Skip to main content

A Short History of American Panics, Recessions, Depressions: Why Conservative Economics Can't Work - Part I

My Esoteric spent 20+ years as a DoD Cost and Economic Analyst as well as a program manager of the Air Force Total Cost of Ownership MIS.

PART I - 1791 - 1960: I finally had to break into to parts, it became so long. At the end of each part is a link to a petition I recently posted on the White House web site We The People. I hope you go sign it.

PART II covers 1973 - 2009.

[For those of you returning for the next installment, you will either be happy or sad to know that I have completed this effort, sort of ... the manuscript was sent out for professional editing and is now back for my part.

10/19/18 - Lots of time has past and the editing is finished. I just sent the manuscript in for publishing - YEAH!

12/24/18 - Sent in the first fixes to the publisher's initial draft. I have an ISBN :-)

1/11/19 - I am published :-) !!! I am PUBLISHED!!! :-) ISBN 9781524627096

As I can, I will update this hub with the edited edition sans two sub-parts, a political background, which begins each section, and a concluding summary, both of which will be part of the book.

For those of you into Meyers-Briggs I am an INTP, with a huge emphasis on the 'P', which some people say stands for Procrastination. It's been 18 months (scratch that, try 24 month by now, I think) since I got the manuscript back and just now picked it up again for its final run through (I had been working on it off-and-on prior to this). What I will also do is insert the final edits into this hub as I go along.

I highly recommend AuthorHouse as a publishing medium. Except for some initial confusion, they have been good to their word of trying to assist me in publishing this tome and have been very patient with my very slow response to their entreaties to get off my butt and finish the damn thing so that they, and I, can earn some money!]

If you happen to own or buy this book, I would appreciate your feedback.. ME.

An Introduction ...

THIS BOOK (to be published in Oct 2016,scratch that, Jan 2019, I hope) IS A HISTORY

[Final] 2018

When Americans went to the polls in November 2016 to choose a new president and Congress, I believe few people understood the awesome responsibility resting on their shoulders; first in deciding to vote at all and second in deciding which candidate for which to vote. The choice between Secretary Hillary Clinton and
businessman Donald Trump as well as between conservative and moderate/liberals running for Congress was stark; both in rhetoric and vision. For a whole host of reasons including extreme frustration with gridlock in Washington, two very unpopular candidates, a polarized electorate, interference in the election by Russia, and even missteps by the former Director of the FBI Further America made a very unexpected choice. Against all odds, they elected a man with no political, economic, or policy experience as well as a self-confessed disregard for tradition and deep thinking. The people also elected a Congress guaranteed to continue the destabilizing gridlock of the past six years.

The decision the people made will determine the economic stability of America for decades to come, which is the subject of this book. Unfortunately, economics doesn’t lend itself to empty sound-bites, bumper stickers, slogans, one-liners, and other simplified forms of communication our political discourse has devolved to; istening to and taking them to heart often leads to very bad decision-making. No longer are you allowed to hear intelligent conversation about important issues of the day, and then you must take time to sort through the billions of words on the Internet and print media to find something meaningful in print.

You aren’t allowed to hear relevant information for two basic reasons; 1) ratings and 2) the need for politicians to stay on message. If television and cable start pulling a Walter Cronkite on you and delivering real news, they fear their ratings will fall (as well as advertising income) and if politicians try to tell you the truth using more than ten words, they fear they will lose you, or worse yet, make a single mistake and be shot down in flames. As a consequence, I have found little value any more in the spoken or written word with only a few exceptions such as Sirius/XM’s POTUS (Politics of the United States for the People of the United States) and no, they didn’t pay me for the plug, and neither did CNN, Politico, and the Hill.

SO, why should you read this book? Because it contains relevant information regarding economic issues, of course; hopefully presented in a manner that makes sense to you. Further, who am I who thinks he can present such information with any semblance of authority? After all, I start with quite a handicap. I have no PhD in economics, although I do have a Masters in Operations Research; there are no other books to my name, this is my first; I have never taught this subject in a formal school, although I have taught economic analysis during my career in the Air Force.

On the other hand, what I have done is spent a career with the Air Force as a professional Cost and Economic Analyst specializing in operations and support costs. Without too much exaggeration, it was my job to figure out what it cost to operate everything from a squadron of F-16 fighters to the whole Air Force, literally. Once I was lent out to NATO to help Slovakia figure out how much their Air Force might cost to operate for a period of time if they bought various types aircraft while others worked on the cost to acquire the aircraft. My point, of course, isn’t to pat myself on the back, but to make clear that I know my way around large data sets, statistics, analysis of large systems, and all of the other things needed to present, knowledgeably, the information that is to follow as well as to draw the conclusions that I do.

And it isn’t really that hard either. Whether you went Wow, gave me the raspberry, or went oh-hum over my resume, most of the time esoteric calculus, deep statistical methods, or complex numerical analysis wasn’t needed. Generally, it was minor statistics and mathematics, but most importantly, an ability to understand systems and the relationship of the parts of the systems to each other and the whole, see patterns, and recognize what they are telling you. In terms of the Air Force, that would be 1) personnel, 2) supply, 3) maintenance, 4) operations, 5) logistics, 6) resource allocation, and 7) Congress. For this book, those functions would be 1) supply, 2) demand, 3) employment, 4) interest rates, 5) money supply, 6) monetary policy, 7) fiscal policy, 8) the Federal Reserve, … and 9) Congress. To reach the books conclusions, no math is actually needed, just some chart making abilities and around 25 panics, depressions, and recessions where each will tell roughly the same story which began with similar economic conditions. The results devolve into two strikingly different patterns that are easy for the eye to discern, no statistics needed, even though there is enough data available to provide a clear empirical story.

1 It is now Christmas, 2018. Donald Trump has been our president for almost two years and my fears of electing a president with his lack of experience and chaotic personality have born out - in spades. The stock market is crashing, he has alienated every ally we have, he is in the process of isolating America from the rest of world, he forced a well respected Secretary of Defense to resign in protest because on dangerous decisions in foreign policy, and the list goes on. It has been an unmitigated disaster which will probably lead to a recession worse than the one in 2008 and probably a depression. All for the same reasons which I will explain to you in the next 250 pages.

Scroll to Continue

… and a Little History

[Final] THIS BOOK IS A STORY of two competing economic theories, the Austrian/Classical School, favored by the political Right, and the relatively new Keynesian theory, favored by moderates and the political Left. Those have essentially the two economic models followed in America’s 200+-year history. Proponents of the Austrian School were Presidents Thomas Jefferson, Grover Cleveland, Ronald Reagan, and George W. Bush. We can also include the list of Republican presidential hopefuls since President Reagan, with the possible exception of Donald Trump.

Those who might have supported the Keynesian model, had it been around then, are Secretary of Treasury Alexander Hamilton, President John Adams, President Theodore Roosevelt, who was the politician that initiated the creation of the Federal Reserve, and President Franklin D. Roosevelt. Those who went on the record in support of it were Presidents Truman, Eisenhower, Kennedy, Johnson, Nixon, Carter, Clinton, and Obama. As you will see, which theory prevails has an enormous impact on our lives and should influence your choice for who you want to elect to represent you.

What I hope to present in the following sections is a record of significant American depressions and recessions, along with an assessment of the fundamental causes, who was in power leading up to the depression/recession, what got us out of it, and who was in power when that happened. I think this will be educational as we assess the results of the 2016 presidential election and the 2018 midterms.

The National Bureau of Economic Research (NBER) determined that the United States of America has suffered at least forty-nine economic downturns since 1790. Of those, five were classified as depressions; the last of which was the Great Depression of 1929. For my purposes, I am only considering economic downturns that not only meet the normally accepted criteria for a recession (explained later), but also lasted longer than one year or had significant contractions. This is why the recessions in 1990 and early 2001 are not included for they were neither long nor felt by a large part of the population.

Some might wonder why the year 2001 isn’t included. After all, wasn’t there a huge stock market crash and a steep rise in unemployment? Well, yes and no. Even with the crash, the economic contraction only lasted eight months, the third shortest in history. Two other recessions were shorter and four more were tied. Unemployment topped out at 6.2%, not much above normal unemployment, and decline in GDP was only -0.3%, hardly a decline at all. In fact, some say that without the 9/11 terrorist attacks, there might not have been a recession at all.

Let me close this section by giving you a few things to look for as you work your way through this history. The point of this book is to first identify a set of common characteristics that precede each recession or depression which are financially-based. I will tell you now that these are 1) greed, 2) easy credit, 3) an asset which people find valuable, 4) uncontrolled speculation in that asset, 5) an over-leveraged financial sector, and 6) lack of central government regulation of the financial sector or unwillingness of government to enforce available regulations. If any one of those ingredients is missing, the chances of a bad economic downturn are slim to none. After that, one must determine which form of economic theory was being utilized by the Federal Government and, if it existed, the Federal Reserve.

And at the risk of sounding too simple-minded, that is the difference between the Classical-Austrian-Conservative economic schools (pick your term) and the various forms of Keynesian economics; Keynesian economics, through government intervention, tries to remove one or more of those legs needed for a major economic downturn to happen.


When Recessions Are Bad

The List

[Final] Below is the list of panics, recessions, and depressions that will be covered in this book. As explained above, it by no means is a complete list of all of the downturns America has seen, just those that met certain criteria of severity and/or length.

Under review are: (Wikipedia, n.d.)

The Panic of 1796 - 1797

The Recession of 1802 - 1804

The Depression of 1807

The Depression of 1815–1821

The Recessions of 1822–1823

The Recession of 1825–1826

The Panic of 1836 - 1838 followed by the Depression of 1839.

