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The Panic of 1873 was the start of the Long Depression, a severe nationwide economic depression in the United Statesmarker that lasted until 1879. It was precipitated by the bankruptcy of the Philadelphiamarker banking firm Jay Cooke & Company on September 18, 1873. It was one of a series of economic crises in the 19th and early 20th centuries.


The American Civil War was followed by a boom in railroad construction. Thirty-five thousand miles (56,000 km) of new track was laid across the country between 1866 and 1873. Much of the craze in railroad investment was driven by government land grants and subsidies to the railroads. At that time, the railroad industry was the nation's largest employer outside of agriculture, and it involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry as well as overbuilding of docks, factories and ancillary facilities. At the same time, too much capital was involved in projects offering no immediate or early returns.

And even as the Union Pacific and Central Pacific railroads were being joined together in May 1869 at Promontory Summit, Utahmarker, hence connecting the east coast to the west coast, the first tremors of over speculation were manifesting themselves in an incident that became known as The Black Friday panic. It was caused by the attempt of Jay Gould and Jim Fisk to corner the gold market in 1869. They were prevented from doing so by the decision of the administration of President Ulysses S. Grant to release government gold for sale. The collapse of gold premiums culminated in a day of panic when thousands of overleveraged speculators were ruined - Friday, September 24, 1869, popularly called Black Friday. There was great indignation against the perpetrators.

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 a 'de facto' gold standard, which meant it would no longer buy silver at a statutory price or convert silver from the public into silver coins (though it would still mint silver dollars in the form of Trade Dollars)

The Act had the immediate effect of depressing silver prices. This hurt Western mining interests, who labeled the Act "The Crime of '73." Its effect was offset somewhat by the introduction of a silver trade dollar for use in the Orient, and by the discovery of new silver deposits at Virginia City, Nevadamarker, resulting in new investment in mining activity. But the coinage law also reduced the domestic 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.

In September 1873, the American economy entered a crisis. This followed a period of post Civil War economic overexpansion that arose from the Northern railroad boom. It came at the end of a series of economic setbacks: the Black Friday panic of 1869, the Chicago fire of 1871, the outbreak of equine influenza in 1872, and demonetization of silver in 1873.

Jay Cooke & Company fails

In September 1873, Jay Cooke & Company, a major component of the United States 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. At a time when investment banks were anxious for more capital for their enterprises, 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 that growth was becoming more scarce.

Cooke and other entrepreneurs had planned to build the nation's second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing, and ground was broken near Duluth, Minnesotamarker, for the line on February 15, 1870. But just as Cooke was about to swing a $300 million government loan in September 1873, reports circulated that his firm's credit had become nearly worthless. On September 18, the firm declared bankruptcy. The Northern Pacific was not completed until 1883, and then by another financier: Henry Villard.


The failure of the Jay Cooke bank, followed quickly by that of Henry Clews, set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, more slowly in Chicago, Virginia City and San Francisco.

The New York Stock Exchangemarker closed for ten days starting September 20. 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. Construction work lagged, wages were cut, real estate values fell and corporate profits vanished.

Wage cuts and poor working conditions among American railroad workers resulted in the Great Railroad Strike of 1877, preventing the trains from moving, especially in Pennsylvania and the great railway hub of Chicago. 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. Further trouble came in July 1877 in the form of a crash in the market for lumber, resulting in the bankruptcy of several leading Michigan lumbering concerns. The effects of the resulting second business slump reached California by 1878.

The tension between workers and the leaders of banking and manufacturing interests 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. Finally, the election of the Republican candidate, Rutherford B. Hayes, to the Presidency in the disputed election of 1876 led to the end of Reconstruction in March 1877.

Parallel events in Germany and Austria

A similar process of overexpansion was going on in Germany and Austria, where the period from German unification in 1870-71 to the crash in 1873 came to be called the Gründerjahre or "founders' years". A liberalized incorporation law in Germany led to the founding of new enterprises, such as the Deutsche Bank, as well as the incorporation of established ones. Euphoria over the military victory against France in 1871, combined with the influx of capital from the payment by France of war reparations, encouraged stock market speculation in railways, factories, docks, steamships - in short, the same areas of overexpansion as in the United States. It was in the immediate aftermath of Bismarck's victory against Francemarker that he began the process of silver demonetization. The process began on 23 November 1871 and cumulated in the introduction of the gold mark on 9 July 1873 as the currency for the new united reich to replace the silver coins of all the constituent parts. Germany was now on the gold standard. Demonetization of silver was therefore a common element in the crises on both sides of the Atlantic Oceanmarker.

On May 9, 1873, the Vienna Stock Exchange crashed, no longer able to sustain false expansion, insolvency, and dishonest manipulations. A series of Viennese bank failures resulted, causing a contraction of the money available for business lending. In Berlin, the railway empire of Bethel Henry Strousberg crashed, bursting the speculation bubble there. The contraction of the German economy was exacerbated by the conclusion of war reparations payments to Germany by France in September 1873. Coming two years after the founding of the German Empire, the panic became known as the Gründerkrach or "founders' crash".

Recovery from the crash was much quicker in Europe than in America. Moreover, German businesses managed to avoid the sort of deep wage cuts that embittered American labor relations at the time. There was a racial component to the economic recovery in Germany and Austria as small investors irrationally blamed the Jews for their losses in the crash.

German Chancellor Otto von Bismarck gradually veered away from liberal economic policies in the 1870s, finally embracing a full conservative program, including trade protectionism, in 1879.

See also



  • Abdill, George B. (1958), This Was Railroading. Seattle: Superior Publishing Company.
  • Bowers, Claude G. (1929), The Tragic Era. The Revolution After Lincoln. New York: Blue Ribbon Books, Inc., 1931. Reprint of 1929 edition.
  • Eyck, Erich (1950), Bismarck and the German Empire. New York: W.W. Norton & Company, Inc., 1964. Originally published in 1950.
  • Fawcett, W.L. (1877), Gold and Debt; An American Hand-Book of Finance. Chicago: S.C. Griggs and Company.
  • Fels, Rendigs (1951), "American Business Cycles, 1865-79", The American Economic Review, Vol. 41, Issue 3, pp. 325-349.
  • Foner, Eric (1990), A Short History of Reconstruction 1863-1877. New York: Harper & Row.
  • History of Manistee, Mason and Oceana Counties, Michigan (1882). Chicago: H.R. Page & Co.
  • Kirkland, Edward Chase (1967), Industry Comes of Age: Business, Labor, and Public Policy 1860-1897. Chicago: Quadrangle Books.
  • Loomis, Noel M. (1968), Wells Fargo. New York: Clarkson N. Potter, Inc.
  • Lubetkin, M. John (2006), Jay Cooke’s Gamble: The Northern Pacific Railroad, the Sioux, and the Panic of 1873. Norman: University of Oklahoma Press.
  • Manchester, William (1968), The Arms of Krupp, 1587-1968. Boston: Little, Brown and Company.
  • Marek, George R. (1974), The Eagles Die. Franz Joseph, Elisabeth, and Their Austria. New York: Harper & Row, 1974.
  • Masur, Gerhard (1970), Imperial Berlin. New York: Basic Books, Inc.
  • Mayer, Harold M., and Wade, Richard C. (1969), Chicago: Growth of a Metropolis. Chicago: The University of Chicago Press.
  • 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, Vol. 2, Supplement 2, pp. 5-21.
  • Richter, Werner (1962), Bismarck. New York: G.P. Putnam's Sons, 1965. Originally published in German in 1962.
  • Wheeler, Keith (1973), The Railroaders. New York: Time-Life Books.

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