Panic of 1873

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Panic of 1873

United States 1873


After the economic devastation wrought by the panic of 1837, unions remained unable to regain their former power for several decades. Although scattered national unions took root during the 1850s, they faded quickly during the Civil War. The beginning of the "Greenback" era in 1862 also marked the renewed growth of unionism in America. The government flooded the marketplace with paper currency. Extreme levels of inflation immediately resulted, and prices continued to rise unchecked. Wage increases did not rise in proportion to the rate of inflation. This caused dissatisfaction within the labor force, which in turn resulted in a renewed interest in unionism.

Mimicking the same progression as its previous growth at the beginning of the nineteenth century, this new labor movement began with the formation of local trade unions. By the end of 1862, virtually every trade possessed a representing union in its city. These quickly transformed into citywide trade assemblies and eventually expanded into national trade unions. A brief depression near the end of the 1860s crippled many of these fledgling organizations, but the aspirations for unionism remained strong. As the 1870s began, national unions regained their strength and membership numbers. A new wave of successes in labor relations owed much to lessons learned in the previous growth of unionism.

However, despite their brief recuperation, national unions would once more be struck down by economic strife. Like the panic of 1837, the panic of 1873 stripped unions of their influence and power, particularly of the threat of strikes. The unions that were not crushed almost immediately lost the majority of their membership. The depression caused by the panic of 1873 continued to hinder the growth of unionism, and national trade unions would not recover for several years.


  • 1854: Republican Party is formed by opponents of slavery in Michigan.
  • 1859: American abolitionist John Brown leads a raid on the federal arsenal at Harpers Ferry, Virginia. His capture and hanging in December heighten the animosities that will spark the Civil War sixteen months later.
  • 1864: General William Tecumseh Sherman conducts his Atlanta campaign and his "march to the sea."
  • 1867: Establishment of the Dominion of Canada.
  • 1870: Beginning of Franco-Prussian War. German troops sweep over France, Napoleon III is dethroned, and France's Second Empire gives way to the Third Republic.
  • 1872: The Crédit Mobilier affair, in which several officials in the administration of President Ulysses S. Grant are accused of receiving stock in exchange for favors, is the first of many scandals that are to plague Grant's second term.
  • 1874: As farm wages in Britain plummet, agricultural workers go on strike.
  • 1874: Discovery of gold in the Black Hills of South Dakota.
  • 1874: Norwegian physician Arrnauer Gerhard Henrik Hansen discovers the bacillus that causes leprosy. This marks the major turning point in the history of an ailment (now known properly as Hansen's disease) that afflicted humans for thousands of years and was often regarded as evidence of divine judgment.
  • 1876: General George Armstrong Custer and 264 soldiers are killed by the Sioux at the Little Big Horn River.
  • 1882: The Chinese Exclusion Act, a treaty between the United States and China, provides for restrictions on immigration of Chinese workers.
  • 1884: Chicago's Home Life Insurance Building, designed by William LeBaron Jenney, becomes the world's first skyscraper.

Event and Its Context

Unionism During the Long Depression

Since the tragic times caused by the panic of 1837, unionism had seen little growth within the labor community. In addition, during this time, America suffered another economic downturn in 1857 and the horrors of the Civil War (1861-1865). Twenty-five years of confusion, conflict, and repeated depressions hindered all attempts by workers to organize with any success. Strike movements in key industrial sectors such as New England and Pennsylvania were plagued with continued failures. The aggressive methods used by the majority of unions from the 1830s were ineffective against the challenges of the 1840s and 1850s. In response, workers began changing their philosophies on how to effect changes in labor conditions.

Several "intellectuals" headed the new labor movement. This gathering of educated men and women began to focus their efforts on changing social conditions rather than on the simple accumulation of wealth in the form of wages. The "cooperative" approach headed their reform strategy, empowering the workers and consumers. In an era of depression, this philosophical method had far greater success than trade unionism. Since the first cooperative shop had opened in Philadelphia in 1791, producer cooperation had seen success in numerous industries. As strikes began to fail more regularly during and after the panic of 1837, cooperatives became increasingly popular. This popularity was compounded by the humanitarian call for changes to labor conditions of women and children. Several trade societies began to adopt the cooperative approach, including the New England Protective Union in 1845.

