US History 1 Honors
March 15, 2013
The Panic of 1819 was America's first great depression. It was caused by inflation and speculation because of bad and weak loans, public debt from the War of 1812, the Second Bank of the United States, and rapid population growth. The effects this depression had on America included cotton production decline, bank failures, mortgage foreclosures, and mass unemployment. The Bank of New York, the Second Bank of the United States, and the Bank of Kentucky activated policies to help the economy. President Monroe cut salaries and government spending to help America recover from this depression. The Panic also helped result in the separation between North and South. Banking systems and financial policies were forced to change. The Panic can be important for current and future studies. America was affected greatly by The Panic of 1819, through the change of banking systems and financial policies, which helped lead them to the Civil War.
The Panic of 1819 was the result of the debt from the War of 1812, rapid population growth in the West, and bad decisions by the Second Bank of the United States which caused inflation and real estate speculation. After the War of 1812, America raised prices of agricultural commodities because they were high demand in Europe and to attempt to pay off the debt from the war, which led to the rapid population growth in the West due to virgin, cheap land. The victories of European American settlers over American Indian tribes freed land beyond the Appalachians for settlement. The creation of a public land system induced huge numbers of people to leave their old homes along the eastern seaboard and seek new homesteads. In 1815, Americans purchased roughly one million acres of land from the federal government. The federal government did not allow Americans to buy land on credit so state and private banks sent out banknotes (loans).The high price of cotton production was also a huge contributor for why people moved out west.
The Panic of 1819 was not caused by either a specific internal or external action but was rather the result of a chain of events. Unlawful decisions by the Second Bank of the United States caused inflation and real estate speculation. These are the Second Bank of the United States' rights described by Clement Juglar.
On the 15th of February, 1815, an effort was made to re-establish for the second time a United States Bank. It was authorized on the 10th of April 1816, the Act permitting the formation of a company, with a capital of $35,000,000, divided into 350,000 shares of $100 each, of which the Government took 70 shares and the public 180,000 shares. These last were payable in $7,000,000 of gold or silver, of the United States of North America, and $21,000,000 in like money, or, in the funded debt of the United States either in the 6 percent. It had no right to contract any debt greater than $35,000,000, more than its deposits, unless by special act; the directors were made responsible for every violation, and could be sued by each creditor. The bank could lend no more than $500,000 to the United States, $50,000, to each state, and nothing to foreigners.