Misplaced Pages

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125-533: During pre- Civil War times in the United States , banks around the country issued bank notes as a form of currency . The large number of banks led to a large number of diverse bank notes that circulated around the country. Although many banks issued only enough bank notes that could be backed up by specie ( gold and silver during the time), riskier banks gave into temptation and issued more than they could cover. This practice caused many people to doubt

250-739: A national bank until it merged in 1902 with the Washington National Bank to form the National Suffolk Bank which was liquidated in 1903. Economic historians still disagree on the original purpose of the Suffolk System. Although the system would later lead to stronger banking practices and a uniform currency for the Northeast, not all historians believe this was the System's original intention. Some believe

375-515: A "good regulator of a bad system". In 1858 the Suffolk System ended and was later replaced by the advent of the Bank of Mutual Redemption. The Suffolk System's many good qualities could no longer outweigh the lack of their ability to increase note circulation. Although the Suffolk System was done away with by national legislation, the system of centralizing reserves among only a small number of banks developed into modem banking practice. The Suffolk System

500-522: A Baltimore newspaper editor, Frank Key Howard , after he criticized Lincoln in an editorial for ignoring Taney's ruling. In Missouri, an elected convention on secession voted to remain in the Union. When pro-Confederate Governor Claiborne Fox Jackson called out the state militia, it was attacked by federal forces under General Nathaniel Lyon , who chased the governor and rest of the State Guard to

625-525: A blockade of the Confederacy to suffocate the South into surrender. Lincoln adopted parts of the plan but opted for a more active war strategy. In April 1861, Lincoln announced a blockade of all Southern ports; commercial ships could not get insurance, ending regular traffic. The South blundered by embargoing cotton exports before the blockade was fully effective; by the time they reversed this decision, it

750-502: A brief recovery in 1838, the recession persisted for nearly seven years. Over 40% of all banks failed, businesses closed, prices declined, and there was mass unemployment. From 1837 to 1844, deflation in wages and prices was widespread. As the nation underwent hardships, positive forces were at work that, in time, would invigorate the economy. Railroads had begun their relentless expansion, and furnace masters had discovered how to smelt greater quantities of pig iron. The machine tool and

875-808: A collapse in cotton prices had massive reverberations. In the United States, there were several contributing factors. In July 1832, President Jackson vetoed the bill to recharter the Second Bank of the United States , the nation's central bank and fiscal agent. As the bank wound up its operations in the next four years, state-chartered banks in the West and the South relaxed their lending standards by maintaining unsafe reserve ratios. Two domestic policies exacerbated an already volatile situation. The Specie Circular of 1836 mandated that western lands could be purchased only with gold and silver coin. The circular

1000-705: A draft law in April 1862 for men aged 18–35, with exemptions for overseers, government officials, and clergymen. The U.S. Congress followed in July, authorizing a militia draft within states that could not meet their quota with volunteers. European immigrants joined the Union Army in large numbers, including 177,000 born in Germany and 144,000 in Ireland. About 50,000 Canadians served, around 2,500 of whom were black. When

1125-468: A few banks collapsed, alarm quickly spread throughout the community and were heightened by partisan newspapers. Anxious investors rushed to other banks and demanded to have their deposits withdrawn. When faced with such pressure, even healthy banks had to make further curtailments by calling in loans and demanding payment from their borrowers. That fed the hysteria even further, which led to a downward spiral or snowball effect. In other words, anxiety, fear, and

1250-483: A firm hand by Lincoln tamed Seward, who was a staunch Lincoln ally. Lincoln decided holding the fort, which would require reinforcing it, was the only workable option. On April 6, Lincoln informed the Governor of South Carolina that a ship with food but no ammunition would attempt to supply the fort. Historian McPherson describes this win-win approach as "the first sign of the mastery that would mark Lincoln's presidency";

1375-399: A hard blow. Vermont had a period of alleviation in 1838 but was hit hard again in 1839–1840. New Hampshire did not feel the effects of the panic as much as its neighbors did. It had no permanent debt in 1838 and had little economic stress the following years. New Hampshire's greatest hardship was the circulation of fractional coins in the state. Conditions in the South were much worse than in

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1500-507: A head when Abraham Lincoln , who opposed slavery's expansion, won the 1860 presidential election . Seven Southern slave states responded to Lincoln's victory by seceding from the United States and forming the Confederacy. The Confederacy seized U.S. forts and other federal assets within their borders. The war began on April 12, 1861, when the Confederacy bombarded Fort Sumter in South Carolina . A wave of enthusiasm for war swept over

1625-479: A man until she died in 1915 at the age of 71. The small U.S. Navy of 1861 rapidly expanded to 6,000 officers and 45,000 sailors by 1865, with 671 vessels totaling 510,396 tons. Its mission was to blockade Confederate ports, control the river system, defend against Confederate raiders on the high seas, and be ready for a possible war with the British Royal Navy . The main riverine war was fought in

1750-451: A patriotic fire under the North. On April 15, Lincoln called on the states to field 75,000 volunteer troops for 90 days; impassioned Union states met the quotas quickly. On May 3, 1861, Lincoln called for an additional 42,000 volunteers for three years. Shortly after this, Virginia , Tennessee , Arkansas , and North Carolina seceded and joined the Confederacy. To reward Virginia,

1875-405: A pervasive lack of confidence initiated devastating, self-sustaining feedback loops. Many economists today understand that phenomenon as an information asymmetry . Essentially, bank depositors reacted to imperfect information since they did not know if their deposits were safe and so fearing further risk, they withdrew their deposits, even if it caused more damage. The same concept of downward spiral

