4. Dynamics of Bank Panics

We looked at the historical event of the 1857 bank panic, but what led up to it? What is the dynamic of a financial structure which creates the historical conditions for a crisis? We noted that the two schools of economics had not achieved a synthesis of their different views on an economy, which divided them. Accordingly, economic theory had not been able to explain why the panic occurred. Next we use the cross-disciplinary approach of societal dynamics to understand how the conditions for the 1857 panic had arisen in the US society. Societal dynamics theory analyzes the history of society as a sequence of “stasis” (stable infrastructures)—each altered in time by a historical event which results in a “change” from the prior infrastructure. This sequence of stasis and change is shown in Fig. 4.1.