Monday, September 7, 2015

2015 or 1883?

Monday, August 10, the Dow closed at 17,615. A week later, 70 points lower. Two days later, 358 points lower. One day later, 531 points lower. Another day later, 588 points lower. Finally, one more day, lower by 205 points. 17,615 to 15,666, down 1,949 points, 11.1% in two weeks.

My current novel takes place in 1883. If you can’t write because the walls are caving in, maybe you can find out if it happened in 1883. If it did, Wow! A leg up on knowing how it felt to your characters.

Take a not too scholarly, but not fictional, glimpse.

The Long Depression

Something called the Long Depression began with the Panic of 1873.  It lasted from October 1873 to March 1879, the longest-lasting contraction ever, 65 months, eclipsing the Great Depression's 43 months. Ending with an episode of expansion in 1879, the U.S. economy remained unstable, experiencing recessions for 114 of the 253 months until January 1901.

Western Expansion Half Decline

Anyone who lived during the years most people consider the bulk of the western experience, October 1873 to January 1901, could not personally, or by people near to them, get work or get enough work. More than half the time, 179 of 318 months, through more than half of the great Western Expansion, economic lives were lived in decline or depression.

Nominal wages declined by one-quarter during the 1870s and as much as one-half in some places (notably, Pennsylvania).  Real wages abandoned their robust post Civil War growth for stagnation in 1873 until the late 1880s.  When real wages resumed real growth, even that real growth continued only in fits and starts into the 20th Century. 

Prices Fall, Expand Production

What was going on?  Well, the collapse of cotton prices devastated the already war-ravaged economy of the South.   Farm prices fell dramatically throughout the nation and American agriculture responded by continuing to expand production.

Sound familiar?  Oil prices started to plummet in June, 2014, because of supply side imbalances.  Everyone assumed they would correct.  Oil prices continued to plummet into the high 30s because American (and Saudi) oil responded by continuing to expand production.

Businesses Failed, Debt Defaulted

Through the 1880s, thousands of American businesses failed, defaulting on more than a billion dollars of debt.  Anything sound familiar, today?

Railroads’ tremendous engine of growth, absorbing 20% of US capital
investment, came to a dramatic end in 1873.  It began to recover in 1878, exploding by 1882, and, just as The Chinese Exclusion Act reduced unemployment to 2.5%, collapsed.  Manufacturing reflected the collapse with the price of steel rails plunging from $71/ton in 1880 to $20/ton in 1884. Business profits mimicked the decline by 1884.

New York Banks Collapsed

As winter follows spring, another financial crisis in 1884 brought multiple New York banks to collapse simultaneously.  Unemployment, surged to 7.5% nationally in 1884-1885 and 13% in the Northeast.

Misery in New York and Pennsylvania and the Northeast ruined lives in the West as this second recession led to further declines in farm prices. Farmers burned their own corn in 1885 because it was worth less than coal mined by children or wood collected from the ground.

The Government Steps In:  Rob the Indians and Gild the Robbers

Perhaps this was not the beginning of the today's fervent belief that it is the Government’s role to rescue the private economy, but at that moment, it became government policy to plunder Indian Territory to create a rising market and combat persistent recession.  The recovery began.   The country rebuilt, extended, and refinanced the western railways in conjunction with the government’s wholesale giveaway of water, timber, fish, minerals, in what had previously been Indian Territory.
A notable side effect of this expansion of markets and industry was the creation of the robber barons and the genteel 1880s and 1890s. The Gilded Age was the outcome for the few rich. It worked pretty well until the cycle repeated itself with another spectacular crash in 1893.
To be fair, not just the robber barons did well. Real per-capita income stayed relatively constant and then rose for twelve of these years, so that the average consumer appears to have been considerably better off at the end of the "depression" than before.

The Harder It Got, The More We Bought

No matter how hard it got, consumption went up.