2000-563: A prosperity of its own. Meanwhile, individuals and institutions were hurting. The crisis followed a period of economic expansion from mid-1834 to mid-1836. The prices of land, cotton, and slaves rose sharply in those years. The boom's origin had many sources, both domestic and international. Because of the peculiar factors of international trade, abundant amounts of silver were coming into the United States from Mexico and China. Land sales and tariffs on imports were also generating substantial federal revenues. Through lucrative cotton exports and

2125-421: A republic, but a third challenge faced the nation: maintaining a republic based on the people's vote, in the face of an attempt to destroy it. Lincoln's election provoked South Carolina 's legislature to call a state convention to consider secession. South Carolina had done more than any other state to advance the notion that a state had the right to nullify federal laws and even secede. On December 20, 1860,

2250-561: The Suffolk Bank , resulting in the first ever clearing house agreement for currencies in country banks. Only a year later in 1825, all bank notes that passed through the Suffolk System were taken at par. In just a single year the Suffolk System had given these seven Boston banks a uniform currency. As the Suffolk Bank grew in size it became able to assert pressure on other country banks and by 1838, over 300 banks (basically all of New England 's banks) redeemed their notes through

2375-490: The 1860 presidential election . Southern leaders feared Lincoln would stop slavery's expansion and put it on a course toward extinction. His victory triggered declarations of secession by seven slave states of the Deep South , all of whose riverfront or coastal economies were based on cotton that was cultivated by slave labor. Lincoln was not inaugurated until March 4, 1861, giving the South time to prepare for war during

2500-689: The Dred Scott decision was proof the Southern states had no reason to secede and that the Union "was intended to be perpetual". He added, however, that "The power by force of arms to compel a State to remain in the Union" was not among the "enumerated powers granted to Congress". A quarter of the US army—the Texas garrison—was surrendered in February to state forces by its general, David E. Twiggs , who joined

2625-618: The Emancipation Proclamation went into effect in January 1863, ex-slaves were energetically recruited to meet state quotas. States and local communities offered higher cash bonuses for white volunteers. Congress tightened the draft law in March 1863. Men selected in the draft could provide substitutes or, until mid-1864, pay commutation money. Many eligibles pooled their money to cover the cost of anyone drafted. Families used

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2750-578: The Union ("the North") and the Confederacy ("the South"), which was formed in 1861 by states that had seceded from the Union. The central conflict leading to war was a dispute over whether slavery should be permitted to expand into the western territories, leading to more slave states , or be prohibited from doing so, which many believed would place slavery on a course of ultimate extinction. Decades of controversy over slavery were brought to

2875-592: The Virginia to prevent its capture, while the Union built many copies of the Monitor . The Confederacy's efforts to obtain warships from Great Britain failed, as Britain had no interest in selling warships to a nation at war with a stronger enemy and feared souring relations with the U.S. By early 1861, General Winfield Scott had devised the Anaconda Plan to win the war with minimal bloodshed, calling for

3000-540: The antebellum era . From 1834 to 1835, Europe experienced a surge in prosperity, which resulted in confidence and an increased propensity for risky foreign investments. In 1836, directors of the Bank of England noticed that its monetary reserves had declined precipitously in recent years due to an increase in capital speculation and investment in American transportation. Conversely, improved transportation systems increased

3125-564: The fall of Atlanta in 1864 to Union General William Tecumseh Sherman , followed by his March to the Sea . The last significant battles raged around the ten-month Siege of Petersburg , gateway to the Confederate capital of Richmond . The Confederates abandoned Richmond, and on April 9, 1865, Lee surrendered to Grant following the Battle of Appomattox Court House , setting in motion the end of

3250-453: The institution of slavery . Historians in the 21st century overwhelmingly agree on the centrality of slavery in the conflict. They disagree on which aspects (ideological, economic, political, or social) were most important, and on the North 's reasons for refusing to allow the Southern states to secede. The pseudo-historical Lost Cause ideology denies that slavery was the principal cause of

3375-533: The ironclad warship , and mass-produced weapons were widely used. The war left an estimated 698,000 soldiers dead, along with an undetermined number of civilian casualties, making the Civil War the deadliest military conflict in American history. The technology and brutality of the Civil War foreshadowed the coming World Wars . The origins of the war were rooted in the desire of the Southern states to preserve

3500-406: The 168,649 men procured for the Union through the draft, 117,986 were substitutes, leaving only 50,663 who were conscripted. In the North and South, draft laws were highly unpopular. In the North, some 120,000 men evaded conscription, many fleeing to Canada, and another 280,000 soldiers deserted during the war. At least 100,000 Southerners deserted, about 10 percent of the total. Southern desertion

3625-601: The Atlantic and Pacific oceans. Insurance rates soared, and the American flag virtually disappeared from international waters, though reflagging ships with European flags allowed them to continue operating unmolested. After the war, the U.S. government demanded Britain compensate it for the damage caused by blockade runners and raiders outfitted in British ports. Britain paid the U.S. $ 15 million in 1871, but only for commerce raiding. Dinçaslan argues that another outcome of

3750-566: The Bahamas in exchange for high-priced cotton. Many were lightweight and designed for speed, only carrying small amounts of cotton back to England. When the Union Navy seized a blockade runner, the ship and cargo were condemned as a prize of war and sold, with proceeds given to the Navy sailors; the captured crewmen, mostly British, were released. The Southern economy nearly collapsed during

3875-466: The Bank of England, wanting to increase monetary reserves and to cushion American defaults, indicated that they would gradually raise interest rates from 3 to 5 percent. The conventional financial theory held that banks should raise interest rates and curb lending when they were faced with low monetary reserves. Raising interest rates, according to the laws of supply and demand , was supposed to attract specie since money generally flows where it will generate

