One of the prices we pay for the blessings of capitalism in general, and an industrial economy in particular, is a business cycle that goes the wrong way about 25 % of the time. Periodic recessions are inevitable, and history warns us that truly significant and extended downturns are possible such as the Great Recession of 2008-2009 and the Great Depression of the 1930s. The latter is still close enough in time that it’s used as a baseline for other downturns. It lasted for the better part of a decade, drove unemployment to 25% and might have persisted for years but for shift to a war time economy in the 1940s.
But the Great Depression of the 1930s was not capitalism’s first deep retreat from prosperity. America’s industrial expansion after the Civil War, especially steel, oil, and railroads, coupled with the rapid evolution of the financial markets (mostly unregulated) required to finance those hard assets ended up being a pile of dynamite…and one man lit the match.
Unlike the Great Recession of 15 years ago, the “Panic of 1873” was triggered not by several large financial entities many people had never heard of, but by one legendary financier whose efforts were responsible for financing the Union Army during the Civil War: Jay Cooke.
“The Panic of 1873—or the first “Great Depression,” as it was known at the time—lasted more than five years. It wiped out 121 railroads, destroyed more than $15 billion in value at today’s prices, and bankrupted 18,000 other businesses. Countless small-time investors who had put their hard-earned money into the speculative railroad bubble were wiped out.”
ITR Economics, often featured in this newsletter has been predicting a third Great Depression at the end of this decade. Given their excellent forecasting record, you might want to familiarize yourself with what happened 150 years ago during the first one.
Take a few minutes to learn How One Robber Baron’s Gamble on Railroads Brought Down His Bank and Plunged the U.S. Into the First Great Depression
