Taking Back Our Stolen History
Banking Suspended in the US at the Climax of the Panic of 1857
Banking Suspended in the US at the Climax of the Panic of 1857

Banking Suspended in the US at the Climax of the Panic of 1857

The major financial catalyst for the panic of 1857 was the August 24, 1857, failure of the New York branch of the Ohio Life Insurance and Trust Company. It was soon reported that the entire capital of the Trust’s home office had been embezzled. What followed was one of the most severe economic crises in U.S. history.

The history of the panic is clearly divisible into…two periods: the former, when the banks took the initiative…and the latter, in which the depositors seized it…

Almost immediately, New York bankers put severe restrictions on even the most routine transactions. In turn, many people interpreted these restrictions as a sign of impending financial collapse and panicked. Individual holders of stock and of commercial paper rushed to their brokers and eagerly made deals that “a week before they would have shunned as a ruinous sacrifice.” As the September 12, 1857, Harper’s Weekly described the scene on the New York Stock Exchange, “…prominent stocks fell eight or ten per cent in a day, and fortunes were made and lost between ten o’clock in the morning and four of the afternoon.”

The Report of the Clearinghouse Committee, produced in the years following the panic of 1857, found that “A financial panic has been likened to a malignant epidemic, which kills more by terror than by real disease.” Yet behind the reaction of New York’s bankers to the closing of a trust company lay a confluence of national and international events that heightened concern:

  • the British withdrew capital from U.S. banks
  • grain prices fell
  • Russia undersold U.S. cotton on the open market
  • manufactured goods lay in surplus
  • railroads overbuilt and some defaulted on debts
  • land schemes and projects dependent on new rail routes failed

To compound the problem, the SS Central America, a wooden-hulled steamship transporting millions of dollars in gold from the new San Francisco Mint to create a reserve for eastern banks, was caught in a hurricane and sunk in mid-September. (The vessel had aboard 581 persons—many carrying great personal wealth—and more than $1 million in commercial gold. She also bore a secret shipment of 15 tons of federal gold, valued at $20 per ounce, intended for the eastern banks.)

As banking institutions of the day dealt in specie (gold and silver coins instead of paper money) the loss of some thirty thousand pounds of gold reverberated through the financial community. Howell Cobb, secretary of the treasury, encouraged not only the placement of vast amounts of such government gold on the market, but also redemption of government bonds at a premium. At his suggestion, President James Buchanan proposed to Congress that the Treasury be authorized to sell revenue bonds for the first time since the Mexican American War.

Although bankers showed the first signs of concern, depositors soon followed. On October 3 there was a marked increase of withdrawals in New York, and over the next two weeks withdrawals nearly quadrupled. Reports of financial instability, perhaps exaggerated, were quickly carried between cities by the new telecommunications medium, the telegraph.

As the public’s faith in soundness of financial institutions continued to plummet, the nation’s banks began to collapse. Although the East Coast was hardest hit—with bank closures in New York, Philadelphia, Baltimore, and elsewhere–bank failures also reached across the Missouri River to cities such as Omaha. The climax came on October 14, Suspension Day, when banking was suspended in New York and throughout New England.

The term panic refers to the worst moments of a financial crisis. What follows is frequently a recession (a period of reduced economic activity) or a depression (a more serious and prolonged period of low economic activity, marked especially by rising unemployment). The contraction of the economy that followed the panic of 1857 was profound and had parallels in Europe, South America, South Africa, and the Far East causing it to be held as the first worldwide economic crisis. In the U.S., the setback caused significant job loss, a major slowdown in capital investment, commerce, land development, and the formation of unions, as well as in the rate of immigration. The effects of the “revulsion,” as it was referred to at the time, lasted a full eighteen months and reverberated until the onset of the Civil War.

Harper’s Weekly for September 12, 1857, took a dim view of dealings on the New York Stock Exchange. They claimed that the greed of speculators underlay the panic and gave examples that included the following:

…Jones believes that we are going to have a “crisis,” a “revulsion,” and “panic.” Or Jones as treasurer of the New Gauge Railway, and having access to the books, knows that it is insolvent. In both these cases Jones directs his broker to sell for his account so many shares of the New Gauge Railway…retaining the right of delivering the stock on any day he pleases prior to the conclusion of the contract. Of course, Jones doesn’t own the stock he sells; he intends to buy it at a reduced price at the time he delivers. Now, if Jones has been right in his prognostications — if the panic and crisis do come, or if the New Gauge Company does turn out to be insolvent, of course the stock goes down, and Jones buys in for delivery at the reduced price, realizing the difference between that price and the one at which he sold. But if Jones has been wrong — if the crisis don’t come, or is unduly postponed — such things have been known to occur — if the New Gauge concern should prove profitable, and not insolvent, why then the stock might go up, and at the end of the contract Jones might be forced to buy for, say $50, that which he sold at $45 — netting a loss of $5 per share.

