The Hardline: Lessons from 1857 and 1937

Mar 2 , 10:21 PM
The Hardline: Lessons from 1857 and 1937
by Stirling Newberry
BOPnews
In 1857 America suffered what was then known as a "panic", we would call it a recession now, only the contractions of recessions at that time lasted longer, and could slash economic activity in half. The panic spread when British bankers pulled out of American holdings - since the there was telegraph, but the attempt to lay one across the Atlantic failed - and news of a failure in Ohio started the chain reaction. Remember at this time there is not only no deposit insurance, but not even a banking system, nor a Federal Reserve to bail banks out or pump liquidity into the system in case of crisis.
But for all of this 1857 was not the worst financial panic in American history to that point - but 1859, recovery was taking hold. So why did this panic help touch off the Civil War?
Because the pain fell disproportionately on Northern industry and on free soil farmers that relied on that industry as a market. The South, by contrast, since it could trade for British gold backed money, and had gold backed credit was far less damaged by the panic, and recovered far faster. While most school children are told about how much better it is to be an industrial society that is only true once you have capital and enough markets. For a low capitalization economy, resource extraction is where it is at. ...