When most of us think about economic downturns, we think about the Great Depression of the 1930s and early 1940s or the Great Recession of 2008. In reality, economic downturns have happened regularly throughout the history of capitalism. Some are minor but painful and sometimes multiple strands of events come together at the same point in time and the downturn is major and really painful. In the 19th century, there are four large “panics” that caused much dislocation and pain for our ancestors. Let’s take a look at them.
In 1837, Florida was still a territory. Statehood was still nearly a decade away. Florida’s first territorial governor, Andrew Jackson, had just left the Presidency a year before and many blame the 1837 Panic on some of his decisions while in office. As with most economic bubbles, this one was preceded by an economic expansion. Cotton and slave prices went up substantially, greatly benefiting the South and land prices in the west escalated as well. States were issuing bonds that were bringing in substantial investment from Great Britain. Much of this investment fueled westward expansion. In 1836, the Bank of England began raising its interest rates, which led to U.S. banks doing the same. At the same time, cotton prices began falling. This proved disastrous for the Southern economy. Two events occurring in the U.S. contributed to the Panic. The first was Andrew Jackson’s veto of the 1832 recharter of the Second Bank of the United States, which was at the time the nation’s central bank. And the second was the Specie Circular executive order of 1836 which mandated that western lands be purchased only with silver and gold coin. The purpose of this executive order was to curb speculation in western lands but instead what they got was a real estate and commodity price crash.
The collapse of cotton and slave prices was particularly devastating to the South. Southern states hit hard early on were in the Cotton Belt at the time, Virginia, North and South Carolina. Planters generally borrowed funds for planting a new crop. With lending drying up and cotton prices falling, and prices for enslaved persons weak as well, planters began declaring bankruptcy. Soon after the initial states began feeling the pinch, Louisiana, Alabama, and Mississippi felt the loss of specie (gold and silver coin) and falling prices. Georgia and Florida felt the pinch in the early 1840s. Florida had issued bonds, incurring debt primarily to support banks that would then loan to plantation owners. Significant among the banks that initially benefited from the territorial borrowing leading up to the Panic was the Bank of Pensacola. The Bank wasn’t particularly well managed and had loaned monies based on inflated property values to people who sometimes wasted the money rather than putting it to a good purpose. All of that sounds vaguely familiar which goes to show we do have difficulty learning meaningful lessons from history. In the end, Florida defaulted on payment of the debt and had to declare bankruptcy.
The nation did finally come out of the panic around the same time that Florida voted to become a state. But just twelve years later another Panic hit that would contribute to the coming War for Southern Independence (aka Civil War, War Between the States). This economic downturn occurred in the midst of the growing antagonism between the northern and southern states. The distrust, name-calling, and vitriol were very similar to today’s political climate. The larger picture was a growing interconnected international economy that began to turn down in 1857 and ultimately became the first worldwide economic crisis.
This economic downturn was also proceeded by a boom period that led people to increase risks with investments and business finances. The boom had been fueled by the discovery of gold in California but as the mid-1850s arrived, the availability of gold decreased and bankers began decreasing loans and in some cases refusing to accept paper currencies from western banks. In the midst of this economic turmoil, the Dred Scott decision was handed down, ruling that Dred Scott, being black, did not have the right to sue in court. The ruling also made the Missouri Compromise unconstitutional by ruling that the federal government could not prohibit slavery in the western territories. Out of this came the free soil movement that led to the formation of the Republican Party.
By the late summer and fall, a series of business failures occurred that shook the stock market. This led to a further tightening of credit and defaults on loans. While the 1857 Panic hit the northern and western areas of the United States pretty hard, the South, in general, suffered less. Florida was still in the early stages of its growth as a state when the Panic set in. Railroads were particularly hit hard but since Florida had very limited lines, primarily around the northeastern and northwestern edges of the state, it did not suffer substantially. Agricultural prices did fall during 1857 and 1858 but by 1859 the country was coming out of the Panic and the economy began to stabilize.
At the beginning of the Panic, the South had thought the ruling by the Supreme Court would help them extend slavery westward and the Panic, which mostly hurt the North might help the North see they needed the South, with its economic system dependent on slaves versus paid workers, to help stabilize the economy. But the free soil movement grew rapidly, as did the Republican Party, in the three years between the beginning of the Panic and the beginning of the War.
The South’s economy was a slave-based economy. Slavery and land were where their wealth accumulated. The South needed slavery to be portable anywhere in the U.S. and enslaved persons to be salable anywhere because when downturns occurred being able to sell an enslaved person was a means of stabilizing personal wealth. The wider the market, the better the possibility for a good price. Any threat to slavery was a threat to their wealth and their way of life. Most of us would not choose to go from well-to-do to poor. Regardless of the moral issues in race-based slavery, it had taken hold and was the dominant economy in the South. In the three years between the Panic and the War, the animosity grew steadily and divisions widened between the industrial North and the plantation/slavery South.
Florida was not critically hurt in the Panic of 1857 and the NW Florida panhandle held fewer enslaved persons than the central panhandle and eastern and northern areas of the peninsula. But Florida’s location at the bottom of the deep south states ensured its linkages with the South. Most immigrants into Florida were from Alabama, Georgia, and South Carolina. The northern part of the panhandle was deeply connected to Alabama and Georgia through families, trade, commerce, and lifestyle. The struggles that were dividing the nation between 1857 and 1860 also created riffs in Florida. They would not be as severe as in other southern states as the secession conventions got underway, but they would be reflected in how the state responded as the War progressed.
Until Next Time