1873 - Detail

September 18, 1873 - An economic depression begins when the New York stock market crashed, setting off a financial panic that caused bank failures. The impact of the depression would continue for five years.

The headlines were extraordinary about the potential impact of the September 18 events. The New York Times yelled, "THE PANIC.; EXCITEMENT IN WALL STREET. SUSPENSION OF JAY COOKE & CO. WHAT IS THOUGHT OF IT EVERYWHERE. TROUBLES IN OTHER FIRMS. WHAT JAY COOKE & CO. SAY. GEO. OPDYKE & CO., ROBINSON & SUYDAM. PACIFIC MAIL. AT THE PRODUCE EXCHANGE. THE UP-TOWN HOTELS. AT THE CLUBS. VIEWS OF A PROMINENT BROKER. THE PANIC. VIEWS OF ANOTHER BROKER. STATEMENT BY GEORGE CROUCH. THE NORTHERN PACIFIC RAILROAD. NO SALE OF GOLD. AT THE FIFTH AVENUE HOTEL."

The New York Herald had just as shrill a headline, "A FEARFUL HOUR IN WALL STREET! JAY COOKE SINKS BENEATH THE WAVE OF FINANCIAL RUIN 1 THE NORTHERN PACIFIC'S FIRST "SMASH-OP!"' OTHER PACIFIC'S MORE TO COME. PERHAPS! DISASTERS! COMMODORE VANDKRBILT'8 VIEWS! DETAILS OF THE SUPREME AGONY OF THE CLIQUES."

So, what happened on September 18 to cause such a stir, a panic, a five year economic depression. Well, an investment banker, known today as banks to big to fail even during the 2008 economic depression amidst speculative ventures into Sub-Prime Mortgage, named Jay Cooke and his Jay Cooke and Company. Founded ten years earlier and someone known to all the big players on Wall Street and the White House, Cooke had, three days earlier met with President Ulysses S. Grant at his estate in Philadelphia. So what did they talk about; nobody knows. But Cooke had his hooks, or ties, into Grant due to financing his campaign and, with merit, selling $1.6 billlion in Civil War Bonds to finance the Union. With all that trust and goodwill from the White House to Wall Street, and pushing the idea of railroads to gullible investors, in 1870, Cooke's company financed the Northern Pacific Railway, whose goal was to put tracks from Lake Superior across Indian lands of the Lakota, Dakota (i.e. the Sioux, of which the Europeans named the former, but was not indigenous) all the way to Puget Sound. Of course, Congress was in bed, too, having chartered the enterprise on July 2, 1864 and granting forty-seven million acres of land, forty miles per side.

As of September 18, 1873, the Northern Pacific Railroad, with intent to build 1,800 miles to Puget Sound with a 200 mile spur to Portland, Oregon, had built 453 miles in the east and 106 at its western terminus. However, its expenditures had been large, over fifteen million dollars. That seemed lean at first, with stock capital authorized at over $100 million. However, building railroads across the entire continent was not an easy proposition. Tribes harrassed the surveyors. Swamps stood in their way. There was that mountain range serving as a wall to conquer. They had to buy locomotives and track and pay men to build it. And boy there was fraud. At the end of 1872, other investment firms began to warn of a coming railroad investment collapse. Could the meeting with Grant be a coaxing by Cooke to get government funding? Seems likely. However, President Grant would not help.

Three days later, all financial heck broke loose. Cooke's investment bank went bankrupt. No FDIC to bail out depositors. No money to refund the investments of the bond holders at all; i.e. it was a risky investment to begin with. The police had to guard the doors to his bank the next day. But worst than one investment firm failing was the ripple effect it had on the others. By September 20, 1873, the Stock Exchange closed, the first time ever, and remained closed for ten days. Depositors of other banks, now not trusting their money to any institution, made runs, forcing them into insolvency. U.S. Grant and his Treasury Department considered bailouts, but Grant was completely against it. He did provide $10 to $13 million to secure bonds, but that was as far as he would go.

