Panic of 1873

Run on the Fourth National Bank, No. 20 Nassau Street (New York City, 1873).

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. It was one of a series of economic crises in the 19th and early 20th centuries.

Causes

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. 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 more scarce. 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.

Effects

The firm's bankruptcy created a domino effect, causing major upset to the economy of the United States. 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.

By 1877, wage cuts and poor working conditions caused workers to strike, 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.

See also

• Long Depression
• Great Depression

References

• Rendigs Fels. "American Business Cycles, 1865-79", The American Economic Review Vol. 41, No. 3 (June, 1951), pp. 325-349. at JSTOR
• Edward Chase Kirkland. Industry comes of age: Business, Labor, and Public Policy 1860-1897 (1967).
• W.M. Persons, P.M. Tuttle, and E. Frickey. "Business and Financial Conditions Following the Civil War in the United States," Review of Economic Statistics, vol 2 supp 2 (July, 1920).

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