The Panic of 1857 Through an Austrian Lens

Pre-Fed recessions, like the Panic of 1857, are often invoked to counter the Austrian School’s theory of the business cycle, which stipulates that monetary expansion causes recessions. On the surface, the Panic of 1857 seems like a strong counterexample, but the full details of its origins– and resolution– vindicate the Austrians yet again.

The following article was originally published by the Mises Institute. The opinions expressed do not necessarily reflect those of Peter Schiff or SchiffGold.

Historians often view the Panic of 1857 as being caused, not by economic events, but political ones. Such disparate events as the end of the Crimean War in 1856 involving England, France, Russia and Turkey, the Supreme Court’s Dred Scott decision, the battle over slavery in the Kansas Territory, even the sinking of the SS Central America are all part of the developments bound together as causes of the 1857 panic.

The Banking Superintendent of New York, James Cook, called the panic “without apparent reason derived from past experience.” Charles W. Calomiris and Larry Schweikart wrote, “First, the period immediately prior to the panic was one of unusual calm in the markets for commercial bills.” “Second, the panic was resolved quickly.” “Third, few banks failed during the panic.” Really? 62 of 63 New York banks suspended specie payments.