The Panic of 1857

The Long Depression of 1873–1885: It Includes the Panic of 1873 and Recession of 1882

The Panic of 1893

The Panic of 1896

The Panic of 1907

The Panic of 1910

The Recession of 1913

The Recession of 1918–1921

The Great Depression of 1929–1942 including the Recession of 1937

The Recession of 1945

The Recession of 1958–1961: Comprised of the Recession of 1957 – 1958 and the Recession of 1960 - 1961

The Recession of 1973

The Recession of 1980 - 1982

The Great Recession of 2008



[Final] THE TABLE BELOW CONTAINS my brief assessments of the causes and the fiscal philosophy responsible, if there was one, for each of the recessions I analyze. I identify the philosophies as either conservative or progressive, for political labels like Democrat and Republican change over time. For reference though, conservative is identified primarily with the majority of Republicans currently elected to federal offices today, while progressive applies to most Democrats. (Many conservative Democrats were voted out of office in November 2010, and replaced with even more conservative Republicans.)

I also want to take a moment to explain my use of the political/philosophical terms “conservative”, “progressive”, and "liberal". These terms might don’t mean what you might think they do; especially given how they are used today. In today’s vernacular, progressivism, or more generally, liberalism, is often confused with socialism, which, without explanation, I will tell you they are two, quite different philosophies. In point of fact, socialism (along with true, Edmund Burke-type conservatism) and progressivism/liberalism have distinctly different ancestries. Likewise, America, in the main, isn’t Conservative either although conservatism has a much stronger foothold in America than socialism does. Nevertheless, Americans generally believe in liberalism which is based on the rights of individuals; there is no room for Classes in a liberal society. Socialist and Conservatives, on the other hand, believe that society cannot function without a Class structure of some sort, different ones obviously, but a defined structure in any case.

What divides America instead is to what degree of central government involvement in our day-to-day lives should be; and this is key to which economic system ought to become U.S. economic policy. Socialists and Active State Liberals believe there is a strong role for the federal government to play while Minimal State Liberals and Conservatives believe just the opposite. For the sake of variety, I will use most of these terms in this book; but know that when I use “progressive” or “Active State Liberal”, I am talking about people who think the Federal Government should play an active role in American lives. Likewise, when I use the terms “conservative” or “Minimal State Liberal (MSL)”, I am referring to people who think the Federal Government has no business in our business.

KEY [Final]



Active-state Liberals, but oriented toward industry


Minimal-state Liberals and true Conservative, mainly agrarian-based

Democratic - Republican

Mix of Active-state & Minimal-state Liberal, and True Conservative

Democrat (1829 - 1837)

Minimal-state Liberal and True Conservative

Democrat (1837 - 1920)

Minimal-state Liberal and True Conservative

Whig (1841 - 1853)

Active-state Liberal, but oriented toward industry & True Conservative

Republican (1861 - 1909)

Active-state Liberal, but oriented toward industry

Bourbon Democrat (1876 - 1904)

Minimal-state Liberal

Republican (1940 - )

Minimal-state Liberal and True Conservative

Blue-Dog Democrat (1932 - )

Minimal-state Liberal and True Conservative

Democrat (1921 - 2006)

Mix of Active-state and Minimal-state Liberal, and True Conservative

Democrat (2006 - )

Active-state Liberal for the Most Part

Tea Party (2010 - )

Extremely Minimal-state Liberal and true Conservative


Great Recession of 2007 

Repeal of Glass-Steagall Act of 1932 and Deregulation of the Financial Industry leading to the creation and bursting of the real estate bubble and collapse of the financial industry

Conservative Republican

Return to strong laissez-faire

Recession of 1980 

Rising price of oil brought on by the overthrow of the Shaw of Iran and rise in the Prime Interest Rate to bring down high inflation resulting from previous economic turmoil 


Progressive regulations

Recession of 1973

The stresses of the Vietnam War, the inflexibility of the gold standard, economic imbalainces from Nixon's wage and price freeze, all capped by the 1973 Oil Crisis finally pushed the robust economy of the 1960s into the overall worst recession since the Great Depression period.


Modified Keyensian economics and progressive regulations

Double-dip Recessions of 1958 & 1960

Tight monetary policy by the Federal Reserve to combat inflation and other problems are behind both of these smallish recessions. The 1958 recession was made worse because of a world-wide economic dowturn as well.


Keyensian economics and progressive regulations

Recession of 1945

Caused by the decelleration of the economy resulting from the end of WW II


Keyensian economics and progressive regulations

Recession of 1937

Roosevelt and the Fed tried to return to fiscal and monetary conservatism too soon causing a severe contraction during the recovery from the depression


Switch to Keyensian economics but still fiscally conservative

Great Depression of 1929

The greatest economic depression in American history and it didn't have to happen. However, the classic forces were at work again, no regulation; boom times; although there was now a Federal Reserve, it did nothing; a reliance on the gold standard - the rest is history

Social Progressive, Fiscal Conservative Repulican

Laizzez-faire with a Federal Reserve

Recessions of 1918 and 1921

A double-dip recession caused by the economic contraction that generally follows any war, in this case WW I and then greatly exascerbated by an overreaction of the Federal Reserve to rapidly rising inflation

Liberal Democrat followed by Conservative Republican

Newly formed Federal Reserve - 1913

Panic of 1910 and Recession of 1913

Follow-on to the economic turmoil resulting from the 1907 Panic and the results of the anti-monopoly activities of the government

Progressive Republican

Anti-monopolistic sentiment with no Central Bank

Panic of 1907 (The Banker's Panic)

Stock manipuation by Augustus Heinze and Charles Morse, no banking regulations

Progressive Repbulican

Laissez-faire with no Central Bank

Panic of 1896

No regulation of the banking industry

Conservative Democrat

Laissez-faire with no Central Bank

Panic of 1893

No regulation of business and financial sectors plus governmental inflationary action to help a particular economic sector. Conservative policies made it worse

Progressive Republican

Progressive economic policy with no Central Bank

The Long Depression of 1873 - 1885

No regulation of the financial markets, easy credit with little review, land speculation once more lead to a financial Panic 

 Conservative Democrat

Laissez-faire with no Central Bank  

Panic of 1857

No regulation of the financial markets, easy credit with little review, land speculation once more lead to a financial Panic

Conservative Democratic-Republicans

Laissez-faire with no Central Bank

Panic of 1837 and Depression of 1839

Easy money available without oversight or due diligence and no regulation of the financial institutions

Conservative Democratic-Republicans

Laissez-faire with no Central Bank

Panic of 1825

This is the first recession caused soley for economic reasons, speculative investments in Latin America that went bust.

Conservative Democratic-Republicans

Laissez-faire with Central Bank (Second Bank of the United States)

Depression of 1815 and Recession of 1822

These two financial crises are together because there was only a few months between the end of one and the beginning of the other. The Depression was the first true American financial depression and it looked a lot like the ones in 1929 and 2007; foreclosures, bank failures, real estate price collapse, high unemployment, PLUS a collapse in agriculture and manufacturing. The Depression lasted until 1821. In the recovery, commodity prices rose high and fast until 1822 when they crashed and sent the country back into a year long recession.

Conservative Democratic-Republicans

Laissez-faire with Central Bank (Second Bank of the United States, established in 1816)

Depression of 1807

The Embargo of 1807 was the reponse by Thomas Jefferson and the Democratic-Republican Congress to problems with England but was strongly opposed by the Progressive Federalists. It's intent was to deny critical material to England but its effect was to destroy the American economy, as predicted by the Federalists, and lead to the War of 1812.

Conservative Democratic-Republicans

Laissez-faire with Central Bank (First Bank of the United States, disestablished in 1811)

Recession of 1802

Good economic times in America providing supplies and material to the war between England and France came crashing down when peace broke out. Pirates off the Barbary Coast exaserbated things leading to the First Barbary War


Laissez-faire with Central Bank (First Bank of the United States)

Panic of 1797 

Unregulated financial industry, speculation in real estate leading to bubble, bursting of the bubble by the near collapse of the Bank of England and the loss of backing of the fiat currency by gold 

No Party

Laissez-faire Austrian economic school with Central Bank (First Bank of the United States)





I Ask This Question Again at the End of this rather Lengthy Hub to See if Your Opinion Has Changed---PLEASE VOTE

A Short Primer on Economics

[Final] I AM OFFERING THIS SECTION, as well as the glossary at the end of the book, because I think it will be very helpful in understanding the two basic schools of thought about how the economy works, which, in turn, is necessary to understand the fight between the Conservative/Minimal-state Liberals (MSL) and the more progressive, Active-state Liberals (ASL). One school describes the conservative economic philosophy, and the other school describes that of moderates and progressives. The essential difference between the two philosophies is as follows:

1. Conservatives and MSLs believe the market is a self-correcting mechanism and is supply-driven; leave it alone, and it will take care of itself (the Austrian/Classical School or family of conservative economic thought).

2. ASLs think the market is demand-driven and not always self-correcting, and will need government intervention from time to time (Keynesian School or family of progressive economic thought).

Both Conservatives and MSLs, from the late 1700s to today, have followed some variation of the Austrian/Classical (which from here on out I will simply call the Classical) School of economics. So strong was the belief in this system that it persisted as the dominant economic philosophy of all major political parties until the 1900s (this could be a book on its own). Periodically, over that era, economic progressives tried to implement different policies; but they were largely short-lived until President Theodore Roosevelt began making permanent changes to federal policy. Ultimately, it took the Great Depression to usher in the progressive Keynesian School of Economics, which was developed in 1936 John Maynard Keynes. The current incarnation of the Classical School is known as Supply-Side Economics or, derisively, “trickle-down theory.” The progressives are less inventive in their descriptive titling; the latest version of progressive theory is called the New Keynesian Economics.

