The Panic of 1819 was the first major financial crisis in the United States, after the depression of the late 1780s (which led directly to the establishment of the dollar and, perhaps indirectly, to the calls for a Constitutional Convention). A currency crisis, which is also called a balance-of-payments crisis, occurs when the value of a Currency changes quickly undermining its ability to serve as The United States of America —commonly referred to as the ^[1] It featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. Foreclosure is the legal proceeding in which a mortgagee, or other Lienholder, usually a lender obtains a court ordered termination of a mortgagor Unemployment occurs when a person is available to work and currently seeking work but the person is without work. Agriculture refers to the production of goods through the growing of plants and fungi and the raising of domesticated Animals The study of agriculture Manufacturing (from Latin manu factura, "making by hand" is the use of tools and labor to make things for use or sale It marked the end of the economic expansion that had followed the War of 1812. The Economy of the United States is the largest national economy in the world The War of 1812 was fought between the United States of America and the British Empire, particularly Great Britain and her North American colonies However, things would change for the US economy after the Second Bank of the United States was founded in 1816^[2]; the bank was created in response to the vast spread of bank notes across United States private banks, due to inflation brought on by the debt the nation was in after the war of 1812 ended^[3]. The Second Bank of the United States was a bank chartered in 1816 five years after the expiration of the First Bank of the United States.

Explanations

Different economic schools of thought have offered explanations for the Panic of 1819.

Economists who adhere to mainstream theory suggest that the Panic of 1819 was the early Republic's first experience with the boom-bust cycles common to all modern economies. Clyde Haulman, Professor of Economics at the College of William and Mary ^[4], suggests that the Panic was more complex than some would suggest. It was not primarily a failure of the banking system following the War of 1812. Indeed, rather than being the first failure of the market economy in America, the Panic of 1819 marked the beginning of a new phase of American economic history, where mature market institutions would continue to move cyclically from boom to bust. These explanations are not intended to discount the importance of war-time public finance as a cause of the Panic. They simply acknowledge that there were broader, institutionally based causes for the events of 1819 and the early 1820s.

Austrian school economists view the nationwide recession that resulted from the Panic of 1819 as the first failure of expansionary monetary policy. The Austrian School, also known as the “ Vienna School ” or the “ Psychological School ” is a heterodox school of economics that advocates A recession is a contraction phase of the Business cycle. The U Expansionary monetary policy is monetary policy that seeks to increase the size of the money supply. The explanation of the Panic of 1819 is based on the Austrian Theory of the Business Cycle. The Austrian business cycle theory is the Austrian School 's explanation of the phenomenon of Business cycles (or " Credit cycles quot Government borrowed heavily to finance the War of 1812, which caused tremendous strain on the banks’ reserves of specie and led inevitably to a suspension of specie payments in 1814. The War of 1812 was fought between the United States of America and the British Empire, particularly Great Britain and her North American colonies Money is anything that is generally accepted as Payment for Goods and services and repayment of Debts. Year 1814 ( MDCCCXIV) was a Common year starting on Saturday (link will display the full calendar of the Gregorian calendar (or a Common The suspension of the obligation to redeem greatly spurred the establishment of new banks and the expansion of bank note issues. An obligation is a requirement to take some course of action whether legal or moral. Redemption value is the price at which the issuing company may choose to repurchase a security before its maturity date A banknote (often known as a bill, paper money or simply a note) is a kind of Negotiable instrument, a Promissory note made by a This inflation of money encouraged unsustainable investments to take place. It soon became clear that the monetary situation was in bad shape, and the Second Bank of the United States was forced to call a halt to its expansion and launch a painful process of contraction. The Second Bank of the United States was a bank chartered in 1816 five years after the expiration of the First Bank of the United States. There was a wave of bankruptcies, bank failures, and bank runs; prices dropped and wide-scale urban unemployment began. Bankruptcy is a legally declared inability or impairment of ability of an individual or organization to pay their Creditors Creditors may file a bankruptcy petition against Unemployment occurs when a person is available to work and currently seeking work but the person is without work. By 1819, land measures in the US had also reached 3,500,000 acres, and many Americans did not have enough money to pay off to their loans^[5].

