Panic of 1857

Date: From 1857-09-XX to 1861

Between 1850 and 1855, imports in the United States began to greatly outpace exports, land speculation and investment in railroads reached a fever pitch, and both agricultural and stock prices peaked. The economy experienced two sharp contractions, but seemed to recover. Then, on August 24, 1857, the Ohio Life Insurance and Trust Company—one of the largest financial institutions in New York—failed. Although at first some believed that strong agricultural harvests would confine any monetary difficulties to New York, as New Yorkers rushed to redeem notes from smaller banks throughout the nation, these smaller banks in the U.S. interior began failing as well. Eastern bankers hoped gold from California would bolster the financial system, but, on September 12, the Central America, a ship carrying $1,500,000 in gold bullion, sank off the coast of South Carolina.

On September 25, Philadelphia’s Bank of Pennsylvania announced it was suspending payment on bank notes. A massive run on banks ensued, climaxing during the second week in October. The panic soon impacted every sector of the U.S. economy, sending the nation into a full-scale recession. Compounding the rush on banks was the increasingly interconnected nature of the U.S. and world economy. Crop prices fell, merchants were unable to secure credit to purchase or ship products, manufacturers suspended operations, unemployment rose, and railroads—including the Illinois Central Railroad Company—collapsed. Nearly three percent of all businesses in Illinois failed between 1857 and March 1858 alone. The U.S. economy did not recover until well into 1859, and instability continued to rock the banking system until after the start of the Civil War.

James L. Huston, The Panic of 1857 and the Coming of the Civil War (Baton Rouge: Louisiana State University, 1987), 2-6; 13-18; 20; 22; 28; 32; Kenneth M. Stampp, America in 1857: A Nation on the Brink (New York: Oxford University Press, 1990), 220-21; Harper's Weekly (New York, NY), 26 September 1857, 614; Charles W. Calomiris and Larry Schweikart, “The Panic of 1857: Origins, Transmission, and Containment,” The Journal of Economic History 51 (December 1991), 814; George W. Van Vleck, The Panic of 1857: An Analytical Study (New York: AMS Press, 1967), 95; Alfred T. Andreas, History of Chicago (Chicago: A. T. Andreas, 1885), 2:619.