Panic of 1857 - Causes - Remedies

Remedies

By 1859, the Panic began to level off and the economy had begun to stabilize. President James Buchanan, after announcing that the paper-money system seemed to be the root cause of the Panic, decided to withdraw the usage of all bank notes under twenty dollars. He also "advised the State banks to break away from the banks them to follow the example of the Federal Government." He felt this would decrease the paper money supply to allow the specie supply time to increase and reduce inflation rates. President Buchanan wanted the state banks to follow the federal government, specifically, the Independent Treasury System. This system allowed the federal government to keep up with specie payments, which helped alleviate some of the financial stress that the bank suspensions had brought on. In December of 1857, Buchanan revealed his new strategy of "reform not relief," saying that "the government sympathized but could do nothing to alleviate the suffering individuals." To avoid further financial panics, President Buchanan encouraged the United States Congress to pass a law to provide an immediate forfeit of a bank charter in the event that the bank suspended specie payments. He also asked state banks to keep one dollar in specie for every three issued as paper and discouraged the use of federal or state bonds as security on a bank note to avoid future inflation. Additionally, the Tariff of 1857 was enacted. It was enacted as a revision of the Tariff of 1846, which had, been "slowly destroying…thousand of industrial enterprises." The Tariff of 1857 lowered the tax on the items covered by the Tariff of 1846; the belief was that the lower tariff was high enough to "favor . . . American industry" and thereby help encourage economic activity.