The Panic of 1873 marked the beginning of The Long Depression. Although most of us today think of The Great Depression as the canonical American Depression, The Long Depression was a big deal in its own right, and has worldwide effects. It lasted twenty-three years, and according to Wikipedia, “The primary cause of the depression was a shortage of available money to facilitate trade.” Sound familiar?
Today New York Times writer Jennifer 8. Lee (yes, her middle initial is a number) looks at the circumstances leading up to the Panic of 1873 and the following depression. It’s great reading, and particularly instructive in today’s situation. Here’s a tidbit:
While the 1929 stock market collapse is widely perceived by economists to have played a role in the economic contraction, the stock market collapse in 1873 — much like the one now — came after a building boom created by easily obtainable mortgages and an ensuing banking crisis, said Prof. Scott Reynolds Nelson, whose piece in The Chronicle of Higher Education has been widely translated into Korean, Spanish, Italian and Russian (and noted in our sister blog, Economix).
“Most people don’t know a lot about it, but people who do know a lot about it are really creeped out,” Professor Nelson said of the 1873 crisis, which resulted in a near total collapse of the financial system.
Read the rest for a great overview (including tons of primary sources) of a financial crisis most of us have never heard of.
(Via Waxy.org.)
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The Panic of 1873 was actually a result of the inflated greenback. It was not backed by a commodity (gold), and the government printed up lots of them to pay for the war. Instead of allowing a return to sound monetary policy, the government kept inflating and paid off debt with more greenbacks which distorted the economy even further. This bubble eventually burst.
It is rather absurd to believe that these booms and busts are triggered by lack of money! Loose credit is created by central banks who have no limits on their power to print new money (like you find when a currency can be redeemed in gold or silver). The cheap money leads to malinvestments (the boom) that are eventually reigned in (the bust).
Austrian Business Cycle Theory FTW!
posted by V on 10-15-2008 at 9:30 am
The period from 1873-1892 actually saw the fastest productivity and goods production growth in US history. To call it a period of depression is highly misleading as you could also argue that it was the height of American growth and the time when industrial America came into being. The only reason some economists, usually of a Keynesian left-leaning persuasion, choose to call it a depression is the fact that prices fell. However, prices fell due to rapid goods production and the stable quantity of money provided by the gold standard rather than monetary deflation or recession. China experienced a similar phenomenon about 10 years ago.
posted by John on 10-6-2011 at 5:06 am