The worst depression in American History: 1873–1896. In Part Iof this depressing blog (pun intended) I posted some suddenly familiar happenings in 1873 that began with companies going bankrupt, banks folding, and the consumer bearing the brunt of the burden. You think CEOs and Robber Barrons went homeless? HA!
So what other effects were there from this depression? What happened to make it 23 years long?
Some say it was a price depression, not production depression, others that the country never really recovered from the 1873 Panic (which was partly true, only the rich-rich managed. Typical.) In reality, prices fell because of greater industrial productivity and the presence of sound money (gold and silver) as opposed to a currency backed by nothing.
Which should sound familiar to those following the news.
The New York Stock Market closed on September 20, 1873 for ten days. 89 of America’s 394 railroads went bankrupt. Tens of thousands of businesses failed. Unemployment skyrocketed to 14% by 1876. Construction work lagged, wages were cut, real estate values fell, and corporate profits vanished.
Stop me if this sounds vaguely familiar.
In Europe, recovery was swifter and with less loss. German Chancellor Otto von Bismarck, moved away from the laissez-faire economic policies of the 1870s, to embrace a conservative program, including trade protectionism (the paper is 20 pages long if you’re that interested), in 1879.
Of course, because wages were so low and working conditions so abysmal, American railroad workers went on strike The Great Railroad Strike of 1877. The strike paralyzed commerce. President Rutherford B. Hayes sent in federal troops and 10 states sent in militia to reopen the railroads. Broken within weeks, this strike – the first of its kind in America – paved the way for all future strikes.
Then the lumber market crashed in 1877. Another business slump with yet more businesses declaring bankruptcy.
Spring, 1879 – and people could breathe! Republicans were out and Democrats were in! No more Reconstruction! Things got better! Kind of. No not really.
Protectionism economics was back along with high tariffs, less regulation, no interference/help in the economy, and all the protests and strikes that went with that. President Benjamin Harrison won the 1888 election on a protectionism ticket. Colonialism revived, Africa was carved up, and the era of New Imperialism arrived. But in spring, 1879, things were looking up – rebuilding began, railroads extended westwards, and in the newly opened Indian Territories what amounted to giveaways of water, timber, fish, minerals proved markets were bettering.
Speculation ran rampant!
Miners opened and closed mines with such frequency it was mindboggling!
Robber Barrons made millions!
Silver flooded the market!
The Gilded Age was ushered in with genteel drinking and rampant snobbery.
The bubble built again through the 1880s with building and building, the Second Industrial Revolution, strikes, protests, rich getting richer, poor getting poorer, more strikes, murders, bombings, deaths.
In 1893 another Panic hit. And just when Chicago was going to hold The Worlds’s Colombian Exposition of 1893. (Click here for more.) The Philadelphia and Reading Railroad went bankrupt on February 23, 1893. Why? Because they learned nothing from a mere 10 years before. It overextended itself, trying to by up all the smaller guys who were probably more unstable than they. Didn’t work.
Things got worse. Runs on banks were frequent (and the FDIC wasn’t even a glimmer of a thought yet). Bankers called their loans, businesses crumpled. The credit crunch was crippling, and Europe, who didn’t have this problem yet or to America’s extent, only took payment in gold. Silver was traded in for gold. More runs. The limit on gold reserves was reached and people were out of luck.
Silver prices dropped. Bonds became worthless. Stocks plummeted. Banks failed, more railroads failed. Over 15,000 businesses failed. The west was hardest hit by this, especially with bank closures. Anywhere between 17% and 19% of the country was unemployed.
The cycle continued. People lost life savings, couldn’t pay their mortgages, and lived on the street. Newly built houses were vacant and declared haunted. (Hmmm, ever wonder why so many Victorian Houses were said to have ghosts in them?)
You get the picture. Farm prices fell, wages fell, mills closed, factories cut production and eventually closed.
Historians argue over the causes (I guess they didn’t want to include greed) Some day the Sherman Silver Purchase Act of 1890, the McKinley Tariff of 1890, have been blamed. With too much silver in the markets, the Sherman Act required the U.S. Treasury to purchase silver using notes backed by either silver or gold. Politically the Democrats and President Cleveland were blamed. Cause someone had to be.
Many western silver mines closed and a large number never re-opened. A significant number of western mountain narrow-gauge railroads, which had been built to serve the mines, also went out of business. The Denver and Rio Grande Railroad stopped its ambitious plan, then under way, to convert its system from narrow-gauge to standard-gauge.
The depression was a major issue in the debates over Bimetallism (silver & gold backed currency). The Republicans blamed the Democrats. The Populists lost most of their support and had to support the Democrats in 1896. The presidential election of 1896 was fought on economic issues and was marked by a decisive victory of the pro-gold, high-tariff Republicans led by William McKinley over pro-silver William Jennings Bryan (read his Cross of Gold Speech).
Many people abandoned their homes and went west. The U.S. economy finally began to recover in 1896. After the election of Republican McKinley, confidence was restored with the Klondike gold rush and the economy began 10 years of rapid growth.
Until the Panic of 1907.