2020 has hardly begun and we are in another recession. This time, we have more to worry about than job losses as this is a life-and-death situation. While this is truly frightening, we need to remember this is not the first time the United States has gone through an economic depression.
Since the country came into existence, there have been a total of 47 recessions, and we’ve recovered from every single one of them. If we did it before, we can do it again, no matter how long it may take to recover.
20. Panic of 1785
The Panic of 1785 was officially the first crash in our young nation’s economy. Right after the Revolutionary War, people were extremely optimistic, so there was an economic boom. People were taking out loans in order to start new businesses. There was no limit to how much they could borrow, so many people owed a tremendous amount of debt to the banks. But instead of trading goods and services amongst other states, Americans began to buy and sell goods from Great Britain, who had already built up a large infrastructure ready to buy products from their former colonies.
Unfortunately, England refused to make a commercial treaty with the United States. Without a real trade treaty, this cast doubt in people’s minds that they could sell their products. This caused people to panic. After this situation, the American people demanded a stronger sense of federal government in order to make this didn’t happen again. They began to trade amongst the states instead of looking for customers overseas. Eventually, the panic calmed down and all was well in the world (until 1789).
Only a few years after the recession in 1785, Americans had another problem. In 1781, states were given the power to create their own copper coins now called “Colonial Coins”. However, once people gained access to raw copper, it was discovered fraudsters had been creating counterfeit coins. Experienced blacksmiths knew how to make a mold from an existing coin and pour the molten copper into it, making unlimited money. Suddenly, no one knew if the money in their pocket was genuine currency. This completely halted the economy in the northern states where they found most cases of counterfeit.
The solution to the problem was to create paper money. At the time, images could only be put onto paper without the use of a printing press. Metal plates had to be hand-chiseled by an artisan, and pressed into ink before going on paper. It was nearly impossible for someone to recreate the images on the original metal plate perfectly without a mistake. Of course, as technology improved, people eventually found a way to make counterfeit paper money. But this switch helped to calm people down, and the economy recovered when people felt comfortable spending money again.
In the late 1700s, the United States was expanding. New towns were being expanded on a regular basis. This brought on a rise of “land speculation,” an investment technique where people would buy a plot of land and hold onto it with the idea that the value would increase. Land speculation became so common in the late 1700s, that prices kept getting higher, causing a bubble in the economy.
Finally, in 1796, the Bank of England began to suffer and the land bubble burst. Not as many people were buying plots at inflated prices anymore. This left land speculators in a ton of debt without any way to make a profit. Investors were panicking, and many literally had to go on the run. One of the most famous was a man named James Greenleaf, one of the wealthiest land speculators in the United States. He was in so much debt for his mortgages on land that he had to spend a year in debtor’s prison. For the rest of his life, he continued to be sued and had to flee from state to state to avoid authorities.
The United States and Great Britain still hadn’t resolved their issues decades after the Revolutionary War. Beginning in 1803, France and The UK were fighting the Napoleonic Wars. American merchant ships were being captured, and goods were being stolen. Thomas Jefferson tried to plead for neutrality to protect his American ships from pirates but was denied. So Jefferson decided to sign The Embargo Act of 1807, which banned the trade of goods between the US, the UK, and France. This was the only way to stop goods from being stolen, but shipping industries suddenly had nowhere to sail.
Many American businesses relied on trading with the old country, so they could no longer make a profit. Citizens could no longer find the goods they needed. This triggered an economic depression. The embargo was lifted 15 months later, when Jefferson was no longer President. However, this incident is credited as one of the reasons why the War of 1812 happened a few years later. If you’re interested to know more about what the President was thinking at the time, check out The Papers of Thomas Jefferson.
After the Napoleonic Wars ended in 1815, England had a very brief textile boom. Before the end of the war, weavers were paid 15 shillings per week. However, with the growing number of veterans looking for work, the factory owners lowered the wage to just 5 shillings per week. People were desperate for a job and were willing to take a pay cut. At the same time, England enacted The Corn Laws, which put huge taxes on anyone who imported foreign agriculture. With less food to go around, it caused the cost of grain to go up. People were making less money, which meant that wages were going into food and not much else.
