Monday, November 30, 2015

American History 101: The Panic of 1873

The Panic of 1873 was triggered by a number of different events.  The government was giving away land in the west, which kicked off a boom in railroad construction.  There was a lot of money invested in that railroad construction, and the railroad industry became the second largest employer in the United States outside of farming.  All of this growth was sparked by a sudden jump in investments and lending in the industry, which increased the creation of factories and other facilities that the railroad could not support.  The speculation in the industry grew faster then the industry itself.

One of the chief events that contributed to the Panic of 1873 was the combination of the  Coinage Act of 1873 and the German Empire’s decision to stop making silver coins.  This act moved the United States to a gold standard to back its currency, when previously it had been a currency backed by gold and silver.  This caused an immediate depression on the price of silver, which was mined in the Western United States.  Add to this Germany’s decision in 1871 to stop making their thaler coins, which were silver coins that were produced from United States silver, and the demand for United States silver dropped exponentially.

Then in September of 1873, the Jay Cooke & Company declared bankruptcy throwing the entire American lending establishment into a tailspin.  Cooke & Company was one of the largest lenders in the United States banking industry, and was heavily invested in the railroad.  When they saw that the railroad was not paying dividends on the investments fast enough, they made an attempt to sell several million dollars in Northern Pacific Railway bonds, but could not find any buyers.  They needed additional capital to fund the Northern Pacific Railway which had broken ground in 1870, but when they could not sell the bonds the word on the street was that they had no credit left to
extend.  Partially because of the rumors, efforts to secure a large government loan failed and they were forced to declare bankruptcy. 

The failure of Cooke & Company triggered an avalanche of bank failures.  In response, the New York Stock Exchange closed in an effort to stop the collapsing of the entire economy.  The New York Stock Exchange remained closed for ten days in September 1873.  This also caused other banks to fail, factories to close and fifty-five of the nations railroads to close their doors.  Within one year, another sixty would declare bankruptcy.  The combination of the closing of the factories, railroads and bank failures caused unemployment to skyrocket to 8.25% in 1875.  Because of the difficult economy, wages were being cut drastically.  This caused the Great Railroad Strike of 1877, which in turn caused the lumber market to crash and tailspin several lumber companies into bankruptcy.    

Bruce holds a degree in Computer Science from Temple University, a Graduate Certificate in Biblical History from Liberty University and is working towards a Masters Degree in American History at American Public University.  He has worked in educational and technology for over 18 years, specializes in building infrastructures for schools that work to support the mission of technology in education in the classroom.  He also has served as a classroom teacher in Computer Science, History and English classes.  

Bruce is the author of five books: Sands of TimeTowering Pines Volume One:Room 509The Star of ChristmasPhiladelphia Story: A Lance Carter Detective Novel and The Insider's Story: A Lance Carter Detective Novel 

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