In 1873 the promoter of the Northern Pacific railroad had borrowed everywhere, even the small savings of widows and workmen, through his intimate connection with banking. All this accumulation of savings had been expended for labor upon what was only a huge embankment, making no possible returns to any owner. The only possible means of continuing the work was continued borrowing, or the sale of additional stock. The revenue promised upon the means already used could be given only by larger borrowing. On a certain day the amount to be borrowed was less than the amount to be paid, and the failure of Jay Cooke to meet his expectations and promises was known. Within six hours every village in the land felt the disaster. The financial crisis was seen and realized. Bargains partially completed were stopped in the midst. Materials about to be shipped were held at the station. Deposits at the bank were needed immediately, notes due at the bank could not be extended, collectors of accounts appeared at every corner, thousands of workmen directly and indirectly employed on the great railroad building were out of employment and out of wages due, the banks were unable to furnish even paper currency to their depositors, and the whole world felt absolute loss of confidence in any undertaking or any expectation.
I select this particular panic because its beginning was so comparatively simple, its progress so evident and its results so well defined. Any other failure of speculative purpose might have been equally disastrous. It could hardly have been so rapid, because it could not have been so directly distributed among the masses of the people. Yet the machinery of credit is such that any considerable failure in enterprise or speculation is felt everywhere. The banks are at once called upon for larger loans and for deposits together, an impossibility in the nature of the case. All exchangeable forms of credit are immediately offered in market at constantly decreasing prices. Current credit of every kind is checked, and exchange is limited to the barest necessities. All productive energies are practically stopped, except such as are out of the line of daily exchanges. Very soon all domestic expenses are reduced to the lowest notch, domestic help is discharged, the well-to-do undertake to help themselves, and the poor are left without resources. It seems as if all the wheels of progress had stopped.