The Politics of Economic

Crises: The Panic of 1873, the

End of Reconstruction, and the
Realignment of American
Politics
1
Nicolas Barreyre, Universit Paris Ouest Nanterre
On September 18, 1873, the announcement of Jay Cooke and Companys bank-
ruptcy sent Wall Street to a panic, and the country to a long, harsh depression.
Americans interpreted this economic crisis in the light of the acrimonious financial
debates born of the Civil Warthe money question chief among them. The conse-
quences transformed American politics. Ideologically ill-equipped to devise cohesive
economic policies, political parties split dangerously along sectional lines (between
the Northeast and the Midwest). Particularly divided over President U.S. Grants
veto of the 1874 Inflation Bill, the Republican Party decisively lost the 1874 con-
gressional elections. As a Democratic majority in the House spelled the doom of
Reconstruction, the ongoing divisions of both parties on economic issues triggered
a political realignment. The dramatic 1876 elections epitomized a new political
landscape that would last for twenty years: high instability in power at the national
level and what has been described as the politics of inertia. Therefore, by closely
following the ramifications of the 1873 panic, this article proposes an explanation
of how an economic crisis transformed into a pivotal political event.
Before the crisis of 1929 claimed the name, the Great Depression com-
monly referred to the tough economic times ushered in by the Panic of
1873. Starting with a double financial crash (in Vienna, Austria, in the
spring, and in New York in the fall), it evolved into a full-blown economic
depression that spread through Europe and North America, with an initial
recession that severely affected production, prices, and wages. Social costs
1
This article greatly benefited from the comments of many fine scholars who have either read or
heard it at different stages. I particularly wish to thank Margo Anderson, Richard Bensel, Pierre
Gervais, Jean Heffer, Richard John, and Scott Nelson for their very helpful input.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 doi:10.1017/S1537781411000260 403
were heavy; widespread unemployment bred labor unrest and strikes, often
met with harsh repression.
Nevertheless, we know surprisingly little about this major event of the post-
bellum United States. Although its historical impact was largeand, as two
scholars have recently argued, it might be particularly relevant to understand
todays economic crisis
2
few studies have tried to explain its manifold con-
sequences, economic, social, and political.
3
Reconstruction is a case in point.
Arguably the most salient political issue of the day, it could not but be
affected by a crisis of such magnitude, yet many classic studies simply over-
look it.
4
Others mention it, but rarely give it real explanatory power in their
arguments.
5
It might be that the historiography of Reconstruction, focusing
on race and politics in the South, has evolved very separately from other his-
toriographies dealing with developments within the North.
6
Still, even
studies with a more national scope, while they give more importance to
the 1873 economic crisis, generally approach its political consequences in
the broadest terms (often in striking contrast with the detailed analyses
they otherwise offer).
7
The specific causal links between the economic crisis
and the fate of Reconstruction remain nebulous.
To many historians, however, it seems obvious that the 1870s were a turning
point in American history. Textbooks also tell us so, generally using 1877 as
2
Scott Nelson, The Real Great Depression, Chronicle of Higher Education, Oct. 17, 2008; Paul
Krugman, The Third Depression, New York Times, June 27, 2010. The current crisis has renewed
scholarly interest in historical precedents: see Carmen M. Reinhart and Kenneth S. Rogoff, This
Time Is Different: Eight Centuries of Financial Folly (Princeton, 2009).
3
There is no equivalent to the study of the Panic of 1857 by James L. Huston, The Panic of 1857
and the Coming of the Civil War (Baton Rouge, 1987).
4
See for instance such standard works as William Gillette, Retreat from Reconstruction, 18691879
(Baton Rouge, 1979); and Michael Perman, The Road to Redemption: Southern Politics, 18691879
(Chapel Hill, 1984); or, more recently, Brooks D. Simpson, The Reconstruction Presidents
(Lawrence, KS, 1998).
5
A typical example might be James Keith Hogue, Uncivil War: Five New Orleans Street Battles and the
Rise and Fall of Radical Reconstruction (Baton Rouge, 2006). The author mentions the economic
recession only to explain that unemployment swelled the ranks of the White Leagues in Louisiana.
6
Heather Cox Richardson underlines this in North and West of Reconstruction: Studies in
Political Economy in Reconstructions: New Perspectives on the Postbellum United States, ed.
Thomas J. Brown (Oxford, 2006), 6690.
