Panic of 1819

 

James Monroe

Summary and Definition of the Panic of 1819
Definition and Summary:
The Panic of 1819 was a crisis in financial and economic conditions following the War of 1812, a period of national exuberance and the establishment of the Second Bank of America. The Panic of 1819 was part of a  worldwide financial crisis but the inept management of the Second Bank of America caused the U.S. panic by first extending far too much credit, then quickly restricting it. These banking policies led to runs on state banks, bank closures, foreclosures and bankruptcies. The Panic of 1819 was the first Important financial crisis in the United States and the terrible effects of the panic resulted in the public loss of confidence in the financial structure.

The Panic of 1819 for kids
James Monroe was the 5th American President who served in office from March 4, 1817 to March 4, 1825. One of the important events during his presidency was the Panic of 1819.

The Panic of 1819 for kids: Background History
The War of 1812 between the US and Great Britain had ended in a stalemate, and massive war debts, but gave the United States the confidence to consider itself as
a strong, unified and independent nation. The political calm in the country led to the period known as the Era of Good Feelings. The government introduced an economic plan aimed at improving the economy of the US. The nation's economic plan was based on a new national bank to provide credit to Americans, taxing foreign goods to raise income and creating a subsidized transportation infrastructure of new roads and canals to enable Westward Expansion to new lands with more settlers becoming farmers. The plan was initiated by Henry Clay and was called the 'American System'. The establishment of the Second Bank of the United States was part of the economic plan to reach these goals. President James Madison, with the approval of Congress, granted a charter to the Second Bank of the United States in 1816 which was a privately held banking corporation.

What were the Causes of the Panic of 1819?
There were many causes of the Panic of 1819 including those
are detailed in the following fact sheet.

What were the Causes of the Panic of 1819?

 
Panic of 1819 Causes:Westward expansion: The government offered vast tracts of western land for sale. This fueled real estate speculation that was funded by increased availability of credit from the Second Bank of the United States and new, reckless frontier banks
Panic of 1819 Causes:The number of banks in the United States more than doubled between 1812 and 1819
Panic of 1819 Causes:The Banks were unregulated and began to issue massive amounts of bank notes. The bank notes were not backed by gold and silver.

  • Banks issued notes far in excess of their specie deposits (see Promissory Notes below)
  • In other words bank's capital was based on IOU's
Panic of 1819 Causes:State banks were chartered for the express purpose of extending credit to speculators
Panic of 1819 Causes:Easy credit was obtained by high-risk debtors including many farmers
Panic of 1819 Causes:An International financial crisis emerged (a global credit crunch, banks were restricting credit and loans were being called in)
Panic of 1819 Causes:A trade deficit in the U.S. was caused by a downturn in exports and strong price competition from foreign goods

  • Increasing crop yields in Europe reduced the demand for American farm products, especially wheat, cotton and tobacco, and prices for these products plunged
  • Demand for manufactured goods also decreased
Panic of 1819 Causes:The bad management of poor banking policies of the state banks and the Second Bank of the United States

  • The first president of the Second Bank of the United States was William Jones, a political appointee who had gone bankrupt (refer to the Spoils System for more info)
  • William Jones first extending far too much credit and then panicked and restricted it too quickly
Panic of 1819 Causes:In 1819 Langdon Cheves replaced William Jones as president of the Second Bank of the United States. To combat the economic crisis he put into place a number of measures

  • Fewer loans were extended
  • The number of notes in circulation were halved
  • He presented state banknotes to banks for specie (gold and silver coins)
  • He foreclosed on mortgages
These are the causes of the Panic of 1819, its subsequent effects are detailed in the next table.

What were the Causes of the Panic of 1819?

The Panic of 1819 for kids: Promissory Notes

Promissory Notes
The capital of the banks were made up from promissory notes like the example in the picture

  • A promissory note was a signed document containing a written promise to pay a stated sum in gold or silver to a specified person at a specified date or on demand
Section 8 of the Constitution permits Congress to coin money and to regulate its value. Section 10 of the Constitution denies states the right to coin or to print their own money.

Promissory note issued by the Second Bank of the United States on issued 1840-12-15 in the amount of $1,000.

The Panic of 1819 for kids
The info about Panic of 1819 provides interesting facts and important information about this important event that occured during the presidency of the 5th President of the United States of America.

 

Presidential Seal

 

What were the Effects of the Panic of 1819?
The terrible effects of the Panic of 1819
are detailed in the following fact sheet.

What were the Effects of the Panic of 1819?

 
Panic of 1819 Effects:Banks went into bankruptcy - they did not have enough gold and silver to cover withdrawal requests
  
Panic of 1819 Effects:The banks had to demand payment of debts by the farmers of the Midwest
  
Panic of 1819 Effects:The banks had to demand payment of debts by the industrialists and manufacturers
  
Panic of 1819 Effects:The ability to obtain easy credit, or extend credit, disappeared
  
Panic of 1819 Effects:The value of land decreased - land sold for up to $70 an acre dropped in value to only $2 an acre
  
Panic of 1819 Effects:Demand for manufactured goods also decreased
  
Panic of 1819 Effects:The prices of products plunged and inflation rose
  
Panic of 1819 Effects:There were foreclosures, numerous people were made homeless and lost their farms and businesses

  • A foreclosure is the process of taking possession of a mortgaged property as a result of the mortgagor's failure to keep up mortgage payments

  
Panic of 1819 Effects:There were numerous bankruptcies

  • A bankruptcy is financial ruin caused by not having the money needed to pay your debts

  
Panic of 1819 Effects:People were thrown into debtors prisons
  
Panic of 1819 Effects:Widespread unemployment was triggered
  
Panic of 1819 Effects:The gross mismanagement of the Second Bank of the United States reduced the effectiveness and belief in  the American System
  
Panic of 1819 Effects:The nation suffered a depression for the next two years

These are the effects of the Panic of 1819 and the disastrous toll it took on the Nation and the American people

What were the Effects of the Panic of 1819?

The Significance of the Panic of 1819:
What was the significance of the Panic of 1819? The Rush-Bagot agreement was significant because:

  • The Land Act of 1820 was passed abandoning the credit system for buying public lands and led to the future confiscation of land from Native Americans and lower cost lands for settlers in the west

  • There were calls for additional protective economic policies which led to the 1828 Tariff of Abominations and the Nullification Crisis

  • The experiences suffered by so many Americans fostered a profound mistrust of banks, bankers and paper money

  • The Panic of 1819 led to the future Bank War waged by President Andrew Jackson and the issue of the Specie Circular

Also refer to the article on the Panic of 1837.

The Panic of 1819 for kids: Additional Information
The Panic of 1819 was one of a series of financial crisis to cripple the economy of the United States - refer to the
Bank War, the Panic of 1837 and the Panic of 1857 for additional facts and information.

The Panic of 1819 for kids - President James Monroe Video
The article on the Panic of 1819 provides an overview of one of the Important events in his presidential term in office. The following James Monroe video will give you additional important facts and dates about the political events experienced by the 5th American President whose presidency spanned from March 4, 1817 to March 4, 1825.

 

 

 

The Panic of 1819
 
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