Panic of 1893
Encyclopedia
| Year | Lebergott | Romer |
|---|---|---|
| 1890 | 4.0 | 4.0 |
| 1891 | 5.4 | 4.8 |
| 1892 | 3.0 | 3.7 |
| 1893 | 11.7 | 8.1 |
| 1894 | 18.4 | 12.3 |
| 1895 | 13.7 | 11.1 |
| 1896 | 14.5 | 12.0 |
| 1897 | 14.5 | 12.4 |
| 1898 | 12.4 | 11.6 |
| 1899 | 6.5 | 8.7 |
| 1900 | 5.0 | 5.0 |
The Panic of 1893 was a serious economic depression in the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...
that began in 1893. Similar to the Panic of 1873
Panic of 1873
The Panic of 1873 triggered a severe international economic depression in both Europe and the United States 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...
, this panic was marked by the collapse of railroad overbuilding and shaky railroad financing which set off a series of bank failures. Compounding market overbuilding and the railroad bubble, was a run on the gold
Gold
Gold is a chemical element with the symbol Au and an atomic number of 79. Gold is a dense, soft, shiny, malleable and ductile metal. Pure gold has a bright yellow color and luster traditionally considered attractive, which it maintains without oxidizing in air or water. Chemically, gold is a...
supply (relative to silver), because of the long-established American policy of bimetallism
Bimetallism
In economics, bimetallism is a monetary standard in which the value of the monetary unit is defined as equivalent both to a certain quantity of gold and to a certain quantity of silver; such a system establishes a fixed rate of exchange between the two metals...
, which used both silver and gold metals at a fixed 16:1 rate for pegging the value of the US Dollar. Until the Great Depression, the Panic of '93 was considered the worst depression the United States had ever experienced.
Causes
The 1880s were a period of remarkable economic expansion in the United States, an expansion that eventually became driven by railroad speculationSpeculation
In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum...
. Railroads were over-built, and many companies continued growth by taking over competitors, endangering their own stability. In addition, many mines were opened (frequently with rail connections), and their products, especially silver, began to flood the market. Farmers, particularly in the Midwest, suffered a series of droughts which left them short of cash to pay their debts, which drove down the value of their land. The Free Silver
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...
movement arose, gaining support from farmers (who sought to invigorate the economy and cause inflation, thus allowing them to repay their debt with cheaper dollars) and mining interests (who sought the right to turn silver directly into money). The Sherman Silver Purchase Act
Sherman Silver Purchase Act
The Sherman Silver Purchase Act was enacted on July 14, 1890 as a United States federal law. It was named after its author, Senator John Sherman, an Ohio Republican, chairman of the Senate Finance Committee...
of 1890, while falling short of the Free Silver movement's goals, required the U.S. government to buy millions of ounces of silver (driving up the price of the metal and pleasing silver miners) for coining money (pleasing farmers and others).
One of the first signs of trouble was the bankruptcy of the Philadelphia and Reading Railroad
Reading Company
The Reading Company , usually called the Reading Railroad, officially the Philadelphia and Reading Rail Road and then the Philadelphia and Reading Railway until 1924, operated in southeast Pennsylvania and neighboring states...
, which had greatly over-extended itself, on February 23, 1893, ten days before Grover Cleveland
Grover Cleveland
Stephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
's second inauguration. Upon becoming President, Cleveland dealt directly with the Treasury crisis, and successfully convinced Congress to repeal the Sherman Silver Purchase Act, which he felt was mainly responsible for the economic crisis.
