by Paul R Dienstberger
II. Panic of 1857:
In the Fall of 1857 the boom period ended with the third panic in American history. After the railroad construction, the land speculation, the manufacturing growth, and the Western wheat growth, a banking panic shocked the public and converged on the New York City financial institutions.
On August 30th the bubble burst with the failure of the Ohio Life Insurance Co. and their branch bank in New York City. Other banks called in loans and suspended credit. When the New Haven Railroad failed, fear spread throughout the City. By mid-September twenty-nine banks had failed in New York City alone. Interest rates rose to five-percent per month. With money tight factories closed and 10,000 NYC workers lost manufacturing jobs.
The scenario was repeated in other eastern cities like Philadelphia and Boston. Without credit the crop harvests of the West could not be shipped. Financial ruin spread throughout the nation’s business sector. Only the South’s cotton industry survived and even prospered since cotton was over one-half of the nation’s exports. Their success further antagonized the Northern animosity toward slavery.
By mid-October unemployment was 40,000 in New York. The number were high in Philadelphia and Boston, too. On Oct 14th the nation’s banking system collapsed. The Bank of New York, the city’s oldest and strongest bank, failed with 17 other leading banks. The other banks in New York City closed for two months from mid-October to mid-December.
The mayor of New York began relief measures by purchasing flour and selling it at cost. He hoped that public works projects like grading the streets, the Central Park, and the Reservoir would stimulate the economy. With winter approaching despair set in. Businessmen committed suicide. The middle-class began moving into tenement sections, and the hungry mobs marched on Wall Street to demand that they circulate the millions of dollars they were hoarding their vaults.
In December the economic experts were saying that the panic was totally unjustified. The banks had enough money on hand to meet any withdrawal run on their deposits. The Secretary of the US Treasury stated that New York banks had never been sounder. Then, what caused the mass hysteria? Why the money crisis? Had rumors lead to ruin?
Historians and economic analysts always like the boom-to-bust cycle for an explanation. Naturally, over-speculation is another popular accusation to blame. Another cause is the unsound banking practices which had little federal monitoring. Tariffs and limits on money and credit are always criteria for depressions, too. Even the lack of opportunity for the poor is used as a justifiable reason.
However, our forefathers in earlier generations and not just church leaders had an opinion that the panic had a Divine Hand of retribution because of the idolatry of money. Samuel I. Prime, editor of the New York Observer, wrote that the panic was “a judgment.” He, along with other contemporaries, found the cause in a lust for mammon accompanying the Gold Rush and the rapid industrialization. Twenty year later C. L. Thompson wrote “We were becoming a people without God in the world. In His providence the greed of gain was preparing its own remedy. A financial crash that shook all the monetary centers fell upon us.” In J. Edwin Orr’s posthumous book The Event of the Century, he boldly argued that the panic was not a cause of the prayer revival. The strongest argument to refute the “bank-panic revival” title was the timetable of events. On the day of the crash Oct 14th only about 100 participated in the prayer meeting. There was no dramatic increase in attendance during the crisis which ended on December 15th. But it must be noted that there was a vast multiplication of the Fulton Street meetings during the two month crisis. In January, 1858 excitement had spread across the nation and the press began reporting a “Businessman’s Revival.”