Panic of 1893

The Panic of 1893 was a severe economic depression in the United States. It began in February 1893 and officially lasted for eight months. This period was the most serious economic crisis in American history until the Great Depression of the 1930s. It deeply affected every sector of the national economy. The crisis caused massive political shifts and changed how the country was governed.

Several complex factors caused the crisis to occur. During the 1880s, the United States experienced a stock market bubble in the railroad industry. Investors poured money into railroads, which led to them being greatly overbuilt. In 1890, the McKinley Tariff raised tariffs as high as 50 percent. This affected international commodity prices and the growth seen during the Gilded Age. Additionally, the Sherman Silver Purchase Act of 1890 required the government to buy large amounts of silver. This created an oversupply of silver due to many new mines opening in the West. A financial crisis in London and a drop in European trade also played a role.

The mechanism of the panic involved a loss of confidence in the currency. Many people believed bullion coins were more valuable than paper money. When economic uncertainty grew, people began hoarding gold coins and rejecting paper notes. This led to a run on gold from the United States Treasury. A specific trigger occurred on February 20, 1893, when the Philadelphia and Reading Railroad faced receivership. Receivership is a legal process where a court takes control of a company to manage its debts. Shortly after, the National Cordage Company faced financial distress. Its bankruptcy caused the Dow Jones Industrial Average to fall 24 percent in one day on May 5, 1893.

The crisis manifested in several distinct ways across the country. First, there were massive bank runs where people rushed to withdraw their funds. This created a credit crunch that rippled through the entire economy. Second, the railroad industry suffered immense losses. In 1893, one-fourth of all United States rail mileage went into receivership. The value of these failed railroads was nearly $1.8 billion. Third, the maritime industry saw a decline in merchant tonnage. U.S. gross tonnage decreased by 2.9 percent in 1894 and another 1.03 percent in 1895.

Social and political movements arose from the widespread hardship. The People's Party, known as the Populists, became a major force. This party was supported by angry farmers in the West and South. They were critical of banks, railroads, and the gold standard. In the 1892 election, the Populist ticket won 8.5 percent of the popular vote. They also carried five states: Colorado, Idaho, Kansas, Nevada, and North Dakota. The movement represented a radical form of agrarianism. It sought to help those who felt hurt by the existing economic system.

The human cost of the panic was staggering. Unemployment rates rose sharply in many states. In Pennsylvania, unemployment reached 25 percent. In New York, it hit 35 percent, and in Michigan, it reached 43 percent. Many people lost their life savings when banks failed. Over 500 banks and 15,000 companies went out of business. Families could not pay their mortgages and had to leave their homes. To prevent starvation, soup kitchens were opened. In Detroit, Mayor Hazen S. Pingree started the "Potato Patch Plan." This program created community gardens to help the destitute.

Political consequences reshaped the American government. President Grover Cleveland faced heavy blame for the depression. He had to deal with a dangerous drop in gold reserves. By February 1895, reserves fell to about $42 million. This was well below the $100 million required by the Resumption Act of 1875. To fix this, Cleveland borrowed $65 million in gold from the Morgan-Belmont Syndicate. This group included banker J.P. Morgan and the Rothschild family. The Democratic Party suffered huge losses in the 1894 elections. They did not regain control of the federal government until 1910. This political realignment eventually led to the presidency of William McKinley.