Panic of 1873
Encyclopedia
Depression (economics)
In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle....
in both Europe and the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
that lasted until 1879, and even longer in some countries. The depression was known as the Great Depression until the 1930s, but is now known as the Long Depression
Long Depression
The Long Depression was a worldwide economic crisis, felt most heavily in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. At the time, the episode was labeled the Great...
. The panic was caused by the fall in demand for silver internationally, which followed Germany's decision to abandon the silver standard in the wake of the Franco-Prussian war
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
.
In 1871, Otto von Bismarck
Otto von Bismarck
Otto Eduard Leopold, Prince of Bismarck, Duke of Lauenburg , simply known as Otto von Bismarck, was a Prussian-German statesman whose actions unified Germany, made it a major player in world affairs, and created a balance of power that kept Europe at peace after 1871.As Minister President of...
extracted a large indemnity
Indemnity
An indemnity is a sum paid by A to B by way of compensation for a particular loss suffered by B. The indemnitor may or may not be responsible for the loss suffered by the indemnitee...
in gold from France
France
The French Republic , The French Republic , The French Republic , (commonly known as France , is a unitary semi-presidential republic in Western Europe with several overseas territories and islands located on other continents and in the Indian, Pacific, and Atlantic oceans. Metropolitan France...
and ceased minting silver thaler
Thaler
The Thaler was a silver coin used throughout Europe for almost four hundred years. Its name lives on in various currencies as the dollar or tolar. Etymologically, "Thaler" is an abbreviation of "Joachimsthaler", a coin type from the city of Joachimsthal in Bohemia, where some of the first such...
coins. The first symptoms of the crisis were financial failures in the Austro-Hungarian
Austria-Hungary
Austria-Hungary , more formally known as the Kingdoms and Lands Represented in the Imperial Council and the Lands of the Holy Hungarian Crown of Saint Stephen, was a constitutional monarchic union between the crowns of the Austrian Empire and the Kingdom of Hungary in...
capital, Vienna
Vienna
Vienna is the capital and largest city of the Republic of Austria and one of the nine states of Austria. Vienna is Austria's primary city, with a population of about 1.723 million , and is by far the largest city in Austria, as well as its cultural, economic, and political centre...
, which spread to most of Europe and North America by 1873. It was one of a series of economic crises in the 19th and early 20th centuries. In Britain, the result was two decades of stagnation
Stagnation
Stagnation may refer to one of the following*Economic stagnation, slow or no economic growth*Era of Stagnation, a period of economic stagnation in Soviet Union*Stagnation in fluid dynamics, see "Stagnation point"*Water stagnation*Air stagnation...
known as the "Long Depression", which weakened Britain's economic leadership in the world.
In U.S. literature this global event is usually known as the Panic of 1873, while in Europe it is known as the Long Depression or Great Depression.
Factors in the U.S.
The American Civil WarAmerican Civil War
The American Civil War was a civil war fought in the United States of America. In response to the election of Abraham Lincoln as President of the United States, 11 southern slave states declared their secession from the United States and formed the Confederate States of America ; the other 25...
was followed by a boom in railroad construction. 56000 miles (90,123 km) of new track were laid across the country between 1866 and 1873. Much of the craze in railroad investment was driven by government land grants and subsidies to the railroads. At that time, the railroad industry was the nation's largest employer outside of agriculture, and it involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry as well as overbuilding of docks, factories and ancillary facilities. At the same time, too much capital
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
was involved in projects offering no immediate or early returns.
Coinage Act of 1873
The decision of the German Empire to cease minting silver thalerThaler
The Thaler was a silver coin used throughout Europe for almost four hundred years. Its name lives on in various currencies as the dollar or tolar. Etymologically, "Thaler" is an abbreviation of "Joachimsthaler", a coin type from the city of Joachimsthal in Bohemia, where some of the first such...
coins in 1871 caused a drop in demand and downward pressure on the value of silver; this had a knock-on effect in the USA, where much of the supply was then mined
Silver mining in the United States
Silver mining in the United States began on a major scale with the discovery of the Comstock Lode in Nevada in 1858. The industry suffered greatly from the demonetization of silver in 1873 by the "Crime of 73," but silver mining continues today....
