Panic of 1893

United States 1893

Synopsis

A financial panic in May 1893 led the United States into the worst economic depression it had experienced up to that point in its history. Following the collapse of several Wall Street brokerage houses, over 600 banks and 16,000 businesses failed by the end of the year. National unemployment reached an estimated 20 percent in the first year of the crisis, and only a few cities managed to provide relief of any kind. The agricultural sector, already experiencing a slump, also felt the aftereffects of the panic. As thousands of farmers lost their land, the Populist Party gained momentum as a voice of reform and government intervention in the economy. The party reached a peak in 1896 when it endorsed the Democratic candidate for president, William Jennings Bryan, for office. Although he lost the election, Bryan's "Cross of Gold" speech in support of a free silver monetary policy became the most electrifying moment in the campaign. Shortly after Bryan's defeat in the election of 1896, the economy began to improve as prices for American crops began to climb. The four-year depression finally lifted but not before giving impetus to a new era of political and economic reforms.

Timeline

• 1890: U.S. Congress passes the Sherman Antitrust Act, which in the years that follow will be used to break up large monopolies.
• 1891: Construction of Trans-Siberian Railway begins. Meanwhile, crop failures across Russia lead to widespread starvation.
• 1895: German physicist Wilhelm Roentgen discovers X rays.
• 1896: First modern Olympic Games held in Athens.
• 1897: In the midst of a nationwide depression, Mrs. Bradley Martin, daughter of Carnegie Steel magnate Henry Phipps, throws a lavish party at New York's recently opened Waldorf-Astoria Hotel, where she has a suite decorated to look like Versailles. Her 900 guests, dressed in Louis XV period costumes, consume 60 cases of champagne.
• 1898: United States defeats Spain in the three-month Spanish American War. As a result, Cuba gains it independence, and the United States purchases Puerto Rico and the Philippines from Spain for $20 million.
• 1899: U.S. Secretary of State John Hay proposes an "Open Door" policy—meaning that all foreign powers with an economic interest in China should have an equal share in the benefits. This meets with the agreement of other nations involved, including western European countries and Japan.
• 1900: China's Boxer Rebellion, which began in the preceding year with attacks on foreigners and Christians, reaches its height. An international contingent of more than 2,000 men arrives to restore order, but only after several tens of thousands have died.

Event and Its Context

In Gilded Age America, there were few financial controls and little government oversight of the business sector. Although reformers had fought for the Interstate Commerce Act (1887) and the Sherman Antitrust Act (1890), both measures were quickly co-opted by businessmen to serve their own interests. Antitrust laws were rarely applied to business trusts; instead, corporations invoked them to break up labor unions. The apparent collusion of big business and the federal government also riled farmers who were convinced that the railroads were taking advantage of them with high shipping rates and monopolistic practices. In response, Kansas farmers formed the first People's Party chapter in 1890. Two years later a St. Louis convention established a national People's (or Populist) Party to fight for a host of reforms. Chief among the Populists' demands were the unlimited coinage of silver to increase the money supply, direct elections of senators, a national income tax, and government ownership of the railroads and telephone and telegraph companies. Populist candidate James B. Weaver received over a million votes in the presidential election of 1892, taking 8.5% of the total vote and 22 electoral votes.

The Panic of 1893

The Populists' criticism of corrupt eastern elites seemed to be justified in the financial crisis that began in early May 1893. On 3 May a trust that controlled the production and sale of twine declared bankruptcy. The announcement triggered a panic on the stock market, particularly among companies that had indulged in overproduction and investors who had engaged in speculation and profiteering. By the end of the year, 642 banks had collapsed, wiping out their depositors' savings, and about 16,000 individual businesses failed. As many as one in five people in a working population of 15 million was without a job. The railroad sector was particularly hard hit, with over 150 companies holding 30,000 miles of track and worth an estimated $2.5 billion going bankrupt in the first year of the financial crisis alone.

In the absence of state relief programs for the unemployed, many looked to the federal government for help. At least 17 workers' marches on Washington occurred in 1894, including the one led by Jacob Sechler Coxley.

