Confusion! Conflict! Chaos! Combined with a major catastrophe. This was the state of the United States of America on the 20th of September 1873.
The Industrial Revolution in the USA was initiated in the late 18th century with the establishment of a textile mill in Pawtucket, Rhode Island. Soon other industries followed. New manufacturing techniques were introduced and advanced machines were set up. Goods that had once been hand-made were now produced using those machines in factories.
However, all advancements ceased when the civil war started on 12th April 1861. The clashes between the Northern states (loyal to the union) and the Southern States (who had formed the Confederates of USA) removed all attention from industrial development. Bloodshed and turmoil spread throughout the whole country. The war lasted for four years until Confederate General Robert E. Lee surrendered to Union General Ulysses S. Grant at the Battle of Appomattox Court House.
The civil war finally ended on the 9th of April 1869, but another bigger problem arose.
The crashing of the New York Stock Exchange Market, leading to what is now known as “the Panic of 1873.”
In this article, we will talk about :
- Key Takeaways
- The Panic – How did it happen?
- The Economic Crisis
- Aftermath – The Impact – Economic, Social and Cultural
- The End of the Panic of 1873
- The Panic of 1873 was an economic depression for six years.
- The depression was caused by an overambitious investment in railroad construction which led to the stock market crash of 1873.
- Businesses crashed and unemployment increased at an alarming rate.
The Panic – How did it happen?
- After the Civil War ended, there was a hike in railroad construction. The country’s biggest industries and banks started investing in the construction of railways. The demand was high and 53000 kilometres of new railway tracks were built between the years 1866-1873. It was the second biggest employer after agriculture and the businesses involved in it were flourishing.
- Jay Cooke and Co. was a major bank invested in the post-war railroad construction. They accumulated millions of dollars by selling bonds to finance the construction. They had been working on the second transcontinental railroad of the Northern Pacific Railway when the company realized that they had overestimated their finances.
- The construction’s price ended up being higher than the funds available. Several efforts were made to raise more money, but those failed and Jay Cooke and Co. were forced to declare bankruptcy and closed down. Many firms followed them and the crumbling of the railway sponsors initiated high bank withdrawals and railway construction was paused.
- The New York Stock Exchange Market had been highly dependent on these firms and the crashing of Jay Cooke and Co. caused a ripple effect. On 20th September 1973, the New York Stock Exchange Market suspended its trading ensuing economic panic around the whole nation.
- This initiated the start of the first “Great Depression” which stretched from North America to Europe. This was the first international depression sparked by industrial capitalism causing dire economic problems in North America and Europe.
Aftermath – The Impact – Economic, Social, Cultural
- The closing of Jay Cooke and Co. had led to a domino effect instigating many other bank firms, (such as Henry Clews) insurance companies, and several other industries to shut down. 18,000 businesses crashed and in the following years, unemployment rose to an alarming 14%.
- The economic cloud weighed heavily on New Yorkers and soon spread to Chicago, Virginia City, and San Francisco.
- Ulysses S. Grant, the American President of that time tried his best to find a solution. He travelled to New York, had several meetings with businessmen, and discussed the next steps to resolve the issue. Grant came to believe that this was an economic fluctuation that only affected a few businesses and would be solved easily. He ordered the U.S Treasury Secretary Williams Adams Richardson to buy 10 million dollars in government bonds and use it to stabilize the economy.
- This helped in containing the panic on Wall Street but it was not enough to help the nation.
- The Depression would continue for 5 more years. During this time, 55 of the country’s railroads failed and 60 went bankrupt in just a year. Construction of railroads plunged from 12,100 kilometres in 1872 to 2,600 kilometres in 1875.
- The economy continued to decline and Grant’s efforts into stabilizing the situation were ineffective. In 1876, Grant chose to refrain from participating in the presidential election as he understood that he had been unable to fix the economic crisis and thus people were not in his favour.
The Social and Cultural Impact
- In 1877, the layoffs, wage cuts, and terrible working conditions. The workers were enraged and frustrated and in 1877, this led to the start of the Great Railroad Strike. Protests began in Martinsburg, West Virginia as the pay was cut the third time during that year. The West Virginia Governor Henry M. Mathews tried to contain the situation but he was unsuccessful as the militia sympathized with the protestors.
- However, the rioting got so out of hand (with looting, and civilian attacks) that President Rutherford B. Hayes was compelled to send troops in more than 12 states to contain the situation and stop the strikes. However, this caused fighting between the protestors and the soldiers and more than 100 people died while many more ended up injured.
- In July 1877, the lumber market crashed, causing several lumbering companies in Michigan to crash. The effects of this spread to several states including California and unemployment continued increasing.
- The economic crisis finally concluded in late 1879, but the relationship between the workers and the leaders of the banking and manufacturing industries remained strained. The depression caused many large-scale railroad construction programs to terminate in the South, leaving the states debt-ridden.
- The unimproved economic conditions caused voters to turn against the Republican Party and in the congressional elections of 1874, the Democratic Party won and gained control of the White House for the first time after the Civil War.
- Gaining political prominence allowed the Democrats to effectively end the Radical Reconstruction. This made it even easier for white supremacists to resume their campaign of terror against the blacks. The North which had strongly condemned slavery and advocated for the political rights of black people were preoccupied with other economic problems such as wage cuts, falling farm prices and railways strikes. In the United States History: Beginnings to 1877, the writers’ state that “Northerners were becoming less concerned about southern racism and more concerned with their financial well-being.”
- The Ku Klux Klan a white supremacist hate group which had been subdued through the Reconstruction legislation starting in 1868resumed with their cycle of hatred against the black people. Violent clashes ensued between the two groups of people and many individuals were killed during the process.
- Due to the antagonistic public opinion towards the Republicans, it became difficult for the Grant administration to develop a well-organized policy for the Southern states, and the North began to divert from the Reconstruction legislation.
The End of the Panic
When the economic crises finally ended, bigger problems still remained. The white southerners had grown more powerful and the Klu Klux Klan had become bolder with their attacks on the black people. The Radical Republicans which had once fought for the rights of the black people had become unpopular due to their ineffective methods in trying to fix the economic crisis.
The industrial advancements in the country resumed however at a much slower pace than before. Companies which had made smart decisions of making secure capital investments discovered that they had an edge over the other collapsing companies. They used it to their advantage and found themselves flourishing. The wealth became concentrated among those companies and the disparity in wealth distribution increased.
The end of the panic also coincided with the start of the great wave of immigration to the United States, which lasted until the early 20th century.