OTD: International panic as Jay Cooke and Co. fails

On today’s date in 1873, widespread panic erupted after the brokerage firm Jay Cooke & Co. declared bankruptcy, resulting in a five-year depression across much of North America.

Known as the Panic of 1873, the furor that spread across both Canada and the U.S. was a result of the firm overextending itself in completing the Northern Pacific Railway (NPR).

“On September 18, 1873, the announcement of Jay Cooke and Company’s bankruptcy sent Wall Street to a panic, and the country to a long, harsh depression,” reads The Politics of Economic Crises: The Panic of 1873, the End of Reconstruction, and the Realignment of American Politics, which was authored by Nicolas Barreyre and published in the October 2011 edition of The Journal of the Gilded Age and Progressive Era.

“Americans interpreted this economic crisis in the light of the acrimonious financial debates born of the Civil War—the money question chief among them. The consequences transformed American politics.”

COMPETING WITH THE CPR

Jay Cooke, the bank’s founder, was attempting to compete with the Canadian Pacific Railway by having his railway enter Canadian territory. This somewhat meddling approach was met with apprehension in the Canadian political scene, which was sensitive to encroaching U.S. business interests following the American Civil War.

As the U.S. began looking for opportunities to expand, Cooke focused his attention on resurrecting the NPR. He was able to successfully lobby U.S. Congress to facilitate his grand plan to finance the railway’s construction, and the first tracks of America’s second trans-continental railroad were laid; however, as construction continued, it became clear more money would be needed to cover rising costs.

Cooke’s optimism for the costly project exceeded his firm’s ability to pay for it, leading to its failure.

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