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4000-400: The British response to the U.S. was toned down, helping avert war. In 1862, the British government considered mediating between the Union and Confederacy, though such an offer would have risked war with the U.S. British Prime Minister Lord Palmerston reportedly read Uncle Tom's Cabin three times when deciding what his decision would be. The Union victory at the Battle of Antietam caused

4125-621: The British to delay this decision. The Emancipation Proclamation increased the political liability of supporting the Confederacy. Realizing that Washington could not intervene in Mexico as long as the Confederacy controlled Texas, France invaded Mexico in 1861 and installed the Habsburg Austrian archduke Maximilian I as emperor. Washington repeatedly protested France's violation of the Monroe Doctrine . Despite sympathy for

4250-575: The Commonwealth, which at its greatest extent was over half the state, and it went into exile after October 1862. After Virginia's secession, a Unionist government in Wheeling asked 48 counties to vote on an ordinance to create a new state in October 1861. A voter turnout of 34% approved the statehood bill (96% approving). Twenty-four secessionist counties were included in the new state, and

4375-477: The Confederacy in two at the Mississippi River , while Confederate General Robert E. Lee 's incursion north failed at the Battle of Gettysburg . Western successes led to General Ulysses S. Grant 's command of all Union armies in 1864. Inflicting an ever-tightening naval blockade of Confederate ports, the Union marshaled resources and manpower to attack the Confederacy from all directions. This led to

4500-400: The Confederacy refused to exchange black prisoners. After that, about 56,000 of the 409,000 POWs died in prisons, accounting for 10 percent of the conflict's fatalities. Historian Elizabeth D. Leonard writes that between 500 and 1,000 women enlisted as soldiers on both sides, disguised as men. Women also served as spies, resistance activists, nurses, and hospital personnel. Women served on

4625-518: The Confederacy, France's seizure of Mexico ultimately deterred it from war with the Union. Confederate offers late in the war to end slavery in return for diplomatic recognition were not seriously considered by London or Paris. After 1863, the Polish revolt against Russia further distracted the European powers and ensured they remained neutral. Russia supported the Union, largely because it believed

4750-706: The Confederacy. As Southerners resigned their Senate and House seats, Republicans could pass projects that had been blocked. These included the Morrill Tariff , land grant colleges, a Homestead Act , a transcontinental railroad, the National Bank Act , authorization of United States Notes by the Legal Tender Act of 1862 , and the end of slavery in the District of Columbia . The Revenue Act of 1861 introduced income tax to help finance

4875-644: The Confederate capital was moved to Richmond . Maryland , Delaware , Missouri , West Virginia and Kentucky were slave states whose people had divided loyalties to Northern and Southern businesses and family members. Some men enlisted in the Union Army and others in the Confederate Army. West Virginia separated from Virginia and was admitted to the Union on June 20, 1863, though half its counties were secessionist. Maryland's territory surrounded Washington, D.C. , and could cut it off from

5000-542: The District of Columbia by seizing prominent figures, including arresting one-third of the members of the Maryland General Assembly on the day it reconvened. All were held without trial, with Lincoln ignoring a ruling on June 1, 1861, by Supreme Court Chief Justice Roger Taney , not speaking for the Court, that only Congress could suspend habeas corpus ( Ex parte Merryman ). Federal troops imprisoned

5125-678: The East, and the Cotton Belt was dealt the worst blow. In Virginia, North Carolina, and South Carolina the panic caused an increase in the interest of diversifying crops. New Orleans felt a general depression in business, and its money market stayed in bad condition throughout 1843. Several planters in Mississippi had spent much of their money in advance, which led to the complete bankruptcy of many planters. By 1839, many plantations were thrown out of cultivation. Florida and Georgia did not feel

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5250-478: The New England area to fare much better than the rest of the country. These practices included, lending reserves to other banks and keeping the payment system operating. Today central banks adopt these same practices that started with the private, commercial Suffolk Bank . More banking panics happened during the reign of the Suffolk System (Panic of 1839, Panic of 1857) but their practices continued to minimize

5375-515: The North and South, as military recruitment soared. Four more Southern states seceded after the war began and, led by its president, Jefferson Davis , the Confederacy asserted control over a third of the U.S. population in eleven states. Four years of intense combat, mostly in the South, ensued. During 1861–1862 in the Western theater , the Union made permanent gains—though in the Eastern theater

5500-420: The North, where anti-slavery sentiment had grown, and for the South, where the fear of slavery's abolition had grown. Another factor leading to secession and the formation of the Confederacy was the development of white Southern nationalism in the preceding decades. The primary reason for the North to reject secession was to preserve the Union, a cause based on American nationalism . Background factors in

5625-658: The North. It had anti-Lincoln officials who tolerated anti-army rioting in Baltimore and the burning of bridges, both aimed at hindering the passage of troops to the South. Maryland's legislature voted overwhelmingly to stay in the Union, but rejected hostilities with its southern neighbors, voting to close Maryland's rail lines to prevent their use for war. Lincoln responded by establishing martial law and unilaterally suspending habeas corpus in Maryland, along with sending in militia units. Lincoln took control of Maryland and

5750-461: The South's post-war recovery. Cotton diplomacy proved a failure as Europe had a surplus of cotton, while the 1860–62 crop failures in Europe made the North's grain exports critically important. It also helped turn European opinion against the Confederacy. It was said that "King Corn was more powerful than King Cotton," as U.S. grain went from a quarter to almost half of British imports. Meanwhile,

5875-545: The South. The Confederacy turned to foreign sources, connecting with financiers and companies like S. Isaac, Campbell & Company and the London Armoury Company in Britain, becoming the Confederacy's main source of arms. To transport arms safely to the Confederacy, British investors built small, fast, steam-driven blockade runners that traded arms and supplies from Britain, through Bermuda, Cuba, and

