Panic of 1893

Estimates of the unemployment rate per 100 persons during the 1890s (Source: Romer, 1986)

Year	Lebergott	Romer
1890	4.0	4.0
1891	5.4	4.8
1892	3.0	3.7
1893	11.7	8.1
1894	18.4	12.3
1895	13.7	11.1
1896	14.5	12.0
1897	14.5	12.4
1898	12.4	11.6
1899	6.5	8.7
1900	5.0	5.0

Drawing of frenzied stockbrokers on May 5, 1893, from Frank Leslie's Illustrated Newspaper

The Panic of 1893 was a serious economic depression in the United States that began in 1893 and ended in 1897. It deeply affected every sector of the economy, and produced political upheaval that led to the 1896 realigning election and the Presidency of William McKinley.

Causes

One of the causes for the panic of 1893 can be traced back to Argentina. Investment was encouraged by the Argentine agent bank, Baring Brothers. However, the failure of the 1890 wheat crop and a coup in Buenos Aires ended further investments. Because European investors were concerned that these problems might spread, they started a run on gold in the U.S. Treasury, since it was comparatively simple for them to cash in their dollar investments for exportable gold. During the Gilded Age of the 1870s and 1880s, the United States had experienced economic growth and expansion, but much of this expansion depended on high international commodity prices and in 1893 wheat prices crashed.

One of the first clear signs of trouble came on February 20, 1893, thirteen days before the inauguration of U.S. president Grover Cleveland, with the appointment of receivers for the Philadelphia and Reading Railroad, which had greatly overextended itself. Upon taking office, Cleveland dealt directly with the Treasury crisis, and successfully convinced Congress to repeal the Sherman Silver Purchase Act, which he felt was mainly responsible for the economic crisis.

As concern for the state of the economy worsened, people rushed to withdraw their money from banks, and caused bank runs. The credit crunch rippled through the economy. A financial panic in the United Kingdom and a drop in trade in Europe caused foreign investors to sell American stocks to obtain American funds backed by gold.

Populists

The Populists were a short-lived agrarian-populist political party which appealed politically to wheat farmers in the West and poor cotton farmers in the South. They saw the resulting panic as confirmation that the values of rootless global finance were assailing traditional American values. Historian Hasia Diner notes:

Some Populists believed that Jews made up a class of international financiers whose policies had ruined small family farms. Jews, they asserted, owned the banks and promoted the gold standard, the chief sources of their impoverishment. Agrarian radicalism posited the city as antithetical to American values, asserting that Jews were the essence of urban corruption.

Silver

The Free Silver movement arose, gaining support from farmers (who sought to invigorate the economy and cause inflation, thus allowing them to repay their debt with cheaper dollars) and mining interests (who sought the right to turn silver directly into money). The Sherman Silver Purchase Act of 1890, while falling short of the Free Silver movement's goals, required the U.S. government to buy millions of ounces of silver above what was required by the 1878 Bland–Allison Act (driving up the price of silver and pleasing silver miners). People attempted to redeem silver notes for gold. Ultimately, the statutory limit for the minimum amount of gold in federal reserves was reached and U.S. notes could no longer be successfully redeemed for gold. Investments during the time of the panic were heavily financed through bond issues with high interest payments. The National Cordage Company (the most actively traded stock at the time) went into receivership as a result of its bankers calling their loans in response to rumors regarding the NCC's financial distress. The company, a rope manufacturer, had tried to corner the market for imported hemp. As the demand for silver and silver notes fell, the price and value of silver dropped. Holders worried about a loss of face value of bonds and many became worthless.

A series of bank failures followed, and the Northern Pacific Railway, the Union Pacific Railroad and the Atchison, Topeka & Santa Fe Railroad failed. This was followed by the bankruptcy of many other companies; in total over 15,000 companies and 500 banks, many of them in the west, failed. According to high estimates, about 17%–19% of the workforce was unemployed at the panic's peak. The huge spike in unemployment, combined with the loss of life savings kept in failed banks, meant that a once-secure middle-class could not meet their mortgage obligations. Many walked away from recently built homes as a result.

Effects

The 1896 Broadway melodrama The War of Wealth was inspired by the panic of 1893.

As a result of the panic, stock prices declined. 500 banks closed, 15,000 businesses failed, and numerous farms ceased operation. The unemployment rate hit 25% in Pennsylvania, 35% in New York, and 43% in Michigan. Soup kitchens were opened to help feed the destitute. Facing starvation, people chopped wood, broke rocks, and sewed by hand with needle and thread in exchange for food. In some cases, women resorted to prostitution to feed their families. To help the people of Detroit, Mayor Hazen Pingree started "Pingree's Potato Patch" which were community gardens for farming.

The Sherman Silver Purchase Act of 1890, perhaps along with the protectionist McKinley Tariff of that year, has been partially blamed for the panic. Passed in response to a large overproduction of silver by western mines, the Sherman Act required the U.S. Treasury to purchase silver using notes backed by either silver or gold. The Democrats and President Cleveland were blamed for the depression. The decline of the gold reserves stored in the Treasury fell to a dangerously low level. This forced President Cleveland to borrow $65 million in gold from Wall-Street banker J.P. Morgan and the Rothschild banking family of England to support the gold standard. In the ensuing 1894 elections, the Democrats and Populists lost heavily. The election marked the largest Republican gains in history.