. As a result, the Coinage Act of 1873 was introduced and this changed the United States silver policy. Before the Act, the United States had backed its currency with both gold and silver, and it minted both types of coins. The Act moved the United States to a 'de facto
De facto
De facto is a Latin expression that means "concerning fact." In law, it often means "in practice but not necessarily ordained by law" or "in practice or actuality, but not officially established." It is commonly used in contrast to de jure when referring to matters of law, governance, or...
' gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
, which meant it would no longer buy silver at a statutory price or convert silver from the public into silver coins
Free Silver
Free Silver was an important United States political policy issue in the late 19th century and early 20th century. Its advocates were in favor of an inflationary monetary policy using the "free coinage of silver" as opposed to the less inflationary Gold Standard; its supporters were called...
(though it would still mint silver dollars for export in the form of trade dollars
Trade Dollar (United States coin)
The trade dollar was a United States dollar coin minted to compete with other large silver coins that were already popular in East Asia. The idea first came about in the 1860s, when the price of silver began to decline due to increased mining efforts in the western United States...
)
The Act had the immediate effect of depressing silver prices. This hurt Western mining interests, who labeled the Act "The Crime of '73." Its effect was offset somewhat by the introduction of a silver trade dollar for use in the Orient, and by the discovery of new silver deposits at Virginia City, Nevada
Virginia City, Nevada
Virginia City is a census-designated place that is the county seat of Storey County, Nevada. It is part of the Reno–Sparks Metropolitan Statistical Area. The population was 855 at the 2010 Census.- History :...
, resulting in new investment in mining activity. But the coinage law also reduced the domestic money supply
Money supply
In economics, the money supply or money stock, is the total amount of money available in an economy at a specific time. There are several ways to define "money," but standard measures usually include currency in circulation and demand deposits .Money supply data are recorded and published, usually...
, which raised interest rates, thereby hurting farmers and anyone else who normally carried heavy debt loads. The resulting outcry raised serious questions about how long the new policy would last. This perception of instability in United States monetary policy caused investors to shy away from long-term obligations, particularly long-term bonds
Bond (finance)
In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest to use and/or to repay the principal at a later date, termed maturity...
. The problem was compounded by the railroad boom, which was in its later stages at the time.
In September 1873, the American economy entered a crisis. This followed a period of post-Civil War economic over-expansion that arose from the Northern railroad boom. It came at the end of a series of economic setbacks: the Black Friday panic of 1869
Black Friday (1869)
Black Friday, September 24, 1869 also known as the Fisk/Gould scandal, was a financial panic in the United States caused by two speculators’ efforts to corner the gold market on the New York Gold Exchange. It was one of several scandals that rocked the presidency of Ulysses S. Grant...
, the Chicago fire of 1871
Great Chicago Fire
The Great Chicago Fire was a conflagration that burned from Sunday, October 8, to early Tuesday, October 10, 1871, killing hundreds and destroying about in Chicago, Illinois. Though the fire was one of the largest U.S...
, the outbreak of equine influenza in 1872, and demonetization of silver in 1873.
Jay Cooke & Company fails
In September 1873, Jay Cooke & CompanyJay Cooke & Company
Jay Cooke & Company was a U.S. bank from 1861 to 1873. It was the first brokerage house to use telegraph messages to confirm with clients the purchase and sale of securities. Headquartered in Philadelphia, Pennsylvania, it had branches in New York City and Washington, DC...
