The Panics and Depressions of 1873 and 1893 During The Gilded Age

The two panics, or depressions, of the Gilded Age occurred in 1873 and 1893. Both of these panics were due to a major economic downfall, and they each spanned over multiple years. These panics created high unemployment rates, exceeding ten percent at times, and they made banks go bankrupt. The panic of 1873 was caused by speculative investments similar to the panic in 1893. Both events caused a political scene as well as an economical scene. The American people had a great response to both of these, and sometimes were even part of the problem. The government was problem solver in both of these panics, as the American people looked to them for the solution.

The Panic of 1873 was not just an American depression, but one on a global scale. It was caused by the new industrial capitalism brought about by industrialization, post-Civil war inflation, speculative investments, and economic depression in Europe. Many factors led to bank reserves to drop. The Coinage Act of 1873 also had a big role in kick starting this panic. Immediately after Congress passed the act, silver prices dropped, causing investors to be weary of long term investments.

The main event in American that set off the Panic of 1873 was the failure of the Jay Cooke and Company, which was the country’s forefront bank for investing. The company was largely backed railroads, especially the Northern Pacific Railroad. It also handled government bonds, also known as “greenbacks”, and was probably largest known bank for doing so in the United States. They sold many government bonds to people, which when the bank’s reserves started to drop made the bond holders scared they might lose their money. This in turn made others scared, and it set off a chain reaction of people withdrawing their money from banks, effectively causing them to go bankrupt. At this point factories even closed their doors, leaving thousands without jobs.

As one could imagine the people were not too happy about this, and they responded to the Panic of 1873 with a strike on the railroad, as well as blaming President Grant and Congress for mishandling the economy. The strike on the railroads stopped all trains in 1877. At this time President Hayes was in office and used troops to try to stop the strike. The damage at this time was already done to the economy, and wasn’t until 1879 that the economy recovered. However, a lasting distaste with capitalism still lingered from the panic.

The Panic of 1893 was also a depression created by multiple events that weakened the economy. The main events that set this panic into motion was the collapse of two railroad companies, the Philadelphia and Reading Railroads. Also, at this time, there was a depression going on in Europe, which caused European investors to cash in their American investments. This also created a panic because of the American gold loss. The stock market eventually started to tank, and it eventually reached an all-time low. Other railroads started declaring bankruptcy, and unemployment grew by the millions, soaring about twenty percent.

The effect of the Panic of 1893 caused hundreds of banks to close, thousands of businesses to fail, made unemployment soar high, and caused the stock market to reach an all-time low. It is pretty easy to see how someone living at this time could have been in a panic about their financials. The public opinion started to shift to blaming the government for the depression, especially President Cleveland, a Democrat. This blame allowed the Republican Party to make one of the largest political gains in the history of the United States.

Once again people looked to the government for answers, but President Cleveland did not try to help much. His stance was to not tamper with the economy by politics, but to let the depression play out as a natural cycle of the economy. However, President Cleveland grew concerned about the nation’s gold reserve, and he convinced Congress to repeal the Sherman Silver Purchase Act in hopes to fix some of the Treasury crisis. Although for the actual economic crisis, they government did little to help fix it, simply because there really was not much they could do. It wasn’t until 1897 when the United States made a comeback from the depression.

Both of these panics were an economical disaster for the United States. They forced many to bankruptcy, unemployment, and simply financial panic. They had a lasting impact on our nation, but eventually the economy bounced back to being normal once again.