The Financial Panic of 1873

The Panic of 1873 is a lesson from history worth examining on this Saturday. 

The following video clip is from Rick Burns' THE WAY WEST, six-hour documentary series chronicling the way the West was lost and won between 1845 and 1893, broadcast nationally on PBS in May 1995 as part of WGBH’s American Experience.

Courtesy of PBS.com:

Since the end of the Civil War, railroad construction in the United States had been booming. Between 1866 and 1873, 35,000 miles of new track were laid across the country. Railroads were the nation's largest non-agricultural employer. Banks and other industries were putting their money in railroads. 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's firm had been the government's chief financier of the Union military effort during the Civil War. The firm then became a federal agent in the government financing of railroad construction. The railroad industry involved a huge amount of money -- and risk. Building tracks where land had not yet been cleared or settled required land grants and loans that only the government could provide.

The nation's first transcontinental railroad had been completed in 1869. Entrepreneurs planned a second, called the Northern Pacific. Cooke's firm was the financial agent in this venture, and poured money into it. On September 18, the firm realized it had overextended itself and declared bankruptcy.

Mirroring the firm's collapse, many other banking firms and industries did the same. This collapse was disastrous for the nation's economy. A startling 89 of the country's 364 railroads crashed into bankruptcy. A total of 18,000 businesses failed in a mere two years. By 1876, unemployment had risen to a frightening 14 percent.

An economic cloud settled over Ulysses S. Grant's second term, and he tried to find a solution that would drive it away...

Read the rest here