Panic of 1873
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The Panic of 1873 was a severe nationwide economic depression in the United States that lasted until 1877. It was precipitated by the bankruptcy of the Philadelphia banking firm Jay Cooke and Company on September 18, 1873 along with the meltdown on May 9, 1873 of the Vienna Stock Exchange in Austria (the so-called Gründerkrach or “founders' crash”). It was one of a series of economic crises in the 19th and early 20th centuries.
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[edit] Causes
In 1873, the American economy entered a crisis. This followed a period of post Civil War economic expansion that arose from the Northern railroad boom and the outbreak of equine influenza in 1872.
Called the “Great Epizootic”, the whole street railway industry ground to a halt. Every aspect of American transportation was affected. Locomotives came to a halt as coal could not be delivered to power them while fires in many major cities raged unchecked. One fire in Boston destroyed over 700 buildings. Even the United States Army Cavalry was reduced to fighting the Apaches on foot, who likewise found their mounts too sick to do battle. The outbreak forced men to pull wagons by hand, while trains and ships full of cargo sat unloaded, tram cars stood idle and deliveries of basic community essentials were no longer being made. The affect this disease had on the US economy should not be understated.[1]
The Coinage Act of 1873 changed the United States policy with respect to silver. Before the Act, the United States had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to the gold standard, which meant it would no longer buy silver or mint silver coins.
The Act had the immediate effect of depressing silver prices. That hurt Western mining interests, who labeled the Act "The Crime of '73." But it also reduced the money supply, which hurt farmers and anyone else who carried heavy debt loads. The resulting outcry raised serious questions about how long the new policy would last. This perception of instability in United States monetary policy caused investors to shy away from long-term obligations, particularly long-term bonds. The problem was compounded by the railroad boom, which was in its later stages at the time.
At the end of the Civil War, there was a boom in railroad construction, with 35,000 miles (56,000 km) of new track laid across the country between 1866 and 1873. The railroad industry, at the time the nation's largest employer outside of agriculture, involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry.
In September 1873, Jay Cooke and Company, a major component of the country’s banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Cooke's firm, like many others, was invested heavily in the railroads. President Ulysses S. Grant's monetary policy of contracting the money supply made matters worse. While businesses were expanding, the money they needed to finance it was becoming scarcer. Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing. But on September 18, the firm realized it had become overextended and declared bankruptcy.
[edit] Effects
Years of government promoted speculative credit had created vast overexpansion of the nation’s railroad network. The failure of the Jay Cooke bank set off a chain reaction of bank failures and temporarily closed the stock market. Factories began to lay off workers as the nation slipped into depression.
The New York Stock Exchange closed for 10 days. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876, during a time which became known as the Long Depression.
Wage cuts and poor working conditions among railroad workers resulted in Great Railroad Strike of 1877, preventing the trains from moving. President Rutherford B. Hayes sent in federal troops in an attempt to stop the strikes. Fights between strikers and troops killed more than 100 and left many more injured. The tension between workers and the leaders of banking and manufacturing lingered on well after the depression lifted in the spring of 1879, the end of the crisis coinciding with the beginning of the great wave of immigration into the United States which lasted until the early 1920s.
Poor economic conditions caused voters to turn against the Republican Party. In the 1874 congressional elections, the Democrats assumed control of the House. Public opinion during the period made it difficult for the Grant Administration to develop a coherent policy regarding the Southern states. The North began to steer away from Reconstruction. As Southern states fell to the Democrats, African Americans found that they could no longer pursue activist policies of reform. Retrenchment was a common response of southern states to state debts during the depression. As funds were cut from state governments, education often suffered, despite being an integral part of blacks’ hopes for social reform.
[edit] See also
[edit] References
- Fels, Rendigs (1951). "American Business Cycles, 1865-79". The American Economic Review 41 (3): 325-349. doi:.
- Foner, Eric (1990). A Short History of Reconstruction 1863-1877. New York: Harper & Row. ISBN 0060964316.
- Kirkland, Edward Chase (1967). Industry comes of age: Business, Labor, and Public Policy 1860-1897. Chicago: Quadrangle Books.
- Persons, Warren M.; Tuttle, Pierson M.; Frickey, Edwin (1920). "Business and Financial Conditions Following the Civil War in the United States". Review of Economic Statistics 2 (Supplement 2): 5-21. doi:.
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