The Long Depression was a worldwide price and economic recession, beginning in 1873 and running either through March 1879, or 1896, depending on the metrics used. It was most severe in Europe and the United States, which had been experiencing strong economic growth fueled by the Second Industrial Revolution in the decade following the American Civil War. 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 a general contraction, it did not have the severe economic retrogression of the Great Depression.
Great Britain 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 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 Depression of 1873–1879, kicked off by the Panic of 1873, and followed by the Panic of 1893, book-ending an era of prosperity. 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 (1865–1867) 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 Britain.