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. 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.
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 Railroad 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 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.
[edit] Effects
Years of unregulated 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.
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.
Capital continued to concentrate within the factory system despite job losses and a constant number of establishments. Labor unrest stemmed from the growing inequality between the worker and capitalist classes. In the Midwest, violent strikes ended in defeat for laborers. The North, which still possessed the greatest concentration of the nation’s factories and railroads, witnessed profound divisions between classes as tensions between labor and capital rose. In small northern industrial centers, local officials and businessmen were often sympathetic to the interests of workers. They too resented the outside corporations that controlled local business. However, barriers between classes began to grow in the large northern urban centers. Workers’ rights and labor movements were seen as subordinate to the need to defend property and the economic status quo.
The growing number of paupers was seen as a result of overgenerous relief and moral weakness and laziness among the poor. Vagrants were often rounded up and put to work in ways that were reminiscent of the old Black Codes in the South. The urban middle and upper classes of the northern urban centers saw labor leaders as enemies of society. The depression created a self-conscious capitalist class that had now been cut loose from the egalitarian views of the lower class workers. They wished to preserve fiscal conservatism and allow the depression to discipline the labor forces that now threatened their interests. In the South, the effects of depression were even more severe. The depression dealt a terrible blow to the hopes of an emerging factory system in the South. Yeomen, once again, were forced to fall back on cotton production for money. As cotton prices fell, farmers found that they were unable to pay back merchants for the costs of their crops. The trend towards sharecropping accelerated. For southern blacks, sharecropping and tenancy provided a degree of autonomy, however, it also prevented them from regulating working conditions.
Poor economic conditions caused voters to turn against the GOP. In 1874, the Democrats assumed control of the House. Public opinion during the period made it difficult for the Grant Administration to develop a coherent Southern policy. The North began to steer away from Reconstruction. As Southern states fell to the Democrats, blacks found that they could no longer pursue activist policies of reform. In the face of unchecked and overt racism, as well as the growing conservatism of the Republican Party, black politicians often found themselves forced to abandon earlier hopes for social change. 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. The black population soon became split between black businessmen who embraced the capitalist ideas of conservatism and poor blacks who still desired more radical reform. In order to prevent the alienation of white voters, the Republican Party shifted towards more conservative policies and the immediate interests and progress of southern blacks failed to develop.
As class divisions intensified and economic conservatism grew in the North, political power began to shift. In the face of this, a feasible and coherent policy of Reconstruction seemed more and more distant. Poor economic conditions destroyed the young factory system of the South. Southern farmer’s tendencies towards sharecropping increased. The failure to develop a southern factory system of wage labor, as well as plummeting prices where such labor did exist, prevented the spread of an independent black class. Blacks lost any hope of reform as southern states fell to the Redeemers. The depression helped bring the chance of Reconstruction to an end. A new distinct capitalist class arose and prospered in the face of labor unrest.
[edit] See also
[edit] References
- A Short History of Reconstruction 1863-1877; Foner, Eric
- 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).
Banking Panics in the United States |
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| Panic of 1797 · Panic of 1819 · Panic of 1825 · Panic of 1837 · Panic of 1847 · Panic of 1857 · Panic of 1866 · Panic of 1873 · Panic of 1884 · Panic of 1890 · Panic of 1893 · Panic of 1896 · Panic of 1901 · Panic of 1907 · Panic of 1910-1911 |
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