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Panic of 1854

Evidence of this depression appeared first in the year 1854. There was a slight recovery in 1856 and 1857, followed by a severe subsidence in 1858, with a return to prosperity in the latter part of 1859. Money was fairly easy at the beginning of the period, tightened in 1857, and began growing easier again in the latter part of 1858.

The generally accepted cause of this business slump was the discovery of gold in California in 1848 and 1849. Thousands of men from all parts of the country joined in the rush to the gold fields. The influx of gold following the rush and the meteoric rise to great financial power of such men as Mills, Huntington, Flood, O'Brien, Blair, and others, inflamed the public mind and rekindled the latent spirit of adventure and speculation.

The development of the Greater West beyond the Alleghenies was especially rapid. Profligate land grants were made to prospective railroads. Railroad stocks and bonds and mining stocks of all kinds were eagerly absorbed by the public. Railroad construction was pushed forward with feverish activity and there was undue stimulation in practically all lines of industry. Credit was easily obtained. Bankers and financiers generously forwarded speculation. In fact, abuse of the credit system and the promotions of optimistic men were the most potent causes of the general business prostration following this speculative era. This era of activity caused the price of all kinds of property to reach a point too unnatural to be permanently maintained, and the price of commodities to increase beyond their normal value. This extraordinary condition was continued and sustained somewhat by the Crimean War (1853-1856).

As President Buchanan said in his message to Congress in December, 1857: "Our financial history for the last 40 years has been one of extravagant expansions in the business of the country, followed by ruinous contractions. At successive intervals the best and most enterprising men have been tempted to their ruin by excessive bank loans of mere paper credit, exciting them to extravagant importations of foreign goods, wild speculations, and ruinous and demoralizing stock gambling. ... Deplorable, however, as may be our present financial condition, we may yet indulge in bright hopes for the future. No other nation has ever existed which could have endured such violent expansions and contractions of paper credit without lasting injury; yet the buoyance of youth, the energies of our population, and the spirit which never quails before difficulties will enable us soon to recover from our present financial embarrassments, and may even occasion us speedily to forget the lesson which they have taught."

The panic of 1857, which was the beginning of the period of depression, was precipitated by the failure of the Ohio Life & Trust Co., of Cincinnatl This company had loaned $5,000,000 to the railroads alone. Subsequent to this failure many New York banks called their loans, which brought a financial crash involving most of the banks of the country. The collapse of the banks and the financial system during this depression brought about the enactment of national banking laws.

The panic lasted through the remainder of Van Buren’s single term in office and was one of the reasons he lost his reelection bid in the 1840 election to General William Henry Harrison of the Whig Party. President Harrison is best known today for serving the shortest term in office, only a month before passing away. Vice President John Tyler, who had represented Virginia in the House and Senate, became President on April 4, 1841. By the mid-1840s, the effects of the devastating Panic of 1837 had passed through the country’s economic system.

The revival of business came slowly until the Civil War (1861-1865) gave activity to all branches of trade. Although the previous transfer within a short time of a great amount of labor from the States to the gold mines and to the country west of the Mississippi caused a rise in the price of labor, this depression was not accompanied by any great reduction in wages.

This period of depression was paralleled by a similar condition in England, Germany, France, Russia, and other European countries. The withdrawal by England and France of vast amounts of capital and of productive labor in the ordinary channels of commerce to carry on the Crimean War created an unfavorabte influence on financial conditions in European countries and in the United States. Further, as affecting England, the great mu- tiny in India occurred in May, 1857, and the East India Co. was dissolved and the Government of India transferred to the British Crown in August, 1858.