1873: The Long Depression

by Gayle Plato-Besley, M. Ed.

As many reporters love to throw out comparisions of today’s financial crisis to the Great Depression, most do not have a working knowledge of history.  There was the Long Depression some 56 years prior to the crash  in 1929. In September, 1873, New York City became the eye of a financial storm: the Panic of 1873. Wall Street markets crashed. Rumblings of fiscal woe thundered through Europe’s summer, with May 8, 1873, seeing a banking crash in Vienna. Like all economic crises, the panic cracks open a fear-based financial fissure. The walls came tumbling down.
Mortgages were cheap and regulations limited in Central Europe at that time; construction loans for residential and municipal buildings flourished. Yet an upstart free market country, namely the United States, was flooding Europe with cheap grains, kerosene, meat, and manufactured goods. This flow of cheaper products cut the economy off at the knees in Europe, and the import of cheap American wheat was especially critical to the depression of European markets. Markets are dominoes, with one industry leaning on the other- all borrowing from the banks. If the banks are over-levied in one or two areas, all start to tumble with the big push of a major industry failing.

Whether wheat in the late 1800’s, or the 2008 time of Chinese cheap goods, and outsourced jobs to India or South America, there is a parallel of the “Gilded Age” with today. As Europe imploded with over extended credit and failures to pay, the summer of ’73 led to the September crash in America.

Railroads were a key issue. Overly complicated bonds promising fixed returns went bust. Jay Cooke, a famous financier of the railroads, couldn’t payoff debts. This, along with depleted capital nationwide triggered squeezes in other streams of funds– the market in the United States crashed. Hundreds of banks closed, unemployment raged and lifestyles plummeted. Industrial communities such as the immigrant populated New York City saw explosions of gang warfare and abject poverty.

The panic of 1873 lead to a solid five year depressed market. Small businesses suffered, and the likes of John D. Rockefeller or Andrew Carnegie came in to buy up the competition. Only the truly wealthy with liquidity and foresight could grow. Think of Warren Buffet of today and you see the beginnings of our own Gilded Age with the extremely wealthy buying up failing companies– Are we seeing the Gilded Cage of a looming depression?

So as the small businesses go, so does the economy.  We cannot allow an overly centralized government, built up out of panicky Wall Street weaseling, to choke us all.  The invisible hand of capitalism is being cut off, like a robber’s. Big brother will do us in– what do ‘they’ say, “all you can count on is death and taxes?”

As we all hear talk of the 1929 market crash and the Great Depression, we’d be best served to see the fall through a lens of history. It repeats itself and we’re seeing deja vu— all over again.


1) http://chronicle.com/temp/reprint.php?id=477k3d8mh2wmtpc4b6h07p4hy9z83x18

2) http://en.wikipedia.org/wiki/Panic_of_1873




  1. Iris Lynch says

    And as it is with each new generation, no one learns a damn thing from the past, even when it is recent. We are such an arrogant species.

    Thanks for the history.

  2. I’m not big on historical analogies, but the lessons are clear: the Great Depression was cause primarily by a credit crunch, high trade barriers and tax increases.

    Today we have a credit crunch. Tomorrow Obama wants to stop all free trade agreements and roll-back the Bush tax cuts.

    Its deja vu all over again.

  3. Those who do not know their history are doomed to repeat it.

  4. And your point is, what? Rightwoman, point me to one, just one, economy where your libertarian ideals actually worked in practice. There will never be a true “free hand of the market” because that hand relies on the government to provide things like a monetary system, courts to enforce contracts, regulation, and enforcement.

    I notice you don’t provide any alternative solution to the one that is being implemented now. I guess we’re supposed to comb through Ayn Rand novels to divine that.

  5. Hmm one economy– how about this one? Our capitalism is just fine.

    We need to let the market sort this out. If we let it all go we can finally see the bottom of this pool. We need to dredge the pool that’s now a fetid swamp before anymore idiots drown.
    Yet, we really need to string up the evil credit pushers who literally conned many young and financially strapped people into buying houses with lousy loans. It’s one thing if a person slips or chooses to swim and drowns. It’s another thing when the lifeguard who’s supposed to help and save holds the swimmers head under. ACORN my eye-
    Obama is totally in bed with it all too- even if he doesn’t know it. I believe he may not, as he seems like such a puppet. He was the attorney defending and pushing the activism to go get high risk loan candidates.

    There was no way some of these loans would work and my point was that history shows us that. It’s not libertarian it’s common sense. Donna Demo Diva, it’s also classic conservative economics– Milton Friedman of th Chicago School and Free to Choose– not Ayn Rand. I am no Howard Roarke and Atlas doesn’t Shrug here.

    FDR created jobs with his alphabet soup, but even though we did get some nice infrastructure of TVA bridges and, CCC projects, or WPA roads, we also got lots of federal programs we cannot shake. We also had farmers pouring milk down the drain due artificial market controls while people starved. We also started losing ideas like minimum wage, creating more artificial cost floors, limiting businesses. and the ever dredful Social Security System that isn’t secure but it is Socialism.

    Federal meddling is the pandora to our business strong box of free markets. All we’ve done is create a false sense of wealth. It’s when we implement large government agencies without limitation that we get messes. It is not about regulation but limitations. It’s not up to the government to create fake status- whether in housing or medical care, once we involve government regulation and layers of programs, we get artificial prices.

    Fannie and Freddie were examples of how gov’t backed loans get icky when Democrats literally strong armed more risk so all buyers could own a home. It sounds almost noble, but when the homes bought aren’t paid for we can blame the buyer and the lender. The buyer chose the note and the lender chose the deal. If the deal involves no docs, 100% plus, no down loans, with negative amoritization, crazy ARM trash paper, why are we surprised the loans are not paid?

  6. It is very bizarre to see how the author can completely misread history to support some bogus agenda. The excesses of the Gilded Age, with its laissez-faire government, corruption, violent repression of labor, and assault on rights won for African-Americans during Reconstruction, lead to the Progressive era and a massive turning in views on private wealth and government involvement in the economy.

    If anything, we are likely to be entering a time of similar reaction to the past 30 years of neo-liberalism, deregulation, and disintegration of the social safety net.

    With a failing imperial war and occupation we are seeing a complete collapse of neoconservative foreign policy and this financial crisis is pounding nails into neoliberalism’s coffin. There is going to be a great deal of rethinking many of the core assumptions that have been built up in the last decades. Much of this is already happening and, just like in the Gilded Age and Progressive era, much is being done outside the two party system which is too corrupt to imagine solutions outside of the narrow confines of what is best for the nation’s upper classes and corporate interests.

    And yes, history repeats itself – the first time as tragedy, the second time as farce. We now find out that the top executives of AIG after being bailed out in excess of $85 billion dollars, went on a week long resort vacation to the tune of half a million dollars $150,000 on catered banquets. Were they lighting their cigars with $100 bills too? At least capitalists like Carnegie and Morgan weren’t so completely stupid and managed to put up a charitable face while robbing people blind. This new breed of capitalist can’t even bother with that. Its going to be a bumpy road ahead for people who want to advocate less government regulation and less taxes on wealth.


  8. I have read some writings of other economic historians who report much the same thing. I am not an economist. But I too see some similarities with the Great Panic of 1873 and the current economic situation. I can only pray that the situatuion does not become as dire as 1873.

  9. This is right here, in the present, not the future.

Leave a Reply