Agrarianism also found popularity among trade unions during this time. Many union leaders fully supported the movement and engaged in lobbying for its inception. They even went so far as to offer incentives to wage earners, such as paying for travel and startup expenses. The reason for their strong support of this movement was obvious. The depression after the panic of 1837 had created an overwhelming number of unemployed wage earners. As a result, trade unions lost their striking power because employers had an enormous workforce from which to choose. Employers could, and did, hire laborers for virtually nothing with little opposition. By sending these laborers westward with the homesteaders, the excess workforce could be thinned out. With fewer laborers to hire, employers would have to offer better wages and hours. In addition, trade unions would regain their influential striking power. Despite protracted lobbying attempts, Congress did not pass the Homestead Law to encourage westward migration until 1862.

With the exception of two growth spurts in the early and mid-1850s, trade unionism made little progress before the 1860s. The period did, however, inspire new ways of thinking in unionism and the labor movement. Labor leaders learned from previous mistakes with unions and from the cooperative and agrarianism movements. Resulting refinements to the concept of national unionism, which had died out with the panic of 1837, allowed trade assemblies to build the support system they would need in the future. The nationals were among the only labor organizations to survive the economic strife caused by the Civil War.

The "Greenback" Era Begins

The "Greenback" era marked the return of the national trade unions to the U.S. labor community. In 1862 and 1863 the U.S. government signed the Legal Tender Acts. These acts authorized the issue of just over $1 billion in paper currency or "greenbacks." This massive influx of paper currency into the market resulted in a period of inflation that fluctuated over the following 16 years. Also at the heart of this striking inflation rate were speculation and supplying the army. According to Selig Perlman in his book A History of Trade Unionism in the United States, "In July 1863, retail prices were 43 percent above those of 1860. . . In July 1874, retail prices rose to 70 percent. . .and in July 1865, prices rose to 76 percent [above those of 1860]." As inflation soared, however, wage rates remained relatively unchanged. By July 1863 wages had increased by only 12 percent over their 1860 level, less than half the rate of inflation. By July 1865 wage increases were only two-thirds that of the inflation rate (50 percent as compared to 76 percent). This difference between wages and price increases renewed laborers' interest in unionism.

As in the 1830s, the number of unions began to grow in the United States. By the summer of 1862, almost every major city in America had a local union representing each trade. These locals collaborated with other trade unions to create trade assemblies. In 1863 the first trades' assembly formed in Rochester, New York. Thereafter trade assemblies began to appear in nearly every industrial center. As with the formation of the National Trades Union in 1834, interest in creating national unions was soon to follow. National unions that had formed before the Civil War, such as the National Typographical Union and the Iron Molders' Union, immediately found renewed interest in their organizations and reported decisive jumps in the number of charters. This trend expanded to include new organizations as well.

By the 1860s the marketplace had changed dramatically. In the early nineteenth century, "national" referred mostly to the eastern industrial centers. By 1862 expansionism had created a truly national marketplace. Industrial centers competed against one another for products. Many trade assemblies quickly realized that their activities could undermine unions in other areas if competitive balances were not established. As such, national organizations with set regulations governing strikes and trade rules appealed to these assemblies. A national presence could also benefit strictly local trade unions that faced the problem of migratory workers, who created competition with resident tradesmen. In addition, employers had begun to form associations to combat local unions. With national support, local unions could withstand the assault of these employer associations with greater success. In the period between 1863 and 1873, 26 national trade unions formed. Combined with the six prewar organizations, the 32 national trade unions had a collective membership of 300,000, with some estimates claiming as high as 600,000.

The National Labor Movement

Despite a brief depression between 1866 and 1869, national trade unions continued to prosper and take shape throughout the United States. During this time, several labor organizations formed with the purpose of reforming work conditions in the United States. These groups believed that having a strong presence in government would benefit their common causes. After overcoming initial rivalries, delegates from the various trade assemblies, national unions, and reform organizations held a convention in Baltimore on 20 August 1866. From this convention came the formation of the National Labor Union (NLU). The NLU became the successor of the National Trades' Union and the predecessor of the American Federation of Labor (AFL). Issues discussed during the convention included the eight-hour workday, public domain, women in industry, and unemployment problems caused by the Civil War.