6000-551: The Suffolk Bank their agent for the redemption of bills of outside banks." The Suffolk Bank enabled member banks to deposit notes from other banks at par value, and to be credited for these deposits within one business day. The bank operated in this manner until the Bank of Mutual Redemption was organized in 1858 and assumed this role for all of New England. Throughout the existence of the Suffolk System many important banking practices were discovered and put into practice. After

6125-455: The Suffolk Bank was not attempting to police the currency markets in Boston , but rather to monopolize the brokerage of all the paper notes of the country banks in order to decrease circulation and open the markets for themselves. Although the systems’ initial intentions are unknown, its results are evident. In his History of Money and Banking in the United States , Murray Rothbard credits

6250-460: The Suffolk Bank with exercising "a stabilizing influence on the New England economy." John Jay Knox Jr. , a former Comptroller of the U.S. Treasury , stated that the success of the Suffolk Bank demonstrated that: American Civil War The American Civil War (April 12, 1861 – May 26, 1865; also known by other names ) was a civil war in the United States between

6375-436: The Suffolk System. All of New England now had a uniform currency. Throughout the system's existence, The Suffolk Bank was sure to keep all of the country banks within the system honest by presenting banks with their notes and requesting specie . The discipline enacted by the Suffolk Bank made virtually all bank notes in New England equal to their face value, allowing them to be traded within banks. The uniform currency

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6500-500: The U.S. and Britain over the Trent affair , which began when U.S. Navy personnel boarded the British ship Trent and seized two Confederate diplomats. However, London and Washington smoothed this over after Lincoln released the two men. Prince Albert left his deathbed to issue diplomatic instructions to Lord Lyons during the Trent affair. His request was honored, and, as a result,

6625-498: The U.S. served as a counterbalance to its geopolitical rival, the U.K. In 1863, the Imperial Russian Navy 's Baltic and Pacific fleets wintered in the American ports of New York and San Francisco, respectively. Panic of 1837 The Panic of 1837 was a financial crisis in the United States that began a major depression which lasted until the mid-1840s. Profits, prices, and wages dropped, westward expansion

6750-471: The Union Army or pro-Union guerrilla groups. Although they came from all classes, most Southern Unionists differed socially, culturally, and economically from their region’s dominant prewar, slave-owning planter class. At the war's start, a parole system operated, under which captives agreed not to fight until exchanged. They were held in camps run by their army, paid, but not allowed to perform any military duties. The system of exchanges collapsed in 1863 when

6875-456: The Union blockade. The Confederacy purchased warships from commercial shipbuilders in Britain, with the most famous being the CSS ; Alabama , which caused considerable damage and led to serious postwar disputes . However, public opinion against slavery in Britain created a political liability for politicians, where the anti-slavery movement was powerful. War loomed in late 1861 between

7000-464: The Union hospital ship Red Rover and nursed Union and Confederate troops at field hospitals. Mary Edwards Walker , the only woman ever to receive the Medal of Honor , served in the Union Army and was given the medal for treating the wounded during the war. One woman, Jennie Hodgers, fought for the Union under the name Albert D. J. Cashier. After she returned to civilian life, she continued to live as

7125-492: The Union would win if it could resupply and hold the fort, and the South would be the aggressor if it opened fire on an unarmed ship supplying starving men. An April 9 Confederate cabinet meeting resulted in Davis ordering General P. G. T. Beauregard to take the fort before supplies reached it. At 4:30 am on April 12, Confederate forces fired the first of 4,000 shells at the fort; it fell the next day. The loss of Fort Sumter lit

7250-433: The Union, this was never likely, so they sought to bring them in as mediators. The Union worked to block this and threatened war if any country recognized the Confederacy. In 1861, Southerners voluntarily embargoed cotton shipments, hoping to start an economic depression in Europe that would force Britain to enter the war, but this failed. Worse, Europe turned to Egypt and India for cotton, which they found superior, hindering

7375-483: The Union-held Fort Sumter. Fort Sumter is located in the harbor of Charleston , South Carolina. Its status had been contentious for months. Outgoing President Buchanan had dithered in reinforcing its garrison, commanded by Major Robert Anderson . Anderson took matters into his own hands and on December 26, 1860, under the cover of darkness, sailed the garrison from the poorly placed Fort Moultrie to

7500-702: The Union. A February peace conference met in Washington, proposing a solution similar the Compromise; it was rejected by Congress. The Republicans proposed the Corwin Amendment , an alternative, not to interfere with slavery where it existed, but the South regarded it as insufficient. The remaining eight slave states rejected pleas to join the Confederacy, following a no-vote in Virginia's First Secessionist Convention on April 4. On March 4, Lincoln

7625-491: The United States for both funding rampant speculation and introducing inflationary paper money. Some modern economists view Van Buren's deregulatory economic policy as successful in the long term, and argue that it played an important role in revitalizing banks after the panic. Virtually the whole nation felt the effects of the panic. Connecticut, New Jersey, and Delaware reported the greatest stress in their mercantile districts. In 1837, Vermont's business and credit systems took

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7750-472: The United States were forced to do the same. When New York banks raised interest rates and scaled back on lending, the effects were damaging. Since the price of a bond bears an inverse relationship to the yield (or interest rate), the increase in prevailing interest rates would have forced down the price of American securities. Importantly, demand for cotton plummeted. The price of cotton fell by 25% in February and March 1837. The American economy, especially in

