6. Arguably the world’s first global financial crisis, the decline of the Californian gold rush in the late 1850s resulted in railway stock speculation imploding and dragging the U.S. economy down with it
By the early-1850s the United States was enjoying a period of significant prosperity, with the discovery of precious metals during the gold rush greatly increasing the supply of money. However, with the decline of gold mining during the mid-1850s banking institutions became increasingly cautious of loans in the Western United States and many refused to accept western paper currency. Meanwhile, the railway industry entered into a stock bubble boom during the 1850s, peaking in July 1857, with banks offering substantial loans to dozens of emerging but unproven companies. This period of rampant borrowing came to a head in August and September 1857, when N.H. Wolfe and Company and the Ohio Life Insurance and Trust Company collapsed.
The failure of these two mega-companies sent ripples throughout the worldwide economy. The $7,000,000 liabilities of Ohio Life were quickly found to not be unique to that particular institution and, with the sinking of the SS Central America and its cargo of gold, New York banks were unable to provide further loans. Rapidly extending beyond banking, farmers across America were hit by a shortage of capital. Grain prices, reaching $2.19 per bushel in 1855, collapsed to just $0.80 by 1858, whilst Britain was forced to abandon the fiduciary issue instituted in 1844 to prevent financial crises and print devalued paper money.