The Panic of 1873 was a severe nationwide economic depression in the
United States that lasted until 1877. It was precipitated by the bankruptcy of the Philadelphia banking firm
Jay Cooke and Company on
September 18,
1873 along with the meltdown on
May 9, 1873, of the
Vienna Stock Exchange in
Austria. It was one of a series of economic crises in the 19th and early 20th centuries.
Causes
In 1873, the American economy entered a crisis. This followed a period of post Civil War economic expansion that arose from the Northern railroad boom.
At the end of the
Civil War, there was a boom in railroad construction, with 35,000 miles (56,000 km) of new track laid across the country between 1866 and 1873. The railroad industry, at the time the nation's largest employer outside of agriculture, involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry.
In September 1873,
Jay Cooke and Company, a major component of the country’s banking establishment, found itself unable to market several million dollars in Northern Pacific Railroad bonds.
Cooke's firm, like many others, was invested heavily in the railroads. President
Ulysses S. Grant's
monetary policy of contracting the money supply made matters worse. While businesses were expanding, the money they needed to finance it was becoming scarcer. Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the
Northern Pacific Railway. Cooke's firm provided the financing. But on
September 18, the firm realized it had become overextended and declared bankruptcy....
Years of unregulated speculative credit had created vast overexpansion of the nation’s railroad network. The failure of the Jay Cooke bank set off a chain reaction of bank failures and temporarily closed the stock market. Factories began to lay off workers as the nation slipped into depression.
The
New York Stock Exchange closed for 10 days. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between
1873 and
1875.
Unemployment reached 14% by
1876, during a time which became known as the
Long Depression.