This combination of factors in the British economy caused inflation, which depreciated the value of banknotes. As a global economy, this inflation also carried over to the United States. It took a few years for it to truly affect Americans, but it triggered the Panic of 1819, also known as the Post-Napoleonic Depression. Throughout the United States, there were banks failing, foreclosures, a stock market crash, and unemployment. Since businesses couldn’t afford to pay their workers, there was also a decrease in production. One of the most famous novels written about poverty and the struggles at this time period is called Les Miserables by Victor Hugo.
In 1844, The British Bank Charter Act required banks to back up their money with gold reserves. This caused a mini panic in England. At first, things were great for the Americans because they discovered gold in California. They were able to create supply for the growing demand. Soon after, banks in New York began to hold onto gold reserves just like the institutions in London. However, a few key events triggered an economic crash. Firstly, a huge shipment of gold on the USS Central America was lost when the boat sank in 1857. The Ohio Life Insurance and Trust company declared bankruptcy soon after. Railroads, which were once a booming business, began to cut back on their expenses and lay people off. Workers who kept their jobs were given reduced pay.
People began to withdraw their money out of fear they would go bankrupt like the Ohio Life Insurance and Trust Company. FDIC guarantees on bank deposits would not happen until 1933, so the reality that people could lose their money if their bank declared bankruptcy was enough for any bank to not be trusted. Businesses began failing like a domino effect. Before this time, economic difficulties were isolated to the immediate area where it was happening. Now, if one area of manufacturing suffered, so did the whole world. The economy didn’t begin to recover until 1861.
Very few people know that the original “Great Depression” was actually in 1873, and was later renamed “The Long Depression”. This depression began in the United Kingdom, and some historians believe it lasted until 1896, well into the Victorian Era. When you think about stories from that time like Oliver Twist by Charles Dickens, you can imagine the huge gap between the rich and the poor. People were being sent to workhouses while the wealthy enjoyed life as usual. In America, we had recently ended the Second Industrial Revolution and the Civil War. This depression hit soon after it began affecting England and spread across the globe.
For years in the Long Depression, the unemployment rate in America was between 8.5% and 14%. One of the monumental events was called Black Thursday, on September 18, 1873. A bank called Jay Cooke & Company declared bankruptcy and several other financial institutions followed suit. The panic selling was so intense, the New York Stock Exchange had to close just two days later.
This was a short three-week-long crisis in October of 1907. Suddenly, The New York Stock Exchange dropped by 50% of its value. People panicked, and withdrew their money from banks and stocks, causing values to plummet. Several banks declared bankruptcy, including the Knickerbocker Trust Company, which was the third-largest financial institution in NYC. The average American worker lost trust in the banking system and everyone kept their money in cash. With so much fear, there was a real possibility the economy would collapse.
The only thing that saved the economy from this panic was when J.P. Morgan offered his own money to put back into the banks. He encouraged other New York millionaires to do the same. It worked, and the most powerful men in the country chipped in to show support for the banking system. Discussion around these clear issues in the economic system inspired the creation of the Independent Treasury System and the Federal Reserve. Not only did Morgan help save the economy, but he also helped his own bank succeed in the future. If you’re interested to know more about this life and rise to fame and fortune, check out The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance.
After World War I was over, nearly every country was suffering financially. In the US, there was a brief recession from 1918-1919 due to so many veterans re-entering the workforce. The United States had gotten used to manufacturing wartime products, so there was an adjustment period to get the country back to peace times. In 1920, they were hit with The Depression of 1920. Germany was in so much debt to other countries after World War I that their treasury began printing more money. This new influx of money into the economy caused a period of hyperinflation. Money was so worthless, people were burning it to heat their houses.
These issues in Germany eventually affected the entire world. The US economy began to decline alongside Germany’s. At first, this crisis took a long time to reach Great Britain. But in 1922, their unemployment rate skyrocketed to 17%. Once this depression was over, the US economy boomed in a time period known as “The Roaring ’20s.” If you want to know more about the Post-World War I Recession and the Depression of 1920, check out The Downfall of Money: Germany’s Hyperinflation and the Destruction of the Middle Class.
The Ford Recession is a perfect example of how sometimes, the economy needs to get worse before it gets better. The economy was recovering from the 1920 Depression. In 1926, Henry Ford announced he was closing his car factories for six months to begin production of his new car, The Model A. This made people nervous, wondering if the company could survive shutting down for such a long period of time. Consumers were not able to buy new cars anymore. This recession was very short and mild.
