Figure 1.--There was a serious post-Civil War financial panic (1873). It hs been dcribed as America's first depression. It was no brief panic. It lasted for the rest of the decade. Some economists mintain it lasted even longer bleeding into the Panic of 1893. It was not just an American phenomenon. The United States was emerging as an economc colosus. The impacted was experienced globally.

There was a serious post-Civil War financial panic (1873). It has been described as America's first real depression. It was no brief panic. It lasted for the rest of the decade. Some economists maintain it lasted even longer bleeding into the Panic of 1893. It was not just an American phenomenon. The United States was emerging as an economic colossus. The impacted was experienced globally. Financial problems began in Europe which was experiencing problems and had heavily invested in American railroads. The initial impact in America was the failure of Jay Cooke & Company, America's first investment bank. Jay Cook had made a fortune selling Civil War bonds. Cooke redirected his pioneering direct-to-consumer investment concept to selling highly speculative railroad stocks. One historian writes, "It was like selling to crypto investors today. These investors were basically living off of the promises of famous people they had trusted before." 【White】 Cook & Company at the time was the largest bank in the United States. This suddenly burst the post-Civil War speculative bubble. As is often the case, Government action exacerbated the the financial crisis. Congress passed the Coinage Act of 1873. This immediately depressed the price of silver, damaging North American mining companies. The resulting deflation and wage cuts of the era resulting in labor turmoil. Strongly capitalized banks easily weathered the crisis, but many weaker banks failed. This had cascading impacts because the U.S. Government at the time had no depository insurance program ans state bank regulation varied widely from state to state. A major part of the panic was the railroad industry which now covered the country and had repaired the damage in the South as a result of the Civil War. The American rail system had grown at a meteoric rate since the 1840s. This included some poorly financed, but other actually corrupt projects. The industry consisted of some important rail companies and a large number of small lines. This created considerable complication for riders in traveling a long distance because you had to change to different company lines. Many of these small lines were not well capitalized. The Panic was the end of America's rapid rail expansion. The railroad were affected because of the economic down turn. This mean declining shipments and thus revenue. Many mostly small lines went bankrupt. Some just managed to pay the interest on their bonds. Rail workers who had come to expect secure employment were laid off on a mass scale. Those who kept their jobs experienced substantial wage cuts. This led to many mostly local strikes by rail workers. Eventually rail workers organized the Great Railroad Strike of 1877. The United States returned to the gold standard with the Specie Payment Resumption Act. The Panic of 1873 was certainly the most severe contraction of the 19th century and depending on how it is calculated may be the longest contraction in American economic history. It also was more widely felt than any previous economic down turn. America's capitalist economy generated a massive expansion of the U.S. economy, turning the country into an industrial giant in only a few years. It also increased wages and living standards above European levels. This is a major reason attracting European immigration. The economic growth attracted many people from rural areas into the cities. Thus more people were dependent on wages rather than farm income. Earlier panic affected rural areas, but people living on family farms could survive on the food they produced and weather out financial panics as long as they had not borrowed heavily. This was not the case for wage earners. Most did not have large savings and if they lost their jobs, they and their families were in difficult straits. The Panic lasted more than 5 years and had a massive impact. It bankrupted a total of 121 railroads, wiping out more than $15 billion in value at 2020s prices, and forced 18,000 other businesses into bankruptcy. And it was not just wealthy financiers losing money. Countless small investors who risked their wages with speculative railroad stocks were wiped out. This was a danger as America moved into the industrial era.

Sources

White, Richard. Railroaded: The Transcontinentals and the Making of Modern America.

Created: 3:59 AM 11/17/2024
Last updated: 4:00 AM 11/17/2024