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Encyclopedia Dubuque

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Affiliated with the Local History Network of the State Historical Society of Iowa, and the Iowa Museum Association.




PANIC OF 1857

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PANIC OF 1857. The national financial collapse is attributed to over-speculation particularly in railroad construction and real estate. At the beginning of 1857 railroads were unable to pay their debts. Land speculators who had counted on the construction of new railroad routes were losing money. People fearing financial ruin attempted to withdraw their money, but the banks did not deal in paper currency. They used gold. With their failed investments, it was impossible for the banks to gather all the gold their customers demanded. (1)

Hopes for a financial rescue lay below the decks of the ship “Central America” which was bringing ten tons of gold with a value of $2 million of dollars from California to shore up eastern banks. On August 24, 1857, however, the ship was sunk by a violent hurricane off the coast of Florida. (2)

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The effect was immediate. The "trigger" of the panic occurred on August 24, 1857 with the failure of the New York branch of the Ohio Life Insurance and Trust Company which led banks across the nation to collapse within months. (3) The Panic of 1857, a severe economic depression in the United States, lasted three years. (4)

In Dubuque the city’s real problem was that it was living beyond its means. Imports exceeded exports by $7,000,000 by 1855 and the railroads arrival only drove those numbers higher. The city’s overall economy rested “on inflated real estate values, imbalanced trade, and a mountain of public and personal debt.” The damage was so extensive that the city’s economy was only just beginning to recover at the beginning of the CIVIL WAR. (5)

Eastern interests demanded payment and businesses with trade based on credit, failed. Rural customers could not pay their bills to merchants. The economic panic struck this city by October, 1857. The banking houses of Flaven & Co., Flinn & Bro. and A. C. Pearson suspended business. In January, 1858, Gray & Waldron and C. W. Arthur closed. Mass meetings of citizens demanded that the harbor companies should issue more of their own notes to relieve the situation. (6) Four Dubuque retailers closed in May 1857. That September local capital rushed to back up the bank of Mordecai MOBLEY. Just a week later the Herron brothers bank unaided, collapsed. In December Mobley’s bank closed despite substantial loans and support. This finally crimped local optimism. During 1857 the city suffered 37 business failures, 26 more in 1858, 21 in 1859 and seven in 1860. (7) The entire number of business houses which suspended business or closed during October, November and December, 1857, and the first half of January, 1858, was sixty-one. (8) Dubuque which had one-tenth of the businesses in the state and even less a percent of its population had one-third of the business failures and over half of the dollar value of liabilities of the state in 1857. (9) Although Dubuque had less than .1 percent of the nation's population, it accounted for more that one percent of the nation's business liabilities in 1858 and 1859. (10)

Land speculation and “the weakness of a pre-dominantly commercial economy” were the root causes of the crash in Dubuque. The city relied upon the commercial economy alone to carry the city forward. The panic experience taught all that manufacturing and not commerce, would generate true wealth. Local newspapers however also stressed mining and agriculture as offering the roads to wealth. The city was exporting its raw products, lead, timber and wheat without adding value to them, and in turn it imported finished (expensive) goods. Imports including furniture were not produced locally in sufficient quantity to meet. (11)

The legacy of the panic was the delay in the completion of a number of building projects, particularly churches. First Congregational Church which had moved twice in its short history had to curtail work on its new church. Services were held in the basement of the unfinished building. (12) The real estate pyramid collapsed and the city’s total valuation followed, declining from $13,100,000 to below $9,000,000 by 1859. A great deal of city and county property was sold for taxes between 1858 and 1860. Rents plummeted by half for residences and more for stores in 1859. The city ceased its issuance of municipal script and turned to bonds to make ends meet. Immigration ceased, one of the first signs of trouble, in 1857 and was only resuming by 1859. (13)

Between 1850 and 1860 the city made little progress towards industrialization. The size of shops increased as did the total number of workers (1850, 43 shops, 173 hands; 1860 50 shops, 328 hands). During the ten-year period capitalization increased, particularly in wood products and skins/leather. The confidence of Dubuquers was shaken by the sudden end to exponential growth, as was the social cohesion of the city. (14)

Even with the city “a shadow of its former self” however, foundations were being laid for the new Custom House and the Dubuque and Cedar Rapids Railroad was formed. (15)

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Source:

1. "S. S. Central America," http://en.wikipedia.org/wiki/SS_Central_America

2. Ibid.

3. Jacobson, James E. "The Great Financial Panic of 1857-58," The Architectural And Historical Resources of Dubuque, Iowa, 1837-1955, June 24, 2003, p. 29

4. "S. S. Central America"

5. Jacobson, p. 29

6. Oldt, Franklin T., History of Dubuque County, Iowa. Chicago: Goodspeed Historical Association, 1880. http://www.ebooksread.com/authors-eng/franklin-t-oldt/history-of-dubuque-county-iowa-being-a-general-survey-of-dubuque-county-histor-tdl/page-14-history-of-dubuque-county-iowa-being-a-general-survey-of-dubuque-county-histor-tdl.shtml

7. Jacobson, p. 29

8. Oldt

9. Johnson, Russell Lee. Warriors Into Workers: The Civil War and the Formation of Urban-industrial Society in a Northern City. Fordham University Press, 2003. p. 30 Online: http://books.google.com/books?id=ahqtg54TXyEC&printsec=frontcover&source=gbs_ge_summary_r&cad=0#v=onepage&q&f=false

10. Ibid.

11. Jacobson, p. 30

12. Bickel, Kenneth Rev. Dr. "Rooted in Faith-Serving in Love," Celebrating 175 Years, First Congregational United Church of Christ, May 11, 2014, p. 1

13. Jacobson, p. 31

14. Ibid.