The Long Depression
The financial crisis of the 1870's has been called The Long Depression. Its effects were still being felt even in the 1890s. The Long Depression was a worldwide economic crisis experienced in the 1870s. Low wages for farmworkers speeded the drift of labour from the land towards the towns.
How Did The Long Depression Start?
The depression began with a building boom in Europe, with rapid building construction taking place in Vienna, Paris and Berlin.
Mortgages were easy to get and large British banks happily made loans to developers. Mortgages were also available from new savings banks designed for the middle-classes. People used half-completed buildings as collateral because credit was so easy to obtain. This created a housing bubble.
The crisis hit when Russia and Central Europe couldn’t compete with American exports of wheat and other crops, including kerosene which undermined the use of rapeseed oil for cooking. Banks no longer wanted to lend so easily. Eventually the stock market in Vienna crashed and the crisis spread to Western Europe.
The Crisis in America
In the United States, the Long Depression began with the Panic of 1873.
Before this the United States had seen an era of unprecedented prosperity. Housing and construction boomed. Shops were full of customers. Prices of commodities reached new levels.
The Panic of 1873 was the start of the Long Depression, a severe nationwide economic depression in the United States that lasted until 1879. It was precipitated by the bankruptcy of the Philadelphia banking firm Jay Cooke & Company on September 18, 1873, following the crash on May 9, 1873 of the Vienna Stock Exchange in Austria (the so-called Gründerkrach or “founders' crash”). It was one of a series of economic crises in the 19th and early 20th centuries.
America became affected when the inter-bank lending rate shot up. The country had seen a boom in railroad construction financed mainly by large banks, such as Jay Cooke & Company.
They had created complicated financial instruments little-understood by investors to finance the railroads. Eventually this became impossible to sustain. Railroad companies went broke and large banks failed. Jay Cooke’s inability to pay its debts led to the stock-market crash of 1873, which is often called the Panic of 1873. The stock market closed for ten days as Wall Street attempted to deal with the problems.
More than 100,000 businesses failed after the Panic of 1873. Railroad construction was curtailed and building and manufacturing declined. Mass unemployment (unemployment reached 14%), demonstrations, and strikes beset the nation. In 1874 thousands of unemployed demonstrated in New York’s Tomkins Square Park. This was the largest demonstration that had ever occurred in New York.
The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction. Following the end of the episode in 1879, the U.S. economy would remain unstable, experiencing recessions for 114 of the 253 months until January 1901.
Read more: http://americanhistory.suite101.com/article.cfm/the_financial_crisis_of_the_1870s#ixzz0GWNizWPn&B
Sources
http://americanhistory.suite101.com/article.cfm/the_financial_crisis_of_the_1870s
http://en.wikipedia.org/wiki/Panic_of_1873
http://en.wikipedia.org/wiki/Long_Depression
The Golden Age of Farming came to an abrupt end in 1870. http://www.schoolhistory.co.uk/gcselinks/industrialrevolution/agricultural/GreatDepression.pdf
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