The Business Cycle in American History

There have been many economic depressions in American History; so many that economists created the term “business cycle” to describe how the economy seemed to collapse approximately every twenty years under unregulated capitalism. Before the term “depression” came into vogue, however, such economic downturns were referred to as Bank Panics.

Three such national depressions occurred during the antebellum period. The three antebellum depressions (in 1819, 1837 and 1857) all show two basic causes.

  • The sudden collapse of an important agricultural commodity price
    • In 1819 and 1837, the market for cotton collapsed
      In 1857, increased demand for wheat in Europe, caused by the Crimean War, came to a sudden end when the war ended and an excess harvest occurred worldwide.
  • An Unstable Banking System
      In 1819, runs on banks occur because of collapse of land price, because of risky speculation by unregulated state banks, and because of an embezzlement case at the Baltimore Branch of the Bank of the US.
      In 1837, “Wild Cat Banks” collapsed at the same time that speculation on internal improvements destroyed the credit of many state governments.
      In 1857, an Ohio insurance company went bankrupt which set off a panic primarily in the North.
      The 1857 Panic brought another factor into the mix: Overproduction of manufactured goods. When inventory stocks of manufactured goods exceeded the demand for those goods because of the financial market, the depression deepened in the North as thousands of workers were laid off during the financial downturn. This become a factor in every depression afterwards.

Panics continued approximately every twenty years after the Civil War up to the Great Depression. Panics occurred in:


With the economic regulations put in place during the New Deal of Franklin Roosevelt, financial downturns became less severe and became know as recessions. Recessions occured in:


Most of Roosevelt’s regulations began to be dismantled in the 1980s, and then again in the 2000s under Republican administrations. As a result, The Great Recession, which was really a depression, hit the US in 2007-2011.

After a strong recovery started under the Obama Administration, recession hit again in 2020, during the Covid Pandemic. While the pandemic was the shock that ended the recovery, economists said it was overdue.

Last Updated: December 15, 2020 © Michael Gagnon