| Panic Of 1873 |
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The Panic of 1873 was a serious downturn in the economy of the United States that touched off on September 18 , 1873 , when the Philadelphia banking firm Jay Cooke and Company closed its doors and declared bankruptcy. It was one of a series of economic crises in the 19th and early 20th centuries. The end of the Civil War saw a boom in railroad construction, with 35,000 miles of new track being laid across the country between 1866 and 1873. The railroad industry, at the time the nation's largest employer outside of agriculture, involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry. Cooke's firm, like many others, was invested heavily in the railroads. President Ulysses S. Grant 's monetary policy of contracting the money supply made matters worse. While business was expanding, the money they needed to finance it was becoming more scarce. Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the Northern Pacific Railway . Cooke's firm provided the financing. But on September 18, the firm realized it had become overextended and declared bankruptcy. The firm's bankruptcy touched off a domino effect, causing the economy of the United States to collapse. The New York Stock Exchange closed for 10 days. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875 . Unemployment reached 14 percent by 1876 . By 1877 , wage cuts and poor working conditions caused workers to strike, preventing the trains from moving. President Rutherford B. Hayes 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. The tension between workers and the leaders of banking and manufacturing lingered on well after the depression itself lifted in the spring of 1879 , the end of the crisis coinciding with the beginning of the great wave of Immigration into the United States which would last until the early 1920s . View of the Austrian school Some economists of the Austrian School claim that the "great depression", which is supposed to have lasted for an unprecedented six years after the Panic of 1873, is merely a myth brought about by misinterpretation of the fact that prices in general fell sharply during the entire period. Murray Rothbard wrote: :"Yet what sort of "depression" is it which saw an extraordinarily large expansion of industry, of railroads, of physical output, of net national product, or real per capita income? As Friedman and Schwartz admit, the decade from 1869 to 1879 saw a 3-percent-per-annum increase in money national product, an outstanding real national product growth of 6.8 percent per year in this period, and a phenomenal rise of 4.5 percent per year in real product per capita. Even the alleged "monetary contraction" never took place, the money supply increasing by 2.7 percent per year in this period." Rothbard surmised that the major effect of the Panic of 1873 was, not to initiate a great depression, but to cause bankruptcies in over-inflated banks and in railroads riding on the tide of vast government subsidy and bank speculation. See also |