The Pullman Strike

Even more dramatic than Coxey's march on Washington was the Pullman Strike by the American Railway Union in 1894. That spring, workers at the Pullman Car Works near Chicago announced a strike to protest wage cuts that had reduced incomes by between one-third and one-half since the previous year. Many of the workers lived in Pullman, Illinois, a company-owned town with rents, utility rates, and food prices set by the company. After the company refused to reduce the prices of these goods, employees began to circulate plans for a strike. After the Pullman Company fired three workers' representatives on 11 May 1894, the company's entire workforce walked off the job. Although Eugene V. Debs, president of the American Railway Union (ARU), was hesitant to support the strike, the union nevertheless agreed to ask its members to refrain from handling any Pullman cars on the rail lines. The boycott went into effect on 26 June 1894 and quickly stalled rail traffic across the United States.

Claiming that the strike interfered with the delivery of the U.S. mail, the Cleveland administration obtained an injunction against the strike on 3 July 1894. An estimated 2,000 federal troops and 5,000 federal marshals arrived in Pullman on the same day on the pretext of putting down any violence. On 4 July 1894 the troops clashed with the strikers; the violence left 13 strikers dead and more than 50 wounded. Over the next week, the death toll rose to 34, and the ARU was forced to admit defeat on 12 July. Debs and other union officials were subsequently arrested for refusing to follow the injunction. Debs served a term in jail from June to November 1895.

Political Deadlock

The use of brute force by the federal government against the Pullman strike did little to enhance the image of President Cleveland, who had taken office just before the Panic of 1893. Cleveland also faced a scandal when the public learned that he had ordered the government to replenish its depleted gold supply in an agreement with financier J. P. Morgan in 1895. Under the terms of the deal, the government issued bonds to Morgan in exchange for about $129 million in gold reserves held by New York City banks. When Morgan turned around and resold the government bonds for an $18 million profit, the public was outraged.

President Cleveland also faced criticism from Populists over the issue of monetary standards. A supporter of the gold standard, Cleveland believed that the free coinage of silver would lead to inflation and economic instability. By contrast, supports of free silver believed that inflation would allow farmers to pay off their debts more quickly and fuel an economic recovery. In 1894 Cleveland convinced Congress to repeal the Sherman Silver Purchase Act of 1890, which had forced the government to buy silver each month even if it did not coin it. The action only served to contract the money supply further and deepen the depression that had started in 1893.

The Election of 1896

Public discontent with the country's economic and political scandals reached a peak in the presidential race of 1896, one of the most pivotal elections in American history. The Democrats spurned Cleveland's policies and nominated William Jennings Bryan as the prosilver Democratic candidate. Bryan also gained the endorsement of the Populist Party, in large part because of the "Cross of Gold" speech he gave in support of free silver coinage at the Democratic National Convention. Republican William McKinley upheld the gold standard in the election and argued that only a sound monetary policy based on gold would restore business confidence in the country. McKinley won the election with 52 percent of the vote and would win against Bryan again in 1900 by about the same margin.

After McKinley took office, the depression of the 1890s gradually lifted as agricultural disasters in other countries increased the demand for American products. The recovery of the agriculture sector led the way for other business sectors. The basic platform of the Populists was not forgotten, however, and Progressive Era reforms saw the enactment of several of the party's demands. In 1913 the Sixteenth Amendment legalized a federal income tax and the Seventeenth Amendment mandated the direct election of senators.

Key Players

Bryan, William Jennings (1860-1925): Trained as a lawyer, Bryan entered politics in 1890 when he won a seat representing Kansas in the U.S. House of Representatives. He won the Democratic nomination for president in 1896 after giving the "Cross of Gold" speech in support of a free silver monetary policy. His 1896 bid was unsuccessful, as were his subsequent runs in 1900 and 1908. In 1925 Bryan represented the creationist side in the Scopes Monkey Trial in Tennessee.

Cleveland, Grover (1837-1908): Cleveland worked as a lawyer in Buffalo, New York, and started his political career by winning the sheriff's office in 1870. He then served as Buffalo's mayor and New York's governor in subsequent years. For his stand against political corruption, Cleveland gained a reputation as a reformer. Nominated for the presidency by the Democrats in 1884, he won a close election over James G. Blaine. He lost against Benjamin Harrison in the presidential race in 1888 but returned to office in 1892, shortly before the Panic of 1893.

