America’s First Great Depression: Economic Crisis and Political Disorder after the Panic of 1837 by Alasdair Roberts (review)

Alasdair Roberts has written a concise and commendably readable book that shows clearly and well just how devastating the Panic of 1837 was for the United States. His study substantiates the claim that the Panic was a great depression, though as we learn more about the catastrophic impact of the American Revolution, it may not come to be viewed as the nation’s first. In his introduction and conclusion Roberts also provides a timely discussion of the nation’s economic life in a global system in which, going forward, Americans should not expect to have the authority or control that they learned to take for granted during the last fifty years of the previous century.

A key theme of America’s First Great Depression is that the antebellum US economy was very much a part of a global system in which the United States did not enjoy a position of dominance. The economic boom of the 1820s and 1830s depended on foreign, especially British, investment. As a result, economic, and ultimately political and social, conditions in the United States were highly influenced by British conditions and the actions taken by British statesmen, financiers, and consumers.

The 1830s boom that precipitated the Panic of 1837, and then the very serious collapse of 1839, was an international affair. Cotton production in the United States skyrocketed due to British demand. But British demand was fueled by a series of bumper harvests that drove grain prices in Britain to unusual lows, thereby freeing up large amounts of newly disposable income to purchase cotton goods. These conditions created something of a super boom as rising demand and rising incomes allowed for a vast increase in production. Due to the rising incomes, and despite this vast increase in supply, consumers could and did accept highly inflated prices. This boom led to intense exuberance about the American market generally, and foreign investment flowed into the United States as never before. At the end of the 1830s, however, a series of poor harvests in Britain led to a rapid rise in food prices, a corresponding decline in the demand for cotton goods, and a collapse in the price of cotton. Meanwhile, the Bank of England had grown fearful during the fat times about so much capital leaving England. The unprecedented level of British investment in the United States was seriously depleting the Bank’s specie reserves. The Bank raised interest rates to check the specie drain just when economic conditions dramatically worsened—doing, in other words, precisely the opposite of what a century later John Maynard Keynes would say central banks should do.

The credit crunch and the savage deflation led to revenue collapses for all the governments connected to this global economy: Britain, the United States, and all the various state governments. Roberts is excellent as he discusses how many states had ridden the wave of foreign investment, borrowing at unprecedented rates to finance massive internal improvement projects. Many legislatures had convinced themselves that foreign investment could virtually take the place of taxation, as profitable ventures built on credit would more than pay for themselves. The cascading state defaults and, in some cases, outright repudiations reinforced the rising tide of bank failures and suspensions of specie repayment. Roberts argues convincingly that the depression lasted from 1837 to 1846 (with a slight uptick in 1838 that was quickly obliterated in 1839).

To his great credit, Roberts shows that economic depression was very much a political and social experience. Rising desperation and urban violence in the 1840s led every major eastern city to create police forces during the 1840s and 1850s. The depression led to a wave of state constitutional amendments that seriously curtailed legislatures’ ability to borrow and put the states on the road to the balanced budget requirements that forced our governors to act like fifty Herbert Hoovers...