Long Depression


The Long Depression was a worldwide price and economic recession, beginning in 1873 and lasting until either March 1879, or the year 1899, depending on the metrics used. It was most severe in Europe and North America, which had been experiencing strong economic growth fueled by the Second Industrial Revolution. The episode was labeled the "Great Depression" at the time, and it held that designation until the Great Depression of the 1930s. Though it marked a period of general deflation and recession, it did not have the severe economic retrogression of the later Great Depression.
The United Kingdom was the hardest hit; during this period it lost some of its large industrial lead over the economies of continental Europe. While it was occurring, the view was prominent that the British economy had been in continuous depression from 1873 to as late as 1896 and some texts refer to the period as the Great Depression of 1873–1896, with financial and manufacturing losses reinforced by a long recession in the agricultural sector.
In the United States, historians refer to the long depression as the Depression of 1873–1879, focusing on the Panic of 1873, and the Panic of 1893. The U.S. National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction. In the United States, from 1873 to 1879, 18,000 businesses went bankrupt, including 89 railroads. Unemployment peaked in 1878 at 8.25%.

Background

The period preceding the depression was dominated by several major military conflicts and a period of economic expansion. In Europe, the end of the Franco-Prussian War yielded a new political order in Germany, and the £200 million indemnity imposed on France led to an inflationary investment boom in Germany and Central Europe. New technologies in industry such as the Bessemer converter were being rapidly applied; railroads were booming. In the United States, the end of the Civil War and a brief post-war recession gave way to an investment boom, focused especially on railroads on public lands in the Western United States – an expansion funded largely by foreign investors.

Causes of the crisis

In 1873, during a decline in the value of silverexacerbated by the end of the German Empire's production of thaler coinsthe US government passed the Coinage Act of 1873 in April. This essentially ended the bimetallic standard of the United States, forcing it for the first time onto a pure gold standard. This measure, referred to by its opponents as "the Crime of 1873" and the topic of William Jennings Bryan's Cross of Gold speech in 1896, forced a contraction of the money supply in the United States. It also drove down silver prices further, even as new silver mines were being established in Nevada, which stimulated mining investment but increased supply as demand was falling. Silver miners arrived at US mints, unaware of the ban on production of silver coins, only to find their product no longer welcome. By September, the US economy was in a crisis, deflation causing banking panics and destabilizing business investment, climaxing in the Panic of 1873.
The Panic of 1873 has been described as "the first truly international crisis". The optimism that had been driving booming stock prices in central Europe had reached a fever pitch, and fears of a bubble culminated in a panic in Vienna beginning in April 1873. The collapse of the Vienna Stock Exchange began on May 8, 1873, and continued until May 10, when the exchange was closed; when it was reopened three days later, the panic seemed to have faded, and appeared confined to Austria-Hungary. Financial panic arrived in the Americas only months later on Black Thursday, September 18, 1873, after the failure of the banking house of Jay Cooke and Company over the Northern Pacific Railway. The Northern Pacific railway had been given of public land in the Western United States and Cooke sought $100,000,000 in capital for the company; the bank failed when the bond issue proved unsalable, and was shortly followed by several other major banks. The New York Stock Exchange closed for ten days on September 20.
The financial contagion then returned to Europe, provoking a second panic in Vienna and further failures in continental Europe before receding. France, which had been experiencing deflation in the years preceding the crash, was spared financial calamity for the moment, as was the United Kingdom. Some argued the depression was rooted in the 1870 Franco-Prussian War that devastated the French economy and, under the Treaty of Frankfurt, forced that country to make large war reparations payments to Germany. The primary cause of the price depression in the United States was the tight monetary policy that the United States followed to get back to the gold standard after the Civil War. The U.S. government was taking money out of circulation to achieve this goal, therefore there was less available money to facilitate trade. Because of this monetary policy the price of silver started to fall causing considerable losses of asset values; by most accounts, after 1879 production was growing, thus further putting downward pressure on prices due to increased industrial productivity, trade and competition.
In the US, the speculative nature of financing due to both the greenback, which was paper currency issued to pay for the Civil War and rampant fraud in the building of the Union Pacific Railway up to 1869 culminated in the Crédit Mobilier scandal. Railway overbuilding and weak markets collapsed the bubble in 1873. Both the Union Pacific and the Northern Pacific lines were central to the collapse.. Because of the Panic of 1873, governments depegged their currencies, to save money. The demonetization of silver by European and North American governments in the early 1870s was certainly a contributing factor. The US Coinage Act of 1873 was met with great opposition by farmers and miners, as silver was seen as more of a monetary benefit to rural areas than to banks in big cities. In addition, there were US citizens who advocated the continuance of government-issued fiat money to avoid deflation and promote exports. The western US states were outragedNevada, Colorado, and Idaho were huge silver producers with productive mines, and for a few years mining abated. Resumption of silver dollar coinage was authorized by the Bland–Allison Act of 1878. The resumption of the US government buying silver was enacted in 1890 with the Sherman Silver Purchase Act.
Monetarists believe that the 1873 depression was caused by shortages of gold that undermined the gold standard, and that the 1848 California Gold Rush, 1886 Witwatersrand Gold Rush in South Africa and the 1896–99 Klondike Gold Rush helped alleviate such crises. Other analyses have pointed to developmental surges, theorizing that the Second Industrial Revolution was causing large shifts in the economies of many states, imposing transition costs, which may also have played a role in causing the depression.

