Crises: The Panic Of 1873, The End Of Reconstruction, And The Realignment Of American Politics1

On September 18, 1873, the announcement of Jay Cooke and Company’s bank-ruptcy sent Wall Street to a panic, and the country to a long, harsh depression. Americans interpreted this economic crisis in the light of the acrimonious financial debates born of the Civil War—the money question chief among them. The conse-quences transformed American politics. Ideologically ill-equipped to devise cohesive economic policies, political parties split dangerously along sectional lines (between the Northeast and the Midwest). Particularly divided over President U.S. Grant’s veto of the 1874 Inflation Bill, the Republican Party decisively lost the 1874 con-gressional elections. As a Democratic majority in the House spelled the doom of Reconstruction, the ongoing divisions of both parties on economic issues triggered a political realignment. The dramatic 1876 elections epitomized a new political landscape that would last for twenty years: high instability in power at the national level and what has been described as the “politics of inertia.” Therefore, by closely following the ramifications of the 1873 panic, this article proposes an explanation of how an economic crisis transformed into a pivotal political event.

Before the crisis of 1929 claimed the name, the “Great Depression” com-monly referred to the tough economic times ushered in by the Panic of 1873. Starting with a double financial crash (in Vienna, Austria, in the spring, and in New York in the fall), it evolved into a full-blown economic depression that spread through Europe and North America, with an initial recession that severely affected production, prices, and wages. Social costs

1This article greatly benefited from the comments of many fine scholars who have either read or heard it at different stages. I particularly wish to thank Margo Anderson, Richard Bensel, Pierre Gervais, Jean Heffer, Richard John, and Scott Nelson for their very helpful input.

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were heavy; widespread unemployment bred labor unrest and strikes, often met with harsh repression.

Nevertheless, we know surprisingly little about this major event of the post-bellum United States. Although its historical impact was large—and, as two scholars have recently argued, it might be particularly relevant to understand today’s economic crisis2—few studies have tried to explain its manifold con-sequences, economic, social, and political.3 Reconstruction is a case in point. Arguably the most salient political issue of the day, it could not but be affected by a crisis of such magnitude, yet many classic studies simply over-look it.4 Others mention it, but rarely give it real explanatory power in their arguments.5 It might be that the historiography of Reconstruction, focusing on race and politics in the South, has evolved very separately from other his-toriographies dealing with developments within the North.6 Still, even studies with a more national scope, while they give more importance to the 1873 economic crisis, generally approach its political consequences in the broadest terms (often in striking contrast with the detailed analyses they otherwise offer).7 The specific causal links between the economic crisis and the fate of Reconstruction remain nebulous.

To many historians, however, it seems obvious that the 1870s were a turning point in American history. Textbooks also tell us so, generally using 1877 as

2Scott Nelson, “The Real Great Depression,” Chronicle of Higher Education, Oct. 17, 2008; Paul Krugman, “The Third Depression,” New York Times, June 27, 2010. The current crisis has renewed scholarly interest in historical precedents: see Carmen M. Reinhart and Kenneth S. Rogoff, This Time Is Different: Eight Centuries of Financial Folly (Princeton, 2009).

3There is no equivalent to the study of the Panic of 1857 by James L. Huston, The Panic of 1857 and the Coming of the Civil War (Baton Rouge, 1987).

4See for instance such standard works as William Gillette, Retreat from Reconstruction, 1869–1879

(Baton Rouge, 1979); and Michael Perman, The Road to Redemption: Southern Politics, 1869–1879

(Chapel Hill, 1984); or, more recently, Brooks D. Simpson, The Reconstruction Presidents (Lawrence, KS, 1998).

5A typical example might be James Keith Hogue, Uncivil War: Five New Orleans Street Battles and the Rise and Fall of Radical Reconstruction (Baton Rouge, 2006). The author mentions the economic recession only to explain that unemployment swelled the ranks of the White Leagues in Louisiana. 6Heather Cox Richardson underlines this in “North and West of Reconstruction: Studies in Political Economy” in Reconstructions: New Perspectives on the Postbellum United States, ed. Thomas J. Brown (Oxford, 2006), 66–90.

7For instance, Eric Foner views it as a large shift in the history of political thought and culture; the end of free-labor ideology put the fear of class warfare into the elites and pushed the Republican Party to economic conservatism. Foner, Reconstruction: America’s Unfinished Revolution, 1863–1876

(New York, 1988), 512–24. More recently, Michael Holt argued that voters generally voted the party out of power when such a hardship hit: David Herbert Donald, Jean Harvey Baker, and Michael F. Holt, The Civil War and Reconstruction (New York, 2001); Michael F. Holt, By One Vote: The Disputed Presidential Election of 1876 (Lawrence, KS, 2008).

