The Panic of 1873 and the "Long Depression" (a)

48 Pages Posted: 17 Aug 2018 Last revised: 26 Oct 2019

See all articles by Robert F. Bruner

Robert F. Bruner

University of Virginia - Darden School of Business


In 1878, President Rutherford B. Hayes must decide whether to sign the Bland-Allison Act and commit the United States to minting silver coins and thus return to a bimetal standard of currency. At issue is whether to grow the nation's money supply to sustain its galloping rate of economic development, or to constrain the money supply growth to enable the country to return to the international gold standard at the pre–Civil War parity to the British pound. National sentiment immediately after the war had been on the side of currency deflation, but the Panic of 1873 marked a turn in sentiment toward inflation. These cases focus on how and why that turn occurred, and its consequences.



Rev. Oct. 22, 2019

The Panic of 1873 and the “Long Depression” (A)

In February 1878, the US Congress passed the Bland-Allison Act and delivered it to President Rutherford B. Hayes for his endorsement into law. The act required the government to purchase silver each year and to coin it into currency. Signing this act would recommit the government to a bimetal monetary standard linking the dollar to gold and silver at the ratio of 16:1, valuing each US dollar at 16 ounces of silver or 1 ounce of gold.

Arguments for and against this law stemmed from the financial legacy of the Civil War: massive debts, suspension of government specie payments to service those debts, and the huge issuance of greenbacks, the paper currency that the government used to pay for the war. “Hard-money” people hated inflation and federal indebtedness, which in 1866 amounted to USD2.32billion (compared to USD64.7million in 1860). They sought to return the country to the gold standard at the prewar parity to the British pound—this would require retiring the greenback currency and committing to a policy of resumption, meaning returning to its practice of paying with gold the interest and principal on its debts. “Soft-money” people wanted to expand the money supply enough to sustain the American economy's growth. The Bland-Allison Act was a stroke on behalf of inflation. Which side should Hayes favor?

The decision reflected far more than monetary economics. The United States was in the throes of unrest that strained the Republican Party's political dominance, which it had held since the Civil War. Labor unrest in the industrial centers of the country had peaked in 1877 with bloody violence and fears of a communist uprising. Sectional divisions between the industrial and agricultural regions of the country had prompted the formation of new political interest groups: silverites, the Grangers (farmers), the Greenback Party, labor unions, and miscellaneous reform groups (Exhibit1). And an extremely close vote in the presidential election of 1876 had effectively ended Reconstruction in the South and begun the Jim Crow era of suppression of African Americans' human rights and civil liberties. How had these developments related to the Panic of 1873 and the economic policies of the government? Did these developments portend a major realignment of US politics? Any decision on the Bland-Allison Act would position the president and his party in the changing political field. Hayes would need to gauge carefully the history of the Panic of 1873 and other events that led to the Bland-Allison Act, as well as the implications of that act for his party and the American people.

. . .

Keywords: Rutherford B. Hayes, Bland-Allison Act, bimetal standard of currency, bimetallism, hard money, soft money, gold standard, inflation, deflation, Civil War, Panic of 1873, historical economics, financial panic, depression, greenback movement, Granger, silverite, labor unrest

Suggested Citation

Bruner, Robert F., The Panic of 1873 and the "Long Depression" (a). Darden Case No. UVA-F-1824, Available at SSRN:

Robert F. Bruner (Contact Author)

University of Virginia - Darden School of Business ( email )

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