Bill Brown bio photo

Bill Brown

A complicated man.

Twitter Github

A Look at the Causes of the 1893 Depression

In his last address to Congress, President Benjamin Harrison wrote, "There has never been a time in our history when work was so abundant, or when wages were as high, whether measured by the currency in which they are paid, or by their power to supply the necessaries and comforts of life." 1 The president gave that message in early 1893. By September of that same year, The Commercial and Financial Chronicle could write:

"The month of August will long remain memorable as one of the most remarkable in our industrial history. Never before has there been such a sudden and striking cessation of industrial activity. Nor was any section of the country exempt from the paralysis; mills, factories, furnaces, mines nearly everywhere shut down in large numbers, and commerce and enterprise were arrested in an extraordinary and unprecedented degree. … [H]undreds of thousands of men [were] thrown out of employment." 2

Why had the economic situation changed so drastically? We must assume that Harrison was not delusional and that The Commercial and Financial Chronicle was not engaging in wild hyperbole later that year. What circumstances wrought such devastation?

That is the target for this essay. The situation addressed by The Commercial and Financial Chronicle was the initial shocks of a nearly four year depression that rocked the American economy from 1893 to 1897. Almost totally overshadowed by the Great Depression, the Depression of 1893 has been nearly forgotten by recent generations. Historians, too, have neglected this depression out of any proportion of its importance. Although there have been a few recent scholarly works on this depression, most of the available literature dates from the turn of the century through the fifties.

Each successive look at the 1893 depression takes a different point of view as to its causes. The entire literature can also be seen as a progression. Later works take the earlier works conclusions and rebut or amplify them as the case may be. Then, other historians examine those later works and so on. In this essay, I will explore the back-and-forth historical comment on this subject with an eye towards understanding the catalysts that started the reaction and influenced its severity.

In studying the literature, I have formed two generalizations. First, the literature can be divided into four periods: the early works (pre-World War I), the Great Depression-era works ('20s and '30s), the socio-political histories ('50s and '60s), and the quantitative histories ('70s). As I step through these categories later, I will explain why they were chosen. Second, there is a separate discussion that runs parallel to the above historical schematic. A number of economists and economic historians have written scholarly accounts that rarely comment on or note the traditional histories of the period. However, that vigorous debate lies beyond the purview of this essay since it requires a specific understanding of business-cycle theory, monetarism, and Keynesian economics which I cannot possibly provide in such a limited space. The economists' treatment of the depression of 1893 would merit a historiographic essay in itself. 3

Henry Steele Commager described the 1890s as a "watershed" period. 4 Of the events in that decade, none had a greater significance than its depression. The depression marked a turning point in American history—a clear transition to the modern era. First, it was the most serious depression then suffered. Second, the depression rocked the populace's sensibilities. As David Danbom put it, "[t]he moral, the immoral, and the amoral alike were plunged into economic despair." 5 No longer could people believe that a life of virtue would necessarily reward one materially. For Richard Hofstadter, the depression was a "searing experience," one which caused "younger Americans … to feel that it would be their fate to live in a world subject to all the familiar hazards of European industrialism." 6 Third, it set off a powder keg of labor strife. From the Pullman strike of 1894 (which pushed Eugene V. Debs to national prominence among other things) to the various industrial "armies" scurrying about the country, labor proved more restless than ever before. Finally, related to these last two items, the depression of 1893 touched off the progressive movement. It served to concentrate attention on the ills (or perceived ills) of society and their remedies. Two of the issues most focused on by this nascent movement were tax reform and "corporate arrogance": certainly two of the linchpins of the progressive movement. 7

What happened during those four years that made such an impact? Before we examine the historical commentary on the depression, let's explore the contours of the depression. It will be helpful to establish reference points on which all the works agree. This essay's scope makes a complete account of the necessary historical context impossible, but a brief sketch of the highlights should suffice for our purposes.

The nineties started with another episode in the ongoing, post-Civil War attempt to convert the currency to bimetallism. With the passage of the Sherman Silver Purchase Act of 1890, the Treasury was required to purchase 4.5 million ounces of silver every month and issue Treasury notes redeemable in either gold or silver at the discretion of the Treasury Department. The amount of silver, fixed by statute, constituted the total U.S. production of silver at that time. 8 This represented a significant step beyond the Bland-Allison Act of 1878, which required the Treasury to purchase a minimum of $2 million in silver each month and coin it into silver dollars. These silver dollars could be stored or circulated, depending on fiscal demands. 9 The difference between these two pieces of legislation, aside from the indicated quantities of silver to be acquired, is that the Sherman Silver Purchase Act did not mandate the coinage of the silver purchased. By paying for the silver with currency redeemable in gold, the Sherman Act represented a tremendous potential liability on the Treasury's net gold reserve which stood at $190.2 million in June 1890. 10

Internationally, the economic situation at the start of the nineties was turbulent. The great English banking house of Baring Brothers failed in 1890 after speculative loans it had underwritten went bad. The loans were used to finance investments in Argentina, whose incredible wheat crops had encouraged rampant English speculation. The crop of 1890 turned out to be a dismal failure, making Argentinean securities worthless. 11 The collapse of Baring Brothers caused a panic in Great Britain, necessitating recall or liquidation of British investments and a consequent outflow of gold from the United States. In addition to the specie movement, the Baring crisis stanched British investment in foreign securities generally. British investors became reluctant to subscribe to new foreign stock issues, no matter the safety or stability of the underlying company.

After the Civil War, the railroads expanded their operations prodigiously, increasing their trackage 30,000 miles. 12 During the 1880s alone, almost 74,000 miles of track were added. 13 As they increased their trackage, passengers and freight shot up. The railroads' profits boomed as well. This made them very attractive investments—a sure thing. Investors, both domestic and foreign, flocked to the railroads' securities and their capitalizations soared, enabling further expansion. This expansion continued until the capital streams started drying up. By 1894, new track construction dropped to half its 1892 levels. Gross earnings dropped $145 million in 1893-4. 14 Even more telling, 192 railroad companies went into receivership by 1894 including such important lines as the Philadelphia and Reading, the Erie Railway, the Union Pacific, the Northern Pacific, and the Atchison, Topeka, and Santa Fe. 15 The reorganization of all these huge railroads became a herculean task precisely when the country could least absorb it due to investors' panicked shift from securities to bonds and the newfound British aversion to foreign securities.

