The Panic of 1873 and Its Aftermath: 1873-1876
by Drew E. VandeCreek
The Panic of 1873 began on September 18 with the failure of the Philadelphia investment house of Jay Cooke. Cooke had played a large role in financing the Union war effort by marketing federal bonds to farmers and workers. After the war, his firm had become the government's agent in financing railroad construction. In the years between the end of the Civil War and the demise of Cooke's firm, railroads laid 35,000 miles of new track in the United States and became the nation's largest employers. Eastern financial markets and railroads grew up together.
Such businesses required large amounts of invested funds. Cooke raised great sums through bond sales, but individual banks, including smaller institutions, also made large investments in railroads. After the completion of the transcontinental Union Pacific Railroad in 1869, businessmen and politicians immediately clamored for another, to be called the Northern Pacific. Cooke's firm worked to raise money for this project, but economic conditions had weakened in the years since 1869. The Northern Pacific proved less attractive to investors than had the Union Pacific. Many railroads had overbuilt, setting the stage for ruinous competition for freight traffic. Many investors had speculated heavily in railroad securities.
In September of 1873 the whole venture came crashing down. Cooke's failure drove panicked banks to demand payment of loans. Investors rushed to sell stocks in order to protect their capital. As stocks on the New York exchanges sunk lower, borrowers had no money with which to pay their debts. Businessmen, many of whom had borrowed money to expand their operations during boom times, released workers.
In Illinois these economic reverses affected rural and city dwellers alike. Many farmers had borrowed money to expand their operations during the Civil War's favorable market conditions. But now they faced a deflationary cycle that obliged them to pay debts in dollars that had become much scarcer, and hence more valuable, than they had been at the time of the loan. The result was a greater practical debt burden.
Just as the Panic of 1873 unfolded, Chicagoans hosted an Inter-State Industrial Exposition to call attention to their rapid rebound from the great fire. But the depression that lasted for the rest of the decade temporarily slowed the city's growth. Industrialists and entrepreneurs lost fortunes. One in three workers lacked employment. Many workers had come to Chicago in order to take part in the city's reconstruction. Now many of these recently arrived, single male immigrants walked the streets as tramps. Others gathered to protest their lot.
In 1873 Chicagoans, some Germans outraged by Republicans' temperance legislation and some speaking for other, increasingly mobilized groups of immigrants and workers, elected a People's Party candidate mayor of Chicago and controlled the city council. Native born, evangelical reformers saw the new party as an obstacle to their goal of reforming and uplifting the poor.
Newly arrived Germans also began to organize a Socialist Party in Chicago and published a German-language newspaper devoted to politics and labor matters. In December of 1873 they organized a march of five thousand unemployed upon City Hall, where they demanded that the newly elected People's Party administration either provide public works jobs for the unemployed or force charitable organizations to disburse the remainder of the fire relief funds. As in other large American cities, weeks of demonstrations followed, which the local newspapers compared to the Paris Commune.
The city administration refused the socialists' demands, arguing that relief would deprive individuals' of their independence and self-respect. Instead, the mayor urged workers to take up self-help. The socialists' electoral challenge to the People's Party failed, but they had established themselves as a political and intellectual force in Chicago, and would return.
Despite the hard economic times, the United States' western expansion continued unabated. In 1874 the engineer James Eads completed construction of a steel bridge spanning the Mississippi River and providing southern Illinois with greater access to St. Louis markets. In the same year Joseph Glidden of DeKalb began sale of his barbed wire, which allowed western farmers and ranchers to keep their livestock in (or out of) enclosed pastures and fields.
As the nation pushed westward, Chicago's business leaders began to feel uneasy about their role in it. Despite eastern capital's large assistance in rebuilding their city, Chicagoans now faced an ultimatum from insurance companies, demanding that the administration significantly reorganize the city in order to address the potential for future fires. The insurance companies demanded a ban on wooden buildings in the city limits, a new building code, reform of the city fire department, removal of lumberyards and other hazardous buildings from the city, and improved water facilities. Facing the grim prospect of trying to build a city without insurance, Chicago's leaders acquiesced to the demands.
During the depression of the 1870s Chicago's business leaders increasingly came to organize themselves as a political force in opposition to the People's Party. The businessmen formed a Citizens Association of Chicago and took it upon themselves to enact many of the insurance companies' demands beyond the authority of the city government. Private funds paid for the reorganization of the fire department. The Citizens Association also took up the organization of a new militia devoted to dispersing workers' demonstrations in the name of public order. In response, German immigrant groups organized their own armed militia.
In the fall of 1876 the national electorate seemed to return the Democratic Party to the White House. The Radical Republicans' push for a comprehensive Reconstruction of the southern states had long ago fallen into disorganization as many northern whites turned their attention away from the plight of freedmen in the South. In 1872 the Congress had passed an Amnesty Act pardoning many former rebels and allowing them to re-enter politics. In 1874 the Democrats won control of the House of Representatives and significantly diminished Republican strength in the Senate.
In the campaign of 1876 Democrats disputed close election returns in three southern states still controlled by Republican Reconstruction government. They suggested that officials in South Carolina, Florida and Louisiana had awarded their states' electoral votes to the Republican candidate Rutherford B. Hayes, when the popular vote had actually supported the Democrat Samuel J. Tilden. Hayes' campaign relied upon these three states to secure a narrow majority in the Electoral College. Without them, Tilden would be president.
Democrats and Republicans agreed upon a special commission made up of equal members of each party and a Supreme Court Justice. When it became plain that the Justice was deciding all matters in favor of the Republicans, Democrats' protests included talk of another Civil War. In this atmosphere, the parties agreed upon a plan that awarded Hayes the presidency. In return, Republicans agreed to remove the remaining federal troops from the southern states, provide political patronage to white southerners, and enact legislation to facilitate southern economic development. Hayes, who had once defended the rights of black southerners, presided over the end of Reconstruction.