The financial panic of 1873

The most important event of President Grant's second term in office was the severe financial depression by which it was marked. The era of high prices and business activity which had followed the war yielded its legitimate effect in an abnormal growth of the spirit of speculation. The inevitable consequence followed. In 1873 came a financial crash that carried ruin far and wide throughout the country. It began on October 1, in the disastrous failure of the banking firm of Jay Cooke & Co., of Philadelphia, the financiers of the Northern Pacific Railroad. Failure after failure succeeded, panic spread through the whole community, and the country was thrown into a condition resembling that of 1837, but more disastrous from the fact that much greater wealth was affected. Years passed before business regained its normal proportions. A process of contraction set in, the natural change fron high war-prices to low peace-prices, and it was not till 1878 that the timidity of capital was fully overcome and business once more began to thrive.

Industry and trade had flourished beyond precedent during the first years after the war. The high protective tariff contributed its share to the general rush of enterprise. In 1873 railroad mileage had doubled itself since 1860, and this was a prolific cause of rash speculation. While business was expanding the currency was contracting. Paper money had depreciated, and the conditions foreboded a crash. The Jay Cooke firm stood at the head of the great banking concerns. This house had handled most of the government loans during the war, and as already stated, were financing the doubtful Northern Pacific scheme. When this firm broke, strong institutions tottered and thousands of people in every rank of life were stricken with absolute ruin or sufferings that were none the less poignant for being outside the category of direct financial failures. The blow was felt for years in impaired credit, pressure for payment of dues, the lowering of securities and general dread of even safe enterprises. United States bonds fell from five to ten per cent. Savings were exhausted and many banks went under. Labor felt the cruel stroke for long after in the shutting down of factories and the half-time employment. The country was in a state of alarm and disgust at the bitter consequences of questionable acts in Congress, by the Administration, and in the realm of finance, and its indignant resolve to change things for the better was expressed in the heated contest which replaced the Grant administration with that of President Hayes, in 1876.

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