The Treasury's gold reserve stood at $190 million in 1890, as stated previously. The legal floor for the gold reserve was $100 million—the Treasury secretary could not issue additional gold certificates if the reserve dropped below that minimum. With the enactment of the Sherman Silver Purchase Act, legal-tender Treasury notes began circulating. In the years between the Bland-Allison Act and the Sherman Act, an insignificant amount of gold was paid by the Treasury for redeeming legal-tender notes. After the Sherman Act, gold was siphoned out of the Treasury through hoarding by individuals, withdrawals by British interests as already noted, and redemption of the Treasury notes to the point where, in June 1892, the net gold reserve had been depleted down to $114 million. 16 In July 1892 alone, $10 million in gold had been removed from the Treasury (more in that month than in any previous year) and only $1.5 million of it in the form of gold certificates! Since the law directed the Treasury to reissue these Treasury notes upon redemption, the continued depletion of the gold reserve was a certainty. 17

This is the economic context in which Grover Cleveland entered his second administration. The gold reserve stood at just under $101 million on Cleveland's inaugural 18 and had dropped to $95 million just three months after Cleveland took office. 19 Cleveland pledged to devote his energies to securing a repeal of the Sherman Silver Purchase Act to end the drain on the Treasury. The repeal measure easily passed the House of Representatives in August 1893, but encountered resistance in the Senate due to the greater power there of the silver-state senators. The repeal was finally enacted on October 30. By this time, however, the damage had already been done since extant Treasury notes still obligated the reserve. 20

As if the drain on the Treasury by the notes were not enough, the government was also operating at a deficit in 1893. The Sherman Silver Purchase Act of 1890 was passed because of a compromise the Republicans thought necessary in order to secure passage of the McKinley Tariff of 1890, which eliminated the sugar tariff and increased many others in order to eliminate imports. 21 In an effort to reduce the surplus of over $105 million, Congress at that time increased spending as well. Over the course of the next three years, Congress increased pension expenditures by over $71 million and military outlays by over $115 million. 22 Where the government had a surplus in 1890, it had a deficit of $38 million by 1893 forcing the government itself to draw from the gold reserve.

The nation's banking industry was also straining to stave off ruination. The New York banks, which acted as reserves for smaller interior banks since they paid dividends, had far too much of their money tied up in call loans for speculation on the stock market. 23 When the smaller banks started requesting their payable-on-demand reserves, the New York banks started recalling their loans. Investors holding these call loans were then forced to liquidate their securities. When the stock market could not absorb the influx of securities or the stock prices were depressed by supply, the speculator defaulted. As more and more investors did so, the New York banks had difficulty meeting the interior banks' requests. This led to a widespread suspension of payments and bank failures—573 financial institutions failed in 1893 alone. 24

When the gold reserve dropped below the $100 million mark and continued falling, President Cleveland and his Secretary of the Treasury, John G. Carlisle, realized that desperate measures were necessary to save the gold standard. In February and November 1894, Secretary Carlisle issued two sets of 5% 10-year bonds with a face value of $50 million each. Both sales called for subscriptions in gold and both yielded over $58 million. 25 These additions to the gold reserve proved illusory since the gold for these subscriptions was acquired through redemption of Treasury notes. Carlisle realized that these bonds could never stave off the gold drain and would only serve to increase the government's indebtedness.

The administration's gold crisis was finally averted with the assistance of a banking syndicate led by J.P. Morgan and Augustus Belmont. The syndicate offered to sell to the Treasury $65 million worth of gold in exchange for an equivalent amount of 4% thirty-year government bonds at a price of $104 1/2—an extremely undervalued bond. In addition, the syndicate agreed to pay for the bonds with gold from outside the Treasury (at least half of which was to be obtained abroad) and to guarantee that the gold would not be withdrawn from the Treasury until all of the gold was delivered. 26 While this by no means solved the gold problem, it did restore the public's confidence that the Treasury was not in imminent danger. 27 Another bond issue, this time publicly announced and subscribed to, was floated in January 1896 for the amount of $100 million. By this time, however, the Treasury had significantly expanded its supply of Treasury notes, thereby limiting the amount available to the public. 28 This issue did the trick, shoring up the gold reserve through the remainder of the depression.

With the context necessary for examining the literature of the depression of 1893 established, we can now look at the first of the groupings of historical works: the early period. Historical perspectives began almost immediately after the events of 1893 with Alexander D. Noyes' article "Banks and the Panic of 1893," which appeared in Political Science Quarterly's March 1894 issue. Noyes begins his article by stating that the most serious question to answer is "how far, if at all, defective bank management was responsible for the collapse" 29 because he believes that two previous large panics, in 1837 and 1857, were due to bank mismanagement. He argues that, although banking practices had largely changed for the better since these banking panics, three policies were still powerful enough to be disruptive: the use of deposits rather than capital for operations, the practice by Western banks of storing three-fifths of their required 15% reserves in New York banks, and the practice by these New York banks of lending the Western banks' reserve funds to the capital markets through demand loans. 30

He condemns each of these practices as irresponsible. However, their impact was amplified because of the instability of the nation's currency. For Noyes, the money supply acts as a check on recklessness. With the inflation of the money supply by paper currency, banks had more money to lend and made imprudent loans to shaky borrowers. 31 In the final analysis, Noyes finds it hard to assign blame: "The facts undoubtedly make it hard to say exactly how far the banks as a whole were culpable in this inflation process, or how far they were themselves victim of outside circumstances." 32

Noyes' next articles, "The Financial Record of the Second Cleveland Administration. I and II," appeared in the June and December 1897 issues of Political Science Quarterly. They offer an analysis of the second Cleveland administration's finances mere months after the inaugural of William McKinley. His appraisal of that administration can be indicated by a political maxim he cites in the first article: "… the administration in power during a period of hard times goes down to history with a heavy charge against it." 33 After providing an account of the McKinley Tariff and Sherman Silver Purchase Act's effects on the Treasury, Noyes lightens the charge of history thusly:

