1826 John Quincy Adams - Britain's Financial Crisis and American Industry

When a financial crisis hit Great Britain in 1825, it sent shock waves around the world and caused British imports to the United States to tumble.  Due to the decrease in tariffs on British goods, the federal government ran a budget deficit in 1826.  President John Quincy Adams used this lesson to explain that any reduction in federal revenue was more than offset by increased manufacturing profits.  Such a lesson was setting a stage for the passage of additional tariffs during the Adams administration, namely the "Tariff of Abominations".

In 1825, Great Britain experienced what some historians call the first modern financial crisis, one created by speculation of Gold prices.   The 1825 financial crisis was the first to be created not by war or famine, but by ordinary financial activity completed in good faith by the actors.   The crisis has it's beginning in the decision of the British Government to institute the first official gold standard in history.  The year was 1816, and both economists along with Parliamentarians and radicals campaigned to resume cash payments that were suspended during the late wars and establish a paper currency based on a gold-standard.  The Bankers and their counterparts in the government feared that to suddenly limit loans based upon the supply of gold would panic the markets and ruin the farmers who had become dependent on cheap credit throughout the late wars.   Instead, the Banks and the government chose to introduce a series of measures to gradually ease the country onto a self-restraining standard to avoid risking confidence in the system.   These measures included stockpiling large amounts of gold and issuing a series of low-yield, low risk stocks against the gold at a discount.   The availability of these bonds inspired the public to invest, encouraging many new firms, funds, banks and insurance agencies to pop up around the country.  The investments they offered were considered ordinary and safe investments, but as the discovery of new gold mines in Latin America started making the news, reporters began to warn investors of the inevitable calamity that would occur.  The Bank of England seem to make things worse, by shipping much of it's metallic reserves overseas in order to increase it's stock of gold reserves, leaving Britain with nothing to backup it's paper money.   Some economists, appealed to the Bank of England to begin withdrawing their notes from general circulation and get it's house in order.  In April of 1825, when the Bank of England started to call in loans, investors impatiently began to sell stocks sending the market into a nose dive.  By December, a run on the country banks was reported in the press, and the investment community was in a panic, causing the entire system to crash. 

The panic in Great Britain sent shock waves around he world, and as President John Quincy Adams stated, "[t]he severe shock so extensively sustained by the commercial and manufacturing interests in Great Britain has not been without a perceptible recoil upon ourselves."   The financial crisis in Great Britain caused a significant recreates of imports from Great Britain, and since the U.S. was still imposing duties on British goods, there was a reduction in federal revenues as well.  But, a decrease in the import of British goods, also meant that domestic manufacturing flourished and any loss in revenue was more than compensated by "an equivalent more profitable to the nation".   In Adams second State of the Union address, he explained that a reduction in imports led to a strengthening of America's manufacturing base setting the stage for future tariff increases to protect American manufacturing. 

"In adverting to the present condition of our fiscal concerns and to the prospects of our revenue the first remark that calls our attention is that they are less exuberantly prosperous than they were at the corresponding period of the last year. The severe shock so extensively sustained by the commercial and manufacturing interests in Great Britain has not been without a perceptible recoil upon ourselves. A reduced importation from abroad is necessarily succeeded by a reduced return to the Treasury at home. The net revenue of the present year will not equal that of the last, and the receipts of that which is to come will fall short of those in the current year. The diminution, however, is in part attributable to the flourishing condition of some of our domestic manufactures, and so far is compensated by an equivalent more profitable to the nation."

Over the next two years as British economy rebounded and flooded the American industry with cheaper British Commodities, The United States Congress begin to increase tariffs on goods until in 1828 they passed what became known as the "Tariff of Abominations", placing a 38% tax on 92% of all imported goods.

References

Presidency.ucsb.edu. (2018). John Quincy Adams: Second Annual Message. [online] Available at: http://www.presidency.ucsb.edu/ws/index.php?pid=29468 [Accessed 8 Mar. 2018].

Branchcollective.org. (2018). Alexander J. Dick, “On the Financial Crisis, 1825-26″ | BRANCH. [online] Available at: http://www.branchcollective.org/?ps_articles=alexander-j-dick-on-the-financial-crisis-1825-26 [Accessed 8 Mar. 2018].

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