7
For instance, Eric Foner views it as a large shift in the history of political thought and culture; the
end of free-labor ideology put the fear of class warfare into the elites and pushed the Republican
Party to economic conservatism. Foner, Reconstruction: Americas Unfinished Revolution, 18631876
(New York, 1988), 51224. More recently, Michael Holt argued that voters generally voted the
party out of power when such a hardship hit: David Herbert Donald, Jean Harvey Baker, and
Michael F. Holt, The Civil War and Reconstruction (New York, 2001); Michael F. Holt, By One
Vote: The Disputed Presidential Election of 1876 (Lawrence, KS, 2008).
404 | Barreyre | The Politics of Economic Crises
a cutting point in their narratives. The transformations of the decade have
been analyzed through many lenses. Politically, the 1870s saw the resur-
gence of Democrats, the end of Reconstruction, and an altogether new char-
acter of American politics.
8
Economically, the decade ushered in an
unprecedented trend of concentration and the waning of the producerist
ideology, especially among businessmen. Socially, it resulted in a hardening
of class lines.
9
All in all, the 1870s were a time of deep transformations of
American society. Arguably, the 1873 crisis played a large role in this.
Richard Schneirov recently argued in this journal that it triggered a change
in class relations and systems of production, thus making it a fitting starting
date for the Gilded Age.
10
How could a banking panic trigger such momentous changes? Part of the
explanation, this article argues, lies in the way Americans interpreted the
financial events and their economic consequences. These interpretations
were based on facts, of course, as they became known, but they also relied
heavily on past experience and ongoing debates in political economy.
What follows is an examination of the specific mechanisms that translated
an economic event into a political response. In essence, it is an analysis of
what could be called the politics of the 1873 crisis. By this phrase, I
mean three complementary dimensions of a single phenomenon: first, the
political legacy and structure that constrained the response to the crisis;
second, the political reaction to the crisis; and third, the effect of this reac-
tion on both the political culture and structure of the United States. This
multi-faceted approach should help us understand how Americans analysis
of the crisis was strongly shaped by past political debates and why such a
reading led to a crucial, if partial, reconfiguration of the partisan landscape
that would last for the remainder of the nineteenth century.
8
Paul Kleppner, The Third Electoral System: Parties, Voters and Political Cultures, 18531892 (Chapel
Hill, 1979); Morton Keller, Affairs of State: Public Life in Late Nineteenth-Century America
(Cambridge, MA, 1977), quotation 238.
9
Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business
(Cambridge, MA, 1977); Walter T. K. Nugent, Money and American Society, 18651880
(New York, 1968); Richard Schneirov, Labor and Urban Politics: Class Conflict and the Origins of
Modern Liberalism in Chicago, 186497 (Urbana, 1998); Sven Beckert, The Monied Metropolis:
New York City and the Consolidation of the American Bourgeoisie, 18501896 (New York, 2001).
10
Richard Schneirov, Thoughts on Periodizing the Gilded Age: Capital Accumulation, Society,
and Politics, 18731898, Journal of Gilded Age and Progressive Era 5 (July 2006): 189224.
The phrase Gilded Age is used here for lack of a better one. Although the terminology might
be contested, Schneirov offers a convincing argument about the chronology of the period. On
the term itself, see the forum in Journal of Gilded Age and Progressive Era 8 (Oct. 2009): 46385.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 405
From Financial Panic to Economic Recession
We know little more about the economic aspects of the Panic of 1873 and
its consequences than its political impact. The last in-depth studies date back
to the 1950s, yet those works relied heavily on the report Harvard economist
Oliver M. W. Sprague wrote for the U.S. Congresss National Monetary
Commission in 1910.
11
Otherwise, the crisis has been studied in relation
to others in the nineteenth century. Two fields of inquiry sum up the atten-
tion the episode seems to have received from economists and economic his-
torians. The first one deals with business cycles and revolves around the
influential chronology of peaks and troughs the National Bureau of
Economic Research has published since the 1920s.
12
Scholars interested
in financial crashes also include Black Friday in 1873 but as an instance
among many nineteenth-century panics: They generally try to create a
model out of the recurring events but use little space for an in-depth analysis
of each.