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a cutting point in their narratives. The transformations of the decade have been analyzed through many lenses. Politically, the 1870s saw the resur-gence of Democrats, the end of Reconstruction, and an altogether new “char-acter of American politics.”8 Economically, the decade ushered in an unprecedented trend of concentration and the waning of the producerist ideology, especially among businessmen. Socially, it resulted in a hardening of class lines.9 All in all, the 1870s were a time of deep transformations of American society. Arguably, the 1873 crisis played a large role in this. Richard Schneirov recently argued in this journal that it triggered a change in class relations and systems of production, thus making it a fitting starting date for the Gilded Age.10

How could a banking panic trigger such momentous changes? Part of the explanation, this article argues, lies in the way Americans interpreted the financial events and their economic consequences. These interpretations were based on facts, of course, as they became known, but they also relied heavily on past experience and ongoing debates in political economy. What follows is an examination of the specific mechanisms that translated an economic event into a political response. In essence, it is an analysis of what could be called the “politics of the 1873 crisis.” By this phrase, I mean three complementary dimensions of a single phenomenon: first, the political legacy and structure that constrained the response to the crisis; second, the political reaction to the crisis; and third, the effect of this reac-tion on both the political culture and structure of the United States. This multi-faceted approach should help us understand how Americans’ analysis of the crisis was strongly shaped by past political debates and why such a reading led to a crucial, if partial, reconfiguration of the partisan landscape that would last for the remainder of the nineteenth century.

8Paul Kleppner, The Third Electoral System: Parties, Voters and Political Cultures, 1853–1892 (Chapel Hill, 1979); Morton Keller, Affairs of State: Public Life in Late Nineteenth-Century America

(Cambridge, MA, 1977), quotation 238.

9Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business

(Cambridge, MA, 1977); Walter T. K. Nugent, Money and American Society, 1865–1880

(New York, 1968); Richard Schneirov, Labor and Urban Politics: Class Conflict and the Origins of Modern Liberalism in Chicago, 1864–97 (Urbana, 1998); Sven Beckert, The Monied Metropolis: New York City and the Consolidation of the American Bourgeoisie, 1850–1896 (New York, 2001).

10Richard Schneirov, “Thoughts on Periodizing the Gilded Age: Capital Accumulation, Society, and Politics, 1873–1898,” Journal of Gilded Age and Progressive Era 5 (July 2006): 189–224. The phrase “Gilded Age” is used here for lack of a better one. Although the terminology might be contested, Schneirov offers a convincing argument about the chronology of the period. On the term itself, see the forum in Journal of Gilded Age and Progressive Era 8 (Oct. 2009): 463–85.

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From Financial Panic to Economic Recession

We know little more about the economic aspects of the Panic of 1873 and its consequences than its political impact. The last in-depth studies date back to the 1950s, yet those works relied heavily on the report Harvard economist Oliver M. W. Sprague wrote for the U.S. Congress’s National Monetary Commission in 1910.11 Otherwise, the crisis has been studied in relation to others in the nineteenth century. Two fields of inquiry sum up the atten-tion the episode seems to have received from economists and economic his-torians. The first one deals with business cycles and revolves around the influential chronology of peaks and troughs the National Bureau of Economic Research has published since the 1920s.12 Scholars interested in financial crashes also include Black Friday in 1873 but as an instance among many nineteenth-century panics: They generally try to create a model out of the recurring events but use little space for an in-depth analysis of each.13

On Wall Street, the panic started on September 18, 1873, with the suspen-sion of Jay Cooke and Company. The financier, famous for having marketed

11O. M. W. Sprague, History of Crises under the National Banking System (Washington, 1910). Most data related to the crisis in later works come from this book; among the most useful are Rendigs Fels, American Business Cycles, 1865–97 (Chapel Hill, 1959); and Irwin Unger, The Greenback Era: A Social and Political History of American Finance, 1865–1879 (Princeton, 1964). Fred Moseley also remarks on the scant scholarship on the 1873 crisis, while Hugh Rockoff underlines in a survey published in 2000 that Sprague’s book “is still indispensable”: Fred Moseley,

“Depression of 1873–1879” in Business Cycles and Depressions: An Encyclopedia, eds. David Glasner and Thomas F. Cooley (New York, 1997), 148–49; Hugh Rockoff, “Banking and Finance, 1789–1914” in The Cambridge Economic History of the United States, vol. 2: The Long Nineteenth Century, eds. Stanley L. Engerman and Robert E. Gallman (Cambridge, 2000), 643–84. One notable exception is Elmus Wicker, Banking Panics of the Gilded Age (Cambridge, 2000), 16–33, which offers a new narrative and brings new data to the analysis of the banking side of the panic.

12The first NBER study of business cycles was published in 1923: National Bureau of Economic Research, Business Cycles and Unemployment; Report and Recommendations of a Committee of the President’s Conference on Unemployment, Including an Investigation Made under the Auspices of the National Bureau of Economic Research, 1st ed. (New York, 1923). This ongoing study has since been the subject of many discussions and reevaluations, but most commonly with regard to twentieth-century data. For a recent essay focusing on the nineteenth century, however, Joseph H. Davis, “An Improved Annual Chronology of U.S. Business Cycles since the 1790s,” Journal of Economic History 66 (Mar. 2006): 103–21.

13Certainly the most successful attempt is Charles P. Kindleberger, Manias, Panics, and Crashes: A History of Financial Crises (1978; rev. ed., New York, 1989). See also Charles W. Calomiris and Gary Gorton, “The Origins of Banking Panics: Models, Facts, and Bank Regulation” in Financial Markets and Financial Crises, ed. R. Glenn Hubbard (Chicago, 1991), 109–73. A good summary of the financial side of the crisis and the scholarship dedicated to it can be found in Rockoff, “Banking and Finance,” esp. 667–69, 942.

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