Panics, depressions or any economic crisis resulting in bankruptcies of companies and individuals, dissolution of banks, and vast unemployment, reducing millions to destitution and beggary is the greatest financial horror of all. Economic meltdowns are not biased, they destroy the wealthy, investors, businessmen and the working class too. Over the centuries, the United States has endured several notable crises such as those in 1815, 1819, 1837, 1857, 1869, 1873, 1893, 1901 and 1907 with the most notable exceptions occurring in 1837, 1893 and 1929. These years were defined as "major depressions because of the depth and duration of the collapse which occurred in American History."
In this 4 part series, we will detail and examine the roller coaster ride that these disasters have taken the American people on, as well as large parts of the world, over the past few centuries. This roller coaster has often been led at the vanguard by the financial institutions and the tumultuous markets, with the rest of industry and the country's citizenship haplessly following behind. In part 1, we will define and explore just what constitutes a financial crisis, detailing the history of such crises in the following articles.
Most of these panics began in New York City at the Stock Exchange and quickly spread across the entire nation, leading to the closing of banks, businesses, mortgage forfeitures and mass unemployment as well.
Although some attribute these panics to over-expansion and debt, overextended notes and discounts, over investment and falling prices, etc., there is a lot of controversy among economic historians and economists as to the true causes of such economic devastation. In effect, not only did the United States survive each panic and crisis, but it flourished time and time again, with business eventually continuing almost as usual.
First and foremost it's essential that we understand the different terms that are commonly used to describe the fluctuations of these economic activities.
Depression- A large collapse of the economy that normally follows a period of prosperity, usually accompanied by a financial panic or a crash of the stock market as investors lose confidence and refuses to buy stocks or make loans. This nearly results directly in a staggering level of unemployment. If the economic downturn is short-lived it is referred to as a "recession."
Economic Crisis- This term is based on the economic swings or business cycles that occur during good times and bad times or the alternation of prosperity and hardship. For example, the nation goes through a period of prosperity with tremendous activity in production and commerce as businesses expand and banks extend credit with wild abandon assuming the boom will last forever. Suddenly this prosperity comes to an abrupt paralysis, most often caused by the failure of a leading banking institution, bringing with it the collapse of other financial and commercial businesses. As a result of this paralysis, creditors, to stay afloat, begin to demand immediate reimbursement from their debtors. Since debtors find it next to impossible to meet these demands, a state of anxiety bordering on frenzy dominates. After awhile, businesses begin to revive with renewed excitement, increased pricing, greater activity and growth, thus creating another wave of prosperous activity that thrives until a new economic crisis is once again at hand.
Crisis- Described as a condition of uncertainty or danger, leading to a decisive change. Sometimes these crises are designated as financial, commercial and industrial with varying degrees of intensity. Normally crises are followed by hard times. Some crises that have affected the economic situation of the United States extend themselves to other countries we trade with. Some of these crises were inevitable consequences of the modern methods of doing business. The adoption of new equipment and advanced technology has rendered some portions of capital lost on old technology as useless. Since capital is essential to employment, the waste of it can cause a serious crisis. This brings to mind the panic of 1819.
In Part 2 of this 4 part series, I would like to reflect on that crisis before proceeding to the roaring twenties that ended with the Great Depression.
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