What Were the Causes of the 1890s Recession/Depression (Panic of 1893)?

[Bo]

Between 1893 and 1898, the U.S. was plunged into an extremely severe recession/depression and unemployment was between 12% and 18% during those six years (according to Stanley Lebergott's estimates). What were the causes of this severe economic downturn and why specifically did it end?

[k-onmmunist]

The end of a rail-powered inflationary boom.

[Bo]

The end of a rail-powered inflationary boom.

What ended the 1890s Depression though? Was it a renewed investor confidence following the Spanish-American War?

[Derek]

The only thing that ever causes economic problems is government intervention and socialism. Take 2008 fannie and freddie for example. The only reason this happened is because Clinton and the Democrats used the politics of fear to force lenders to provide loans for those who didn't qualify and couldn't pay them back. Everyone defaulted and the lenders were out of money because of big politicians in Washington. Actually, Carter started the program and Clinton put it on steroids.

For those of you who voted for Obama look this up.

2003- Bush tried to reverse the policy and the dems rejected it.
2005- McCain had his own bill to solve the problem and it didn't pass.

[k-onmmunist]

The end of a rail-powered inflationary boom.

What ended the 1890s Depression though? Was it a renewed investor confidence following the Spanish-American War?

Business cycle restarting, and the government abandoning silver.

[Bo]

The only thing that ever causes economic problems is government intervention and socialism. Take 2008 fannie and freddie for example. The only reason this happened is because Clinton and the Democrats used the politics of fear to force lenders to provide loans for those who didn't qualify and couldn't pay them back. Everyone defaulted and the lenders were out of money because of big politicians in Washington. Actually, Carter started the program and Clinton put it on steroids.

For those of you who voted for Obama look this up.

2003- Bush tried to reverse the policy and the dems rejected it.
2005- McCain had his own bill to solve the problem and it didn't pass.

I agree with you that the Democrats had some blame in the housing bubble/financial crisis. However, Republicans are just as much to blame--it was the Republicans' idea to get the Glass-Steagall Act repealed and it was a Republican Fed Chair (Greenspan) under a Republican President (Bush Jr.) that blew up the housing bubble. If it wasn't for the Republicans repealing Glass-Steagall, the recession would have been much less severe when the housing bubble popped because big banks wouldn't be able to become larger and more volitaile, and thus they would have been less prone to failture, and even if they would have failed, the U.S. economy wouldn't have went down with them. Also, Greenspan severly screwed up by making interest rates too low and keeping them that way for too long, and Bush is to blame for not stopping him/telling him to stop. If Greenspan did not lower interest rates so much and began to raise them in 2002 instead of 2004, the housing bubble wouldn't have occured. Thus, Republicans are just as much (if not more) as blame for the current financial crisis and Great Recession than the Democrats are.

[Southern Senator North Carolina Yankee]

Explanations so far are full of fail.


The main cause was the Sherman silver purchase act of 1890 which depleted Gov't Gold reserves and destroyed investor confidence for the benefit of Western and Southern farmers and miners(see how populism fails). It created a bubble by inflating the prices of silver and other minerals. The spark that set of the economic bomb was the financial collapse of the Philadelphia and Reading Railroad. This created investor panic and people rushed to cash in all kinds of assets from silver notes to stocks and exchange them for Gold backed securities causing a crash in every commodity accept gold(which skyrocketed in price and contracting the money supply becuase the dollar was still primarily backed by gold and there was of course less gold available), stocks, and of course your typical run on the banks occured. Most of the Railroads ended up bankrupt as the collapse and unwinding of the 1880's Railroad Bubble continued. The minors and famers who caused the mess by demanding Gov't intervention got f**ked as the mines closed and the homes/farms were foreclosed on. As the mines closed, more railroads collapsed which been built to serve the mines.

The crisis was solved by Cleveland borrowing gold from JP Morgan to sustain the Gold Standard, The repeal of the Sherman Silver Purchas act, and the landslide Republican victories assured investors the Gold Standard was going to stay. Lastly the Klondike Gold rush increased the amoung of Gold available, expanding the money supply.

Some of the results included the movement of many middle class families westward as they abandoned their homes, unable to pay their mortages. This created a crash in housing prices, of course entered the image of the vacant Victorian house as "Haunted House" in American culture.

It also killed populism as their primary issue, Bimetallism had caused the mess in the first place. It revived support for the Gold Standard and let to landslide GOP victories in 1894 and 1896 creating 36 years of GOP dominance broken only by the defeats caused by GOP splits(loss of Congress in 1910 and the WH in 1912).

http://en.wikipedia.org/wiki/Depression_of_1893

[Bo]

Do you think this Depression would have occured if Cleveland was reelected? I'd say No. I seriously doubt he'd sign the Sherman Silver Act of 1890.

[Marokai Backbeat]

It also killed populism as their primary issue, Bimetallism had caused the mess in the first place.