"The salient fact remains that this administration preserved the public credit under conditions which made such preservation apparently no longer possible. It inherited a treasury fast approaching bankruptcy, with the revenue and currency governed by two of the most reckless laws ever placed on our statute books. It was confronted immediately with wreck of the country's commercial system, a situation needing the most prudent and public-spirited legislation. … In the face of odds such as this, with the help only of laws conflicting in themselves and framed by makers of double-meaning compromises, the second Cleveland administration overthrew the most mischievous legislation of 1890, maintained the currency against depreciation and saved the treasury from bankruptcy." 34

From his coverage of the Treasury's gold reserve and the government's deficit spending, it appears that Noyes believes government actions to be more pernicious than he indicated in his article on banking. That said, he explicitly does not believe that "the panic of 1893 result[ed] wholly from the legislation of the Fifty-first Congress [that passed the tariff and silver legislation in 1890]." 35

Noyes argues that the panic of 1893 was caused by a large, unusual trade imbalance. In the nine months ending March 1893, exports had fallen over $163 million from the previous year's figures. Where exports had exceeded imports by over $209 million in the nine months ending March 1892, imports topped exports by $47 million in the same period of the following year. This caused gold to leave the country in large quantities—nearly $35 million in the nine months ending March 1893. 36 Had the Treasury possessed or obtained enough gold, it could have weathered the storm. Unfortunately, Noyes notes, "… the revenue and appropriation laws of the Harrison administration … brought the government, when the blight of panic fell upon the nation's trade, to the verge of bankruptcy." 37 Noyes argues, then, that where the actual economic crisis was precipitated by depressed trade, the panic ensued when the government seemed incapable of averting disaster.

Theodore Burton's book Financial Crises and Periods of Industrial and Commercial Depression was published in 1902 and the author does not appear to have been familiar with Noyes or his arguments. Burton argues that the crisis of 1893, more so than any previous crisis, was affected profoundly by the withdrawal of foreign investments brought about by foreign investors "distrust of our currency." 38 Furthermore, Burton also concludes that the crisis' severity was increased by the transfer of power from Harrison to Cleveland. Or as he puts it, "the threat of radical change in the tariff laws caused wide-spread distrust, and tended to create uncertainty and destroy confidence." 39

Burton seems to believe that the panic of 1893 was caused primarily by psychological factors. Burton's states, in the chapter entitled "Causes of Crises and Depressions," that "… we may eliminate from the list of responsible causes, different economic or fiscal regulations established by custom or government policy." 40 Then, from lack of confidence shown by the foreign investment withdrawal and fears of tariff changes, he extrapolates the general principle that "one of the most dangerous factors [in causing crises] is a radical change in fiscal or economic policy … [or e]ven a threat of such radical change." 41 The ascension of Cleveland to the presidency and the implementation of his program of tariff and currency reform provided just such a threat of "radical change" that led to the economic meltdown that lasted until 1897. Nowhere does he elaborate a schedule by which events proceeded from cause to effect. In the end, Burton's simplistic analysis of the causes of the depression could be dismissed as ludicrous and insignificant had it not informed the analysis of Otto Lightner's History of Business Depressions, to be discussed later, which was cited by a number of later works as a resource.

In 1909, Alexander Noyes authored Forty Years of American Finance, an update to his 1898 Thirty Years of American Finance. In his later book, he develops more fully his argument presented in his three articles—adding narrative detail to previously dry analysis. His articles about the banks and the federal finances omitted one key participant: the populace. This book reintroduces the public into the discussion by showing the role of the people in driving the economic events described earlier. Noyes' narrative is what Burton unsuccessfully attempted; he shows how the people's perception of an impending bankruptcy of the Treasury or a scuttling of the gold standard worsened the economic situation. As he described it, "[p]anic is in its nature unreasoning; therefore, although the financial fright of 1893 arose from fear of depreciation of the legal tenders, the first act of frightened bank depositors was to withdraw these very legal tenders from their banks." 42 At the same time, though, he notes that "experience had taught depositors that in a general collapse of credit the banks would probably be the first marks of disaster." 43 Part of the Treasury's problem was precisely this tendency of individuals to hoard any gold or legal tender they could accumulate.

The public was also shaky about the stability of the gold standard. On April 15, Secretary Carlisle announced that issue of Treasury gold certificates would cease until the $100 million minimum in the gold reserve was met. Noyes notes that this was just an announcement in accordance with statutory requirements. By April 17, a rumor circulated in financial circles that Carlisle was about to order redemption of the Treasury notes in silver coin instead of gold. 44 He tried to stop the rumor by stating that the notes had been redeemed in gold and that "he will continue to do so as long as he has gold lawfully available for that purpose." 45 The run on gold continued unabated because of this statement, thus illustrating the role of the public's perceptions in the events of the panic.

Davis Dewey's weighty Financial History of the United States appeared in the same year as Burton's uneven text. Dewey's book, in commenting on the panic of 1893, draws primarily on Noyes' Thirty Years of American Finance, which he deems to be "of special value" for the period. 46 The debt Dewey owes to Noyes' is patent in the former's treatment of the causes of the depression of 1893. Dewey covers much the same ground as Noyes in tracing the consequences of the McKinley Tariff and the Sherman Silver Purchase Act, but notes that the "enactment of these two important measures … within a few weeks of each other, makes it hard to analyze the financial situation; nor can the effects of either act be traced to their proper cause." 47 Dewey explains the difficulty: "The revenues declined more than was anticipated and commercial disturbances caused an increased exportation of gold which led to the presentation of treasury notes for redemption in gold: the net assets of the government were reduced; and the quality of the assets was changed. Almost without warning the condition of the treasury gold reserve assumed the highest importance, and its ups and downs were daily watched for and discussed with feverish interest by bankers and moneyed interests." 48 The repeal of the Sherman Silver Purchase Act did little to stem the panic since "[s]o far as the treasury was concerned, the mischief had been done…." 49