7875-470: The United States, and grant civil rights to freed slaves. The war is one of the most extensively studied and written about episodes in U.S. history . It remains the subject of cultural and historiographical debate . Of continuing interest is the fading myth of the Lost Cause of the Confederacy . The war was among the first to use industrial warfare . Railroads, the electrical telegraph , steamships,

8000-475: The West, where major rivers gave access to the Confederate heartland. The U.S. Navy eventually controlled the Red, Tennessee, Cumberland, Mississippi, and Ohio rivers. In the East, the Navy shelled Confederate forts and supported coastal army operations. The Civil War occurred during the early stages of the industrial revolution, leading to naval innovations, notably the ironclad warship . The Confederacy, recognizing

8125-579: The Western territories destined to become states. Initially Congress had admitted new states into the Union in pairs, one slave and one free . This had kept a sectional balance in the Senate but not in the House of Representatives , as free states outstripped slave states in numbers of eligible voters. Thus, at mid-19th century, the free-versus-slave status of the new territories was a critical issue, both for

8250-551: The banks maintained an account with Suffolk Bank. To qualify for such an account, a bank was required to remit a starting deposit of $ 2,000 or more, and—in the case of banks not located in Boston—to maintain a sufficient balance to redeem any of the banks' notes that Suffolk Bank might receive for redemption. Beginning in 1824, "all of the banks in Boston, with the exception of the New England [a competing clearinghouse bank], agreed to make

8375-462: The blockade was the rise of oil as a prominent commodity. The declining whale oil industry took a blow as many old whaling ships were used in blockade efforts, such as the Stone Fleet , and Confederate raiders harassed Union whalers. Oil products, especially kerosene, began replacing whale oil in lamps, increasing oil's importance long before it became fuel for combustion engines. Although the Confederacy hoped Britain and France would join them against

8500-403: The cause of the panic principally to domestic political conflicts. Democrats typically blamed the bankers, and Whigs blamed Jackson for refusing to renew the Bank of the United States charter and for the withdrawal of government funds from the bank. Martin Van Buren , who became president in March 1837, was largely blamed, by the Democrats, for the panic even though his inauguration had preceded

8625-457: The charter of the Second Bank of the United States , was also key. The ailing economy of early 1837 led investors to panic, and a bank run ensued, giving the crisis its name. The bank run came to a head on May 10, 1837, when banks in New York City ran out of gold and silver. They immediately suspended specie payments , and would no longer redeem commercial paper in specie at full face value . A significant economic collapse followed: despite

8750-492: The conflict was inconclusive. The abolition of slavery became a Union war goal on January 1, 1863, when Lincoln issued the Emancipation Proclamation , which declared all slaves in rebel states to be free, applying to more than 3.5 million of the 4 million enslaved people in the country. To the west, the Union first destroyed the Confederacy's river navy by the summer of 1862, then much of its western armies, and seized New Orleans . The successful 1863 Union siege of Vicksburg split

8875-508: The convention unanimously voted to secede and adopted a secession declaration . It argued for states' rights for slave owners but complained about states' rights in the North in the form of resistance to the federal Fugitive Slave Act, claiming that Northern states were not fulfilling their obligations to assist in the return of fugitive slaves. The "cotton states" of Mississippi , Florida , Alabama , Georgia , Louisiana , and Texas followed suit, seceding in January and February 1861. Among

9000-459: The country. Many of the banks were located in the West. The effect of both policies was to transfer specie away from the nation's main commercial centers on the East Coast. With lower monetary reserves in their vaults, major banks and financial institutions on the East Coast had to scale back their loans, which was a major cause of the panic, besides the real estate crash. Americans attributed

9125-477: The crisis was Secretary of State William H. Seward , who had been Lincoln's rival for the Republican nomination . Embittered by his defeat, Seward agreed to support Lincoln's candidacy only after he was guaranteed the executive office then considered the second most powerful. In the early stages of Lincoln's presidency Seward held little regard for him, due to his perceived inexperience. Seward viewed himself as

9250-657: The de facto head of government, the " prime minister " behind the throne. Seward attempted to engage in unauthorized and indirect negotiations that failed. Lincoln was determined to hold all remaining Union-occupied forts in the Confederacy: Fort Monroe in Virginia, Fort Pickens , Fort Jefferson , and Fort Taylor in Florida, and Fort Sumter in South Carolina. The American Civil War began on April 12, 1861, when Confederate forces opened fire on

9375-574: The depression in New England. The Suffolk Bank has been considered by some to be a central bank , however it is highly contested due to its private nature. Some economist have argued that it can not be labeled a central bank because of a lack of control of the money supply , while others claim the system certainly had a degree of control or it would have been altogether ineffective. Although it seems The Suffolk Bank cannot be considered completely private, it has proven that private individuals acting outside of political control are capable of providing

9500-523: The economy did not recover until 1844. The recovery from the depression intensified after the California gold rush started in 1848, greatly increasing the money supply. By 1850, the US economy was booming again. Intangible factors like confidence and psychology played powerful roles and helped to explain the magnitude and the depth of the panic. Central banks then had only limited abilities to control prices and employment, making bank runs common. When

9625-477: The economy grew after 1838. According to the Austrian economist Murray Rothbard , between 1839 and 1843, real consumption increased by 21 percent and real gross national product increased by 16 percent, but real investment fell by 23 percent and the money supply shrank by 34 percent. In 1842, the American economy was able to rebound somewhat and overcome the five-year depression, but according to most accounts,

9750-429: The effects as early as Louisiana, Alabama, or Mississippi. In 1837, Georgia had sufficient coin to carry on everyday purchases. Until 1839, Floridians were able to boast about the punctuality of their payments. Georgia and Florida began to feel the negative effects of the panic in the 1840s. At first, the West did not feel as much pressure as the East or the South. Ohio, Indiana, and Illinois were agricultural states, and

