The Crisis in 1819 and "The American System"

Abstract

The purpose of this paper is to make clear the significance of the economic crisis in 1819 in the economic history of the United States. The premises for my analysis are as follows. At first, I think that the crisis in 1819 had a historical character in common with that of crisis in 1837, 1857 and 1873, respectively. In other words, it should be analyzed in close relation with the development of American capitalism from the time of the Independence to the Civil War, or its historical structure. Secondly, I want to stress that it was not merely a phase of the economic fluctuation but rather a critical period in which the various contradictions inherent in the capitalist regime expressed themselves explosively. And thirdly, the Civil War is an epoch-making event which brought about the great structural transformation of the U. S. economy. This means that the economic development in the later 19th century must not be treated as a mere continuous one from the early half of that century. From the above points of view, I focussed my attention to the following matters. (1) Analysis of the industrial structure as a setting of the 1819 crisis : I inquired, above all, whether the excessive speculation, which had caused it, was stimulated by the national factors or international ones. And I tried to make clear the relation between manufacturing industry and agriculture in the national economy by that time. Then I analyzed which parts of the manufacturing industries were more closely connected with the world market which was on its way of reorganization through English leadership, and finally discussed the significance of public land policy which was to be closely related with the above mentioned development of industry. (2) Analysis of the financial structure as a setting of the 1819 crisis: The Government's tight money policy gave rise to that sudden and critical form of the 1819 crisis, having been initiated by the preceeding excessive speculation as well as by the abnormal increase of grants of credit by banks. I tried, therefore, to clarify the problem of what had stimulated and encouraged the increase of speculation and excessive grant of bank credits. In short, the role of banks in the economic development is a matter of my great concern. As a result of my study, I found that the inner contradictions which provoked the 1819 crisis existed not in the economic development at the time of the Independance (characterized by a slave economy in the 'South' and a petit-bourgeois economy in the 'North'), but in the extraordinarily expanded market economy which was promoted by the early transplantation of modern banking system and manufacturing method and was accelerated by the public land policy. This process itself was connected with the reorganization of world market led by England on the one hand and with the development of "the American system" on the other. The policy of "contraction in 'credit" and "reduction of market" was adopted under such circumstances. At the end of 1821, however, the business condition was improving, because the new system of productive forces was beginning to be firmly set into the new system of production relations. Thus "the American system", supported by protectionist policies and the modern central banking system, could develop as a unique element in the U. S. economy