The Gilded Age was a time of severe economic issues covered up by the wealth and success of the top tier of American society. But, in 1893, the problems could be covered up no longer...
How It Happened:The Panic started out as the culmination of both foreign and domestic economic issue during the early 1890s. Due to the 1890 failure of wheat crop in Argentina, disgruntled European investors in Argentina decided to start a run on gold in the U.S. Treasury - it was easy for them to cash in dollar investments for exportable gold.
During the Gilded Age, the United States enjoyed great economic growth and expansion from high international commodity prices; when the wheat prices crashed in 1893, the economic expansion relied heavily on railroads. This led to over-built railroads, plagued by expenses that outweighed revenues, and new mines flooded the market with silver due to the Bland-Allison Act (1878) and the Sherman Silver Purchase Act (1890). "...that less money was invested during the 1890s was one of the factors that, with a continued adverse balance of payments, forced the United States to... depression..." With so much silver and so little gold, the U.S. economy grew increasingly unbalanced over the coming months. Incumbent President Grover Cleveland refused to accept the depression and tried to deal with the Treasury crisis by repealing the Sherman Silver Purchase Act. But it was late - the payment imbalance worried people and caused people to frantically withdraw money from their banks (a.k.a. bank runs).
The Panic of 1893 had begun. |
Morgan's Method:"And in the Panic of 1893, [Morgan] almost acts like a one-man central bank, and he shows that he has a lot of power over the economy." As a result of the disastrous panic, stock prices declined, 500 banks were closed, 15000 business failed, and numerous farms foreclosed. The unemployment hit 25% in Pennsylvania, 37% in New York, and 43% in Michigan - many women were forced into prostitution in a desperate bid to make money.
The Sherman Silver Purchase Act had ruined the economy by forcing the U.S. Treasury to purchase silver using notes backed by gold, which allowed the Treasury gold to fall to an extremely low level. Cleveland, feeling responsible for the panic, knew that he needed to help bolster the gold standard. So he enlisted the help of J.P. Morgan to solve the depression. In one of the most sensationalist bailouts in recent history, Morgan demonstrated his power over the country by loaning $65 million in gold to the U.S. government to support the gold standard. Within a year, the U.S. economy was on the mend. |