As concern of the state of the economy worsened, people rushed to withdraw their money from banks and caused bank run
Bank run
A bank run occurs when a large number of bank customers withdraw their deposits because they believe the bank is, or might become, insolvent...
s. The credit crunch rippled through the economy. A financial panic in the United Kingdom and a drop in trade in Europe caused foreign investors to sell American stocks to obtain American funds backed by gold. People attempted to redeem silver notes
Silver Certificate
Silver Certificates are a type of representative money printed from 1878 to 1964 in the United States as part of its circulation of paper currency. They were produced in response to silver agitation by citizens who were angered by the Fourth Coinage Act, which had effectively placed the United...
for gold; ultimately the statutory limit for the minimum amount of gold in federal reserves was reached and US notes could no longer be successfully redeemed for gold. Investments during the time of the Panic were heavily financed through bond issues with high interest payments. The National Cordage Company
National Cordage Company
The National Cordage Company was formed in New Jersey in 1887, for the importation of hemp and the manufacture and sale ofcordage. It is noteworthy because of its expansion at the beginning of the 1890s and its initial public offering of $5,000,000 of 8% cumulative preferred stock. Thecorporation...
(the most actively traded stock at the time) went into receivership
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....
as a result of its bankers calling their loans in response to rumors regarding the NCC's financial distress. The company, a rope manufacturer, had tried to corner the market for imported hemp.
As the demand for silver and silver notes fell the price and value of silver dropped. Holders worried about a loss of face value of bonds and many became worthless.
A series of bank failures followed, and 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...
, the Union Pacific Railroad
Union Pacific Railroad
The Union Pacific Railroad , headquartered in Omaha, Nebraska, is the largest railroad network in the United States. James R. Young is president, CEO and Chairman....
and the Atchison, Topeka & Santa Fe Railroad failed. This was followed by the bankruptcy of many other companies; in total over 15,000 companies and 500 banks failed (many in the west). According to high estimates, about 17%-19% of the workforce was unemployed at the Panic's peak. The huge spike in unemployment, combined with the loss of life savings kept in failed banks, meant that a once-secure middle-class could not meet their mortgage obligations. Many walked away from recently built homes as a result.
Effects
Coxey's Army
Coxey's Army was a protest march by unemployed workers from the United States, led by the populist Jacob Coxey. They marched on Washington D.C. in 1894, the second year of a four-year economic depression that was the worst in United States history to that time. Officially named the Army of the...
", the first populist "march on Washington", was a highly publicized march of unemployed laborers from Ohio, Pennsylvania, and several Western states to demand relief in the form of a jobs program. A severe wave of strike
Strike action
Strike action, also called labour strike, on strike, greve , or simply strike, is a work stoppage caused by the mass refusal of employees to work. A strike usually takes place in response to employee grievances. Strikes became important during the industrial revolution, when mass labour became...
s took place in 1894, most notably the bituminous coal miners' strike of the spring, which led to violence in Pennsylvania, Ohio, and Illinois. Even more serious was the Pullman Strike
Pullman Strike
The Pullman Strike was a nationwide conflict between labor unions and railroads that occurred in the United States in 1894. The conflict began in the town of Pullman, Illinois on May 11 when approximately 3,000 employees of the Pullman Palace Car Company began a wildcat strike in response to recent...
which shut down much of the nation's transportation system in July, 1894.
The Sherman Silver Purchase Act
Sherman Silver Purchase Act
The Sherman Silver Purchase Act was enacted on July 14, 1890 as a United States federal law. It was named after its author, Senator John Sherman, an Ohio Republican, chairman of the Senate Finance Committee...
of 1890, perhaps along with the protectionist McKinley Tariff
McKinley Tariff
The Tariff Act of 1890, commonly called the McKinley Tariff, was an act framed by Representative William McKinley that became law on October 1, 1890. The tariff raised the average duty on imports to almost fifty percent, an act designed to protect domestic industries from foreign competition...
of 1890, has been partially blamed for the panic. Passed in response to a large overproduction of silver by western mines, the Sherman Act required the U.S. Treasury to purchase silver using notes backed by either silver or gold. The Democrats and President Cleveland
Grover Cleveland
Stephen Grover Cleveland was the 22nd and 24th president of the United States. Cleveland is the only president to serve two non-consecutive terms and therefore is the only individual to be counted twice in the numbering of the presidents...
were blamed for the depression. The decline of the gold reserves stored in the U.S. Treasury fell to a dangerously low level, forcing President Cleveland to borrow $65 million in gold from Wall-Street banker JP Morgan
J. P. Morgan
John Pierpont Morgan was an American financier, banker and art collector who dominated corporate finance and industrial consolidation during his time. In 1892 Morgan arranged the merger of Edison General Electric and Thomson-Houston Electric Company to form General Electric...
in order to support the gold standard; The Democrats and Populists lost heavily in the 1894 elections, which marked the largest Republican gains in history.
