Not counting the issues in the US specific issues (at least I think it was US specific) of the 1780s stemming from an infant Nation learning how to walk, the first real “economic” crisis due at least in part to the economic system itself was in 1819.
For the first time since the discovery of the system of capitalism by humans (like I said before, it not invented any more than gravity was invented), humans had caused a change significant enough to disrupt the laws that define its principles. It is widely accepted that the economy doesn’t show the results of a stimulus until after a considerable amount of time has passed. By 1819 the impact of a flurry of recent events began to emerge.
A major power had lost an enormous source of production that was almost entirely profit after failing to fend off a revolution. Another major power had suffered an internal revolution, and an expensive attempt at world domination that failed miserably. A major food producing part of Russia had been under farmed, while another major part had been burned to the ground as a form of self-defense because of the failed French invasion. There was also a war taking place in the U.S. that involved a matrix of alliances that were often more a friendship based on common enemies than a true alliance. International trade had become artificially restricted because of these wars, which meant that overcoming the direct impact these conflicts had on agriculture was nearly impossible.
I will admit that the above paragraph does not describe a situation that the world had never before seen. There was, however, one factor that made this episode of nationalistic warmongering different than any that came before. Countries had recently become reliant on international trade for things other than luxuries. The disruption on that trade and the negative impact on the production goods available to trade with allies that was created by much of the most productive areas of the western hemisphere becoming a battle zone was the first incident of capitalism’s natural laws being stressed by human interference.
Once the system was forced to bend its rules in order to handle this stress, the balance was upset. A banking crisis resulted as capitalism was forced to adjust currency values to counter the disruption of supply. People were unequipped to face a situation where the value of the currency began to fluctuate. For many it probably seemed like they were being swindled. A dollar is a dollar, how can that change? As much as people love the thought of gaining wealth, their fear for instability is stronger. The situation was only made more disturbing by the mysterious cause of the instability. Wars, famine, disease…were all things they could handle. Not only were they familiar, but they were obvious and easy to understand. They knew that this was more than just the impact of war, but they had no clue what exactly the “more” could be.
When a population faces pain from a source that they not only fear, but also can’t see, who do they expect to protect them? Unfortunately, even governments had no experience with this type of situation. Despite major advances in a wide range of areas, the economic discoveries of the enlightenment had only recently been fully embraces. There was no historical example to use for guidance. The newly created pseudo-democratic government of the United States had become frail after suffering through wars, inexperience, and a population that was increasingly apathetic instead of nationalistic. There was a real threat of this experiment failing (which, of course, it almost would in just a few decades).
How do you get elected by a disconnected, confused, and frightened citizenry? Tell them what they want to hear. Some things never change. Government and economics would be changed forever due to Politicians desperate to maintain power. The country that had been founded on the idea of having the weakest central government possible while still maintaining one nation asked its government to help provide material support to its population. When the voters throw a tantrum, government becomes an embarrassed mother who will give her toddler the whole damn candy aisle to stop the screaming. Eventually politicians would learn they could choose the object of the tantrum and it was really easy to convince the toddlers what is was they wanted.
Here are a few of the proposed solutions to the panic of 1819:
Hmm, I only knew of 4 but Wikipedia seems to have more, and besides, quoting a source somewhere in this massive pile of misinformation will give me more credibility: Source: http://en.wikipedia.org/wiki/Panic_of_1819
Proposed remedies included:
- increase of tariffs (largely proposed by Northern manufacturing interests).
- reduction of tariffs (largely proposed by Southerners, who believed free trade would stimulate the economy and increase demand).
- monetary expansion; i.e., restriction or suspension of specie payment.
- rigid enforcement of specie payment.
- restriction of bank credit.
- direct relief of debtors.
- public works proposals.
- stricter enforcement of anti-usury laws.
Besides the obvious internal fracture being an omen to what was to come, the response to Capitalism balancing the pain inflicted upon it by humans with a little pain infliction of it’s own would turn government and the economy into a pair of Siamese twins. One twin desperately wanting to be separated and the other desperately wanting to stay conjoined.
-next installment looks at the rest of the crises of the 1800s in slightly less detail.
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