9875-493: The ensuing guerrilla war engaged about 40,000 federal troops for much of the war. Congress admitted West Virginia to the Union on June 20, 1863. West Virginians provided about 20,000 soldiers to each side in the war. A Unionist secession attempt occurred in East Tennessee , but was suppressed by the Confederacy, which arrested over 3,000 men suspected of loyalty to the Union; they were held without trial. The Civil War

10000-430: The essential role of cotton in the European economy. The European aristocracy was "absolutely gleeful in pronouncing the American debacle as proof that the entire experiment in popular government had failed. European government leaders welcomed the fragmentation of the ascendant American Republic." However, a European public with liberal sensibilities remained, which the U.S. sought to appeal to by building connections with

10125-455: The exact worth of certain notes and in turn have little faith in some banks. In 1819, the Suffolk Bank of Boston was founded and only five years later it had developed the Suffolk System and recruited six other Boston banks to join. The system was set up to ensure that banks could always back up their bank notes issued. This was accomplished by forcing all of the banks within the system to hold higher reserves of specie and keep deposits in

10250-423: The existence of the Suffolk System also led to new banking practices that would continue in practice until present day. The Panic of 1837 , a deflationary backlash inducing depression and unemployment , was caused by many different factors including the practices of the Second Bank of the United States and political failures. Although the country entered a recession , the activities of the Suffolk Bank led

10375-486: The good crops of 1837 were a relief to the farmers. In 1839, agricultural prices fell, and the pressure reached the agriculturalists. Within two months the losses from bank failures in New York alone aggregated nearly $ 100 million. Out of 850 banks in the United States, 343 closed entirely, 62 failed partially, and the system of state banks received a shock from which it never fully recovered. The publishing industry

10500-441: The greatest return if equal risk among possible investments is assumed. In the open economy of the 1830s, which was characterized by free trade and relatively weak trade barriers , the monetary policies of the hegemonic power (in this case Britain) were transmitted to the rest of the interconnected global economic system, including the United States. The result was that as the Bank of England raised interest rates, major banks in

10625-439: The homefront economy could no longer supply. Surdam contends that the blockade was a powerful weapon that eventually ruined the Southern economy, costing few lives in combat. The Confederate cotton crop became nearly useless, cutting off the Confederacy's primary income source. Critical imports were scarce, and coastal trade largely ended as well. The blockade's success was not measured by the few ships that slipped through but by

10750-554: The international press. By 1861, Union diplomats like Carl Schurz realized emphasizing the war against slavery was the Union's most effective moral asset in swaying European public opinion. Seward was concerned an overly radical case for reunification would distress European merchants with cotton interests; even so, he supported a widespread campaign of public diplomacy. U.S. minister to Britain Charles Francis Adams proved adept and convinced Britain not to challenge

10875-418: The marketing of state-backed bonds in British money markets, the United States acquired significant capital investment from Britain. The bonds financed transportation projects in the United States. British loans, made available through Anglo-American banking houses like Baring Brothers , fueled much of America's westward expansion, infrastructure improvements, industrial expansion, and economic development during

11000-490: The metalworking industries were taking shape. Coal had begun its ascent, replacing wood as the nation’s major source of heat. Innovations with agricultural machinery would bring greater productivity from the land. The nation’s population would also increase by more than one-third during the 1840s, despite the economic turmoil. After downturns in 1845–1846 and 1847–1848, gold was discovered in California in 1848, setting off

11125-508: The most profitable in the country and continued to operate under the Suffolk System until 1858, when rival institutions complained of dictatorial practices and eventually national legislation banned state banknotes . The Suffolk System was the predecessor to modern banking practices and led to the creation of the Federal Reserve that still operates today. The bank operated by redeeming country banks' notes at par value , so long as

11250-607: The movement to abolish slavery and its influence over the North. Southern states believed that the Fugitive Slave Clause made slaveholding a constitutional right. These states agreed to form a new federal government, the Confederate States of America , on February 4, 1861. They took control of federal forts and other properties within their boundaries, with little resistance from outgoing President James Buchanan , whose term ended on March 4. Buchanan said

11375-476: The need to counter the Union's naval superiority, built or converted over 130 vessels, including 26 ironclads. Despite these efforts, Confederate ships were largely unsuccessful against Union ironclads. The Union Navy used timberclads, tinclads, and armored gunboats. Shipyards in Cairo, Illinois, and St. Louis built or modified steamboats . The Confederacy experimented with the submarine CSS  Hunley , which

11500-418: The new Confederacy sent delegates to Washington to negotiate a peace treaty. Lincoln rejected negotiations, because he claimed that the Confederacy was not a legitimate government and to make a treaty with it would recognize it as such. Lincoln instead attempted to negotiate directly with the governors of seceded states, whose administrations he continued to recognize. Complicating Lincoln's attempts to defuse

11625-417: The ordinances of secession, those of Texas, Alabama, and Virginia mentioned the plight of the "slaveholding states" at the hands of Northern abolitionists. The rest made no mention of slavery but were brief announcements by the legislatures of the dissolution of ties to the Union. However, at least four—South Carolina, Mississippi, Georgia, and Texas —provided detailed reasons for their secession, all blaming

11750-403: The panic by only five weeks. Van Buren's refusal to use government intervention to address the crisis, such as emergency relief and increasing spending on public infrastructure projects to reduce unemployment, was accused by his opponents of contributing further to the hardship and the duration of the depression that followed the panic. Jacksonian Democrats , on the other hand, blamed the Bank of

