General Discussion

The Panic of 1873 was a financial crisis that triggered an economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in Britain. In Britain, the Panic started two decades of stagnation known as the "Long Depression" that weakened the country's economic leadership.[1] In the United States, the Panic was known as the "Great Depression" until the events of 1929 and the early 1930s set a new standard.[2]

The Panic of 1873 and the subsequent depression had several underlying causes for which economic historians debate the relative importance. American inflation, rampant speculative investments (overwhelmingly in railroads), the demonetization of silver in Germany and the United States, ripples from economic dislocation in Europe resulting from the Franco-Prussian War (1870–1871), and major property losses in the Great Chicago Fire (1871) and the Great Boston Fire (1872) helped to place massive strain on bank reserves, which, in New York City, plummeted from $50 million to $17 million between September and October 1873.

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.


The Depression of 1882–1885, or Recession of 1882–1885, was an economic contraction in the United States that lasted from March 1882 to May 1885, according to the National Bureau of Economic Research. Lasting 38 months, it was the third-longest recession in the NBER's chronology of business cycles since 1854. Only the Great Depression (1929–1941) and the Long Depression (1873–1879) were longer.


The Depression of 1882–1885 was not inaugurated by financial disaster or mass panic, but was rather an economic downturn that came about through a protracted and gradual process.[1] The downturn was preceded by a period of prosperity over the years 1879 to 1882, a growth powered by expansion of the American railroad industry and the opening of economic opportunities associated with the development of the transportation system.[2] During this interval annual railroad construction quadrupled, growing from 2,665 miles (4,289 km) in 1878 to 11,569 miles (18,619 km) in 1882.[2] According to one 1997 estimate, the expansion of this sector represented a full 15% of American capital formation during the decade of the 1880s.[3]

In addition, the United States experienced a favorable international balance of trade during the 1879–1882 period of growth — a fact which had the effect of expanding the country's money supply, facilitating credit and investment.[2]
Comparison of major 19th and early 20th century recessions
Downturn Length[4] Business activity[5]
1873–1879 65 mos. -33.6%
1882–1885 38 mos. -32.8%
1893–1894 17 mos. -37.3%
1907–1908 13 mos. -29.2%
1921–1922 18 mos. -38.1%

In 1882 this trend reversed, resulting in a decline in railroad construction and a decline in related industries, particularly iron and steel.[6] Mismanagement and rate wars negatively affected profitability and the luster of railroads as an investment was dulled; money dried up and construction of new lines was negatively impacted, falling from 11,569 miles in 1882 to 6,741 miles in 1883.[2]

Panic of 1884
Main article: Panic of 1884

A major economic event during the recession was the Panic of 1884.

The 1884 downturn was severe with an estimated 5% of all American factories and mines completely shuttered during the 12 months running from July 1, 1884, to July 1, 1885.[7] In addition another 5% of such enterprises were said to have closed down for part of the year.[7] Approximately 1 million American workers were out of work during this economic trough.[8]
Causes

Like the Long Depression that preceded it, the Depression of 1882–85 was more of a price depression than a production depression — in that prices and wage rates contracted while gross output remained more or less constant.[6]

Contemporary observers were baffled by the downturn and agents of the fledgling U.S. Bureau of Labor Statistics conducted extensive surveys on the matter. In a published report by Commissioner of Labor Carroll D. Wright, it was found that explanation of the 1882 depression varied greatly according to the profession of the observer, with bankers and merchants tending to blame financial or commercial reasons, members of the clergy tending to blame social causes combined with divine providence, manufacturers apt to blame regulatory causes and the wage demands of workers, and workers tending to identify overproduction due to the introduction of new labor-saving machinery and low wage levels that made it impossible to consume the full amount of output.[9]

