Today in History: August 24
The Panic of 1857
The history of the panic is clearly divisible into…two periods: the former, when the banks took the initiative…and the latter, in which the depositors seized it…
The major financial catalyst for the panic of 1857 was the August 24, 1857, failure of the New York branch of the Ohio Life Insurance and Trust Company. It was soon reported that the entire capital of the Trust's home office had been embezzled. What followed was one of the most severe economic crises in U.S. history.
Almost immediately, New York bankers put severe restrictions on even the most routine transactions. In turn, many people interpreted these restrictions as a sign of impending financial collapse and panicked. Individual holders of stock and of commercial paper rushed to their brokers and eagerly made deals that "a week before they would have shunned as a ruinous sacrifice." As the September 12, 1857, Harper's Weekly described the scene on the New York Stock Exchange, "…prominent stocks fell eight or ten per cent in a day, and fortunes were made and lost between ten o'clock in the morning and four of the afternoon."
The Report of the Clearinghouse Committee, produced in the years following the panic of 1857, found that "A financial panic has been likened to a malignant epidemic, which kills more by terror than by real disease." Yet behind the reaction of New York's bankers to the closing of a trust company lay a confluence of national and international events that heightened concern:
- the British withdrew capital from U.S. banks;
- grain prices fell;
- Russia undersold U.S. cotton on the open market;
- manufactured goods lay in surplus;
- railroads overbuilt and some defaulted on debts;
- land schemes and projects, dependent on new rail routes, failed.
To compound the problem, the SS Central America, a wooden-hulled steamship transporting millions of dollars in gold from the new San Francisco Mint to create a reserve for eastern banks, was caught in a hurricane and sunk in mid-September. (The vessel had aboard 581 persons—many carrying great personal wealth—and more than $1 million in commercial gold. She also bore a secret shipment of 15 tons of federal gold, valued at $20 per ounce, intended for the eastern banks.)
As banking institutions of the day dealt in specie (gold and silver coins instead of paper money) the loss of some thirty thousand pounds of gold reverberated through the financial community. Howell Cobb, secretary of the treasury, encouraged not only the placement of vast amounts of such government gold on the market, but also redemption of government bonds at a premium. At his suggestion, President James Buchanan proposed to Congress that the Treasury be authorized to sell revenue bonds for the first time since the Mexican American War.
Although bankers showed the first signs of concern, depositors soon followed. On October 3 there was a marked increase of withdrawals in New York, and over the next two weeks withdrawals nearly quadrupled. Reports of financial instability, perhaps exaggerated, were quickly carried between cities by the new telecommunications medium, the telegraph.
As the public's faith in soundness of financial institutions continued to plummet, the nation's banks began to collapse. Although the East Coast was hardest hit—with bank closures in New York, Philadelphia, Baltimore, and elsewhere, bank failures also reached across the Missouri River to cities such as Omaha. The climax came on October 14—Suspension Day, when banking was suspended in New York and throughout New England.
The term panic refers to the worst moments of a financial crisis. What follows is frequently a recession (a period of reduced economic activity) or a depression (a more serious and prolonged period of low economic activity, marked especially by rising unemployment). The contraction of the economy that followed the panic of 1857 was profound and had parallels in Europe, South America, South Africa, and the Far East causing it to be held as the first worldwide economic crisis. In the U.S., the setback caused significant job loss; a major slowdown in capital investment, commerce, land development, and the formation of unions, as well as in the rate of immigration. The effects of the "revulsion," as it was referred to at the time, lasted a full eighteen months and reverberated until the onset of the Civil War.