The Grand Court at Wanamakers
And like today, hand in glove with the overall growth in real prosperity came a marked shift in consumption from necessities to luxuries.  By 1885, more houses were built, twice as much tea was consumed, and even the working classes ate imported meat, oranges, and dairy products. Proof of the change in working class incomes and tastes came during this period with the “invention” of the department store and the chain store.

Prices fell, but consumption of everything went up: from coal and pig iron and import and export figures to consumption per head of wheat, meat, tea, beer, and tobacco.  In short, it was very hard to get a job, but if you did, you could buy anything you wanted.

Even The Start of Globalization

A modern phenomenon started in 1883:  international banking crises began to be synchronized across borders. While this phenomenon was not discovered (or, at least, not proven) until 2008, banking crises were internationalized and correlated from 1883 into the Depression.  Because of the strong regulatory environment that prevailed from the Depression into the 1980s, they were less internationalized and correlated.  Since the 80s, correlated again.
By the way, oil, falling wages, and looming recession through Europe were all perfectly on stage for the first (of four) devaluations of the Yuan on Monday, August 17. 

Model Script for Crisis

Finally, the financial crisis of 1884, resulted in an investigation and report by The Comptroller of the Currency, a model script for all future government reports:

This … uncertainty as to value culminated on May 6 with the failure of the Marine National Bank of New York whose president was a member of the firm of Grant & Ward. 
(He neglected to mention that Grant was the president’s nephew and Ward was a scoundrel.)
…institutions and firms supposed to have loaned money upon such railroad and other securities decreased in value …
The … crisis …more or less felt in all parts of the country.  There is little doubt that … causes … among the banks … was their intimate relation … to the New York Stock Exchange and … loans … based upon the security of stocks and bonds, often speculative in their character.

Back to my 1883.  My sheriff, up in his high mountain home, had no idea the walls were caving in while he tried to hunt down his father’s killer, hold down two jobs to support his families, and evade the U.S. Marshals who stood to make $300 ($7,800 today) by catching him. 

E-mail Edward Massey with comments, author of 2014 Gold Quill winner, Every Soul Is Free and Amazon ABNA 2009 Quarter-finalist, Telluride Promise.


  1. That's interesting insight, Ed. The economic issues of the Old West is something we seldom think about. There's little doubt that there was great deal of concern and discussion, as much as the era's means of communications allowed, which was probably more than we think about. I like to touch on the concerns of the day in my books. In The Hardest Ride Bud listens to freight wagon teamsters complain about how the expanding RRs are hurting their business. In the coming sequel, Ride Harder, we listen in on a discussion between ranchers about the impact last year's Great Die Up had on beef prices. Thanks much for the article, Ed.

  2. Gordo,
    Your point about communication is very well taken. If no one tells you you're living in rough times, then maybe you aren't. The two important achievements in communication both came in the 1860s. In 1861, a line connecting a network in the eastern United States to a small network in California linked up between Omaha and Carson City via Salt Lake City. It was the only method of near-instantaneous communication between the east and west coasts during the 1860s. On May 10, 1869, the Golden Spike finished the transformation of communication. From 1870, the communication infrastructure was in place to allow the pain felt in one place to be transported to all. Edward.

  3. The long depression is something I've been fascinated with for some time. Because of the 1873 crisis, a banker in Colorado Springs by the name of William Sharpless Jackson, started the El Paso Bank to counter the effects of the closings in New York. He remained in charge of the bank here and in Denver for over 30 years. His story, and his marriage to author Helen Hunt Jackson, are a source of research that is ongoing and very fascinating. I thank you for adding further information for me to ponder. Doris McCraw/Angela Raines-Author

  4. Terrific. Can't wait to hear more. When you have a story or a book you want read (or purchased), please let me know.

  5. It's amazing to think of a Depression right in the middle of what most of us consider the heyday of the cowboy era. It's something we ought to try to work into the background of our books, though, because our heroes and heroines would have been concerned with how they were going to make ends meet -- well, unless they were professional outlaws like my pair of scoundrels...

  6. J.E.S., Spot on! You hit the reason for my interest. I have met your pair of scoundrels...and even they would take into account whether or not a person had a job.