Coxey, Jacob (1854-1951): The owner of a sandstone quarry in Massillon, Ohio, Coxey was dismayed by the lack of efforts to help unemployed workers after the panic of 1893. Hoping to convince the federal government to implement a program of public works, Coxey organized a group of about 100 men and began a march to Washington, D.C. By the time "Coxey's Army" reached the capital, its numbers had reached about 500 men. After Coxey's men tried to demonstrate on the grounds of the U.S. Capitol, federal troops removed them by force. Coxey remained active in politics for the rest of his life and served as mayor of Massillon from 1931 to 1933.

Debs, Eugene (1855-1926): A railroad worker by profession, Debs organized his colleagues into several different union locals before helping to found the American Railway Union in 1893. One of the most famous labor leaders during the Depression of 1893-1897, Debs joined the Socialist Party in 1897. He ran for president five times and conducted his last campaign from behind bars, where he was serving time for speaking out against World War I.

Morgan, John Pierpont (1837-1913): The most prominent financier of his era, J. P. Morgan was accused of setting up monopolies to guarantee a high rate of return from his investments. Even his critics admitted, however, that Morgan was a genius at putting together complex financial deals such as the creation of U.S. Steel. Morgan's input was vital in easing the financial crises of 1893 and 1907.

See also: People's Party; Pullman Strike.

Bibliography

Books

Brodsky, Alyn. Grover Cleveland: A Study in Character.New York: Truman Talley Books, 2000.

Montgomery, David. Citizen Worker: The Experience of Workers in the United States with Democracy and the Free Market During the Nineteenth Century. New York: Cambridge University Press, 1993.

Salvatore, Nick. Eugene V. Debs: Citizen and Socialist.Urbana: University of Illinois Press, 1992.

Wiebe, Robert H. The Search for Order, 1877-1920. New York: Hill and Wang, 1967.

—Timothy G. Borden

Panic of 1893

Not since the depression of 1873 had America experienced economic hardship like that felt by Americans of all socioeconomic classes in 1893. A depression is a long-term economic state characterized by high unemployment, minimal investment and spending, and low prices. This depression was one of the worst in American history. The unemployment rate (percentage of the total working population that was out of a job) exceeded 10 percent for half a decade, something that had never happened before and would not happen again until the Great Depression (1929–41). No city or region was left unscarred. One of every four workers in Pennsylvania was unemployed; in Chicago, Illinois , one hundred thousand people were sleeping in the streets.

Causes of the depression

The depression in 1893 was ushered in with financial panic as the value of American currency (money) weakened. Since the time of President George Washington (1732–1799; served 1789–97), the U.S. monetary system had been based on bimetallism, or the use of both gold and silver coins. But the California gold rush in 1849 resulted in the discovery of such large quantities of gold that its value decreased. Before 1849, gold had been sixteen times more valuable than silver.

People soon began melting their silver dollars and using the metal for other purposes, such as jewelry. In 1873, Congress ceased making silver coins, and America was placed on a “gold standard.” A series of silver strikes in the San Juan Mountains of Colorado and nearby regions that began in 1875 and continued throughout the 1880s caused the price of silver to fall even further. In spite of this decrease in value, silver mining as an industry continued to grow. Farmers, however, were going further into debt as prices per bushel of their crops continued to decrease quickly because of increased foreign competition and supply. In order to remain competitive, farmers had to continue lowering their prices, yet they still had monthly payments to make on expensive farm equipment and mortgages.

The Sherman Silver Act

To help balance the economy, President Benjamin Harrison 1833–1901; served 1889–93) agreed to buy 4.5 million ounces of silver every month at market price. The U.S. Treasury, in turn, would issue notes that could be redeemed in either gold or silver.

This plan was known as the Sherman Silver Purchase Act of 1890. The legislation was named after the Republican who initiated it, U.S. senator John Sherman (1823–1900) of Ohio . Although the idea may have been solid, in reality the act did not work very well. The increased supply of silver forced down the market price. Mine owners tried to make up for their loss by cutting the wages of their miners and laborers, a move that led to unrest and violence throughout the mining regions. As holders of the notes understandably redeemed them for gold rather than silver (thereby getting more money for each note), the federal gold reserve was steadily drained.