I have talked a lot about schools of economic thought like you knew what I was talking about, and probably many readers do. But for those who might be drawing a blank and wondering why it is so important or why I waste so much ink on it, let me explain them a little bit. I hope more experienced economists forgive me the lack of exactness in my use of terminology and the broadness of my explanations, but all I am really trying to make clear is the fundamental differences between the way conservatives and progressives think in terms of how and why the government should or should not be involved in the policy aspects of the economy as it relates to business activities and the individual–economic interface. The fact that there are such things as elasticity and inelasticity in demand or that luxury items flip the price-demand curve on its head or that eigenvectors and values play some part in the deep esoteric economic calculations that I have long forgotten is interesting, they nevertheless play no part here. The point I am trying to get across is the fact that Classical economists think microeconomics is all that is important while Keynesian economists think macroeconomics is important as well and is useful in preventing damage caused by an out-of-control microeconomic period; otherwise known as boom-bust cycles. Therefore, let me, if you don’t mind, spend a little more time drilling into these two theories; we will revisit them again in the Analysis Section.

Classical/Austrian Economic School

[Final] US Representative Ron Paul, a presidential contender in the 2012 Republican Presidential Primary race, has been one of the loudest proponents for returning to the Classical School (he calls it Austrian); he mentions it in several of his speeches. The remainder of the candidates in that election, while not referring to it so directly, tick off its characteristics when talking about what their economic policies will be. So what is a Classical School exactly?

According to Wikipedia, the Classical School of Economics is a school of economic thought that advocates methodological individualism and a deductive approach to economics called praxeology. Whew! What is methodological individualism? Again, turning to Wikipedia, methodological individualism is the theory that social phenomena can only be accurately explained by showing how they result from the intentional states that motivate the individual actors. And, what is praxeology? It is the “deductive study of human action based on the action-axiom,”.” Sheesh, another strange phrase, action-axiom.

With a definition of this final term, we can start walking our way backward to actually understanding the Classical School of economics that conservatives love so much.

Okay, here we go: “Action-axioms are of the form “IF a condition holds, THEN the following should be done”. Decision theory and, hence, decision analysis are based on the maximum expected utility (MEU) action-axiom, in other words which action is most likely to happen.” What these rather imposing strings of words are trying to say is that people base the choices they make on logical rather than for emotional reasons, and that their choices are biased toward those things they think will provide the most benefit to themselves. To put it more bluntly, people always make cold, calculated choices that benefit them the most.

This idea forms the foundation of the Classical School, the economic system Ron Paul and the other Republican presidential hopefuls believe is best for our country. It is the same economic theory followed by American governments for virtually all of the 1800s and the first two decades of the 1900s. What are the ramifications of this theory?

The consequences are that for all practical purposes, only the actions of the “individual actors” within the economy make a difference on the economy. The theory of supply and demand was developed to explain what takes place in this environment as well as the whole theory of microeconomics—individual action in the economy.

Those who accept the Classical School, along with buying into the precepts of that theory, also deny the applicability of other possible influences on the economy, more specifically macro influences, which is the interaction of major economic sectors like aggregate output, unemployment, and inflation. In other words, microeconomics is all you need to predict economic behavior and balancing the forces that are at work at that level is all that is needed to make the economy function properly because in the short to long-run, the economy is self-regulating. Macroeconomists disagree, of course.

The Keynesian School

[Final] Complementing microeconomics is macroeconomics. It should be patently obvious from Charts 1, 2, and 3, that the period prior to 1940 was very unstable. John Maynard Keynes and several others searched for reasons for this seeming inability of the prevailing economic theory to account for obvious discrepancies in economic behavior, such as goods being left unsold while workers are left unemployed or why there has been such a long, frequent series of sometimes violent boom–bust cycles. As a consequence of his research, in 1937, Keynes published the General Theory of Employment, Interest and Money (Keynes, 1936). It was a seminal work that changed history, and not just economic.

What Keynes brought to the table was the idea that not only did individual decisions play a role in determining the activity within the economy, but so did overall unemployment, inflation, and interest rates, as well as how these factors interact with one another … and emotion. This latter idea, which is the basis of macroeconomics, is rejected by many Conservatives and Minimal-state Liberals. One reason for this aversion is that a consequence of Keynesian economics is the requirement for the government to intervene in the economy from time-to-time to modify fiscal and monetary policies in order to keep unemployment, inflation, and interest rates in balance. Keynes maintains that by doing so, one can introduce a “negative feedback” loop to dampen swings in the economic cycle that are getting out of control; something microeconomics cannot deal with; in fact, history shows Classical economics introduces positive feedback when the economy gets seriously out of balance, which has the unfortunate habit, despite the word “positive”, of making things even worse than they otherwise would be. It is Keynes belief, and history bears this out, that the overarching relationships between unemployment, interest, and inflation at the macro-level have a significant impact on supply and demand as well as on individual decision-making itself at the micro-level.

This last point might be a little hard to swallow until you think back to the 1970s, if you are old enough to remember how the psychological effect the out of control inflation had on people’s buying and investment decisions. Or, for the younger crowd, it was 2004 when unemployment and interest rates were so low which, when coupled with the economic floodgates of money being released with the final deregulation of the financial and banking industry, that led to the mad grab for profits in a rapidly rising housing market (a bubble); this was a decade where Classical-type economics ruled.

It wasn’t until the reaction to the Panic of 1907 did the Classical School and MSL’s fundamental belief in a laissez-faire (aka classical liberalism) approach to business by government face its first challenge. It came in the form of President Theodore Roosevelt’s anti-monopoly efforts and the creation of the Federal Reserve. It was the Great Depression which brought Classical economics down, however. Under President Franklin Delano Roosevelt, the progressives finally had their chance. From that time, until around 1970, what became known as the Keynesian School dominated economic policy in America. After 1970, the Conservatives, starting with Nixon, began to (this would include President Carter, a fiscal conservative, as well) chip away at what the progressives had built. This slowly continued until 1981 when Ronald Reagan turned it into more of a landslide with the introduction of Supply-Side economics and the deregulation of such industries as telecommunication, transportation, and pharmaceutical. Even President Clinton was not truly progressive, economically speaking, for he signed a law sent to him by the conservative Congress that repealed the Glass-Steagall Act of 1937 that kept commercial banks separate from investment banks, one of the most important laws to come out of the Depression. Most of the remaining vestiges of the progressive era were removed in 2000 and 2001 with the deregulation of the final major industry, the commercial financial markets.

In practice, the difference between the two schools can be summed up with this quote from Democrat William Jennings Bryant (1860–1925) in his Cross of Gold speech:

“There are those who believe that, if you will only legislate to make the well-to-do prosperous, their prosperity will leak through on those below. The Democratic idea, however, has been that if you legislate to make the masses prosperous, their prosperity will find its way up through every class which rests upon them.” (Kazin, 2006)

The first sentence represents supply-side economics, while the remainder is Keynesian. The reference to Democratic however, is problematic in that during during this period, party identity to a particular social or financial ideology was in a great state of transition with both parties having significant elements of each philosophy represented within their ranks. This persists today in the Democratic Party with the Blue-Dog Democrats representing the fiscally conservative ideas. The Republicans, on the other hand, have all but eliminated any non–fiscal conservatives from their Party


[Final] As I pointed out in the last section, two schools of economic thought have dominated our country’s history, each championed by opposing political parties. Having said that, in the formative years of America most people who cared about economic activity were of the classical liberal-type, e.g., laissez-faire economics. This didn’t mean as much then as it does today because capitalism didn’t really exist then, nor did industrialization, at least in America. But even so, politicians had their differences and one particular nasty disagreement ought to sound familiar, whether to establish a federal reserve-type institution, the First Bank of the United States.

The contestants were pro-administration[1] Secretary of the Treasury Alexander Hamilton and President Washington on the side of the bank (and government intervention) and anti-administration Secretary of State Thomas Jefferson and Representative James Madison who vehemently opposed the federal bank[2]. In the end, President Washington sided with Hamilton and the bank was chartered. This tension continued between the Federalist (pro-intervention) and Democratic-Republicans (non-interventionists); then Whigs (pro-interventionists) and Democrats (non-interventionists); Republicans (pro-interventionists) and Democrats (non-interventionists); and finally Democratic (Keynesian-interventionists) and Republican (non-interventionists).[3]

Who were these opponents, and what did they really believe in, considering it has stayed with us through the centuries? The two viewpoints came into being during the fight to ratify the US Constitution. The anti-Federalists, who became anti-administration forces, were those who opposed the ratification of the Constitution; instead they believed a slightly beefed up Articles of Confederation, which had established the Continental Congress, would suffice to unite the States. Anti-Federalists were first and foremost state’s rightists, having a firm conviction of the supremacy and independence of the various states (colonies), with respect to any federal government. In short, they believed in a united States of America, the one conceived in the Declaration of Independence. I use the small case ‘u’ to differentiate those who believe the States should be supreme to the central government, or at least on equal footing; these people believe the word “expressly”, as in “not ‘expressly’ delegated”, is assumed to be part of the 10th Amendment. The uppercase ‘U’ is reserved for the role actually envisioned in the Constitution; that of a nation, united together in a perpetual common bond with a supreme central government filling in where the several states are found incapable.

On the other side of the fence sat the Federalists—those who created and signed the US Constitution during the Constitutional Convention. They absolutely believed in a United States of America, as defined in the new Constitution. They thought that the federal government, albeit one with limitations, should be supreme to the various states and that the states, while still being autonomous, where nevertheless bound, by Law, through the Constitution, to the federal government and subordinate to the federal government in matters that affected the United States as a whole. The fight between these two opposing viewpoints was fierce and sometimes violent, just like it remains in the twenty-first century.