Dewey also examines two of the common arguments made for the causes of the panic of 1893. First, many argued that the Treasury should have used the $300 million of silver bullion accumulated under the provisions of the 1890 silver-purchase law to make coin. 50 To this Dewey argues that "[t]here was a contract morally binding upon the government and possibly legally binding, to pay gold to the holder of every legal-tender note…." 51 Most holders of legal-tender notes sought gold in redeeming them; anything less would have caused even greater panic. The second argument he addresses found the panic of 1893 to have been caused by a conspiracy of bankers and capitalists who aimed to make a profit through the further issue of bonds eminently favorable to themselves. This same argument, ludicrous in its present form, reappears in later works in a more sophisticated version, as we shall see. Dewey dismisses this argument by stating that "the secretary was under obligation to borrow money to protect the credit of the nation…." 52

The last of the so-called early works we will examine is Otto M.W. Sprague's oft-cited work History of Crises under the National Banking System. He states his position on the causes quite clearly:

"The crisis itself was a result of complex causes, among which the money situation was by no means certainly the most important. This is especially true of the causes of the long years of depression which followed its outbreak. Among these causes may be mentioned unremunerative prices for agricultural staples, and the heavy load of farm-mortgage indebtedness; also railway receiverships, which were due to the oversanguine estimates of the future and reckless financing of the wildest sort. Even the unsatisfactory banking position at the time of the crisis seems to have been far less a product of monetary conditions than has been usually supposed." 53

Sprague takes great pains to show that the panic of 1893 was not caused by monetary conditions alone, including the assertion that the "outflow [of gold] was due to a number of causes and not a simple result of the silver-purchase law, as some zealous advocates of the gold standard were inclined to argue." 54 Furthermore: "…the opinion may be ventured that the silver issues were not an important factor in determining either the course of trade or the operations of the banks during the period which preceded the crisis of 1893." 55 Sprague, though he does not mention him by name, disagrees with Noyes' assessment of the importance of the Sherman Silver Purchase Act in bringing about the panic of 1893.

The "unsatisfactory banking position" mentioned in the quotation above resulted in widespread bank failures. Sprague believes, again, that "[d]istrust of the solvency of the banks rather than dissatisfaction with the circulating medium was clearly the direct cause which brought about runs upon banks and the numerous failures and suspensions." 56 The cause of the panic of 1893, as distinct from the depression that lasted until 1897, was imprudent loans and low reserves.

So ends the early commentary on the causes of the depression of 1893. This body of work, all produced by 1910, formed the basis of later studies. The next collection of books, which I call the Great Depression-era works, were written just before or during the Great Depression. This gives them a perspective distinct from the works preceding them. In the years between these two periods, the political, cultural, and economic landscape changed dramatically. Government had taken on a more modern appearance with the creation of the Federal Reserve System and the institution of an income tax. Culturally, the nation was gripped by all manners of collectivism. Finally, the economic theories of John Maynard Keynes were becoming widely accepted. All three of these changes represented a marked departure from the traditional American ideals of individualism and limited government.

The first of the post-World War I accounts under examination is Otto Lightner's History of Business Depressions in 1922. Lightner views depressions as "periods of economic distress when want, poverty, and unemployment set the minds of men to thinking" about "[g]reat changes in government, leading to the emancipation of mankind and to the democracy which exists today…." 57 Lightner seems to agree with Noyes et al. when he states: "The 1893 crisis largely revolved around the money question so that a review of the financial and currency problems of the period gives the cause and effect of the depression." 58

I say he "seems" to agree because Lightner soon abandons Noyes' arguments. "It was apparent that the banking facilities were too weak to support the volume of business in the country entirely outside of the money question," he writes. "Had there not been an over-expansion of credits the money question would probably not have entered into politics and economics at that time." 59 Here Lightner seems to be concurring with Sprague's theory of bank mismanagement. Unfortunately, he shortly returns to Noyes' theory of causation: "Business began to be depressed because of the prevailing doubt as to the power of the government to maintain gold payment of all this paper money if presented for redemption" and "Fear was in the minds of the people that we might fall to a silver standard because of our low gold reserve and the large ratio of silver being coined. [sic]" 60

Lightner's book embodies the transition from traditional explanations for depressions to modern ones. Where Noyes and Sprague found the source of the crisis in monetary instability, Lightner dismisses their naivete.

"The most valuable thing, therefore, in the business world, is not money, not gold, but confidence. Gold is valuable because of the universal confidence in that metal. Outside of its scarcity, it has little practical value. In fact, gold is like everything else, even the commonest thing, in that in times of great production it has become cheap and its buying power lessened.

As we examine the pages of history we find that prosperity and depression have come during every kind of money condition. In spite of all that has been said and written on the money question as affecting panics and depressions, we are coming to realize that we have been chasing false causes. The indisputable fact is that we have had prosperity when we have had confidence, and we have had depression when there developed lack of confidence. Today all great countries of the world … are on a gold basis, yet civilization does not use gold currency in its trade between individuals, and we do not care for gold. If it is tendered we almost invariably pass it back, preferring paper. Why? Confidence in the paper. And while the paper is mostly redeemable in gold we know that there is not anywhere near enough gold to redeem all the issues." 61

This represents a definite sea change in the literature on the depression of 1893. Lightner is effectively arguing that the gold reserve was insignificant, that the tariff was unimportant, and that the trade imbalance was trivial, except insofar as they undermined confidence. Had the people maintained confidence, the panic of 1893 would never have happened. To be sure, the psychological state of the public did have some impact on the events of 1893—previous historians always accounted for that. Where earlier historians relegated human agency to the background, Lightner wants it front and center.