See also

• Denver Depression of 1893
• Black Friday (1869)—Also referred to as the Gold Panic of 1869
• Second-term curse

Further reading

Contemporary sources

• American Annual Cyclopedia...1894 (1895) online
• Baum, Lyman Frank and W. W. Denslow. The Wonderful Wizard of Oz (1900); see Political interpretations of The Wonderful Wizard of Oz
• Brice, Lloyd Stephens, and James J. Wait. “The Railway Problem.” North American Review 164 (March 1897): 327–48. online at MOA Cornell.
• Cleveland, Frederick A. "The Final Report of the Monetary Commission," Annals of the American Academy of Political and Social Science 13 (January 1899): 31–56 in JSTOR
• Closson, Carlos C. Jr. "The Unemployed in American Cities." Quarterly Journal of Economics, vol. 8, no. 2 (January 1894) 168–217 in JSTOR); vol. 8, no. 4 (July 1894): 443–477 in JSTOR
• Fisher, Willard. "‘Coin’ and His Critics." Quarterly Journal of Economics 10 (January 1896): 187–208 in JSTOR
• Harvey, William H. Coin’s Financial School (1894), 1963 (Introduction by Richard Hofstadter). online first edition
• Noyes, Alexander Dana. "The Banks and the Panic," Political Science Quarterly 9 (March 1894): 12–28 in JSTOR.
• Shaw, Albert. "Relief for the Unemployed in American Cities," Review of Reviews 9 (January and February 1894): 29–37, 179–91.
• Stevens, Albert Clark. "An Analysis of the Phenomena of the Panic in the United States in 1893," Quarterly Journal of Economics 8 (January 1894): 117–48 in JSTOR.

Secondary sources

• Barnes, James A. John G. Carlisle: Financial Statesman (1931).
• Barnes, James A. (1947). "Myths of the Bryan Campaign". Mississippi Valley Historical Review. 34 (3). The Mississippi Valley Historical Review, Vol. 34, No. 3: 383–394. doi:10.2307/1898096. JSTOR 1898096. {{cite journal}}: Cite has empty unknown parameter: |month= (help)
• Destler, Chester McArthur. American Radicalism, 1865–1901 (1966).
• Dewey, Davis Rich. Financial History of the United States (1903). online.
• Dighe, Ranjit S. ed. The Historian's Wizard of Oz: Reading L. Frank Baum's Classic as a Political and Monetary Allegory (2002).
• Dorfman, Joseph Harry. The Economic Mind in American Civilization. (1949). vol 3.
• Faulkner, Harold Underwood. Politics, Reform, and Expansion, 1890–1900. (1959).
• Feder, Leah Hanna. Unemployment Relief in Periods of Depression ... 1857–1920 (1926).
• Friedman, Milton, and Anna Jacobson Schwartz. A Monetary History of the United States, 1867–1960 (1963).
• Harpine, William D. From the Front Porch to the Front Page: McKinley and Bryan in the 1896 Presidential Campaign (2006) excerpt and text search
• Hoffmann, Charles (1956). "The Depression of the Nineties". Journal of Economic History. 16 (2): 137–164. JSTOR 2114113. {{cite journal}}: Cite has empty unknown parameter: |month= (help)
• Hoffmann, Charles. The Depression of the Nineties: An Economic History (1970).
• Jensen, Richard. The Winning of the Midwest: 1888–1896 (1971).
• Josephson, Matthew. The Robber Barons New York: Harcourt Brace Jovanovich (1990).
• Kirkland, Edward Chase. Industry Comes of Age, 1860–1897 (1961).
• Lauck, William Jett. The Causes of the Panic of 1893 (1907). online
• Lindsey, Almont. The Pullman Strike 1942.
• Littlefield, Henry M. (1964). "The Wizard of Oz: Parable on Populism". American Quarterly. 16 (1). American Quarterly, Vol. 16, No. 1: 47–58. doi:10.2307/2710826. JSTOR 2710826. {{cite journal}}: Cite has empty unknown parameter: |month= (help)
• Nevins, Allan. Grover Cleveland: A Study in Courage. 1932, Pulitzer Prize.
• Rezneck, Samuel S. (1953). "Unemployment, Unrest, and Relief in the United States during the Depression of 1893–97". Journal of Political Economy. 61 (4). The Journal of Political Economy, Vol. 61, No. 4: 324–345. doi:10.1086/257393. JSTOR 1826883. {{cite journal}}: Cite has empty unknown parameter: |month= (help)
• Ritter, Gretchen. Goldbugs and Greenbacks: The Anti-Monopoly Tradition and the Politics of Finance in America (1997)
• Ritter, Gretchen (1997). "Silver slippers and a golden cap: L. Frank Baum's The Wonderful Wizard of Oz and historical memory in American politics". Journal of American Studies. 31 (2): 171–203. doi:10.1017/S0021875897005628. {{cite journal}}: Cite has empty unknown parameter: |month= (help)
• Rockoff, Hugh (1990). "The 'Wizard of Oz' as a Monetary Allegory". Journal of Political Economy. 98 (4). The Journal of Political Economy, Vol. 98, No. 4: 739–760. doi:10.1086/261704. JSTOR 2937766. {{cite journal}}: Cite has empty unknown parameter: |month= (help)
• Romer, Christina (1986). "Spurious Volatility in Historical Unemployment Data". Journal of Political Economy. 94 (1): 1–37. doi:10.1086/261361.
• Schwantes, Carlos A. Coxey’s Army: An American Odyssey (1985).
• Shannon, Fred Albert. The Farmer’s Last Frontier: Agriculture, 1860–1897 (1945).
• Steeples, Douglas, and David O. Whitten. Democracy in Desperation: The Depression of 1893 (1998).
• Strouse, Jean. Morgan: American Financier (1999).
• White; Gerald T. The United States and the Problem of Recovery after 1893 (1982).
• Whitten, David. EH.NET article on the Depression of 1893
• Wicker, Elmus. Banking panics of the gilded age (Cambridge University Press, 2006) contents

External links

• Causes of the Business Depression by Henry George; appeared in Once a Week, a New York periodical, March 6, 1894