Panic of 1857
The Panic of 1857 was a financial crisis that gripped the United States from 1857 to 1861 and is widely considered the first worldwide economic crisis, with the economic and technological connectedness of global markets leading to widespread commercial problems. The previous decade was prosperous for the United States, but the national economy faced serious regression near the end of the 1850s. In states like Arkansas, the economic impact was lessened due to greater agricultural reliance. Nevertheless, the economic impact of the financial panic spread across the country and heightened tensions that would lead to the establishment of the Confederate States of America and the eruption of the Civil War.
American Economy before 1857
Following the Mexican War from 1846 to 1848, the United States stretched from the Eastern Seaboard to the Pacific Coast. New territories had vast resources. Most notably, California, which entered the nation in 1850, witnessed a gold rush that brought hundreds of thousands of prospectors and produced the equivalent of billions of dollars today. Samuel F. B. Morse’s telegraph radically transformed communication, especially in business. Likewise, the blossoming railroad industry helped goods and people reach destinations quicker than before. When Kansas became a territory in 1854, railroads proliferated, but so did the debate over the social and economic issue of slavery.
Arkansas, a state since 1836, began to evolve past its frontier state origins in the 1850s. The cotton production in the state led to increased revenue and a larger role in the national market economy. By 1850, the state had produced a total of 26 million pounds of cotton. Southeastern Arkansas benefited from cotton plantations, making the area’s non-slave population relatively prosperous. The state benefitted from a viable mail service, as well as being a crossroads for people traveling from Missouri to Texas. Admitted as a slave state, Arkansas had instituted a slave code by 1837 and exploited both enslaved and free labor in almost all its major industries—including the building of steamships that sailed up and down the Mississippi River.
Causes of the Panic of 1857
The financial downturn in 1857 started when a panic gripped Great Britain, one of America’s primary trading partners. Parliament, led by Henry John Temple (Lord Palmerston), elected to forgo backing up money in circulation with gold and silver reserves. Although this monetary policy was required by law, the British government did not obey it. Investors grew alarmed, triggering economic uneasiness. This hurt investments and scared off investors. Eventually, the panic spread to the United States.
After N. H. Wolfe and Company, a prominent grain and flour business, failed, investors began selling off stock in New York City during the summer of 1857. Likewise, a run on banks occurred after Ohio Life Insurance and Trust Company went bankrupt. This combination scared off investors. Railroads throughout the Midwest and Northeast were either shut down or paused expansion. Complicating matters further, the prices of grain skyrocketed. The value of wheat, and the land it grew on, decreased.
In contrast to the northern economy that languished or collapsed, the southern economy remained robust. Arkansas did not experience the major decline that states in the Northeast or Great Lakes region experienced. In fact, while some railroads were being canceled, tracks were being laid in Arkansas. The Memphis and Little Rock Railroad grew in 1858, increasing the freight being shipped between Arkansas and Tennessee. More telegraph lines spread across the state, and cotton exports, corn exports, and the usage of steamboats increased.
Political Ramifications of the Panic of 1857
The federal government, and President James Buchanan, addressed the issue of inflation and the need of precious metals. The economy began to strengthen in 1859. Although Arkansas and its neighboring southern states outlasted the panic, their economic prosperity contributed to the political rift that grew out of it. To states in the Deep South, the Panic of 1857 convinced them that the northern economy needed the southern economy. This encouraged states like Arkansas to continue to rely on cotton and the institution of slavery.
Slavery was already a major national issue, but the Dred Scott decision made by the U.S. Supreme Court in 1857, violence in the Kansas territory, and the raid on Harper’s Ferry, Virginia, by abolitionist John Brown intensified matters. In large part due to northern struggles from the Panic of 1857, new political alliances formed. The rising Republican Party, which featured nativists, Whig Party leaders, and anti-slavery Democrats, grew more robust. In light of the economic and political power of the Deep South, the preexisting political divide in America grew. The Panic of 1857 thus contributed to the Civil War, which led to Arkansas seceding from the United States on May 6, 1861.
For additional information:
Arnold, Morris S., et al. Arkansas: A Concise History. Fayetteville: University of Arkansas Press, 2019.
Huston, James L. The Panic of 1857 and the Coming of the Civil War. Baton Rouge: Louisiana State University Press, 1987.
Irwin, Douglas A. Clashing Over Commerce: A History of US Trade Policy. Chicago, IL: University of Chicago Press, 2017.
Paulson, Alan C. Roadside History of Arkansas. Missoula, MT: Mountain Press Publishing, 1998.
Sobel, Robert. Panic on Wall Street: A History of America’s Financial Disasters. New York: Beard Books, 1999.
Michael J. Megelsh
Blue Mountain Christian University
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