Panic of 1819

The Panic of 1819 was the first major peacetime financial crisis in the United States ^[1] followed by a general collapse of the American economy persisting through 1821.^[2] The Panic announced the transition of the nation from its colonial commercial status with Europe ^[3] toward a dynamic economy, increasingly characterized by the financial and industrial imperatives of laisser-faire capitalism^[4] - and susceptible to boom and bust cycles.^[5][6]

Though driven by global market adjustments in the aftermath of the Napoleonic wars,^[7] the severity of the downturn was compounded by excessive speculation in public lands,^[8] fueled by the unrestrained issue of paper money from banks and business concerns.^[9]

The Second Bank of the United States (BUS), itself deeply enmeshed in these inflationary practices,^[10] sought to compensate for its laxness in regulating the state bank credit market by initiating a sharp curtailment in loans by its western branches, beginning in 1818.^[11] Failing to provide metallic currency when presented with their own bank notes by the BUS, the state-chartered banks began foreclosing on the heavily mortgaged farms and business properties they had financed.^[12] The ensuing financial panic, in conjunction with a sudden recovery in European agricultural production in 1817^[13] led to widespread bankruptcies and mass unemployment.^[14]

The financial disaster and depression provoked popular resentment against banking and business enterprise,^[15] and a general belief that federal government economic policy was fundamentally flawed.^[16] Americans, many for the first time, became politically engaged so as to defend their local economic interests.^[17]

The "New" Republicans and their American System ^[18] – tariff protection, internal improvements and the BUS – were exposed to sharp criticism, eliciting a vigorous defense.^[19]

This widespread discontent would be mobilized by Democratic-Republicans in alliance with "Old" Republicans, and a return to the Jeffersonian principles of limited government, strict construction of the Constitution and Southern preeminence.^[20] The Panic of 1819 marked the end of the Era of Good Feelings ^[21] and the rise of Jacksonian nationalism.^[22]