How did the Panic of 1873 occur in the first place? Real estate speculation that soared the price of land, new financial instruments such as the railroad bonds, and credit was easy, even to the point that Europeans and other overseas investors held up to two-thirds of bonds sold on American exchanges. However, their had already been a weakening in the European economy, particularly in Vienna, Austria-Hungary, which affected everything there in 1873 as well, even their spectacular World's Fair, which would fail due to the financial impact. Yes, there had been signs, but nobody, or few, were taking them seriously enough because everyone, prior to 1873, was making money.

How did the Panic of 1873 effect the entire country. It closed eighteen thousands businesses, including one hundred and twenty-one railroads, and caused an unemployment rate of eighteen percent. Nineteen financial houses went bankrupt or were suspended; Jay Cooke and Co., Fisk and Hatch, Geo. B. Alley, A. Smith and Seaver, A.M. Kidder and Co., Whittemore and Anderson, Eugene J. Jackson, Hay and Warner, Day and Morse, Thomas Reed and Co., Greenleaf and Norris, Theodore Berdell, Beers and Edwards, Wm. H. Warren and Co., Robinson and Suydam, Richard Schell, White, De Freitas and Rathbone, Fitch and Co., Vernon and Hay, William Bend, Jacob Little and Co., E.D. Randolph, and W.E. Connor.

Newspaper Report, New York Herald, September 19, 1873

Cooke's Crash, A Financial Hurricane in Wall Street Yesterday, The Great National Banking House of Jay Cooke & Co* Suspended, The Northern Pacific Railroad Supposed To Be Bankrupt, DIRE DISMAY OF BULLS AND BEARS, Depositors' Money Taken from Bank Vaults to Prop a Railroad Project, A PANIC FOR AN HOUR, Western Union Tumbling 10 Per Cent in Ten Minutes, Suspension of Richard Schell and Robinson & Suydam. INTERVIEWS WITH PROMINENT FINANCIERS. How the Northern Pacific Was Stamped into Popularity. LIVELY TIMES AHEAD. Indignation Throughout the City and Country. VIEWS OF VANDERBILT, THE VETERAN. "Why Panics Occur. Attempt to Curry Too Heavy Financial Loads. Flimsy Railroad Schemes the Bane of American Credit.

Article - A storm burst yesterday over oar financial centre which threatened to coavulse and distort all existing values. In Wall street every comparison starts irom the great gold panic known as Black Friday, and yesterday, for the llrst time in four years, peopie were willing to own that they were witnessing something which approached very closely that dire day in the annals of Financial men. The consternation was almost as great, the rear was quite as general. Men who, the dav before, supposed they could control their millions of dollars, rushed about, their cheeks blanched with excitement and doubtful if, as things stood, they conld command, on the moment, as many thousand cents. And what was all tnis about - the failure of one house and the bankruptcy of a railroad? When men went down to their business yesterday morning, confident and happy, they heard that Jay Cooke A Co. had suspended and that the Northern Pacific Railroad was "burst." Immediately a rumor ran through the street, and men felt as if the bottom of Wall Btreet had literally dropped out and they were all to go with it. For the moment no one could understand where he stood. The biggest men and the smallest cut round to the Stock Exchange, and when its ponderous doors opened and the first call was announced the brokers were quaking in their shoes, and the noise and mingling of tongues were entirely worthy of the ancient Tower of Babel.

EVEKYBODY WAS 8H0UTING, nobody listening, and the President had difficulty in rapping with his gavel to get the excited creatures below him listen to his voice. The suspension of Jay Cooke and Company was then announced, and a monstrous yell went UP nnd seemed to literally shake the building in which all these mad brokers were for the moment confined. When the call took place stocks of all kinds and descriptions came tumbling down at a frightful rate, aud in a moment many saw themselves ruined. This only served to increase the hubbub to a demoniac revel. Many tore their hair and run about as if crazy, pushing, battling, shouting, shrieking to others equally crazy. The Stock Exchange had lost its head, and the usual pandemonium of daily occurrence was as mere music to the noises which were being made. Everybody was trying to sell, nobody was willing to buy, and, with the gesticulations of the principals, the breathless running in and out of the clerks, the "tick-tick" of the telegraphs, the overwhelming confusion of tongues aud the shuffle and patter of the feet on the stone floors, a stranger might have well believed hlmself in a madhouse. In the Gold Exchange the scene was only a repetition of that occurriug in the Stock Exchange, and the excitement was up to fever heat.