More specifically, the Anti-Federalists, who in the beginning were joined by former Federalists who opposed Alexander Hamilton, and who in today’s terms would be the conservatives/MSLs, stood for the following ideals:


-States’ rightists

-Weak central government

-Strict Constitutionalists

-Political base was primarily in the South and agrarian

Foreign Policy



-Originally opposed the wealthy interests

-Wanted low tariffs to promote agricultural trade

-Wanted a laissez-faire governmental approach to business

-Believed in what today is called the Classical school of economic philosophy

-Did not approve of a central bank.[klr1]

The only real difference from Anti-Federalist in the 1700s and the conservatives of 2016 is that conservative and minimal-state liberals are no longer pro-French, and they certainly do not shun the moneyed class.

Hamiltonian Federalists, what we would call progressives or liberals today, as it pertains to business and slavery, thought that the best set of ideals would be:


Strong central government with limitations on total power

Wanted the Federal Court to be the ultimate law of the land

Believed in a court who primarily used purpose and consequence as guiding principles

Political base was primarily in the North, large cities, and industrialists

Foreign Policy

Supported England in war with the French

Opposed the anti-American French revolutionaries


Support high tariffs to protect American manufacturing

Supported a national bank to manage money supply


Believed in an economic philosophy that ultimately was codified in Keynesian economics

Famous Anti-Federalists (later known as anti-administration after they lost the ratification battle, and later still, Democratic-Republicans) were:

George Mason

Patrick Henry

John Hancock

Richard Henry Lee

Samuel Adams

The Federalists, which became the pro-administration faction and the Federalist Party, were represented by such personages as:

George Washington

John Adams

Benjamin Franklin

Alexander Hamilton

James Madison (Federalist who became anti-administration)

Thomas Jefferson (Federalist who became anti-administration)

In some respects, the battle over the ratification of the US Constitution has never ended. The Conservatives, whether they were known as anti-Federalists, anti-administration, Democratic-Republicans, Democrats, and finally today’s Republicans have been fighting hard to make the federal government over into its own image; one that tends to parallel a united States paradigm. Conversely, the progressives, whether they were known as Federalists, Whigs, Republicans, and finally Democrats fight just as hard to keep the idea of a United States alive with a strong, but nonetheless limited central government.

[1] There were no political parties yet, they came after President Washington’s terms were finished.

[2] Ironically, James Madison, when he was President, created the 2nd Bank of the United States to help come out of a recession.

[3] Now, to be fair, the first two times “pro-interventionist” is mentioned, it refers to intervention on the side of business; not for social issues. It was only with Theodore Roosevelt, setting aside the 13th – 15th Amendments which were effectively nullified by subsequent Supreme Court decisions, did vestiges of social reform begin to appear.



The First Ingredient - Greed

[Final] IT TAKES MANY INGREDIENTS TO MAKE A GOOD RECESSION and the fundamental one is greed. It is needed in all recessions and unfortunately it is ubiquitous … it is always present. With the establishment of the First Bank of the United States, securities were sold to fund it. Like with many initial public offerings today, prices sky-rocketed and then crashed. To stabilize the market, Alexander Hamilton worked with the Bank of New York to purchase $150,000 in Bank of United States securities. (Cowan, 2009)

Prices began to rise and in the Winter of 1791 financiers William Duer and Alexander Macomb, along with other bankers, decided to speculate; the second necessary ingredient. Duer and Macomb schemed to take over the US debt securities market and create a second bank in New York to challenge the Bank of New York. In doing so, they created their own credit market (easy credit) by endorsing the others loans, the third necessary ingredient, easy credit (Cowan, 2009).

The Fourth Ingredient – Asset Bubbles

[Final] RESULTING FROM THE DUER-MACOMB SPECULATION in US debt securities, prices were driven up to unsustainable levels, thereby creating an asset bubble; all good recessions need something to burst. So long as Duer-Macomb remained solvent, the market could hold its own for a while. But, in March 1792, both men’s empires collapsed, the fifth ingredient, taking the United States infant economy with it.

The Bank of the United States takes some of the blame as well for it amplified the easy credit problem by overextending itself and letting speculators make withdrawals from the Bank of New York. By February 1792, the Bank of United States liabilities exceeded $2.17 million and its discounts were greater than $2.68 million (Cowan, 2009). When prices collapsed, loans were called, credit dried up, banks became weak and were about to fail as the Panic took hold and the runs soon emptied the banks reserves.



The First Debate about Government Intervention

[Final] IT WAS WITH THE PANIC OF 1792 THAT THE FIRST DEBATE apparently took place over whether the federal government ought to intervene (ultimately a Keynesian view) to mitigate the damage or just “let it happen” (the Classical view) and let the banks fail as they might with whatever social damage that may cause. The argument was between Vice President John Adams, Alexander Hamilton on the “Keynesian” interventionist side and Thomas Jefferson and Attorney General Edmund Randolph on the “Classical” non-interventionist side. These men, along with Supreme Court Chief Justice John Jay who did not participate, made up the Sinking Fund Commission of the Bank of the United States. The decision was whether to bail out the Bank of New York with a $100,000 “open-market” purchase of securities. Soon, however, Randolph came around to Hamilton’s view and the open-market purchases were allowed.

It came with a price however. The Bank of New York had to keep lending through the Panic. To soften the blow, Hamilton authorized a guarantee to purchase another $500,000 in securities, if needed; ultimately, an additional $150,000 was spent before things returned to normal a month later (Cowan, 2009).



The Panic of 1797

- The Political Situation

IN THE YEARS leading up to the Panic of 1797, momentous events occurred, not the least of which was the birth of the United States of America as we know it today. Prior to that time, America was simply the united States of America that preceded it. England had lost its war with the revolutionaries in America and was now heavily engaged in a war with France. America had gone through its tumultuous ratification process and George Washington was nearing the end of his second term in office. Because Washington would not allow the creation of political parties, those in Congress broke into two polar opposite factions, the pro-administration faction comprised of the Federalists who supported the new Constitution and the anti-administration faction made up of those who had opposed the ratification. Soon after John Adams was sworn in as POTUS #2, in March 1797, the two factions organized themselves into the Federalist Party, led by John Adams and Alexander Hamilton, and the Democratic-Republican Party, led by Thomas Jefferson. Even though all these great occurrences had become reality, it had little impact on the start of or course of the ensuing panic.

- Déjà Vu

This is a very interesting recession because it should sound familiar to you, so let us start with a summary of the Panic of 1797 from Wikipedia regarding America’s first economic disaster:

"Just as a land speculation bubble was bursting, deflation from the Bank of England (which was facing insolvency because of the cost of Great Britain's involvement in the French Revolutionary Wars) crossed to North America and disrupted commercial and real estate markets in the United States and the Caribbean, and caused a major financial panic. Prosperity continued in the south, but economic activity was stagnant in the north for three years. The young United States engaged in the Quasi-War with France. (site: Thorp, Willard Long (1926). Business Annals. NBER. pp. 113–23. ISBN 0-87014-007-8."

Does this have a familiar ring to it? Something akin to the Great Recession of 2008? Hmmmmm

- The Panic

The Panic of 1797 lasted around three years from 1796 to 1799. There aren't very many economic measures to relate to as nothing was established back then, there were no real standards. That said, several of the resources I looked at classified this panic as a Depression.

At that time in history, in both Europe and the infant United States, monetary policy was not controlled by the governments but by an oligarchy of private financiers both in England and America. While there was fiat currency being used at the time, it was back by species - gold and silver. The dominant commercial bank at the time was the Bank of England which was heavily involved with the rampant land speculation that was going on as America began its great expansion. Even though Bank of England was England's Central Bank, it was privately owned and had been authorized to set interest rates and print money. Many today say this is how the Federal Reserve works but that is not true. The Federal Reserve is a government institution, not a private institution.

During 2006 - 2007 ... er, sorry, ... 1796 - 1797 there was a series of downturns in the credit market that led to broader commercial downturns on sides of the Atlantic. In 1796, the land speculation bubble burst as well. To make matters worse, England and France were at war and the English were afraid of an invasion by France. Consequently, there was a run on the Bank of England. The Parliament, in order preserve their remaining gold reserves and prevent insolvency, ordered the Bank of England to suspended payment for fiat currency in species thus making the fiat currency basically worthless.

At this point in history, the US Government had relatively little control over monetary policy; there was no Federal Reserve. There was the First Bank of the United States, a private bank set-up to serve as the US Treasury's bank but it didn't have quite the same functions as the Bank of England and didn't play much in the Panic of 1797.

So, who is to blame for this recession? It doesn't appear to be Congress or the President at this point. They were simply too new on the scene to have set up the machinery that might have managed the situation. Basically you had the kind of unregulated, free-market free-for-all that is the apple of today's Conservatives eye. The wealthy bankers set the interest rates and credit policies and printed the money (except in America) and the wealthy industrialists in the North began the decades long process of consolidation and monopolization without restraint. The well-off middle class and wealthy speculated to their hearts content until the recession, partly from their own making, bit them in their you-know-where. And like the Tech bubble of 2000 and the Housing bubble of 2007, when they burst, as they always will, disaster always follows. There were zero fail-safes built into the system so when you have a shock like the run on the Bank of England, there isn''t much you can do but stand back and let the tsunami wash over you.

The Man Who Financed the Revolutionary War

SENATOR ROBERT MORRIS, b. 1734, d. 1806

SENATOR ROBERT MORRIS, b. 1734, d. 1806


One, little known fall-out from this, America’s first depression, was the financial demise of Robert Morris, who, along with George Washington, may be considered the man most responsible for the colonies winning the Revolutionary War.During the Revolutionary War, Robert Morris was a very well connected and wealthy financier.It was to Robert Morris to whom George Washington turned after the several States turned their backs on the Continental Congress, and therefore, the Continental Army and refused to continue to fund the war effort.It was Robert Morris who, on more than one occasion, cobbled together enough financing for Washington to see the war to its successful conclusion.And, sadly, it is the same Robert Morris who went bankrupt during the Panic of 1797 and was ultimately sent to debtor’s prison.

