Finance - Money and Banking (jan 1, 1811 – jan 1, 1843)

Description:

The charter for the First Bank of the United States expired in 1811. Its absence caused serious difficulties for the national government trying to finance the War of 1812 over the refusal of New England bankers to help out.

President James Madison reversed earlier Jeffersonian opposition to banking, and secured the opening of a new national bank. The Second Bank of the United States was chartered in 1816. Its leading executive was Philadelphia banker Nicholas Biddle. It collapsed in 1836, under heavy attack from President Andrew Jackson during his Bank War.

There were three economic downturns in the early 19th century.
- The first was the result of the Embargo Act of 1807, which shut off most international shipping and trade due to the Napoleonic Wars. The embargo caused depression in cities and industries dependent on European trade.

- The other two downturns were depressions accompanied by significant periods of deflation during the early 19th century. The first and most severe was during the depression from 1818 to 1821 when prices of agricultural commodities declined by almost 50 percent.
- A credit contraction caused by a financial crisis in England drained specie out of the U.S. The Bank of the United States also contracted its lending. The price of agricultural commodities fell by almost 50 percent from the high in 1815 to the low in 1821, and did not recover until the late 1830s, although to a significantly lower price level.
- Most damaging was the price of cotton, the U.S.'s main export. Food crop prices, which had been high because of the famine of 1816 that was caused by the year without a summer, fell after the return of normal harvests in 1818. Improved transportation, mainly from turnpikes, significantly lowered transportation costs.

- The third economic downturn was the depression of the late 1830s to 1843, following the Panic of 1837 when the money supply in the United States contracted by about 34 percent with prices falling by 33 percent. The magnitude of this contraction is matched only by the Great Depression. A fundamental cause of the Panic of 1837 was a depletion of Mexican silver mines. Despite the deflation and depression, GDP rose 16 percent from 1839 to 1843, partly because of rapid population growth.


In order to dampen speculation in land, Andrew Jackson signed the executive order known as the Specie Circular in 1836, requiring the sale of government land to be paid in gold and silver. Branch mints at New Orleans; Dahlonega, Georgia; and Charlotte, North Carolina, were authorized by congress in 1835 and became operational in 1838.

Gold was being withdrawn from the U.S. by England and silver had also been taken out of the country because it had been under valued relative to gold by the Coinage Act of 1834. Canal projects began to fail. The result was the financial Panic of 1837. In 1838 there was a brief recovery. The business cycle upturn occurred in 1843.

Added to timeline:

Date: