Panic of 1792

The Panic of 1792 was a financial credit crisis that occurred during the months of March and April 1792, precipitated by the expansion of credit by the newly formed Bank of the United States as well as by rampant speculation on the part of William Duer, Alexander Macomb, and other prominent bankers. Duer, Macomb, and their colleagues attempted to drive up prices of United States (U.S) debt securities and bank stocks, but when they defaulted on loans, prices fell, causing a bank run. Simultaneous tightening of credit by the Bank of the United States served to heighten the initial panic. Secretary of the Treasury Alexander Hamilton was able to deftly manage the crisis by providing banks across the Northeast United States with hundreds of thousands of dollars to make open-market purchases of securities, which allowed the market to stabilize by May 1792.^[1]

In December 1790, Hamilton called for the creation of the Bank of the United States, and in February 1791, President George Washington signed the charter allowing it to open. Investors paid $25 for a stock, called a scrip, and were required to make three additional payments in six-month intervals totaling $375. These payments were to be 25% in specie and 75% in US debt securities.^[2] Demand for stock in the newly formed Bank of the United States was significant, and prices for scrips increased dramatically for the first several weeks, reaching $280 in New York and reportedly over $300 in Philadelphia by mid-August.^[2] The market shifts were not sustainable, and within days prices began to fall rapidly. Hamilton stepped in by working with William Seton, the cashier of the Bank of New York, to authorize the purchase of $150,000 of public debt in New York to be covered by government revenues.^[2] By September 12, prices had recovered, and Hamilton's intervention had not only stabilized the market but also laid the groundwork for his cooperation with the Bank of New York, which would later be crucial in ending the Panic of 1792.^[1]

Causes of the Panic of 1792

In late December 1791, the price of securities began to increase once again, and the eventual crash in March 1792 caused many investors to panic and withdraw their money from the Bank of the United States.^[2] One of the primary causes of the sudden run on the bank was the failure of a scheme created by William Duer, Alexander Macomb and other bankers in the winter of 1791. Duer and Macomb's plan was to use large loans to gain control of the US debt securities market because other investors needed those securities to make payments on stocks in the Bank of the United States.^[3] Additionally, Duer and Macomb were able to create their own credit by endorsing one another's notes, and did so in hopes of creating a new bank in New York to overtake the existing Bank of New York.^[2] On March 9, 1792 Duer stopped making payments to his creditors and simultaneously faced a lawsuit for actions he had taken as Secretary of the Treasury Board in the 1780s.^[3] As Duer and Macomb defaulted on their contracts and found themselves in prison, the price of securities fell more than 20%, all in a matter of weeks.^[3]

A further cause of the Panic of 1792 was the sudden restriction of previously overextended credit by the Bank of the United States. When the Bank of the United States first began accepting deposits and making discounts in December 1791, it expanded credit extensively. By January 31, 1792, monetary liabilities exceeded $2.17 million, and discounts reached $2.68 million – a very large sum at the time.^[4] Speculators took advantage of this new credit source, using it to make withdrawals from the Bank of New York, which placed undue stress on the bank's reserves.^[4] From December 29 to March 9, cash reserves for the Bank of the United States decreased by 34%, prompting the bank to not renew nearly 25% of its outstanding 30-day loans.^[4] This forced many Bank of the United States borrowers to sell other securities they owned to satisfy the un-renewed loans, which caused prices for these other investments to fall sharply, aggravating the financial panic of 1792.

Crisis management

In mid-March 1792, Treasury Secretary Alexander Hamilton began the political and economic maneuvering necessary to contain the credit crisis affecting markets across the country. The charter creating the Bank of the United States had also set up the Sinking Fund Commission composed of Vice President John Adams, Secretary of State Thomas Jefferson, Attorney General Edmund Randolph, Chief Justice John Jay, and Secretary of the Treasury Alexander Hamilton, charged with resolving financial crises.^[2] On March 21, 1792, with Jay absent from voting, the commission split on the decision to allow open-market purchases.^[4] Having received notice from William Seton that the Bank of New York was in trouble, Hamilton wished to have the government make purchases as it had in 1791, but was unable to do so while Jefferson and Randolph stood opposed.^[4] While still waiting for Jay's formal and deciding vote, Randolph began to side with Hamilton on March 26, and with only Jefferson dissenting, the commission authorized $100,000 in open-market purchases of securities.^[2]