Harper's Weekly for September 12, 1857, took a dim view of dealings on the New York Stock Exchange. They claimed that the greed of speculators underlay the panic and gave examples that included the following:
…Jones believes that we are going to have a "crisis," a "revulsion," and "panic." Or Jones is treasurer of the New Gauge Railway, and having access to the books, knows that it is insolvent. In both these cases Jones directs his broker to sell for his account so many shares of the New Gauge Railway…retaining the right of delivering the stock on any day he pleases prior to the conclusion of the contract. Of course, Jones doesn't own the stock he sells; he intends to buy it at a reduced price at the time he delivers. Now, if Jones has been right in his prognostications — if the panic and crisis do come, or if the New Gauge Company does turn out to be insolvent, of course the stock goes down, and Jones buys in for delivery at the reduced price, realizing the difference between that price and the one at which he sold. But if Jones has been wrong — if the crisis don't come, or is unduly postponed — such things have been known to occur — if the New Gauge concern should prove profitable, and not insolvent, why then the stock might go up, and at the end of the contract Jones might be forced to buy for, say $50, that which he sold at $45 — netting a loss of $5 per share.
In the late 1980s the wreck of the SS Central America was located about 8,000 feet under water. One ton of extraordinary riches surfaced including the world's largest bar of gold ingot, weighing more than eighty pounds, and thousands of 1857-S Liberty Double Eagle twenty-dollar gold pieces, each of which contained nearly a full ounce of gold.
Learn more about the panic of 1857 and other events in nineteenth century-American history in American Memory:
- Search on the term 1857 in The Nineteenth Century in Print: Books to learn more about life in the U.S. in the late 1850s. Read, for example, The Banks of New York, Their Dealers, the Clearing-House, and the Panic of 1857, or Life and Liberty in America.
- Search the Today in History Archive on the term stock exchange read about events in American financial history such as the opening of the New York Stock Exchange and the founding of the Federal Reserve.
- Small-Town America: Stereoscopic Views from the Robert Dennis Collection, 1850-1920 is a collection of 12,000 stereoscopic views of the mid-Atlantic states of New York, New Jersey, and Connecticut from the 1850s to the 1910s. Search on the terms stock exchange or bank to see views of the New York Stock Exchange (post 1857) and regional banks. See the special presentation About Stereoscopic Views to learn more about this form of 3D-photography that was so popular between the 1850s and the 1930s.
- To find sheet music from the year of the panic, search the collection Historic American Sheet Music, 1850-1920 on the term 1857. Among the music printed that year are the rambunctious "Red Shawl Polka," the romantic "Song of the Robin," and the portentous "Virginia Military Institute March." Learn more about the era and its songs through the collection's Timeline for 1850-1859.
- Not to be confused with sheet music, song sheets are single printed sheets with lyrics but no music. The song sheet "Loss of the Steam Ship Central America," which recounts how that famous side-wheel steamer was engulfed in the Atlantic, may be found in the collection Nineteenth-Century Song Sheets. Search the collection on diverse terms like John Brown, Pocahontas, Vermont, Dixie, peanut, or petticoat to learn how wide ranging was the subject matter of song sheets.
- "California as I Saw It": First Person Narratives of California's Early Years, 1849-1900 consists of the texts and illustrations of material which documents the formative era of California's history. Search the collection on the terms voyage, prospector, or 1857 to learn more about the life and times of individuals like many of those aboard the SS Central America, who were headed back east from California. Also see the Today in History feature on San Francisco during the mid-1850s.
- During the panic of 1857, the telegraph had only been in use thirteen years. To learn more about its inventor, see a preview of the collection Samuel F. B. Morse. Read about the historic first telegram in the American Treasures exhibition.
- The presidency of Calvin Coolidge spanned years of unprecedented prosperity in the 1920s. Browse the Subject Index of the collection Prosperity and Thrift: The Coolidge Era and the Consumer Economy, 1921-1929 to learn more that era which fell between a brief depression following World War I and the decade-long Great Depression of the 1930s. The collection includes the interesting Charles Hamlin Papers. Hamlin Memorandum and Diary Extracts, Showing Federal Reserve Board Response to 1927 Recession and Stock Market Speculation: July 1, 1927-January 4, 1929.
- Read more about the panic in this full text electronic publication: Morris, Robert. 1864. The banks of New-York, their dealers, the clearing house, and the Panic of 1857: with a financial chart (external link). New York: D. Appleton & Co.
Maps of the Maryland-Pennsylvania boundary used as trial exhibits in the 1735 court suit brought by the Penns against Lord Baltimore to determine the official interprovincial boundary line,
John Senex, London, circa 1738.
