Banking Crisis of 1819
The Panic of 1819 and the accompanying Banking Crisis of 1819 were economic crises in the United States of America principally caused by the end of years of warfare between France and Great Britain.
These two nations had been at war with each other since the 1680s. They finally settled their differences in 1815. While these two nations had warred with each other, the United States had prospered. These European nations needed American industrial and agricultural products to sustain themselves during the conflict. Once the war ended, American products were no longer in such great demand. Both the French and the British downsized their respective militaries. Many of these former soldiers returned home and assumed their peacetime occupations, cutting into the need for American items overseas.
During the various British-French conflicts, United States goods, especially agricultural products, were in high demand in Europe, Americans had purchased Western land at an extravagant rate. In 1815, Americans purchased roughly one million acres of land from the federal government. In 1819, the amount of land had skyrocketed to 3.5 million acres. Many Americans could not afford to purchase the land outright. The federal government did allow Americans to buy the land on credit. As the economy ground to a halt in 1819, many Americans did not have the money to pay off their loans. The Bank of the United States, as well as state and private banks, began recalling loans, demanding immediate payment. The banks' actions resulted in the Banking Crisis of 1819 and helped lead to the Panic of 1819. The federal government tried to alleviate some of the suffering with the Land Act of 1820 and the Relief Act of 1821, but many farmers, Ohioans included, lost everything.
As a result of the Bank of the United States' actions, money became scarce, making it even more difficult for people to pay their debts. Several states, including Maryland and Ohio, implemented taxes on the Bank of the United States. These states hoped that, by taxing the banks, money would then enter the grasp of state governments. The state governments could then make loans to their citizens, thus relieving the money shortage. In 1819, the case of McCulloch v. Maryland reached the United States Supreme Court. Maryland had created a tax on the Bank of the United States' branch in Baltimore, Maryland. Although the federal government had the power to tax state and private banks, the federal government contended that states could not tax the Bank of the United States. The Supreme Court agreed with the federal government's position, contending that the federal government and its institutions were superior to the state governments. Chief Justice John Marshall believed that "The power to tax is the power to destroy." In other words, if the states could tax the federal government, the states had the power to destroy the federal government.
Ohio implemented its own tax against the Bank of the United States in 1819. In 1819, there were two branches of the Bank of the United States in Ohio -- one at Cincinnati and the other at Chillicothe. The tax law authorized the State of Ohio to seize fifty thousand dollars from each branch. On September 17, 1819, the Ohio Auditor, Ralph Osborn, authorized the seizure of 100,000 dollars from the Chillicothe branch. The tax agents actually seized 120,000 dollars from the bank. Osborn promptly returned the extra twenty thousand dollars.
The Bank of the United States sued Osborn for the return of the additional 100,000 dollars. The federal government contended that Osborn violated a court order prohibiting him from taxing the Bank of the United States. Osborn claimed that he was not properly served with the court order. The federal circuit court ruled in favor of the Bank of the United States, and federal marshals immediately seized 98,000 dollars from the Ohio treasury. Osborn had paid his tax agents two thousand dollars for collecting the tax, and this money still remained in dispute. In 1824, the case reached the United States Supreme Court. In Osborn v. Bank of the United States, the Supreme Court ruled in favor of the Bank and of the United States. Ohio returned the two thousand dollars still in dispute.
The Panic of 1819 and the Banking Crisis left many Ohioans destitute. Thousands of people lost their land due to their inability to pay off their mortgages. United States factory owners also had a difficult time competing with earlier-established factories in Europe. Many American people could not afford the factories' goods due to the lack of money in circulation. The United States did not fully recover from the Banking Crisis and the Panic of 1819 until the mid 1820s. These economic problems contributed immensely to the rise of Andrew Jackson. Many Americans viewed Jackson as one of them. He argued against the Bank of the United States, a message many Americans and Ohioans wanted to hear.
- Rothbard, Murray. The Panic of 1819: Reaction and Policies. New York, NY: Columbia University Press, 1962.