In this article:
- The Panic of 1819 was an economic depression that laid bare the human, environmental, and economic consequences of building an economy on slavery and unrestrained exploitation of natural resources.
- Slavery and a lack of minimum wage laws for wage laborers made for an economy with weak circulation as so few of its participants had money to spend on buying goods and services.
- Unsustainable farming practices rendered existing farmland unusable after a few harvests, creating a constant need to find new, fertile land.
- An unrelated banking sector handed out loans and printed banknotes freely, driving up inflation and creating a debt crisis much like the subprime mortgage crisis in 2008.
- If any of those sound familiar, it’s because legislators at the time missed that opportunity to implement laws that could have prevented those same issues from causing future economic depressions.
Looking back on the Panic of 1819 from roughly 200 years in the future, one can’t help but wonder what the world would be like if the government had heeded the early warnings of what has come to be called the First Great Depression.
Observers at the time warned of the disastrous consequences of deforestation and soil exhaustion, the human and economic toll of slavery, and the dangers of an unregulated financial sector. Instead of using this early opportunity to avert disaster, America mostly stayed the course. Here’s what we could have learned from the Panic of 1819.
What Was the Panic of 1819?
After the Napoleonic Wars, a global market downturn ensued that had devastating effects on the U.S. economy.
In the span of about eight months between November 1818 and June 1919, prices plummeted by 51%. Unemployment skyrocketed. The burgeoning banking system, which had only just begun to develop after the War of 1812, was poised for collapse.
Many Americans ended up in debtors’ prisons or, if their creditors didn’t press charges, in poor houses. America was experiencing the first of what would become many economic depressions.
At the time, though, nobody knew that this was just one of many depressions. In an article published in the Philadelphia Aurora that year, a journalist wrote, “The evils under which the community now labor are of no ordinary kind, and centuries perhaps might revolve before so great a calamity would again befall this nation.”
The downfall was so disastrous, so widespread, that those experiencing it felt that it surely could not be “ordinary” and surely could not happen again for centuries.
Instead, it would happen again in 1837. Then, again in 1857, in 1873, in 1893, in 1907, in 1929, in 1973, in 1980, and in 2008. Between these major recessions and depressions, there would also be milder ones.
While many shared the view expressed in the Aurora that this was some kind of freak occurrence, others had been warning of the threats faced by the American economy for years before.
Those threats bear a strong resemblance to the ones we’re still facing today — probably because we didn’t address them during the Panic of 1819 and continued to largely ignore them in the 200 years since.
Climate Change, Slavery, and Over-Inflated Banks: The Three Crises That Led to the Panic of 1819
While most analysis of the Panic of 1819 focuses on the role of the banks — and they certainly deserve their share of the blame — the reason this depression had such drastic and far-reaching effects was that a variety of simmering issues came to a boil all at once.
Chief among those was America’s slow progress at moving away from slavery and a primarily agrarian economy — specifically, an agrarian economy that failed to use sustainable farming techniques that would ensure its own continued existence.
Over-Reliance on Exports and Lack of a Domestic Market
By 1819, the slave trade had become illegal. However, those who had already been kidnapped and brought to the States continued to be enslaved legally. While Northern states had declared themselves free states — which really just meant “not slave states” since Black Americans still lacked many of the rights and privileges of their white counterparts — Southern states continued to rely on forced labor to bolster their largely agrarian economy.
As a whole, America’s economy still looked similar to any other colonial economy: chiefly relying on exports of raw materials to Europe as its source of revenue. Those raw materials like cotton, corn, and other crops, were supplied largely by the slaveholding South.
By the early 19th century, however, tides were turning. Europe was enacting laws that required manufacturers to use domestically-produced raw materials. As a result, America’s key market was rapidly shrinking. The North, which had been slowly but surely shifting toward an industrial manufacturing economy, was not yet up to par with factories in Europe.
As a result, demand shrank for agricultural products and America was unable to compensate for the loss with any other industry.
With an economy so dependent on slavery, America’s domestic market couldn’t even pick up the extra weight. Without a strong base of wage laborers, there simply weren’t enough Americans who had money to spend on consumer products, American or otherwise.
