experienced a decline in exports from $138 million in 1807 to $7 million in 1814 (Matson 454). In addition, the monetary system suffered heavily and influenced the federal government borrowing. This event marked the beginning of the recession in the economy, which deepened in 1819.
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The Panic of 1819 marked the end of the impressive economic expansion of 1812; during this period, the American economy developed from the European commercial status to the U.S. dynamic economy (Bixby 92). At the beginning of 1819, the economy of the country witnessed collapse of both financial and industrial institutions, which lead to Laissez-Faire Capitalism. Mortgages were foreclosed and, as a result, many people were forced out of their homes and farms. There was a decline in the prices for agricultural products and manufactured goods. As an overall result, the unemployment rates increased significantly (Haulman 682). The effects of the Panic were bitterly felt throughout the country. The situation had lasted until 1824 when the U.S. economy started to recover sluggishly.
There were various reactions by people to the panic. However, this reaction was determined by the region where the person lived. In the North, the manufacturers believed that the country could avoid the future downturns. They considered that high taxes should be imposed on all imported goods so as to protect the local market from foreign competition (Leab 122). In the South, however, the residents resented the high taxes because they would contribute to high prices on the imported goods such as machinery. They reacted fiercely in campaigns against the implementation of such changes. They hoped that if there were freer trade, the cotton industry would revive. On the other hand, the westerners took a different approach and considered that the bankers and speculators were responsible for the Panic.
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Facing a new state of the economy, both the American government and politicians received a crucial task of designing the way forward to help the economy recover from the depression. Firstly, it was suggested to increase the production and distribution of paper money, in order to allow lowering the interest rates and prices of debts (Smith 22). However, there were some opponents of this idea; they argued that this step would encourage irresponsible borrowing rather than end the deflation. Secondly, there was a suggestion regarding the initiation of the government-controlled public works. Nevertheless, this idea was rejected as unconstitutional. Thirdly, it was suggested that the best approach was to liquidate all unfavorable conditions and return to the healthy economy and traditional money. The proponents of this idea believed that working hard and spending less would help the economy recover in the nearest future.
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James Monroe, the U.S. President during this time, adhered to the Constitution and introduced the government interventions. The interventions implemented included the cuts of the government officials’ payments and decreased spending on the government and its departments (Dupre 276). In three years, the economy started to revive because of this strategies coupled with an increased influx of the Mexican silver.
This study has explored the Panic of 1819, which is considered the first major U.S. economy depression. The main causes include the development and implementation of inappropriate strategies by the Second Bank of the United States, as well as the post-war effects. The consequences of the Panic were bitterly felt in the entire nation. The then economy was characterized by declining financial and industrial institutions, which led to the increased unemployment rates. Various correctional strategies were suggested by both officials and common people. The northerners suggested imposing heavy taxes on imported goods so as to discourage foreign competition. In the South, this idea was declined because it would lead to increased prices for imported machinery. The westerners, in turn, called for the reforms in the banking sector. The crisis ended when the US president, James Monroe introduces the budget and salary cuts for all government officials. This strategy enabled the economy to recover within three years. Today, the Panic of 1819 is considered an inherent part of the US economic history.