Matthew Josephson's The Robber Barons, a polemical history of industrialists, was published in 1934—deep into the Great Depression. This book treats the depression of 1893 only briefly, but his prose is pregnant with meaning and import. For Josephson, "[disaster] comes, though the whole continent still cries out for productive enterprise, because those who lead in such enterprise have no further wish to produce or to construct." 62 The industrialists get to this point, according to Josephson, because they "over-save." Instead of spending their accumulated wealth, the capitalists hoard it or reinvest it back into their enterprises. Thus they expand their productive capacity without increasing the ability of the public to purchase the output of their increased capacity. At some point, these industrialists decide that prices and wages are too high and so cease their capital investment. To demonstrate the effect of this cessation, Josephson quotes J.A. Hobson:

"The true excess shows itself in the shape of idle machinery, closed factories, unworked mines, unused ships and railway trucks. It is the auxiliary capital that represents the bulk of oversupply, and whose idleness signifies the enforced unemployment of large masses of labor. It is machinery, made and designed to increase the flow of production of goods, that has multiplied too fast for the growth of consumption." 63

In the depression of 1893, Josephson finds this "over-investment" in the doubling of railroad indebtedness and the increase of industrial combinations. Their "underconsumption" made depressions "deeper and more lasting." 64

It is difficult with Josephson to pinpoint exactly the process by which an industrialist's "over-saving" redounds on the economy so as to produce a depression. As best as can be determined, his arguments appear to have been informed by the theories of John Maynard Keynes, viz., consumption is the driving force of the economy and saving is bad for the economy. No matter the exact nature of the causes. The important thing to note is its sharp differentiation from the analysis of Noyes, who is cited in the book's bibliography. Where Lightner introduced the public within the framework of economic analysis, Josephson dispenses with economic analysis altogether in order to focus on the effects of entrepreneurs on depressions. His goal, in true Depression-era form, is to show that the industrialists deserved not panegyric but opprobrium. If his strokes might be a little broad, it is of no concern to him so long as the painting comes out right.

After these Great Depression-era works, a spate of historical literature popped up in the fifties and sixties. These works were much more rigorous in their historical scholarship than earlier works and their focus was different, too. I describe this group as the "socio-political histories" because they concentrate on the social and political impact of the depression. They also largely find social and political factors causally significant.

The first of these works amounts to the best social history of the period. Samuel Rezneck's article "Unemployment, Unrest, and Relief in the United States during the Depression of 1893-97" examines the labor unrest generated by the massive unemployment. It also briefly surveys the likely causes of the financial panic of 1893. First Rezneck dismisses the contemporary reactions of Henry Adams, who believed the panic to be a Wall Street conspiracy "to rob and oppress and enslave the people," and J.W. Schuckers, who alleged conspiracy between Cleveland and the banks ("The South and West—the tributary sections—were being taught that they have a master in Wall Street"), as injudicious. 65 Then he moves on to more reasonable contemporary accounts who believed that the panic was either "another stage in a long period of depression, dating from 1873" 66 or the consequence of bank malfeasance. 67 As to the depression itself, Rezneck attributes it to "accumulated social and economic pressures and tensions." 68 Unfortunately, since his article concentrates on the social ramifications of the panic and ensuing depression, that is as far as he goes in elaborating his view of the causes of the depression.

Harold Faulkner's lengthy study of the nineties, Politics, Reform and Expansion, devotes an entire chapter to the depression. He cites as sources Rezneck's article, Charles Hoffman's dissertation and article, Sprague's book, and Noyes' Forty Years of American Finance. In his obligatory survey of causes for the depression, he starts by saying that "there was no agreement as to the causes of the depression; one's explanation depended on one's political predilections." 69 He then proceeds to examine the different persuasion's appraisals of the causes. Conservatives, he says, attributed the panic to the Sherman Silver Purchase Act, which undermined confidence in the gold standard, and "radical attacks on property." 70 Labor leaders and agrarian radicals both ascribed the depression to capitalists and their greed. Samuel Gompers, president of the American Federation of Labor, said that had labor's demands been addressed, "it is safe to say that the panic of 1893 would have been averted, deferred, and certainly less intense." 71 Agrarian radicals argued that it was silver that precipitated the panic—because the capitalists had refused to enact the free coinage of silver. Democrats and Republicans, he continues, blamed each other for causing the depression—the Democrats frightened business when their platform included tariff reform and Republicans' laws were still in effect at the onset of crisis. He notes, though, that some contemporary pundits saw the depression as the finale of long chain of events and that responsibility for the depression could not be easily placed on the shoulders of any one group. 72

Faulkner then begins an exposition of his own views on the causes by noting that "in retrospect it is possible to distinguish a number of deeper causes of the depression." 73 First is an industrial expansion "far beyond the market demand," especially in the railroad sector. Railroad expansion "was dictated not by any reasonable estimate of traffic possibilities but by the pressure of competition; each road recklessly and hastily threw up lines that were not needed, through miles and miles of uninhabited wilderness, merely to insure that another road would not claim the territory first." 74 This railroad "bubble" must ineluctably burst, according to Faulkner, and because "economic activity in the United States had reached a new stage of interdependence, … a weakness in the very heart of the system unavoidably enfeebled the rest." 75 With the collapse of the railroads came the collapse of the steel industry, the stock market, and the banking system.

Another noteworthy cause of the depression was agricultural sector, which was enjoying a wide-ranging depression in prices. He notes that, by 1890, agriculture's share of the national wealth had fallen five percent from 1880. 76 To Faulkner, this represented a marked drop in purchasing power in a sector that had traditionally been a source of national economic strength. Its hard times impacted the rest of the nation because of the aforementioned economic interdependence.

The final cause Faulkner examines is the foreign panic brought about by the collapse of the Baring Brothers banking house which brought about the previously-mentioned liquidation of English investments in American corporations. According to Faulkner, "the withdrawal of foreign capital at a time when American industries were overexpanded was probably the immediate cause of the crash … expos[ing] weaknesses that were already present." 77

A brief inquiry into the causes of the depression can also be found in J. Rogers Hollingsworth's study of the Democratic Party during the time of Cleveland and William Jennings Bryan entitled The Whirligig of Politics. The causes of the depression were "complex," Hollingsworth believes, as does Faulkner, that "the principal factors were the agricultural slump and industrial disorders that drastically reduced the purchasing power of a large portion of the population." 78 Then he proceeds to put forth a convoluted, meandering attempt to show how these principal factors wended its way through the economy:

