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Encyclopedia Dubuque

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PANIC OF 1873

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PANIC OF 1873. At a time of economic problems in Europe, in September 1873, Jay Cooke & Company, a major part of the United States banking establishment, was unable to sell several million dollars in Northern Pacific Railway bonds. Cooke's bank, like many others, had invested heavily in the railroads. At a time when investment banks were anxious for more capital for their enterprises, President Ulysses S. Grant's monetary policy of contracting the money supply made matters worse for those in debt. While businesses were expanding, the money they needed to finance that growth was becoming scarcer. (1)

Cooke and other entrepreneurs had planned to build the second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing, and ground was broken near Duluth, Minnesota, for the line on February 15, 1870. Just as Cooke was about to obtain a $300 million government loan in September 1873, reports circulated that his firm's credit had become nearly worthless. On September 18, 1873 the firm declared bankruptcy. (2)

The failure of the Jay Cooke bank, followed quickly by others, set off a chain reaction of bank failures and temporarily closed the New York stock market. Factories began to lay off workers as the United States slipped into depression. The effects of the panic were quickly felt in New York, and more slowly in Chicago, Virginia City, Nevada, and San Francisco. (3)

The New York Stock Exchange closed for ten days starting September 20, 1873. By November 1873 some 55 of the nation's railroads had failed, and another 60 went bankrupt by the first anniversary of the crisis. Construction of new rail lines, formerly one of the backbones of the economy, plummeted from 7,500 miles of track in 1872 to just 1,600 miles in 1875. 18,000 businesses failed between 1873 and 1875. Unemployment peaked in 1878 at 8.25%. Building construction was halted, wages were cut, real estate values fell and corporate profits vanished. (4)

The effect of the economic panic on Dubuque varied between banks. MERCHANTS' NATIONAL BANK which showed more loans than deposits in June, 1873 did not immediately open its doors for business on Friday, September 26, 1873. A large number of withdrawals made from the bank on Thursday left it with little currency on hand. (5)

Leaders of the city's banks met on Thursday evening at the home of Richard A. BABBAGE. The question to be decided was whether, like banks in other large cities, to simply close temporarily. The leaders of Merchants' wanted this course of action for at least a couple of days. It had been unable to receive the currency it needed from Chicago. That plan was opposed by the others. FIRST NATIONAL BANK OF DUBUQUE wanted to follow the Chicago example of paying small checks. If depositors wanted more, they could choose any of their bills receivable. The COMMERCIAL NATIONAL BANK and GERMAN SAVINGS BANK chose to pay in full. Merchants' leadership said it would suspend business for a couple of days. (6)

Depositors appeared at First National Bank but no run on the bank was attempted. A similar situation occurred on Friday morning at the German Savings Bank. The Dubuque Herald reported in the morning were "brandishing their bank accounts in their hands and swearing funny oaths." Depositors at the Commercial National Bank or PEOPLE'S SAVINGS BANK carried on business at usual. (7)

Concern about the future affected the business community in Dubuque. The COOPER WAGON WORKS laid off a large number of employees and the Iowa division of the ILLINOIS CENTRAL RAILROAD was decreased in size. (8) Despite the economic uncertainty, the wagon works still paid out an average of $1,000 weekly to its employees. (9) PELAN & RANDALL closed down their lumber mill on October 31st for the winter. (10) Employees and officers of American Express saw their wages cut ten percent. (11)

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Source:

1. "Panic of 1873," Wikipedia. Online: https://en.wikipedia.org/wiki/Panic_of_1873

2. Ibid.

3. Ibid.

4. Ibid.

5. "The Panic," Dubuque Herald, September 27, 1873, p. 4. Online: https://news.google.com/newspapers?nid=uh8FjILnQOkC&dat=18730927&printsec=frontpage&hl=en

6. Ibid.

7. Ibid.

8. "Signs of the Times," Dubuque Herald, October 3, 1873, p. 4. Online: https://news.google.com/newspapers?nid=uh8FjILnQOkC&dat=18731003&printsec=frontpage&hl=en

9. "Caught on the Fly," Dubuque Herald, January 16, 1874, p. 4. Online: https://news.google.com/newspapers?nid=uh8FjILnQOkC&dat=18740116&printsec=frontpage&hl=en

10. "Caught on the Fly," Dubuque Herald, November 1, 1873, p. 4. Online: https://news.google.com/newspapers?nid=uh8FjILnQOkC&dat=18731101&printsec=frontpage&hl=en

11. "Reduction of Salary," Dubuque Herald, November 11, 1873, p. 4. Online: https://news.google.com/newspapers?nid=uh8FjILnQOkC&dat=18731111&printsec=frontpage&hl=en