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Panic of 1857 Facts and Outcome

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The Panic of 1857 was a financial panic in the United States caused by a declining global economy and the over-expansion of the domestic economy. In 1857, the world's first economic crisis occurred due to the world's economies being interconnected. 

Panic of 1857 Facts
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Panic of 1857 Facts

  • Gold was discovered in California in the late 1840s, and by the mid-1850s, the mining of gold had declined. The gold expanded the money supply, but by the mid-1850s, the western bankers became worried about the increase.
  • Eastern bankers became cautious with their loans to the West, and some even refused to accept Western bank-issued paper money.
  • In March 1857, the Supreme Court ruled on the Dred Scott case, and it caused Western states to prepare for the possibility of slavery being allowed within their borders. This caused the price of land to decrease.
  • There was a railroad bubble due to banks being too aggressive and making loans to people who would never make it past the planning stage. Speculators entered the industry and made the bubble more likely to pop. In 1857, railroads saw their peak value in the stock market.
  • On August 11, 1857, N. H. Wolfe and Company, the oldest flour and grain company in New York City, failed. The failure shook investor confidence and began a slow selloff in the market, which continued into late August.
  • On August 24, 1857, the president of Ohio Life Insurance and Trust Company announced that its New York branch had suspended payments. Ohio Life failed due to fraudulent activities by the company's management, and its failure threatened to cause the failure of many Ohio banks or possibly cause a run on the banks.
  • The banks connected to Ohio Life Insurance and Trust Company were reimbursed, and they avoided catastrophe. However, the situation raised concerns over the financial state of the country.
  • The prices of grain decreased and caused many farmers to default on their loans, which applied more pressure on banks that had funded lands in the West.
  • President James Buchanan believed the problem to be the paper money system and decided to withdraw the usage of all bank notes under twenty dollars. He felt this would decrease the paper money supply in order to allow the species supply time to increase and reduce inflation rates. President Buchanan wanted the state banks to follow the federal government, specifically, the Independent Treasury system. This system allowed the federal government to keep up with special payments, which helped alleviate some of the financial stress that the bank suspensions had brought on.
  • In the end, the Panic of 1857 was felt in the industrialized North, but the agrarian South walked away unscathed. This caused the South to believe the North needed their economy in order to remain stable, which would cause them to protect their institutions. When the economy stabilized, the issue of slavery took front and center again.