Panic of 1873
The Panic of 1873 was a
The Panic of 1873 and the subsequent depression had several underlying causes for which
The first symptoms of the crisis were financial failures in Vienna, the capital of Austria-Hungary, which spread to most of Europe and to North America by 1873.
Europe
The panic and depression hit all of the industrial nations.
Germany and Austria-Hungary
A similar process of overexpansion took place in Germany and Austria-Hungary, where the period from
On 9 May 1873, the
In Berlin, the railway empire of Bethel Henry Strousberg crashed after a ruinous settlement with the government of Romania, bursting the speculation bubble in Germany. The contraction of the German economy was exacerbated by the conclusion of war reparations payments to Germany by France in September 1873. Two years after the foundation of the German Empire, the panic came and became known as the Gründerkrach or "Founders' Crash".[6][7][8] In 1865, Keglevich and Strousberg had come into direct competition in a project in what is now Slovakia. In 1870 the Hungarian government, and in 1872 the Emperor-King Franz Joseph I of Austria, resolved the question of the competing projects.[9][10]
Although the collapse of the foreign loan financing had been predicted, the events of that year were in themselves comparatively unimportant. Buda, the old capital of Hungary, and Óbuda were officially united with Pest,[11] thus creating the new metropolis of Budapest in 1873. The difference in stability between Vienna and Berlin had the effect that the French indemnity to Germany flowed into Austria and Russia, but the indemnity payments aggravated the crisis in Austria, which had benefited by the accumulation of capital not only in Germany but also in England, the Netherlands, Belgium, France, and Russia.[12]
Recovery from the crash occurred much more quickly in Europe than in the United States.
Soon, more luxury hotels and villas were built in Opatija, and a new railway line was extended in 1873 from the Vienna–Trieste line to Rijeka (Fiume), making it possible to go by tram from there to Opatija. The strong increase of port traffic generated a permanent demand for expansion.[18] The Suez Canal was opened in 1869.[19] 1875–1890 became "the golden years" of Giovanni de Ciotta in Rijeka.
Britain
The opening of the Suez Canal in 1869 was one of the causes of the Panic of 1873 because goods from the Far East had been carried in sailing vessels around the Cape of Good Hope and were stored in British warehouses. As sailing vessels were not adaptable for use through the Suez Canal (because the prevailing winds of the Mediterranean Sea blow from west to east), the British entrepôt trade suffered.[20]
When the crisis came, the
Comparison with Germany
From 1873 to 1896, a period sometimes referred to as the
India
The discovery of large quantities of silver in the United States and several European colonies caused the panic of 1873 and thus a decline in the value of silver relative to gold, devaluing India's standard currency. This event was known as "the fall of the rupee".
South Africa
In the Cape Colony, the panic caused bankruptcies, rising unemployment, a pause in public works, and a major trade slump that lasted until the discovery of gold in 1886.[23]
Ottoman Empire
In the periphery, the Ottoman Empire's economy also suffered. Rates of growth of foreign trade dropped, external terms of trade deteriorated, declining wheat prices affected peasant producers, and the establishment of European control over Ottoman finances led to large debt payments abroad. The growth rates of agricultural and aggregate production were also lower during the Long Depression than the later period.[24]
Latin Monetary Union
The general demonetization and cheapening of silver caused the Latin Monetary Union in 1873 to suspend the conversion of silver to coins.[25][26]
United States
Factors
The
Coinage Act of 1873
A period of economic overexpansion arose from the northern railroad boom before a series of economic setbacks: the
The decision of the German Empire to cease minting silver
Before the Act, the US had backed its currency with both gold and silver and minted both types of coins. The Act moved the United States to a de facto
The Act had the immediate effect of depressing silver prices, hurting Western mining interests, who labeled the Act "The Crime of '73", but its effect was offset somewhat by the introduction of a silver trade dollar for use in Asia and the discovery of new silver deposits at Virginia City, Nevada, that resulted in new investment in mining activity.[31] The Act also reduced the domestic money supply, raising interest rates and hurting farmers and others who normally carried heavy debt loads. The resulting outcry raised serious questions about how long the new policy would last.[32] The perception of US instability in its 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 then in its later stages.