Three weeks after Grover Cleveland (1837–1908; served 1885–89 and 1893–97) was sworn in as president for the second time in 1893, the gold reserves dipped below $100 million. This event weakened an already unsteady trust in the federal government. The Sherman Act was repealed, but it was too late. Silver mines were shut down across the mining regions. The price of silver per ounce dropped from 83 cents to 62 cents in one four-day period. Banks failed by the hundreds, and property values decreased to nearly nothing. The American economy was in serious trouble.

Trouble on the rails

Another factor in the 1893 depression was a decrease in the amount of money being invested in railroads. Between 1870 and 1890, the railroad industry accounted for 15 to 20 percent of all federal investments. Tens of thousands of miles of track were laid, and loans were approved for additional construction and equipment purchase.

Private investors in America and Europe bought stock in U.S. railroads. It seemed like a sure thing—an easy way to make money. Stocks were bought for a particular amount, and if the company did well, each stock earned money. With the increase in immigration , the explosion in the railroad construction industry, and the increasing settlement of the West, investors believed they could not lose. But they did lose, and in a big way.

The railroad system was overbuilt and overfunded. Companies were often mismanaged. In 1892, just 44 percent of all railroad stocks offered investors received a return (profit) on their investment. European investors pulled out before the situation got worse. The Philadelphia and Reading Railroads were the first companies to file for bankruptcy (a legal declaration that a company cannot pay its debts. By May 1893, more railroads shut down; 156 railroads would fail before the crisis was over. Without the railroads, industries like iron, steel, and farming had no way of shipping their products. America fell into a serious economic depression marked by high unemployment rates and tens of thousands of business failures.

Plight of the farmer

Farmers were perhaps the hardest hit by the depression of 1893. Prior to that year, the agriculture industry had enjoyed expansion and increased profits, thanks to improved farming methods, the introduction of machinery that could do a worker's job in half the time, and the railroads, which opened new regions to business. Between 1870 and 1890, the number of U.S. farms rose to 4.5 million, an increase of nearly 80 percent. By the end of the nineteenth century, that number increased yet again by 25 percent. Across the nation, about 29 percent of farmers were paying on mortgage loans (money loaned to them by banks so that they could live on and farm their property). One expert estimated that by 1890, 2.3 million farm loans were worth more than $2.2 billion. During that year, Kansas , Minnesota , Nebraska , North Dakota , and South Dakota had more farm mortgages than they did families.

But the depression was preceded by six years of bad weather and drought. Crop seasons were shortened, or in some cases, nonexistent. Before farmers understood the importance of sustainable farming methods (which includes crop rotation to decrease the chances of disease and to maximize crop output), they farmed land in such a way that it no longer produced healthy or big crops. The combination of nature and ignorance proved too much for many farmers. On top of that, they were expected to take into consideration the dismal economic conditions across the country and accept lower prices for their product. Wheat prices fell 20 cents per bushel in 1892. When crop prices dropped below the cost of production, farmers chose instead to use their crops for firewood.

Different regions, different hardships

The depression did not affect all farmers in the same way. Those in the West and on the Plains suffered most in that they were unable to obtain credit from banks and stores. Weather in this region was harsher than climates elsewhere, so the chances for making a profit were uncertain, and lenders knew that. They developed tougher standards regarding farm loans, and most farmers did not meet those standards. Unable to pay their existing loans, farmers knew it would be impossible to get new loans. Creditors began foreclosing on (taking away) farms. Between 1889 and 1893, more than eleven thousand Kansas farms went into foreclosure. Western farmers were being evicted from (thrown out of) their homes and farms; many were homeless.

Other farmers went into tenancy, meaning they no longer owned their own farm, but they farmed someone else's land and were paid a share of the harvest. Farm tenancy increased from 25 percent across the country in 1880 to 36 percent by 1900. The very farmers who had been encouraged to borrow money as the Plains and western regions were being settled spent the last decade of the nineteenth century losing their farms or farming for someone else. It was a miserable existence.

The situation in the South was somewhat different. Once slaves were freed after the American Civil War (1861–65), they usually refused to work land in gangs under the supervision of an overseer. It reminded them too much of the slave conditions they had just escaped. With this attitude, commercial farming was out of the question. Most wanted to own their own land and equipment. The problem was not that land was not available; it was. Huge plantations had been broken into smaller properties. The outlawing of slavery made money scarce, however, so freedmen had nothing with which to purchase a plot of land.