, a major component of the United States banking establishment, found itself unable to market several million dollars in Northern Pacific Railway
Northern Pacific Railway
The Northern Pacific Railway was a railway that operated in the west along the Canadian border of the United States. Construction began in 1870 and the main line opened all the way from the Great Lakes to the Pacific when former president Ulysses S. Grant drove in the final "golden spike" in...
bonds. Cooke's
Jay Cooke
Jay Cooke was an American financier. Cooke and his firm Jay Cooke & Company were most notable for their role in financing the Union's war effort during the American Civil War...
firm, like many others, was invested heavily in the railroads. At a time when investment bank
Investment banking
An investment bank is a financial institution that assists individuals, corporations and governments in raising capital by underwriting and/or acting as the client's agent in the issuance of securities...
s were anxious for more capital for their enterprises, President Ulysses S. Grant
Presidency of Ulysses S. Grant
The Presidency of Ulysses S. Grant began during the turbulent Reconstruction period following the American Civil War. Grant was elected the 18th President of the United States in 1868 and was re-elected to the office in 1872, serving from March 4, 1869, to March 4, 1877...
's monetary policy
Monetary policy
Monetary policy is the process by which the monetary authority of a country controls the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability. The official goals usually include relatively stable prices and low unemployment...
of contracting the money supply (again, also thereby raising interest rates) made matters worse for those in debt. While businesses were expanding, the money they needed to finance that growth was becoming more scarce.
Cooke and other entrepreneurs had planned to build the nation's second transcontinental railroad, called the Northern Pacific Railway
Northern Pacific Railway
The Northern Pacific Railway was a railway that operated in the west along the Canadian border of the United States. Construction began in 1870 and the main line opened all the way from the Great Lakes to the Pacific when former president Ulysses S. Grant drove in the final "golden spike" in...
. Cooke's firm provided the financing, and ground was broken near Duluth, Minnesota
Duluth, Minnesota
Duluth is a port city in the U.S. state of Minnesota and is the county seat of Saint Louis County. The fourth largest city in Minnesota, Duluth had a total population of 86,265 in the 2010 census. Duluth is also the second largest city that is located on Lake Superior after Thunder Bay, Ontario,...
, for the line on February 15, 1870. But just as Cooke was about to swing a $300 million government loan in September 1873, reports circulated that his firm's credit had become nearly worthless. On September 18, the firm declared bankruptcy
Bankruptcy
Bankruptcy is a legal status of an insolvent person or an organisation, that is, one that cannot repay the debts owed to creditors. In most jurisdictions bankruptcy is imposed by a court order, often initiated by the debtor....
.
Effects in the U.S.
The failure of the Jay Cooke bank, followed quickly by that of Henry ClewsHenry Clews
-Biography:He was born in 1836 in Staffordshire, England, and emigrated to the United States around 1850. His first job was at an import business, working as a junior clerk. In 1859 he co-founded Livermore, Clews, and Company, what was then the second largest marketer of federal bonds during the...
, set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, and more slowly in Chicago; Virginia City, Nevada
Virginia City, Nevada
Virginia City is a census-designated place that is the county seat of Storey County, Nevada. It is part of the Reno–Sparks Metropolitan Statistical Area. The population was 855 at the 2010 Census.- History :...
; and San Francisco.
The New York Stock Exchange
New York Stock Exchange
The New York Stock Exchange is a stock exchange located at 11 Wall Street in Lower Manhattan, New York City, USA. It is by far the world's largest stock exchange by market capitalization of its listed companies at 13.39 trillion as of Dec 2010...
closed for ten days starting September 20. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
reached 14% by 1876. Construction work halted, wages were cut, real estate values fell and corporate profits vanished.
Railroad strike
American railroad unions commenced the Great Railroad Strike of 1877Great railroad strike of 1877
The Great Railroad Strike of 1877 began on July 14 in Martinsburg, West Virginia, United States and ended some 45 days later after it was put down by local and state militias, and federal troops.-Economic conditions in the 1870s:...
