The crisis
The Panic of 1819 was the first depression in the United States. Before the War, the US imported most manufactured goods, particularly from Great Britain, and had a mostly agricultural economy. The War allowed domestic producers to develop a manufacturing industry given the impossibility of importing. However, when the war ended Americans began importing manufactured goods once again, fueled by inflation and the credit expansion from banks. At the same time, domestic producers found it almost impossible to compete with European industries. The number of banks increased dramatically, and so did credit. This boom helped establish the New York Stock Exchange in 1817, and with it the beginning of investment banking.
The banks started having problems to continue specie payment (payment in gold or silver), and in the Fall of 1818 the external debt for the Louisiana Purchase had to be paid in gold by the Bank of the United States. In face of this, the Bank started restricting lending in its branches which contracted the money supply and caused the “Panic of 1819” (Rothbard, 2007, 1-27).
Political Parties
By 1815 and 1816, the Democratic party machine of New York City, better know as Tammany Hall was in control of both the state legislature and the city councils, according to Myers (2005, 37). Tammany Hall relied heavily on immigrants: The “bosses” would help immigrants find jobs, pay for funerals and weddings, among other things in exchange for votes.5 This might explain why instead of outright re- stricting immigration (which would affect their votes), they decided instead to charge a tax. Also, if we consider “honest graft” to be some combination of welfare services and corruption,6 the Tammany bosses in City Council would benefit politically from having extra taxes to provide more “services” to their voters.
Selective immigration policy
Immigration policy at the national level didn’t really exist in 1819, and neither did welfare states as we know them today7 but according to Zolberg (2006, 11) local governments in New York City, where most immigrants arrived, authorized municipal
5A great piece on how this party machine worked is “Plunkitt of Tammany Hall. A
Series of Very Plain Talks on Very Practical Politics” by William Riordon, available at http://www.marxists.org/reference/archive/plunkett-george/tammany-hall/index.htm .
6In “Plunkitt of Tammany Hall,” George W. Plunkitt differentiates between honest and dishonest
graft, arguing Tammany bosses only get involved in honest graft. In chapter 1, he explains: “My party’s in power in the city, and it’s goin’ to undertake a lot of public improvements. Well,
I’m tipped off, say, that they’re going to lay out a new park at a certain place. I see my opportunity and I take it. I go to that place and I buy up all the land I can in the neighborhood.
Then the board of this or that makes its plan public, and there is a rush to get my land, which nobody cared particular for before. Ain’t it perfectly honest to charge a good price and make a
profit on my investment and foresight? Of course, it is. Well, that’s honest graft.” Chapter 1 available at
http://www.marxists.org/reference/archive/plunkett-george/tammany-hall/index.htm
7Huber and Stephens (2001) cite the beginning of the development of welfare states in the early
officials to demand a bond not exceeding$3,000 for each immigrant likely to become a “public charge,” and a head tax from passengers and crew to finance medical facilities. During the XIX Century, the welfare state was minimal to non-existent. In other words, even less generous than the most liberal of welfare states today. This goes with accordance with the theory stated in chapter one. The least generous welfare states are the ones expected to implement selective, or in this case “proto selective” immigration policies.
While these measures cannot be considered policies that select immigrants on the basis of their skills, they are selective on the basis of fiscal burden. They shed light to the relationship between the welfare state and immigration. Immigrants that are a burden on the public coffers become a concern when the economy is in poor shape, and as a consequence governments try to limit the fiscal impact of immigration.
The “head tax” on immigrants was later declared unconstitutional by the United States Supreme Court, on the argument that many of the immigrants arriving in the Ports of New York and Boston -who also implemented head taxes- might not establish residency in those cities, and as a consequence, they might never become a public charge. Justice Grier said that “. . . the State should not be allowed to tax those who, on examination, are found not to be within this description . . . ”8
In the years to follow, there were very few changes to immigration policy either at the local or the national level, but movements in the business cycle were usually followed with movements in immigration flows in the same direction, with the no- table exception of the Civil War years. After the Civil War, the relation between immigration flows and business cycles became even more evident.
8Smith v. Turner, Health Commissioner of Port of New York and Norris v. City of Boston