The Panic of 1873, also referred to as the Depression of 1873 by historians, was a major economic event that affected United States and several other countries in Europe, such as Germany, Britain and even Austria. This crisis lasted for around 5 to 6 years (1873 - 1879). There are several factors which led to this event, the Jay Cooke and Company going bankrupt being a major reason.
Before going into the causes and its impact in details, let us see a summary so that you have an idea as to what it actually was. United States had just recovered from the Civil War and the country was now busy in constructing railroads. Between the years 1866 to 1873, USA had laid around 35,000 miles of rail tracks across the country. Economic situation in USA was strong and no one was expecting a crisis like this.
These railroads were constructed on the basis of money borrowed from various banks and industries and they were readily giving out a lump sum as everyone believed that the railroads would really flourish and also because this was considered to be the major non-agricultural industry. But problems arose when the stock market in Vienna crashed and when two of the major banks in the United States; Jay Cooke and Company, and New York Warehouse and Security Company, went bankrupt.
The first countries to be affected by this crisis were Austria and the United States. The railroad business in USA, which was booming, came to a halt, and half of America's transport business was affected. People were unemployed, companies started closing down, education suffered and since the Government changed hands from the Republicans to the Democrats, the African-American people's dreams of social reform was now just a dream.
There are several factors which led to this disaster. Some of these factors have already been discussed above in brief. Let us now see each of them in details.
Downfall of the Jay Cooke and Company (September 1873)
Just after the end of the Civil War, the railroad industry became the second largest employer and the industry was booming. Several banks and industries were willingly investing in the railways. In September 1873, the Jay Cooke and Company, which was a major component of the banking establishment in America, found that it was unable to market millions of dollars in the Northern Pacific Railway bonds.
The company had become completely bankrupt and this in turn led to series of economic issues. The New York Stock Exchange (NYSE) was closed down for nearly 10 days. Several factories also closed down and unemployment became a major issue. Finally on 18th September, the Jay Cooke Company declared itself bankrupt.
Coinage Act (1873)
Another cause was the Coinage Act. The German empire, in 1871, decided to cease the coining of silver thaler coins. This in turn led to a decline in the demand for silver coins and pressure was exerted on the value of this precious element. A large amount of silver was being mined in USA and a fall in the demand of silver, obviously affected the economical situation. Hence the Coinage Act was introduced and it was this Act which changed the country's policy towards silver.
Before introducing this Act, America minted both types of coins (gold and silver), but the passing of the Act meant that America could mint or buy only gold coins but not silver. As a result, the price of silver spiralled down and affected the interest of the Western miners. They labeled the Act as "The Crime of '73". It reduced the supply of money, which in turn affected the farmers and all those who were in debt, and some investors also started shying away from any long term bonds.
Now that we have seen the two major causes, let us now see what was the impact of the crisis on the countries which were affected. Besides the United States, there were some other European countries were also deeply affected by the crisis. Before the Jay Cooke company became bankrupt, in June 1873, the stock market in Vienna crashed and this leads to a series of downfall in the markets of Germany, Great Britain and the rest of Europe.
In United States, besides the Jay Cooke, several other banks and factories started closing down. Wages were reduced, workers were fired from their jobs, several people became unemployed, and a large number of the railroads also became bankrupt and there was a fall in the real estate value as well. The American railroad unions went on a strike in the year 1877 (Great Railroad Strike) and the trains were stopped from traveling from one place to another. In 1877, several lumbering companies also became bankrupt.
Due to this poor economic condition, people now turned against the Republican government, which at that time was being led by President Ulysses S. Grant. They turned to the Democrats for help, and this in turn was a bad news for the African-Americans whose dreams about social reforms remained just a dream.
The Southern Black people were the ones who suffered the most. The Northerners became less involved fighting for the rights of the Afro Americans. The suppressed organizations like the Ku Klux Klan, resumed their terror campaigns against these African-Americans. By the time the crisis lifted, the Southern whites were already taking control.
Hence, now you know all the factors that were responsible for the Panic of 1873, the great economic crisis in the American history, and also what were the impacts of this major economic crisis. The crisis prevailed for around 5 to 6 years, i.e. from 1873 to 1879. It was with great difficulty that the people of America and the rest of Europe came out of this depression.