The Panic of 1819 was caused partially by international events. International or internationally most often describes interaction between Nations or encompassing two or more nations constituting a group or association having European demand for American foodstuffs was increased because the Napoleonic Wars decimated the agriculture in Europe. The Napoleonic Wars (1803-1815 involved Napoleon's French Empire and a shifting set of European allies and opposing coalitions Agriculture refers to the production of goods through the growing of plants and fungi and the raising of domesticated Animals The study of agriculture War and revolution in the New World destroyed the supply line of precious metals from Mexico and Peru to Europe. War is an international relations Dispute, characterized by organized Violence between National Military units A revolution (from the Latin revolutio, "a turnaround" is a fundamental change in power or organizational structures that takes place in a relatively The New World is one of the names used for the non-Eurasian/non-African parts of the Earth specifically the Americas and Australia. The United Mexican States ( or commonly Mexico (ˈmɛksɪkoʊ () is a federal constitutional Republic in North America. Peru (Perú Piruw Piruw officially the Republic of Peru ( reˈpuβlika del peˈɾu is a country in western South America. Without the base of the international money supply, poor Europe and governments hoarded all the available specie. This caused American bankers and businessmen to start issuing false banknotes and expanding credit. American bankers, who had little experience with corporate charters, promissory notes, bills of exchange, or stocks and bonds, encouraged the speculated boom during the first years of the market revolution. A charter is the grant of authority or rights stating that the granter formally recognizes the prerogative of the recipient to exercise the rights specified A promissory note, also referred to as a note payable in Accounting, is a Contract where one party (the maker or issuer) makes an A negotiable instrument is a specialized type of " Contract " for the payment of money that is unconditional and capable of transfer by negotiation Software for Fixed assets management and Stock control developed in 2004. In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest By the end of 1819, the bank would call in on these loans. ^[5].

Small, local ups and downs had occurred in the market since the 1790s, but never to this magnitude. Businesses went bankrupt when they could not meet their debts, and hundreds of thousands of wage workers lost their jobs. For example, unemployment reached 75 percent in the American city of Philadelphia, and 1,800 workers were imprisoned for debt. Philadelphia (ˌfɪləˈdɛlfiə Debt is that which is owed usually referencing Assets owed but the term can cover other obligations In Baltimore, the unemployed set up a city of tents on the outskirts of the city.

Proposed remedies

Proposed remedies included:

• increase of tariffs (largely proposed by Northern manufacturing interests). For other uses of this word see Tariff (disambiguation. A tariff is a tax imposed on goods when they are moved across a political boundary The Mid-Atlantic States (also called Middle Atlantic States or simply Mid Atlantic) form one of the nine geographic divisions within the United States that
• reduction of tariffs (largely proposed by Southerners, who believed free trade would stimulate the economy and increase demand). The Southern United States &mdashcommonly referred to as the American South, Dixie, or simply the South &mdashconstitutes a large distinctive
• monetary expansion; i. e. , restriction or suspension of specie payment. A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is
• rigid enforcement of specie payment.
• restriction of bank credit.
• direct relief of debtors.
• public works proposals.
• stricter enforcement of anti-usury laws. Usury (ˈjuːʒəri comes from the Medieval Latin usuria, "interest" or "excessive interest" from the Latin usura "interest"

In the event, President Monroe, interpreting the economic crisis in the narrow monetary terms then current, limited governmental action to economizing and ensuring fiscal stability. Although he agreed to the need for improved transportation facilities, he refused to approve appropriations for internal improvements without prior amendment of the Constitution. Monroe would aid the economy with laws like the Land Act of 1820 and the Relief Act of 1821. ^[6]

By 1823, the panic had ended. ^[7] It was the America's second experience (the first was in the mid-1780s) with the mysteries and miseries of the business cycle. The term business cycle or economic cycle refers to the fluctuations of economic activity during its long term growth trend

See also

• Business cycle
• Keynesian economics
• Monetary policy
• Austrian Theory of the Business Cycle

References

Further reading

• Cayton, Andrew R. L. (1982). "The Fragmentation of 'A Great Family': The Panic of 1819 and the Rise of the Middling Interest in Boston, 1818-1822". Journal of the Early Republic 2 (2): 143-167. doi:10.2307/3122690. A digital object identifier ( DOI) is a permanent identifier given to an Electronic document.  
• Blackson, Robert M. (1989). "Pennsylvania Banks and the Panic of 1819: A Reinterpretation". Journal of the Early Republic 9 (3): 335-358. doi:10.2307/3123593. A digital object identifier ( DOI) is a permanent identifier given to an Electronic document.  
• Sobel, Robert (1988). Robert Sobel ( February 19 1931 &ndash June 2, 1999) was an American professor of history at Hofstra University, and Panic on Wall Street: A Classic History of America's Financial Disasters. New York: Dutton. ISBN 0525484043.  

External links

• Murray N. Rothbard. Panic of 1819: Reactions and Policies