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The Panic of 1873

After the end of the Civil War, railroad construction in the United States had been booming. By 1873 railroad mileage had doubled itself since 1869, and this was a cause of rash speculation. Between 1866 and 1873, 35,000 miles of new track were laid across the country. Banks and other industries were putting their money in railroads. While business was expanding the currency was contracting. Paper money had depreciated, and the conditions foreboded a crash. So when the banking firm of Jay Cooke and Company, a firm heavily invested in railroad construction, closed its doors on September 18, 1873, a major economic panic swept the nation.

Jay Cooke firm handled most of the government loans during the war and was financing the planned Northern Pacific Railroad. The first transcontinental railroad had been completed in 1869 and entrepreneurs planned the Northern Pacific as the second. Cooke’s firm was the financial agent in this venture and poured money into it. Then on September 18, 1873, the company realized it had overextended itself and declared bankruptcy.

The collapse was disastrous for the nation’s economy. Other strong institutions tottered and thousands of people in every rank of life were stricken with absolute ruin. The blow was felt for years in impaired credit, pressure for payment of dues, the lowering of securities and general dread of even safe enterprises. Savings were exhausted and many banks went under. The New York Stock Exchange closed its doors for ten days. Credit dried up, foreclosures were common. Factories closed, costing thousands of worker’s their jobs. A startling 89 of the country’s 364 railroads crashed into bankruptcy. In two years, a total of 18,000 businesses failed and by 1876, unemployment in this country was at 14 percent.

The public tended to blame President Grant and Congress for mishandling the economy. The causes, however, were much broader. The postwar period was one of frantic, unregulated growth with the government playing no role in curbing abuses. The extreme overbuilding of the nation’s railroad system, more than any other single event, laid the groundwork of the Panic and the depression that followed. Recovery was not realized until 1878.

In the end, the Panic brought bitter antagonism between labor and the leaders of banking and manufacturing. Workers all over the country, in response to wage cuts and poor working conditions, struck and prevented trains from moving. President Rutherford B. Hayes was forced to send federal troops to more than a half a dozen states to stop the strikes. When it was over the fighting between strikers and troops left more than 100 people dead and many more injured. This tension between labor and manufacturing lasted for decades after.