Of these issues, the eight-hour workday became the focus of the NLU's efforts. Before that time, Ira Steward, a Boston machinist, and his associates had been fighting for eight-hour workday legislation. Steward believed that improving a worker's standard of living resulted in increasing wages, as employers could not drop wages below the standard of living. An eight-hour workday would provide workers with more leisure time and thus increase their needs; this, in turn, would fuel a change in the standard of living. Steward also pointed out that a decrease in work hours would not decrease work output because longer hours led to exhaustion and inefficiency. Inspired by Steward's work, the NLU approached the federal government to legislate an eight-hour workday bill for government employees. They believed that if eight-hour legislation were achieved for government employees then it would take hold in private industry as well. During the summer of 1866, an NLU delegation met with President Andrew Johnson to discuss the issue. Although impressed with their presentation, Johnson refused to make any promises. He finally signed the eight-hour bill into law on 29 June 1868. The resulting legislation did not work as well as the NLU would have liked, but amendments four years later greatly improved the bill. Following in the footsteps of the federal government, state legislatures passed eight-hour bills in California, Connecticut, Illinois, Missouri, New York, and Wisconsin. These bills, however, did not restrict longer hours being assigned to workers willing to sign a contract. In addition, and perhaps worse, there were no powers of enforcement behind the laws.

After their relative success with the eight-hour bill, the NLU shifted its focus toward "greenbackism." Essentially, this social movement meant to empower those without capital, placing them on a level equal to that of their wealthy competitors. Supporters of this movement believed they could thus create an industrial democracy. At that time, however, the NLU began a descent into political bickering and stagnation. Wage earners, already disappointed with the results of legislation and political dealings, returned their support to the national trade unions as the source of a solution to their problems. The workers believed that direct interaction with employers would bring greater success than attempts to deal with the government. This trend continued until 1873; by then the NLU had become a hollow shell of its former self.

By 1869 the industrial sector had recovered from the brief depression and entered a period of prosperity. The negative perception of strikes had all but disappeared, which fueled support for national trade unions. Unionists were learning from their mistakes and gaining ground. An attribute that set these national trade unions apart from their counterparts from the 1830s was consistency. When they developed trade rules, the unions remained steadfast to them even during periods of industrial plenty. By maintaining this "status quo," the trade unions maintained or improved their position and that of other organizations. This philosophy brought them surprising success over the next few years. With the signing of the Trade Union Act, which provided trade unions with legal status, the future appeared bright for trade unionism. Despite their successes, however, national trade unions remained wholly unprepared for the financial devastation that was soon to hit the country. Even as they attempted to create the National Industrial Congress, a national labor federation solely based on trade-union ideals, the panic of 1873 would put an end to all their efforts.

The Panic of 1873

The panic of 1873 came as a result of both national and international economic problems. During and after the Civil War, the United States began selling government bonds to European investors. This created much-needed capital inflow into America. The proceeds from the sale and redemption of these bonds were, in turn, invested into the growing railways. After 1866, however, repeated wars, banking difficulties, and poor agricultural yields set off an economic reversal in European countries. As the depression in Europe worsened, this source of capital grew perilously thin. By 1870 the U.S. Treasury's attempt to refinance increasing debt by selling more government bonds to European investors failed. Currency grew scarce and paper money depreciated considerably. United States banks looked to national investors to solve their monetary problems.

The expansion of the railways continued to be the focus of investment during this period. Railway companies had been given lands to accommodate the progression of the railroads. Realizing that the land surrounding these railway lines was extremely valuable, the railroad owners began to sell it to investors. In response came a wave of rash speculation and increased the development of a high credit/low currency economy. As had the United States before the panic of 1837, the industrial community became financially unstable. A crash would require only a simple catalyst.

That catalyst came in the form of Jay Cooke and Company, a banking firm in Philadelphia. The financial growth of the company had stemmed from its sale of government war bonds. Cooke's innovative approach to selling to the general public rather than only to prominent investors provided his firm with considerable financial clout. Indeed, the company was considered one of the most prominent investment firms in the United States. The company's 1869 decision to engage in the railroad industry surprised no one. However, the firm's late entrance into the business meant they had little investment leeway. All of the financially stable railroads had already been purchased. Taking a financial risk, Cooke raised $100 million and bought the Northern Pacific Railroad, which ran from Seattle to Minneapolis. Cooke quickly discovered that he had invested poorly. The land surrounding the railway line could not be used for farming. Even the presence of a railway would not inspire settlers to move there. Investors had no incentive to buy the land. The problem began to worsen as construction costs rapidly outweighed the influx of investment funds. Desperate, Cooke sent out publicity agents to lie about the value of the land. In another stroke of bad luck, the truth about Cooke's shady dealings became public and investors immediately pulled out. Overextended and without viable income, Jay Cooke and Company faced financial ruin. On 18 September 1873 the company collapsed and closed it doors. The death of one of America's most prominent financial institutions put investors into a selling frenzy. The panic of 1873 had begun.

