A History of Financial Panics in the U.S.

While some parts of this political story may sound familiar, I’d suggest that financial and political history is woven together in ways that are difficult to see at first glance. The First and Second Banks of the United States, the Suffolk Bank of Massachusetts, and the New York Clearing House were all central banks, but they were also political organizations, often covertly intervening in state and federal elections. Criticism of these institutions by Jefferson, Jackson, Roosevelt, Wilson, Hoover, FDR, and others was not just paranoid delusion (though Jackson’s paranoia must never be overlooked). Politicians and everyday citizens later exposed how these institutions corrupted American politics. It was not just hyperbole to refer to these banks as political machines. As we shall see, they often were.

I’ll also examine here the changes in daily life that panics wrought. For example, controversies over liquor often increased after economic downturns. In the wake of the 1792 panic, for instance, a new tax on alcohol led the whiskey rebels to take up arms against the federal government. After 1819, Philadelphia hospitals received so many out-of-work alcoholics that they learned to plot out the stages of alcohol withdrawal, giving us the medical term “delirium tremens.” While the Whigs came to power after 1837 on a campaign of “hard cider,” the 1857 panic saw the collapse of an anti-liquor party called the Know-Nothings. The fallout from the panic of 1873 led to the rise of new criminal enterprises built on gambling and liquor in Chicago, while after the 1893 panic the federal government implemented a new tax on liquor to recover lost federal revenue. A constitutional amendment prohibited the sale of alcohol after World War I, but Democrats overturned it, hoping a beer tax would help end the financial crisis of the 1930s. We can also credit financial panics with the creation of the presidential cabinet meeting, the founding of the New York Stock Exchange, the rise of Mormonism, and the invention of the self-service grocery. To talk about the history of panic attacks in the Unites States is to talk about a novel about whales, a guerrilla war over the plains of Kansas, and the invention of the jukebox.

My father died before this book was written, but it is nonetheless my side of a thirty-year-long argument with him. Not surprisingly, he disliked deadbeats, seeing them as the people whose false promises weakened this country. He probably had a point, and no doubt the executives of Woolco would agree. But I find much in them to admire, for defaulters are often dreamers. In viewing America’s financial panics through the lens of numerous unfulfilled and forgotten debts that even the oldest banker cannot possibly remember, I hope to provide a perspective my dad would have appreciated: the view from the front porch, the minute he rang the doorbell, when both debtor and creditor prepared their stories.