Causes, Consequences, Comparisons 1873-1896 Depression Causes, Consequences, Comparisons

What led up to the Depression? Post Civil War economic boom – 1865-1873 Large expansion and investments in railroads – mania (financial and stock market bubble) develops Banks create large amounts of credit – issue bonds for investment. Cotton and agricultural exports boom. Farmers prosper. Rapid technological innovations – steel mills, telegraph. Rapid expansion of industrial base. Large inflows of immigrant workers.

How did crisis begin in 1873? Overbuilding in railroads and industrial base New rail centers unable to repay investment costs Industry produces more products than can be consumed Exports fall due to economic downturn in Europe. Banks overextended cannot pay interest on bonds. In Fall, 1873 railroad stocks crash, money/credit dries up, bank runs occur. Cotton prices drop by over 30% Extensive corruption between corporate executives and politicians Large wealth disparity between the elite and societry. Monetary system is antiquated and constricts economy No Federal Reserve System Not on gold standard

Societal Consequences Unemployment grows to > 30%, no safety net. Freedman in South blamed for hard times – Reconstruction era ends. Immigrants blamed in the North Public anger and oppression develops against the unfortunate In 1877, railroads cut pay by 10% and increase stockholder dividends by 10% Riots, arson, nation-wide strikes followed. Tens of thousands of families in NYC alone were on relief. By the 1880’s workers began forming unions.

What led to recovery from crisis? Currency reform – by 1879 the U.S. returned to a gold standard for its money. Government regulations increased on railroads. Taxes were increased on foreign capital. “Village reform” – smaller funded investments locally to employ the local idle workers. Population growth – increased overall consumer demand. Exports improved – increased foreign demand for cotton and other U.S. goods.

Comparisons to future crises 1873-1897 1929-1941 2008-now Banks create excessive credit Yes Yes – for last 20 years Corruption yes Banks, Madoff, lobbyists Excessive industrial capacity China vastly overbuilt Rapid technological development Tech bubble, real estate bubble, social media bubble Scapegoats found Mexicans Mexicans, Muslims