Once Ford reopened his factories, he announced that his workers would have a five-day, 40-hour work week. Eventually, other businesses began to follow suit, and this became the new standard week for most people. He also paid his workers more than the average and treated them fairly. Before, employers forced people into overtime and working on weekends. Having a more consistent work schedule and higher pay helped people make more money and have an abundance of free time. Many historians signify this event as the beginning of The Roaring ’20s. If you’re interested in knowing more about Henry Ford, check out his autobiography titled My Life and Work.
The Great Depression has been called the most severe economic crisis in history. It began with the stock market crash on October 29, 1929, known as ‘Black Tuesday.’ This began a few months of recession. When unemployment rose to 23%, the United States was officially in a depression by 1930. The problem only got worse when there was a severe drought throughout the country known as “The Dust Bowl.” Crops couldn’t grow in the dry soil, and dust storms threatened daily life for Americans in the Midwest.
A novel called The Grapes of Wrath by John Steinbeck is one of the best depictions of life during the Great Depression. In the book, Steinbeck tells the tragic true story of how many American families traveled around the country to find new jobs only to find out they were already taken. Many farmers only offered food and lodging in exchange for work, without giving any pay. What started as an American depression quickly affected the entire world. The global gross domestic product (GDP) dropped by 15%. Some countries began recovering only to fall again at the start of World War II.
President Franklin D. Roosevelt helped to get Americans out of The Great Depression by enacting The New Deal, which created new jobs across the country. One of these projects was the Civilian Conservation Corps, which gave young men in their teens and 20s jobs developing natural resources. They did a lot of work improving national and state parks by building bridges, paths, and lodges. Many of these men would live in rural encampments until they developed an area of the American wilderness. Young, unmarried women were sent to camps run by The Federal Emergency Relief Administration (FERA) to learn skills that would make them useful in an office setting.
These programs were wonderful while they lasted, but the only trouble was that the US government had spent a tremendous amount of money putting The New Deal into action. This decline in federally-funded work projects triggered the Recession of 1937. There were fewer jobs available for people once the funding from The New Deal dried up. The Federal Reserve was also becoming very strict to prevent inflation. Thankfully, this wasn’t a huge crisis and only lasted until 1938.
In 1945 when WWII was over, the US government stopped much of its spending. They had just depleted a lot of their resources to the military. As most people know, soldiers returned home from duty to get married and start families, which was the famous Baby Boom. The only reason the economy fell into a recession was that the country was struggling to transition from wartime to peacetime. Women had taken over many of the factory jobs traditionally given to men. But now, many of them were getting married and beginning to stay at home.
This 1945 recession was very brief, lasting only eight months. It was nowhere near as bad as the recession that followed World War I. Soon after, things became great again, and people started buying into the American Dream of having a house with a car in the driveway. In 1948, there was another brief recession that lasted for 11 months, ending in 1949.
During the Korean War, the US government pumped a lot of money into the military. The Federal Reserve suspected this might cause inflation. So they began to step in with tighter restrictions. However, inflation never happened as they predicted, so it just hurt the economy. They also wanted to be a separate entity from the US Treasury. By all accounts, this recession was relatively mild and very brief, only lasting 10 months.
Throughout the rest of the 1950s and ’60s, there were several more brief recessions that lasted less than one year. They were all mainly caused by the Federal Reserve raising interest rates and new monetary policies. Compared to the huge crashes the United States saw before The Great Depression, these economic issues were very mild. The Fed essentially knew what it was doing in the grand scheme of things.
In 1973, The Organization of Arab Petroleum Exporting Countries declared an embargo on oil exports. They were specifically targeting countries that were in support of Israel during the Yom Kippur War. This included the United States, the United Kingdom, and several other countries. There was also a stock market crash in 1973. This caused what’s known as a “stagflation recession.” This is when both inflation and unemployment are high. Economists consider stagflation to be more difficult to fix than a normal recession. But it only lasted for about a year.
When the embargo was announced, Americans rushed to gas stations to fill up before there was no more oil left. Gas stations set limits to how much people could buy, and many stations had to spray paint giant signs saying, “Sorry, no gas.” The oil embargo ended in 1974, but it left permanent damage. The price of gasoline went up by 400%. Price of oil went from $3 per barrel to $12. People in the western world had to get used to skyrocketing gas prices. A few years later, there was a second “oil shock” in 1979.
