Once upon a time 1873
There was a period when the US East Coast exported grains to Europe and West Coast did to China; moreover, US competed with China on cotton, and the North and South were divided on slavery and a dream of unification. And there was a tariff war also, it was a period of globalization. This was the “US before United”.
During the same time there was heavy investment in infrastructure, bridges, roads, telegraphs, electricity and oil was found to be a substance with interesting properties; for the first time techniques (engineering) were applied on each of this fields; and the outcome was that people benefitted enormously from this advances, the result was not only a gigantic progress at country level but most importantly, for the society i.e. instead of travelling for 3 weeks from point A to B, now it took 10 hours, having electricity in their homes, etc.
This continued until there was Over Investment and high speculation, what followed is both historic and anecdotical, here allow Grok to tell, because I consider to be accurate :
The **Panic of 1873** was one of the first major international economic crises of the industrial era. It began in 1873 and its effects lasted in many countries well into the 1870s and even the early 1880s.
### Causes
1. **Over-speculation in railroads (especially in the U.S. and Europe)**
- The 1850s–1870s saw massive railway construction, financed by bonds and stocks.
- In the United States, companies like the Northern Pacific Railway were heavily overextended.
- The leading American investment bank **Jay Cooke & Company**, which was financing the Northern Pacific, declared bankruptcy on **September 18, 1873** → this triggered the panic.
2. **Post-Civil War and Franco-Prussian War economic bubbles**
- United States: Massive money supply expansion during the Civil War + post-war reconstruction boom.
- Europe: Germany received 5 billion francs in gold reparations from France after the 1870–71 war → huge speculative investment wave (“Gründerzeit” in Germany and Austria).
3. **Demonetization of silver (especially in Germany and the U.S.)**
- Germany switched to the gold standard in 1871–73 and dumped large amounts of silver on the market → sharp fall in silver prices.
- This hurt silver-producing countries and contributed to deflationary pressure.
4. **Crop failures and falling agricultural prices**
- Good harvests in Europe and the opening of the American Midwest flooded grain markets → prices collapsed for farmers.
### Course of the Crisis
- **September 1873**: Jay Cooke & Co. fails → New York Stock Exchange closes for 10 days.
- **Vienna Stock Exchange crash** in May 1873 (the “Gründerkrach”) actually preceded the American panic and was part of the same speculative bubble.
- Bank runs and hundreds of banks and businesses failed in the U.S., Austria-Hungary, Germany, and Britain.
- Unemployment soared (estimates of 14–20 % in some industrial cities in the U.S. and Germany).
### Duration and Depth – The “Long Depression” (1873–1879/1896)
- Prices (wholesale and consumer) fell continuously for over 20 years in many countries → severe deflation.
- Real GDP growth slowed dramatically, though modern research shows it was more a period of very slow growth rather than absolute decline in most countries (except perhaps Austria-Hungary).
- The depression is considered to have ended around **1879** in the United States and Britain, but deflation and stagnation continued in many places until the mid-1890s.
### Effects by Country
| Country | Key Effects |
|--------------------|-------------------------------------------------------------------------------------------------|
| **United States** | ~18,000 businesses failed (1873–1877); violent labor strikes (1877 railroad strike); rise of the Greenback movement and later the Populist Party; shift toward the gold standard (finally adopted 1900). |
| **Germany/Austria-Hungary** | End of the “Gründerzeit” boom; thousands of new companies bankrupt; strong antisemitic backlash blaming Jewish bankers; rise of protectionism and Bismarck’s conservative turn. |
| **United Kingdom** | Less dramatic stock-market crash but long industrial stagnation; “Great Depression of British Agriculture” (1870s–1890s). |
| **France** | Relatively mild because France was still on a bimetallic standard and less industrialized. |
### Long-term Consequences
- End of the first big wave of globalization (1870–1914) temporarily slowed down.
- Rise of protectionist tariffs (Germany 1879, U.S. continued high tariffs).
- Shift from bimetallism to the classical gold standard almost worldwide by the 1890s.
- Political radicalization: growth of socialist parties, agrarian populism, and antisemitism in Central Europe.
In short, the Crisis of 1873 was the first modern global financial crash caused by railway and industrial overinvestment, amplified by the switch to the gold standard and massive deflation. It marked the end of the carefree post-1850 economic boom and ushered in a more difficult, deflationary era that lasted until the late 1890s
