Crisis of 1857.

In 1856 railroad building once more extended to 3,642 miles, nearly all in the Western States. The spring of 1857 being very late, and the prospect for the crops bad, many prophecies of trouble were published, but, as the season turned out well, the fears were dispelled, and scarcely any one seems to have apprehended the coming trouble. A fall in stocks, however, took place in the summer, to the great embarrassment of the large number of persons who held call loans for which they had given stock collateral. The first actual shock was the failure, on the 24th of August, of the Ohio Life and Trust Co., which had borrowed largely on call in New York, and loaned the funds where they were not immediately available. The liabilities were about seven millions. The credit of this institution had been very high, and its failure was followed by a general desire to test the foundations of credit. Such an attempt could not do otherwise than produce a general downfall.

At this period no rule seems to have governed issues save to keep one-third of the circulation in specie, and in some States even this dwindled down to one tenth or one-twelfth. Such a rule, however, is entirely fallacious, as any other arbitrary rule of reserve must be, and it proved in the time of trial that there was no strength to endure, any shock.

The New York banks expanded and contracted in 1857 as follows:

The loss of the steamship “Central America” with over a million of treasure enhanced the stringency.

A large number of failures of banks and firms, especially brokers, produce dealers, and persons depending on Western collections, took place in September. Bills on the seaboard were hardly obtainable in the interior at 10 and 15 per cent. premium. On the 12th and 13th of September the banks of Philadelphia, Washington, Baltimore, and many interior towns suspended. Stocks fell 40 or 50 per cent., and 20,000 persons were thrown out of work in New York City within a fortnight. The universal demand of the banks was for relief by expansion, but the contrary course was pursued with the utmost vigor. There was indeed no room for expansion. The utmost resources had been employed in good times, and there was no reserve strength. The hoarding of currency which takes place at all such times still further enhanced the trouble.

The “panic” immediately followed, but, as was said often at the time, it broke out first inside the banks. When it was seen that no help was to be expected, and that the banks of New York and Boston were likely to suspend, there began a run on the deposits. On the 13th of October the New York banks (with one exception) suspended. They were followed in a few days by the Boston banks, and by the others who had hitherto held out, with only a few exceptions.

Exchange now fell to 100 and even to 90, and bills were not saleable. Exports almost ceased, and gold began to move this way. The increase in the stock in bank appears in the above table. The New York banks agreed to take country bills at par, interest to be charged after December 1st. The country issues, thus encouraged, formed remittances, which were redeemed by drafts against the produce which they caused to be forwarded.

The state of things was better in New Orleans than elsewhere. The banks there had been stronger than anywhere else. Of nine banks, only four suspended at all, and they only for a few days.

The Pennsylvania legislature authorized the suspension until May. In New York the Constitution forbade the legislature to authorize suspension of specie payments either directly or indirectly. The judges of the Supreme Court, however, met and agreed not to grant any in junction unless the bank was insolvent or guilty of fraud. Thus even a constitutional provision proved as ineffectual as any law had ever been— I will not say to prevent a suspension, for the suspension was inevitable, but to enforce a system of banking which would not lead to suspension, and the plan of securing circulation by pledge of stocks proved unavailing to allay a panic.

The Secretary of the Treasury interfered again in this case by purchasing bonds.

In the inquiries which were made as to the causes of the crisis, the state of the currency was generally recognized as the root of the trouble. The over-trading, over-importation, stock speculation, extravagance, etc., were generally ascribed to this, but there were some who found other causes for the crisis. One writer, after enumerating these secondary incidents as causes, gave another, as the immediate occasion, and that was —the telegraph. He thought nothing could cure the trouble permanently but a protective tariff. Others ascribed it almost entirely to the payment of interest on deposits, and some States passed laws forbidding this. The payment of interest on deposits is like every other business risk,—the man who undertakes it must measure his own ability to do it, and the lender or depositor must judge whether the person or institution to whom he lends can do what is undertaken.

The newspapers were also filled with homilies on extravagance and exhortations to “ confidence,” but the matter is, in a panic, that the confidence, so long entertained, is now recognized as unfounded. It is the force of the truth which makes the trouble, and how can it avail to try to make men still delude themselves? In general, however, the fact was recognized, that the great means of keeping the business of the country sound, so far as any thing can control haste for riches, is to keep the currency sound, and that the only way to keep the currency sound is to have it actively and actually converted into coin. Convertibility is not enough, if it is only nominal, and if no one tests its reality because public opinion frowns on such an act, or bank displeasure follows it.

The pressure passed away in the course of the winter. The liquidation was rapid, and by spring business was again in motion. The New York banks resumed on the 12th of December, and others followed gradually and informally. In the spring money was very easy, and United States Treasury notes were sold at an average of 4½ per cent. interest.

In the meantime the surplus revenue had been applied to the reduction of the public debt, which, in 1853, was 67,000,000, and in 1857 (July Ist), 29,000,000. In March, 1857, the tariff was reduced to an average of 20 per cent. on dutiable imports.