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Chicago and the Panic of 1884

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The Gilded Age (1887-1905) was an era in which a majority of countries in the world, including the US, adhered to a gold standard. This Gold Standard Period meant these nations were committed to fixing the prices of domestic currencies in terms of a specific amount of gold. National money, bank deposits and notes could be freely converted to gold at fixed prices. However, prices fixed by gold were extremely volatile and weak during actual and economic upsets.

During the period before 1884, Chicago and the nation experienced free trade in goods, labor and capital. The downturn began in the agricultural sector with a limited market for cotton and grains. Adding to the mix was the worldwide bumper crop of grains which reduced exports. These setbacks reduced the revenues of railroads, which were dependent on the agricultural industry and the shipment of goods.

Previous panics were accompanied by money market stringency, stock market collapse, loan reductions, deposit declines and runs on banks. The National Banking Act of 1863 provided for nationally chartered banks, but there was no protective central bank and no deposit insurance. Without protection against loss, Chicagoans and other Americans didn’t trust banks and were fearful of bank failures. The minute there was even a hint of bank failure, depositors demanded their money.

The Panic of 1884 was started by the collapses of the Grant and Ward investment firm and its backer the Marine National Bank of New York. Ulysses S. Grant, Jr. and Ferdinand De Wilton Ward, Jr. launched their investment firm with financial assistance from James D. Fish, the director of the Marine National Bank of New York. The investment firm engaged in hypothecation and rehypothecation, and it failed.

To be continued…

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