Panic of 1857 Remedies of the Panic

Panic of 1857 Remedies of the Panic

The panic of 1857, like many large-scale economic downturns, had both immediate causes and structural ones. Economic downturns tend to be the result of a variety of causes beyond just the obvious and immediate ones, and thus they can be very difficult to remedy.

The immediate and obvious causes of the panic of 1857 included the embezzlement in the home office of the Ohio Life Insurance and Trust Company, which destroyed the company, and the shipwreck of the Central America. The Central America was a merchant marine ship loaded with gold bullion, and the loss of the bullion panicked investors.

The deeper causes of the panic were many and included the Crimean War, which had dragged on for three years and increased foreign dependence on American agriculture. An abundance of crops in 1857, however, led to a drop in prices for American farmers, which coincided with the stock market crash and banks failing.

The federal government took action to try and repair the situation by declaring a bank holiday in October 1857 to try and fend off further risk of bank failures. Howell Cobb, the Secretary of the Treasury at the time, recommended the government should sell revenue bonds and decrease the tariff. In 1859, the country was slowly pulling out of the downturn, but was feeling the effects of the Panic of 1857 until the start of the Civil War.

The Tariff Act of 1857 had reduced the average tariff rate to about 20%. It was written by Southerners in Congress and supported by a broad coalition of economic interests nationwide but opposed by sheep farmers and some iron companies in Pennsylvania. The south had been less hard hit by the Panic of 1857 due to their reliance primarily on agriculture.  Protectionists, however, wrongly blamed the Tariff Act of 1857 for the downturn.