But THE SCENE OUTSIDE did not differ to any great extent irom that occurring in the board room. Knots of people were collccted on the street corners aud opposite every house of any renown, excitedly discussing the appalling news. Around the business quarters of Jay Cooke A Co., on the corner of Nassau and Wall Streets, there was a dense mass of people, while immediately around the building was drawn a cordon of policemen, looking gloomy but earnest, as if they expected some trouble ahead. Men were rushing, anxious and harried, every moment up the steps leading to the banking floor, all with little slips of paper in their hands, and a few moments afterwards they would reappear downcast and crestfallen, their non-success imprinted on their countenances. It was hard for these men to think that one of the largest banking houses in the country - a firm of national reputation - had really failed; but the presentation of their little slips of paper at the desks was quite enough - the suspension was patent and undeniable to any who chose to make the test. But the crowd remained around the corners, many gazing curiously into the windows of the marble building as if wanting to see these men that could so convulse.

THE GREAT CENTER OF FINANCE. Two old men stood near by, one of them seemingly prostrated with despair. "I have nothing lcft, John. It was all in there," said oue, pointing to the sign, where "BANKINO HOUSE OF JAY COOKE AND CO." stood out in glis letters. "I wonder wnetber my bunk Is eafe," said the other. "I guess my money won't stay there any longer." And away he went to draw what he had out, while the other stood arouud eagerly listening to all that was said, hoping against hope.

One man wan explaining to another how the Barings of London would rejoice over this failure, aud a countryman was telling a friend of his that down in his town every second man owned Northern Pacific; but he had always been "skeered of them railroad specs.," so he wouldn't mind it so much if it were not for his neighbors; "and all Schuyler Colfax's fault, damn him," he added. Note: Schuyler Colfax was a former Vice President, member of Congress, and author of the 13th Amendment to slavery, but had been investigated in the Crédit Mobilier scandal as acceptinhg cash and stock from the Union Pacific Railroad with quid pro quos during the construction of the transcontinental railroad. He said he did not do it. The article continues covering the aspects of the headlines above.

Aftermath

Although most of what is written above seems to focus on those with a significant stake in the financial markets, which included many regular folks, it was those beneath that class that suffered the most. Credit markets were frozen, thus very little seed money for small farm crops. While it took only forty days for the Stock Market to gain some traction. It would take five years for the general public to do the same, including many Civil War soldiers from the decade before. There was a collapse in farm prices. The industrial workers blamed the leaders of the banks and manufacturing companies. This led to strikes; some strikes led to violence, such as the Haymarket Bombing in 1886.

The rest of the world was also in financial turmoil. Stagnation lasted almost two decades in Great Britain. France and some of the rest of Europe did not really come out of the recession until 1879.

Congress took tepid actions; they passed a financial crises to influx the economy with money, wanting to increase inflation. U.S. Grant vetoed it. Republicans took much of the blame, and lost the House of Representatives to the Democrats for the first time since the Civil War. The next year, 1875, Congress did pass the Specie Resumption Act, which pegged the treasury back to gold. This worked to improve improve the ups and downs of inflation, and produce a more stable dollar. It became the mantra of the Republican Party. Just wish today any party would want a stable dollar policy, but both seem more in tune with speculative, no backed instruments, like cryptocurrency, even when they talk of fiscal conservatism.

Photo above: Engraving of the run on the Fourth National Bank, Mew York City, 1873, Leslie's Illustrated Newspaper. Courtesy Library of Congress. Below: Closing the door of the Stock Exchange on its members, Saturday, September 20th, 1873, Frank Leslie's Illustrated Newspaper. Courtesy Library of Congress. Info Source: Library of Congress; New York Times, "How One Robber Baron’s Gamble on Railroads Brought Down His Bank and Plunged the U.S. Into the First Great Depression," 2023, Mickey Butts, Smithsonian Magazine; "New York and the Panic of 1873," 2008, Jennifer B. Lee, New York Times; Wikipedia Commons.

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