Frequent instability characterizes the United States economy during the 1780s and 1790s.

Rampant inflation of Continental Currency during the Revolutionary War had given rise to the phrase “not worth a Continental.”

Lacking a stable currency, banks had issued their own notes, and calls for stronger public credit had led to the establishment under the Articles of Confederation of the Bank of North America in 1781.

After the adoption of the Constitution, the First Bank of the United States had succeeded it as a de facto central bank.

Concerns have remained, however, over the strength of public credit as unstable banknotes remain a medium of exchange.

During this time, speculation is the investment of choice, leading to the Panic of 1792.

Former Continental Congressman William Duer had raised large sums of money to invest in bank stock and government securities, novel and financially sophisticated assets whose risks many contemporaries fail to understand.

Duer had soon defaulted on his debts, destroying the savings of many middle- and working-class people.

The ensuing panic causes riots and reignites Congressional debate over a bankruptcy law that will finally produce the Bankruptcy Act of 1800 after the Panic of 1796–97.

Duer and other prominent financiers had then sought to recover their fortunes by applying unprecedented scale to an old concept: land speculation.

This sets the stage for the bubble that will burst in 1797.

Jared Irwin and United States Senator James Jackson lead the reform efforts: Irwin had won election as Governor of Georgia and, less than two months after taking office, signs a bill on February 13, 1796 nullifying the Yazoo Act.

The state burns all copies of the bill except for one that had been sent to President George Washington.

The immediate cause of the Panic of 1797 is a series of land speculation schemes that has issued commercial paper backed by claims to Western lands.

The largest such scheme had been created by the Boston merchant James Greenleaf and Philadelphia financiers Robert Morris and John Nicholson.

The new federal capital under construction, Washington D.C., required private investment for development.

By late 1793, a partnership of the three speculators had acquired forty percent of the building lots in the new capital.

Greenleaf had planned to finance these purchases with loans from Dutch banks, but the French invasion of the Netherlands had prevented this.

Lacking funds, the three speculators then formed the North American Land Company in 1795 to consolidate their land holdings from previous speculations.

They planned, once again, to sell stock in this company to European investors.

However, quick sales had failed to materialize as European investors grew wary of American land schemes.

Unclear titles and the poor quality of much of the company’s land had further slowed sales.

Morris and Nicholson had then begun  to finance their purchases by issuing their own notes, which creditors readily accepted because of Morris’s immense financial stature.

These notes had become themselves the subject of speculation, depreciating rapidly as a medium of exchange.

Meanwhile, continued war in Europe had constricted credit, exposing the precariousness of the North American Land Company scheme and others like it.

Rampant business failure had plagued Eastern port cities by late 1796, and land speculators less preeminent than Morris soon found themselves in debtors’ prison.

Among these was James Wilson, whose confinement, combined with rumors of Morris’s imprisonment, had causes panic.

Morris and Nicholson’s notes, by now totaling ten million dollars, had begun trading at just one-eighth their value.

By 1797, their paper pyramid collapses altogether.

Across the Atlantic, British legislation exacerbates the damage wrought by the bursting land speculation bubble.

The monetary strain imposed by the French Revolutionary Wars and withdrawals by panicked depositors have greatly depleted the coin and bullion reserves of the Bank of England.

This prompts Parliament to pass the Bank Restriction Act of 1797, which halts specie payments.

The disruption of access to British gold and silver unravels the Atlantic credit web, hastening the collapse of Morris’s and other speculation schemes.

The Jay Treaty, ratified on February 29, 1796, had settled some territorial disputes between the British and the Americans but has outraged the French, with whom the Americans have been allied since 1778.

Retaliatory French intervention with American shipping bound for Britain has resulted in a patriotic surge of emotion against France.

After a masterly farewell address in which he warns the United States against permanent alliances abroad, Washington leaves office on March 4, 1797.

His Federalist vice-president, John Adams, succeeds him.

Nothing has been heard from the team sent to Paris by Adams and the attitude of the Congress becomes more belligerent by November.

James Jackson resigns as Senator to run for office as next Governor of Georgia; he is elected and takes office at the beginning of 1798.

However, the matter of the Yazoo land scandal remains unresolved.

The state has refunded money to persons who had purchased land, but some have refused the money, preferring to keep the land.

The state does not recognize their claims, and the matter will wend through courts for the next decade.

The Franco-American alliance of 1778 is still in force but has become an embarrassment to the US during the post-Revolutionary wars that have erupted between France and Britain.

Adams, seeking to modify the agreement, sends three commissioners—Charles Pinckney, John Marshall, and Elbridge Gerry—to Paris.

The French government, emboldened by recent military victories, demands bribes and a loan from the US before entering into negotiations, presenting these demands through supposedly unofficial channels in the persons of a Swiss banker named Hottengeuer (Mr. “X”, as Adams refers to him in messages to Congress”; a Hamburg merchant named Belllamy (“Y”) and a Mr. Hauteval (“Z”).

The commissioners refuse to pay the bribes.

A public outcry arises in the US over the French request and the so-called Quasi-War ensues.

Rumors of an impending French invasion abound in the United States by mid-Aprll, 1798.

Congress, in an attempt to control criticism of the government, enacts into law in May 1798 four bills known as the Alien and Sedition acts (arguably the most intolerant acts ever passed by a U.S. Congress): The Naturalization Act (repealed in 1802) raises from five to fourteen years the amount of time an alien has to reside in this country before becoming a citizen.

The Alien Act empowers the president to arrest, imprison or deport any alien considered dangerous or treasonable to the country.

The Alien Enemies Act empowers the president to arrest, imprison or deport any alien, subject to an enemy power in a time of declared war.

The Sedition Act levies a fine of up to two thousand dollars plus imprisonment, for as long as two years, for anyone convicted of speaking, writing or publishing anything considered “false, scandalous, or malicious” against the United States government, the President, anyone in the House of Congress; and involvement in any opposition to the execution of national laws, or aiding or attempting to riot, causing insurrections, and unlawful assemblies.

The Federalist-controlled U.S. Congress, which greatly needs revenues for the anticipated war with France, votes in July of 1798 to impose a direct federal tax on all real property, including land, buildings, and slaves, intending to raise two million dollars.