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— CH. 1 · GLOBAL ECONOMIC INTERCONNECTION —

Panic of 1857

~4 min read · Ch. 1 of 7
7 sections

  • The telegraph by Samuel F. Morse in 1844 changed how money moved across the world. News traveled faster than ships ever could. A financial crisis in one country now rippled to another within days instead of months. The Panic of 1857 became the first worldwide economic crisis because of this new speed. Britain's Palmerston government circumvented rules requiring gold and silver reserves for circulating money. Surfacing news of this circumvention set off panic in British cities like Glasgow and London. The world economy was more interconnected by the 1850s, which made the Panic of 1857 the first worldwide economic crisis.

  • In July 1857 railroad stock values peaked before they began their steep decline. Many companies never made it past the stage of a paper railroad and never owned physical assets necessary to run a real one. Banks provided large loans to these railroads during years of great economic prosperity. Eastern banks became cautious with their loans in the eastern US after gold mining declined. Railroad stocks had increasingly speculative entries into the fray worsening the bubble. The Dred Scott decision lent uncertainty to railroads in general. This fluctuation in railroad securities proved that political news about future territories called the tune in land and railroad securities markets.

  • On the morning of the 24th of August 1857 the president of Ohio Life Insurance and Trust Company announced its New York branch had suspended payments. The company had large mortgage holdings and was the liaison to other Ohio investment banks. Ohio Life went bankrupt because of fraudulent activities by the company's management. An article printed in the New York Daily Times stated liabilities were said to be $7,000,000. The failure brought attention to the financial state of the railroad industry and land markets. It caused the financial panic to become more public. Banks connected to Ohio Life were reimbursed and avoided suspending convertibility by credibly coinsuring one another against runs.

  • The US Supreme Court decided Dred Scott v. Sandford in March 1857. Chief Justice Roger Taney ruled that Scott was not a citizen because he was black. Taney also called the Missouri Compromise unconstitutional and said that the federal government could not prohibit slavery in US territories. Kansas land warrants and western railroad securities prices declined slightly just after the decision in early March. Soon after the decision political struggle between free soil and slavery in the territories began. This fluctuation in railroad securities proved that political news about future territories called the tune in land and railroad securities markets.

  • In late October 1857 employees received a memo stating receipts from passengers and freight had fallen off over twenty thousand dollars compared to the previous year. The Boston and Worcester Railroad Company announced workers would receive a reduction in pay of ten percent. Grain prices dropped severely to $0.80 a bushel by 1858 after skyrocketing to $2.19 a bushel in 1855. Farmers experienced loss in revenue causing banks to foreclose on recently purchased lands. Many Midwestern towns felt pressures of the Panic including Keokuk Iowa which experienced financial strife from economic downturns. Land sales declined dramatically and westward expansion essentially halted until the Panic ended.

  • President James Buchanan announced paper money system seemed to be root cause of the Panic in December 1857. He decided to withdraw usage of all bank notes under twenty dollars. Buchanan advised state banks to break away from banks and urged them to follow example of Federal Government. His State of the Union message the 7th of December 1857 revealed new strategy of reform not relief. He expressed position that government sympathized but could do nothing to alleviate suffering individuals. Buchanan encouraged US Congress to pass law providing immediate forfeiture of bank charter if bank suspended specie payments. He asked state banks to keep one dollar in specie for every three issued as paper.

  • News of crisis in America caused runs on banks in Glasgow Liverpool and London. Borough Bank of Liverpool closed doors the 27th of October 1857 while Western Bank of Scotland failed November 9. City of Glasgow Bank failed two days later on November 11. Government forced to suspend Bank Charter Act 1844 again on November 12. Bullion in Bank of England started increasing soon after suspension. Fiduciary issue temporarily increased extent of £2 million used between November 18 and the 23rd of December 1857. Unlike Panic of 1847 suspension required this time for British currency to remain legal and convertible under Bank Charter Act 1844.

Common questions

What caused the Panic of 1857 to become the first worldwide economic crisis?