Well, that's a rather serious misrepresentation of the situation. The root cause was the Gold Standard, what made the problem worse was, instead of abandoning a backed-currency entirely, they tried to add more items to back the currency. Essentially, they went in the opposite direction, but their intentions were good.

I know you're in all likelihood not a gold standard supporter, but it should be noted that what necessitated bimetallism in the first place was the gold standard, and it's unfair to blame the populists for the problem.

[k-onmmunist]

It also killed populism as their primary issue, Bimetallism had caused the mess in the first place.

Well, that's a rather serious misrepresentation of the situation. The root cause was the Gold Standard, what made the problem worse was, instead of abandoning a backed-currency entirely, they tried to add more items to back the currency. Essentially, they went in the opposite direction, but their intentions were good.

I know you're in all likelihood not a gold standard supporter, but it should be noted that what necessitated bimetallism in the first place was the gold standard, and it's unfair to blame the populists for the problem.

Not really. The gold standard was a damnsight more stable than bimetallism which screwed up after the Franco-Prussian war and the indemnity France was forced to pay in gold. And I've explained why the gold standard works in a post on another forum that you chose to ignore.

[Marokai Backbeat]

I don't think me posting a lengthy response to it which you declined to reply to counts as "ignoring."

[Ban my account ffs!]

It also killed populism as their primary issue, Bimetallism had caused the mess in the first place.

Well, that's a rather serious misrepresentation of the situation. The root cause was the Gold Standard, what made the problem worse was, instead of abandoning a backed-currency entirely, they tried to add more items to back the currency. Essentially, they went in the opposite direction, but their intentions were good.

I know you're in all likelihood not a gold standard supporter, but it should be noted that what necessitated bimetallism in the first place was the gold standard, and it's unfair to blame the populists for the problem.

Not really. The gold standard was a damnsight more stable than bimetallism which screwed up after the Franco-Prussian war and the indemnity France was forced to pay in gold. And I've explained why the gold standard works in a post on another forum that you chose to ignore.

Why should we base our currency on an arbitrary finite resource?  Money is not a representation of how much gold you have produced.. but the total economic worth that you have produced.

With the gold standard in place you have to accept deflation as a permanent phenomenon as population and economic output grow faster than gold acquisition... unfortunately people don't look at ever-declining absolute wages in a positive light.  They want a raise even if prices are "declining" in general... so wages are stickier than prices on other consumer goods.

Don't get me wrong.. the fractional reserve system is rife with problems and we do need reform...

But ultimately the value of money should not be pegged to an arbitrary finite metal...

[Southern Senator North Carolina Yankee]

Do you think this Depression would have occured if Cleveland was reelected? I'd say No. I seriously doubt he'd sign the Sherman Silver Act of 1890.

It wasn't Cleveland's wing of the party that pushed that through and his wing was purged and he himself couldn't have competed with WJB. 1896 would have been like running Phil Gramm in 2008 on a platform of continuing the Gramm Leach Bliley act. Yes its possible that had he gotten reelected in 1888 the problem could have been prevented as he did in fact take some vary necessary measures that began the economy on the road to recovery.

It also killed populism as their primary issue, Bimetallism had caused the mess in the first place.

Well, that's a rather serious misrepresentation of the situation. The root cause was the Gold Standard, what made the problem worse was, instead of abandoning a backed-currency entirely, they tried to add more items to back the currency. Essentially, they went in the opposite direction, but their intentions were good.

I know you're in all likelihood not a gold standard supporter, but it should be noted that what necessitated bimetallism in the first place was the gold standard, and it's unfair to blame the populists for the problem.

How was the gold standard to blame? Bimetalism was the policy in place at the time. The bubble in mines and especially the Western Railways(True there was a bigger bubble underneath that in Railroads) were driven by that policy. The finacialy calamity caused when the underlying bubble collapsed created financial panic and people sold of silver in large amounts to purchase gold or exchanged Silver for Gold. This popped the Silver bubble bringing down mines and Railways.

Bimetallism may not have created the Depression of 1893, but it certianly did expand the damage and duration. Of course I blame populists for the damage they were responsible for.

We all know you have a thing for that buffoon William Jennings Bryan. At the time, Gold was the best way to have a solid currency as there wasn't a Fed to regulate it at all, for one. At the time people thought of Gold as real money and so completely dismantle the Gold standard would have destroyed confidence and the economy along with it. The memories of the inflationary economy of the civil war caused by printining of "Greenbacks" was fresh in many people's minds as well.

[k-onmmunist]

I don't think me posting a lengthy response to it which you declined to reply to counts as "ignoring."

You're thinking of the wrong thread. You accused the gold standard of being a failure to the Great Depression. I responded by arguing that it was in fact a gold-exchange standard which led to monetary imbalances which NEVER happened during the 19th century.

You, fittingly, never replied.