Panic!

Today is James Buchanan’s birthday.

Most remember him for overseeing the collapse of the Union, but in 1857 his most pressing concern was the rapid spread of financial panic that lead to many bank and business failures. The panic didn’t last long, but by the end of 1857 the impact on government finances was clear:

It is our duty to inquire what has produced such unfortunate results and whether their recurrence can be prevented. In all former revulsions the blame might have been fairly attributed to a variety of cooperating causes, but not so upon the present occasion. It is apparent that our existing misfortunes have proceeded solely from our extravagant and vicious system of paper currency and bank credits, exciting the people to wild speculations and gambling in stocks. These revulsions must continue to recur at successive intervals so long as the amount of the paper currency and bank loans and discounts of the country shall be left to the discretion of 1,400 irresponsible banking institutions, which from the very law of their nature will consult the interest of their stockholders rather than the public welfare.

The government was left short in covering its expenditures, but couldn’t print money to make up the difference. Its hands were tied because it had to back the dollar:

It is one of the highest and most responsible duties of Government to insure to the people a sound circulating medium, the amount of which ought to be adapted with the utmost possible wisdom and skill to the wants of internal trade and foreign exchanges. If this be either greatly above or greatly below the proper standard, the marketable value of every man’s property is increased or diminished in the same proportion, and injustice to individuals as well as incalculable evils to the community are the consequence.

Buchanan made these statements to Congress in December 1857. The Union was beginning to unravel, yet his main problem at that time was keeping financial peace. He devoted the first quarter of his annual message to the issues of specie and government finances.

Presidents don’t often focus on bank solvency, but Buchanan had to because he didn’t have a Bernanke to do it for him.