The Panic of 1873 began on September 18 with the failure of
the Philadelphia investment house
of Jay Cooke. Cooke had played a large role in financing the Union war
effort by marketing federal bonds to farmers and workers. After the war,
his firm had become the government's agent in financing railroad
construction. In the years between the end of the Civil War and the demise
of Cooke's firm, railroads laid 35,000 miles of new track in the United
States and became the nation's largest
employers. Eastern financial markets and railroads grew up together.1
Such businesses required large amounts of invested funds.
Cooke raised great sums through bond sales, but individual banks, including
smaller institutions, also made large investments in railroads. After the
completion of the transcontinental Union Pacific Railroad in 1869,
businessmen and politicians immediately clamored for another, to be called
the Northern Pacific. Cooke's firm worked to raise money for this project,
but economic conditions had weakened in the years since 1869. The Northern
Pacific proved less attractive to investors than had the Union Pacific.
Many railroads had overbuilt, setting the stage for ruinous competition for
freight traffic. Many investors had speculated heavily in railroad
In September of 1873 the whole venture came crashing down.
Cooke's failure drove panicked banks to demand payment of loans. Investors
rushed to sell stocks in order to protect their capital. As stocks on the New
York exchanges sunk lower, borrowers had no money
with which to pay their debts. Businessmen, many of whom had borrowed money
to expand their operations during boom times, released workers.
these economic reverses affected rural and city dwellers alike. Many
farmers had borrowed money to expand their operations during the Civil War's
boom times. But now they faced a deflationary cycle that obliged them to
pay debts in dollars that had become much scarcer, and hence more valuable,
than they had been at the time of the loan. The result was a greater
practical debt burden.
Just as the Panic of 1873 unfolded, Chicagoans had hosted an
Inter-State Industrial Exposition to call attention to their rapid rebound
from the great fire. But the depression that lasted for the rest of the
decade temporarily slowed the city's growth. Industrialists and
entrepreneurs lost fortunes. One in three workers lacked employment. Many
workers had come to Chicago in
order to take part in the city's reconstruction. Now many of these recently
arrived, single male immigrants walked the streets as tramps. Others gathered
to protest their lot.2
In 1873 Chicagoans, some Germans outraged by Republicans'
temperance legislation and some speaking for other, increasingly mobilized
groups of immigrants and workers, elected a People's Party candidate mayor
of Chicago and controlled the
city council. Native born, evangelical reformers saw the new party as an
obstacle to their goal of reforming and uplifting the poor.
Newly arrived Germans also began to organize a Socialist
Party in Chicago and published
a German-language newspaper devoted to politics and labor matters. In
December of 1873 they organized a march of five thousand unemployed upon
City Hall, where they demanded that the newly elected People's Party
administration either provide public works jobs for the unemployed or force
charitable organizations to disburse the remainder of the fire relief
funds. As in other large American cities, weeks of demonstrations followed,
which the local newspapers compared to the Paris Commune.
The city administration refused the socialists' demands,
arguing that relief would deprive individuals' of their independence and
self-respect. Instead, the mayor urged workers to take up self-help. The
socialists' electoral challenge to the People's Party failed, but they had
established themselves as a political and intellectual force in Chicago,
and would return.3
Despite the hard economic times, the United
States' western expansion continued
unabated. In 1874 the engineer James Eads completed construction of a steel
bridge spanning the Mississippi River and providing
southern Illinois with
greater access to St. Louis
markets. In the same year Joseph Glidden of DeKalb began sale of his barbed
wire, which allowed western farmers and ranchers to keep their livestock in
(or out of) enclosed pastures and fields.
As the nation pushed westward, Chicago's
business leaders began to feel uneasy about their role in it. Despite
eastern capital's large assistance in rebuilding their city, Chicagoans now
faced an ultimatum from insurance companies, demanding that the
administration significantly reorganize the city in order to address the
potential for future fires. The insurance companies demanded a ban on
wooden buildings in the city limits, a new building code, reform of the
city fire department, removal of lumberyards and other hazardous buildings
from the city, and improved water facilities. Facing the grim prospect of
trying to build a city without insurance, Chicago's
leaders acquiesced to the demands.
During the depression of the 1870s Chicago's
business leaders increasingly came to organize themselves as a political
force in opposition to the People's Party. The businessmen formed a
Citizens Association of Chicago and took it upon themselves to enact many
of the insurance companies' demands beyond the authority of the city
government. Private funds paid for the reorganization of the fire
department. The Citizens Association also took up the organization of a new
militia devoted to dispersing workers' demonstrations in the name of public
order. In response, German groups organized their own armed militia.4
In the fall of 1876 the national electorate seemed to return
the Democratic Party to the White House. The Radical Republicans' push for
a comprehensive Reconstruction of the southern states had long ago fallen
into disorganization as many northern whites turned their attention away
from the plight of freedmen in the South. In 1872 the Congress had passed
an Amnesty Act pardoning many former rebels and allowing them to re-enter
politics. In 1874 the Democrats won control of the House of Representatives
and significantly diminished Republican strength in the Senate.
In the campaign of 1876 Democrats disputed close election
returns in three southern states still controlled by Republican
Reconstruction government. They suggested that officials in South
and Louisiana had awarded
their states' electoral votes to the Republican candidate Rutherford B.
Hayes, when the popular vote had actually supported the Democrat Samuel J.
Tilden. Hayes' campaign relied upon these three states to secure a narrow
majority in the electoral college. Without them, Tilden would be president.
Democrats and Republicans agreed upon a special commission
made up of equal members of each party and a Supreme Court Justice. When it
became plain that the Justice was deciding all matters in favor of the
Republicans, Democrats' protests included talk of another Civil War. In
this atmosphere, the parties agreed upon a plan that awarded Hayes the
presidency. In return, Republicans agreed to remove the remaining federal
troops from the southern states, provide political patronage to white
southerners, and enact legislation to facilitate southern economic
development. Hayes, who had once defended the rights of black southerners,
presided over the end of Reconstruction. 5
Larson, Henrietta. Jay Cooke: Private Banker. New York: Greenwood Press, 1968.
Bogart, Ernest Ludlow. The Centennial History of Illinois: Industrial State, 1871-1893. Springfield: Illinois Centennial Commission, 1920.
Schneirov, Richard . Labor and Urban Politics: Class Conflict and the Origins of Modern Liberalism in Chicago, 1864-97. Urbana: University of Illinois Press, 1998.
Hoogenboom, Ari. Rutherford B. Hayes: Warrior and President. Lawrence: University Press of Kansas, 1995.