The Great Panic of 1893
Uncle Sam (to the Wolf at the Door) One of you pesky critters comes around here about every twenty years; but this is the gun that gits you! (Illus. from Puck, April 11, 1894.
As I’ve mentioned before, occasionally an event, or person, or book, or idea begins tracking me down.[1] It shows up in footnotes or casual asides in books I’m reading. Eventually, I give in and go down the rabbit hole. Then, if it’s interesting or important enough, I share it with you. That is, after all, the social contract on which History in the Margins is based.
Lately, the Great Panic of 1893 has become insistent.
Here is what I knew pre-rabbit hole: The Great Panic of 1893 plunged the United States into a four-year depression. It was the worst economic panic in United States history prior to the Great Depression.[2]
Quite frankly, until recently, that was all I needed to know. But for the last year or so I’ve been spending a lot of time in the United States in the late nineteenth and early twentieth centuries. The Great Panic of 1893 keeps coming up in terms of how it affected individual families. (For instance, the panic was the proximate cause of Sigrid Schultz’s father moving the family back to Europe for what he thought would be a short time.) Finally I decided the time had come for me to get a firmer grasp on the panic’s causes, scope, and legacy.
Turns out there is a lot more to the story than I realized. Buckle up!
First we need to consider the term: a panic is not just a jazzier name for a recession or a depression, though they can, and often do, occur together.[3] A panic is a crisis in which people lose confidence in banks and large numbers of people withdraw their money in a short period of time[4], making banks unstable. A recession is a period of reduced economic activity: businesses can’t sell goods or services, so they lay people off, which means people can’t buy goods and services. A depression is a recession on a larger scale.
To my surprise, bank panics were pretty common in the last half of the nineteenth century: eighteen panics rocked the United States’ economy between 1863 and 1913. Most of them were centered in New York City, which was the heart of the nation’s financial system. In addition, regional panics hit the midwestern states of Illinois, Minnesota and Wisconsin in 1896, the mid-Atlantic states of Pennsylvania and Maryland in 1903, and Chicago in 1905.[5] I am neither an economist nor an economic historian, but it seems to me that the country was in a financial panic almost as often as it was in a state of non-panic between the end of the American Civil War and the beginning of the Great War.
Unlike most earlier nationwide financial panics, the Great Panic of 1893 began with banks in the Midwest and West instead of in New York. There were two causes of bank instability leading up to the panic. The U. S. Treasury’s gold reserves fell from roughly $190 million in 1890 to about $100 million in early 1893. The country was on the gold standard, which meant that Treasury notes could be redeemed for a fixed amount of gold.[6]Falling gold reserves led to fears, at home and abroad, that the government would be forced to suspend convertibility of notes. Some depositors began to convert their bank notes to gold while the converting was good. At the same time, roughly six months prior to the panic, the country entered an economic recession[7]. As the economy contracted, defaults on loans began to rise, which weakened banks’ balance sheets. Fearing for the security of their deposits, people began to withdraw their funds, creating a spiral of fear and further withdrawals.
In June, bank runs began in midwestern and western cities; more than one hundred banks failed. Between mid-July and mid-August, as the panic grew worse, another 340 banks failed. Banks in the Midwest and West began to withdraw funds they had on deposit with New York banks, creating strain on those banks in turn. In order to meet withdrawal requests, banks in New York began to sell assets. Asset prices fell. The downward spiral continued. More banks failed. Farm prices dropped. New construction largely stopped . Business and industry slowed down; more than 15,000 businesses had failed by the end of the year. People lost their jobs. Things were so bad that firms issued scrip and financial institutions used quasi-currencies like clearing house certificates[8] to make payments because the standard banking system was not functioning.
The banking panic ended in the fall of 1893. The economic depression it triggered lasted until mid-1897. The period was marked by violent strikes, the apogee and effective end of the Populist and free silver political movements, levels of unemployment that were only matched by those in the Great Depression[9], and a shift in public opinion in favor of currency and bank reform, regulation of business in the public interest, and labor relations. Even the wealthy were affected to some extent.
Not the Gilded Age portrayed in popular culture.
[1] You’re all familiar with this general phenomenon I’m sure. You become aware of something and then start seeing references to it everywhere. This is variously known as the Baader-Menhoff Phenomenon, frequency illusion, or, my favorite, the Blue Ford Syndrome.
