Panic of 1873
The Panic of 1873 was a financial crisis that triggered an economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in Britain.
American inflation, rampant speculative investments (overwhelmingly in railroads), the demonetization of silver in Germany and the United States, ripples from economic dislocation in Europe resulting from the Franco-Prussian War (1870–1871), and major property losses in the Great Chicago Fire (1871) and the Great Boston Fire (1872) helped to place massive strain on bank reserves, which, in New York City, plummeted from $50 million to $17 million between September and October 1873.
A similar process of overexpansion took place in Germany and Austria-Hungary, where the period from German unification in 1870 and 1871 to the crash in 1873 came to be called the Gründerjahre ("Founders' Years").
The process began on 23 November 1871 and culminated in the introduction of the gold mark on 9 July 1873 as the currency for the newly united Reich, replacing the silver coins of all constituent lands.
On 9 May 1873, the Vienna Stock Exchange crashed since it was unable to sustain the bubble of false expansion, insolvencies, and dishonest manipulations.
One of the more famous private individuals who went bankrupt in 1873 was Stephan Keglevich of Vienna, a relative of Gábor Keglevich, who had been the master of the royal treasury (1842–1848) and in 1845 had cofounded a financial association to fund the expansion of Hungarian industry and to protect the loan repayments, similar to the 1870 Kreditschutzverband, an Austrian association for the protection of creditors and the interests of its members in cases of bankruptcy.
[5] In Berlin, the railway empire of Bethel Henry Strousberg crashed after a ruinous settlement with the government of Romania, bursting the speculation bubble in Germany.
[13][14] Moreover, German businesses managed to avoid the sort of deep wage cuts that embittered American labor relations.
[14] There was an anti-Semitic component to the economic recovery in Germany and Austria, as small investors blamed Jews for their losses in the crash.
[15][16] The Neuer Sozial-Demokrat newspaper of the ADAV published several articles blaming Gerson von Bleichröder for the stock market crash.
A portrayal of German business life in the 1870s, the literary scholar Jeffrey L. Sammons has described it as "the major fictional treatment of the financial crash of the 1870s as a harbringer of the predatory but erratic capitalism that was to become characteristic of the Reich".
As sailing vessels were not adaptable for use through the Suez Canal (because the prevailing winds of the Mediterranean Sea blow from west to east), the British entrepôt trade suffered.
Despite this, Britain did not experience the scale of financial mayhem seen in America and Central Europe, perhaps forestalled by an expectation that the liquidity-constraining provisions of the Bank Charter Act of 1844 would be suspended as they had been in the crises of 1847, 1857, and 1866.
In the Cape Colony, the panic caused bankruptcies, rising unemployment, a pause in public works, and a major trade slump that lasted until the discovery of gold in 1886.
A large infusion of cash from speculators caused spectacular growth in the industry and in the construction of docks, factories, and ancillary facilities.
[32] The Act also reduced the domestic money supply, raising interest rates and hurting farmers and others who normally carried heavy debt loads.
In September 1873, Jay Cooke & Company, a major component of the country's banking establishment, found itself unable to market several million dollars in Northern Pacific Railway bonds.
Some investment banks were then anxious for more capital for their enterprises, US President Ulysses S. Grant's monetary policy of contracting the money supply and thus raising interest rates made matters worse for those in debt.
The effects of the panic were quickly felt in New York (where 25% of workers became unemployed) and more slowly in Chicago, Virginia City, Nevada (where silver mining was active), and San Francisco.
Initial protests broke out in Martinsburg, West Virginia, after the Baltimore and Ohio Railroad (B&O) cut workers' pay for the third time in a year.
That restored peace to Martinsburg but proved controversial, with many newspapers[specify] critical of Mathews' characterization of the strikes as an "insurrection", rather than an act of desperation and frustration.
Railroads and an outnumbered militia guard division opened fire when they were surrounded by rioters, killing 10 and injuring 25 more[51] leading to a days-long standoff at Camden Yards.
In New York, striking workers began pelting arriving trains with thrown objects, prompting a response from local police.
In Chicago, Illinois, striking workers brought freight and passenger trains to a standstill, leading to an order from judge Thomas Drummond that such actions were illegal.
[60] Public opinion made it difficult for the Grant administration to develop a coherent policy on the Southern states, and 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.
