Discussion Paper

Crisis Chronicles: The Panic of 1819—America’s First Great Economic Crisis

Abstract: As we noted in our last post on the British crisis of 1816, while Britain emerged from nearly a quarter century of war with France ready to supply the world with manufactured goods, it needed cotton to supply the mills, and all of Europe needed wheat to supplement a series of poor harvests. The United States met that demand for cotton and wheat by expanding agricultural production, facilitated by the loose credit policies of a growing number of lightly regulated state banks. Meanwhile, the Treasury needed revenue to pay off debts from the Louisiana Purchase and the War of 1812, so the government turned to selling land acquired in the Louisiana Purchase. But the increased agricultural demand and easy credit policies led to a speculative real estate boom, particularly in Alabama. So when the Treasury started to pay off its debts, the specie drain caused a painful but necessary contraction and the boom went bust. In this edition of Crisis Chronicles, we describe America?s first great economic crisis.

Keywords: 2nd bank of U.S.; deflation; Panic of 1819; Federal Reserve System;

JEL Classification: N2;G1;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2014-12-05

Number: 20141205c