But, it didn’t stop there.Many prominent Federalists had joined Morris in his various ventures and, when he failed, so did they with the consequence that the Federalist Party was significantly weakened which ended up being partly responsible for loss of political control to Thomas Jefferson’s Democratic Republicans.

What might have stopped it from happening? Sensible regulation of the credit, finantial, real estate markets for one. Another would be government organization set-up to intervene and provide oversight to separate the irresponsible power brokers who are in the game regardless of who gets hurt from the responsible power broker who wants to keep the host alive while still feeding off of it.

The Recession Of 1802

- WHILE PRESIDENT JOHN ADAMS began his presidency with a depression, Thomas Jefferson was presented with a recession. Much had changed in four short years. President Adams started the Quasi-War with France then sued for and won a peace with them. He signed the four Alien and Sedition Acts in an attempt to subdue Jefferson’s Democratic Republican Party. Adams also saw the fracture of the Federalists Party after its glue, George Washington, died. A major fight broke out between Adams and Alexander Hamilton. The peace with France, a very unpopular move which Adams is, nevertheless, most proud of; the Alien and Sedition Acts; and the fracture of the Federalists Party all led to Adams’ defeat to Thomas Jefferson, POTUS #3.

- THE RECESSION OF 1802 was a significant recession in that it lasted two years and was fairly deep. After recovering from the Panic of 1797, the economy in infant America boomed, in part from providing supplies and material for the war between England and France. Ultimately, in March 1802, the Treaty of Amiens was signed, which ended the war, temporarily at least.

Along with ending the war, it ended the need for war material and supplies, which caused a massive slow down in the nescient American economy. To add insult to injury, the U.S. government had been paying a substantial portion of its treasury in tribute and ransom to Algeria to stop the piracy along the Barbary Coast and buy back our captured sailors. The economy simply couldn't survive such a series of blows and consequently it crashed and didn't recover for two long years.



U.S. CAPITOL - 1800

U.S. CAPITOL - 1800

The Depression of 1807


ONLY FIVE YEARS HAVE PASSED since the last recession, Thomas Jefferson was still president, and America was set for its first formal Depression, although many historians think the Panic of 1797 was also a depression. Another first is that this depression was self-inflicted rather occurring because of events outside of our governments control.

It is self-inflicted because Jefferson, his Congress, and his Democratic-Republican Party were at fault. ck edit above to add content to this empty capsule. The cause and effect are pretty straight-forward and clear-cut. However, before getting into the details behind the Depression, a little background might help.

Thomas Jefferson was a Democratic-Republican as well as POTUS #3. He followed George Washington, of no political party, and John Adams, a Federalist, as president. During George Washington's eight years, there were no defined political parties in Congress; they simply grouped themselves as pro-administration (Federalists) and anti-administration (anti-Federalists).

During John Adam's four years, true political parties formed, this began the period of the First Party System which consisted of the Federalist Party (former pro-administration) and the Democratic-Republican Party (former anti-administration). Thomas Jefferson, a moderate anti-federalist with a social reformist bent*, along with James Madison, founded the Democratic-Republican party. Together, they beat John Adams in what was probably the most vicious Presidential election America has ever witnessed! In the process, the Democratic - Republican Party swept Congress in a way that would make Newt Gingrich proud. By the end of Thomas Jefferson's second term, the Democratic - Republican Party, whose platform, you see reflected in today's Conservative/Tea Party political doctrine, had overwhelming control over the government.

In the 10th U.S. Congress, the Democratic-Republicans had more than an 81% -19% advantage over the Federalists in each House! In the 11th U.S. Congress, they lost a little power because of the worsening economy, but still had a whopping 79% to 21% advantage in the Senate and a 67% to 33% advantage in the House! There wasn't a damn thing the Federalists could do to stop any initiative the opposition put forward. Consequently, what happened next was because of the Democratic-Republican Party’s economic philosophy.

* Because of these views, e.g. separation of church and State, equal rights, anti-slavery (thing's conservatives oppose or opposed until as recently as the 1960s), and other similar views, I dneo not think Jefferson would pass the famous litmus test that has been lately created to find "true" Conservatives.


England and France were at war with each other over the control of Europe. America was a plaything they thought they could use to each other's advantage when necessary. Jefferson did not want war and thought America had the power to assert itself economically to achieve its goals. This is because England and Europe now depended a great deal on American goods.

Consequently, Congress passed and Jefferson signed the ill-conceived Embargo Act of 1807, along with several other measures, that forbade U.S. ships from sailing to any foreign ports. This not only included British and French ports, but all other foreign ports as well! Further, this action was in conjunction with other Acts already passed, such as the non-Importation Act (from England).

In the next year, 1808, Congress found loopholes in the various laws and moved to close them with a vengeance. The Federalists, who opposed the embargo, were powerless to stop them. In fact, Jefferson's own Secretary of the Treasury, Albert Gallatin, was against the embargo saying:

"As to the hope that it may...induce England to treat us better," wrote Gallatin to Jefferson shortly after the bill had become law, "I think is entirely groundless...government prohibitions do always more mischief than had been calculated; and it is not without much hesitation that a statesman should hazard to regulate the concerns of individuals as if he could do it in a superior way than themselves" ("Gallatin to Jefferson, December 1807" Vol.1, p.368. Adams, Henry (1879). The Writings of Albert Gallatin. Philadelphia: Lippincott.)


DISASTER! America's first Depression. The one good benefit of the Embargo Act is that it helped initiate American industrialization; the rest was misery for Americans. By the Spring of 1808, commerce had ground pretty much to a halt; the depression started, and unemployment was rampant. Honest American businesses started going bankrupt, while dishonest ones made it through by flouting what were barely enforceable laws. England was hurting, no doubt, but they found new sources in South America, while America, because of the total embargo, had no place to turn.

A year later, President Jefferson finally understood his mistake which was his lack of understanding of the economics of commerce. In March 1809, he signed into law the Non-Intercourse Act which repealed the Embargo Act that limited its provisions to only England, France, and their possessions; which was still totally unenforceable.

Because it was unenforceable, Jefferson, a vocal and passionate proponent of "as little federal government as possible," found himself in a rather ironic position; one common with politicians who try to govern purely by principle, without using pragmatism to integrate those principles with reality. From 1807, until the end of his Presidency, Jefferson was forced to increasingly use the power of the Federal government to enforce his Embargo!

In May 1810, the Macon Bill #2 was passed, which replaced the Non-Intercourse Act. This was a carrot instead of a stick approach and it also signaled the beginning of the recovery from the Depression; three very long years later. The new Bill promised to reinstate the provisions of the Non-Intercourse Act against the belligerent countries who did not remove restrictions against American commerce.

France accepted, so America reinstated the Non-Intercourse provisions against Britain. France, however, reneged on their pledge. Even so, America did not retaliate. In June 1812, Britain finally agreed to remove their restrictions as well, but, before the word reached America, James Madison declared war on Britain, thus beginning the War of 1812.

Seven years later, in 1819, America experienced another depression, but with a twist. For the first time, this involved the financial collapse of the economy precisely like we recently experienced in 2007.





The Depression of 1815 - 1821 and Recession of 1822


PRESIDENTS JAMES MADISON AND JAMES MONROE were leading America when the next major economic downturn occurred; their Congresses were solidly conservative Democratic-Republican. If James Madison lived today, he would supersede John Kerry and Mitt Romney for the title of flip-flopper. When he was fighting for ratification of the Constitution and writing the Federalist Papers with John Jay and Alexander Hamilton, he believed in and supported a strong central government over States Rights, as you can observe in reading his essays.

By the time Madison became President, however, his position had changed and he no longer favored a strong national government; instead, he sided with Thomas Jefferson and opposed John Jay, John Adams, and Alexander Hamilton in his philosophy regarding the role of the Federal government vs. State governments. He also opposed Alexander Hamilton regarding the need for a National Bank and believed they were detrimental free enterprise. Consequently, Madison let the charter for the First National Bank of the United States, America’s first central bank.

Hamilton’s thought America needed such a bank to accomplish three goals:

  • Establish financial order, clarity and precedence in and of the newly formed United States.
  • Establish credit—both in country and overseas—for the new nation.
  • To resolve the issue of the fiat currency, issued by the Continental Congress immediately prior to and during the United States Revolutionary War—the "Continental".

He was successful in overcoming objections from Jefferson and Madison during the second term of President George Washington. Madison’s principal objection the establishment of a central bank was unconstitutional for it was not one of the enumerated powers invested in Congress by the new Constitution. It was issues like these where James Madison parted ways from the Federalists and joined Thomas Jefferson to form the Democratic-Republican Party after George Washington left office.

Even though the central bank met the objectives Hamilton envisioned and proved of great value, Madison, with strong support from his Congress, let the charter expire in 1811. Within four years, America was in its next major Recession.


THIS IS REALLY A THREE-FER: the depressions from 1815 to 1819, the Panic of 1819, and the Recession of 1822. The cause, without yet laying blame to any political person(s), party, or philosophy, is the lack of regulation over the Second Bank of the United States.

While the next recession is credited with being the first one due solely to economic reasons, this one comes close. As we shall see, this recession started with an external factor, the War of 1812. After that, it was all economic and economic philosophy and, as we will see, our old buddy greed; which is at the root of it all. When you finish this story, I suspect you are going to say, "deje vu all over again!"