13
On Wall Street, the panic started on September 18, 1873, with the suspen-
sion of Jay Cooke and Company. The financier, famous for having marketed
11
O. M. W. Sprague, History of Crises under the National Banking System (Washington, 1910). Most
data related to the crisis in later works come from this book; among the most useful are Rendigs
Fels, American Business Cycles, 186597 (Chapel Hill, 1959); and Irwin Unger, The Greenback
Era: A Social and Political History of American Finance, 18651879 (Princeton, 1964). Fred
Moseley also remarks on the scant scholarship on the 1873 crisis, while Hugh Rockoff underlines
in a survey published in 2000 that Spragues book is still indispensable: Fred Moseley,
Depression of 18731879 in Business Cycles and Depressions: An Encyclopedia, eds. David
Glasner and Thomas F. Cooley (New York, 1997), 14849; Hugh Rockoff, Banking and
Finance, 17891914 in The Cambridge Economic History of the United States, vol. 2: The Long
Nineteenth Century, eds. Stanley L. Engerman and Robert E. Gallman (Cambridge, 2000),
64384. One notable exception is Elmus Wicker, Banking Panics of the Gilded Age (Cambridge,
2000), 1633, which offers a new narrative and brings new data to the analysis of the banking
side of the panic.
12
The first NBER study of business cycles was published in 1923: National Bureau of Economic
Research, Business Cycles and Unemployment; Report and Recommendations of a Committee of the
Presidents Conference on Unemployment, Including an Investigation Made under the Auspices of the
National Bureau of Economic Research, 1st ed. (New York, 1923). This ongoing study has since
been the subject of many discussions and reevaluations, but most commonly with regard to
twentieth-century data. For a recent essay focusing on the nineteenth century, however, Joseph
H. Davis, An Improved Annual Chronology of U.S. Business Cycles since the 1790s, Journal
of Economic History 66 (Mar. 2006): 10321.
13
Certainly the most successful attempt is Charles P. Kindleberger, Manias, Panics, and Crashes: A
History of Financial Crises (1978; rev. ed., New York, 1989). See also Charles W. Calomiris and
Gary Gorton, The Origins of Banking Panics: Models, Facts, and Bank Regulation in
Financial Markets and Financial Crises, ed. R. Glenn Hubbard (Chicago, 1991), 10973. A good
summary of the financial side of the crisis and the scholarship dedicated to it can be found in
Rockoff, Banking and Finance, esp. 66769, 942.
406 | Barreyre | The Politics of Economic Crises
more than a billion dollars in U.S. bonds during the war, had invested heav-
ily in railroads, especially a second transcontinental: the Northern Pacific
Railway. However, in 1873 the road was nowhere near completion, and
Cooke failed to sell new securities in a very tight market. Having underwrit-
ten the company, he went bankrupt.
14
Several businesses had already failed that month, but the news about Jay
Cooke and Company stunned Americans: Both the financial clout and the
high visibility of the financiers firm led to a panic. Many banks failed in
its wake, as credit suddenly withdrew from the market, and short-term
loans were recalled. The New York Stock Exchange closed on September
20for the first time in its historyand did not reopen for the following
ten days. At the urgent request of many prominent bankers, the U.S.
Treasury injected money into the system, first by buying U.S. bonds, then
by reissuing greenbacks. To protect their rapidly depleting reserves,
New York banks partially suspended payments on their notes and centralized
payments in the New York Clearinghouse (a consortium of banks that issued
loan certificates, instead of cash, for interbank transfers). By November, the
financial storm had passed, and banks resumed payments of their notes.
15
A credit bubble had burst and led to a panic. This overextension was partly
the result of the financial system that had emerged from the Civil War and
especially the pyramidal National Banking System that facilitated the drain-
ing of money toward the East Coast financial centers.
16
Two other trends
one recurring and one newcompounded this problem in 1873. The
New York financial market was seasonally tight every fall: Many country
banks, which deposited their reserves in New York banks, recalled them
every fall for the moving of the considerable crops harvested in the
Midwest; many eastern banks also lent huge amounts of cash to the currency-
deprived region at the same time. This drained money from the large centers
of the East, especially New York. This dangerous recurring situation had
alarmed bankers for a long time.
17
The explosion only came in the wake
14
The President and the Panic, Harpers Weekly, Oct. 11, 1873, 890; David Glasner, Crisis of
1873 in Business Cycles and Depressions, eds. Glasner and Cooley, 13234; Henrietta M. Larson,
Jay Cooke, Private Banker (Cambridge, MA, 1936); Richard White, Railroaded: The Transcontinentals
and the Making of Modern America (New York, 2011).
15
The President and the Panic, Harpers Weekly, Oct. 11, 1873, 890; Rockoff, Banking and
Finance; Glasner, Crisis of 1873; Wicker, Banking Panics. Wickers contention is that suspension
was unnecessary and probably a serious mistake.
