Panic of 1796–1797
The Panic of 1796–1797 was a series of downturns in credit markets in both
The scandals associated with these and other incidents prompted the
Background
Frequent instability characterized the United States economy during the 1780s and 1790s. Rampant inflation of
During this time,
Duer and other prominent financiers then sought to recover their fortunes by inciting
Causes
Land speculation in the U.S.
The immediate cause of the Panic of 1796–1797 was a series of land speculation schemes in the fledgling United States that issued
However, quick sales failed to materialize as European investors grew wary of American land schemes. Unclear titles and the poor quality of much of the company’s land further slowed sales. Morris and Nicholson then began to finance their purchases by issuing their own private notes, which creditors readily accepted because of Morris’s immense financial stature. These notes became themselves the subject of speculation, depreciating rapidly as a medium of exchange.[7]
Meanwhile, continued war in Europe constricted credit, exposing the precariousness of the North American Land Company scheme and others like it. Rampant business failure plagued Eastern port cities by late 1796, and land speculators less preeminent than Morris soon found themselves in debtors' prison. Among these was James Wilson, whose confinement, combined with rumors of Morris’s imprisonment, caused panic. Morris and Nicholson’s notes, by now totaling $10,000,000, began trading at just one-eighth their value. By 1797, their paper pyramid collapsed altogether.[8][9]
British Bank Restriction Act 1797
Across the Atlantic, British legislation exacerbated the damage wrought by the bursting land speculation bubble. The monetary strain imposed by the Napoleonic Wars and withdrawals by panicked depositors had greatly depleted the coin and bullion reserves of the Bank of England. This prompted Parliament to pass the Bank Restriction Act 1797, which halted specie payments.[10] The disruption of access to British gold and silver, coupled with the inability for financiers in the United States to successfully access Continental specie markets, unraveled the Atlantic credit web,[clarification needed] hastening the collapse of Morris’s and other speculation schemes.[11]
Collapse in the U.S.
By 1800, the crisis had resulted in the collapse of many prominent merchant firms in Boston, New York, Philadelphia, and Baltimore, and the imprisonment of many American debtors. The latter included the famed
Aftermath
The panic caused a pronounced commercial downturn in American port cities that did not relent until after 1800. Investors in land schemes did not suffer alone. Shopkeepers, artisans, and wage laborers, all of whom depended on the continuance of overseas commerce, felt the impact as businesses failed between 1796 and 1799. The panic did not, however, evenly affect the whole economy. Port cities along the Eastern Seaboard suffered much worse than the rural interior, which had not yet developed the intricate webs of credit and market exchange that would drag it into future panics and depressions.[16]
The panic also revealed the young republic's economic interconnectedness with Europe. In spite of and perhaps validating the prescient warnings of the dangers of foreign entanglement laid out in
Finally, the imprisonment for indebtedness of such prominent American statesmen as James Wilson and Robert Morris compelled Congress to pass the Bankruptcy Act of 1800, establishing a framework for creditors and debtors to cooperate in reaching a settlement. Though critics, who argued that the law encouraged risky investments by reducing the cost of failure, prevented its renewal in 1803, the act represented a step in the American legal tradition against imprisoning debtors.[19]
See also
Further reading
- Chew, Richard S. (2005). "Certain Victims of an International Contagion: The Panic of 1797 and the Hard Times of the Late 1790s in Baltimore" (PDF). Journal of the Early Republic. 25 (4): 565–613. S2CID 154865404.
- Wheelock, David C.; Bordo, Michael D. (September 1, 1998). "Price stability and financial stability: the historical record". Federal Reserve Bank of St. Louis Review. 80 (5): 41.
- "A Brief History of Bankruptcy". Law Offices of Amy E. Clark Kleinpeter. Archived from the original on November 19, 2008.
- ISBN 978-1408868560.
- Mann, Bruce H. (2002). Republic of Debtors: Bankruptcy in the Age of American Independence. Cambridge, Massachusetts: Harvard University Press. pp. 173–205.
References
- ^ "Republic of Debtors: Bankruptcy in the Age of American Independence". EH.net. February 22, 2004. Archived from the original on September 9, 2011. Retrieved October 3, 2011.
- ^ Mann, Bruce H. (2002). Republic of Debtors: Bankruptcy in the Age of American Independence. Cambridge, Massachusetts: Harvard University Press. p. 173.
- ^ Kaplan, Edward S. (1999). The Bank of the United States and the American Economy. Westport, CT: Greenwood Press. pp. 1–3, 10–14.
- ^ Mann, 2002, p. 191–196
- ^ Mann, 2002, p. 198
- ^ Mann, 2002, pp. 199–200
- ^ Mann, 2002, p. 201
- ^ Mann, 2002, pp. 202–203
- S2CID 154865404.
- ^ Norton, Edward (1873). National Finance and Currency. London, England: Longmans, Green, and Company. pp. 13–15.
- ^ Chew, 2005, p. 567
- ISBN 0-8050-5990-3.
- ^ Marian S. Henry. "The Brown Tract". New England Historic Genealogical Society.
- ISBN 0-8050-5510-X.
- ISBN 0-88738-789-6.
- ^ Chew, 2005, p. 567–570
- ^ Washington, George. "Washington's Farewell Address 1796". The Avalon Project. Retrieved 23 March 2013.
- JSTOR 1922110.
- ^ Mann, 2002, pp. 254–255