A lengthy alphabetical list of causes claimed by survey respondents was compiled by the Bureau, which included, among other proposed factors, defects in the banking system, place of credit in agriculture, the use of child labor, the negative effects of corporate monopoly, a lack of public confidence in the future of the economy, expansion of the role of silver in the money system due to an unequal price ratio between gold and silver, excessive immigration, the expanded use of labor-saving machinery, a growth of speculative investment and market manipulation, the decline of railway construction, negative effects of a high tariff policy, and the growing consolidation of wealth in the hands of a comparative few.[10]

1887–1888 recession

1890–1891 recession

The Panic of 1893 was an economic depression in the United States. It began in February 1893 and officially ended eight months later, but the effects from it continued to be felt until 1897.[1] It was the most serious economic depression in history until the Great Depression of the 1930s. The Panic of 1893 deeply affected every sector of the economy and produced political upheaval that led to the political realignment and the presidency of William McKinley.

The pro-Republican Judge magazine blamed the Panic of 1893 on the Democratic victory in the 1892 election.

The Panic of 1893 has been traced to many causes, one of them pointing to Argentina; investment was encouraged by the Argentine agent bank, Baring Brothers. However, the 1890 wheat crop failure and a failed coup in Buenos Aires ended further investments. In addition, speculations in South African and Australian properties also collapsed. Because European investors were concerned that these problems might spread, they started a run on gold in the U.S. Treasury. Specie was considered more valuable than paper money; when people were uncertain about the future, they hoarded specie and rejected paper notes.[2][3]

During the Gilded Age of the 1870s and 1880s, the United States had experienced economic growth and expansion, but much of this expansion depended on high international commodity prices, which were also affected by the McKinley Tariff of 1890. Exacerbating the problems with international investments, wheat prices crashed in 1893.[2] In particular, the opening of numerous mines in the western United States led to an oversupply of silver, leading to significant debate as to how much of the silver should be coined into money (see below). During the 1880s, American railroads experienced what might today be called a "bubble": investors flocked to railroads, and they were greatly over-built.[4]

One of the first clear signs of trouble came on 20 February 1893,[5] twelve days before the inauguration of U.S. President Grover Cleveland, with the appointment of receivers for the Philadelphia and Reading Railroad, which had greatly overextended itself.[6] Upon taking office, Cleveland dealt directly with the Treasury crisis[7] and convinced Congress to repeal the Sherman Silver Purchase Act, which he felt was mainly responsible for the economic crisis.[8]

As concern for the state of the economy deepened, people rushed to withdraw their money from banks, and caused bank runs. The credit crunch rippled through the economy. A financial panic in London combined with a drop in continental European trade caused foreign investors to sell American stocks to obtain American funds backed by gold.[9]

The economic policies of President Benjamin Harrison have been characterized as a contributing factor to the depression.[10]

The Panic of 1896 was an acute economic depression in the United States that was less serious than other panics of the era, precipitated by a drop in silver reserves, and market concerns on the effects it would have on the gold standard. Deflation of commodities' prices drove the stock market to new lows in a trend that began to reverse only after the 1896 Klondike Gold Rush. During the panic, call money would reach 125 percent, the highest level since the Civil War.[citation needed]


The Panic of 1896 had roots in the Panic of 1893, and is seen as a continuation of that economic depression.[1] The drop in American gold reserves worsened the effects of the Panic of 1893, and the Panic of 1896 was given its own distinction. The Coinage Act of 1873 demonetized the use of silver in America, and the Resumption Act of 1875 further established the gold standard. This period of deflation was met with some resistance, as the agrarian Populist Party formed to protest the adoption of the gold standard, and reinstate the bimetallic standard, due to farmers’ inability to repay debts at lower prices, and silver miners loss of market share. Farmers also wanted to adopt the bimetallic standard because they could sell their crops at higher prices. The Sherman Silver Purchase of 1890 allowed limited use of silver in the American economy, but did not allow unlimited coinage as supporters of the "Free Silver" movement wanted. The Silver Purchase did not work as most of the backers had intended, as a large portion of the buyers redeemed their coins with gold, causing the already pressured American gold reserves to deplete. The American gold reserves dropped to just $60 million in January 1895, which, combined with the subsequent J. P. Morgan bond episode, in which Morgan, in cooperation with the European Rothschilds, sold gold directly to the U.S. treasury, causing the public’s worry for the gold standard to increase.[2]

