As America’s regions developed distinct economies in the 1810s, they became more, not less, dependent on each other. Western farmers needed manufactured goods from the North; northern manufacturers needed raw cotton from the South; southern planters needed food crops from the West. The growth in trade required the expansion of commercial institutions such as banks, which forged economic links across the United States. This economic integration stimulated the economy, but interdependence also made the nation more vulnerable when financial crises hit. The panic of 1819, the nation’s first severe recession, brought economic growth to an abrupt halt. At the same time, when Missouri applied for statehood in 1819, it set off the first serious national debate over slavery.
The Panic of 1819
The panic of 1819 resulted primarily from irresponsible banking practices in the United States and was deepened by the declining overseas demand for American goods, especially cotton. Beginning in 1816, American banks, including the Second Bank of the United States (BUS), loaned out huge sums to settlers seeking land on the frontier and to merchants and manufacturers expanding their businesses. Many of these loans were not backed by sufficient collateral. Banks, meanwhile, issued notes without adequate hard currency as European governments, fearful of growing turmoil in South America, hoarded gold and silver. State and local banks and their clients were betting on continued economic growth to ensure repayment. Western banks were especially reckless in offering discounted loans. Then, as agricultural production in Europe revived with the end of the Napoleonic Wars, the demand for American foodstuffs dropped sharply. Farm income plummeted by roughly one-third in the late 1810s.
In 1818 the directors of the Second Bank, fearing a continued expansion of the money supply, tightened the credit it provided to branch banks. This sudden effort to curtail credit led to economic panic. Some branch banks failed immediately. Others survived by calling in loans to companies and individuals, who in turn demanded repayment from those to whom they had extended credit. The chain of indebtedness pushed more people to the brink of economic ruin just as factory owners cut their workforce and merchants limited orders for new goods. Both individuals and enterprises faced bankruptcy and foreclosures on mortgages. In New York State, property values fell from a total of $315 million in 1818 to $256 million in 1820. In Richmond, Virginia, property values fell by half during the panic.
Bankruptcies, foreclosures, unemployment, and poverty spread like a plague across the country. Cotton farmers were especially hard hit by declining exports and falling prices. Planters who had gone into debt to purchase land in Alabama and Mississippi were unable to pay their mortgages. Many western residents, who had invested all they had in new farms, lost their land or simply stopped paying their mortgages. This put further strains on state banks, some of which simply collapsed, leaving the Second Bank holding mortgages on vast amounts of western territory. At the same time, public land sales plummeted from $13.6 million in 1818 to $1.3 million in 1821.
Many Americans viewed banks as the cause of the panic. Some states defied the Constitution and the Supreme Court by trying to tax BUS branches or printing state banknotes with no specie (gold or silver) to back them. Some Americans called for government relief, but there was no system to provide the kinds of assistance needed. Meanwhile Congress debated how to reignite the nation’s economic engines. Northern manufacturers called for even higher tariffs to protect U.S. products from foreign competition, but southern planters argued that high tariffs raised the price of manufactured goods even as agricultural profits declined. And working men, small farmers, and frontier settlers feared that their economic needs were being ignored by politicians with ties to bankers, planters, manufacturers, and merchants.
By 1823 the panic had largely dissipated, but the prolonged economic crisis had shaken national confidence, and citizens became more skeptical of federal authority and more suspicious of banks. From 1819 until the Civil War, one of the greatest limitations on national expansion remained the cycle of economic expansion and contraction, which was tied ever more closely to unregulated national and international markets.
Slavery in Missouri
The spread of slavery fueled a second national crisis. In February 1819, the Missouri Territory applied for statehood. New York congressman James Tallmadge Jr. proposed that it be admitted only if it banned further importation of slaves and passed a gradual emancipation law modeled on those in many northern states. With the support of southern congressmen, however, whites in the territory defeated Tallmadge’s proposals. The northern majority in the House of Representatives then rejected Missouri’s admission.
Southern politicians were outraged, claiming that since the Missouri Territory allowed slavery, so should the state of Missouri. Although the region bordered the Northwest Territory, where slavery was outlawed in 1787, it also bordered the slave states of Kentucky and Tennessee. With cotton production moving ever westward, southern congressmen wanted to ensure the availability of new lands. They also wanted to ensure the South’s power in Congress. Because the northern population had grown more rapidly than that in the South, by 1819 northern politicians controlled the House ofRepresentatives. The Senate, however, was evenly divided, with two senators representing each state: eleven slave and eleven free. If northerners could block the admission of slave states like Missouri while allowing the admission of free states, the balance of power in the Senate would tip in the North’s favor. Thus southern senators blocked the admission of Maine, which sought to separate itself from Massachusetts and become a free state.
For southern planters, the decision on Missouri defined the future of slavery. With foreign trade in slaves outlawed, planters relied on natural increase and trading slaves from older to newer areas of cultivation to meet the demand for labor. Moreover, with free blacks packing the congressional galleries in Washington to listen to congressmen debate Missouri statehood, supporters of slavery worried that divisions among whites could fuel resistance to slavery and even open revolt. Two rebellions had occurred in recent memory. In 1811 some four hundred slaves in Louisiana had killed two whites and burned several plantations. Their advance on New Orleans was stopped only when U.S. troops killed more than sixty rebels. Even more immediately, several hundred fugitive slaves had joined forces with Seminole Indians in 1817, raiding Georgia plantations and establishing autonomous communities in central Florida. Andrew Jackson’s 1818 attack halted their activities, but most of the fugitive blacks escaped deep into Florida.
The Missouri Compromise and Westward Expansion, 1820s The debate over the Missouri Compromise occurred just as the United States began expanding farther westward. Within a few years of its adoption, the growth of U.S. settlements in eastern Texas and increased trade with a newly independent Mexico suggested the importance of drawing a clear boundary between slave and free states.
In 1820 Representative Henry Clay of Kentucky forged a compromise that resolved the immediate issues and promised a long-term solution. Maine was to be admitted as a free state and Missouri as a slave state, thereby maintaining the balance between North and South in the U.S. Senate (Map 9.3). At the same time, Congress agreed that the southern border of Missouri—latitude 36°30'—was to serve as the boundary between slave and free states throughout the Louisiana Territory.
The Missouri Compromise gained the support of a majority of representatives and senators and ended the crisis for the moment. Still, the debates made clear how quickly a disagreement over slavery could escalate into clashes that threatened the survival of the nation.
REVIEW & RELATE
• What were the political consequences of the panic of 1819?
• What regional divisions did the conflict over slavery in Missouri reveal?