Sunday, 21 February 2010

Our First Depression in America (1819)

I sat and did a fair amount of research this afternoon. The internet...frankly...is a lousy place to research on economic history. I probably would have to go the Library of Congress...to find any decent books or documents to my topic...the first economic depression of America.

I got into this pondering last night after watching Beck and grasping all of the recessions and depressions that America has endured.

The curious thing...is that we've repeated this process...over and over. It's funny though...if you Google depression....you end up with the 1930s "Great Depression". That's basically the only depression that they want you to know about.

After a while, I came to realize that most economical experts...aren't historians. It's virtually the same with environmentalists...none can recall any event past the 1960s....and in terms of bad weather....it's a three-year memory that most of these guys have at best.

An economical expert isn't going to waste his time talking about 1812 because that doesn't any impact on today. The same issue exists with 1880.

So I went around to fifteen sites and gleaned what I could for the first depression of America...the Panic of 1819...as it is referred to.

Apparently, most folks think that its start really came from the War of 1812...and it was simply a delayed thing.

Strangely enough....when you look at the top five things of manufacture in those days (NOT cars, TVs, steel, frozen pizza or chainsaws...if you were curious)...it leads back to cotton. Cotton made men wealthy in the South, and made bankers on Wall Street wealthy as well.

It's a curious agricultural situation. In this period of 1812 to 1819...cotton is really the big money maker. You grow the stuff...you pick it...and you market it...worldwide. So ships come in from France, Britain, and Europe....and you sell it at a profit. Prices tended to be stable...up until period. Then...a collapse came and vast speculation started to occur.

Adding to this fury...was the issue of credit. We could easily compare to this banking issue today...where home loans went into this fantastic twist...but then the home pricing scheme came to collapse...dragging the banks down. In the same way....these credit organizations...got themselves too deep into a market where cotton prices weren't going to readily recover.

So as the credit organizations and individuals started to fold....banks got caught in the middle. Sound familiar?

You still had the same amount of cotton....like we have the same amount of houses today...but moving the house or moving the cotton...without real credit...simply wasn't going to happen.

The American cotton market went stagnate....just as home purchases today in Arizona, Florida, and California have gone stagnate.

Banks started to go back to credit organizations/individuals...wanting their money back. Folks with loans....were called to pay off the loans...which they couldn't. So foreclosures of cotton farms, credit institutions, and businesses started to occur.

Remember...lots of folks were happy for the past decade...acting on a good good cotton sales environment and buying into the market, the credit, and the trade business.

Blame? This is the curious thing. Newspapers (our media of the time)...sat and blamed Wall Street, the banking industry, and political folks. Naturally....since this was a disaster that affected mostly southerners....then it came to pass that northerners had to be blamed for part of this.

Sound familiar?

So from 1819....through part of 1821...this episode continued on. At some point...the cotton prices stabilized, the credit industry rebuilt itself, and life got back to a norm.

Although, this is a curious thing. The US government didn't pay out a single penny to fix anything. No banks were bailed out. No credit industries were given hand-outs. No cotton farms were given stimulus checks. No political figures visited a single region to get their pictures taken or have comments written for distribution to the voting establishment.

The only end result? Andrew Jackson ended up getting a huge plus in the 1820s because of the bitterness. Naturally, you might want to note that Andrew Jackson was a southerner....and supported to a great extent by the southern vote.

There are three things to draw out of the Panic of 1819.

First, whatever minor regulation existed before the depression or panic...created an atmosphere afterward that everyone felt the government needed to control things more. Yes, barely forty years into the republic...and the tendency of the public was that only the government could halt such a mess from happening again. The newspapers suggested more rules...and eventually...congress did some minor rule changes to make folks happy.

Second, blame got tossed around enough...to be one of the ten causes of the 1860 attitude of North versus South. Some folks didn't get over this panic and suffered financially for years and decades. The media of the time...the newspapers...didn't help the matter, and likely fanned the flame even more.

Third, and final...the panic simply came to an end...new credit came...and the cotton market stabilized to go back into full-swing. Not a penny of national money or taxes came to be used. Stimulus never got discussed. TARP money simply wasn't an idea that they were going to discuss. The government allowed people, banks, and businesses to fail. It didn't step in. The sun rose eventually over American, and life went on.

Now, you could sit and imagine this great moment where the President of 1819 might have stepped in....tossed out $76 million (the $750 billion number of today)...saved the banks, the credit organizations, the businesses, and did stimulus to pull folks back into line. But the sad thing is that whatever debt we incurred there in 1821...would likely still be on our plate today...and we'd still be paying our debt of that generation off today.

So, that was your history lesson for today. I realize most of you don't really care about how our first depression came about or why it was significant in a way (it did help pave the first road to the Civil War, if you didn't notice).

Sorry if I didn't use Beck's chalkboard or preach to you in a more formal way.

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