The Gilded Age in US history spans from roughly the end of the Civil War through the very early 1900s. Mark Twain and Charles Dudley Warner popularized the term, using it as the title of their novel The Gilded Age: A Tale of Today, which satirized an era when economic progress masked social problems and when the siren of financial speculation lured sensible people into financial foolishness. In financial history, the term refers to the era between the passage of the National Banking Acts in 1863-64 and the formation of the Federal Reserve in 1913. In this period, the US monetary and banking system expanded swiftly and seemed set on solid foundations but was repeatedly beset by banking crises.
At the time, like today, New York City was the center of the financial system. Between 1863 and 1913, eight banking panics occurred in the money center of Manhattan. The panics in 1884, 1890, 1899, 1901, and 1908 were confined to New York and nearby cities and states. The panics in 1873, 1893, and 1907 spread throughout the nation. Regional panics also struck the midwestern states of Illinois, Minnesota, and Wisconsin in 1896; the mid-Atlantic states of Pennsylvania and Maryland in 1903; and Chicago in 1905. This essay details the crises in 1873, 1884, 1890, and 1893; this set includes all of the crises that disrupted or threatened to disrupt the national banking and payments system. A companion essay discusses the Panic of 1907, the shock that finally spurred financial and political leaders to consider reforming the monetary system and eventually establish the Federal Reserve.
The Panic of 1873 arose from investments in railroads. Railroads had expanded rapidly in the nineteenth century, and investors in many early projects had earned high returns. As the Gilded Age progressed, investment in railroads continued, but new projects outpaced demand for new capacity, and returns on railroad investments declined. In May and September 1873, stock market crashes in Vienna, Austria, prompted European investors to divest their holdings of American securities, particularly railroad bonds. Their divestment depressed the market, lowered prices on stocks and bonds, and impeded financing for railroad firms. Without cash to finance operations and refinance debts that came due, many railroad firms failed. Others defaulted on payments due to banks. This turmoil forced Jay Cooke and Co., a notable merchant bank, into bankruptcy on September 18. The bank was heavily invested in railroads, particularly Northern Pacific Railway.
Andrew Jalil, “A New History of Banking Panics in the United States, 1825-1929: Construction and Implications,” 323.
Charles Hoffman, The Depression of the Nineties, 109. Elmus Wicker, Banking Panics of the Gilded Age, 16.
Calomiris, Charles W., and Gary Gorton. “The Origins of Banking Panics: Models, Facts, and Bank Regulation.” In Financial Markets and Financial Crises, 109-74. ed. R. Glenn Hubbard, Chicago: University of Chicago Press, 1991.
Carlson, Mark, “Causes of Bank Suspensions in the Panic of 1893,” Federal Reserve Board of Governors, 2011. http://www.federalreserve.gov/pubs/feds/2002/200211/200211pap.pdf.
Grossman, Richard S. “The Macroeconomic Consequences of Bank Failures under the National Banking System.” Explorations in Economic History 30, no. 3 (1993): 294-320.
Jalil, Andrew J. “A New History of Banking Panics in the United States, 1825-1929: Construction and Implications.” American Economic Journal: Macroeconomics 7, no. 3 (July 2015): 295-330.
Kemmerer, E. W. “Seasonal Variations in the Relative Demand for Money and Capital in the United States.” National Monetary Commission Doc. 588, 1910. https://fraser.stlouisfed.org/title/633
Sprague, O. M. W. “History of Crises under the National Banking System.” National Monetary Commission Doc. 538, 1910. https://fraser.stlouisfed.org/title/653
Twain, Mark, and Charles Dudley Warner. The Gilded Age: A Tale of Today. Hartford, Conn.: American Publishing Company, 1873. [Online at Project Gutenberg: http://www.gutenberg.org/files/3178/3178-h/3178-h.htm]
Wicker, Elmus. Banking Panics of the Gilded Age. New York: Cambridge University Press, 2000.
Wicker, Elmus. The Great Debate on Banking Reform: Nelson Aldrich and the Origins of the Fed. Columbus, Ohio: Ohio State University Press, 2005.
Written as of December 4, 2015. See disclaimer.