Nostalgia & History > Railroad Depression

As far as I am able to determine my Grandfather emigrated from Ireland to Glenwood Springs, Colorado in June of 1890. When his first and second children were born on March 7th, 1892 and July 3rd, 1893 he and his family were living in Eagle and my Grandfather was Section Foreman for the Denver and Rio Grande. When his third child was born on March 18th, 1893 he and his family were living at Spruce Creek in the Glenwood Canyon and he was Section Foreman.

In 1893 there was a severe depression. Perhaps the depression was the cause of the Flynn family move. Mr. Flynn had only 3 years seniority. Did seniority count in 1893?

I did a Google Image search for Railroad Depression and got an interesting picture. Unfortunately the website with the picture was on the depression of 1873 and not 1893.

http://crisispictures.blogspot.com/2011/10/long-depression-of-1873-part-ii.html

The following excerpts are from the website,

“After the completion of the transcontinental Union Pacific Railroad in 1869, the public almost immediately requested another, called the Northern Pacific. Jay Cooke banking house needed to raise money for this project, but weakened economic conditions proved the Northern Pacific less attractive to investors. Since railroads were overbuilt, the competition was intense. Meanwhile speculation dominated in railroad securities, as well as in market in general. When the project failed, the connected companies fell as well. Panic started on the New York Stock Exchange forcing the bankers to close trading for ten days.” “For the next two decades, ripple effect from the crisis shook the economies. In the United States recovery began slowly in 1878, after many hardships endured.”

Picture 1, “1873 long depression Northern Pacific.”

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For a Zoomit enlargement click on http://zoom.it/Yui4#full . Continue to click on the + button in the lower right of the picture until the picture stops enlarging. Use the cursor and the left mouse button to move the picture.

I became distracted by the picture 1.

In an effort to find out more about picture 1 I did a Google search using the URL of picture 1 and got a webpage that said, “For matching images, try search by image.” The words search by image were purple in color. I clicked on the colored words and got a webpage with a thumbnail of picture 1. I clicked on the thumbnail and got pictures of picture 1 used on other websites.

One website that used the picture was

http://www.inforum.com/event/image/id/263187

The text to picture 1 on this website said,

“A Northern Pacific Railroad survey crew, including a Japanese immigrant, poses circa 1885 near the Green River, Washington Territory. University of Washington Libraries.”

If you look at picture 1 the man to the left of the picture and sitting on a barrel appears to be Asian.

I did a search of the University of Washington Digital Collections and found the picture 1.

http://digitalcollections.lib.washington.edu/cdm/singleitem/collection/imlsmohai/id/7216/rec/24

The text to the picture at the University of Washington said, “Title: Railroad construction workers and locomotive at the Green River crossing, 1885. Photographer: Unknown. Date: 1885. Caption: In the 1880s, Chinese laborers were recruited by railroad companies because they worked for lower pay than whites. Chinese men were often assigned to such dangerous tasks as blasting through rock and laying tracks in tunnels or on river bluffs. Of the 20,000 men that built the Northern Pacific branch line between Pasco and Tacoma, 15,000 were Chinese . This 1885 photo shows a group of Northern Pacific Railroad construction workers in front of a locomotive at a crossing on the Green River. A Chinese worker sits in front, to the left, with a scarf around his neck. Full title: Group of construction workers posing in front of a Northern Pacific engine, #457, and caboose, at the Green River Crossing, 1885. Place: Green River Crossing (Wash.).”

The original website at the top of this page had a reference to the Panic of 1893.

http://crisispictures.blogspot.com/2011/11/panic-of-1893.html

“On February 20, 1893, the Philadelphia and Reading Railroad, with capital of $40 million and over $125 million worth of debt, went bankrupt. Shock was great for the stock market, which suffered another blow after the National Cordage Company announced further bad news.

One of the biggest rope manufacturers of the time was also the most actively traded stock. The stock became a favorite of Wall Street speculators, soaring to an amazing $147 in January. The company unsuccessfully tried to corner the market for imported hemp, which resulted of going into receivership.

