Panic of 1873

The financial Panic of 1873 was sparked on September 18, 1873 by a single meeting with an employee of the Investment Bank of Jay Cooke & Company and two outside bankers. It was just a routine meeting at the bank to raise $1 million of capital. Jay Cooke, the principal, was on vacation with President Grant while the meeting took place. The other two bankers declined to invest money with Jay Cooke & Company. This then led to the employee deciding himself to close the bank. Panic seized Wall Street.

The brokers surged out of the Exchange, tumbling pell-mell over each other in the general confusion, and reached their respective offices in race horse time. … Cornelius Vanderbilt drove his carriage down Broad Street directly into throngs of people in order to physically disperse the panic. (Endicott 7).

Within three days over one hundred banks closed. Millions of people became unemployed. This began the most severe panic ever. Turning to the government did not help because government policies were making the credit problems worse. The severe economic downturn was going to cause political and social changes which lasted for decades beyond the end of the depression in 1879. The Panic of 1873 resulted in labor unrest, violent strikes, political upheaval, huge concentrations of wealth, and desperate migrations to Indian-populated parts of the West, and ended the Reconstruction-Era protections for blacks in the South.

The United States economy had become so co-dependent with other countries’ economies because there was so much overseas investment. It started overseas. The Germans had a period of speculation and were trying to reduce the changes of inflation. They were raising interest rates to make their currency more valuable...

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...ade it impossible for railroads to borrow money. Railroads were highly leveraged and required loans to repay current debt obligations. When the financier of the Northern Pacific Railroad, Jay Cooke and Company, could not borrow more money, its investment house closed its doors and caused a panic on Wall Street. Nervous investors tried to withdraw their funds from investment houses and banks. Wall Street closed for ten days.

Before the crisis was over, nine out of ten railroad concerns had failed. Millions of dollars were lost on defaulted debt. Unemployment reached about 30% in the cities. Every sector from manufacturing to farming was affected. The Panic of 1873 resulted in labor unrest, huge concentrations of wealth, and desperate migrations to Indian- populated parts of the West, and effectively ended the Reconstruction-Era protections for blacks in the South.