Tuesday, April 5, 2011

Contemporary Reports: Panic or Puffery?

It is possible that the “Panic of 1857” is another anti-capitalist delusion?
Historians are trained in school to give precedence to first-hand accounts from newspapers, journals, and diaries.  However, even these must be evaluated against an objective standard.  Narratives depend on perspectives.

The anti-capitalists believe that fluctuations in prices, supplies, and demands are examples of the failure of society based on personal enterprise. The socialists claim that their government planned centralized economies would eliminate ups and downs, booms and busts, gluts and famines. History proved them half right.

We know about the "Panic of 1857" from history books that looked to sensational news stories about frenzied mobs of otherwise honest and intelligent folk hopelessly demanding the return of their hard-earned money from inept bankers forced to close their doors. The truth may be different – certainly more complicated – than this. The 1907 History of the United States by James Ford Rhodes gives the Panic of 1857 one line, never calling it by name. To Rhodes, the importance of the financial event was only that it temporarily drove “bleeding Kansas” from public attention. John Fiske’s History of the United States published in several editions by Houghton Mifflin from 1894 to 1907 says nothing about the Panic of 1857, mentioning instead the Dredd Scott Decision. However, Fiske does cover the Panics of 1837 and 1873. William Graham Sumner’s History of American Currency, published in 1874, does tell the story – including the loss of the S. S. Central America – but Sumner puts the word “panic” in quotes. Perhaps that is where it belongs.

Certainly, the Chemical Bank of New York, in its self-published history of 1913 is rightfully proud of its directors for having carefully managed the assets of depositors and thereby surviving whatever actually happened in the autumn in 1857.
We expect news to be objective, distinct from editorial comment. That was possible only after the estate of Joseph Pulitzer endowed an award fund to the Columbia School of Journalism in 1912. In the spirit of Pulitzer’s better side, the Pulitzer Prize Committee itself admits: “He crusaded against public and private corruption, filled the news columns with a spate of sensationalized features, made the first extensive use of illustrations, and staged news stunts. … Pulitzer was drawn into a bitter circulation battle with William Randolph Hearst's Journal in which there were no apparent restraints on sensationalism or fabrication of news.”

While it may well be true that "panic" was in the streets of New York City in the autum of 1857, the fact may be that this was a temporary, local event.  Bank failures - such as they were - were caused as much by the law as by economic reality.  State law demanded that banks make good on withdrawals by the end of the business day.  No other business was so constrained.  If a druggist or livery owed you money, you would wait, like any other creditor until cash came in and you got yours.  Not so with banks.  So, fear of default may well have been real for a few days.  How long that lasted and how far it spread is not well recorded.

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