, preventing the trains from moving, especially in Pennsylvania and the great railway hub of Chicago. President Rutherford B. Hayes
Rutherford B. Hayes
Rutherford Birchard Hayes was the 19th President of the United States . As president, he oversaw the end of Reconstruction and the United States' entry into the Second Industrial Revolution...
sent in federal troops in an attempt to stop the strikes. Fights between strikers and troops killed more than 100 and left many more injured. Further trouble came in July 1877 in the form of a crash in the market for lumber, resulting in the bankruptcy of several leading Michigan lumbering concerns. The effects of the resulting second business slump reached California by 1878.
The tension between workers and the leaders of banking and manufacturing interests lingered on well after the depression lifted in the spring of 1879, the end of the crisis coinciding with the beginning of the great wave of immigration
Immigration
Immigration is the act of foreigners passing or coming into a country for the purpose of permanent residence...
into the United States which lasted until the early 1920s.
Poor economic conditions caused voters to turn against the Republican Party
History of the United States Republican Party
The United States Republican Party is the second oldest currently existing political party in the United States after its great rival, the Democratic Party. It emerged in 1854 to combat the Kansas Nebraska Act which threatened to extend slavery into the territories, and to promote more vigorous...
. In the 1874 congressional elections, the Democrats assumed control of the House. Public opinion during the period made it difficult for the Grant Administration to develop a coherent policy regarding the Southern states. The North began to steer away from Reconstruction. With the depression, ambitious railroad building programs crashed across the South, leaving most states deep in debt and burdened with heavy taxes. Retrenchment was a common response of southern states to state debts during the depression. One by one each Southern state fell to the Democrats, and the Republican
Republican Party (United States)
The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...
s lost power.
Germany and Austria
A similar process of over-expansion was going on in Germany and Austria, where the period from German unificationUnification of Germany
The formal unification of Germany into a politically and administratively integrated nation state officially occurred on 18 January 1871 at the Versailles Palace's Hall of Mirrors in France. Princes of the German states gathered there to proclaim Wilhelm of Prussia as Emperor Wilhelm of the German...
in 1870/71 to the crash in 1873 came to be called the Gründerjahre
Gründerzeit
' refers to the economic phase in 19th century Germany and Austria before the great stock market crash of 1873. At this time in Central Europe the age of industrialisation was taking place, whose beginnings were found in the 1840s...
or "founders' years". A liberalized incorporation law in Germany led to the founding of new enterprises, such as the Deutsche Bank
Deutsche Bank
Deutsche Bank AG is a global financial service company with its headquarters in Frankfurt, Germany. It employs more than 100,000 people in over 70 countries, and has a large presence in Europe, the Americas, Asia Pacific and the emerging markets...
, as well as the incorporation of established ones. Euphoria over the military victory against France in 1871, combined with the influx of capital from the payment by France of war reparations
War reparations
War reparations are payments intended to cover damage or injury during a war. Generally, the term war reparations refers to money or goods changing hands, rather than such property transfers as the annexation of land.- History :...
, encouraged stock market speculation in railways, factories, docks, steamships - in short, the same areas of over-expansion as in the United States. It was in the immediate aftermath of Otto von Bismarck's victory against France
Franco-Prussian War
The Franco-Prussian War or Franco-German War, often referred to in France as the 1870 War was a conflict between the Second French Empire and the Kingdom of Prussia. Prussia was aided by the North German Confederation, of which it was a member, and the South German states of Baden, Württemberg and...
that he began the process of silver demonetization. The process began on 23 November 1871 and culminated in the introduction of the gold mark
German gold mark
The Goldmark was the currency used in the German Empire from 1873 to 1914.-History:Before unification, the different German states issued a variety of different currencies, though most were linked to the Vereinsthaler, a silver coin containing 16⅔ grams of pure silver...
on 9 July 1873 as the currency for the new united Reich to replace the silver coins of all the constituent parts. Germany was now on the gold standard
Gold standard
The gold standard is a monetary system in which the standard economic unit of account is a fixed mass of gold. There are distinct kinds of gold standard...
. Demonetization of silver was therefore a common element in the crises on both sides of the Atlantic Ocean
Atlantic Ocean
The Atlantic Ocean is the second-largest of the world's oceanic divisions. With a total area of about , it covers approximately 20% of the Earth's surface and about 26% of its water surface area...
