18 Sep 1873: “Panic” sets in on Wall Street

On this day in 1873, the bank Jay Cooke & Company declared bankruptcy. It was the first domino in a chain of failures that would set off the Panic of 1873 in the United States, part of a worldwide depression.

After the Civil War, government subsidies led to a boom in railroad construction – and by 1873, the bubble was ready to burst. Cooke had been marketing bonds for Northern Pacific Railway, and was unable to find enough buyers.

Foreign decisions also added to the pressure. After the Franco-Prussian War, the German Empire stopped using silver for coins, shrinking demand for American mining. As a result, the Coinage Act of 1873 caused the U.S. to adopt the gold standard, further lowering silver’s price and causing interest rates to rise.

Those in debt – including Cooke – found it increasingly difficult to borrow money, and many went under. The New York Stock Exchange closed for 10 days starting September 20; within a year, over 100 railroads would declare bankruptcy.

By many measures, the ensuing “Great Depression” (a title that would be later usurped) lasted until early 1879 in the United States.

Image: 1873 illustration of a bank run from Frank Leslie’s Illustrated Newspaper.