On August 24, 1682, the Duke of York awarded Englishman William Penn a deed to the "Three Lower Counties" that make up the present state of Delaware, recently transferred from Dutch to British jurisdiction. Penn acquired this tract of land just west of the Delaware Bay in order to ensure ocean access for his new colony of Pennsylvania. While Delaware established its own assembly in 1704, it was not until shortly after July 1776 that Delaware became a separate state. On December 7, 1787, Delaware was the "first state" to ratify the new U.S. Constitution, thereby earning its current proud nickname.
The boundary separating Delaware from Pennsylvania and a portion of Maryland is an unusual one, featuring the arc of a circle defined by a twelve-mile radius centered on the courthouse at New Castle. An ongoing dispute between Penn and Maryland's Lord Baltimore about the extent of each's territory had led to this unique resolution. The same dispute spurred the creation of the famous Mason-Dixon Line in 1763, when British surveyors Charles Mason and Jeremiah Dixon were selected to establish a definitive Maryland-Pennsylvania border—a task that took five years to complete. This line, moving west, came to symbolize the divisions of North from South in the years before the American Civil War.
Mason-Dixon Line Marker,
Photo 1: Maryland Emblem,
Zora Vicinity, Adams County, Pennsylvania,
Frederick Tilberg, photographer, 1950.
Built in America: Historic American Buildings Survey/Historic American Engineering Record, 1933-Present
Before Penn, Delaware's fertile coastal plain attracted the Lenni-Lenape (later named Delaware Indians), who supported themselves by farming, hunting, and fishing. Swedes, the region's first permanent European settlers, arrived in the late 1630s, establishing themselves in what is now Wilmington. With its accessibility to other ports, especially the Port of Philadelphia twenty-five miles to the northeast, and its abundance of natural resources, the Wilmington area flourished as a center for saw, paper, and flour mills, aided by creation of the Chesapeake and Delaware Canal. Later, Wilmington served as home to DuPont's extensive chemical industries, and to the many banks incorporated in the state.
In 1802, French immigrant Eleuthère Irénée du Pont de Nemours founded DuPont (external link), one of the world's oldest continuously operating industrial enterprises, as a gunpowder mill outside of Wilmington. While it has transformed itself over the years, the company remains an influential force in the economic life of Delaware, and its founding du Pont family a fixture of the state's history and institutional growth.
When Delaware sided with the Union during the Civil War, its vital river route was protected by a three-point defense consisting of Fort DuPont on the Delaware shore, Fort Mott on the New Jersey shore, and Fort Delaware in the center of the river. Fort Delaware is perhaps the best known of the three forts because it was used by the Union army to house Confederate prisoners of war, some of whom published their own newspaper. After the Battle of Gettysburg, the fort held a teeming 12,500 prisoners.
One of Delaware's richest cultural treasures is the former country estate of Henry Francis du Pont, now known as the Winterthur Museum (external link). A showcase for du Pont's collection of American decorative arts and architectural interiors, the museum features almost two hundred rooms decorated with objects made or used in America between 1640 and 1860. Winterthur has also become a center for the study of American art and objects, featuring several graduate programs and a premier library (external link) collection.
Learn more about Delaware in American Memory:
- Search on Winterthur in Architecture and Interior Design for 20th Century America: Photographs by Samuel Gottscho and William Schleisner, 1935-1955 to see more of the Winterthur collection. Search on the name du Pont to find views of mansions owned by other members of the extended du Pont family.
- Search across the American Memory collections on Delaware. Do the same search in An American Time Capsule: Three Centuries of Broadsides and Other Printed Ephemera to isolate a quirky range of significant or unusual items relating to Delaware's history.
- Read how one Gettysburg captive endured imprisonment at Fort Delaware. John H. Robertson tells his story in an American Life Histories: Manuscripts from the Federal Writers' Project, 1936-1940 interview. The Battle of Gettysburg took place over the first three days of July 1863. See the Today in History features for July 1, July 2, and July 3 to learn more about this pivotal battle.