.
On May 9, 1873, the Vienna Stock Exchange
Wiener Börse
The Wiener Börse AG is the only stock exchange in Vienna, Austria, and one of the most established exchanges in Eastern- and Southeastern Europe.-History:...
crashed, no longer able to sustain false expansion, insolvency, and dishonest manipulations. A series of Viennese bank failures resulted, causing a contraction of the money available for business lending. One of the more famous private individuals who went bankrupt in 1873 was Stephan Keglevich
House of Keglević
The House of Keglević is a Croatian noble family originally from Dalmatia, their members were pointed out in public life, also as soldiers...
of Vienna. He was a relative of Gábor Keglevich, who had been the main royal treasurer of Hungary
Treasurer (Kingdom of Hungary)
The treasurer or in full title main royal treasurer was the supreme economic officer in the Kingdom of Hungary till 1848/1918.The name is derived from the Slavic word tovor The treasurer (Latin: magister tavernicorum, Hungarian: tárnok(mester), Slovak: taverník, German: Schatzmeister) or in full...
(1842–1848) and who had founded in 1845 with some others a financing association to finance the Hungarian industry and to protect the loan repayments, similar to the Kreditschutzverband von 1870 (Austria's association for the protection of creditors and for the protection of the interests of its members in cases of bankruptcy). Therefore it was possible that a series of Austrian banks were newly established in 1873 after the Vienna Stock Exchange crash. In contrast to Berlin, where the railway empire of Bethel Henry Strousberg
Bethel Henry Strousberg
Bethel Henry Strousberg was a Jewish industrialist and railway entrepreneur in Germany during its rapid industrial expansion in the 19th century...
crashed after a ruinous settlement with the Romania
Romania
Romania is a country located at the crossroads of Central and Southeastern Europe, on the Lower Danube, within and outside the Carpathian arch, bordering on the Black Sea...
n government, bursting the speculation bubble in Germany. The contraction of the German economy was exacerbated by the conclusion of war reparations payments to Germany by France in September 1873. Coming two years after the founding of the German Empire, the panic became known as the Gründerkrach or "founders' crash". Keglevich and Strousberg had come in the year 1865 in direct competition in a project in today's Slovakia, whereupon, in 1870, the Government of Hungary and finally in 1872 the Emperor and King Franz Joseph I of Austria
Franz Joseph I of Austria
Franz Joseph I or Francis Joseph I was Emperor of Austria, King of Bohemia, King of Croatia, Apostolic King of Hungary, King of Galicia and Lodomeria and Grand Duke of Cracow from 1848 until his death in 1916.In the December of 1848, Emperor Ferdinand I of Austria abdicated the throne as part of...
cleared the question of these competing projects.
Although the collapse of the foreign loan financing had been foreshadowed, the anticipatory events of that year were in themselves comparatively unimportant. Buda
Buda
For detailed information see: History of Buda CastleBuda is the western part of the Hungarian capital Budapest on the west bank of the Danube. The name Buda takes its name from the name of Bleda the Hun ruler, whose name is also Buda in Hungarian.Buda comprises about one-third of Budapest's...
the old capital of Hungary and Óbuda
Óbuda
Óbuda was a historical city in Hungary. United with Buda and Pest in 1873 it now forms part of District III-Óbuda-Békásmegyer of Budapest. The name means Old Buda in Hungarian...
were officially united with Pest, thus creating the new metropolis of Budapest
Budapest
Budapest is the capital of Hungary. As the largest city of Hungary, it is the country's principal political, cultural, commercial, industrial, and transportation centre. In 2011, Budapest had 1,733,685 inhabitants, down from its 1989 peak of 2,113,645 due to suburbanization. The Budapest Commuter...
in 1873. The difference in stability between Vienna
Vienna
Vienna is the capital and largest city of the Republic of Austria and one of the nine states of Austria. Vienna is Austria's primary city, with a population of about 1.723 million , and is by far the largest city in Austria, as well as its cultural, economic, and political centre...
and Berlin
Berlin
Berlin is the capital city of Germany and is one of the 16 states of Germany. With a population of 3.45 million people, Berlin is Germany's largest city. It is the second most populous city proper and the seventh most populous urban area in the European Union...
had the effect that the French indemnity to Germany overflowed thence to Austria and Russia, but these indemnity payments aggravated the crisis in Austria, which had been benefited by the accumulation of capital not only in Germany, but also in England, Holland, Belgium, France and Russia.
