Panic of 1873 facts for kids
The Panic of 1873 was a big financial crisis that caused a serious economic depression in Europe and North America. It started in 1873 and lasted until 1877, but it went on even longer in countries like France and Britain. In Britain, this period led to about 20 years of slow economic growth, which people called the "Long Depression". This made Britain's economy less powerful in the world. In the United States, this crisis was known as the "Great Depression" until the bigger economic problems of the 1930s happened.
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What Caused the Panic of 1873?
The Panic of 1873 had several important causes. One major reason was too much investment in railroads. Companies built many new railway lines, especially in the United States. They borrowed a lot of money to do this. However, many of these projects did not make enough money to pay back their loans.
Railroad Boom and Bust
Building railroads was very popular after the American Civil War. People thought railroads would connect the country and create wealth. Banks lent huge amounts of money to railroad companies. But there were too many railroads being built, and not enough people or goods to use them all. This meant many railroad companies struggled to make a profit.
Banking Problems
A big event that started the panic was the failure of a major bank called Jay Cooke & Company. This bank was very important in financing railroads. When it went bankrupt in September 1873, it sent shockwaves through the financial world. People became scared and rushed to banks to take out their money. This is called a bank run. Many banks did not have enough cash to give everyone their money back, so they also failed.
Other Factors
- Too much production: Factories in Europe and America were making more goods than people could buy. This led to lower prices and less profit for businesses.
- Changes in money: Some countries, like Germany and the United States, changed their money systems. They moved away from using both gold and silver to mostly using gold. This made silver less valuable and caused problems for countries that relied on silver.
- Wars and debts: The Franco-Prussian War in Europe and the American Civil War had ended. These wars had cost a lot of money. The economic boom that followed these wars eventually led to a bust.
How the Panic Spread
The financial crisis quickly spread from one country to another. It started in Vienna, Austria, in May 1873, with a stock market crash. This event is sometimes called "Black Friday" in Vienna. Then, it moved to Germany and other parts of Europe. When Jay Cooke & Company failed in the United States, the panic hit North America hard.
Impact on the United States
In the United States, the Panic of 1873 caused many businesses to close. Factories shut down, and many people lost their jobs. Unemployment rose sharply. People who had jobs often faced lower wages. Farmers also suffered because prices for their crops dropped. The economy stayed weak for several years.
Impact on Europe
Europe also felt the effects strongly. Germany, Austria-Hungary, and Britain experienced economic slowdowns. Trade between countries decreased. The "Long Depression" in Britain meant a long period of slow growth and high unemployment. This crisis showed how connected the world's economies were, even back then.
What Happened Next?
The economic depression lasted for several years. Governments and banks tried to find ways to fix the problems. It took a long time for the economies to recover. The Panic of 1873 taught people important lessons about how financial systems work and the dangers of too much speculation. It also led to some changes in how banks and governments managed money.
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See also
In Spanish: Pánico de 1873 para niños