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1. THREAD on the Panic of 1819.

I've written a review of Andrew Browning's book for the Economic Historian.

The full review is here: economic-historian.com/2020/01/the-pa…

This thread contains some of my thoughts + images.

2. Students of economic history in the early American republic often equate the Panic of 1819 with the name Murray Rothbard, the famous libertarian economist who wrote the definitive account of this subject as his 1962 doctoral dissertation.

3. After nearly six decades, we finally have an update in Andrew Browning’s The Panic of 1819: The First Great Depression, the publication of which fell on the 200th anniversary of this watershed event.

4. In this ambitious and lively narrative, Browning argues that the panic “gave the country its first experience of nationwide waves of bankruptcies, business failures, foreclosures, and unemployment” (p. 3).

5. Earlier crashes, he says, had mostly affected the wealthy.

But by 1819, the economy was more connected through interregional and global networks.

This depression was noteworthy for afflicting all economic classes and regions

6. Most readers would naturally be interested in what caused the panic. And Browning spends a lot of time on this topic. He begins with Napoleon.

7. Thomas Jefferson's 1803 deal with the French emperor for the Louisiana Purchase was a steal by any measure, but the United States lacked the hard currency to pay up front.

Here's a political cartoon from a Federalist perspective.

8. So the U.S. would have to borrow money.

Accordingly, the U.S. Treasury borrowed $11.25 million from domestic and foreign investors by issuing bonds bearing six percent interest (p. 20).

The U.S. would have to pay the first installment in gold to France by December 1818.

9. The Second Bank of the United States (BUS), recently chartered in 1816, served as the chief fiscal agent of the Treasury.

This meant that the BUS helped manage the way in which the federal government collected and distributed public revenue.

10. Since the Louisiana Purchase was a public expenditure, the BUS would have to come up with this money.

As Browning writes, this was an immense challenge involving last-minute negotiating.

11. Napoleon's rule came to an end at the hands of the British and their allies in 1815, but the British soon found themselves mired in a post-war depression. Fears of social and economic unrest rippled throughout the community.

12. To keep their factories operating and prevent further militancy among the ranks of the unemployed, British business leaders started producing and exporting large quantities of manufactured goods, dumping them on American shores.

13. While American consumers welcomed access to cheap goods, producers sought protection from job losses through higher tariffs. It is here, in New England and the mid-Atlantic states in 1815 and 1816, that Browning identifies some of the first warnings of panic.

14. The post-war slump that struck the Northeast would eventually spread to cities like Pittsburgh and down the Ohio River to Lexington, Kentucky, harming nascent manufacturing sectors in the areas (p. 40-43).

15. In the meantime (we're still talking about the panic's causes here), a number of different factors were coming together to inflate a land bubble in the West.

First, there was a *MASSIVE* volcano eruption in the Dutch East Indies, now Indonesia.

16. The eruption was 100 times more violent as the eruption of Mt. St. Helens in 1980.

It created a thick atmospheric haze so disruptive to global weather systems that 1816 was remembered as “the year without a summer.”

17. Freakish weather events led to poor wheat harvests in Europe, which in turn raised prices (p. 75).

New England farmers, repelled by unusually cold temperatures and attracted by the prospect of profiting from high prices, moved West in large numbers to buy cheap land.

18. What role did banks play in causing the panic? Well, their excessive lending helped inflate the bubble.

There was an explosion in the number of banks between 1810 and 1820.

The First BUS failed to secure a new 20-year charter in 1811.

19. There was no longer any restraining influence on state banks in the absence of the 1BUS, which had acted as a central bank in some respects.

20. At the Constitutional Convention in 1787, there were only 3 banks in existence. One of them was the Bank of North America in Philadelphia (here's my own photograph of a bank note from this institution, dated 1829).

But by 1815 some 200 banks were in existence!

21. The high volume of bank loans in this era was tied to land and commodities like wheat and cotton.

Federal legislation, in fact, helped encourage the boom. Browning doesn't emphasize this, but here is an example of govt institutions *shaping* markets (it's not a free market)

22. A law passed in 1800 allowed farmers to buy land on credit for the first time at the low price of only two dollars per acre.

23. The plan was for farmers to pledge one-quarter of the money they owed up front with the expectation that profits from the sale of commodities at high prices would allow them to comfortably pay back the remainder in four years (p. 93).

24. As you might imagine, this plan can only work if commodity prices remained high and the bank notes farmers used to pay for their land retained their value, neither of which were true.

