Panic of 1873

The Panic of 1873 was a financial crisis that lasted six years and led to an economic depression that spread across the United States and Europe. Some of the main causes for the economic predicament included inflation and distrust in banks, coupled with questionable investments that anticipated quick returns. Until the stock market collapse in the 1920s, this financial panic was dubbed “The Great Depression.” In Arkansas, a state with the fourth-lowest income per household in 1870s America, financial instability put the citizenry at great risk.

The American economy after the Civil War saw increased expansion. In Arkansas, hundreds of miles of new railroads were built. The state had enough funds to build public schools and what is now the University of Arkansas (UA) in Fayetteville (Washington County) in 1871. At the same time, Arkansas and the entire nation also experienced several economic setbacks. In 1869, there was a panic over investors cornering the gold market. Major cities like Boston and Chicago had fires that stifled their industrial might. Congress passed the Coinage Act of 1873 that demonetized silver coins. By relying strictly on a gold standard, silver became a depressed asset. This hurt the mining industry and people in the American West who now lacked the ability to pay off their debts with silver.

A national railroad boom after the Civil War saw over 170,000 miles in new track laid, a great deal of it in western states, but the relationship among mining towns, western farmers, and the railroad companies made the decrease in silver’s value matter greatly. Additionally, all of the investments in railroads lacked immediate payoffs. Jay Cooke & Company, hoping to build a second transcontinental railroad, declared bankruptcy in September 1873. The firm’s collapse exacerbated the overextended investment market, slashed railroad construction considerably, and affected banks. Although Arkansas managed to construct over 100 miles of track between 1871 and 1873, railroad construction flagged, forcing multiple railroads to merge in order to prevent bankruptcy.

Bank failures spread across the country. The New York Stock Exchange was closed for ten days, and fear over the future prospects of factories led to owners slashing their workforce. Some 18,000 businesses failed over the next two years. Furthermore, the declining workforce and closed businesses hurt states’ tax revenues. Before the end of the decade, the United States’ timber, cattle, and wheat commodities sputtered or crashed. Timber, an industry that grew in Arkansas during the later 1870s, faltered after the Panic of 1873.

In 1874, Congress proposed a bill to print more currency to pay off debts. After the bill passed, inflation increased, but another bill, the Specie Resumption Act of 1875, used gold to stabilize the federal dollar and the economy as a whole. Arkansas had a fledgling banking system, so it had less of an economic infrastructure to lose, but Arkansas lost over 114,000 acres of public land to outside business interests. Agrarian concerns regarding the Specie Resumption Act led to the creation of the Greenback Party.

Following the Jay Cooke & Company’s collapse, railroad investment plummeted. This sharp decline in financial support for the industry led to large wage cuts among railroad employees. The first strikes began in July 1877. Initially, protests started in Maryland and West Virginia. Before long, the strikes spread across the country and affected national trade, which hurt railroad industries across the nation and in Arkansas—although Arkansas did not see the widespread railroad strikes other states faced.

Strikes and protests became increasingly hostile. Henry M. Mathews, the governor of West Virginia, ordered state militia to suppress the striking workers; the protests only became more violent. In Baltimore, Maryland, the militia had a standoff with railroad workers. Ten men were killed by gunfire and twenty-five were wounded. Other acts of violence took place in Pittsburgh, Reading, and Scranton, Pennsylvania. In New York City, striking employees battled police officers. Mayor Monroe Heath of Chicago recruited 5,000 militiamen to put an end to strikes in the city, but it took the national guard and U.S. military personnel to stop the violence and property damage. In Missouri, over a dozen people were killed. Eventually, President Rutherford B. Hayes used federal troops to end the costly strikes after forty-five days.

The economic depression began to lift in early 1879. By that point, railroad strikes had ended, and manufacturers and bankers had slowly begun to recoup lost capital and trust. The lackluster economic situation persisted across Europe, but in the United States the situation appeared to be improving.

While the economy improved, the political situation for the party in power did not. The Republican Party saw losses in the 1874 midterm elections, and the Democratic Party began to sweep Republicans out of power in the South after it had gained political control with the help of overwhelmingly positive support from freedmen. Reconstruction efforts collapsed, too. Black voters were disenfranchised, Republicans were sometimes physically harmed, and the political map shifted back to Democratic control in southern states. Arkansas effectively ended Reconstruction in October 1874 following the Brooks-Baxter War. Nationally, although the Republicans remained in the White House until 1885, Democrats made strong congressional gains in large part because of the economic turmoil caused by the Panic of 1873.

For additional information:
Anonymous. History of the Terrible Financial Panic of 1873. Western News Company, 1873.

Davies, Hannah Catherine. Transatlantic Speculations: Globalization and the Panics of 1873. New York: Columbia University Press, 2018.

Kirkland, Edward Chase. Industry Comes of Age: Business, Labor, and Public Policy 1860–1897. Chicago: Quadrangle Books, 1967.

Lubetkin, M. John. Jay Cooke’s Gamble: The Northern Pacific Railroad, the Sioux, and the Panic of 1873. Norman: University of Oklahoma Press, 2014.

Wert, Jeffery D. Civil War Barons: The Tycoons, Entrepreneurs, Inventors, and Visionaries Who Forged Victory and Shaped a Nation. Boston: Da Capo, 2018.

Wicker, Elmus. Banking Panics of the Gilded Age. Cambridge: Cambridge University Press, 2006.

Michael J. Megelsh
Blue Mountain Christian University