Many of the western silver mines closed and a large number were never re-opened. A significant number of western mountain narrow-gauge railroads, which had been built to serve the mines, also went out of business. The Denver and Rio Grande Railroad stopped its ambitious plan, then under way, to convert its system from narrow gauge
Narrow gauge
A narrow gauge railway is a railway that has a track gauge narrower than the of standard gauge railways. Most existing narrow gauge railways have gauges of between and .- Overview :...
to standard gauge
Standard gauge
The standard gauge is a widely-used track gauge . Approximately 60% of the world's existing railway lines are built to this gauge...
.
The depression was a major issue in the debates over Bimetallism
Bimetallism
In economics, bimetallism is a monetary standard in which the value of the monetary unit is defined as equivalent both to a certain quantity of gold and to a certain quantity of silver; such a system establishes a fixed rate of exchange between the two metals...
. The Republicans blamed the Democrats for the depression and scored a landslide victory in the 1894 state and Congressional elections
United States House election, 1894
The U.S. House election, 1894 was a realigning election—a major Republican landslide that set the stage for the decisive Election of 1896. The elections of members of the United States House of Representatives in 1894 came in the middle of President Grover Cleveland's second term...
. The Populists
Populist Party (United States)
The People's Party, also known as the "Populists", was a short-lived political party in the United States established in 1891. It was most important in 1892-96, then rapidly faded away...
lost most of their strength and had to support the Democrats in 1896. The presidential election of 1896
United States presidential election, 1896
The United States presidential election held on November 3, 1896, saw Republican William McKinley defeat Democrat William Jennings Bryan in a campaign considered by political scientists to be one of the most dramatic and complex in American history....
was fought on economic issues and was marked by a decisive victory of the pro-gold, high-tariff Republicans led by William McKinley
William McKinley
William McKinley, Jr. was the 25th President of the United States . He is best known for winning fiercely fought elections, while supporting the gold standard and high tariffs; he succeeded in forging a Republican coalition that for the most part dominated national politics until the 1930s...
over pro-silver William Jennings Bryan
William Jennings Bryan
William Jennings Bryan was an American politician in the late-19th and early-20th centuries. He was a dominant force in the liberal wing of the Democratic Party, standing three times as its candidate for President of the United States...
.
Many people abandoned their homes and came west. The growing railway town
Railway town
A railway town is a settlement that originated or was greatly developed because of a railway station or junction at its site.In Victorian Britain, the spread of railways greatly affected the fate of many small towns...
s in the west of Seattle, Portland, Salt Lake City, Denver, San Francisco and Los Angeles took in the populations, as did many smaller centers. in particular, Denver fell into a deep depression
Denver Depression of 1893
The Denver Depression of 1893 was an economic depression of Denver, Colorado that began in 1893 after the rapid drop in the price of silver and lasted for several years.-Causes:...
as the city had been very dependent on the mining industry in the nearby mountains.
The U.S. economy began to recover in 1897. After the election of Republican McKinley, confidence was restored with the Klondike Gold Rush
Klondike Gold Rush
The Klondike Gold Rush, also called the Yukon Gold Rush, the Alaska Gold Rush and the Last Great Gold Rush, was an attempt by an estimated 100,000 people to travel to the Klondike region the Yukon in north-western Canada between 1897 and 1899 in the hope of successfully prospecting for gold...
and the economy began 10 years of rapid growth, until the Panic of 1907
Panic of 1907
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis that occurred in the United States when the New York Stock Exchange fell almost 50% from its peak the previous year. Panic occurred, as this was during a time of economic recession, and there were numerous runs on...
.
