A History of Financial Panics in the U.S.

But as I’ll show in the chapters that follow, the nation saw significant economic declines in 1792, 1819, 1837, 1857, 1873, 1893, and 1929. The question in each of these panics boiled down to one my dad well understood. European lenders wondered if Americans would honor their financial promises, or was America simply a nation of deadbeats? That question has been crucial to understanding the history of financial panics in the U.S., though most observers have missed it.

For despite the cliometricians’ emphasis on the American economy’s vital statistics as an indicator of economic health, panics have always crossed oceans. Panics are always and everywhere transnational because credit is transnational. Panic comes from one nation’s doubts about another nation’s capacity to pay. Were Americans particularly incapable of paying their debts? King George III thought so when he sent Hessian troops to put down the heavily indebted merchants and farmers of Boston and Virginia in the American Revolution. The French revolutionary assembly had its doubts when the Americans refused to reimburse it for the French navies that had rescued them at Yorktown. The first panic in 1792 had everything to do with foreign lenders’ doubts about Americans’ ability to subdue western Indians who blocked westward expansion. Recovery came when European investors judged New England smugglers to be safer borrowers than French revolutionary assemblies or Saint Domingue slaveholders and put their money back into American banks.

The pattern would continue throughout the nineteenth century. An economic boom after 1815 was conceived in a scheme to sell English woolen coats to Americans on credit. The panic came in 1819 when trade negotiations between America and Britain failed, causing Americans to lose their best trading partners. In the 1830s, British banks with too much cash bet on a speculative bubble in American cotton plantations; British and American banks busted when the Bank of England doubted slave owners’ ability to pay. The panic of 1857 resulted from English doubts about whether American railroads had clear title to western lands and whether cash-strapped farmers on railroad land would pay off their mortgages. And while cheap exports from American farmers contributed to the international panic of 1873, the crash started in Vienna and sloshed onto American shores when the Bank of England raised interest rates. The panic of 1893 was largely a byproduct of a sudden drop in sugar-tax revenues from Cuba, and it climaxed when Europeans doubted if American borrowers would repay their debts in gold. Finally, in 1928, Americans’ doubts about dollar loans to consumers in Germany and Latin America seized up international bond markets and laid the groundwork for the crash of 1929 and the Depression that followed.