TIP #419 - THE PANIC OF 1819 Life had been good. Of course, there was still a million things to get done around the cabin (or the plantation as many loved to call their homestead). They'd gotten the timbers cleared back and with an old workhorse or an ox, had plowed enough land to put in the crops. Seeds carried in tied packets of cloth from Virginia, Pennsylvania - or from wherever the settler had come- had been lovingly dropped into the fertile soil. The cows were giving good milk; a few sheep wandered around the make-shift pen. The man had purchased additional land, more seed grain, a rifle to replace the one he'd lost in the nearby creek. And all this was done on credit. Sound familiar? He had the family in church once a month; they met over in the woods about ½ mile past his place. He'd gotten some good neighbors, the nearest family was 10 miles away and seemed to be pretty good folks. But something was changing. The county had slowly been slipping into an economic depression which had been building after the War of 1812. Foreign trade had been re-established then and foreign competition was dropping the demand for American products; especially when war materials were no longer needed. Crops had been bucking the tide though since Europe had been undergoing a drought and there were many crop failures there. Kentucky, along with other Ohio Valley states had been making a profit by sending crops and provisions to the West Indies plantations. But, by 1818 crop prices dropped drastically based on legislature changes and the trade restrictions being lifted. A drastic flaw was found ... the banking industry. A second bank of the United States had been chartered in 1816 and branches were allowed across the then nation. Americans still didn't trust banks too much but it was felt that these banks would be accepted. By law, since they were a depository of public funds, they were required to redeem their notes "in specie" on demand. But politics had played its role and pressured the banks for leniency in accepting remittances in notes of local banks. The local banks in the country, were going bankrupt - totally insolvent. It was said that "widespread corruption in the capital development and management of the branch banks further weakened the system." Foreign trade became totally unfavorable, payments were due on the debt abroad. Thus in 1818, the parent bank of the United States ordered its branches to discontinue its polity of interchanging notes between the branches. The bulk of the payments were from the eastern coast due to land revenues and mercantile businesses, the pressure to accumulate reserves was most severe on the banks in the West (Kentucky included) and South. Many businesses failed, unemployment rose, property values decreased dramatically. The U S Congress and the State Legislatures were faced with some hard decisions. Laws were passed that authorized a stay in debt collection, reassessments were done of mortgaged property and many other measures were taken. It turned into a political upheaval even though Kentucky had adopted the laws also. This turmoil was known as the beginning of the Old Court-New Court controversy. It would take until the middle 1820's for stability to regain its foothold. The Old-Court New-Court controversy put Kentucky in the middle of one of the worst struggles - the Relief Crisis. In this Relief Crisis, proponents of debtor relief and of a public bank (known as the Bank of the Commonwealth) fought with advocates of good-faith contracts. The Kentucky Court of Appeals, in 1823, moved to reorganize the court of appeals. Legislators took strong stands on both sides - including cases involving Blairs Williams and Lapsley vs Brashear (to invalidate the 1820 stay law known as the replevy law). Others such as John Rowan, William T Barry and Ben Hardin, George Robertson and Wickliffe argued and fought. The debates went on through the 1825 session. I will not go into great detail here, but it was a desperate time of bank failures, settlers faced with losing their property, mortgaging every thing they had to someone who as financially better off ... not a pleasant time in the history of Kentucky. I'll discuss the Relief Crisis next tip. See also: Critical Court Struggle in Kentucky 1819-1929 by Arndt Stickles, Blooming, IN,1929. The panic of 1819: Reactions and Policies, New York, 1962. Christopher Mayer Panic of 1819 and 2002: http://www.mises.org/fullstory.asp?control=1000 Panic of 1819: http://www.u-s-history.com/pages/h277.html Second Bank of the US: http://www.u-s-history.com/pages/h256.html (c) Copyright 5 December 2002, Sandra K. Gorin, All Rights Reserved. sgorin@glasgow-ky.com Col. Sandi Gorin Publishing: http://ggpublishing.tripod.com/ GORIN worldconnect website: http://worldconnect.rootsweb.com/~sgorin SCKY resource links: http://www.public.asu.edu/~moore/Gorin.html