In this worldwide economic crisis, the decline in fiscal activity began with international markets and seriously affected the rest of the world. In the U.S., the East and West had developed interdependent economies so the entire nation suffered.
At the beginning of 1857, the sales of American goods declined in foreign markets. By spring, business-related credit had dried up, and businesses in the West stopped purchasing inventory. This caused concern among bankers and investors in the U.S., and eastern bankers restricted loans to western bankers. By the end of September, three Chicago banks had closed when New York City banks suspended specie payments and refused western currencies.
At the same time, western settlement slowed, and many income-starved railroads couldn’t meet their obligations. Railroad securities fell drastically on the New York Stock Exchange. The Illinois Central and the Fort Wayne and Chicago railroads folded due to financial difficulties. Fifteen other railroads were forced to make legal transfers to creditors.
By late summer, land values were also falling, and banks had over-extended themselves with mortgages. In Chicago, building costs had fallen by a third, which actually encouraged the completion of 1,100 buildings of the 1,827 buildings planned for 1858. Most Chicagoans held onto their property, but as the depression continued sheriff’s sales and foreclosures escalated.
Farming, lumber and related industries suffered greatly when prices fell. With their income reduced by more than 60% in some areas, many farmers faced foreclosure. In Chicago, wheat prices fell from $2/bushel to $1/bushel. Lumber receipts were also cut in half.
Though recovery was slow, business and bank failures decreased in 1860. The Illinois’ banks of issue lasted through the downturn. However, the value of land, new buildings and rents fell that year.
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