September 20, 2023: AmericanStudying the Panic of 1873: Two Panics

[On September20th, 1873, the New York Stock Exchange closed for tendays, a key moment in the developing economic crisis that came to be known as the Panicof 1873. So for the 150th anniversary of that moment this weekI’ll AmericanStudy a handful of Panic contexts, leading up to a weekend post on2023 echoes of those histories!]

On whatwas quite similar and what was distinct about two 19th centuryeconomic downturns.

Rampantspeculation, a longstanding bubble that was about to burst, changes ininternational monetary and lending policies, and concurrent declining pricesfor key products led to widespread economic panic and resulting bank runs. Whenthe banks ran out of their reserves, customers were unable to access (much lessredeem) their currency and other holdings, and the economy quickly collapsed. Whilethat sounds very much like the 1873 conditions I described in yesterday’s postthat culminated in the Panic of 1873, here I’m actually describing the conditions in late1836 and early 1837 that culminated in the May events which became known asthe Panicof 1837. Despite some specific time period variations (for example, the1837 bubble was in land speculation, rather than railroad companies and stocksas was the case with the 1873 bubble), the two Panics share many similarities,as do thedepressions that followed eachof them. (One can say the same about their mutual resemblance to the 2008financial crisis, on which more this weekend.)

As theman said, though, history might rhyme but it doesn’t repeat, and therecertainly were also important and telling differences between the Panics of1837 and 1873. Perhaps the most telling was the role of the U.S. President inhelping cause the earlier panic—not MartinVan Buren, who had been inaugurated only weeks before the Panic started(although he was blamedfor the economic crisis nonetheless, a fate that many presidents havesuffered), but his predecessorand mentor, Andrew Jackson. As with most questions of historical causation,there has been significantdebate over whether Jackson’s infamous Bank Wardirectly contributed to the Panic, and I’m not going to pretend to be expertenough to weigh in on that debate. But it seems clear to me that the absence ofa centralized national bank was at least a factor in the collapse of the banks,and that absence was due directly to Jackson’s refusal to extend the charter ofthe SecondBank of the United States.

Historicalcauses are complicated enough to pin down, but I’d argue that effects can beeven trickier. Over the next two posts I’ll focus on two particularlycomplicated and unquestionably crucial aftermaths of the Panic of 1873, each ofwhich is unique to that era and thus distinct from the effects of the Panic of1837 and the resulting depression. But I would argue that by far the biggesthistorical difference between the two Panics was that in 1873 the nation was inthe midst of one of the largest federal government initiatives in Americanhistory, Federal Reconstruction—and the extended depression that followed thePanic of 1873 withoutquestion contributed to the frustratingly and tragically early conclusionto that federal effort. It did so in a variety of ways, including heavily influencingthe pivotal Congressionalelections of 1874 that voted out many members of President Grant’sRepublican Party. One could also argue, with a great deal of validity, thatboth the depression and the elections provided cover for white Americans toabandon Reconstruction’s commitments to racial justice and equality. Buthowever we parse the relationship, there’s no way to analyze the Panic of 1873without situating it in the Reconstruction era, and that certainly represents akey difference from 1837.

Next 1873contexts tomorrow,

Ben

PS. Whatdo you think?