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The Great Depression of 1873: The forgotten crash that lasted 23 years
Before 1929, there was 1873: A financial panic that triggered the longest depression in modern history
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MarketPedia Editorial
11 min read·September 18, 2024
The Panic of 1873 began with the failure of the Jay Cooke & Company bank. It triggered a period of deflation and economic stagnation that lasted until 1896 — 23 years. It was known as the 'Great Depression' until 1929.
The railroad boom and speculation
In the aftermath of the American Civil War, railroad construction was the most dynamic sector of the economy. Banks heavily financed railroad projects through bonds.
The failure of Jay Cooke
On September 18, 1873, Jay Cooke & Company failed to sell the Northern Pacific Railway bonds. It declared bankruptcy. Panic spread immediately.
Lessons
- Debt-financed infrastructure creates cyclical booms and busts.
- Deflation can be more dangerous than inflation.
- Financial crises are as old as capitalism itself.
# 1873# Panic# Deflation# History# Railroads