In the late 1970s, inflation was beginning to rise. In 1980, The Federal Reserve decided the only way to combat inflation would be to raise interest rates. They also made it more difficult for the average person to qualify for a car loan, mortgage, and consumer credit. While these measures were taken in an attempt to fix the economy, it actually did the opposite. Since people could no longer qualify for credit, they stopped buying big-ticket items. Over 1 million people were laid off from their jobs. People in the automotive and construction industry were hit the hardest. However, other industries, like restaurants and hotels, were still going strong.
By 1981, it was clear this was a problem. The Federal Reserve admitted there would be no economic growth that year, but held steadfast in their decision to increase rates. When President Ronald Reagan came into office, he enacted The Economic Recovery Tax Act of 1981. This plan didn’t actually work as well as the President had hoped. A tax cut did little to help people who were unemployed. By 1983, Americans worked on their credit scores. There was a boom in the economy, and more people were buying houses and cars once again, even with higher interest rates.
The Tax Reform Act of 1986 helped more people to build houses, so there was a boom in the construction industry. However, with this new excess of properties, it became an issue of supply and demand. This brought down the overall value of the homes that were already on the market, and construction companies began to lay off their workers. Just like the early ’80s recession, the Federal Reserve attempted to control inflation once again.
The 1990 Oil Price Shock was a monumental event that occurred after the Iraqi invasion of Kuwait. The average price per barrel went from $13 to $36 nearly overnight, which meant that American consumers needed to pay more to fill up their tanks. President George H.W. Bush didn’t want this to happen to the American people, who he engaged troops in The Gulf War. The American economy began to boom again once the war was over and the price of gas stopped rising.
When the World Wide Web first came into existence in the 1990s, people were excited by this new technology that could spread information across the world. Very few people understood how the internet worked or how to make a website. Even fewer understood the true value of a domain name. New dot-com companies appeared on the stock market, and there was a boom in speculation over their value. Companies were making a tremendous amount of money simply because they owned a great domain. Most of these businesses weren’t actually profitable at all, and investors were going solely based on the idea that the Internet was the future, so therefore a great domain was a worthwhile investment.
After the dot com bubble burst, people realized the true value of a website needed to come from its utility rather than a domain name or flashy landing page. Just like a real brick-and-mortar business, an online business needed to create real value to a customer in order to survive. Amazon is an example of an internet company that had true value, because it actually solved a real-world problem. In 2001, Amazon stock was just $5.97 per share. Today, its stock price is $1940.10 per share.
Next to The Great Depression, the 2008 Great Recession has been considered the second-worst economic downturn the United States. Leading up to the recession, there was a bubble in real estate. Qualifying for a mortgage was easy. Many people who couldn’t actually afford their monthly payments were buying houses. Real estate values kept climbing higher each year, which gave the illusion it was a safe investment. But from 2005-2006, unqualified homeowners began to walk away from paying their mortgages. Banks were selling off mortgage-back securities. There was a sharp decline in the number of Americans taking out new loans, which led to a subprime mortgage crisis. This series of unfortunate events triggered the 2008 crash.
The official dates of the recession lasted from December 2007 to June 2009. However, this crash had long-lasting repercussions for the job market. Most higher-level positions required at least five years of experience. For the first time in American history, it wasn’t strange to see someone with a Bachelor’s Degree working at McDonald’s. One of the best explanations of what happened to cause The Great Recession is the movie The Big Short, which was based on the book The Big Short: Inside the Doomsday Machine by Michael Lewis.
The bursting of the Bitcoin bubble doesn’t exactly qualify as a recession or depression since it only affected the cryptocurrency market. However, it still holds a lot of valuable lessons in economics and how markets move based on human psychology. The value of Bitcoin was rising steadily while only used by a small group of blockchain enthusiasts. In 2017, it hit record-highs of over $20,000. Everyone wanted a piece of Bitcoin because they believed values might keep rising higher. Very few of those people actually understood how blockchain technology works. Many people compared this to the Tulip Mania, which was overpricing speculation of flower bulbs that happened in The Netherlands in 1637.
The Tulip Mania event was popularized in 1841 in a book called The Extraordinary Popular Delusions and the Madness of Crowds written by Charles Mackay. People kept buying like crazy to the point where some even sold and mortgaged their homes to buy Bitcoin. Others took out loans or dumped their life savings into an investment they didn’t fully understand. Then, the bubble burst and prices have gone down since then. Before the current crisis, the value of Bitcoin had finally rebounded to just over $10,000. Ae time this article was written in April 2020, Bitcoin was worth over $6,000.