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