Immigration slowed to a crawl; RR companies went bankrupt

The 1857 Financial Panic: Minnesota was hit especially hard


Run on the Seamen’s Savings’ Bank during the Panic of 1857. On Oct. 13, 1857, after the Ohio Life and Trust Co. declared bankruptcy, panic struck the New York Stock Exchange and hundreds of other banks and individual investors were ruined. This wood engraving shows a crowd gesturing and shoving. A ragpicker picks up now-worthless stock certificates, and a pickpocket operates unnoticed. Source: Wikipedia.org (public domain).

Run on the Seamen’s Savings’ Bank during the Panic of 1857. On Oct. 13, 1857, after the Ohio Life and Trust Co. declared bankruptcy, panic struck the New York Stock Exchange and hundreds of other banks and individual investors were ruined. This wood engraving shows a crowd gesturing and shoving. A ragpicker picks up now-worthless stock certificates, and a pickpocket operates unnoticed. Source: Wikipedia.org (public domain).

Minnesota Territory experienced a boom period starting in 1855. Industry flourished region-wide and companies amassed incredible wealth. The Financial Panic of 1857 brought the good times to a halt and interrupted the growth of the fledgling state.

In the 1850s, immigration to the territory influenced the price of everything. Between 1855 and 1857 Minnesota welcomed a yearly average of thirty-five thousand immigrants. The demand for land was so great that speculators bought plots at a low cost and resold them at inflated prices a short time later. This “sure thing” made them very wealthy.

By 1855 a half-million acres of public land had been sold in the region. Between 1855 and 1857 nearly five million more acres were sold, mostly to speculators. Over three hundred new towns sprang up. Newspaper and magazine advertisements promoted Minnesota as a land of luxury and convinced many to move west.

For a majority of people living in Minnesota, buying land required obtaining credit from Eastern banks. Without usury laws to limit them, creditors made loans attached to interest rates as high as 15 percent per month. As long as immigration continued and the price of land remained high, borrowers could overcome those rates and still profit.

On Aug. 24, 1857, the Ohio Life Insurance and Trust Company failed, beginning a nation-wide financial crisis. Nowhere did the Panic of 1857 strike with greater severity than in Minnesota. St. Paul was hit especially hard. Marshall and Company, one of the city’s banking mainstays, was forced to close in early October. Borup and Oakes, another St. Paul bank, suspended its operations on Oct. 21.

The state that relied so heavily on immigration saw it slow to a crawl. Between 1858 and 1860 Minnesota gained only 2,157 new immigrants. This change had dire effects on its economy. Land values plummeted, depreciating 30 percent between 1857 and 1859. Speculators, once ensured credit from banks due to low risks and fast profit, now had a hard time getting loans.

Even in the midst of the crisis, building continued. Structures sprung up throughout the cities of St. Paul, St. Anthony, Minneapolis, and beyond. The new construction caused supply to outstrip demand and real estate prices fell precipitously. Once-high rents were reduced by up to 50 percent.

Consumers had little money to buy goods, so Eastern suppliers stopped exporting them into the region. Mortgage holders were forced into foreclosure, banking houses became insolvent, land agencies shut down, and many businesses failed. There was so little money that even public school systems were affected. In 1859 unpaid public school teachers in Minneapolis resigned.

Months before the panic, on March 3, 1857, four rail companies were given a land grant to start building railroads in Minnesota. Politicians hoped these railroads would save the state. In April 1858 the state loaned them $5 million. By July 1, 1859, however, the rail companies were bankrupt. Construction stopped and Minnesota’s economy collapsed further.

Because East Coast companies would no longer offer goods to Minnesota merchants on credit, St. Paul entrepreneurs entered the wholesale business. Many people left city life for the farm, taking to the land to earn their keep. In 1850 there had been 5,035 acres of improved land in the region; in 1860 the figure stood at 556,250. The cash value of farms rose also rose during those years, from $162,000 to over $27 million.

The persistent productivity of Minnesota’s farms offered the state a path to recovery. Large wheat crops in 1859 and 1860 attracted the notice of immigrant farmers and helped the state achieve its first marked population increase since 1856.

The Panic of 1857 exposed weaknesses in Minnesota’s economy and forced reforms. Banking laws instituted in 1858 made the state auditor the supervisor of banking in Minnesota. They regulated and safeguarded the money circulating in the state. The rampant speculation that had helped cause the crisis ended. Prices of commodities, including housing, land, and food, returned to normal.

Eventually Minnesota recovered. Economic development during the Civil War boosted industrial production and spurred the growth of new businesses. In Jan. 1864 the St. Paul Press reported that financial confidence had returned to the region. Merchants were out of debt, buying and paying with cash. The state that at one time had no currency in circulation once again had it in abundance.

Reicher, Matt, “Financial Panic of 1857,” MNopedia, Minnesota Historical Society. www.mnopedia.org/event/financialpanic 1857 (accessed April 5, 2019).

TURNING POINT

On Aug. 24, 1857, the Ohio Life Insurance and Trust Company fails, triggering a financial panic that spreads across the country.

CHRONOLOGY

1855 Minnesota Territory enters a boom period that lasts for the next two years.

1856 Minnesota Territory welcomes about 35,000 immigrants.

1857 More than 300 new town sites have been inaugurated in the territory since 1855.

1857 Over five million acres of public land have been sold in Minnesota since 1855.

1857 Financial panic hits the country on Aug. 24, after the failure of the Ohio Life Insurance and Trust Company.

Oct. 3, 1857 Marshall and Company, a St. Paul bank, closes.

Early Oct. 1857 St. Paul banks halt hard-currency (specie) payments to account holders.

Oct. 21, 1857 Borup and Oakes of St. Paul suspends its banking operations.

Nov. 3, 1857 Ramsey County begins issuing scrip as a replacement for the hard currency disappearing from circulation. Counties across the territory follow suit.

May 11, 1858 Minnesota becomes the 32nd state in the Union. That same year, immigration slows considerably, raising concerns about depopulation.

July 26, 1858 The Minnesota Legislature passes the General Banking Law, beginning the path toward regulating banking and usury laws.

July 1, 1859 The four railroad companies allotted

$5,000,000 in an April 1858 loan to help spur development are now bankrupt. Minnesota’s credit structure collapses.

1860 The second impressive wheat crop in two years attracts new immigrants to Minnesota.

1861 The start of the Civil War spurs economic growth that helps Minnesota complete its recovery.

1864 In January, the St. Paul Press reports on the return of consumer confidence to the local economy.

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