Depression of 1873

The depression of the 1870s was part of an economic downturn that began in 1873. The primary cause was the temporary collapse of the railroad industry. Prior to 1873, robust railroad expansion had helped fuel economic growth; however, the expansion of railroad track had primarily taken place west of the Mississippi River. Because of long distances and sparse population, those railroads that had invested in western expansion were often unprofitable. By 1872, nearly two-thirds of the nation's railroad companies were not paying dividends to their investors.

The precipitating event of the 1873 panic was the September 18 bankruptcy of Jay Cooke and Company, which was financing the construction of the Northern Pacific railroad. The failure of Cooke's bank set off a wave of selling on Wall Street, eventually forcing the stock exchange to suspend trading for 10 days. Additional railroad companies were unable to make bond payments. Consequently, the construction of railroad track, a major driver of economic activity, came to an abrupt halt. The impact of constrained railroad construction reverberated throughout the U.S. economy. By the end of 1873, approximately 5,000 businesses had failed, with a total of $775 million in capital lost.

One of the most visible outcomes of the depression was an increase in worker violence. The most harrowing example of labor unrest came in 1877 when disgruntled workers struck back at the Pennsylvania Railroad for wage cuts and poor working conditions. As the economic downturn continued into 1877, railroad workers, who typically worked 15–18 hours shifts, had experienced pay cuts amounting to 35 percent. When the Pennsylvania Railroad initiated an additional 10 percent cut, workers began a series of strikes at Camden Junction, Maryland; Martinsburg, West Virginia; and, most prominently, Pittsburgh, Pennsylvania, on July 19, 1877. The riots were eventually quelled by federal troops but only after the loss of 25 lives and the destruction of some $10 million of railroad property.

For the nation's farmers, the depression had a significant impact. First, the decline of business activity meant less demand for agricultural commodities, something that exacerbated overproduction and price erosion. Since the end of the Civil War, the federal government had pursued a policy of currency contraction, retiring greenbacks that had been generated during the war. This policy was based on the belief that all currency must ultimately be based on the amount of gold bullion that the U.S. Treasury has in reserves. In 1873, Congress passed the Coinage Act, which prohibited the additional monetizing of silver (the so-called Crime of 1873). In 1875, the Resumption of Specie Payment Act was passed that stipulated the retirement of all greenbacks and the resumption of hard-currency payments on January 1, 1879. This policy of currency contraction was disastrous for farmers who, throughout the depression, saw the value of their crops decline while their debts stayed the same.

The depression of 1873 revealed that the power of government was often aligned against workers and small farmers. When angry workers struck to protest their plight, the power of government was turned against them. While farmers lobbied for an expanded money supply, the government pursued a policy that contracted the money supply. Indeed, the federal and state governments seemed allied with large business and commercial interests; the rules seemed to be written to ensure that the wealthy were protected while the interests of average workers and farmers were ignored.

Bruce Tap

See also: Banking System of the Late Nineteenth Century , Crime of ’73 , Depression of 1893 , Gold Standard/Free Silver , Granger Movement , Railroads


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