11875-503: The panic undermined confidence in public support for internal improvements. The panic unleashed a wave of riots and other forms of domestic unrest. The ultimate result was an increase in the state's police powers, including more professional police forces. Most economists agree that there was a brief recovery from 1838 to 1839, which ended when the Bank of England and Dutch creditors raised interest rates. The economic historian Peter Temin has argued that when corrected for deflation,

12000-427: The run up to the Civil War were partisan politics , abolitionism , nullification versus secession , Southern and Northern nationalism, expansionism , economics , and modernization in the antebellum period . As a panel of historians emphasized in 2011, "while slavery and its various and multifaceted discontents were the primary cause of disunion, it was disunion itself that sparked the war." Abraham Lincoln won

12125-408: The same functions of a central bank at lower costs. Although the Suffolk System was a great regulator of unsound banking practices, it lacked the ability to properly administer the total volume of banknote circulation. The Suffolk System regulated how many bank notes could be issued by country banks, but it was ineffective regulating the bank note circulation of the system. It has been considered

12250-412: The secession, a view disproven by historical evidence, notably some of the seceding states' own secession documents . After leaving the Union, Mississippi issued a declaration stating, "Our position is thoroughly identified with the institution of slavery—the greatest material interest of the world." The principal political battle leading to Southern secession was over whether slavery would expand into

12375-491: The southern states, was heavily dependent on stable cotton prices. Receipts from cotton sales provided funding for some schools, balanced the nation's trade deficit, fortified the US dollar, and procured foreign exchange earnings in British pounds , then the world's reserve currency . Since the United States was still a predominantly agricultural economy centered on the export of staple crops and an incipient manufacturing sector,

12500-636: The southwestern corner of Missouri (see Missouri secession ). Early in the war the Confederacy controlled southern Missouri through the Confederate government of Missouri but was driven out after 1862. In the resulting vacuum, the convention on secession reconvened and took power as the Unionist provisional government of Missouri. Kentucky did not secede, it declared itself neutral. When Confederate forces entered in September 1861, neutrality ended and

12625-532: The stalwart island Fort Sumter. Anderson's actions catapulted him to hero status in the North. An attempt to resupply the fort on January 9, 1861, failed and nearly started the war then, but an informal truce held. On March 5, Lincoln was informed the fort was low on supplies. Fort Sumter proved a key challenge to Lincoln's administration. Back-channel dealing by Seward with the Confederates undermined Lincoln's decision-making; Seward wanted to pull out. But

12750-446: The state reaffirmed its Union status while maintaining slavery. During an invasion by Confederate forces in 1861, Confederate sympathizers and delegates from 68 Kentucky counties organized the secession Russellville Convention, formed the shadow Confederate Government of Kentucky , inaugurated a governor, and Kentucky was admitted into the Confederacy on December 10, 1861. Its jurisdiction extended only as far as Confederate battle lines in

12875-457: The substitute provision to select which man should go into the army and which should stay home. There was much evasion and resistance to the draft, especially in Catholic areas. The New York City draft riots in July 1863 involved Irish immigrants who had been signed up as citizens to swell the vote of the city's Democratic political machine , not realizing it made them liable for the draft. Of

13000-580: The supply of cotton, which lowered the market price. Cotton prices were security for loans, and America's cotton kings defaulted. In 1836 and 1837 American wheat crops also suffered from Hessian fly and winter kill which caused the price of wheat in America to increase greatly, which caused American labor to starve. The hunger in America was not felt by England, whose wheat crops improved every year from 1831 to 1836, and European imports of American wheat had dropped to "almost nothing" by 1836. The directors of

13125-449: The system became in place, the role of counterfeiting in the New England area fell dramatically. Before the appearance of a uniform currency, many rural banks issued their own bank notes creating a large amount of different notes. This not only caused confusion, but also led many criminals to counterfeit bank notes creating an ever-present risk of accepting bank notes that may not be worth what they claimed. The presence of bank panics during

13250-451: The thousands that never tried. European merchant ships could not get insurance and were too slow to evade the blockade, so they stopped calling at Confederate ports. To fight an offensive war, the Confederacy purchased arms in Britain and converted British-built ships into commerce raiders . The smuggling of 600,000 arms enabled the Confederacy to fight on for two more years, and the commerce raiders targeted U.S. Merchant Marine ships in

13375-478: The war . Lincoln led the nation through that victory but was shot by an assassin on April 14. By the end of the war, much of the South's infrastructure was destroyed. The Confederacy collapsed, slavery was abolished, and four million enslaved black people were freed. The war-torn nation then entered the Reconstruction era in an attempt to rebuild the country, bring the former Confederate states back into

13500-430: The war created jobs for arms makers, ironworkers, and ships to transport weapons. Lincoln's administration initially struggled to appeal to European public opinion. At first, diplomats explained that the U.S. was not committed to ending slavery and emphasized legal arguments about the unconstitutionality of secession. Confederate representatives, however, focused on their struggle for liberty, commitment to free trade, and

13625-478: The war due to multiple factors: severe food shortages, failing railroads, loss of control over key rivers, foraging by Northern armies, and the seizure of animals and crops by Confederate forces. Historians agree the blockade was a major factor in ruining the Confederate economy; however, Wise argues blockade runners provided enough of a lifeline to allow Lee to continue fighting for additional months, thanks to supplies like 400,000 rifles, lead, blankets, and boots that

13750-603: The war. In December 1860, the Crittenden Compromise was proposed to re-establish the Missouri Compromise line, by constitutionally banning slavery in territories to the north of it, while permitting it to the south. The Compromise would likely have prevented secession, but Lincoln and the Republicans rejected it. Lincoln stated that any compromise that would extend slavery would bring down

