Some idea of economic condition of Pennsylvania during the Panic of 1819 may be obtained from the report of a committee of the State Senate appointed on December 10, 1819, to inquire into "the Extent and Causes of the present General Distress throughout the Commonwealth."
The long years of war in Europe and of the war of the United States with Great Britain, although they brought wealth and prosperity to some, also produced inflation and speculation. Making matters worse, the charter of the United States Bank, which expired in 1811, had not been renewed, and the country was without the controls and benefits of a central bank just as pressure increased for credit to build internal improvements, buy foreign goods, and acquire land. With respect to this last alone, such was the growth of population that in the six years after the return of peace in 1815, six new states were admitted into the federal union.
The demise of the first Bank of the United States was followed by the almost manic chartering of banks by the states. In 1814, for example, the Pennsylvania Assembly, overriding the governor's veto, incorporated 41 banks, which thereupon issued currency, made loans, and generally operated with little caution or restraint. "A bank by many was no longer regarded as an instrument by which the surplus wealth of capitalists could be conveniently loaned to their industrious fellow citizens, " the Pennsylvania Senate committee reported in its comprehensive review and analysis of economic conditions in 1819, "but as a mint in which money could be coined at pleasure, for those who did not possess it before." The speculation mania accelerated after the end of the war. "The banks urged on by cupidity, and losing sight of moral obligation in their lust for profit, launched out into an extent of issues, unexampled in the annals of folly."
The second Bank of the United States, chartered in 1816, was expected to check the extravagant inflation, but in fact its stock became an object of eager trade and its establishment of branches only accelerated the pressures created by the ill-regulated state banks. In the summer of 1818 the Bank, determined at last to curb the speculation, began to call in its loans. The result was a sharp contraction of credit. Many state banks suspended specie payment, some failed, prices fell, trade stagnated, manufacturing declined, bankruptcies and forced sales multiplied, and unemployment and imprisonment for debt rose. There was acute distress and even disaffection throughout the country. There were even calls for repeal of the state bank charters.1
The Panic of 1819 was the first great depression in the U.S. In this bicentennial year, the article will first present background about the event. It will then attempt to answer four questions related to the Panic of 1819 and Cumberland County, Pennsylvania.