The New York Stock Exchange closed on 20 September and remained so for the next 10 days. Other financial firms such as Fisk and Hatch and numerous banks began to close daily. Thousands of businesses went bankrupt as lending agencies demanded immediate payment on loans. Credit became nonexistent and foreclosures grew increasingly common. Unemployment soared to unprecedented levels, stretching charitable organizations well beyond their means. By the winter of 1873, 25 percent of New York workers were unemployed. By 1878 more than three million people had joined the ranks of the unemployed nationwide. Antagonism against the president and government grew as workers blamed the economic tragedy on their mismanagement. Worker demonstrations such as the 1874 Tompkins Square protest became common. Some of these protests were so violent that many major cities built armories.

As with the panic of 1837, national unions were devastated by the panic of 1873. Their financial resources dried up almost immediately, preventing them from operating or funding members during strikes. In addition, the sheer number of unemployed workers had abolished their striking strength. Strikers were replaced by the masses of workers who were literally begging for jobs. Local trade unions failed one after the other, and the national organizations crumbled. They would not recover from this economic disaster for several years.

National Unions after the Panic

As devastating as the panic of 1873 was to the national union movement, it also fueled the fires of unionism. When financial stability began to return, so too did the unions. Strikes and protests increased in frequency. The Great Strike of 1877, among others, reflected the animosity of workers toward bankers and employers. Following in the steps of the Knights of Labor, unions stopped operating in secrecy. Rather than buckling under the tragedy of the panic, unionism began to flourish. Learning from their predecessors, the new national unions became stronger and more successful. They would begin making landmark accomplishments in labor relations and conditions. The strife they had experienced in the panic of 1873 would serve them well in the new century and beyond.

Key Players

Cooke, Jay (1821-1905): Founder of Jay Cooke and Company, Cooke transformed his company into one of the strongest financial firms in America. After the purchase of the Northern Pacific Railroad, however, Cooke's firm immediately ran into financial difficulties. The closing of Jay Cooke and Company's doors began the economic disaster known as the panic of 1873.

Grant, Ulysses S. (1822-1885): America's eighteenth president (1869-1877), Grant received public blame for the panic of 1873.

Johnson, Andrew (1808-1875): The seventeenth president (1865-1869), Johnson met with the National Labor Union to discuss eight-hour day legislation. He signed into law the eight-hour workday bill for government employees in 1868.

Steward, Ira (1831-1883): Leader of the Machinists' andBlacksmiths' International Union during the Civil War, Steward fought for eight-hour day legislation. His writings inspired the National Labor Union toward this goal. In 1877 Steward helped with the formation of the International Labor Union.

See also: Eight-hour Day Movement; National Trades Union; National Typographical Union; National Union of Iron Molders.



Commons, John R., David Saposs, Helen Sumner, E. B.Mittelman, H. E. Hoagland, John Andrews, et al. History of Labour in the United States, vol. 2. New York: Augustus M. Kelly Publishers, 1966.

Perlman, Selig. A History of Trade Unionism in the UnitedStates. New York: MacMillan Company, 1923.

Sumner, William G. The Forgotten Man and Other Essays.Freeport, NY: Yale University Press, 1919.

White, Eugene N., ed. Crashes and Panics: The Lessons from History. New York: New York University Press, 1990.


"The Financial Panic of 1873." Excerpted from The Great Republic by the Master Historians. Vol. 3, edited by Hubert H. Bancroft. Public Bookshelf Web Site. 2002 [cited 17 October 2002]. http://www.publicbookshelf. com/public_html/The_Great_Republic_By_the_ Master_Historians_Vol_III/panicof1_hd.html.

Lause, Mark. Lause's Links. "Post-war Social Conflicts."American Labor History [cited 17 October 2002]. http:// 1870.html .

Online Highways. "The Grant Administration: Panic of 1873." 2002 [cited 17 October 2002]. <>.

—Lee Ann Paradise