Panic of 1857

Social Issues

The Panic of 1857 abruptly ended the boom times that followed the Mexican War.

The immediate event that touched off the panic was the failure of the New York branch of the Ohio Life Insurance and Trust Co., a major financial force that collapsed following massive embezzlement. Hard on the heels of this event arrived other setbacks that shook the public's confidence:

• The decision of British investors to remove funds from American banks raised questions about overall soundness
• The fall of grain prices spread economic misery into rural areas
• Manufactured goods began to pile up in warehouses, leading to massive layoffs
• Widespread railroad failures occurred, an indication of how badly over-built the American system had become
• Land speculation programs collapsed with the railroads, ruining thousands of investors.

In October, a bank holiday was declared in New England and New York in a vain effort to avert runs on those institutions. Eventually the panic and depression spread to Europe, South America and the Far East. No recovery was evident in the United States for a year and a half and the full impact did not dissipate until the Civil War.

As an unfortunate sidelight, the South was hurt less than the other regions of the country and many there concluded that the superiority of their economic system had been vindicated.