As early as 1814, Thomas Jefferson warned, "We are to be ruined by paper, as we were formerly by the old Continental paper money."
|A 1775 Continental Twenty Dollar Paper Currency Note.|
The growth in trade that followed the War of 1812 came to an abrupt halt. Unemployment mounted, banks failed, mortgages were foreclosed, and agricultural prices fell by half. Investment in western lands collapsed.
By early 1819, credit, once so easy to obtain, was unavailable to most Americans.
The panic was frightening in its scope and impact. In New York State, property values fell from $315 million in 1818 to $256 million in 1820. In Richmond, property values fell by half. In Pennsylvania, land values plunged from $150 an acre in 1815 to $35 in 1819. In Philadelphia, 1,808 individuals were committed to debtors' prison. In Boston, the figure was 3,500.
For the first time in American history, the problem of urban poverty commanded public attention. In New York in 1819, the Society for the Prevention of Pauperism counted 8,000 paupers out of a population of 120,000. The next year, the figure climbed to 13,000. Fifty thousand people were unemployed or irregularly employed in New York, Philadelphia, and Baltimore, and one foreign observer estimated that half a million people were jobless nationwide. To address the problem of destitution, newspapers appealed for old clothes and shoes for the poor, and churches and municipal governments distributed soup. Baltimore set up 12 soup kitchens in 1820 to feed the poor.
The downswing spread like a plague across the country. In Cincinnati, bankruptcy sales occurred almost daily. In Lexington, Kentucky, factories worth half a million dollars were idle. Matthew Carey, a Philadelphia economist, estimated that 3 million people, one-third of the nation's population, were adversely affected by the panic. In 1820, John C. Calhoun commented: "There has been within these two years an immense revolution of fortunes in every part of the Union; enormous numbers of persons utterly ruined; multitudes in deep distress."
The volatile Tennessee politician Davy Crockett spoke for many when he dismissed "the whole banking system" as nothing more than "a species of swindling on a large scale," which fostered mistrust of banks, bankers, and paper money.
The aging Thomas Jefferson complained that the new generation, "having nothing in them of the feelings or principles of 1776, now look to a single and splendid government of an aristocracy, founded on banking institutions, and money incorporations… riding and ruling over the plundered ploughman and beggared yeomanry."
The panic had several causes, including a dramatic decline in cotton prices, a contraction of credit by the Bank of the United States designed to curb inflation, an 1817 congressional order requiring hard-currency payments for land purchases, and the closing of many factories due to foreign competition.
The panic unleashed a storm of popular protest. Many debtors agitated for "stay laws" to provide relief from debts as well as the abolition of debtors' prisons. Manufacturing interests called for increased protection from foreign imports, but a growing number of southerners believed that high protective tariffs, which raised the cost of imported goods and reduced the flow of international trade, were the root of their troubles. Many people clamored for a reduction in the cost of government and pressed for sharp reductions in federal and state budgets. Others, particularly in the South and West, blamed the panic on the nation's banks and particularly the tight-money policies of the Bank of the United States. A congressional committee's proposal to terminate the nearly insolvent Bank of the United States had little backing — because 40 members of Congress held stock in the bank.
This mistrust of corporations was aggravated by landmark decisions handed down in 1819 by the Supreme Court under Chief Justice John Marshall. In Dartmouth College v. Woodward, the Supreme Court protected private corporations against interference by the state governments that had created them. In McCullough v. Maryland, it ruled that the Bank of the United States, though privately run, was a creation of the federal government that could not be touched by the states.
These pro-capitalist court rulings aggravated class divisions, which escalated over the next decade. The 1820s saw the meteoric rise of Andrew Jackson, who defended working-class Americans against what he characterized as the oppression of a wealthy elite epitomized by the central bank.
The recession, which was blamed largely on bankers, was one of the economic forces that made many Americans look to Andrew Jackson as the savior of the working class.
By 1823 the panic was over. But it left a lasting imprint on American politics. The panic led to demands for the democratization of state constitutions, an end to restrictions on voting and office holding, and heightened hostility toward banks and other "privileged" corporations and monopolies. The panic also exacerbated tensions within the Republican Party and aggravated sectional tensions as northerners pressed for higher tariffs while southerners abandoned their support of nationalistic economic programs.