The Long Depression was a worldwide price and economic recession, beginning in 1873 and lasting until either March 1879, or the year 1899, depending on the metrics used. It was most severe in Europe and North America, which had been experiencing strong economic growth fueled by the Second Industrial Revolution. The episode was labeled the "Great Depression" at the time, and it held that designation until the Great Depression of the 1930s. Though it marked a period of general deflation and recession, it did not have the severe economic retrogression of the later Great Depression.
The United Kingdom was the hardest hit; during this period it lost some of its large industrial lead over the economies of continental Europe. While it was occurring, the view was prominent that the British economy had been in continuous depression from 1873 to as late as 1896 and some texts refer to the period as the Great Depression of 1873–1896, with financial and manufacturing losses reinforced by a long recession in the agricultural sector.
In the United States, historians refer to the long depression as the Depression of 1873–1879, focusing on the Panic of 1873 and the Panic of 1893. The U.S. National Bureau of Economic Research (NBER) dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction. In the United States, from 1873 to 1879, 18,000 businesses went bankrupt, including 89 railroads. Unemployment peaked in 1878 at 8.25%.
Background
The period preceding the depression was dominated by several major military conflicts and a period of economic expansion. In Europe, the end of the Franco-Prussian War yielded a new political order in Germany, and the £200 million indemnity imposed on France led to an inflationary investment boom in Germany and Central Europe. New technologies in industry such as the Bessemer converter were being rapidly applied; railroads were booming. In the United States, the end of the Civil War and a brief post-war recession (1865–1867) gave way to an investment boom, focused especially on railroads on public lands in the Western United States – an expansion funded largely by foreign investors.
Causes of the crisis
thumb|300px|[[Bank run|Run on the Fourth National Bank, No. 20 Nassau Street, New York City, 1873. From Frank Leslie's Illustrated Newspaper, October 4, 1873.]]
In 1873, during a decline in the value of silverexacerbated by the end of the German Empire's production of thaler coinsthe US government passed the Coinage Act of 1873 in April. This essentially ended the bimetallic standard of the United States, forcing it for the first time onto a pure gold standard. This measure, referred to by its opponents as "the Crime of 1873" and the topic of William Jennings Bryan's Cross of Gold speech in 1896, forced a contraction of the money supply in the United States. It also drove down silver prices further, even as new silver mines were being established in Nevada, which stimulated mining investment but increased supply as demand was falling. Silver miners arrived at US mints, unaware of the ban on production of silver coins, only to find their product no longer welcome. By September, the US economy was in a crisis, deflation causing banking panics and destabilizing business investment, climaxing in the Panic of 1873.
The Panic of 1873 has been described as "the first truly international crisis". At the same time, prices in several markets collapsedthe price of grain in 1894 was only a third what it had been in 1867, and the price of cotton fell by nearly 50 percent in just the five years from 1872 to 1877, imposing great hardship on farmers and planters. This collapse provoked protectionism in many countries, such as France, Germany, and the United States, Similarly, while the production of iron doubled between the 1870s and 1890s,
|-
!
! 1850s–1873
! 1873–1890
! 1890–1913
|-
|
| 4.3
| 2.9
| 4.1
|-
|
| 3.0
| 1.7
| 2.0
|-
|
| 6.2
| 4.7
| 5.3
|-
|
| 1.7
| 1.3
| 2.5
|-
|
|
| 0.9
| 3.0
|-
|
|
| 3.1
| 3.5
|}
{| class="wikitable" style="margin:1em auto;"
|+ GNP of the Great Powers of Europe<br />(in billions USD, 1960 prices)
!
! 1830
! 1840
! 1850
! 1860
! 1870
! 1880
! 1890
|-
|
| 10.5
| 11.2
| 12.7
| 14.4
| 22.9
| 23.2
| 21.1
|-
|
| 8.5
| 10.3
| 11.8
| 13.3
| 16.8
| 17.3
| 19.7
|-
|
| 8.2
| 10.4
| 12.5
| 16.0
| 19.6
| 23.5
| 29.4
|-
|
| 7.2
| 8.3
| 10.3
| 12.7
| 16.6
| 19.9
| 26.4
|-----
|
| 7.2
| 8.3
| 9.1
| 9.9
| 11.3
| 12.2
| 15.3
|-----
|
| 5.5
| 5.9
| 6.6
| 7.4
| 8.2
| 8.7
| 9.4
|}
Austria-Hungary
The global economic crisis first erupted in Austria-Hungary, where in May 1873 the Vienna Stock Exchange crashed. Income from silver mining in Chile also dropped.
France
France's experience was somewhat unusual. Having been defeated in the Franco-Prussian War, the country was required to pay £200 million in reparations to the Germans and was already reeling when the 1873 crash occurred. The French adopted a policy of deliberate deflation while paying off the reparations. The Union Générale, a French bank, failed in 1882, prompting the French to withdraw three million pounds from the Bank of England and triggering a collapse in French stock prices. Although a slight upturn took place in the late 1880s, the stagnation of the domestic industry wrought by the crash cast a pall over the financial sector that lasted until 1897-1899. The French net national product declined over the ten years from 1882 to 1892.
Italy
A ten-year tariff war broke out between France and Italy after 1887, damaging Franco-Italian relations which had prospered during Italian unification. As France was Italy's biggest investor, the liquidation of French assets in the country was especially damaging.
United Kingdom
The United Kingdom, which had previously experienced crises every decade since the 1820s, was initially less affected by this financial crisis, even though the Bank of England kept interest rates as high as 9 percent in the 1870s.
|-
! Industry
! % decline in output
|-
| Durable goods
| 30%
|-
| Iron and steel
| 45%
|-
| Construction
| 30%
|-
| Overall
| 10%
|}
In the United States, the Long Depression began with the Panic of 1873. The National Bureau of Economic Research dates the contraction following the panic as lasting from October 1873 to March 1879. At 65 months, it is the longest-lasting contraction identified by the NBER, eclipsing the Great Depression's 43 months of contraction. Figures from Milton Friedman and Anna Schwartz show net national product increased 3 percent per year from 1869 to 1879 and real national product grew at 6.8 percent per year during that time frame. However, since between 1869 and 1879 the population of the United States increased by over 17.5 percent, per capita NNP growth was lower. Angus Maddison's estimates of GDP per capita show decline followed by no growth during the 1873-79 recession, but very rapid growth after, in 1879-80. Following the end of the episode in 1879, the U.S. economy would remain unstable, experiencing recessions for 114 of the 253 months until January 1901.
The dramatic shift in prices mauled nominal wages in the United States, nominal wages declined by one-quarter during the 1870s, and as much as one-half in some places, such as Pennsylvania. The collapse of cotton prices devastated the already war-ravaged economy of the southern United States. One in four laborers in New York were out of work in the winter of 1873–1874, In the early 1870s, the bank had joined in the speculative fever, investing in real estate and unsecured loans to railroads; its collapse in 1874 was a severe blow to African Americans.