Farmers and land speculators purchased several acres of public land from the federal government, which they were able to purchase on credit. Speculators would buy land as cheaply as possible on credit, inflating the sale price to potential buyers in order to make a profit. Agricultural exports rose to $57 million in 1817 alone, reaching a peak of $63 million in 1818. Benefiting from the boom period, quite commonly, the farmer was a speculator too. He would purchase more land for the sake of a quick profitable sale, adding more to his accumulating bank debts. Bankers were extending credit recklessly, assuming that the upturn would last forever. The banks benefited enormously through capital ventures and risky lending. Stock traders, bankers, and auctioneers all were filling their coffers with the rewards of their risky services.
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Farmers and speculators primarily used the loans to purchase federal land in the American West. When the economic crisis came in 1819, thousands of overextended farmers and laborers found themselves badgered by frantic creditors demanding the repayment of their money. Merchants in the big cities rushed to liquidate assets to pay the debts owed to foreign creditors. They in turn would put the squeeze on smaller merchants and shopkeepers for payment on merchandise that had been purchased on credit. Finally, it was the farmers turn to cough up money that he didn't have. The falling crop prices and shortage of currency was making it impossible for them to repay the banks. This resulted in the loss of their property. Those who had purchased high-priced public land on credit during the boom when cotton and grain prices were high were saddled with a tremendous debt, facing forfeiture of their land to the federal government.
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"Reversions of land to the United States in 1819 totaled 365,000 acres, of which 153,000 were located in the Northwest Territory. The following year, the unpaid balance due on land sales reached more than $21 million, an amount equal to more than one-fifth of the total national debt. Of that amount, $6.6 million was for land in the Northwest. The situation was made more critical by a slump in agricultural prices."
As a result of nonpayment on loans, state-chartered banks began collapsing. The primary difficulty of the 1819 panic was the absence of ready money. In order to secure the items which they needed to survive the farmers and local inhabitants resorted to bartering.
Factory owners in the United States 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. Spurred by economic distress in the wake of the Panic of 1819, wealthy factory owners experiencing monetary difficulties were forced to shut down, leaving skilled craftsmen, mechanics and other artisans without work.
"Fortunes were wiped out in a day, speculative companies that stood everywhere thick as shocks in a wheat field, vanished magically, and shareholders were aghast; suburban lands and city lots that were to return a hundredfold dropped to almost worthlessness." Real estate had depreciated to about half of its value.
During the Panic of 1819, financial hardship was suffered by all groups within the community, though the working group was not as hard-hit as those of great wealth. Accustomed to a life where their earnings were scarcely more than sufficient to provide them a decent existence, they possessed little of considerable value. Nevertheless, their suffering was not in any way less severe. Unable to support themselves and their families or receive assistance from members of their church congregation, friends or relatives, many would become homeless or would go to "Poorhouses" for assistance.
However, those who would stand much more to lose because of these financial crises that occurred over the years were from the wealthy class. Large numbers of families made enormous fortunes from their investments before the war of 1812 and throughout the second half of the 19th century.
This world of prominent people possessing exceptional wealth living in staggering opulence during the boom period was populated by those who inherited their fortunes. Others became wealthy through real estate speculation or investments in transportation and industry. Let's not forget the social ladder climbers who married someone with a title or a fat bank account in order to gain entrance to a highly competitive society. They all had the money and leisure to indulge in conspicuous consumption.
Assuming their rich days would last forever, many of the wealthy families overindulged in the social treadmill. They lived a life of luxurious idleness, spending fortunes annually on expensive dress, entertainment and luxurious homes, living beyond their actual resources to maintain their social profile. These people were devastated by the financial crashes resulting in sudden reverses of fortune. These serious financial storms would ruin many of the best of the city firms as well.
To be continued: Part 2 (c)To contact: miriammedina@earthlink.net
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