In the late 1980s the wreck of the SS Central America was located about 8,000 feet under water. One ton of extraordinary riches surfaced including the world’s largest bar of gold ingot, weighing more than eighty pounds, and thousands of 1857-S Liberty Double Eagle twenty-dollar gold pieces, each of which contained nearly a full ounce of gold.

And from AmericanMinute.com, Bill Federer writes,

Banks failed, railroads went bankrupt, factories closed, and over 900 mercantile firms in New York went out of business.

Even a struggling St. Louis farmer and former army captain, Ulysses S. Grant, had to pawn his gold watch.

Over 30,000 were out of work in New York City.

In New York City, Jeremiah Lanphier had been converted in 1842 at Charles Finney’s Broadway Tabernacle.

He became a businessman in New York and took a position as a lay missionary with the Dutch Reformed North Church near Fulton and William Streets.

Lamphier began inviting merchants, clerks, mechanics and others to join him for noonday prayer for one hour on Wednesdays.

The first Wednesday, September 23, 1857, six people showed up.

The next week 40.

They decided to pray daily, and within six months, there were ten thousand participating in the Layman’s Prayer Revival.

Spreading across the nation, there were over a million converts praying day and night in the next two years.
Vice and crime decreased, criminals returned stolen money, wealthy helped the poor, sailors openly prayed, and when ungodly shipmates mocked them, the presence of God caused them to kneel in repentance.

A religious journal reported in March of 1858:

“The large cities and towns from Maine to California are sharing in this great and glorious work. There is hardly a village or town to be found where ‘a special divine power’ does not appear displayed.”

Run by lay leadership, the revival spread:

  • New York City – 50,000 of the city’s 800,000 population became new converts;
  • Utica, New York – daily prayer meetings filled the First Presbyterian Church, overflowing the balconies;
  • Albany, New York – the New York State Capitol had prayer in the halls every morning beginning at 8:30am;
  • Newark, New Jersey – 3,000 came to Christ, with nearby towns seeing almost their entire populations converted;
  • Boston, Massachusetts – leading businessmen and commoners attended, as a witness recorded, “‘Publicans and sinners’ are awakened, and are entering the prayer meetings of their own accord. Some of them manifest signs of sincere repentance”;
  • Haverhill, Massachusetts – crowds came to the daily, weeping in repentance. Every family had someone seeking God;
  • Washington, DC – prayer meetings were held five times a day to accommodate the scores of seekers;
  • Philadelphia, Pennsylvania – 4,000 met in Jayne’s Hall, as witnessed by philanthropist John Price Crozer, “I have never, I think, been present at a more stirring and edifying prayer meeting, the room quite full, and a divine influence seemed manifest. Many hearts melted, many souls devoutly engaged”;
  • Pittsburgh, Pennsylvania – 6,000 attended prayer meetings;
  • Kalamazoo, Michigan – a woman wrote a prayer request to be read publicly at the meeting for her husband’s salvation. When it was read, a man shouted, “Pray for me. I’m that man”;
  • Charleston, South Carolina – 2,000 prayed at Anson Street Presbyterian Church for over 8 weeks. One night, Dr. John L. Giradeaux dismissed the meeting, but no one left, staying till past midnight.
  • Waco, Texas – as reported in The New York Observer, “Day and night the church has been crowded during the meeting… Never before in Texas have we seen a whole community so effectually under a religious influence … thoroughly regenerated”;
  • Louisville, Kentucky – 1,000 attended the daily union prayer, as one witness wrote, “The Spirit of God seems to be brooding over our city, and to have produced an unusual degree of tenderness and solemnity in all classes”;
  • Chicago, Illinois – 2,000 met for noon prayer in Metropolitan Hall, with a common business sign reading, “Will re­open at the close of the prayer meeting.”

Professor J. Edwin Orr of Fuller Theological Seminary estimated that the 1858­-59 Layman’s Prayer Revival resulted in a sustained increase in church attendance, significant moral reform in society, and over a million Americans converting to faith in Christ.

Sometimes referred to as the Third Great Awakening, the prayer revival fueled the abolitionist movement and gave birth to the Protestant social gospel movement to “civilize and Christianize” the world through charitable activities.

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