[2] Looking back, I am surprised I knew that much. American history is not my academic field.
[3] The United States has not suffered a large scale bank panic since the establishment of the Federal Deposit Insurance Corporation in 1933, proving that bank panics aren’t the only cause of recessions.
[4] The phrase “bank run” is much older than I expected. According to the Oxford English Dictionary, it appears in its modern meaning as early as the end of the seventeenth century. I suspect I am not the only one who assumed it was a literal description of events like this:
Depositors clamor to withdraw their savings from a bank in Berlin, 13 July 1931 . (Photographer Georg Pahl. Bundesarchive. Bild 102-12023)
[5] I must admit, I wonder how Chicago could have an economic panic all by itself. However, I refuse to go down that rabbit hole until I’ve dealt with the Panic of 1893 to my satisfaction. Any one else interested?
[6] Several years ago I tried to write a “word with a past” post about the term “gold standard.” I just went back to look at it again. The draft is a mess, but there are still some interesting bits there. Anyone interested in my giving it another try?
[7] In this case, the recession seems to have caused the panic rather than the other way around. Without going into details, factors leading the recession included a panic and depression in Europe that affected American markets, several years of agricultural problems as a result of storms, drought, and overproduction, and slowing investment in railroads, which had been an economic driver for two decades.
[8] I understood scrip, but I had to look up clearing house certificates. Turns out, the New York Clearing House was founded in 1853 to bring order to the complicated web of currency exchanges that had developed over the prior decade as a result of westward expansion. A Clearing House loan certificate, with the words, “payable through the Clearing House,” was the joint liability for all member banks. As such, they were a remarkably secure form of payment and were used as a substitute currency during financial panics between 1853 and 1913. It was probably illegal, but it was so successful that no one wanted to raise a fuss.
[9] More than ten percent for between five and six consecutive years.
The Exposition Flyer
I’ve been spending a lot of time in 1893 lately, and have come to the conclusion that all historical roads of the time led to the World’s Columbian Exposition in Chicago. The exposition is hard to avoid if you’re a history nerd living in Chicago for more than a year or two, so I feel like a have a good handle on the bigger story of the fair and how it was created. But in recent months I keep coming across smaller stories. Or at least tidbits that make my understanding of the fair a little richer.
For example, the creation of the New York Central Railroad’s Exposition Flyer,[1] which I stumbled across while researching what the woman I’m thinking about would have experienced traveling from Chicago to New York City in 1893.
This image of the Exposition Flyer is from 20th Century by Lucius Beebe.
The Columbian Exposition was expected to bring millions of people to Chicago in the summer of 1893—an expectation that was fulfilled. An estimated 27 million people visited the attraction during its six-month run. Railroads from east and west alike were eager to capture their share of those travelers.
The New York Central and the Pennsylvania Railroad were already competing over passenger traffic between Chicago and New York in the years before the Chicago exposition. Between 1881 and 1891, the two companies had managed to reduce the time their fastest trains took to make the trip from more than 30 hours to roughly 24, mostly by reducing the number of stops and limiting or eliminating cargo cars.[2] The fare was slightly higher to reflect the time saved.
On the eve of the exposition, the New York Central’s general passenger agent, George H. Daniels,[3] envisioned a train that would take only 20 hours to make the trip between New York and Chicago, building on the techniques of the various “limited” and express trains currently traveling the route. The Exposition Flyer, billed as the “fastest train on earth,” was a small train, usually limited to a “buffet smoking and library car,” which was a haven for male passengers, a dining car, and two or three sleeping cars. It was also a “solid train”: all of its cars went the entire distance so no time was lost adding cars or leaving cars behind. And it made only seven maintenance stops on the route—no passenger stops.
None of this will appear in the proposal I am (still) struggling with. It probably won’t even turn up in the final book, if I am lucky enough to get to write it. My subject would have taken the cheapest train possible, not the Exposition Flyer nor one of the various limited or express trains that traveled from Chicago to New York . But knowing that she had to make a choice, and what those choices were, adds to my understanding. of her experience.
This is the way you write a book, one detail at a time.