Many landowners let freedmen farm the land and agreed to accept a portion of the crop, rather than money, as rent. These owners also became merchants who sold farmers seed, equipment, and other necessities. As collateral (something of value used to insure repayment of debt), farmers signed a mortgage on their crop. Because the only crop most landowners wanted was cotton , farmers were without food for their families. They had to buy food from local stores. After 1870, cotton prices fell, and farmers did not earn enough to settle their debts. The merchant landowners then forced them into signing yet another mortgage on the next year's crop. It was a never-ending cycle that led farmers only further into debt.

This system made tenant farmers of both African American and white men in the South. For the whites, tenancy was especially demeaning because it forced them into a status historically associated with slaves. It also represented a loss of freedom that hurt their pride. With credit nearly impossible to attain and few skilled laborers in the region, the South's economy was uncharacteristically hopeless.

Farmers in the Midwest and Northeast, though affected by the depression, faired better than those in other regions. These farmers had been able to pay off their mortgages because of the inflation of the Civil War economy. During the war, there was a general increase in the price of goods, including crops. Farmers were getting more money per bushel. Even though there was less money in circulation at the time, people still had to eat, so farmers were making money.

These farmers had another advantage because they lived among a more developed railroad system. They were less likely to be charged higher rates than their fellow farmers in the West and South were. These lower rail costs allowed the farmers to plant grain, which grew well in nearly any soil. Because they lived near cities and growing urban areas, the farmers of the Midwest and Northeast were also able to engage in dairy farming. Cows could survive on land that had been overused. Milk could be transported before it had time to spoil, because the distance from the farms to the cities was short.

Obtaining credit was much easier in these regions as well. Most farmers had lived in the area their entire lives. They knew the bankers and the local agricultural conditions. They knew how to successfully farm in those local conditions and knew which crops would sell.

Recovery from the depression began in mid-1897, but the American economy was not prosperous again for another year.

Panic of 1893

Source

Crisis. The depression that occurred in the United States in 1893 was the worst in the nation’s history. As the economy became more integrated and centralized, fewer businesses and workers operated outside the influence of national markets and were therefore more vulnerable to the effects of a national downturn. In April 1893 the U.S. Treasury’s gold reserves fell below $100 million, setting off a financial panic as investors, fearing that the country would be forced to abandon the gold standard, scrambled to sell off assets and convert them to gold. This surge of selling rocked a market already unsettled by the spectacular failure of the Philadelphia and Reading Railroad in February; the collapse of the National Cordage Company on 4 May exacerbated the crisis. Banks everywhere began frantically calling in loans, and western and southern banks withdrew substantial deposits from New York banks. Bank failures spread rapidly; some six hundred occurred in the first months, especially in the South and West, rising to four thousand by the end of 1893. An estimated fourteen thousand businesses collapsed during the same period. The economy spent the next four years mired in the worst depression anyone had ever known. “The Americans are a people of magnificent achievements and of equally magnificent fiascoes,” Bankers’ Magazine of London declared as it surveyed the crisis across the Atlantic. “At present they are in the throes of a fiasco unprecedented even in their broad experience.”

Governmental Response. Some fifty railroads went under in the chaos, and since this industry was one of the nation’s largest and since it supported other industries, those failures rippled outwards; more than thirty steel companies collapsed in the wake of the railroad failures. The government, meanwhile, struggled to cope with the crisis, cutting off silver purchases to stem the outflow of its gold supply and in 1895 securing emergency loans in gold from Wall Street syndicates, including $65 million from John Pierpont Morgan and his associates. The bankers charged the government a hefty $7 million for this bailout—a price that angered many spectators. Popular sentiment mounted in opposition to the gold standard and in favor of the free and unlimited coinage of silver. Federal and state governments, in the meantime, with no sustained tradition of social welfare (which came only in the twentieth century), did little to alleviate the effects of the depression on the people.

Unrest. Among the working classes, layoffs and steep wage reductions threw families into desperate straits. As unemployment climbed to 20 percent in 1894, close to 2.5 million jobless men migrated in and out of cities looking for work. Chicago police stationed themselves at the railroad stations to keep tramps from coming into the city. Meanwhile, many of those who remained in the workforce were forced to take sharp pay cuts, provoking widespread labor unrest. By one count more than thirteen hundred strikes, involving 750,000 workers, hit the nation’s factories and mines in 1894 alone, including violent confrontations between workers and authorities at Pullman in Illinois and between workers and authorities at coalfields from Appalachia to Idaho in response to a national strike by the United Mine Workers of America.