"These circumstances [the principal factors just mentioned] in turn caused the over-expansion of the nation's transportation and manufacturing industries to become an acute problem. Meanwhile, financial disturbances in Argentina combined with the failure of Baring Brothers in England and the collapse of banking institutions in Australia had disastrous effects on the nation's economy. As the market for American goods abroad diminished, there was a simultaneous shrinkage in foreign investments in the United States, causing a decline in trade and manufacturing. When the stock market tumbled, banks that had engaged in speculation began to close. Other banks called in their loans, drying up the stream of credit. By the end of 1893, at least five hundred banks and almost sixteen thousand businesses had declared bankruptcy." 79

Hollingsworth relies almost exclusively on Charles Hoffman's article in The Journal of Economic History on "The Depression of the Nineties." Unlike his lengthy dissertation, which was subsequently published in 1970 and will be treated on its own merits shortly, Hoffman's article is primarily an analysis of newly-available statistics from the National Bureau of Economic Research. Hollingsworth, in attempting to show the causes of the depression in a short paragraph, mixes events up in such a way as to make the cause inexplicable. This book is intended as a historical examination of the tête-à-tête between Cleveland and Bryan. Hoffman wisely omitted the thorny issue of causation and focused on his aim—Hollingsworth would have done well to do the same.

The next batch of books on the depression of 1893 showed the effects of the revolution of quantitative analysis in history. Both of these works made extensive use of statistics and statistical methods. Their questions, instead of seeking a broad understanding of the event and placing it in a larger context in order to extract greater meaning, were much more mundane. Statistical analysis within the context of a larger narrative analysis yields more meaning than is possible by statistical analysis alone.

The first of these quantitative histories is Charles Hoffman's book The Depression of the Nineties, an expanded version of his doctoral dissertation. Although it belongs more properly in the economists' discussion, it is the most comprehensive work on the depression—drawing from most of the works I have examined and cited by all that follow it. It lays out in exhaustive detail the contours of the depression that I treated only cursorily. Hoffman examines the makeup of the gross national product, the patterns in investment activity before and during the depression, and innumerable other economic parameters. In so doing, Hoffman shows how "the depression … emerges as a period of intense dislocation occasioned by the unhappy conjuncture of domestic and foreign economic forces shaped during the transformation of the economy." 80 His account of these two coexistent forces does not add anything over earlier works, except to flesh them out in greater detail.

Historiographically, his bibliographic essay at the end of the book is extremely comprehensive. Regarding the works we have already examined, he offers many interesting comments. For example, he calls Burton's account of the depression "accurate but shallow" and Lightner's analysis "superficial." 81 Sprague's book, according to Hoffman, is "an excellent treatment of the financial aspects of the depression" offering "a first-rate account and analysis of the monetary and banking factors at work." 82 Finally, Hoffman lauds Noyes for "bring[ing] to bear an insightful grasp of economic events to give fuller meaning to the economic developments" by providing "the quantitative and qualitative framework for a keener understanding of the period." 83

The second and last of the quantitative histories written during the 1970s was Samuel McSeveney's The Politics of Depression. This book examines the political fortunes of the Democrats and Republicans in the northeastern United States during Cleveland's second administration through statistical examination of election data. He offers a brief account of the highlights of the depression before he shows the political advantage of the depression to the two political parties. As he puts it, "to a considerable extent, the rival parties linked the functioning of the private economy to the working of governmental currency and tariff policies, each diagnosing the nation's economic malaise as a result of opposition policies and prescribing its own policies as economically restorative." 84 McSeveney argues that "the factors contributing to depression and those that would contribute to recovery were far more complex than the analysis of either party showed…." 85 Unfortunately, no clues are given as to what these complex factors might be, but since his sources for this section are Hoffman and Rezneck, McSeveney must mean those cited earlier.

Since the seventies, two other works have appeared that defy categorization. The first is H. Roger Grant's Self-Help in the 1890s Depression, published in 1983. 86 This little book examines the efforts of farmers and labor to ameliorate their situations through the community gardens, labor exchanges, cooperatives, and farmers' railroads created by these groups in the closing decade of the nineteenth century. Unfortunately, it only briefly treats the events of the depression and never ventures into causal waters.

The second of these, Democracy in Desperation by Douglas Steeples and David Whitten, merits further consideration since it is very broad in scope. The authors start their work with a historiography of the entire depression of 1893. Their survey of the historical literature is too short for the wide-ranging task they attempt—they can offer but a paragraph or two on works demanding a much lengthier treatment. They agree with Hollingsworth when he observes that "there is no adequate account of the causes of the depression of 1893-1897" 87 and proclaim that "one goal of this study is to fill that gap." 88 Unfortunately, their take on the depression does not offer anything new. Even their explanation for the source of the depression leaves a lot to be desired:

"The recession that began in 1893 had deep roots. The slowdown in railroad expansion, decline in building construction, and foreign depressions had reduced investment opportunities, and, following the brief upturn effected by the bumper wheat crop of 1891, agricultural prices fell, as did exports and commerce in general. Complaints of low profits suggest that many firms were finding it difficult to compete. These weaknesses did not translate into an inevitable contraction; there might have been an adjustment comparable to the recession of 1882-1885. But as Grover Cleveland's second term neared, the economy faced major threats from another quarter: because they threatened the gold standard, fiscal policy and the growth of inflationist sentiment spread alarm among business-men." 89

Steeples and Whitten's work, in the end, does not fill the void mentioned by Hollingsworth. It does go a long way towards understanding the social, political, and cultural impact of the depression, though, and can be considered a valuable addition to the literature of the depression for that reason.

What was the cause of the panic of 1893 and its consequent depression? There is certainly a multitude of alternatives to choose from. The economy of the late nineteenth century was undergoing fundamental changes and transformations: from rural to urban, from agricultural to industrial, from local to national and then to international. The causes listed in this essay, such as banking problems, industrial overexpansion, and currency issues, are all factors in explaining why the depression was as severe as it was. They must be included in the complete causal explanation of the depression of 1893, but they alone are insufficient. Nor does the underlying transformation of the economy suffice to account for the depression. Whatever the cause, it must explain the greatest number of factors affecting the course of the depression. A thorough explanation of the cause requires an exposition of a philosophic framework in whose context one can understand the causal mechanism. One common philosophic framework, Marxism, offered up an all-encompassing theory to explain and understand any particular historic event. It has since been thoroughly discredited and rightly so. What we as historians need is a new framework; only then will the events leading up to 1893 become explicable.

