Banks falter following 1870s ‘Long Depression’

By Jesse Robitaille

This is the final story in a three-part series highlighting the Canadian banking system’s transition to government control and the now-collectible banknotes left in its wake.

The relative success of Canada’s Dominion Bank Act, which shifted control of the banking industry to the government beginning in 1870, was exacerbated by the Long Depression a few years later.

A worldwide recession, the Long Depression was triggered by the so-called “Panic of 1873,” which was driven by several factors and quickly strained bank reserves in Europe and then North America. Then the world’s worst economic crisis – until the Great Depression that followed the stock market crash of 1929 – the Long Depression was tied to the widespread demonetization of silver plus rampant speculative railroad investments.

A young country of only six years, Canada wasn’t excluded from what would become “the first truly international crisis,” according to the 1997 book, Business Cycles and Depressions: An Encyclopedia.

The depression reached its “lowest depths” in the winter of 1876, wrote R. M. Breckenridge in his 1895 book, The Canadian Banking System 1817-1890.

“The carrying trade between foreign ports had fallen off, and the ships had been brought home to compete with coasting vessels for the diminished volume of Canadian trade. The lumber and timber trade was suffering from lessened demand in England and the United States, from reduced prices, and from the increased competition of the products of Michigan and Wisconsin forests. Stagnation in the lumber trade left many of the labourers usually employed in it without work. Farmers and others who supplied them were affected, and in great sections of the country, dependent for prosperity on the lumber business, the stimulus to active industry was withdrawn.”

In 1873 and 1874, commercial failures in Canada numbered 994 and 966, respectively; however, there was a two-fold increase in 1875, which saw 1,968 failures. In the same three-year stretch, liabilities ballooned from $7.6 million to $28.8 million.

“The record for 1876-78 is nearly as bad, but hardly suggests the full severity of the hard times through which the people of the dominion were passing,” added Breckenridge.

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