Haulman: The panic of 1819

  • Haulman: The panic of 1819Economics professor discusses America's first modern economic downturn and its lessons for today.

    Graphic by Cindy Baker.

    Haulman: The panic of 1819
When economist Clyde Haulman started looking into America’s first modern economic depression, he found scant information, particularly regarding the microeconomic aspects of the period.  In order to fill that gap, the William and Mary professor wrote a book, Virginia and the Panic of 1819.

Haulman, whose research interests have included the development of economics as a discipline, noticed that the panic of 1819 kept cropping up in his readings. “Still, I couldn’t find much information about it,” he said. “The more I looked, the less I found.”

Information he did find often was incomplete. He decided to concentrate on Virginia. He spent months in Richmond tracking down economic indicators available from the handwritten documents of the 1810s and 1820s. Business licenses, poor-relief expenditures and agricultural outputs were among data he collected.

“I think it is fair to call the events of the period the first modern business cycle,” Haulman said. Contributing factors included the War of 1812 and the blockades that were instituted by military protagonists that forced an upturn in domestic manufacturing in America. At the same time, the First Bank of the United States ceased operations in 1811 and the subsequent expansion of state banks help create excess credit. “After the War of 1812 ends for us, and the Napoleonic wars end in Europe, Britain and the continent are recovering, and the demand for American grain escalates,” he explained. That demand triggered  speculation in western lands as people benefitting from the “boom” believed agricultural prices would continue to rise, he said.

They did not. The foreign markets contracted. Land became overvalued. Mortgage holders found their resources strained. Banks tightened up on credit.

“If you go back and look at every panic and every business cycle, the story is the same,” Haulman said. “Every generation that has been in a boom cycle has believed it would go on forever.”

During a videotaped interview, Haulman discussed his book Virginia and the Panic of 1819 as well as speculated upon lessons for the current financial crisis. His sense of the recent stimulus package is that it may not go far enough given the months of bad economic news affecting the psychological makeup of U.S. citizens. He believes that the government should consider nationalizing troubled banks. “It also will be interesting to see how we deal with all of the liquidity and the federal debt that’s being created,” he said. “That will be as interesting as how we are dealing with things on the down side.”