The problem of causation, then, is definitely not as simple as it appeared to be to contemporary observers, who largely blamed the Sherman Silver Purchase Act of 1890. As this historiography shows, this problem is the question that has plagued many economists and historians. An answer to that problem is definitely beyond the scope of this essay. The Hollingsworth charge rings as true today as it did in 1963.


  • Allen, Frederick Lewis. The Great Pierpont Morgan. New York: Harper & Brothers, 1949.
  • Barnes, James A. John G. Carlisle: Financial Statesman. Gloucester, MA: Dodd, Mead and Co., 1931.
  • Burton, Theodore E. Financial Crises and Periods of Industrial and Commercial Depression. New York City: Appleton and Co., 1902.
  • Commager, Henry Steele. The American Mind: An Interpretation of American Thought and Character Since the 1880's. New Haven, CT: Yale University Press, 1950.
  • Danbom, David B. "The World of Hope": Progressives and the Struggle for an Ethical Public Life. Philadelphia: Temple University Press, 1987.
  • Dewey, Davis Rich. Financial History of the United States. 11th Ed. New York City: Longmans, Green, and Co., 1931.
  • Faulkner, Harold U. Politics, Reform and Expansion: 1890-1900. New York City: Harper and Brothers, 1959.
  • Grant, H. Roger. Self-Help in the 1890s Depression. Ames, IA: Iowa State University Press, 1983.
  • Hoffman, Charles. The Depression of the Nineties: An Economic History. Westport, CT: Greenwood Publishing, 1970.
  • Hofstadter, Richard. The Age of Reform: From Bryan to F.D.R. New York: Alfred A. Knopf, 1955.
  • Hollingsworth, J. Rogers. The Whirligig of Politics: The Democracy of Cleveland and Bryan. Chicago: University of Chicago Press, 1963.
  • Josephson, Matthew. The Robber Barons: The Great American Capitalists, 1861-1901. New York: Harcourt, Brace, and World, Inc., 1962.
  • Lightner, Otto C. History of Business Depressions. New York City: Northeastern Press, 1922.
  • McSeveney, Samuel T. The Politics of Depression: Political Behavior in the Northeast, 1893-1896. New York City: Oxford University Press, 1972.
  • Noyes, Alexander D. "The Banks and the Panic of 1893," Political Science Quarterly 9 (March 1894), 12-30. ————. "The Financial Record of the Second Cleveland Administration. I," Political Science Quarterly 12 (June 1897): 189-211. ————. "The Financial Record of the Second Cleveland Administration. II," Political Science Quarterly 12 (December 1897): 561-88. ————. Forty Years of American Finance. New York City: Putnam's Sons, 1909.
  • Rezneck, Samuel. "Unemployment, Unrest, and Relief in the United States during the Depression of 1893-97," The Journal of Political Economy 61 (August 1953): 324-45.
  • Sprague, Otto M.W. History of Crises under the National Banking System. Washington, D.C.: Government Printing Office, 1910.
  • Steeples, Douglas and David O. Whitten. Democracy in Desperation: The Depression of 1893. Westport, CT: Greenwood Press, 1998.
  • Thelen, David P. "Social Tensions and the Origins of Progressivism," Journal of American History 56 (September 1969): 323-341.
  • Timberlake, Richard H. Monetary Policy in the United States: An Intellectual and Institutional History. Chicago: University of Chicago Press, 1978.


[1] Quoted in Faulkner, Harold U. Politics, Reform, and Expansion: 1890-1900. (New York: Harper & Brothers, 1959), 141.

[2] Quoted in Sprague, Otto M.W. History of Crises under the National Banking System. (Washington: Government Printing Office, 1910), 202.

[3] Those interested in such a task would do well to examine Rendigs Fels' American Business Cycles, 1865-1897 (Westport, CT: Greenwood Press, 1959), Milton Friedman and Anna Schwartz's A Monetary History of the United States, 1867-1960 (Princeton, NJ: Princeton University Press, 1963), and Joseph Schumpeter's monumental work Business Cycles: A Theoretical, Historical, and Statistical Analysis of the Capitalist Process (New York: McGraw-Hill, 1939).

[4] Commager, Henry Steele. The American Mind: An Interpretation of

American Thought and Character Since the 1880's. (New Haven, CT: Yale University Press, 1950), 41.

[5] Danbom, David B. "The World of Hope": Progressives and the Struggle for an Ethical Public Life. (Philadelphia: Temple University Press, 1987), 42.

[6] Hofstadter, Richard. The Age of Reform: From Bryan to F.D.R. (New York: Alfred A. Knopf, 1955), 166.

[7] Thelen, David P. "Social Tensions and the Origins of Progressivism," Journal of American History 56 (September 1969): 337-9.

[8] Steeples, Douglas and David O. Whitten. Democracy in Desperation: The Depression of 1893. (Westport, CT: Greenwood Press, 1998), 30.

[9] Timberlake, Richard H. Monetary Policy in the United States: An Intellectual and Institutional History. (Chicago: University of Chicago Press, 1978), 146-7.

[10] Lightner, Otto C. History of Business Depressions. (New York City: Northeastern Press, 1922), 193.

[11] Noyes, Alexander D. Forty Years of American Finance. (New York City: Putnam's Sons, 1909), 157.

[12] Noyes, 2.

[13] Faulkner, 145.

[14] Steeples, 45-6.

[15] Hoffman, Charles. The Depression of the Nineties: An Economic History. (Westport, CT: Greenwood Publishing, 1970), 63.

[16] Lightner, 193.

[17] Barnes, James A. John G. Carlisle: Financial Statesman. (Gloucester, MA: Dodd, Mead and Co., 1931), 227-8. This obligation is also discussed in Allen, Frederick Lewis. The Great Pierpont Morgan. (New York: Harper & Brothers, 1949), 99-100.