Course of the depression

Many countries experienced significantly lower growth rates relative to what they had experienced earlier in the 19th century and to what they experienced afterwards. Like the later Great Depression, the Long Depression affected different countries at different times, at different rates, and some countries accomplished rapid growth over certain periods. Globally, however, the 1870s, 1880s, and 1890s were a period of falling price levels and rates of economic growth significantly below the periods preceding and following. Between 1870 and 1890, iron production in the five largest producing countries more than doubled, from 11 million tons to 23 million tons, steel production increased twentyfold, and railroad development boomed. At the same time, prices in several markets collapsedthe price of grain in 1894 was only a third what it had been in 1867, and the price of cotton fell by nearly 50 percent in just the five years from 1872 to 1877, imposing great hardship on farmers and planters. This collapse provoked protectionism in many countries, such as France, Germany, and the United States, while triggering mass emigration from other countries such as Italy, Spain, Austria-Hungary, and Russia. Similarly, while the production of iron doubled between the 1870s and 1890s, the price of iron halved.
1850s–18731873–18901890–1913
German Empire|name=Germany

Austria-Hungary

The global economic crisis first erupted in Austria-Hungary, where in May 1873 the Vienna Stock Exchange crashed. In Hungary, the panic of 1873 terminated a mania of railroad-building.

Chile

In the late 1870s the economic situation in Chile deteriorated. Chilean wheat exports were outcompeted by production in Canada, Russia and Argentina and Chilean copper was largely replaced in international markets by copper from the United States and Spain. Income from silver mining in Chile also dropped. Aníbal Pinto, president of Chile in 1878, expressed his concerns the following way:
This "mining discovery" came, according to historians Gabriel Salazar and Julio Pinto, into existence through the conquest of Bolivian and Peruvian lands in the War of the Pacific. It has been argued that economic situation and the view of new wealth in the nitrate was the true reason for the Chilean elite to go into war with its neighbors. Another response to the economic crisis, according to Jorge Pinto Rodríguez, was the new pulse of conquest of indigenous lands that took place in Araucanía in the 1880s.

France

France's experience was somewhat unusual. Having been defeated in the Franco-Prussian War, the country was required to pay £200 million in reparations to the Germans and was already reeling when the 1873 crash occurred. The French adopted a policy of deliberate deflation while paying off the reparations. The Paris Bourse crash of 1882 sent France into depression, one which "lasted longer and probably cost France more than any other in the 19th century". The Union Générale, a French bank, failed in 1882, prompting the French to withdraw three million pounds from the Bank of England and triggering a collapse in French stock prices.
The financial crisis was compounded by diseases impacting the wine and silk industries French capital accumulation and foreign investment plummeted to the lowest levels experienced by France in the latter half of the 19th century. After a boom in new investment banks after the end of the Franco-Prussian War, the destruction of the French banking industry wrought by the crash cast a pall over the financial sector that lasted until the dawn of the 20th century. French finances were further sunk by failing investments abroad, principally in railroads and buildings. The French net national product declined over the ten years from 1882 to 1892.