In September 1873, the
Jay Cooke & Company fails
In September 1873, Jay Cooke & Company, a major component of the country's banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds. Jay Cooke's firm, like many others, had invested heavily in the railroads. Some investment banks were then anxious for more capital for their enterprises, US President Ulysses S. Grant's monetary policy of contracting the money supply and thus raising interest rates made matters worse for those in debt. Businesses were expanding, but the money they needed to finance that growth was becoming scarcer.
Cooke and other entrepreneurs had planned to build the second transcontinental railroad, the Northern Pacific Railway. Cooke's firm provided the financing, and ground for the line was broken near
Insurance industry
Many US insurance companies went out of business, as the deteriorating financial conditions created solvency problems for life insurers. The common factor of the surviving companies was that all marketed
Effects
The failure of Jay Cooke's bank and soon afterward of Henry Clews' set off a chain reaction of bank failures and temporarily closed the New York Stock Exchange. Factories began to lay off workers as the country slipped into depression. The effects of the panic were quickly felt in New York (where 25% of workers became unemployed) and more slowly in Chicago, Virginia City, Nevada (where silver mining was active), and San Francisco.[34][37][38] In New Hampshire, state coffers were so depleted by lost tax revenue the state government turned to private interests including tea and gunpowder manufacturer D. Ralph Lolbert for financial support.
The New York Stock Exchange closed for ten days starting on 20 September.[39] By November 1873, some 55 of the nation's railroads had failed, and another 60 had gone bankrupt by the first anniversary of the crisis.[40] Construction of new rail lines, formerly one of the backbones of the economy, plummeted from 7,500 miles (12,100 km) of track in 1872 to just 1,600 miles (2,600 km) in 1875,[40] and 18,000 businesses failed between 1873 and 1875. Unemployment peaked in 1878 at 8.25%.[41] Building construction was halted, wages were cut, real estate values fell, and corporate profits vanished.[42]
In 1874, Congress passed "the
Railroad strike
The
In 1877, steep wage cuts led American railroad workers to launch the series of protests and riots later dubbed
Within a week, similar protests had erupted in other cities.
In New York, striking workers began pelting arriving trains with thrown objects, prompting a response from local police.
In July 1877, the market for lumber crashed, leading several Michigan lumber companies to go bankrupt.[55] Within a year, the effects of this second business slump reached all the way to California.[56]
Aftermath in the United States
This section needs additional citations for verification. (May 2022) |
The depression ended in the spring of 1879, but tension between workers and the leaders of banking and manufacturing interests lingered on.
Poor economic conditions also caused voters to turn against the
Public opinion made it difficult for the
The end of the crisis coincided with the beginning of the great wave of immigration to the United States, which lasted until the early 1920s.
Global protectionism
After the 1873 depression, agricultural and industrial groups lobbied for
See also
References
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- ^ Brustein, William L.; Roberts, Louisa (2015). The Scialism of Fools: Leftist Origins of Modern Anti-Semitism. Cambridge University Press. pp. 104–105.
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- ^ "Suez Canal | canal, Egypt". Encyclopedia Britannica. Retrieved 24 November 2017.
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- The Greenback Era: A Social and Political History of American Finance, 1865–1879. pp. 213–228.
- ^ Loomis, pp. 219–220, 224–225.
- ^ Silver coinage was resumed under the Bland–Allison Act of 1878.
- ^ a b c Hiltzik, Michael. "Perspective | Presidents who don't act decisively make financial crises worse". The Washington Post.
- ^ a b Crisis Chronicles: The Long Depression and the Panic of 1873
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- ^ Yang, Tony (2009). The Performance of Life Insurance Companies: 1860–1905 (PDF). p. 5.
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- ^ a b Kleppner, Paul (1973) "The Greenback and Prohibition Parties", in Arthur M. Schlesinger (ed.), History of U.S. Political Parties: Volume II, 1860–1910, The Gilded Age of Politics. New York: Chelsea House/R.R. Bowker Co., p. 1556.