In a series of letters to Seton at the Bank of New York, Hamilton introduced several measures to restore normalcy to the securities market. Hamilton encouraged the bank to continue offering loans collateralized by US debt securities, but at a slightly increased rate of interest – seven percent instead of six.^[4] In order to persuade the Bank of New York to lend during the panic, Hamilton also promised that the US Treasury would buy from the bank up to $500,000 of securities should the Bank of New York be stuck with excessive collateral.^[4] Similarly, Hamilton supported the Bank of Maryland's lending by offering to have the US Treasury cover loans made to merchants paying duties.^[4] By April 16, after Hamilton authorized an additional $150,000 of open-market purchases by the Bank of New York, Seton reported that market demand was returning to normal.^[4]

In just under a month, Hamilton was thus able to stabilize the securities market and prevent the panic from inducing a recession. By exerting his power as Secretary of Treasury and persuading a number of banks to continue offering credit throughout the crisis, Hamilton was able to limit the amount of Federal debt purchases by the Sinking Fund Commission to $243,000 – roughly $100,000 less than what was spent during the smaller panic in 1791.^[4]

Analysis

Economists and economic historians have noted that Hamilton's management of the Panic of 1792 appears to have anticipated Henry Thornton by ten years and "Bagehot's Dictum" by approximately 80 years.^[4]^[5] This prescription, that in a crisis central banks should "lend freely, against good collateral, at a penalty rate" is still considered the gold standard for managing a financial panic as the "lender of last resort".

v t e Economic history of the United States and Commonwealth of Nations countries
Commercial revolution (1000–1760)	Great Slump (1430–1490) Financial Revolution (1690–1800) Slump of 1706 Great Frost of 1709
1st Industrial Revolution/ Market Revolution (1760–1870)	British credit crisis of 1772–1773 1772–1774; England Scotland American Colonies Panic of 1785 (1785–1788) Copper Panic of 1789/Panic of 1792 (1789–1793) Panic of 1796–1797 (1796–1799) 1802–1804 recession Depression of 1807 (1807–1810) 1812 recession Post-Napoleonic Depression (1815–1821) 1822–23 recession Panic of 1825 (1825–1826) 1828–29 recession 1833–34 recession Panic of 1837 (1836–1838 and 1839–1843) 1845–46 recession Panic of 1847 (1847–1848) 1853–54 recession Panic of 1857 (1857–1858) 1860–61 recession U.S. Civil War economy (1861–1865) Panic of 1866 (1865–1867) Black Friday (1869–1870)
Gilded Age/ 2nd Industrial Revolution (1870–1914)	Long Depression/Great Deflation 1873–1879; United Kingdom United States Depression of 1882–1885 1887–88 recession Baring crisis (1890–1891) Panic of 1893 (1893–1897) 1899–1900 recession Panic of 1901 (1902–1904) Panic of 1907 (1907–1908) Panic of 1910–11 (1910–1912) Financial crisis of 1914 (1913–14)
World War home fronts/ Interwar period (1914–1945)	World War I home front Australia Canada United Kingdom United States Post–World War I recession (1918–1919) Recession of 1920–1921 Roaring Twenties 1923–1924 recession 1926–1927 recession Great Depression 1929–1939; Australia Canada India South Africa United Kingdom United States Recession of 1937–1938 World War II home front Australia Canada United Kingdom United States
Post–WWII expansion/ 1970s stagflation (1945–1982)	1945 recession Recession of 1949 (1948–1949) Hong Kong and Singapore Asian Tiger expansions (1950–1990) Recession of 1951 Recession of 1953 (1953–1954) Recession of 1958 (1957–1958) Recession of 1960–1961 Recession of 1969–1970 1973–1975 recession United Kingdom United States Early 1980s recession 1980–1982; Canada United Kingdom United States
Computer Age/ Second Gilded Age (1982–present)	Great Moderation (1982–2007) Early 1990s recession 1990–1991; Australia Canada United Kingdom United States 1990s United States boom 1990s India economic boom 1994 Papua New Guinea financial crisis 1997 Asian financial crisis Early 2000s recession (2001) Great Recession 2007–2009; Australia Bangladesh Canada India Malaysia New Zealand Pakistan South Africa Sri Lanka United Kingdom United States Malaysia Tiger Cub expansion (2010s) COVID-19 recession 2020–2022; Australia Bangladesh Belize Botswana Canada India Malaysia Namibia New Zealand Singapore United Kingdom United States Zambia 2023 British recession
Countries and sectors	Australia slavery Canada agriculture currencies early banking system list of recessions petroleum industry slavery technological and industrial Ghana India agriculture Company rule British Raj Deindustrialisation slavery Malaysia New Zealand Nigeria slavery Pakistan South Africa slavery Uganda United Kingdom Agricultural Revolution Atlantic slave trade history of banking British Empire Interwar unemployment and poverty list of recessions Middle Ages England/agriculture pre-Republic Ireland Scotland/agriculture/Middle Ages/Industrial Revolution slavery trade unions Victorian era Wales/Industrial Revolution United States agriculture banking business central banking indentured servitude Industrial Revolution investment banking labor list of economic expansions list of recessions lumber industry monetary policy petroleum industry slavery/colonial-era slavery tariffs technological and industrial United States dollar Zimbabwe
Related topics	Aggregate demand/Supply Effective demand General glut Model Overproduction Paradox of thrift Price-and-wage stickiness Underconsumption Business cycle Credit cycle Deflation/Inflation Chronic Classical dichotomy Disinflation Money supply/demand Neutrality of money Price level Real and nominal values Velocity of money Expansion Miracle Recovery Stagnation Jobpocalypse Interest rate Nominal interest rate Real interest rate Yield curve/Inverted Recession Balance sheet Depression Global Rolling Shapes Stagflation Shock Demand Supply Unemployment Sahm rule

