Great Railroad Strike of 1877 - Economic Conditions in The 1870s

Economic Conditions in The 1870s

Further information: Long Depression#United States and Long Depression

The 1870s saw a significant economic depression in Europe. The effects of this reached the United States on September 18, 1873, with the failure of banking firm Jay Cooke and Company. As Cooke was the country’s top investment banker, the principal backer of the Northern Pacific Railroad as well as a prime investor in other railroads, and as the company which had handled most of the government’s wartime loans, its failure was catastrophic. In response, the U.S. economy sputtered and then collapsed. Shortly after Cooke’s demise, the New York Stock Exchange closed for 10 days, credit dried up, foreclosures and factory closings became common. Of the country's 364 railroads, 89 went bankrupt, and over 18,000 businesses failed between 1873 and 1875. Unemployment reached 14 percent by 1876, while workers who kept their jobs were employed for a mere six months out of the year and suffered a 45% cut in their wages to approximately one dollar per day. This economic cataclysm is now referred to as the Panic of 1873.

While the public blamed President Ulysses S. Grant and the United States Congress for mishandling the economy, in particular Grant's monetary policy of contracting the money supply, the causes of the panic were actually much deeper. With the end of the Civil War, the country experienced feverish, unregulated growth, especially in the railroad industry, with the government giving massive land grants and subsidies to railroad companies. Thus, the massive overbuilding of the nation’s railroads, and the overinvestment by bankers of depositors’ funds in the railroads laid the foundation for the Panic and the depression that followed. A full economic recovery was not seen until 1878-79.