[18] Noyes, Alexander D. "The Financial Record of the Second Cleveland Administration. II," Political Science Quarterly 12 (December 1897): 562.

[19] Lightner, 193.

[20] Dewey, Davis Rich. Financial History of the United States. (New York City: Longmans, Green, and Co., 1931), 445.

[21] Noyes, Forty Years, 134-5. Noyes notes that the sugar duty brought revenue of almost $56 million, the second largest source of government revenue.

[22] Noyes, Alexander D. "The Financial Record of the Second Cleveland Administration. I," Political Science Quarterly 12 (June 1897): 196.

[23] Rezneck, Samuel. "Unemployment, Unrest, and Relief in the United States during the Depression of 1893-97," The Journal of Political Economy 61 (August 1953): 325.

[24] Dewey, 446.

[25] Ibid., 448-9.

[26] Allen, 116.

[27] Dewey, 450, notes that "the sub-treasury of New York was within forty-eight hours of gold exhaustion."

[28] Noyes, 250-3.

[29] Noyes, "The Banks and the Panic of 1893," Political Science Quarterly 9 (March 1894), 12.

[30] Ibid., 13-5.

[31] Ibid., 15.

[32] Ibid., 19.

[33] Noyes, "Financial Record. I," 189.

[34] Noyes, "Financial Record. II," 585.

[35] Noyes, "Financial Record. I," 200.

[36] Ibid., 200-1.

[37] Ibid., 200.

[38] Burton, Theodore E. Financial Crises and Periods of Industrial and Commercial Depression. (New York City: Appleton and Co., 1902), 293.

[39] Ibid., 293.

[40] Ibid., 66.

[41] Ibid., 293.

[42] Noyes, Forty Years, 190.

[43] Ibid., 190-1.

[44] Ibid., 185.

[45] Ibid., 186.

[46] Dewey, xiii.

[47] Ibid., 440.

[48] Ibid., 440.

[49] Ibid., 445.

[50] In fact, Congress attempted to force the executive to do just that in 1894 in a bill to coin the "seigniorage" (the difference between the market value of the acquired silver and the value it possessed as coined silver), blaming the crisis on lack of circulating medium.

[51] Ibid., 452-3.

[52] Ibid., 452.

[53] Sprague, 153-4.

[54] Sprague, 154.

< [55] Ibid., 162.

[56] Ibid., 169.

[57] Ibid., 7.

[58] Ibid., 188.

[59] Ibid., 189.

[60] Ibid., 192. Silver was not being coined during the panic of 1893: it was being stored.

[61] Lightner, 373.

[62] Josephson, Matthew. The Robber Barons: The Great American Capitalists, 1861-1901. (New York: Harcourt, Brace, and World, Inc., 1962), 376-7.

[63] Ibid., 377.

[64] Faulkner, Harold U. Politics, Reform, and Expansion: 1890-1900. (New York: Harper & Brothers, 1959), 141.

[64] Ibid., 379.

[65] Rezneck, 324.

[66] Ibid., 324.

[67] Rezneck put Sprague and Noyes into this category. That classification of Sprague is just but the inclusion of Noyes, presumably on the basis of his article "The Banks and the Panic of 1893" published in 1894, is not. From my previous account, it seems quite obvious that Noyes' theory underwent significant development by the time of his account on the second Cleveland administration in 1897 and further revision in his 1898 and 1909 books. It seems odd that Rezneck missed that important historiographic detail.

[68] Rezneck, 325.

[69] Faulkner, 143.

[70] Ibid., 143-4. For examples, he cites three prominent writers' opinions. J. Laurence Laughlin, of the Chicago University: "the depression was 'the inevitable manifestation of an idea strongly held by undereducated men.'" (144). E.L. Godkin, editor of The Nation: "Godkin believed that the depression was the work of 'socialists and labor agitators' who had been 'filling the bellies of the poor with the east wind.' 'The craze against property that has been sweeping through the country,' he said, sapped the national morale." (143-4). Looking at the exact quotations from Rezneck, from which he gathers these quotations, we see that Rezneck used Laughlin's phrase to "[account] for the susceptibility of the West to the silver and other crazes" (Rezneck, 339) and that Godkin's "craze against property" was to be found in those "bellowing about trusts and monopolies." (Rezneck, 340). They were definitely against "radical attacks on property" and they were horrified at the vandalism of striking labor and the intellectuals' abandonment of property rights. It is curious that Faulkner would use these quotations since I have not found any conservatives who rail against anything other than the Sherman Silver Purchase Act as the cause of the depression of 1893.

[71] Ibid., 144.

[72] Ibid., 144.

[73] Ibid., 145. One of which was definitely not the gold standard. Later, Faulkner states that "the defense of gold … did not bring recovery, a fact which shows that other causes were far more important in bringing on the depression than excessive anxiety over the currency." (162).

[74] Ibid., 145.

[75] Ibid., 145.

[76] The reason for its decline is not, as Faulkner seems to contend, reduced production or crop failure (except the corn crop in 1894). Quite the contrary, agriculture suffered because of its increasing production worldwide. The wheat yield of 1894 was one of the largest in American history as well as elsewhere (world production expanded by 160 million bushels over 1892's bumper crop) and the price of wheat dropped precipitously to 49 cents a bushel. (Noyes, Forty Years, 220-2)

[77] Faulkner, 146.

[78] Hollingsworth, J. Rogers. The Whirligig of Politics: The Democracy of Cleveland and Bryan. (Chicago: University of Chicago Press, 1963), 10.

[79] Ibid., 10.

[80] Hoffman, 282.

[81] Ibid., 290.

[82] Ibid., 291.

[83] Ibid., 291.

[84] McSeveney, Samuel T. The Politics of Depression: Political Behavior in the Northeast, 1893-1896. (New York City: Oxford University Press, 1972), 35.

[85] Ibid., 35.

[86] Grant, H. Roger. Self-Help in the 1890s Depression. Ames, IA: Iowa State University Press, 1983.

[87] Hollingsworth, 10n, quoted in Steeples, 6.

[88] Steeples, 6.

[89] Ibid., 29.