Tuesday, October 7, 2008

Panics of Yore

Financial panic ushered in – and closed out – the Gilded Age.

In September 1873, traders on the New York Stock Exchange fell into a frenzy of selling after Jay Cooke & Co. failed to raise money to finance the Northern Pacific Railroad. Anxiety reached to a new level a few days later, when Cornelius Vanderbilt failed to repay a $1.5 million loan in a timely manner. According to the New York Times: “The day was one of the wildest ever witnessed in Wall Street.”

Almost 20 years later, another crisis rocked the nation’s financial sector when the failure of the Philadelphia & Reading railroad signaled a collapse that led to the closing of factories and banks – 128 banks in June alone. The Panic of 1893 – and its aftermath – hobbled Grover Cleveland throughout his second term.

In 1873 and once again in 1893, government policies worsened rather than eased the hardships caused by financial collapse. The Grant administration pursued “hard money” polices that moved to reduce the amount of money in circulation and make paper “greenback” dollars issued since the Civil War redeemable at gold.

This approach to financial crisis intensified the economic pressures facing farmers and small business owners in the Midwest, South and Great Plains, where the relentless downward spiral of commodity prices was already causing great difficulty.

The Cleveland administration followed a similar approach, imposing on congressional Democrats to repeal the Sherman Silver Purchase Act that authorized limited use of the precious metal in the nation’s monetary supply. The Treasury was kept afloat by J.P. Morgan and other Wall Street financiers, but widespread homelessness and labor unrest – culminating in Coxey’s army the Pullman Strike of 1894 – testified to the ineffectiveness of the hard-money remedy.

Growing out of public anger with the financial policies of the Grant administration, a new political organization known as the Greenback, or Greenback-Labor Party, was born. The new party survived for only a brief period, but before the century closed, a new and more powerful political manifestation of discontent with the economic status quo burst onto the national scene.

The People’s Party reached its zenith in 1892 when James B. Weaver ran as its presidential candidate and carried four states. Four years later, the hard-money policies of the Cleveland administration were so unpopular in his own party that Democrats decisively rejected them with the nomination of William Jennings Bryan.

If there is a political lesson to be drawn from the economic travails of the Gilded Age, it might be this: how the government responds to economic crises may have a more significant impact on the nation and presidential politics than the immediate turmoil caused by financial panic.

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