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The Panic Of 1819

The panic of 1819 was caused by majorly inflation and it was a difficult time for the Americans to manage their economy. It was the first economic issue that stressed the union and the states to a large extent until it was solved through increased production, saving, and other means. During the war of 1812, the federal government had borrowed a lot of money to fund the war. The borrowing happened directly from the state banks after the first national bank expired in 1811. The federal government also allowed state governments to print money that did not need to have specie like silver or gold. This was the major cause of inflation and many banks being established. At the same time, foreign trade was not practicable during the period of the war. With inflation, the prices of goods soared. After the war declined manufacturing was very low. However the inflation was still very high and there was a need to do something about it (Rothbard, 1962).

Congress created a second national bank in 1816 which was supposed to print cash with more and better value than the one produced by the state banks. Through this, the ban was supposed to end the inflation activities of the state banks. However, the bank issued credits to state banks and this made them expand. After realizing this, the national bank then tried to curb the inflation by contracting the money supply and calling its outstanding loans. This was not possible for most of the state banks and they had to sell their investments leading to collapse in the investment markets (Blackson, 1989).

The collapse spread very fast and very many companies and other investments failed. This led to a lack of employment. There was an economic depression due to this. With the different issues in place, there were also similar many proposals towards the problem and President Monroe decided about the fate of the economic depression. He stated that the government was not to intervene in the crisis. Results were attained through increased production, responsible saving, and spending habits. The panic led to a lot of hate towards the second national federal bank as people stated that the bank had a lot of economic power (Rezneck, 1933).


Blackson, R. M. (1989). Pennsylvania banks and the panic of 1819: A reinterpretation. Journal of the Early Republic, 9(3), 335-358.

Rezneck, S. (1933). The Depression of 1819-1822, A Social History. The American Historical Review, 39(1), 28-47.

Rothbard, M. N. (1962). The Panic of 1819 Reactions and Policies. Columbia University Press.