It all started in 1816 when President Madison (Democrat, VA), POTUS #4, chartered the Second Bank of the United States, which was patterned after the First Bank which lost its charter in 1811. Although this was against the Conservative, Austrian School of economic philosophy, he felt he had no choice because of the financial chaos ensuing from the inflation caused by all the private state banks issuing their own bank notes resulting from the huge cost of the just-ended War of 1812.

The U.S. government had racked up considerable debt and had no way of paying it off (sound familiar?); inflation was making it all the harder, while the multitude of different bank currencies with no common valuation made trade hugely complex. The economy was unstable, bouncing around, therefore President Madison had to swallow the bitter pill.

Congress chartered the Second Bank of the United States and gave it special privileges as the sole recipient of federal funds, but no oversight authority. Those privileges gave this bank, a private bank, great leverage over all other state banks. As with TARP, this 20-year charter came with very few strings attached, such as regulations. The Federalists (Progressives) had all but disappeared as a party after the War of 1812, which they had bitterly opposed; America was, for all intents and purposes, a one-party country (Conservative) for the next 20 to 30 years.

This so called "national" bank was actually "national" in name only. It wasn't anything at all like the Federal Reserve Bank of today. It must be noted that the bank did what was intended, after a year or so. It brought inflation and the economy under control as well as established, once again, a single US currency that had a predictable and dependable value. In short, it allowed the US government to get a handle on its debt once again. But, and it is a very big But, - it allowed the bank to also do its own thing with very little, if any, governmental oversight; - laissez-faire at its very best.

Then came the speculators and more loans and, of course, loan fraud and more greed. On and on it spiraled up, this time without any regulators to notice. Nobody else noticed either until one day in 1819; then, somebody in the Second Band finally did become aware. Sound familiar? They saw how massively over extended the bank was, started calling in their loans and instituted a policy of contraction which, yep, you’re right, stopped the land sales dead in its tracks.

There went the land prices, just like what happened in 1929 and 2008, the Panic of 1819 was on! Two very long years later, in 1821, the depression was over, recovery began. Commodities prices surged upward in a big way, sort of like the 2000 stock prices, only to fall right back down again into a double-dip recession. This recession ended a year later in 1823, but only for a couple of years, then America was at it again.







The Panic of 1825 and Recession of 1825 - 1826

THE RECESSION OF 1825 - 1826 is notable because it was the first economic downturn caused solely for economic reasons and not other external causes such war. While England was most affected by this recession, America did not escape its clutches either. All totalled, seventy banks failed.

Again, the cause is simple and straight-forward - greed and lack of regulations. The basic facts are in the years leading up to 1825, there was increasing speculation in Latin America funded by many major banks in England and America. People even invested heavily in the country of Poyais, an invention (scam) by the Scottish soldier/adventurer Gregor MacGregor. The leader of this stampede was the Bank of England, a for-profit bank, which had been given the same responsibility and powers to regulate the English economy as the Second Bank of the United States, also a for-profit bank, did for America.

The Bank of Englands job was to police the other banks and protect the public. Instead, it allowed banks to facilitate the speculation by not doing due diligence on the loans they were backing, one of the main causes of the 2007 recession, so that when the Latin American bubble burst, the banks were holding on to a lot of worthless paper.

The stock market first crashed in England and was closely followed by those in America. The Bank of England raised lending rates to protect itself and its investors instead of lowering them to protect the public they had the responsibility to protect. Credit dries up, markets stop functioning, and once again America, along England, Latin and South America was facing economic collapse. Apparently, France knew better because they bailed out the Bank of England and kept it from being bank number seventy-one.

From the previous recession forward you are going to be seeing a common theme among those recessions whose causes are economic in nature, such as this one. The theme running through all these is that unregulated capitalism will succumb to greed every time. It is not capitalism that is the problem, capitalism is the greatest thing since sliced bread, the true problem is, however, unchecked human greed. I will have more to say later.

President Andrew Jackson b. 1767, d. 1845, POTUS #7, 1829 - 1837

President Andrew Jackson b. 1767, d. 1845, POTUS #7, 1829 - 1837

The Panic of 1837 and Depression of 1839

AMERICA FINALLY CATCHES A BREAK, 11 years without a major economic disruption; the previous record was seven years. But, when a downturn started again, it was a doozy and was also caused for economic reasons; this depression finally motivated the American citizens to put into power a President and Congress that believed in a more hands-on approach to government (Progressive Whigs) regulation of America's economic engines than the mosty hands-off philosophy of Conservatives (Democrats).

Leading Up To The Great Fall:

PRESIDENT Andrew Jackson continued the long-standing Conservative economic philosophy of staying out of the way of business, laissez-faire, as much as possible. Several policy decisions by President Jackson set the stage: 1) allowing the Second Bank of the United States' charter to expire, 2) massive sales of government land to raise money, 3) the Tariff of 1833, and the coup de grace, 4) his issuance of the Species Circular.

By allowing the Second Bank charter to expire, there was no brake on returning to the status the Second Bank was chartered to stop and then prevent, the formation of a multitudede of State and wildcat banks. Multiple bank paper currencies reappeared which made money much more available and there was no regulation of their activities.

The sales if public land and the Tariff of 1833 brought in massive amounts of cash to the US Treasury. This accomplished the goal of every Presidency, regardless of party, paying off the National Debt. It didn't stop there either; the United States accumulated a large surplus; so much so that Congress divided it between the States. The States reinvested that largess in major infrastructure projects which as paid for with State bank notes rather than species, e.g., gold and silver.

All the ingredients necessary for economic failure were now in the mixing bowl; the same basic ingredients that were at the bottom of the Great Recession of 2007 - easy money and little or no regulation and regulators of American financial institutions; the fuze was lit.

The Fall:

THE years leading up to the Panic of 1837 were good times for all because cheap land was available from the government which could be readily sold to willing buyers, in the form of companies employed to build the railroad construction, canal construction, and other infrastructure projects the States were paying for with all that surplus money the Federal government had returned to them; worthy projects all. You also had lots of people employed from all of these projects and the resulting economic stimulus they provided. Add to this a bevy of unregulated State and wildcat banks loaded with money, from all those employed citizens, who were willing to lend to those who wanted to buy this cheap land from the government and what have you got? The beginning of the end of the good times.

Why? Because the fuse was lit that exploded in rampant speculation; from an annual average of $1.3 million in land sales around 1829 to an unbelievable $47 million in 1836, a poison to sustained economic expansion. Where the 2003 - 2007 speculation, just as spectacular and debilitating, was primarily centered around the housing market, the 1830s speculation were land tracts that, hopefully, would be in the path of one of the railroad or canal projects. With no controls on those lending the money, there were no controls on the fast and continuous turnover in land ownership. Land prices skyrocketed, fortunes were made, and this time the good times will never stop ... sound familiar?

While the 1837 panic and subsequent depression were more or less predictable, much as it was for the 2007 recession, and would have probably occurred on its own anyway, President Jackson's issuance of the Species Circular guaranteed it. Of course, this wasn't Jackson's intent, but, if he had understood how the market truly worked, he would have seen the obvious consequences his action.

What the Species Circular required was that all debts to the U.S. Government would be paid in species, meaning gold and/or silver, rather than what was becoming worthless paper money issued by the unregulated State and wildcat banks; worthless because of inflation that was brought on by the printing of so much of these various paper currencies; from $61 million in circulation in 1834 to a whopping $140 million just three years later. President Jackson was properly worried about this huge inflation of paper currency and sought to put a halt to it; hence the Species Circular.

President Jackson left office shortly after issuing this executive order and left the fall-out to incoming President and fellow Conservative, Martin Van Buren. If there had been plenty of gold and silver laying around in the bank coffers to back all of the paper currency in circulation, things would have continued until the speculation bubble burst of its own weight. In 1834, this might have been the case but in 1837, with over double the paper notes in circulation, they weren't even close and the inevitable happened, credit dried up. With no more credit, land sales all but vanished and consequently so did the upward pressure on land prices. Now that the support for the massively inflated land prices had vanished, there was only one direction prices could go ... DOWN.

Since you just lived through the 2007 financial collapse, you know the rest of the story; banks failed in droves, unemployment skyrocketed and the economy sunk into a deep depression. President Van Buren, following his Conservative economic philosophy, did virtually nothing to intervene save for signing the Tariff of 1842, five years later. Economists do say there was a brief recovery in 1938 - 39 but was cut short when banks in England and the Netherlands raised their interest rates. The American economy did not recover until 1843 after six years of unprecedented unemployment and business inactivity.

President Franklin Pierce b. 1804, d. 1869, POTUS #14, 1853 - 1857

President Franklin Pierce b. 1804, d. 1869, POTUS #14, 1853 - 1857

Panic of 1857*

THE DYNAMICS LEADING UP TO THE PANIC OF 1857 is a series of financially based recessions, which began during President Franklin Pierce’s term (conservative Democrat) and continued into the beginning of President James Buchanan’s term (conservative Democrat), at which point the recession officially began.

While neither president did anything in particular that can be pointed to as having directly facilitated the Panic—such as President Jackson’s issuance of the Specie Circular, which was tied closely to the 1827 Depression—neither did either one do anything to prevent it nor alleviate its devastating consequences afterward. This philosophy of non-intervention was in line with their conservative political philosophy of laissez-faire and the consequences of it, as will be developed as we go, should have been no surprise, for in the intervening years before their presidencies, the same economic policies that were in place during the Depression of 1815, the Panic of 1825, and the Panic of 1837 were still being followed in the years leading up to the Panic of 1857 as well as into the recovery that followed.

According to Wikipedia, “The Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy.” It so happened that the Panic occurred while President Pierce was consumed with other critical domestic issues, which ultimately cost him being nominated for re-election. In any case, it is not likely Pierce would have done much to control what was going on, since that would run contrary to his conservative economic philosophy of leaving the essentially unregulated business and financial markets to run their course.