Coxey’s Army. Impetus for direct Federal relief for unemployed workers and their families came from a seemingly unlikely source: Jacob S. Coxey, an Ohio steel-mill owner, was forced in the financial panic to lay off forty of his quarry workers. Coxey proposed a Federal public-works program, largely road construction, to provide jobs for the unemployed. He said it could be funded by issuing $500 million in paper money, which would also help the poor by increasing the amount of money in circulation. In order to drum up support for his “Good Roads Bill,” Coxey announced he would “send a petition to Washington with boots on” and led an assemblage of displaced workers on foot from Massillon, Ohio, to the capital; he hoped to have 100,000 marchers. “Coxey’s Army” started off on Easter Sunday 1894 with only about a hundred marchers (including Coxey’s wife, Henrietta, and their son, whom they had named Legal Tender Coxey). By the time they reached Washington on 30 April, though, the pilgrimage had swelled to roughly four hundred, and thousands more had cheered them on as they passed through various towns. In fact, the protest had grown prominent enough to concern the Federal government gravely; President Grover Cleveland announced he intended to use laws prohibiting parades on the Capitol grounds, and on 1 May he had Coxey and two of his lieutenants arrested.

“Insurrection” and Response. Dozens of demonstrations like Coxey’s broke out during this turbulent period. As a “movement” these displays remained scattered and unorganized. But they excited considerable anxiety among conservatives nonetheless, especially when coupled with the attending wave of violent strikes. In fact, many conservative Americans came to fear that the unrest was becoming a general “insurrection.” H. P. Robinson, editor of Railroad Age, wrote in January 1895: “It is probably safe to say that in no civilized country in this century, not actually in the throes of war or open insurrection, has society been so disorganized as it was in the United States during the first half of 1894; never was human life held so cheap; never did the constituted authorities appear so incompetent to enforce respect for the law.” These sentiments strengthened the resolve of company managers and state, local, and Federal authorities to meet the spreading strikes and protests violently, to maintain “order” in the midst of economic chaos.

WORKERS CRY OUT

A statement of the Pullman strikers, addressed to the American Railway Convention, 15 June 1894:

Rents all over the city in every quarter have fallen, in some cases to one-half. Residences, compared with which ours are hovels, can be had a few mttes away at the prices we have been contributing to make a millionaire a billionaire. What we pay $15 for in Pullman is leased for $8 in Roseland; and remember that just as no man or woman of our 4,000 toilers has ever felt the friendly pressure of George M. Pullman’s hand, so no man or woman of us all has ever owned or can ever hope to own one inch of George M. Pullman’s land. Why, even the very streets are his, . ., Water which Pullman buys from the city at 8 cents a thousand gallons he retails to us at 500 percent advance and claims he is losing $400 a month on it. Gas which sells at 75 cents per thousand feet in Hyde Park, just north of us, he sells for $2.25. When we went to tell him our grievances, he said we were all his ’children’ Pullman, both the man and the town, is an ulcer on the body politic. He owns the houses, the schoolhouses, and churches of God in the town he gave his once humble name.

Source: United States Strike Commission Report. Senate Executive Document No. 7 (53rd Congress, 3rd Session.) Washington: Government Printing Office, 1895.

Recovery. Recovery came slowly, but by the middle of 1897 signs began indicating that the economy was stabilizing. But the events of the previous four years had shaken the country. The economy had slipped into recession in 1873, 1884, and 1893, with this final depression being especially destructive. Meanwhile local, state, and Federal authorities had proven inadequate to meet the economic turmoil that seemed to attend this new economy and its fluctuations.

Source

Samuel Rezneck, Business Depressions and Financial Panics (New York: Greenwood Press, 1968).

1878-1899: Business and the Economy: Topics in the News

Agricultural Economy

The Department Store

Government Regulation of Big Business

The Homestead Strike

Labor

Panic of 1893

The Pullman Strike

The Railroads

The Rise of Big Business

Standard Oil Company