This year the ongoing, illuminating study of business and industry in relation to Chicago will continue. This study paused after a glimpse of the Long Depression (1873-1879) and the lives of two Chicagoans, Cyrus McCormick and Potter Palmer, who survived the depression. In some details, the national economic recession of 2008 mirrors downturn of 1882, making it important to study.
The National Banking Act of 1863 ushered in the National Banking Era, ending the wild Era of Free Banking in which unregulated state banks controlled the economy. This new era couldn’t check the boom and bust cycles any better than the previous era. The Panic of 1873 proved that point, but order in the banking industry did help the nation.
This act created a system of national banks under the supervision of the Comptroller of Currency. It initiated the establishment of a national currency and required national banks to accept this currency at standard value. If a national bank should default, a national currency could help eliminate the danger of loss. The comptroller controlled the printing of the national currency. The national banks were required to back notes used to finance the Civil War with Treasury securities. When these securities changed in value, banks recalled loans or borrowed from other banks or banking clearinghouses. However, there was still no single national bank, and no deposit insurance for banking clients.
An economic downturn began slowly around 1882. During a three year boom, the railroad industry increased construction more than 4 times from 2,665 miles of tracks to 11,569 miles of tracks laid. The over-extended industry experienced a decline. This decline affected the railroad, iron, steel and the investment industries. Chicago and the nation suffered.
To be continued…
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