[1] Not to be confused with a train of the same name that carried travelers west from Chicago to San Francisco’s Golden Gate International Exposition of 1939
[2] Both railroads continued to run slower trains, which took more than 36 hours but made all the stops on a route that traveled through Michigan and New York State. For which people who wanted to travel to Kalamazoo. Battle Creek, Buffalo, or Albany were doubtless grateful.
[3] Remembered by railroad buffs and advertising history nerds for his innovative promotion of the railroad, including the use of travel brochures to encourage people to take the train on their vacations. Much of his work rested on the tagline “Send a stamp to George H Daniels.” Anyone who wrote to Daniels for information and enclosed a 2¢ stamp would get travel information tailored to their interests in return, whether it related to the railroad or not. He and his team created a wide range of brochures, dubbed the Four-Track series. The most popular was a reprint of Elbert Hubbard’s inspirational essay “A Message to Garcia” (1899)–the story had nothing to do with the railroad, but the pamphlet included a map of the New York Central’s routes. The railroad published hundreds of thousands of copies of the essay, keeping an essay that originally appeared in an obscure magazine that reached a small audience in the public eye.
From the Archives: A Spy in the Spice Trade
One more post from the past dealing with the spice trade
You know the beginning of this story. In the fifteenth century, Portugal under the leadership of Prince Henry the Navigator(opens in new tab) * began maritime exploration along the coast of Africa. More or less a hundred years later, a Portuguese fleet commanded by Vasco da Gama reached India. After a certain amount of bumbling around, Portugal transformed itself into a maritime empire(opens in new tab) with a lock on the spice trade.
For almost a hundred years, the Portuguese successfully protected their control over the sea routes to the Indian Ocean. Foreign ships caught sailing to the Indies were seized and their crews sentenced to a lifetime in the galleys. Suspected spies were arrested and shipped back to Lisbon for trial; those from the Protestant countries of England and the independent northern Netherlands were charged with heresy as well as espionage.**
Things changed in 1580, when Phillip II of Spain*** conquered Portugal and united the two countries. The enemies of Spain became the enemies of Portugal, especially England and the Netherlands. The two Protestant countries could no longer buy spices from Portugal. Suddenly free trade was a religious as well as a political issue. The English took the direct approach and attacked Portuguese ships as they returned from the Indies. The Dutch preferred to trade rather than raid, but establishing trade with the Indies would require information they didn’t have.
Dutch merchants sent a spy overland to the Indies. Before he returned, they received all the information they wanted from a source they didn’t expect: a Dutch spy who worked right under the nose of the Portuguese.
Jan Huygen van Linschoten was a Dutch Catholic, born in the Netherlands in 1563. When he was seventeen, he traveled to Lisbon, where he worked for a Portuguese merchant. In 1583, he traveled to India as secretary to the new Archbishop of Goa, the Portuguese capital in India.
Linschoten worked in Goa from 1584 to 1589. As secretary to the Archbishop he had access to protected information regarding trade routes and sailing conditions. He questioned any European traveler who came through “golden Goa” about the countries further east. When the Archbishop died in 1589, Linschoten began a four-year-long voyage home to the Netherlands, learning even more about the Portuguese trading empire on the way.
Back in the Netherlands, Linschoten wrote Voyages to the East Indies, an account of everything Dutch merchants needed to know if they wanted to trade in the Indies. He described the sea routes to the east, including where to get fresh water and vegetables and what time of year the weather was best for safe sailing. He explained that they would need silver to buy spices because the Asians weren’t interested in European products. He described the countries and customs of Asia from India to Japan. He even provided up-to-date maps. Most important, Linschoten revealed that the once powerful Portuguese army, which had defended the trade routes with blazing guns in the past, was no longer so powerful. The sea routes to the east were open to anyone who dared take them.
In 1595, Dutch ships sailed for Java, with a copy of Linschoten’s Voyages aboard as a guide. Portuguese control of the spice trade was over.
*A misnomer applied to him by nineteenth century British historians for nineteenth century British reasons
**A serious matter in the days when the Spanish Inquisition was more than Monty Python routine.
***Just to remind you, he’s the guy who was married to Queen Mary Tudor from 1554 until her death in 1558, tried unsuccessfully (and illegally) to marry her sister, Queen Elizabeth II, and sent the equally unsuccessful Spanish Armada against England in 1588. He was also one of the most powerful rulers in Europe at the time. Sometimes its hard to tell the players without a program.
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