It was this economic pressure, rather than any overwhelming sense of justice, that intensified the political will to end slavery. That the Panic of 1819 increased the sense of urgency America felt for ending slavery can be seen in the almost overnight shift in support for Missouri’s statehood.
In A Convergence of Crises: The Expansion of Slavery, Geopolitical Realignment, and Economic Depression in the Post-Napoleonic World, Michael Öhman points out, “When Congress granted Missouri second stage territorial status in 1812, only 17 of 142 members of the U.S. House of Representatives supported prohibiting the importation of slaves into the area.”
By 1819, the same chamber was deadlocked in the debate on whether to grant Missouri statehood as a slave state. While it ultimately did let Missouri in as a slave state, Congress ruled that additional territories could only be admitted as free states.
The pressure of the economic depression was intense enough to speed up the momentum to end slavery, but it would still be decades before it was fully abolished.
Even then, the lesson from the Panic of 1819 — that an economy built on slavery is not only inhumane but incapable of providing a sustainable circulation of wealth — would be ignored. As the class of wage laborers finally grew, former slaveholders and businessmen would just create new ways to exploit them instead of valuing them as a source of both labor and consumption.
Overdependence on Unsustainable Agricultural Practices
The shrinking demand for America’s agricultural products paired with a lack of alternative sources of revenue and a meager domestic market intensified the effects of the economic downturn.
To worsen the situation, farming techniques in the United States were poorly adapted to the environment, which led to lower harvest yields, frequent crop failures, and other chronic, worsening environmental problems.
This was because Southern slaveholders relied primarily on monocrops — planting acres and acres of a single plant species, season after season — which was exhausting the soil. Instead of replenishing that soil via more sustainable techniques, they simply chopped down forests to make new land for farming. In his paper, Michael Öhman argues:
“In the early nineteenth century, natural resources including land, timber, and wood for fuel were becoming scarce along the eastern seaboard. Impeding industrial growth, weakening the eastern shipping interest, and increasing the costs of building and heating houses, anxious observers warned, forest depletion and soil exhaustion would rupture communities, lead to the depopulation of entire regions, and, ultimately, weaken the republic.” (432).
These observers proposed the adoption of farming techniques more in tune with the cycles of nature, investment in alternative industries, and the development of strategies for renewing depleted resources.
In essence, they were trying to stave off the very climate and economic crisis we are currently experiencing today.
Little was done to change the situation, though. Monocrop agriculture continues to this day and small farmers continue to suffer from the environmental toll and scarcity of resources created by commercial monocropping farms.
Unregulated Credit Market
In this climate of intense debate about the political economy and the future of the country, banks were dolling out banknotes which fueled wild speculation by investors who were buying up cheap land out west with mortgages, building businesses that took on massive amounts of debt, and otherwise making risky financial decisions with borrowed money.
With loose underwriting standards, it was easy to get a loan, and when banks issued these easy-to-get loans, they simply printed up banknotes and then borrowed from the Bank of the United States to finance them.
Seeing the risk inherent in this unregulated and over-inflated credit market, the Second Bank of the United States (SBUS) decided to curb its loans to state banks in 1818.
When the SBUS required these state banks to redeem the paper banknotes they issued in specie (i.e. – for the quantity of gold the notes should have represented), the banks lacked the reserves to back up their own banknotes.
Lacking the reserves themselves, they began foreclosing en masse on mortgages, business loans, and other credit they had issued.
The attempt to curtail a reckless credit market ended up expediting its collapse. When the SBUS was slow to address the depression it had brought to a head, it became the target of blame for most Americans who were losing their jobs, their businesses, and their homes.
In the aftermath, some new regulations were put in place that would improve credit underwriting standards, but banks and private investors would continue to find ways to engage in high-risk speculation that would leave millions of Americans in ruins while those who created the crisis would come out relatively unscathed — sometimes even being bailed out by our own government.
When viewed in context and in its entirety, the Panic of 1819 reveals itself as a missed opportunity.
Cautionary voices could already be heard calling for the kinds of reforms that we’re still desperately calling for today: more sustainable use of our planet’s resources, market and labor regulations that promote a healthy working class, and stronger accountability for the finance sector.