Panic of 1893

Like most major financial downturns, the depression of the 1890s was preceded by a series of shocks that undermined public confidence and weakened the economy. The Panic of 1893 provided a spectacular financial crisis the contributed to the economic recession.

In the last days of the Harrison administration, the Reading Railroad, a major eastern line, went into receivership. That collapse was soon magnified by the failures of hundreds of banks and businesses dependent upon the Reading and other railroads. The stock market reacted with a dramatic plunge. Fearing further collapse, European investors pulled their funds from the United States, but depression soon gripped the other side of the Atlantic as well. An ongoing agricultural depression in the West and South deepened, spreading the misery to those regions.

Although thousands of businesses were ruined and more than four million were left unemployed, Cleveland did little. He believed, like most people of both major parties, that the business cycle was a natural occurrence and should not be tampered with by politicians.

One economic matter, however, did concern the president deeply. The nation’s gold reserve had been steadily declining during the last years of the Harrison administration. The lavish spending of the “Billion Dollar Congress" and the gold drain caused by the Sherman Silver Purchase Act were the prime factors of the surplus reduction. A few weeks after Cleveland was sworn in, the nation’s reserves dipped below $100 million, a psychological barrier whose breaching further weakened public trust. The president acted to rescue the gold standard, but in the process divided the Democratic Party and alienated the silver forces of the South and West.

When Congress adjourned at the end of June 1893, President Cleveland – fearing a possible adverse impact on the markets – secretly dealt with a major health problem.

The Panic of 1893 and other factors had a lasting impact. The depression of the 1890s did not fully abate until 1897. One response to the series of failures and bankruptcies was an upsurge in business consolidations. The poorer elements of society believed they had been ignored during the hard times and then were left at the mercy of the trusts. The reform efforts of the last quarter of the 19th century had not been sufficient; new leadership was needed for the next century.