Recovery from the crash was much quicker in Europe than in the United States. Moreover, German businesses managed to avoid the sort of deep wage cuts that embittered American labor relations at the time. There was an anti-Semitic component to the economic recovery in Germany and Austria as small investors irrationally blamed the Jews for their losses in the crash. False expansions have been reconsidered. Monetary distribution issues are first and foremost a question of income distribution between labour economics
Labour economics
Labor economics seeks to understand the functioning and dynamics of the market for labor. Labor markets function through the interaction of workers and employers...
and capital (economics)
Capital (economics)
In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...
. Soon more luxury hotels and villas were built in Opatija
Opatija
Opatija is a town in western Croatia, just southwest of Rijeka on the Adriatic coast. , the town proper had a population of 7,850, with the municipality having a total 12,719 inhabitants.-Geography:...
and a new railway line was extended in 1873 from the Vienna-Trieste
Trieste
Trieste is a city and seaport in northeastern Italy. It is situated towards the end of a narrow strip of land lying between the Adriatic Sea and Italy's border with Slovenia, which lies almost immediately south and east of the city...
line to Rijeka
Rijeka
Rijeka is the principal seaport and the third largest city in Croatia . It is located on Kvarner Bay, an inlet of the Adriatic Sea and has a population of 128,735 inhabitants...
, from where it was possible to go by tram
Tram
A tram is a passenger rail vehicle which runs on tracks along public urban streets and also sometimes on separate rights of way. It may also run between cities and/or towns , and/or partially grade separated even in the cities...
to Opatija. The strong increase of port traffic meant that there was a permanent request for expansion. The Suez Canal
Suez Canal
The Suez Canal , also known by the nickname "The Highway to India", is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea and the Red Sea. Opened in November 1869 after 10 years of construction work, it allows water transportation between Europe and Asia without navigation...
was opened in 1869. 1875-1890 became "the golden years" of Giovanni de Ciotta
Giovanni de Ciotta
Giovanni de Ciotta was the first-born son of Lorenzo de Ciotta and Adriana Maria de Adamich, daughter of the foremost Fiuman merchant and father of modernisation in Fiume Andrea Lodovico de Adamich. The family de Ciotta originated from Livorno where Giovanni served the Austrian army in quality of...
in Fiume (Rijeka
Rijeka
Rijeka is the principal seaport and the third largest city in Croatia . It is located on Kvarner Bay, an inlet of the Adriatic Sea and has a population of 128,735 inhabitants...
).
Britain
The construction of the Suez CanalSuez Canal
The Suez Canal , also known by the nickname "The Highway to India", is an artificial sea-level waterway in Egypt, connecting the Mediterranean Sea and the Red Sea. Opened in November 1869 after 10 years of construction work, it allows water transportation between Europe and Asia without navigation...
, which opened in 1869, was one of the causes of the Panic of 1873, because the goods from the Far East
Far East
The Far East is an English term mostly describing East Asia and Southeast Asia, with South Asia sometimes also included for economic and cultural reasons.The term came into use in European geopolitical discourse in the 19th century,...
were carried in sailing vessels around the Cape of Good Hope
Cape of Good Hope
The Cape of Good Hope is a rocky headland on the Atlantic coast of the Cape Peninsula, South Africa.There is a misconception that the Cape of Good Hope is the southern tip of Africa, because it was once believed to be the dividing point between the Atlantic and Indian Oceans. In fact, the...
and were stored in British warehouses, but sailing vessels were not adaptable for use through the Suez Canal, because the prevailing winds of the Mediterranean Sea blow from west to east.
