1873 – A Forgotten Crash That Resonates Today

Teach post Civil War American history and one invariably has to engage with the end of Reconstruction and the scandals surrounding President Ulysses S. Grant. Remember reading about Credit Mobilier and all the corruption around railroad financing? The panic in 1873 was driven, supposedly, by the collapse of Jay Cooke & Co., a bank that had been perhaps the most important fiscal agent selling bonds for the Union during the Civil War. Cooke’s bankruptcy led to other bankruptcies, the closure of the New York Stock Exchange, and a rush on capital that was exacerbated by the Grant administration’s abandonment of silver (bimetallism) and adoption of a gold standard. Self-interest and self-dealing was rampant among elected officials. Interest rates increased and many businesses cut back, leading to unemployment and heightened labor management conflict. It is a complicated story with many players. Engaged students often ask, “Why is this important?”

There are a slew of good reasons to pay close attention to the Panic of 1873. The financial story behind the crisis, the depression, and the extensive knock-on effects is fascinating. Liaquat Ahamed, an economist who worked for years at the World Bank before a career in investment finance, explains it all in 1873: The Rotchshilds, the First Great Depression, and the Making of the Modern World. Ahamed’s prior book, Lords of Finance, looked at the 1929 crash through a multi-national perspective. It won many awards, including a Pulitzer. 1873 employs a similar multi-national lens to understand the financial crisis, with a deep focus on America. The book makes me want to go back in time to revise my history lesson plans.

In brief, the bond market in the 1870s was international. Capital flowed across countries and continents during a period of extraordinary economic growth. A number of individual decisions, from bad business investments to the extreme reparations demanded by Prussia of France after the 1871 war, contributed to economic destabilization. Bismark pushed for the reparations within a particular context, to help build a modern Germany. However, an unintended consequence of the influx of all that money meant over investment, if not speculation, and lots of smaller bankruptcies. The Vienna stock exchange had to close in early 1873 because of one of the resulting panics, and that contributed to a larger bankruptcy of a German railroad. Loss of trust begets loss of trust, which leads to fear begetting fear, especially as prices dropped and capital became more scarce.

Deflation followed the panics, leading to great shifts in the distribution of wealth and an impetus for tariffs to protect domestic industries. Banks were castigated and none more so than the Rothschilds, facilitating a growing industry of conspiracy theories and antisemitism. That thread of hatred picked up in the following decades. The Rothschild family is a recurring theme throughout 1873 and remains a touchstone of antisemitic conspiracy theories.

In the United States, the Republican Party lost its deep advantages over the Democrats because of the financial crisis. The presidential election of 1876 was hotly contested. The eventual GOP winner, Rutherford B. Hayes, tipped the scales through a backroom deal that removed US troops from the south (ending Reconstruction and protected civil rights for Black Americans). No crisis in 1873 and there are good reasons to believe that Reconstruction would have been a longer-term project.

Counterfactual history is always a dangerous enterprise. Nonetheless, it is easy to see how individual political and economic decisions during the 1870s often made small problems big problems. Ahamed is to be praised for shining light and critical analysis on this important moment in our collective history. It never ceases to amaze me how much we can learn from the past.

David Potash

October 30, 2026 Reviews No Comments on 1873 – A Forgotten Crash That Resonates Today

When Were The Good Old Days?

Above and beyond explaining the past, history can give us perspective and helpful doses of humility. Are our experiences or abilities all that different from those in the past? It is comforting to believe that we have made great gains. Confidence in our collective abilities aside, questions remain about causality and broad trends. For example, what should we define as “normal” in terms of the macro-economy? It is critical question, particularly when voters go to the polls. Managing public expectations is at the very center of our democratic institutions.

Many Americans believe that strong economic growth and rising standards of living is how life was and should always be. Economic historian and journalist Marc Levinson explains otherwise in his well-argued book, An Extraordinary Time: The End of the Postwar Boom and the Return of the Ordinary Economy. Levinson focuses on 1973 as a pivot point in economic and political history. It marked the end of an extraordinary post-World War II boom, a period of steadily rising wages, multiple employment opportunities (regardless of income), and great expansion. The decades since, which have witnessed slower growth, balloons and busts, greater economic instability, are a return to “traditional” American economic history.

Levinson weaves together broad macroeconomic trends and global politics in the 1970s, making sure that we appreciate the complexities of the OPEC oil embargo, the abandonment of the gold standard, increased global trade, and currency speculation. There are always disruptions and shocks to economic systems. What Levinson underscores is that political leaders had assumed that they could control and manage these forces. After all, they had successfully done so since the late 1940s – the “extraordinary times” of his title. But by the Nixon and Ford administrations, there were no magic bullets. A range of policies were tried without success. Growth slowed, times got harder, and they have mostly remained so since.

Forgotten leaders, questionable theories, and difficult decisions dot An Extraordinary Time. Levinson takes a hard look at Arthur Burns, an economist who was named chairman of the Federal Reserve in 1969. Under Burns’ leadership, the Fed waged a losing battle to inflation. Broad faith in the Phillips Curve, which was supposed to explain the relationship between inflation and employment, muddied policy decisions. Gordon Richardson, head of the Bank of England, tried with limited success to bring greater stability to international banking. The most important underlying fact, Levinson argues, is the slowdown in productivity spelled the end of a post-war extraordinary time. Inequality increased and that trend that has accelerated since 1973. Social unrest followed, leading to the broad turn to the right by the late 1970s. Levinson locates the elections of Thatcher and Reagan within these broad currents of economic unrest.

An Extraordinary Time is closely researched, accessible, and a vitally important corrective to assumptions that there should always be tremendous economic growth. It makes clear that interventions in global market forces may or may not result in planned consequences. Levinson gives us a clear-eyed perspective on our recent history and the currents of forces that brought us here. It would be comforting to think that we are smarter today, but . . . .

David Potash

March 30, 2017 Reviews