The bankers called in their loans as the rumors regarding the financial adversity of the National Cordage Company spread. In May, the Cordage went bankrupt and the stock market collapsed to below $10 a share.

After the failure of two major companies, a panic erupted on the stock market. Hundreds of businesses that had overextended themselves, borrowing money to expand their operations suddenly had no more support from the banks as all their bad decisions came to light. When the financial crisis struck, banks and other investment firms began calling in loans, causing a series of bankrupt businesses across the United States.

The crisis of 1893 is often referred as a railroad bubble, mainly because of the growth that railroads provided. However, speculation in stock market followed the economy closely and when the crisis came, several other seemingly indestructible railroad companies bankrupted. By May 15, stock prices reached an all-time low. It should be noted that among them were Northern Pacific Railway, the Union Pacific Railroad and the Atchison, Topeka & Santa Fe Railroad.

Over 500 Banks which financed the railroad expansion and were involved in speculation failed next. Bank runs were not a rare scene; the panic began to spread nationwide. It is considered that over 15,000 companies failed during the course of the crisis. Unemployment steadily grew, rising from 1 million in August 1893 to 2 million by January 1894. According to some estimates, over 20% of the workforce was unemployed at the panic peak. Homelessness skyrocketed, as workers were laid off and could not pay their rent or mortgages. The unemployed also had difficulty buying food due to the lack of income.

Concern for the state of the economy worsened, and more people rushed to withdraw their money from banks causing large number of bank runs. The credit crunch rippled through the economy. A growing depression in Europe resulted in British investors selling their American investments and redeeming them for gold. This fostered a growing American gold loss, creating a panic.

People attempted to redeem silver notes for gold in accordance with The Sherman Silver Purchase Act of 1890. Passed in response to a large overproduction of silver by western mines, the Sherman Act required the U.S. Treasury to purchase silver using notes backed by either silver or gold. The growing decline of the gold reserves stored in the U.S. Treasury continued, and the reserves fell to a dangerously low level.

In order to support the gold standard the President Cleveland borrowed $65 million in gold from Wall-Street banker J.P. Morgan. Morgan made an intriguing offer to Cleveland. He and the Rothschilds, the two most powerful international banking concerns, would purchase for the Treasury 3.5 million ounces of gold in exchange for $65 million worth of 30-year gold bonds. Morgan promised that the gold would remain in the Treasury. In essence, the financier was proposing to act as the nation's central bank during the crisis, protecting the Treasury from market forces.

Ultimately the statutory limit for the minimum amount of gold in Federal Reserve was reached and US notes could no longer be successfully redeemed for gold. Investments during the crisis of 1893 were mostly financed through bond issues with high interest. As the demand for silver and silver notes fell the price and value of silver dropped. Holders worried about a loss of face value of bonds and many became worthless. The severity was great in all industrial cities and mill towns. Farm distress was great because of the falling prices for export crops such as wheat and cotton. ‘Coxey's Army’ was a highly publicized march of unemployed laborers from Ohio and several Western states to demand relief in the form of a jobs program.”

The website, Top 10 Worst Financial Crisis in U.S. History, lists the Panic of 1893 as third.

http://akorra.com/2010/03/03/top-10-worst-financial-crisis-in-u-s-history

“This Panic was the worst economic crisis in American history to that point (and you’ve seen all the previous Panics listed already, so this is really saying something). Some argue that this was just a continuation of the Panic of 1873 (with the era being known as the “Long Depression”). However you look at it, there is no question that the 1880s had been a period of significant economic expansion, but it was driven heavily by speculative investment in railroads. In a nutshell, an ever-growing credit shortage created panic, which resulted in a depression. The result? 15,000 businesses, 600 banks, and 74 railroads failed. In addition, there were incredibly high levels of unemployment.”

A fascinating look at our history--and, a stark comparison to our present day as well.