1. Boom Bust Cycles: can apply these characteristics to any Panic!
Boom- Post-War periods because people save during wartime
1. New jobs available because of higher demand when people are buying again
-People demand staples, finished goods
: staples- things you always need
: finished goods- luxury items
1. Speculation/Investment: when people have extra money, they buy land, invest in new
businesses (later, stock market)
2. Foreign Investment in USA (buying of American goods/loaning to American
businessmen)!
Bust
1. Overproduction (surplus), Under-consumption!
2. Prices (surplus means prices fall) and wages drop
3. Land values fall!
4. Foreign investment falls!
Vicious Cycle!-When prices fall, businesses and banks start to fail, foreign investment falls, wages
fall, unemployment rises
Can apply this to the 1819 Panic!
Over-speculation of Post-War years is the main cause:
-Cotton Prices drop because of overproduction (Cotton Gin)
-Farm products are not being sold to Europe because wars there are over!
-1817 Congressional Act says land sales have to be paid in Specie (hard money), not paper
money (paper money is not trusted!)
-Land speculators are not able to sell land for profit because people do not have
specie to buy it with!
-Land prices drop to try and sell the land (speculators are not making money)
-Speculators/Farmers/Business owners cannot make loan payments to regional banks
because of falling prices, less foreign investment
-Regional banks fail if they are not getting paid back by borrowers!!
-PANIC: investors try to redeem paper money for specie at banks, but banks run out
of specie (not enough to back up bills)
South and West blames Northeast/bankers for the Panic (National Bank)
-Why Bank? -no government regulation
-National Bank called in loans (pay back in specie)
-Borrowers (regional banks and businesses) cannot pay back loans because
foreign investment and prices are dropping
-National Bank is hording gold because it has value, not loaning it out or accepting
regional bills at face value (doesn’t trust regional bills, wants pay back in GOLD!)
-When they do loan it out, they loan to NE banks and businesses because they
are trusted!
-Business growth/expansion occurs in NE!
-Americans have very little faith in banking system (especially in West/South)!!
Shows the newly interconnected market economy is volatile! When one part of the economy
begins to fail, other parts fail as well!
-Hard work and personal merit have little impact on whether or not you outlast the
panic!
-International/national market trends, National Bank policy, regional bank
overspeculation (gave out more money than they had gold to support it