Answer:
Here are the primary causes and effects of the Panic of 1873:
Causes
1. Overexpansion of Railroads
Railroads had been rapidly built throughout the country in the post-Civil War period, leading to overinvestment and speculation in the industry. When some of these railroad companies failed to generate expected profits, it created a financial strain.
2. Speculative Investments
There was a speculative bubble in various other industries as well, including real estate and mining. Investors borrowed heavily to invest in these sectors. Financial instability resulted when the investments didn't yield the anticipated returns.
3. Fiscal Policies
The United States had moved away from the bimetallic standard (gold and silver) in favor of the gold standard, which limited the money supply. This decision exacerbated the deflationary pressures of the time and contributed to the economic downturn.
4. Tightening of Credit
The U.S. Treasury, in an attempt to return to the gold standard, reduced the money supply by selling gold and decreasing the amount of greenbacks (paper currency) in circulation. This tightening of credit aggravated the financial stress.
Effects
1. Bank Failures
The Panic of 1873 resulted in the failure of numerous banks and financial institutions across the United States. The banking system suffered from a lack of confidence, and many depositors lost their savings.
2. High Unemployment
The economic downturn resulted in widespread unemployment and reduced wages. Many workers lost their jobs as businesses cut back on production.
3. Business Failures
Many businesses, particularly those that had expanded rapidly during the post-Civil War boom, were unable to sustain their operations and went bankrupt.
4. Long Economic Depression
The Panic of 1873 marked the beginning of a long economic depression in the United States and Europe. It lasted for several years, with economic conditions remaining poor well into the 1880s.
5. Social and Political Consequences
The economic hardship caused by the panic contributed to social unrest and labor strikes in the United States. It also played a role in shaping political debates and policy choices, including discussions about the country's monetary system.
6. Impact on Global Trade
The panic had repercussions beyond the United States, affecting global trade and financial markets. Europe experienced economic difficulties as well, which had implications for international trade and investment.
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