25. Falling prices made it difficult, if not impossible, for farmers to meet their obligations while land offices and the Treasury Department were stuck with depreciated banknotes issued by western banks.

26. Here is my own photograph of a $1 bank note issued by the Farming and Commercial Bank of Carlisle (Pennsylvania), dated November 24, 1819.

If you look closely, it says chartered by the (PA) Legislature in 1818 and indeed, this relates to Browning's discussion.

27. Irresponsible practices at the BUS reinforced to this disorderly state of affairs (p. 109). During its early years, the BUS was chronically low on specie, which it needed to pay off the Louisiana Purchase, regulate the lending practices of state banks, and uphold the currency

28. Why was the BUS low on specie? Because so many loans from its southern and western branches were fueling the boom in land and commodities.

29. One of the ways in which the BUS lent was by issuing its own notes.

Bank notes are credit instruments that circulate from hand to hand as cash. Look at the account book of any bank and you'll often see the column "circulation." That's the number of notes the bank issues.

30. All the notes issued by the BUS branches eventually worked their way eastward through the regular course of trade, where merchants exchanged for them for specie. But this only depleted the Bank’s reserves and forced the institution to purchase gold and silver from abroad

31. (As an aside, one of the things I'm trying to do here is walk the reader through this process, step by step. It can get very confusing if you don't know how this process works or if authors don't explain terms very well--looking at you one scholar in Louisiana)

32. So the Bank faced a predicament. South Carolinian Langdon Cheves took over the spot of Bank president from the ailing William Jones.

33. The Bank's senior officers in Philadelphia attempted to remedy this situation by ordering their subordinates at the southern and western branches to curtail lending.

But their subordinates defied them!

34. The only solution the Bank settled on was to implement a painful and controversial policy of contraction, which Cheves oversaw.

The hope was to restore specie to the Bank's vaults.

35. Therefore, the BUS stopped renewing long-term loans and called on state banks to redeem their notes in specie, which in turn forced state banks to demand specie from their borrowers.

36. There was *considerable* resistance from below, which Browning documents, but eventually, the Bank acquired more specie.

37. In the process the Bank damaged its reputation and destabilized local economies in places like Louisville and Cincinnati. Through foreclosure the Bank ended up owning over half of Cincinnati’s real estate (p. 222-229).

38. The amount of currency in circulation nationwide shrank to half of what it was before the BUS was chartered.

Deflation ensued.

Perhaps a third of the country’s banks failed, a level of economic destruction that would only be matched by the Great Depression of the 1930s.

39. (Transition tweet). This pretty much covers the first half of the book.

The second half deals with the symptoms and political consequences of the panic.

40. One consequence was that bankruptcy laws took on a special urgency in a time when debtor’s prison was common. In Boston alone, some 3,500 people were imprisoned for debt between 1820 and 1822 (p. 189).

41. State politics in places like Missouri and Kentucky became focused on debtor relief with loud voices in public meetings decrying the increasing scarcity of money (p. 260).

42. Against these interests were Henry Clay and Daniel Webster, both on retainer for the BUS at various times, and those who sought to uphold the sanctity of contracts and interests of creditors. The relief conflicts presaged many of the political battles of the Jacksonian era

43. 1819 was one of those years in which a perfect storm of events came together to alter the nation’s political trajectory irrevocably. Not only did it awaken political activism, but it amplified latent feelings of sectionalism that would eventually culminate in civil war.

44. Each region responded differently to economic dislocation. Westerners clamored for more federal funding for internal improvements, while those in mid-Atlantic states like Pennsylvania sought higher tariffs to protect manufacturing (p. 227).

45. Most ominously, southerners became increasingly alarmed. A series of Supreme Court decisions at this time—the unanimous McColluch v. Maryland decision being the most famous—upheld the National Bank’s constitutionality.

46. Chief Justice John Marshall’s nationalistic jurisprudence seemed to trample upon states’ rights and the compact theory of the Constitution, leading many white southerners to fear for the security and viability of their “peculiar institution” (p. 328).

47. You can read the full review (see top of thread) for a few thoughts on "the era of bad feelings" and Browning's interesting periodization, which I briefly relate to Jessica Lepler's book on the Panic of 1837.

48. The fascinating topics explored in Browning's book raise a number of important questions, at least a few of which are cause for careful consideration.

Did the panic really shape politics to the degree that the author contends?

49. Was Andrew Jackson really “swept into office on an anti-banking tide” when we know that voters also preferred favorites sons and personalities (p. 131)?

