One aspect of the economy that the lawyer-politicians could not control was the threat of financial collapse. The boom years from 1815 to 1818 exhibited a volatility that resulted in the first sharp, large-scale economic downturn in U.S. history. Americans called this downturn a “panic,” and the pattern was repeated in the 1830s. Some blamed the panic of 1819 on the second Bank of the United States for failing to control an economic bubble and then contracting the money supply, sending tremors throughout the economy. The crunch was made worse by a financial crisis in Europe in the spring of 1819. Overseas, prices for American cotton, tobacco, and wheat plummeted by more than 50 percent. Thus, when the banks began to call in their outstanding loans, American debtors involved in the commodities trade could not come up with the money. Business and personal bankruptcies skyrocketed. The intricate web of credit and debt relationships meant that almost everyone with even a toehold in the new commercial economy was affected by the panic. Thousands of Americans lost their savings and property, and unemployment estimates suggest that half a million people lost their jobs.

Recovery took several years. Unemployment declined, but bitterness lingered, ready to be stirred up by politicians in the decades to come. The dangers of a system dependent on extensive credit were now clear. In one folksy formulation that circulated around 1820, a farmer compared credit to “a man pissing in his breeches on a cold day to keep his arse warm—very comfortable at first but I dare say . . . you know how it feels afterwards.”

By the mid-1820s, the economy was back on track, driven by increases in productivity, consumer demand for goods, and international trade. Despite the panic of 1819, credit financing continued to fuel the system. A network of credit and debt relations grew dense by the 1830s in a system that encouraged speculation and risk taking. A pervasive optimism about continued growth supported the elaborate system, but a single business failure could produce many innocent victims. Well after the panic of 1819, an undercurrent of anxiety about rapid economic change continued to shape the political views of many Americans.