Good Strategy Bad Strategy: The Difference and Why It Matters

by Richard P. Rumelt

America’s first depression, in 1819, was a direct result of the government selling large tracts of public land on easy credit. These sales were especially concentrated in Tennessee, Mississippi, and Alabama. Attracted by high prices for crops, especially cotton, settlers borrowed heavily from highly leveraged state banks to purchase land and supplies. The consequent massive increase in production, coupled with the gradual recovery of European agriculture from the devastation of the Napoleonic wars, triggered a collapse in prices in 1819. In 1818, cotton was 31 cents a pound; in 1819 it was half that, and by 1831 it had fallen to 8 cents a pound. Land prices followed suit and massive defaults ensued. The crisis was exacerbated by the Second Bank of the United States’ policy of calling in loans and demanding payment in specie.* The crisis spread to the cities and, in Philadelphia, real estate prices fell by 75 percent. Thousands languished in debtors prisons.