v t e Financial crises
Bank run Commodity price shocks Credit crunch Credit cycle Currency crisis Debt crisis Energy crisis Financial contagion Social contagion Flash crash Hyperinflation Liquidity crisis Accounting Capital Funding Market Minsky moment Social crisis Stock market crash
Pre-1000	Financial crisis of 33 CE Crisis of the Third Century (235–284 CE)
Commercial revolution (1000–1760)	Great Bullion Famine (c. 1400–c. 1500) The Great Debasement (1544–1551) Dutch Republic stock market crashes (c. 1600–1760) Kipper und Wipper (1621–1623) Tulip mania (1637) South Sea bubble crash (1720) Mississippi bubble crash (1720)
1st Industrial Revolution (1760–1840)	Amsterdam banking crisis of 1763 Bengal Bubble of 1769 (1769–1784) British credit crisis of 1772–1773 Dutch Republic financial collapse (c. 1780–1795) Copper Panic of 1789 Panic of 1792 Panic of 1796–1797 Danish state bankruptcy of 1813 Post-Napoleonic Irish grain price and land use shocks (1815–1816) Panic of 1819 Panic of 1825 Panic of 1837
1840–1870	European potato failure (1845–1856) Great Irish Famine Highland Potato Famine Panic of 1847 Panic of 1857 Panic of 1866 Black Friday (1869)
2nd Industrial Revolution (1870–1914)	Panic of 1873 Paris Bourse crash of 1882 Panic of 1884 Arendal crash (1886) Baring crisis (1890) Encilhamento (1890–1893) Panic of 1893 Australian banking crisis of 1893 Black Monday (1894) Panic of 1896 Panic of 1901 Panic of 1907 Shanghai rubber stock market crisis (1910) Panic of 1910–11 Financial crisis of 1914
Interwar period (1918–1939)	Early Soviet hyperinflation (1917–1924) Weimar Republic hyperinflation (1921–1923) Shōwa financial crisis (1927) Wall Street crash of 1929 Panic of 1930 Chinese hyperinflation (1937–1950)
Wartime period (1939–1945)	Greek hyperinflation (1941–1946) Chinese hyperinflation (1937–1950)
Post–WWII expansion (1945–1973)	Hungarian pengő hyperinflation (1945–1946) Kennedy Slide of 1962 1963–1965 Indonesian hyperinflation Chinese hyperinflation (1937–1950)
Great Inflation (1973–1982)	1970s energy crisis (1973–1980) 1973 oil crisis 1973–1974 stock market crash Secondary banking crisis of 1973–1975 Steel crisis (1973–1982) Latin American debt crisis (1975–1982) 1976 sterling crisis 1979 oil crisis Brazilian hyperinflation (1980–1982)
Great Moderation/ Great Regression (1982–2007)	Brazilian hyperinflation (1982–1994) Souk Al-Manakh stock market crash (1982) Chilean crisis of 1982 1983 Israel bank stock crisis Black Saturday (1983) Savings and loan crisis (1986–1995) Cameroonian economic crisis (1987–2000s) Black Monday (1987) 1988–1992 Norwegian banking crisis Japanese asset price bubble crash (1990–1992) Rhode Island banking crisis (1990–1992) 1991 Indian economic crisis 1990–1994 Swedish financial crisis 1990s