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- ^ a b c d Lee, Jennifer 8 (14 October 2008). "New York and the Panic of 1873". City Room. Retrieved 4 February 2021.
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- ^ Scharf, J. Thomas (1967) [1st. Pub. 1879]. "History of Maryland From the Earliest Period to the Present Day". 3. Hatboro, PA: Tradition Press: 733–742.
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(help) - ^ Scott Molloy, "Book Review: Streets, Railroads, and the Great Strike of 1877 By David O. Stowell", Technology and Culture 41.3 (2000) 636–638, via Project MUSE, accessed 20 May 2016.
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- ^ Brecher, Jeremy (1974). Strike! (3rd ed.). Fawcett Publications.
- ^ Among the lumbering firms that failed were the Danaher & Melendy Company and Oliver O. Stanchfield of Ludington, Michigan, and Cushman, Calkins & Company and Tyson, Sweet & Company of Manistee, Michigan. History of Manistee, Mason and Oceana Counties, Michigan (1882), "History of Mason County", p. 50, and "History of Manistee County", pp. 52, 53 (separate pagination).
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- Loomis, Noel M. (1968). Wells Fargo.
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- Masur, Gerhard (1970). Imperial Berlin. New York: Basic Books. ISBN 0465032095.
Further reading
- Barreyre, Nicolas (2011). "The Politics of Economic Crises: The Panic of 1873, the End of Reconstruction, and the Realignment of American Politics". Journal of the Gilded Age and Progressive Era. 10 (4): 403–423. S2CID 154493223.
- Davies, Hannah Catherine. "'Mingled in an almost inextricable confusion': the panics of 1873 and the experience of globalization." Journal of Global History 15.2 (2020): 291–309.
- Davies, Hannah Catherine. Transatlantic Speculations: Globalization and the Panics of 1873 (Columbia UP, 2018) online review
- Fawcett, W. L. (1877). Gold and Debt; An American Hand-Book of Finance. Chicago, S.C. Griggs and company.
- Fels, Rendigs (1949). "The Long-Wave Depression, 1873–97". JSTOR 1927196.
- Fels, Rendigs (1951). "American Business Cycles, 1865–79". JSTOR 1802106.
- ISBN 0060964316.
- Kirkland, Edward Chase (1967). Industry Comes of Age: Business, Labor, and Public Policy 1860–1897. Chicago: Quadrangle Books.
- Lubetkin, M. John (2006). Jay Cooke's Gamble: The Northern Pacific Railroad, the Sioux, and the Panic of 1873. Focused on construction in the West.
- Lucibello, Alan (2014). "Panic of 1873". In Daniel Leab (ed.). Encyclopedia of American Recessions and Depressions. ABC-CLIO. pp. 227–76. ISBN 9781598849462.
- Moseley, Fred (1997). "Depression of 1873–1879". In Glasner, David; Cooley, Thomas F. (eds.). Business Cycles and Depressions: An Encyclopedia. pp. 148–149. ISBN 0-8240-0944-4.
- Oberholtzer, Ellis Paxson (1907). Jay Cooke: Financier of the Civil War. Vol. 2. pp. 378–430. Available at Google Books
- Persons, Warren M.; Tuttle, Pierson M.; Frickey, Edwin (1920). "Business and Financial Conditions Following the Civil War in the United States". JSTOR 1928610.
- Scott, Ira O. Jr. (1952). "A Comparison of Production during the Depressions of 1873 and 1929". American Economic Review. 42 (4): 569–576. JSTOR 1810159.
- Sprague, Oliver Mitchell Wentworth (1910). History of crises under the national banking system. pp. 1–107. Available at Google Books
- Wheeler, Keith (1973). The Railroaders. New York: Time-Life Books.
- Wicker, Elmus. Banking panics of the gilded age (Cambridge University Press, 2006) contents
Yearbooks
- Appleton's Annual Cyclopedia...for 1873 (1879) at Google Books
- Appleton's Annual Cyclopedia...for 1875 (1877) at Google Books
- Appleton's Annual Cyclopedia...for 1876 (1885) at Google Books
- Appleton's Annual Cyclopedia...for 1877 (1878) at Google Books