.- The Build-up:

So what were the particulars that led up to the Panic of 1857? As was true with the previous three financial recessions, and as we will see for most of the future financial recessions as well, the country was enjoying very prosperous times. Banks were lending, people and businesses were buying, and the railroad industry was booming due to the mass migration of Americans to the West. Once again, land speculation was on the rise. Because the good times were so good, everybody started taking risks: banks relaxed their rules, and banks, citizens, and businesses started taking on massive debt. This was true in both America and Europe. Then, starting in 1857, the bubble slowly and then quickly burst.

- And Then The Collapse:

It started with the European economy beginning to slow down, thereby reducing demand for American products, especially products from the newly and rapidly expanding West. This, in of itself, was not surprising because, as economists had recently found out, business runs in cycles. What followed next would not be surprising either: there was an economic slowdown in America resulting from lack of demand. Again this is nothing to panic over (pun intended).

The problem—and since there was a panic in 1857, there had to a problem—the slowdown was magnified in the West. Consequently, business in the West started drying up, causing concern in the East, especially with eastern banks. The downward spiral had begun. As the mad rush to the West slowed down, railroad profits began to fall, which caused the eastern banks to become cautious and make loans harder to get, and these eventually dried-up altogether. In fact, because the conservative government had yet to reinstate a single currency—because they were opposed to a central bank—some eastern banks stopped accepting western currency! Now the downward spiral, a naturally occurring phenomenon, became a death spiral.

The rest follows what has become, and still is, the playbook on recessions and depressions. Land prices in the West collapsed, which in combination with disappearing demand, caused businesses, including farms and railroads, to begin to fail. Eastern farmers who had bought land and then mortgaged it to western farmers, began to foreclose. Additionally, the Illinois Central; Erie; Pittsburgh, Fort Wayne, and Chicago; and Reading Railroads shut down or went bankrupt, throwing countless people out of work and reducing demand even further.

One of the business activities President Pierce did facilitate was the building of the Intercontinental railroad; which had unintended consequences, fatal ones unfortunately. The West-to-East railroad interconnected the two economies, and the failure in the West began to be visited upon the East, and soon the eastern United States’ economy was on its way down.

There was another unintended consequence that played a large role in setting the stage for the Panic: the March 1857.Supreme Court’s Dread Scott v. Sanford decision that ruled slaves were not American citizens; although the fact that the US Constitution allowed the states to count each slave as being worth three-fifths of a person when determining how many electoral votes a state received. The ramification of this is that it threw the western states open to be slave states. This was in-line with President Pierce’s pushing for and signing the Nebraska-Kansas Act that invalidated the Missouri Compromise. This left political and financial turmoil in its wake, causing even more downward pressures on land values and prices in the West.

The tipping point, the Lehman Brothers of 1857, was the collapse of the Ohio Life Insurance and Trust Company in August 1857. Unlike the Barclay Bank purchase of the bankrupt Lehman Brothers in 2008, the immediate financial impact of Ohio Life’s failure was mitigated by interconnected banks co-insuring each other against runs. But like Lehman Brothers, the word was out: the economic problems were now in the public domain. Where the response in 2008 was extreme volatility in the stock markets followed by the final collapse in December 2008, the response in 1857 was similar—economic volatility and inevitable collapse of the economy. The Panic of 1857 was now in full swing!

President James Buchanan b. 1791, d. 1868, POTUS #15, 1857 - 1861

President James Buchanan b. 1791, d. 1868, POTUS #15, 1857 - 1861

- Delayed Recovery:

The similarities with the 2008 collapse continue just a little bit longer before diverging from each other in a fundamental way. Presidents Buchanan and Obama have one thing in common: they inherited a collapsing economy upon their assumption of office. While the economy had entered its free-fall just before President Obama was inaugurated in January 2009, the Panic of 1857 didn't really reach its crescendo until about four or five months after President Buchanan was inaugurated in March 1857.

This is where the similarities end. Obama, using a progressive social and economic philosophy, immediately implemented a strategy to try to mitigate as much as possible the devastation that could have caused a full depression, which stopped the acceleration of job loss within two months of implementation and returned job growth within twenty-one months—the result was a major recession rather than a depression. Buchanan, on the other hand, following a conservative social and economic philosophy, did nothing!

Actually, “did nothing” is not quite accurate; in December 1857, President Buchanan did develop and implement a strategy he called “Reform, not Relief,” which basically stated, “the government sympathized but could do nothing to alleviate the suffering individuals”! Consequently, the Panic continued to run its own course, wreaking havoc on the Western and Northern economies and citizens. As it turned out, the South was not hurt too much by this Panic, because their economy was not as closely tied to the West’s, where the economic bubble burst, or the North’s, which was the country’s financial Mecca and, as such, had financed the western expansion.

Almost two years later, in 1859, the economy began to stabilize, but inflation was still high. Finally, Buchanan took some measures to try to bring it under control. He took a rather unprecedented step of banning paper currencies above $20 in an attempt to drive the country toward a specie-based system again.

In a panic full of unintended consequences, there was still one more that would make its presence known. Because of the terrible impact of the panic on the North, the South believed the North would finally be more amenable to Southern demands. In the face of rising tensions between the North and South over slavery, the South slowed down its demand for secession, thinking that would help keep slavery alive in America. Even so, America would be at war with itself just two years later.

In a panic full of unintended consequences, there was still one more that would its presence known. Because of the terrible impact of the panic on the North, the South believed they would be more amenable to southern demands. In the face of rising tensions between the North and South over slavery, the South slowed down their demands for succession thinking that would help keep slavery alive in America. (Huston, James L. (1987). The Panic of 1857 and the Coming of the Civil War. Baton Rouge: Louisiana State University Press.) Even so, America was at war with itself just two years later.



The Recession of 1865*

FOLLOWING THE PANIC OF 1857, there came a series of moderate Republican presidents (and one moderate Democrat), backed by moderate to liberal Republican Congresses. Only one conservative, Democrat Grover Cleveland, held office during that time. The string of moderate and progressive presidents, which ran from the election of Abraham Lincoln in 1861 to 1913, outlasted the moderate and progressive Congresses, which ended in 1875, but began again in 1895.

During that timeframe, economic practices in government shifted dramatically, especially after the Panic of 1907. Prior to that, the most notable shift in Congressional attitude was on the social front, where longstanding conservative American bigotry against minorities and women began its decline.

After Wars Come Recessions

IT IS ALMOST AXIOMATIC THAT AN ECONOMIC downturn will follow a war, and the recession of 1865, following the end of the American Civil War, was no exception. The primary reason for any post-war recession is that industry has been geared during wartime to supply all the goods and services required with a labor force depleted of the men—and now women—fighting the war. Consequently, unemployment has been low and business activity very high. With the end of hostilities, the demand for goods and services falls sharply, and industry scales back quickly. This results, of course, in higher unemployment only magnified by the soldiers returning home.

Obviously, there is pent-up demand just waiting to be filled, but it takes time for industry to re-tool to provide different goods and services than war required. As a result, a momentary recession will normally occur. Further, until after WWII, there were no governmental macroeconomic mechanisms, influence employment and interest rates, available to dampen the large swings in supply and demand leading to cycles of mini-booms and busts while the countervailing pressures of microeconomics (supply and demand) to smooth out these cycles. Needless to say, this is not a fast process.

The Civil War Was No Exception

WHEN THE CIVIL WAR ENDED, DEMAND dropped, industry scaled back to retool, workers returned home, and recession hit, just as we covered above, from 1865 to 1867. In addition, Congress, consisting of socially progressive but fiscally moderate Republicans, wanted to return to the gold standard, a very popular concept with the public. There has never been public acceptance of paper money not backed by gold (not until the 1980s anyway), but sometimes, in order to prevent economic disruptions that can result from this practice, governments occasionally stop trading paper currencies for gold. One of the primary reasons to do this is to expand (inflate) the money supply, which attempts to off-set the contractionary forces of a recession or to simply to provide more currency for financing government debt.

That is why President Lincoln and Congress stopped converting paper currency into gold on demand in 1862; they needed to finance the war. Upon the end of the Civil War, this need disappeared, so Congress quickly reestablished the gold standard by passing the Contraction Act in April 1866. One problem, however: as quickly as dropping the gold standard expands the economy, reestablishing it contracts the money supply and, therefore, the economy. This is exactly what happened, which helped to drive the United States into a recession in 1865.

Panic of 1873



The Long Depression of 1873 - 1885 *

THIS depression began with the Panic of 1873 and ended with the Recession of 1882. Like the Panics before it, the cause was the now familiar boom-bust cycle, this time with a heavy dose of government involvement , both foreign and domestic. President Ulysses S. Grant, POTUS # 18, had the unfortunate luck to havjng to live through first the Boom period during his first term and the Bust period during his second term as President. The beginning of this "Long Depression", as the Europeans like to call it, began much earlier, however.

When the Civil War ended in 1865, the boom began. It was fueled by, dare I repeat myself, the now familiar government land grants followed by land speculation, railroad expansion followed by economic expansion, over building, too much cash flow in the economy, very easy credit, and the worst of all ... the belief that it would never end. And why not, it was one of the longest growth cycles America had experienced to-date, eight years before the rug was pulled out from under them. Further, it wasn't only in America that was feeling its oats, all of Europe was as well. Then, like Wiley Coyote always does, the world ran past the edge of the cliff and was hanging in mid-air.



