European immigrants continued to flood into the United States, and they joined other Americans in migrating to the Midwest and, increasingly, to territories beyond the Mississippi River.  Public land sales and improved agricultural production multiplied the number of farms, and the Crimean War (1854-1856) increased Europe’s demand for American grain crops.  Land speculators also participated enthusiastically in the lucrative real estate market.  Railroad and agricultural expansion redounded to the benefit of commerce and industry, which experienced similar growth.  The number of banks almost doubled from 1850 to 1857, and provided easy credit to their clientele.  Particularly important was New York City, the nation’s financial center and home to the Stock Exchange and financial institutions where banks across the country deposited their reserve funds.

The Panic of 1857 was caused by the convergence of a number of factors, of which economic historians debate the relative importance.  European demand for American grain crops fell drastically as the end of the Crimean War reopened Western European markets to Russian grains.  In addition, bumper crops produced a glut of agricultural goods and, therefore, lower prices and less profits for American farmers, many of whom were in debt to Eastern merchants and bankers.  The United States was also running a trade imbalance with foreign nations, and the excess of imports over exports meant that gold was being drained from the country.  During the summer of 1857, banks raised interest rates as they desperately sought to build up their gold reserves.  Furthermore, much of the investment in railroads and land was speculative, based on credit, and not expected to be profitable for years.  These and other conditions put a tremendous strain on the American economy in 1857.

The first obvious sign of major trouble was the failure of the Ohio Life Insurance and Trust Company in late August 1857.  The financial institution had loaned $5 million to railroad builders, and had been swindled out of millions more by the manager of its New York branch.  Unable to pay its extensive debt to Eastern bankers, Ohio Life was forced into bankruptcy.  New York bankers began to panic for fear that they would not be able to meet their financial obligations, and shifted suddenly to hard credit policies.  They demanded immediate payment on all mature loans, refusing to accept promissory notes from merchants and other debtors who were short on money.  Depositors began to withdraw gold from banks, dropping gold reserves by $20 million by mid-September.  Hopes for gold from California sunk on September 12 when the steamer Central America, with its $1.6 million in gold and 400 passengers, was lost at sea in a hurricane. 

The panic rippled outward as banks suspended gold payments, stocks plummeted, and thousands of businesses, including half of New York City’s brokerages, went bankrupt.  People crowded around bulletin boards outside newspaper offices to read the daily updates of suspended banks and failed businesses.  Banks in Philadelphia and other American cities soon suspended gold payments, as well.  The collapse of credit halted construction of buildings and railroads, and reduced the nation’s trade to a trickle.  Unemployment in the Northeast and Midwest skyrocketed, with an estimated 100,000 in Manhattan and Brooklyn out of work by late October.  By December, the loss from business failures in New York City alone was $120 million.  The economic repercussions spread to Europe and South America, and immigration to the United States dropped substantially. 

New York City’s unemployed took to the streets to press for employment and government action.  On November 5, 1857, 4000 rallied at Tompkins Square to listen to speakers demand that the city government establish more public works to hire the unemployed, guarantee a minimum wage, build housing for the poor, and prevent landlords from evicting the unemployed.  The next day, 5000 marched to Merchants’ Exchange on Wall Street to call on the city’s financial institutions to loan businesses money so the unemployed could be hired.  On November 9, an even larger crowd gathered at City Hall.  At the insistence of Mayor Fernando Wood, a mass meeting at City Hall the next day was met by 300 city police and a brigade of state militia, while federal troops under General Winfield Scott guarded the federal sub-treasury and customhouse. 

Despite the strong show of force, the mayor was sympathetic to the protestors’ plight, and saw to it that thousands of unemployed were hired over the next year in various public works projects, including the construction of Central Park.  However, his plan for direct aid to the unemployed was rejected by the City Council.  By the end of November, though, the crowds of protestors had dwindled to only a few.  Prominent Democrats were unhappy with what they considered Wood’s capitulation to the angry masses, so the Tammany Hall Democratic machine joined forces with the Republicans to run an independent candidate, Daniel Tiemann, for mayor.  In December 1857, Tiemann defeated Wood in a close election.

By the end of 1857, the worst of the economic crisis was over, although it would take two years for the economy to fully recover.  Not all had been affected equally, though.  Some investors, such as Moses Taylor and Cornelius Vanderbilt, took advantage of low stock prices and failed businesses to expand their financial holdings.  The South suffered some initial impact from the panic, but low tariffs sustained its cotton trade with Europe and its overall economy.  Therefore, the Panic of 1857 served to widen the gap that already existed between the economic interests of the North and South.