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Wednesday, September 20, 2023

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

[On September 20th, 1873, the New York Stock Exchange closed for ten days, a key moment in the developing economic crisis that came to be known as the Panic of 1873. So for the 150th anniversary of that moment this week I’ll AmericanStudy a handful of Panic contexts, leading up to a weekend post on 2023 echoes of those histories!]

On what was quite similar and what was distinct about two 19th century economic downturns.

Rampant speculation, a longstanding bubble that was about to burst, changes in international monetary and lending policies, and concurrent declining prices for key products led to widespread economic panic and resulting bank runs. When the banks ran out of their reserves, customers were unable to access (much less redeem) their currency and other holdings, and the economy quickly collapsed. While that sounds very much like the 1873 conditions I described in yesterday’s post that culminated in the Panic of 1873, here I’m actually describing the conditions in late 1836 and early 1837 that culminated in the May events which became known as the Panic of 1837. Despite some specific time period variations (for example, the 1837 bubble was in land speculation, rather than railroad companies and stocks as was the case with the 1873 bubble), the two Panics share many similarities, as do the depressions that followed each of them. (One can say the same about their mutual resemblance to the 2008 financial crisis, on which more this weekend.)

As the man said, though, history might rhyme but it doesn’t repeat, and there certainly were also important and telling differences between the Panics of 1837 and 1873. Perhaps the most telling was the role of the U.S. President in helping cause the earlier panic—not Martin Van Buren, who had been inaugurated only weeks before the Panic started (although he was blamed for the economic crisis nonetheless, a fate that many presidents have suffered), but his predecessor and mentor, Andrew Jackson. As with most questions of historical causation, there has been significant debate over whether Jackson’s infamous Bank War directly contributed to the Panic, and I’m not going to pretend to be expert enough to weigh in on that debate. But it seems clear to me that the absence of a 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 of the Second Bank of the United States.

Historical causes are complicated enough to pin down, but I’d argue that effects can be even trickier. Over the next two posts I’ll focus on two particularly complicated and unquestionably crucial aftermaths of the Panic of 1873, each of which is unique to that era and thus distinct from the effects of the Panic of 1837 and the resulting depression. But I would argue that by far the biggest historical difference between the two Panics was that in 1873 the nation was in the midst of one of the largest federal government initiatives in American history, Federal Reconstruction—and the extended depression that followed the Panic of 1873 without question contributed to the frustratingly and tragically early conclusion to that federal effort. It did so in a variety of ways, including heavily influencing the pivotal Congressional elections of 1874 that voted out many members of President Grant’s Republican Party. One could also argue, with a great deal of validity, that both the depression and the elections provided cover for white Americans to abandon Reconstruction’s commitments to racial justice and equality. But however we parse the relationship, there’s no way to analyze the Panic of 1873 without situating it in the Reconstruction era, and that certainly represents a key difference from 1837.

Next 1873 contexts tomorrow,


PS. What do you think?

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