Dealing With the Crisis of the Panic in 1819

From the Lecture Series : A History of the United States, 2nd Edition

By Professor Allen C. Guelzo, Ph.D.,Gettysburg College

John C. Calhoun anxiously told John Quincy Adams that the panic of 1819 had prompted a general mass of disaffection to the government, not concentrated in any particular direction, but ready to seize upon any event, and looking out anywhere for a leader. How did the National Republicans deal with the crisis and mass disaffection to the government in 1819 and 1820?

A chest of gold and silver coins.
Treasure chest filled with gold Krugerrand coins from South Africa. Silver Walking Liberty coins from the United States of America and assorted change. (Image: Chris Curtis/Shutterstock)

The Panic of 1819 was the first economic crisis that America had encountered and there was wide discontent among the citizens. There was a nationwide fall out attributable to many reasons, the key ones being generated from the economic system itself. While the government responded to the crisis in its own ways, the citizens looked for remedies to deal with the crisis. The disaffection led to a few notable responses in 1819 and 1820.

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Debtor Relief Laws to Manage the Crisis

The farmers and manufacturers were gravely affected by the Panic of 1819. Most of the western legislatures stepped in to deal with the crisis and rescue the affected by passing the debtor relief laws. However, the debtor relief laws impaired contracts by intervening in the obligations owed by one person to another. The Article I, Section 10 of the federal Constitution specifically forbids the states from passing any law impairing the obligation of contracts. However, the western legislatures did find a way around. One way was to postpone the sales of foreclosed properties for up to two years and another would allow sheriffs’ sales of seized property only if the liquidation of the property brought at least two-thirds of the original value of the property as decided by a jury of the debtor’s neighbor. The second instance was stated as not an interference with contract but simply an operating procedure. 

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Forceful Payment in Bank Notes

Individuals who lent money demanded payment in gold and silver specie or real money as they did not have money to pay off. However, these creditors got no support from the state, legislature, or the courts and were forced to accept the bank notes even as they were considered worthless. State courts or state legislatures would step in to declare that debts could be paid in paper bank notes and the creditors would be left with no choice or forget trying to collect the debt at all.

Another way of dealing with the crisis of 1819 was refusal by state courts to assist creditors who were seeking to recover debts or property. For instance, if a person from a neighboring state was trying to collect debt from a person in a particular state, the state court would find some reason to disqualify the suit.

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Closure of Banks to Deal with the Crisis

The general public was quite outraged with the banks as they considered banks and their worthless paper cash as the cause of all their misery. The rage was so vehement that even non-banking corporations were affected. Soon, the investors of these non-banking corporations met with the same fate as their banking counterparts – ‘Penniless’. Subsequently, some hasty state laws that gave the legislators control over corporate charters came into being. 

Photo of John Adair.
John Adair, Governor of Kentucky
(Image: Nicola Marschall / Public domain)

The impression on the banks was so negative that governor of Kentucky, John Adair, called for a constitutional amendment to outlaw banks throughout the nation. He supported the revoking of the state charters of all banks except the Bank of the Commonwealth of Kentucky. He then issued three million dollars in paper currencies and forced the creditors to accept these paper currencies as settlement of debts. Similarly, William Henry Harrison, the hero of Tippecanoe, in spite of being a bank director, promised to destroy all banks and to replace all paper money with gold and silver coins. The state constitution of Missouri granted permission to just one state bank within its borders to be partly owned and controlled by the state itself.

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The Expansion of Voting Rights

Both Jefferson and Hamilton believed that the government should be free of interference from the aristocrats. However, they were also not for turning the government into a complete democracy and believed that unwashed majorities could be more corrupted than tiny aristocratic elites. And for that reason, the election of the President of the United States was settled not directly by popular vote of citizens but by the votes of the states and Electoral College. The voting rights were highly skewed in terms of racial, gender and property qualifications.

However, the tough times of 1819, led many to people demand widening of voting rights and there was outrage against the legislatures that had chartered the banks in first place. The ire was also directed against the Congress which had created the monster called the Second Bank of United States. The victims of the panic wanted to have a say in correcting the troubles caused by the Second Bank and demanded the widening of voting rights.

The government first abolished the property qualifications for voting and office holding to deal with the crisis. Under the new structure, all adult white males who held fee simple property or who paid taxes or had served in the militia or had even worked on the public roads, could vote. In 1821, New York abolished the last vestiges of property qualifications and by 1824 Virginia, North Carolina, Rhode Island and Louisiana were the only states to hold on to significant property qualifications for voting.

Impact of Voting Rights

A photo showing results of presidential elections in the United States.
Results of the United States Presidential Election in 1828 – Shades of blue are for Jackson Democrat) and shades of yellow are for Adams (National Republican)
(Image: NHGIS/CC BY-SA/3.0/Public domain)

The new voting rights provided a number of people with voting rights and a number of people went out to vote as they thought this was an opportunity to deal with the crisis. The demand for accountability to the people led to significant increase in voter turnout for presidential elections. The percentage of adult male white population who turned to vote increased from 27 percent in 1824 to 80 percent in 1840. In New Hampshire, 80 percent of the eligible voters turned out to vote, while in Ohio, the percentages reached 90 percent and in Alabama, 97 percent in 1819. Thus, the Republicans were forced to scrap the old method of election by a party caucus. The presidential nominations evolved as it initially moved into the state legislatures and then into national party conventions by 1840.

Common Questions about Dealing with the Fallout of the Panic of 1819

Q: Why is the panic of 1819 so important?

The panic of 1819 was the first economic financial crisis of the United States and the after effects of the crisis led to a loss of trust in the banking and financial structures. The government, however, introduced financial stimulus to improve the economy.

Q: What were the debtor relief reforms introduced after the panic of 1819?

The federal government tried to ease some of the suffering due to the panic of 1819 with the Land Act of 1820 and the Relief Act of 1821, but many farmers, Ohioans included, lost everything.

Q: Who was the President of United States during the crisis?

President James Munroe was in the second year of his presidency when the economic crisis hit the United States.

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