The immediate cause of the Panic of…

1797 CE

The immediate cause of the Panic of 1797 is a series of land speculation schemes that has issued commercial paper backed by claims to Western lands.

The largest such scheme had been created by the Boston merchant James Greenleaf and Philadelphia financiers Robert Morris and John Nicholson.

The new federal capital under construction, Washington D.C., required private investment for development.

By late 1793, a partnership of the three speculators had acquired forty percent of the building lots in the new capital.

Greenleaf had planned to finance these purchases with loans from Dutch banks, but the French invasion of the Netherlands had prevented this.

Lacking funds, the three speculators then formed the North American Land Company in 1795 to consolidate their land holdings from previous speculations.

They planned, once again, to sell stock in this company to European investors.

However, quick sales had failed to materialize as European investors grew wary of American land schemes.

Unclear titles and the poor quality of much of the company’s land had further slowed sales.

Morris and Nicholson had then begun to finance their purchases by issuing their own notes, which creditors readily accepted because of Morris’s immense financial stature.

These notes had become themselves the subject of speculation, depreciating rapidly as a medium of exchange.

Meanwhile, continued war in Europe had constricted credit, exposing the precariousness of the North American Land Company scheme and others like it.

Rampant business failure had plagued Eastern port cities by late 1796, and land speculators less preeminent than Morris soon found themselves in debtors’ prison.

Among these was James Wilson, whose confinement, combined with rumors of Morris’s imprisonment, had causes panic.

Morris and Nicholson’s notes, by now totaling ten million dollars, had begun trading at just one-eighth their value.

By 1797, their paper pyramid collapses altogether.

Across the Atlantic, British legislation exacerbates the damage wrought by the bursting land speculation bubble.

The monetary strain imposed by the French Revolutionary Wars and withdrawals by panicked depositors have greatly depleted the coin and bullion reserves of the Bank of England.

This prompts Parliament to pass the Bank Restriction Act of 1797, which halts specie payments.

The disruption of access to British gold and silver unravels the Atlantic credit web, hastening the collapse of Morris’s and other speculation schemes.