This is a direct quote from my AP Us History textbook regarding the panic of 1819:
"Dubious banking policies helped bring on the Panic of 1819 (just as they caused the financial crisis of 2008). But the most important cause was an abrupt 30 percent drop in world agricultural prices after the Napoleonic Wars. In Charleston, South Carolina, in 1818, the price for a pound of raw cotton fell from 34 cents to 15 cents. As their income plummeted, planters and farmers could not pay their debts to their suppliers and banks. Many state banks went bust; those that were still solvent in 1821 had just $45 million in circulation. The panic gave Americans their first taste of a business cycle, the periodic expansion and contraction of output and jobs inherent to an unregulated market economy."
Now I haven't read Rothbard's book on The Panic of 1819, but can anyone give me a brief summary of what this quote gets right and what it gets wrong?
I cant delve into it too much but from what i remember Rothbard's thesis was that the Panic of 1819 was direct fallout from the inflationary policies that were used to finance the War of 1812. If i were in your AP history class i might ask the teacher to help me investigate the trajectory of cotton prices from before the war until 1819, and to help explain why they got so high in the first place. I would emulate the textbook and use as an analogy the crash of 2008, asking why it was that housing prices got as high as they did in the first place, and if it was really a lack of regulation that led to these states of affairs.
It has been stated that a pledge was given to restore metallic money six months after the signature and ratification of a definitive treaty of peace, and the bullionists clamoured for the literal execution of the contract. It is here to be observed that this pledge or promise was disregarded at the peace of Amiens, so that constructively it was abandoned; nor was it ultimately carried in the terms of the statute, since it did not take effect till 1819, and even then the Bank was exonerated from a full payment of all its notes in coin till the 1st of May, 1823, though the directors of their own accord anticipated that date, and paid in sovereigns on the 1st of May, 1821. It may be well here to remark that the words, “The Bank Restriction Act,” are used properly as a compendious term for that whole system of measures and acts of parliament, commencing with 1793, and ending with 1814, by which the value of money was lowered; as the words, “Mr. Peel’s Bill,” are used as a compendious term for those other measures, commencing in 1814, by which the value of money was unjustly raised.
It has been stated that prices rose in 1815 to the war level, and that rise has been referred to an expansion of legal tender of seven millions over and beyond the amount of circulation prior to the autumn of 1817. It was shewn before the Agricultural Committee of 1821 that, in 1818, wheat was 84s. 1d. per quarter. As compared, not with the consumption of the war, but with the consumption of 1818, taking the large towns of Liverpool, Manchester, Birmingham, Sheffield and Leeds, not only bread, but meat, fell in 1819, 1820, and 1821, that is, after gold payments were ordered to be resumed. The fall in meat in those towns was proved before the committee to have been 15 per cent.; and proved by the most decisive evidence, the diminution of hides being 15 per cent. If anyone superficially considers that a fall of 15 per cent. was a proof of cheapness, let him bear in mind that the supply of animal food had declined to the same scale of per centage; and let him further take notice that a petition from Birmingham to Parliament in 1821, stated that less butchers’ meat was consumed as butchers’ meat fell, showing such a decline of wages simultaneously with the decline of food, as deprived the working classes of that command over commodities which they had enjoyed in 1818, when the supply of the legal tender was ample. The year 1818 was not only a prosperous year for agriculture, but a prosperous year for commerce and shipping. In reply to questions asked by the Committee on Foreign Trade, which sat in 1820, Mr. Tindall, an eminent ship builder, said, that in 1818, the value of ships had recovered from depression; and that there was enough employment for all ships, including the transports discharged after the war, at good freights. Mr. Tooke stated, “in 1818, I had very great difficulty indeed in getting the requisite quantity of shipping.” But, in 1819 and 1820, that is after Peel’s Bill was passed, ships were again too numerous for commerce; then Mr. Tooke said, “he could have procured double the quantity of tonnage he desired.” Mr. Marryatt, a member of the House of Commons, and a most extensive West India merchant, averred in a speech delivered by him in Parliament in 1820, that a vessel called “The Sesostris,” which cost in 1818, £12,175, was sold in 1820 for £6,300. If this case stood alone, it would be insignificant in support of the present argument; but Mr. Marryatt declared that the rule was universal, of which he cited numerous instances. In fact, during 1818, commerce, manufactures and agriculture all flourished.
But the most important cause was an abrupt 30 percent drop in world agricultural prices after the Napoleonic Wars.
Why did prices drop? It's funny that they don't give an actual reason, just an argument against an "unregulated market economy.' They even inject Keynesianism in a history book.
If prices drop, shouldn't that mean that it's more affordable for everyone and that more people can buy their products?