Brief Financial Notes Based on 1875-1907 (1)

The crisis of 1873 was felt in its full force on the New York Stock Exchange, which was obliged to close for two days at the height of the panic in order to stem the tide of liquidation in securities.

The economy is in fact over-expanded, particularly in railroad construction, and the weak link turns out to be the banking house of Jay Cooke and Company, which helped the U.S.Government finance the Civil War and also underwrote the construction of the Northern Pacific Railroad.

1874
The depression that began last year begins to abate, but jobs and food are still scarce. Early in the year a grasshopper invasion in the Middle West and a potato-bug blight in the East destroy most of grain, corn, and potato crops, forcing farmers to leave their homesteads in search of work. Frustrated by the inability of the political and industrial leaders to remedy their economic plight, some Americans turn to new forms of political and economic organizations for help. On June 20, Congress passes a currency act fixing the maximum amount of greenbacks in circulation at $382,000,000.

1875
On January 14, 1875 Congress passes the Specie Resumption Act, reducing the value of greenbacks in circulation from $382,000,000 to $300,000,000 and allowing the resumption of specie payment by January 1, 1879. The bill, twice before recommended by President Grant, is an attempt to balance the inflation desired in the West with the "sound money" policy desired in the East. Business slowly recovering from the depression of 1873, begins to form pools (the pre-cursor of the trust) to fix and maintain prices.

1878
The grasshoppers which had ravaged the crops in the West are now under control, and settlers begin to farm their lands again. Industry is emerging from the depression that began in 1873. Employment increases. The strikes of the previous year spur many workers to join labor unions emphasizing higher wages and shorter working hours. On February 28, The Bland-Allison Act, requiring the Government to buy between $2,000,000 and $4,000,000 of silver each month to be coined into silver dollars, is passed by Congress over President Hayes's veto. This bill is a compromise with Western farmers and silver miners who had been lobbying for the free and unlimited coinage of silver since large deposits of the metal were discovered in the West in 1876.

1879
Freedom of competition gives way to "big-business economy." As competition in industry and transportation grow, businessmen begin to fear the effect of competition on their profits, and devise ways of limiting it. The most successful device within the law is the " Trust," a form of organized business in which corporations entrust their stocks to a board of trustees, who are authorized to act for the component corporations. This device, which several businesses adopt, circumvents many state laws that greatly restrict interstate corporations. The largest and most efficient trust is that organized by John D. Rockefeller, head of the Standard Oil Trust, comprised of the major corporations engaged in refining and transporting petroleum.

The Hepburn Committee, set up by the New York State legislature, reveals that the Rockefeller interests totally dominate the oil industry, freezing out all competition throughout the entire world. The committee also reports on the chaotic situation in the railroads, revealing extensive price discrimination in different parts of the country. Small merchants and farmers begin to demand greater government regulation of private enterprise. On January 1, The Government resumes specie payments authorized by the Specie Resumption Act of 1875. Despite the fact that greenbacks are now worth their equivalent in gold, Secretary of the Treasury John Sherman, with a gold reserve of over $200,000,000, expresses doubt that there will be a rush to redeem the greenbacks.

1879-1882
With the great trade revival which followed the resumption of specie payments and the profitable grain harvests of 1879 the New York Stock Exchange entered upon a period of renewed activity. During the year 1880, which marked the climax of the "boom" of that period, trading on the Exchange reached an enormous volume, and the value of seats in the Stock Exchange rose to an unprecedented figure. In 1881, when a reaction in the tide of prosperity began, the New York Stock Exchange reflected the change by a contraction in the volume of business done and by an extensive fall in prices. Speculation by the general public was again rife in 1882, but was checked with great violence by the sudden fall in railway and industrial profits at the close of the year.

To be continued: Brief Financial Notes Based on 1875-1907 (2)

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