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More Bank Failures (1857) | Wisconsin Historical Society

Historical Essay

More Bank Failures (1857)

More Bank Failures (1857) | Wisconsin Historical Society

Twenty years after the Panic of 1837 (described in a previous entry), Wisconsin suffered again when the nation plunged into another depression.

The economy had boomed for a decade. Railroads extended their reach all across the nation, cutting the cost and time required to move people and goods. The population grew dramatically as European immigrants entered Atlantic ports and easterners spread out over the Midwest. Small craft shops and talented artisans were replaced by factories that could mass-produce most necessities. The California Gold Rush of 1849 inspired many people to think that maybe they, too, could get rich quick.

But much of this growth had been financed on loans backed by insufficient collateral, and commercial banks had been lax about holding gold and silver equal to the amount of their paper notes. Two unrelated events helped trigger a run on banks that brought the U.S. economy to its knees for the second time in 20 years.

On August 24, 1857, a major New York City bank went belly up due to massive embezzlement. Then three weeks later, a ship carrying 15 tons of gold headed for East Coast banks was lost at sea en route from the San Francisco Mint. Consumers and investors imediately feared that their paper money would become worthless, as had happened in 1837, and demanded gold and silver. There wasn't enough hard cash to go around, and in October all such payments were suspended. As in 1837, employers couldn't meet their payrolls, businesses couldn't pay their debts, entrepreneurs couldn't find investors, banks couldn't supply withdrawals to their customers, and commerce ground to halt. By the time things settled down more than 5,000 businesses had gone bankrupt and unemployed workers were demonstrating in the streets.

The Panic of 1857 was felt especially hard in Wisconsin. LaCrosse, for example, had grown from a hamlet of six houses in 1851 to a town of 6,000 people in 1856 (a fact much touted by the mayor and other promoters). Homes, stores, sawmills, and businesses were sprouting enthusiastically when the Panic hit and employers and investors were unable to get their hands on cash. "Immediately all business operations were paralyzed," wrote a resident afterwards. "Much of the business had been done on credit which depended on outside parties for liquidation. Half a million dollars was owed to the lumbermen from parties down the river, principally. The lumbermen owed the farmers, merchants, banks, mechanics, and laborers, and could not pay."

A LaCrosse newspaper commented at the time, "Seventy new buildings are going up, although we do not see where the money is coming from to pay for them; but the fact is, that those who work have to take their pay in promises, store-goods, lumber, building lots, city scrip, and all kinds of dicker."

Unemployed workers hung around on the streets of LaCrosse through the spring of 1858, and when the census was taken in 1860, almost half the population of 6,000 (cited with so much pride by the mayor in 1856) had left for greener pastures. Some went into the countryside where they could at least grow food to feed their families. Others went up or down the river in search of better opportunities. Other Wisconsin cities went through similar experiences.

Nationally, the Panic of 1857 was relatively short because the outbreak of the Civil War in early 1861 raised demand for farm products and manufactured goods, while at the same time it reduced the number of employable men because many entered military service. The result was higher wages and prices and a boost to the economy that lifted it out of its 1857 doldrums.