Panic of 1873

1873 — The First Great Depression

The Panic of 1873 was a financial crisis that led to a four-year economic depression in the United States, also known as the “First Great Depression.” In the U.S., the panic was caused in America by the collapse of Jay Cooke and Company.

Panic of 1837, Definition, Facts, APUSH

The Rush from the New York Stock Exchange on September 18, 1873, by Howard Pyle. Image Source: The United States in Our Own Time by Elisha Benjamin Andrews (1904).

What was the Panic of 1873?

The Panic of 1873 was an economic collapse triggered by the bankruptcy of Jay Cooke and Company, which plunged the United States into a four-year depression. This economic crisis resulted in widespread bankruptcies, including 89 railroad companies and 18,000 businesses. Unemployment soared to 14% nationwide by 1877. The panic had significant effects on politics and society, fueling the Great Railroad Strike of 1877 and speeding up the end of Reconstruction in the South. Despite the severity of the crisis, the agricultural sector remained relatively stable, and the nation gradually recovered by 1878.

Panic of 1873 Facts

  • The Panic of 1873 was a banking panic that created a significant economic crisis in the United States.
  • The economic depression lasted roughly four years and caused widespread financial difficulties.
  • It caused one of the most significant economic depressions in American history and was preceded by financial crises in 1818. 1837, and 1857.
  • The Freedman’s Bank, the bank for many newly freed slaves, was significantly affected by the Panic of 1873.
  • The Panic of 1873 triggered the first “Great Depression” in the United States.
  • It was the start of 20 years of worldwide economic stagnation, which is known as the “Long Depression.”

Origins of the Panic of 1873

  • During the Civil War, metal money (gold and silver) was hard to acquire, so President Abraham Lincoln authorized the printing of paper money, known as “Greenbacks.”
  • Following the Civil War, the United States experienced rapid growth in its banking system.
  • The use of Greenbacks continued during Reconstruction.
  • Greenbacks were Fiat Money — government-issued currency that is not backed by a physical commodity, like gold or silver.
  • The Panic of 1873 was triggered by financial problems in Europe, that led to several stock market crashes.
  • European investors started selling off their investments in American projects, particularly in railroad ventures.

Railroads and the Panic of 1873

  • Railroads were a novel concept at the time, and companies relied heavily on borrowing to finance new railway lines.
  • Greenbacks were used to invest in railroads.
  • Railroad companies commonly raised funds through bonds, which were debt securities detailing the amount borrowed and the corresponding interest rates.
  • The sale of European railroad bonds flooded the market, surpassing demand and leading to an oversupply situation.
  • With an excess of bonds available for sale, railroad companies struggled to secure additional funding through loans, eventually leading to widespread bankruptcy.

Jay Cooke and Company Collapses and Triggers the Panic of 1873

  • Jay Cooke and Company, a prominent banking firm based in Philadelphia, declared bankruptcy on September 18, 1873.
  • The company had been a key financier of U.S. Government railroad projects since the Civil War.
  • Cooke raised money by selling bonds to finance railroad construction projects.
  • Construction expenses rose, and Cooke was unable to raise additional funding.
  • When Cooke was unable to pay its bills, it folded.
  • Cooke’s bankruptcy was primarily attributed to overextension, particularly in financing the construction of the Northern Pacific Railroad.
  • The timing of Cooke’s bankruptcy coincided with a saturated railroad market in the Western States and Territories and the economic downturn in Europe.

Economic Impact of Cooke and Company’s Collapse

  • The New York Stock Exchange shut down for 10 days in response to the crisis.
  • Unemployment surged to 14 percent nationwide by 1877 as a result of the panic.
  • The collapse of Jay Cooke and Company created a domino effect, leading to 89 railroad companies and around 18,000 other businesses declaring bankruptcy from 1873 to 1877.

The Panic of 1873’s Impact on Society and Politics

  • The Panic of 1873 had consequences beyond the economy.
  • It contributed to the Great Railroad Strike of 1877.
  • The panic accelerated the decline of Reconstruction efforts in the South.
  • It tarnished the Presidency of Ulysses S. Grant.
  • While many industries suffered, farm and crop prices remained relatively stable during the depression.
  • The Grange, an agricultural organization, experienced a period of growth during the economic downturn.
  • At the same time, national trade unions saw a decline in both the number of unions and members.

Recovery from the Panic of 1873

  • The United States gradually emerged from the depression by 1878, due to a combination of time and the natural cycle of business.
  • Despite the severity of the crisis, the American economy rebounded.
  • However, the Panic of 1873 was followed by another financial panic 20 years later, the Panic of 1893.

Panic of 1873 APUSH

Use the following links and videos to study the Panic of 1873, the Presidency of Ulysses S. Grant, and the Gilded Age for the AP US History Exam. Also, be sure to look at our Guide to the AP US History Exam.

Panic of 1873 Definition

The Panic of 1873 was a severe economic crisis that began with the collapse of the banking firm Jay Cooke & Company in September 1873. Triggered by over-speculation, railway expansion, and the failure of investment banks, the panic led to a widespread financial downturn in the United States and Europe. It resulted in bank failures, business closures, high unemployment, and a prolonged economic depression known as the Long Depression. The Panic of 1873 had far-reaching social and political consequences, fueling labor unrest, political agitation, and calls for economic reform.

Panic of 1873 APUSH Units

The Panic of 1873 is included in the following: 

Citation Information

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  • Article Title Panic of 1873
  • Date 1873
  • Author
  • Keywords Panic of 1873, First Great Depression, Panic of 1837 Summary, Panic of 1837 Facts, Panic of 1837 Significance, Panic of 1837 APUSH
  • Website Name American History Central
  • Access Date April 18, 2024
  • Publisher R.Squared Communications, LLC
  • Original Published Date
  • Date of Last Update February 22, 2024

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