1899–1900 recession

1902–1904 recession

The Panic of 1907, also known as the 1907 Bankers' Panic or Knickerbocker Crisis,[1] was a financial crisis that took place in the United States over a three-week period starting in mid-October, when the New York Stock Exchange suddenly fell almost 50% from its peak the previous year. The panic occurred during a time of economic recession, and there were numerous runs affecting banks and trust companies. The 1907 panic eventually spread throughout the nation when many state and local banks and businesses entered bankruptcy. The primary causes of the run included a retraction of market liquidity by a number of New York City banks and a loss of confidence among depositors, exacerbated by unregulated side bets at bucket shops.[2]

The panic was triggered by the failed attempt in October 1907 to corner the market on stock of the United Copper Company. When the bid failed, banks that had lent money to the cornering scheme suffered runs that later spread to affiliated banks and trusts, leading a week later to the downfall of the Knickerbocker Trust Company, New York City's third-largest trust. The collapse of the Knickerbocker spread fear throughout the city's trusts as regional banks withdrew reserves from New York City banks. The panic then extended across the nation as vast numbers of people withdrew deposits from their regional banks, causing the 8th-largest decline in U.S. stock market history.[3]

The panic might have deepened if not for the intervention of financier J. P. Morgan,[4] who pledged large sums of his own money and convinced other New York bankers to do the same to shore up the banking system. That highlighted the limitations of the US Independent Treasury system, which managed the nation's money supply but was unable to inject sufficient liquidity back into the market. By November, the financial contagion had largely ended, only to be replaced by a further crisis due to the heavy borrowing of a large brokerage firm using the stock of Tennessee Coal, Iron and Railroad Company (TC&I) as collateral. Collapse of TC&I's stock price was averted by an emergency takeover by Morgan's U.S. Steel Corporation, a move approved by the trust-busting President Theodore Roosevelt. The following year, Senator Nelson W. Aldrich, a leading Republican, established and chaired a commission to investigate the crisis and propose future solutions, which led to the creation of the Federal Reserve System.[5][6]
Economic conditions
Dow Jones Industrial Average 1904–1910. The bottom of 53 was recorded November 15, 1907.

When United States President Andrew Jackson allowed the charter of the Second Bank of the United States to expire in 1836, the U.S. was without any sort of central bank, and the money supply in New York City fluctuated with the country's annual agricultural cycle. Each autumn money flowed out of the city as harvests were purchased and—in an effort to attract money back—interest rates were raised. Foreign investors then sent their money to New York to take advantage of the higher rates.[7] From the January 1906 Dow Jones Industrial Average high of 103, the market began a modest correction that would continue throughout the year. The April 1906 earthquake that devastated San Francisco contributed to the market instability, prompting an even greater flood of money from New York to San Francisco to aid reconstruction.[8][9] A further stress on the money supply occurred in late 1906, when the Bank of England raised its interest rates, partly in response to UK insurance companies paying out so much to US policyholders, and more funds remained in London than expected.[10] From their peak in January, stock prices declined 18% by July 1906. By late September, stocks had recovered about half of their losses.


The Panic of 1910–11 was a minor economic depression that followed the enforcement of the Sherman Antitrust Act, which regulates the competition among enterprises, trying to avoid monopolies and, generally speaking, a failure of the market itself.[1] The short-term panic lasted approximately 1 year and led to a drop of the major U.S. stock market index by ~26%. It mostly affected the stock market and business traders who were smarting from the activities of trust busters, especially with the breakup of the Standard Oil Company and the American Tobacco company.[2]

Recession of 1913–1914