50. To write that “The Second Party System, Whigs and Democrats, was the product of the divide that had grown out of the Panic of 1819” is plausible, and perhaps even mostly true (p. 293).

51. But it also phrases things too strongly when one remembers that the Whigs did not formally organize as a party until 1834 and that there were plenty of pro-bank Jacksonians.

52. Similarly, Browning interprets the panic as initiating a movement in which middle classes began to blame poverty not on larger structural forces but on individual choices and inner moral failings—a sentiment reinforced by the hardcore individualism of the 2nd Great Awakening.

53. For Browning, Ronald Reagan’s infamous stereotype of the “welfare queen” was a long-term consequence of this discourse (p. 275). In both instances (the political and religious consequences), the author may be overstating the importance of 1819 as a driver of later events.

54. Research-wise, Browning grounds his arguments in a wide array of contemporary newspapers and legislative reports with added insights from biographies and treatises.

Salient passages are culled from the public and private utterances of major political and financial figures

55. There is some (but not a lot of) use of archival manuscript collections.

It is rare when a book offers both breadth and depth without getting excessively long. Both qualities are observable here, but the emphasis seems to be on the former.

56. Documenting the effects of the panic in virtually every state requires one to favor breadth over depth. One can see quite a few claims and passages taken from secondary works, perhaps a bit more than one would expect from a monograph founded on archival mastery

57. It might be fair to characterize this book as combining elements of a monograph and synthesis.

58. There are abundant citations to secondary works published prior to 1945, which is somewhat understandable given the nature of the topic and subfields.

Yet curiously absent from Browning’s lengthy bibliography are a host of relevant scholars with more recent publications.

59. A few include Peter Austin; Ed Baptist; Ed Balleisen; Hannah Farber; Josh Greenberg; Alejandra Irigoin; Eric Lomazoff; Stephen Mihm; Brian Murphy; Sharon Ann Murphy; Daniel Peart; Gautham Rao; Seth Rockman; Caitlin Rosenthal; Joshua Rothman; Richard Salvucci; Cal Schermerhorn

60. And many others (apologies if I left anyone out and I have written before about the arbitrary quality of citations as a sort of path dependency).

61. One has to wonder what Browning thinks of the recent dustup over the #1619project and debates over the new history of capitalism. In fairness to Browning, whose book came out last April, the 1619 articles were published in August. But the NHOC has been around about 10 years

62. There is even one scholar in California who has grappled with many of the same issues in Browning’s book. If only I could remember his name (hint, hint).

63. The intent here is not to nitpick, nor to fall into the trap of “this isn’t the book I would have written.”

64. Rather, it is to offer a fair-minded assessment that there may have been a missed opportunity in not linking this material to other historiographical conversations.

Since Browning covers the boom in land, cotton, and slaves in the Old Southwest, the NHOC seems relevant.

65. For some of my thoughts on the fraud, embezzlement of funds and shenanigans at the Baltimore office of the BUS, and the revolving door between business and politics more generally, see the full review (top of thread).

66. Quite a few people, it seems, went into banking not to facilitate trade and promote economic growth but to oversee a pot of money from which they could draw funds to finance their own schemes.

67. Much like a criminal who always stays one step ahead of law enforcement, financiers invented schemes faster than state legislatures could regulate them (p. 36). That was true at the Baltimore branch and many other cases in Browning's book.

68. Wrapping up here, my overall thoughts are that an impressive amount of historical content and knowledge of the policy positions of the key movers and shakers of the antebellum era went into The Panic of 1819. Browning should be commended for this effort.

69. He successfully ties together a complex set of domestic and international factors to explain this exciting material with smooth prose and skilled narration. To add, the author has an eye for arresting passages and humorous anecdotes.

70. This book is sure to elicit lively discussions of the political and economic history of the early republic. (end of review).

71. And now, I beg your indulgence for me to take a few moments to include others in this conversation.

@DanielGullotta

@DanielGullotta

72. @DanielGullotta, host of the @AgeofJacksonPod, interviewed the author, Andrew Browning, in one of the podcast episodes. It was this episode that inspired me to purchase this book and review it.

@DanielGullotta

@DanielGullotta

@DanielGullotta @AgeofJacksonPod 73. @Johnny_D_Fulfer runs @econhistorian. Fulfer has been kind enough to not only publish two of my pieces, but a lot of other fascinating work, including a review of @LarryGlickman's interesting book on Free Enterprise.