Finnish banking crisis 1990s Armenian energy crisis Cuban Special Period (1991–2000) Black Wednesday (1992 Sterling crisis) Yugoslav hyperinflation (1992–1994) 1994 bond market crisis Venezuelan banking crisis of 1994 1994 Papua New Guinea financial crisis Mexican peso crisis (1994–1996) 1997 Asian financial crisis October 27, 1997, mini-crash 1998 Russian financial crisis 1998–1999 Ecuador economic crisis 1998–2002 Argentine great depression Samba effect (1999) Dot-com bubble (2000–2004) 9/11 stock market crash (2001) 2001 Turkish economic crisis South American economic crisis of 2002 Stock market downturn of 2002 2002 Uruguay banking crisis 2003 Myanmar banking crisis 2000s energy crisis (2003–2008) 2004 Argentine energy crisis Chinese stock bubble of 2007 Hyperinflation in Zimbabwe (2007–present)
Great Recession (2007–2009)	2008 financial crisis September 2008 October 2008 November 2008 December 2008 2009 Subprime mortgage crisis 2000s U.S. housing market correction U.S. bear market of 2007–2009 2008 Latvian financial crisis 2008–2009 Belgian financial crisis Great Recession in Russia 2008–2009 Ukrainian financial crisis 2008–2011 Icelandic financial crisis Post-2008 Irish banking crisis 2008–2014 Spanish financial crisis Blue Monday Crash 2009 Euro area crisis Greek government-debt crisis
Information Age (2009–present)	2009 Dubai debt standstill Venezuelan banking crisis of 2009–2010 2010–2014 Portuguese financial crisis Energy crisis in Venezuela (2010–present) Syrian economic crisis (2011–present) August 2011 stock markets fall 2011 Bangladesh share market scam 2012–2013 Cypriot financial crisis Chinese Banking Liquidity Crisis of 2013 Venezuela economic crisis (2013–present) 2014 Brazilian economic crisis Puerto Rican government-debt crisis (2014–2022) Russian financial crisis (2014–2016) 2015 Nepal blockade 2015–2016 Chinese stock market turbulence 2015–2016 stock market selloff Brexit stock market crash (2016) Hyperinflation in Venezuela (2016–2022) 2017 Sri Lankan fuel crisis Ghana banking crisis (2017–2018) Turkish economic crisis (2018–current) Lebanese liquidity crisis (2019–present) Sri Lankan economic crisis (2019–2024) COVID-19 pandemic Financial market impact 2020 stock market crash Recession Chinese property sector crisis (2020–present) 2021–2023 inflation surge 2022 Russian financial crisis Pakistani economic crisis (2022–present) 2022 stock market decline German economic crisis (2022–present) 2023 United States banking crisis 2023–2024 Egyptian financial crisis 2025 stock market crash
List of banking crises List of economic crises List of sovereign debt crises List of stock market crashes and bear markets

Causes of the Panic of 1792

Crisis management

Analysis

See also

References

Related Articles