Everything about The Long Depression totally explained
The
Long Depression (1873–1896) affected much of the world from the early 1870s until the mid-1890s and was contemporary with the
Second Industrial Revolution. At the time it was regarded as the
Great Depression, until the more severe
Great Depression occurred in the 1930s. It was most notable in
Western Europe and
North America, but this is in part because reliable data from the period is most readily available in those parts of the world. The
United Kingdom is often considered to have been the hardest hit by the Long Depression, and during this period it lost much of its large industrial lead over the economies of
Continental Europe. The Depression is usually believed to have ended by 1897. The global economy grew at an impressive rate from that year to the start of
World War I.
Causes of the crisis
The causes of the Depression are debated. The primary cause of the depression was a shortage of available money to facilitate trade. The most immediate cause, and the date that's often used as the start of the Depression, was the collapse of the
Vienna Stock Exchange on May 9, 1873. Others have argued the depression was rooted in the 1870
Franco-Prussian War that hurt the French economy and, under the
Treaty of Frankfurt (1871), forced that country to make large
war reparations payments to
Germany. 5 milliard (billion) francs in gold, or £200 million, "financed mainly through London" (Clapham,
Citation Required p.286). Germany went on to gold and the price of silver started to fall causing considerable losses of asset values.
In America the speculative nature of financing due to both the
greenback which was specie issued to pay for the
US Civil War and rampant fraud in the
building of the Union Pacific Railway up to 1869 culimnated in the
Credit Mobilier panic. Railway overbuilding and weak markets collapsed the bubble in
1873. Both the Union Pacific and the Northern Pacific lines were centre in the collapse; another railway bubble was the UK
railway mania.
(the modern
dotcom bubble of 2001 is very similar).
Because of the
Panic of 1873, governments de
pegged their currencies, to save money. The demonetization of silver by European and North American governments in the early 1870s was certainly a contributing factor. The
Coinage Act of 1873 in America was met with great opposition by farmers and miners, as silver was seen as more of a monetary benefit to rural areas than to banks in big cities. In addition, there were Americans who advocated the continuance of government-issued fiat money (
United States Notes) to avoid deflation and promote trade. The western US states were outraged--Nevada, Colorado, and Idaho were huge silver producers with productive mines and for a few years mining abated. The resumption of the US government buying silver was enacted in 1890 with the
Sherman Silver Purchase Act.
Monetarists believe that the 1873 depression was caused by shortages of gold that undermined the
gold standard, and that the 1848
California Gold Rush, 1886
Witwatersrand Gold Rush in South Africa and the 1898-99
Klondike Gold Rush helped alleviate such crises. Other analyses have pointed to developmental surges (see
Kondratiev wave), theorizing that the
Second Industrial Revolution was causing large shifts in the economies of many states, imposing transition costs, which may also have played a role in causing the depression.
Reactions to the crisis
Like the Great Depression, the Long Depression saw many nations of the world resort to
protectionism to shore up faltering industries. Influenced by
List's nationalist argument for industrial protection,
Bismarck abandoned the German free trade policy in 1879, enacting tariffs over the objections of his
National Liberal Party allies. France, which had adopted free trade during the
Second Empire (1852-1870), also abandoned it, while
Benjamin Harrison won the 1888 US presidential election on a protectionist ticket. Only the United Kingdom retained the low tariffs enacted in the 1846 repeal of the
Corn Laws.
Besides
tariff policy, governments of the time were not closely involved in managing the economy. According to the tenets of
classic liberalism, it was generally believed that it wasn't the government's role to intervene in the economy, and thus little was done.
The Long Depression also contributed to the revival of
colonialism leading to the
New Imperialism period, symbolized by the
scramble for Africa, as the western powers sought new markets for their goods. According to
Hannah Arendt's
The Origins of Totalitarianism (1951), the "unlimited expansion of power" followed the "unlimited expansion of
capital".
In the
United States, the meltdown of the European economies led directly to the
Panic of 1873 and ushered in the Long Depression.
Five to six years later, the rebuilding, extending, and refinancing of the western railways, commensurate with the wholesale giveaway of water, timber, fish, minerals, in what had previously been indian territory, characterized a rising market. This of course led to the expansion of markets and industry, together with the
robber barons of railroad owners which culminated in the genteel 1880s and 1890s. The
gilded age was the outcome for the few rich.
Naturally, the cycle repeated itself with another huge market crash in 1893.
GNP for selected European Great Powers
» at market prices, in 1960 US dollars and prices; in billions
(Paul Kennedy,
The Rise and Fall of the Great Powers, Fontana Press, 1989, p 219)
Further Information
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