The telegraph by Samuel F. Morse in 1844 changed how money moved across the world and allowed financial crises to ripple between countries within days instead of months. The world economy was more interconnected by the 1850s which made the Panic of 1857 the first worldwide economic crisis.

When did the Ohio Life Insurance and Trust Company announce its suspension of payments during the Panic of 1857?

On the morning of the 24th of August 1857 the president of Ohio Life Insurance and Trust Company announced its New York branch had suspended payments. The company went bankrupt because of fraudulent activities by the company's management and liabilities were said to be $7,000,000 according to an article printed in the New York Daily Times.

How did the Dred Scott decision affect railroad securities prices in early March 1857?

The US Supreme Court decided Dred Scott v. Sandford in March 1857 and Chief Justice Roger Taney ruled that Scott was not a citizen because he was black. Kansas land warrants and western railroad securities prices declined slightly just after the decision in early March due to political uncertainty about future territories.

What specific bank failures occurred in Britain during the Panic of 1857 in late October and November 1857?

Borough Bank of Liverpool closed doors the 27th of October 1857 while Western Bank of Scotland failed November 9 and City of Glasgow Bank failed two days later on November 11. Government forced to suspend Bank Charter Act 1844 again on November 12 and Bullion in Bank of England started increasing soon after suspension.

Why did grain prices drop severely to $0.80 a bushel by 1858 after skyrocketing to $2.19 a bushel in 1855?

Farmers experienced loss in revenue causing banks to foreclose on recently purchased lands which led to financial pressures in Midwestern towns including Keokuk Iowa. Land sales declined dramatically and westward expansion essentially halted until the Panic ended.

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All sources

20 references cited across the entry

  1. 1webPanic of 1857: A Story of Speculative FinanceJohnny Fulfer — January 6, 2022
  2. 2bookBusiness Cycles and Depressions: An EncyclopediaDavid Glasner — Library of Congress — 1997
  3. 3webA House DividedDickinson College
  4. 4webSunken Treasures: The World's Most Valuable Shipwreck DiscoveriesLiz Burlingame — The Weather Channel — August 23, 2013
  5. 5bookJustice of Shattered Dreams: Samuel Freeman Miller perand the Supreme Court During the Civil War EraMichael A. Ross — Louisiana State University Press — 2003
  6. 6bookJustice of Shattered Dreams: Samuel Freeman Miller and the Supreme Court During the Civil War EraMichael A. Ross — Louisiana State University Press, 2003 — 2003
  7. 7journalThe Panic of 1857Charles W. Calomiris et al. — 1991
  8. 8bookThe 100 Most Significant Events in American Business: An EncyclopediaQuentin R. Skrabec — ABC-CLIO — January 1, 2012
  9. 9journalThe Panic of 1857: Origins, Transmission, and ContainmentCharles W. Calomiris et al. — 1991
  10. 10bookPanic on Wall Street: A History of America's Financial DisastersRobert Sobel — Beard Books — January 1, 1999
  11. 12newsCommercial AffairsAugust 28, 1857
  12. 13bookJustice of Shattered Dreams: Samuel Freeman Miller and the Supreme Court During the Civil War EraMichael A. Ross — Louisiana State University Press — 2003
  13. 14journalLabor Relations in 1857G. Twichell — 1937
  14. 15bookBusiness Depressions and Financial PanicsSamuel Rezneck — Greenwood Publishing — 1968
  15. 16webThe Independent Treasury of the United States and Its Relations to the Banks of the CountryDavid Kinley — National Monetary Commission and 61st Congress. Government Printing Office — 1910
  16. 17bookPresident James BuchananPhilip Shriver Klein — Pennsylvania State University Press — 1962
  17. 18bookThe Panic of 1857 and the Coming of the Civil WarJames L. Huston — Louisiana State University Press — 1987
  18. 19journalWestern Grains and the Panic of 1857James L. Huston — 1983
  19. 20bookThe Revival of 1857-58: Interpreting an American Religious AwakeningKathryn Teresa Long — Oxford University Press — 1998
  20. 21bookCalming the Storms: The Carry Trade, the Banking School and British Financial Crises Since 1825Charles Read — Palgrave Macmillan — 2022