The Long Depression 1873 1896

The Long Depression 1873-1878/1896 & Its Similarities to Today’s Great Recession

It is often said, “That those who do not study the history of the past are doomed to repeat its mistakes,” This is of particular interest in examining the causes, the issues themselves, social reform, greed, credit, high unemployment, the labor movement, technological growth, immigration, corruption, capital and tax issues along with a multitude of other conditions experienced during the Long Depression of 1873-1878. Many of the problems facing the United States in this Post Civil- War era are virtually identical to the problems facing our extremely weak economy and the long or Great Recession we face today. The similarities are downright eerie. We will address and examine only some of these issues as otherwise this paper would be too long for Dr. Stiver and potentially bore him to death.
The first similarity is that of coming off the conclusion or near conclusion of a long costly war. In 1873 we were still fairly fresh from the bloodiest and costliest ware of all time, The Civil War. Not only did this war deplete the pockets and reserves of the country but it also depleted the bodies that would typically fill jobs and narrowed the labor pool. Similarly, the war in Iraq and Afghanistan in modern day U.S. had depleted our coffers and caused a major debt that is nearly insurmountable. Depleting the U.S. Treasury is never a good thing as it causes a deep need to replenish the pocket book. This is done more often than not by increasing taxes. History shows, that the U.S. and its macro economy suffers whenever we are under the pressure of extreme taxation. But let’s not get ahead of ourselves. Typically, each generation strives to accomplish one main goal, to make sure that the next generation has a better life than the current generation. Shortly after the Civil War similarly to today, this is not the case. The standard of living in both instances was better for two or three generations prior.
Initially after the Civil War, the world found itself specifically in the U.S. in a time of economic prosperity and innovation. Things seemed to be headed in the right direction in this boom time. This boom time was similar to say the last 10-15 years where there was a boom in the U.S. think technology/tech bubble and again with the housing market bubble. The major impetus to this boom in the Post-Civil War U.S. was due in large part to the expansion of the railroads. The railroads it seemed could do no harm. The railroads began to link the vastly large in area western portion of the U.S. with the larger metropolitan areas of the Eastern Seaboard. For the first time the country was becoming interconnected. Cities and towns wanted to become hubs of the railroad and vied for railroads to come through or connect their towns. The government was frothing at the mouth to expand railroads everywhere along with the telegram lines. This is similar to what has occurred relative to fiber for the internet connectivity that we see today along with data and data storage. All of this new railroad installation raised the demand for steel and created a large and robust steel market economy in the U.S.
As the railroad excitement continued both the government and individuals became highly leveraged in its expansion. This made it difficult for banks to keep up and make loans and provide credit. This created a credit crisis and ultimately a panic. People began to make “runs,” on banks to withdraw their cash which only further exacerbated the problems the banks were facing. This is eerily similar to the credit crisis on homes and bad mortgages in 2007. Credit was to easily provide and people were granted credit and balloon payments and fluctuating interest rates in the mortgage crisis which ultimately led to grate panic on Wall Street and caused the failure of many household named banks in our recent modern day credit crises. Banks at this time were not even able to keep up with their interest payments (if this is not creepy compared to the Great Recession of today I don’t know what is).
The dominoes began to fall, once the banks started to close and go belly up, this started the domino effect and it began to hurt the railroads and the railroad expansion. Hence, it began to detrimentally effect the steel industry too. This was the beginning of the end and a world of hurt for the economy. Other companies began to default and projects came to a screeching halt. Stocks dropped like a rock and interest rates began to increase. In effect all hell had broken loose. Think the end of the year 2008 in our modern world. Banks failed, Stocks dropped and unemployment went through the roof. This is identical to what we experienced in the modern day markets. Think about all the condo developments in Las Vegas, or Miami where the developer literally just stopped the development and walked away.
This led to countless Americans newly jobless and without a paycheck and not only no work, but nowhere to find work. Unemployment was prevalent and this caused a great deal of social strife and unrest. People turned their eyes toward the railroads as the wished to place blame for their problems squarely on the feet of someone. They blamed Wall Street, they blamed corruption, and they blamed greed. People were upset families were struggling and people went homeless and hungry. Think about the “occupy wall street,” folks from our modern day. At least in the Post-Civil War Era they actually wanted to work and have jobs to provide for their families and they zeroed in on the corruption from the railroads. Naturally, the graft pointed to the banks and the fat cats on Wall Street financing the rail road expansions.
Complaining about their current status didn’t help these newly unemployed people. Keep in mind many of these people were skilled laborers and merely couldn’t find work because it didn’t exist. This led to not only an increase in the unemployed but a major increase in the “bread lines,” and need for charity just for basic needs like food, shelter, and clothing. Never before have there been so many people seeking relief and charitable donations. This is akin the huge expansion of welfare and social welfare recipients in our modern day era where an expansion like this has not been seen before other than perhaps the Long Depression. Currently, we witness an explosion of the numbers into the social net of welfare and poverty.
The Long Depression was undoubtedly a dark time in our nation’s history. However, it is notable to recognize a theory as to how the country was able to get itself out of this mess. It is of great interest to note that the Federal Government stepped in to try to steer things into some type of new normalcy, or the new normal. They were able to make some policy changes that ultimately in my opinion did assist in taking us out of the Long Depression, rather than exacerbating the issues facing the day. The government created greater regulation of railroads and added new taxes on foreign capital. The Feds modernized the financial system through currency reform measures and put us on the Gold Standard. These two aforementioned moves brought some calm to the markets and provided the common man and businesses to have enough faith restored into the markets to begin albeit slowly investing again.
It is uncanny how the greed of the few, the corruption of a few can lead to such catastrophe as it did in 1873, however, this is so similar to what we experienced ourselves in 2007-2008 that it begs the question why? Is it because Marginal Product = Marginal Cost? No. It is because individuals when thinking rational will always choose options that serve their best interest. This means that no matter how hard we try to set guidelines and penalties to curb graft and corruption that it will always take place and that we need to be vigilant and aware. IF it appears that there is a bubble in our economy then there likely is a bubble and it is likely to burst.
Additionally, drawing on one more extreme similarity to the Long Depression vs. Modern Day Great Recession. In our research we see conflicting durations to the end of the Long Depression just as today in the modern era there is not total agreement that we ever really emerged from the Great Recession. Many still argue that we are still there and in one for the long haul. Arguably the Long Depression lasted from 1873-1896. There are so many similarities between these two eras is it safe or probable that we are in a rut for 23 years? That would mean that our economy may be challenged for yet another Fourteen Years? That is quite scary to think about. Just remember before the next boom bust cycle hits, that those who don’t study the mistakes of the past are doomed to repeat them!

Sources http://www.mybudget360.com/finance-investing-the-long-depression-of-1873-parallels-and-comparisons-are-we-missing-economic-information-from-an-important-piece-of-american-financial-history/ http://www.socialwelfarehistory.com/eras/the-long-depression/

https://seriesofhopes.wordpress.com/category/the-long-depression-1873-1896/