13875-436: The winter of 1860–1861. Nationalists in the North and "Unionists" in the South refused to accept the declarations of secession. No foreign government ever recognized the Confederacy. The U.S. government, under President James Buchanan , refused to relinquish its forts that were in territory claimed by the Confederacy. According to Lincoln, the American people had shown they had been successful in establishing and administering

14000-478: The world" within a few years. Some European observers at the time dismissed them as amateur and unprofessional, but historian John Keegan concluded that each outmatched the French, Prussian, and Russian armies, and without the Atlantic, could have threatened any of them with defeat. Unionism was strong in certain areas within the Confederacy. As many as 100,000 men living in states under Confederate control served in

14125-561: Was an executive order issued by Jackson and favored by Senator Thomas Hart Benton of Missouri and other hard-money advocates. Its intent was to curb speculation in public lands, but the circular set off a real estate and commodity price crash since most buyers were unable to come up with sufficient hard money or "specie" (gold or silver coins) to pay for the land. Secondly, the Deposit and Distribution Act of 1836 placed federal revenues in various local banks, derisively termed "pet banks", across

14250-408: Was high because many soldiers were more concerned about the fate of their local area than the Southern cause. In the North, " bounty jumpers " enlisted to collect the generous bonus, deserted, then re-enlisted under a different name for a second bonus; 141 were caught and executed. From a tiny frontier force in 1860, the Union and Confederate armies grew into the "largest and most efficient armies in

14375-405: Was made of bullion lost from mints. He stated that it would be US policy "to collect the duties and imposts"; "there will be no invasion, no using of force against or among the people anywhere" that would justify an armed revolution. His speech closed with a plea for restoration of the bonds of union, famously calling on "the mystic chords of memory" binding the two regions. The Davis government of

14500-566: Was marked by intense and frequent battles. Over four years, 237 named battles were fought, along with many smaller actions, often characterized by their bitter intensity and high casualties. Historian John Keegan described it as "one of the most ferocious wars ever fought," where, in many cases, the only target was the enemy's soldiers. As the Confederate states organized, the U.S. Army numbered 16,000, while Northern governors began mobilizing their militias. The Confederate Congress authorized up to 100,000 troops in February. By May, Jefferson Davis

14625-512: Was not successful, and with the ironclad CSS  Virginia , rebuilt from the sunken Union ship Merrimack . On March 8, 1862, Virginia inflicted significant damage on the Union's wooden fleet, but the next day, the first Union ironclad, USS  Monitor , arrived to challenge it in the Chesapeake Bay . The resulting three-hour Battle of Hampton Roads was a draw, proving ironclads were effective warships. The Confederacy scuttled

14750-436: Was particularly hurt by the ensuing depression. Many individual states defaulted on their bonds, which angered British creditors. The United States briefly withdrew from international money markets. Only in the late 1840s did Americans re-enter those markets. The defaults, along with other consequences of the recession, carried major implications for the relationship between the state and economic development. In some ways,

14875-460: Was pushing for another 100,000 soldiers for one year or the duration, and the U.S. Congress responded in kind. In the first year of the war, both sides had more volunteers than they could effectively train and equip. After the initial enthusiasm faded, relying on young men who came of age each year was not enough. Both sides enacted draft laws (conscription) to encourage or force volunteering, though relatively few were drafted. The Confederacy passed

15000-545: Was responsible for creating strong banking techniques and in making smaller banks responsible for all of their banknotes issued. The system created a uniform currency throughout New England and most importantly the system help lead United States banking practices into what they are today. Following passage of the National Bank Act of 1864 , the Suffolk Bank was reorganized and renamed as the Suffolk National Bank on January 1, 1865, and continued to operate as

15125-424: Was stalled, unemployment rose, and pessimism abounded. The panic had both domestic and foreign origins. Speculative lending practices in the West, a sharp decline in cotton prices, a collapsing land bubble, international specie flows, and restrictive lending policies in Britain were all factors. The lack of a central bank to regulate fiscal matters, which President Andrew Jackson had ensured by not extending

15250-769: Was sworn in as president. In his inaugural address , he argued that the Constitution was a more perfect union than the earlier Articles of Confederation and Perpetual Union , was a binding contract, and called secession "legally void". He did not intend to invade Southern states, nor to end slavery where it existed, but he said he would use force to maintain possession of federal property, including forts, arsenals, mints, and customhouses that had been seized. The government would not try to recover post offices, and if resisted, mail delivery would end at state lines. Where conditions did not allow peaceful enforcement of federal law, US marshals and judges would be withdrawn. No mention

15375-526: Was the first of its kind in the United States and remained in use all the way until 1858. The Suffolk System was the first regulatory banking system arrangement of remote banks created in the United States . Starting in 1824, the Suffolk Bank, along with six other banks, created a system that required country (non-federal) banks to deposit reserve balances in one or more of the participating banks, which guaranteed that each country bank could redeem their banknotes in specie. The Suffolk Bank became one of

15500-525: Was too late. " King Cotton " was dead, as the South could export less than 10% of its cotton. The blockade shut down the ten Confederate seaports with railheads that moved almost all the cotton. By June 1861, warships were stationed off the principal Southern ports, and a year later nearly 300 ships were in service. The Confederates began the war short on military supplies, which the agrarian South could not produce. Northern arms manufacturers were restricted by an embargo, ending existing and future contracts with

15625-523: Was true for many southern planters, who speculated in land, cotton, and slaves. Many planters took out loans from banks under the assumption that cotton prices would continue to rise. When cotton prices dropped, however, planters could not pay back their loans, which jeopardized the solvency of many banks. These factors were particularly crucial given the lack of deposit insurance in banks. When bank customers are not assured that their deposits are safe, they are more likely to make rash decisions that can imperil

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