The House of Cards Begins to Collapse

It didn’t start in America, but in Germany. Following the Franco-Prussian War in 1871, Chancellor Otto von Bismark extracted a large indemnity of gold from France. As a consequence, he stopped minting the German silver Thaler coins and abandoned the silver standard thereby letting the value of silver float freely on the European markets. This was unfortunate for America because our western mining interests were the main source of supply for the silver used in minting the German Thaler.

This action by the Chancellor had some rather unintended and very damaging consequences; the destruction of the European economy and the fuse that led to the Panic of 1873 in America. Two things happened when silver was no longer the standard backing German currency: 1) silver's value fell and 2) the money supply dwindled with the elimination of the silver Thaler.



With the fall in silver prices those investments which were based on silver lost value as well let alone the instability in the markets such a decision causes. Given what followed, these weren't insignificant effects. Nor was the result from the constriction of the money supply resulting from removing the Thaler from circulation. This had the effect of raising interest rates which in turn began to reduce lending.

In normal times, the economy could probably absorb these perturbations, but, these were not normal times. Like in America, the European economy was extremely overheated and extremely fragile. This double hit was enough to start the death spiral in Europe and make America's future more uncertain.



- Now It is America's Turn

The fuse was lit, but, there was time to put it out; instead, our government managed to only fan the flames. As it was previously described, America's economy was booming after the end of the Civil War. By design, there were no governmental regulatory constraints on the economy and consequently business followed the natural path sought by pure, marginally regulated capitalism. The natural result, as it had been in 1815, 1825, 1837, and 1857 was an overheated economy just waiting for the right contractionary episode(s) to occur causing it to collapse, rather than decline.

In 1873, those episodes were, first, the demonetization of silver in Germany in 1871 and secondly the coup de grace was the Coinage Act of 1873, by the Grant administration, which accomplished essentially the same thing to silver in America. As a consequence both Europe and America were now on a de facto gold standard, the only metal that was backing the paper currency in circulation. The problem, of course, is that there was lot of paper currency floating around and not so much gold, now that silver was no longer being used. The impending avalanche was simply waiting for the small canon to go off sending the first snowball on its way down the way down the mountain side.

The end came quickly once the effects of the minting of the German Thaler stopped in 1871 - 1872. Demand for silver from the mines in the Western United States began to drop, together with the fall in silver prices. As time went on, this decline accelerated since there was nothing to replace it.

The instability in silver prices, which were set by law in America but were free to rise and fall, mainly fell, in Europe. This trend was beginning to cause many problems in American financial markets. New silver finds in the West increased supplies at a time when demand for silver was falling causing consternation in its relationship to its value with gold.

Finally, while increased employment from some mines opening because of the new silver fields, even more mines were closing due to the lack of demand. Thereby decreasing employment and decreasing demand for the support services of those who had lost their jobs ; keep in mind, there was no unemployment insurance back then so the effect on a person being out of work were more pronounced and immediate on the surrounding economy, not to mention the working-class guy and his family.

Because of all of the problems with silver, Congress began to move to demonetize silver in America and accomplished this with the Coinage Act of 1873. However, as Americans have always had a penchant to do, and still insist on doing, we do not learn from others mistakes and we forget the ones we have made in the past. In this case, we weren't watching what was happening in Europe, and we should have because they were struggling.

Why was Europe struggling? It was partly due to demonetizing the Thaler; it destabilized the economy. So, what did America go ahead and do in the face of what was starting to be a declining economy, the same damn thing! Go figure.

Panic of 1873


- The House of Cards Came Tumbling Down

On February 13, 1873, one can probably say America began its death spiral into depression. Silver prices were immediately depressed and now they could float freely based on market forces and not government rules; the Western mining interests labeled this Act the "The Crime of '73". The Coinage Act took all silver coins out of circulation thereby reducing the money supply which raised interest rates. If this were a normal economy, this wouldn't be too big of a deal but this wasn't a normal economy.

It was an enormously overheated economy with tons of paper currency floating around and not enough gold to back it up; uncertainty abounding regarding the silver market; credit was drying up because of rising interest rates; and the railroad boom was in its last stages.

In the previous years there were minor shock waves; the Black Friday Panic of 1869, the Chicago Fire in 1871, and the equine influenza of 1872. Then, on May 9, 1973, the Vienna stock market crashed signaling the beginning of "the Long Depression" in Europe that didn't end until 1896.

In late 1873, J. Cooke & Company, a major US bank, was heavily invested, as many other investment companies and banks were at the time, in railroad companies. Right when they were all trying to get more capitalization for further expansion, President Ulysses S. Grant instituted a monetary policy of money supply contraction.

J. Cooke had been working on a project for years to create a second transcontinental railroad called the Northern Pacific Railroad; ground had already been broken in 1870. In September 1873, J. Cooke, in face of Grant's monetary policy, tried to sell millions of dollars in bonds to finance the project ... and couldn't. Even though they were about to get a $300 million government loan, J. Cooke's credit became worthless and was forced into bankruptcy on September 18, 1873; and the final lynch pin holding the economic house of cards together, the Lehman Bros. of 1873, had been removed.

The failure of J. Cooke and Company was quickly followed by Livermore, Clewes, and Company, one of the largest marketers of government bonds, and then many more banks. Ultimately, the New York Stock Exchange had to be temporarily shut down. We aren't talking weeks and months like what was experienced in 2008, we are talking days. The New York Stock Exchange closed for ten days starting September 20, 1873!! It was that fast.

Obviously, the impact was felt quickly in New York, more slowly in Chicago, and slower still as you moved West. But the results were certain, lost jobs, increasing unemployment, and bankruptcies. When it was all over, out of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876, three years after the depression began (by comparison, in the Great Recession of 2008, unemployment peaked at 10.4% in 2009 and started falling in the same year). Construction work halted, wages were cut, real estate values fell and corporate profits vanished. (Rezneck - 1950)

- In Summary

By all standards, this was a terrible depression. It was deep, it was wide, and it was long; 12 years long. Just think how that would go over in today's political environment. While there is probably nothing that could have been done to prevent such a strong economic downturn, if intelligent minds had prevailed instead of political ones, it wouldn't have been as bad.

I say this even if you consider the lack of a central bank and any real government regulation for business and financial operations, which on their own can have a fundamental impact on the economy, or, given the degree to which the economy had become overheated.

What could have altered the course from the debacle that did occur is if the government in power abandoned their economic philosophy and opened their collective eyes to what was happening around them and then formulated activist policies to counteract what was happening. You don't institute policies that amplify the downward spiral which is what the Grant Administration and Congress did!

Passing the Coinage Act of 1873 was an egregious mistake given the clear evidence from Europe of what would result. Instituting further contractionary money supply policies when expansionary policies were needed was inexplicable. Following the current Democratic (Conservative) hands-off, no interference, with both the citizenry and business, policy when the economy goes south contributed greatly to the large number of business bankruptcies; the high, long-term unemployment rate; and the depth and length of the depression cycle while not surprising, was certainly unfortunate. I would hope no one would argue that if the government had actually tried to intervene and mitigate the effects of the depression, things would not have gotten worse.

The Panic of 1893

I MUST apologize for repeating myself, but I guess I must. It is said the Panic of 1893 was the worst economic downturn until the Depression of 1929 and that once again, it was the result of financial mismanagement within the business, financial, and governmental sectors of the American economy.

After America had recovered from the longest depression it and the world had ever experienced in 1879, the economy boomed; it really boomed. Then it boomed some more until the once again booming railroad industry bubble burst, the banks which once made sound loans and then got caught up in the good times and greed (sound familiar) started making bad loans and overextending themselves into bankruptcy.

This might have not been enough to push the economy over the edge, although it was certainly a good start, but the government helped set the stage with its economic policies.

These economic shocks might not have been enough to push the economy over the edge on its own, although it was certainly a good start. The government helped set the stage with its economic policies that (had) weakened the economic structure just enough to allow this round of unconstrained business excesses to finish the job.


Foremost among these was the Sherman Silver Purchase Act of 1890 which, among other things reestablished bimetallism, gold and silver, rather than using a single metal on which to peg the value of American currency. This has been a long standing debate between Republicans and Democrats and continued until the 1970s when President Nixon finally took the United States, much to the outrage of what in 1893 would have been the Democrats, but in 1972 and 2011 were and are Conservative Republicans; sort of makes your head spin, doesn't it. By the way, there is a strong movement among the Conservatives of 2011 to reestablish the gold standard.

The reason for the Sherman Act was to support farmers going broke due to a series of droughts by causing inflation from the purchase of vast quantities of silver by the U.S. government. Another reason for the Act was to have a major buyer for all the new silver being produced by all of the new silver mines being opened in the West being supported by, you guessed it, and ever expanding railroad.

The consequence of this maneuver did what everybody wanted, it inflated the dollar, making the farmers debt worth less and easier to pay off as well as providlng a ready market for silver. This would have normally depressed the price of silver, but now it was fixed to the dollar and gold. For reasons I won't get into, this caused a run on gold drastically depleting the amount available in banks to back the species dollar, which was back in vogue again. All of this was happening between 1890 and 1893.


As I said, this Panic was caused by the overexpansion of the railroad system into the West and other areas resulting, one more time, in land speculation as well as the inevitable financial overextension of financial institutions. Add to this the government’s mishandling of the economy, and all that was left was the predictable hic-cup which will ultimately lead to bank failures and bankruptcies that ultimately led to massive unemployment. This hic-cup in 1893 was the failure of the Philadelphia and Reading Railroad, February 23, 1893. Further compounding the problem was the Conservative non-interference economic theory which prevented the government from taking any action to mitigate the impact so, as a consequence:

· Bankruptcies rose to over 15,000

· Bank closures exceeded 640

· Unemployment hit a high between 12 and 19%, depending on who is counting, but both sources, Lebergott or Romer, agree that unemployment rose above 8% in 1893 and didn't fall below 8% until 1899.