Contemporary sources
- American Annual Cyclopedia...1894 (1895) online
- Baum, Lyman Frank and W. W. Denslow. The Wonderful Wizard of Oz]] (1900); see Political interpretations of The Wonderful Wizard of OzPolitical interpretations of The Wonderful Wizard of OzPolitical interpretations of The Wonderful Wizard of Oz include treatments of the modern fairy tale as an allegory or metaphor for the political, economic and social events of America in the 1890s...
- Brice, Lloyd Stephens, and James J. Wait. “The Railway Problem.” North American Review 164 (March 1897): 327–48. online at MOA Cornell.
- Cleveland, Frederick A. "The Final Report of the Monetary Commission," Annals of the American Academy of Political and Social Science 13 (January 1899): 31–56 in JSTOR
- Closson, Carlos C. Jr. "The Unemployed in American Cities." Quarterly Journal of Economics, vol. 8, no. 2 (January 1894) 168-217 in JSTOR); vol. 8, no. 4 (July 1894): 443-477 in JSTOR
- Fisher, Willard. "‘Coin’ and His Critics." Quarterly Journal of Economics 10 (January 1896): 187–208 in JSTOR
- Harvey, William H. Coin’s Financial School (1894), 1963 (Introduction by Richard Hofstadter). online first edition
- Noyes, Alexander Dana. "The Banks and the Panic," Political Science Quarterly 9 (March 1894): 12–28 in JSTOR.
- Shaw, Albert. "Relief for the Unemployed in American Cities," Review of ReviewsReview of ReviewsThe Review of Reviews was a noted family of monthly journals founded in 1890-93 by British reform journalist William Thomas Stead...
9 (January and February 1894): 29–37, 179–91. - Stevens, Albert Clark. "An Analysis of the Phenomena of the Panic in the United States in 1893," Quarterly Journal of Economics 8 (January 1894): 117–48 in JSTOR.
Secondary sources
- Barnes, James A. John G. Carlisle: Financial Statesman (1931).
- Destler, Chester McArthur. American Radicalism, 1865–1901 (1966).
- Dewey, Davis Rich. Financial History of the United States (1903).
- Dighe, Ranjit S. ed. The Historian's Wizard of Oz: Reading L. Frank Baum's Classic as a Political and Monetary Allegory (2002).
- Dorfman, Joseph Harry. The Economic Mind in American Civilization. (1949). vol 3.
- Faulkner, Harold Underwood. Politics, Reform, and Expansion, 1890–1900. (1959).
- Feder, Leah Hanna. Unemployment Relief in Periods of Depression … 1857-1920 (1926).
- Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867–1960(1963).
- Holton, James L. The Reading Railroad: History of a Coal Age Empire, Vol. I: The Nineteenth Century. Garrigues House, Publishers, Laury's Station, Pennsylvania. 1989.
- Hoffmann, Charles. The Depression of the Nineties: An Economic History (1970).
- Jensen, Richard. The Winning of the Midwest: 1888-1896 (1971).
- Josephson, Matthew. The Robber Barons New York: Harcourt Brace Jovanovich (1990).
- Kirkland, Edward Chase. Industry Comes of Age, 1860–1897 (1961).
- Lauck, William Jett. jays journal The Causes of the Panic of 1893 (1907).
- Lindsey, Almont. The Pullman Strike 1942.
- Nevins, Allan. Grover Cleveland: A Study in Courage. 1932, Pulitzer Prize.
- Ritter, Gretchen. Goldbugs and Greenbacks: The Anti-Monopoly Tradition and the Politics of Finance in America (1997)
- Schwantes, Carlos A. Coxey’s Army: An American Odyssey (1985).
- Shannon, Fred Albert. The Farmer’s Last Frontier: Agriculture, 1860–1897 (1945).
- Steeples, Douglas, and David O. Whitten. Democracy in Desperation: The Depression of 1893 (1998).
- White; Gerald T. The United States and the Problem of Recovery after 1893 1982.
- Whitten, David. EH.NET article on the Depression of 1893
Further reading
- Causes of the Business Depression by Henry GeorgeHenry GeorgeHenry George was an American writer, politician and political economist, who was the most influential proponent of the land value tax, also known as the "single tax" on land...
; appeared in Once a Week, a New York periodical, March 6, 1894