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419 ★ ★ ★ ★ ★ 17 CRISES DOMESTIC AND FOREIGN In the years after the Civil War the American economy exhibited phenomenal growth as an integrated capitalist system burgeoned. AlWKRXJK WKH6RXWKODJJHGEHKLQGGXULQJWKHÀYH\HDUVSULRUWRWKH economy hummed along at a prosperous clip, marked by substantial railroad building, expanding manufactures, and increased agricultural production. Linking the various elements together was a monetary system comprising coin, greenbacks, national bank notes, and government securities—mainly bonds representing the war debt of more than $2 billion. Debt pervaded the private sector as well, for many of the new enterprises, especially railroad construction, proceeded on borrowed money. As the debate over Boutwell’s greenback operations had shown, orthodox economic thinking assigned a limited role to government. Most mainline politicians thought its principal responsibility in managing the money supply was to ensure a “sound” currency and otherwise NHHSLWVKDQGVRͿ*HRUJH%DQFURIWEHVHHFKHGKLVQHSKHZ-&%DQFURIW 'DYLVLQ-XQH´3UD\XVH\RXULQÁXHQFHQRW to let one dollar more of paper money be issued; & to get back to the currency of the Constitution as soon as possible.” The aptness of such orthodoxy for the new DJHRIFDSLWDOPHWLWVÀUVWJUHDWWHVWLQWKHÀQDQFLDOSDQLFWKDWVWUXFNLQ September 1873.1 3ULRUWR6HSWHPEHUFRQÀGHQFHLQFRQWLQXHGJRRGWLPHVSHUVLVWHG for most of the summer. Few observers saw much to worry about when CHAPTER 17 420 the Brooklyn Trust Company could not meet its obligations and closed LWVGRRUVLQ-XO\$OWKRXJKWKHÀUP·VORVVKDGOLWWOHZLGHULPSDFWLWV failure proved symptomatic of a larger problem. This bank, like many RWKHUVKDGRYHUH[WHQGHGLWVHOILQÀQDQFLQJUDLOURDGFRQVWUXFWLRQPXFK of which pushed into areas where only marginal demand existed. AlWKRXJK  VXFK LQYHVWPHQW EHVSRNH FRQÀGHQFH WKH UHWXUQ RQ UDLOURDG VHFXULWLHVFDPHVORZO\0DQ\ÀQDQFLDOLQVWLWXWLRQVVDFULÀFHGFUHGLWÁH[LELOLW \E\FRQYHUWLQJPXFKRIWKHLUOLTXLGFDSLWDOLQWRÀ[HGUDLOURDGFDSLWDO ZLWKDQXQFHUWDLQSD\RͿ)RUVRPHWLPH$PHULFDQEDQNVKDGEHHQ placing a large portion of their railroad bonds with European investors, but a panic on the Vienna stock exchange in May drastically curtailed the overseas market for those securities. American banks struggled to carry more of the bonds themselves, severely straining their own credit.2 These developments made little impression, however, and did not occasion an immediate response from the government. Secretary of the Treasury William Richardson expected the usual tightening of the money market during the fall harvest season and had used gold sales during the summer to raise $14 million to help relieve the strain through the purchase of government bonds. In late August Richardson wrote to Grant at Long Branch, noting that he considered this accumulation VX΀FLHQW´WRNHHSWKHFXUUHQF\EDODQFHVWURQJSUHSDUDWRU\WRWKHDXtumn business.” The secretary had also made a comparison of the country ’s commerce during the present year with that during previous years and reported that he was “very much pleased at the favorable exhibit.” Exports had increased dramatically, the Treasury’s coin holdings had increased, and the government was running a budget surplus. “The Department and the Department business are very quiet,” he assured the president.3 The quiet did not last. In early September money grew tight, bank reserves in New York fell, and two more institutions that were heavily invested in railroads failed. On September 17 stocks on the New York exchange took a tumble, and the next day disaster struck. The highly respected banking house of Jay Cooke and Company, heavily encumEHUHG E\1RUWKHUQ3DFLÀFVHFXULWLHVWKDWLWFRXOGQRWXQORDGFROODSVHG and closed its doors. The storied institution had gained its reputation largely from marketing government bonds during the war. Shuttering LWVR΀FHVFULSSOHGFRQÀGHQFHLQEDQNVJHQHUDOO\DQGSDQLFUHYHUEHUated across the land. People scrambled to withdraw their deposits and hoarded their cash, adding to the currency stringency. In Cincinnati, John Sherman “saw men going around the city almost crazy with fright, CRISES DOMESTIC AND FOREIGN 421 bankers, wealthy men, because they said they had their money tied up in New York.” The New York Clearing House devised a plan whereby banks could help endangered institutions by sharing their currency reserves . To halt the implosion of stock prices, the stock exchange closed for ten days.4 While bankers and other interests struggled to save themselves, calls for government assistance poured in. “Relief must come immediately ,” former customs collector Thomas Murphy pleaded, “or hundreds if not...


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