In Britain the long depression resulted in bankruptcies, escalating unemployment, a halt in public works, and a major trade slump that lasted until 1897.
Compared with Germany
During the depression of 1873–96, most European countries experienced a drastic fall in prices. Still, many corporations were able to reduce production costs and achieve better productivity rates, and, as a result, industrial production increased by 40% in Britain and by over 100% in Germany. A comparison of capital formation rates in the two countries helps to account for the different industrial growth rates. During the depression the British ratio of net national capital formation to net national product fell from 11.5% to 6.0% while Germany's rose from 10.6% to 15.9%. In essence, during the course of the depression, Britain took the course of static supply adjustment while Germany stimulated effective demand and expanded industrial supply capacity by increasing and adjusting capital formation. For example, Germany dramatically increased investment with regard to social overhead capital, such as in the management of electric power transmission lines, roads, and railroads, while this input stagnated or decreased in Britain and the investment helped to stimulate industrial demand in Germany. The resulting difference in capital formation accounts for the divergent levels of industrial production in the two countries and the different growth rates during and after the depression.Ottoman Empire
In the periphery, the Ottoman EmpireOttoman Empire
The Ottoman EmpireIt was usually referred to as the "Ottoman Empire", the "Turkish Empire", the "Ottoman Caliphate" or more commonly "Turkey" by its contemporaries...
's economy also suffered. Rates of growth of foreign trade dropped, external terms of trade deteriorated, declining wheat prices affected peasant producers, and the establishment of European control over Ottoman finances led to large debt payments abroad. The growth rates of agricultural and aggregate production were also lower during the "Great Depression" as compared to the later period.
Global protectionism
After the 1873 depression, agricultural and industrial groups lobbied for protective tariffs. The 1879 tariffs protected these interests, stimulated economic revival through state intervention, and refurbished political support for the conservative politicians Bismarck and John A. MacdonaldJohn A. Macdonald
Sir John Alexander Macdonald, GCB, KCMG, PC, PC , QC was the first Prime Minister of Canada. The dominant figure of Canadian Confederation, his political career spanned almost half a century...
(the Canadian prime minister). Chancellor Bismarck gradually veered away from classic liberal economic policies in the 1870s, finally embracing a full conservative program, including tariffs, nationalization of railroads, and compulsory social insurance. This political and economic nationalism also reduced the fortunes of the German and Canadian Liberal parties, and stimulated the rise of antisemitism in Germany and Austria. France, like Britain, also entered into a prolonged stagnation that extended to 1897. The French also attempted to deal with their economic problems through the implementation of tariffs. New French laws in 1880 and in 1892 imposed stiff tariffs on many agricultural and industrial imports, an attempt at protectionism. The U.S., still in the period after the Civil War, continued to be very protectionist.
See also
- Gilded AgeGilded AgeIn United States history, the Gilded Age refers to the era of rapid economic and population growth in the United States during the post–Civil War and post-Reconstruction eras of the late 19th century. The term "Gilded Age" was coined by Mark Twain and Charles Dudley Warner in their book The Gilded...
- Panic of 1857Panic of 1857The Panic of 1857 was a financial panic in the United States caused by the declining international economy and over-expansion of the domestic economy. Indeed, because of the interconnectedness of the world economy by the time of the 1850s, the financial crisis which began in the autumn of 1857 was...
- Panic of 1893Panic of 1893The Panic of 1893 was a serious economic depression in the United States that began in 1893. Similar to the Panic of 1873, this panic was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures...
- Presidency of Ulysses S. GrantPresidency of Ulysses S. GrantThe Presidency of Ulysses S. Grant began during the turbulent Reconstruction period following the American Civil War. Grant was elected the 18th President of the United States in 1868 and was re-elected to the office in 1872, serving from March 4, 1869, to March 4, 1877...