One of the most significant downsides of poorly regulated economies is the cycle of booms and busts. These were more rampant in the nineteenth century than later on due to lack of legislation and a more volatile American expansion economy. Thus, minor issues could create considerable economic turmoil for the United States. One such period of chaos was the Panic of What caused the Panic of was simple economics gone out of control. The effects of the Panic of helped shape the rest of the Gilded Age, tarnished the Grant Administration, and helped solidify the power of bankers in the Republican Party. Following the Civil War, railroads expanded at a critical rate across the nation. The Railroad companies were the largest non-agricultural employer, and banks and other industries were quickly putting their money into railroads. When a heavily invested banking firm, Jay Cooke and Company, closed its doors on September 18, , panic swept the nation. The Jay Cooke firm was a major financier for the Union during the Civil War, and they continued their government support through the railroad industry. Investors could make it big in the railroad industry, and the business became notorious for how corrupt and crooked it could become. With the completion of the First Transcontinental Railroad in , firms started building funds to construct a second such railroad. European groups had begun investing in American industry as well, and that included railroad expansion. The bulk of this investment was not through actual cash but with bonds. These bonds were incredibly speculative and not very well regulated. Thus, if something went wrong at any point in the financial chain, it could collapse like a house of cards. As a result, the Panic of turned out to be the first worldwide economic crisis. Jay Cooke proved to be the weak link in this regard. Part of the problem was that early economies relied on specie, that is, precious metals, to back their currency. One such country was, of course, the United States. Enter Jay Cooke once again, as they were heavily invested in railroad construction, including the Northern Pacific Railroad. His bankruptcy rippled through the markets, first into private investment houses and banks, then railroad and industrial holdings. The Panic of proved to be the first major economic crisis faced not just by a single country but the world. Industrial economies ground to a crawl as factories ceased or reduced production, let staff go, and closed down. A significant side-effect of this was reduced efforts of Reconstruction , the steps to reincorporate the rebellious southern states and their former slaves turned citizens. As the Panic dragged on, the effects spread across the United States and the globe. For the United States, though, it meant lines in the sand for the Democrats, the party of white farmers and laborers, and the Republicans, the party of blacks and the wealthy. The depression was especially severe for southern Blacks. With the falling farm prices, unemployment, wage cuts, and labor strikes, the North became uninterested in addressing Southern Racism. White supremacists groups like the KKK, which earlier administrations had successfully reigned in with legislation from , saw a resurgence. They resumed terrorizing and intimidating southern blacks and Republicans. By the end of the depression in , southern white democrats once again controlled the South. The Gilded Age had begun. Save my name, email, and website in this browser for the next time I comment. What caused the Panic of ? About Latest Posts. Alan Behrens. Alan Behrens is an experienced writer and our editor-in-chief.
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