16
Fritz Redlich, The Molding of American Banking: Men and Ideas (repr. New York, 1968).
17
U.S. Comptroller of the Currency, Annual Report of the Comptroller of the Currency (Washington,
1868); Margaret G. Myers, The New York Money Market (New York, 1931); Richard Franklin
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 407
of the drying up of European investment, however, on which U.S. railroads
especially had relied heavily: the crash in Vienna in May 1873 had dam-
pened the mood of European investors, which set the context for the U.S.
panic in the fall. Although the Vienna crisis mainly affected Central
Europe (France and England managed to stay out of it, for the most
part), many Europeans had already started liquidating their riskier invest-
ments, U.S. railroad securities among them.
18
This new drain on money
in the New York market combined with the seasonal withdrawal of western
reserves and prevented the sale of any new securities Cooke had counted on.
His failure snowballed into a full-blown panic.
If, by November and after drastic measures, the financial crisis was over, it had
spread to other sectors of the economy. Particularly hit were the railroads.
After the Northern Pacific, whose failure had triggered the panic, other pro-
minent companies defaulted, such as the Chesapeake and Ohio, the
Burlington, and the Kansas Pacific. In a month, fifty-five roads had failed
to meet their payments, and in three years, half of the railroad companies
went to receivership. Railroad construction virtually stopped for the remainder
of the decade. This, in turn, dramatically reduced the demand for many indus-
tries. Output of iron and steel declined by 45 percent in barely a year.
Construction of machines dropped heavily. Production in other sectors was
not hit as severely (agricultural output even continued expanding), but econ-
omic conditions worsened for them too, especially trade, building construc-
tion, and services. New York international commerce dropped. The country
experienced the longest contraction of business in its young history.
19
Although aggregate numbers of national production resumed growing fairly
rapidly, the United States had entered what some economists have called a
Long Depression, which would last until the final years of the century. A
drop in prices, bringing down industrial wages and farm income, character-
ized this period.
20
Social consequences were particularly severe in the
Bensel, Yankee Leviathan: The Origins of Central State Authority in America (New York, 1990), 265
67.
18
Glasner, Crisis of 1873; Charles P. Kindleberger, A Financial History of Western Europe, 2nd
ed. (Oxford, 1993).
19
Unger, Greenback Era, 22026; Nugent, Money and American Society, 17584; Moseley,
Depression of 18731879; Jean Heffer, Le port de New York et le commerce extrieur amricain,
18601900 (Paris, 1986), 9; Joseph H. Davis, An Annual Index of U. S. Industrial Production,
17901915: Companion Technical Data Appendix, National Bureau of Economic Research,
http://www.nber.org/data/industrial-production-index/ (accessed July 25, 2011).
20
Among those introducing the concept of a Long Depression was Rendigs Fels, The Long-Wave
Depression, 187397, Review of Economics and Statistics 31 (Feb. 1949): 6973. Fels based his
408 | Barreyre | The Politics of Economic Crises
1870s: Workers real wages collapsed, bottoming in 1880 at their 1860
level. Many others lost their jobs. Thousands were laid off in the coal and
iron areas of Ohio, Pennsylvania, and Illinois. Approximately a fourth of
the labor force in New York City was unemployed during the first winter
after the panic. Farmers also suffered, as prices dropped (especially wheat),
and mortgages became unavailable for several months and remained too
expensive afterwards. Such changes came about quite abruptly: Factories
and employers throughout the country are discharging hands, working half
time, or reducing wages, reported Republican lawyer George T. Strong in
his diary as soon as October 1873. There is a prospect of a hard, blue win-
ter. Labor tensions quickly flared. The Tompkins Square Riots of January
1874, when a workers demonstration, the largest yet held in New York
City, met brutal police repression, epitomized the abrupt worsening of econ-
omic and social conditions in the nation.
21
The Political Response to the Panic
Interestingly, initial reactions to the financial panic were often optimistic.
Trade journals probably strove to preserve confidence by downplaying the
panic,
22
but generalist newspapers initially understood the situation in the
same way. Ohio was a case in point: Both Republican and Democratic papers
reported the news without much alarm. On Thursday last, another panic
came upon the money market of New York, which continued over Friday,
making what is called another Black Friday, reported the Republican
Ashtabula Sentinel. By Saturday, the fog had cleared away to some extent,
and matters have assumed a better shape. In those early days, some even
claimed the incident would have positive consequences. The Democratic
Cincinnati Enquirer wrote as soon as September 23 that the financial
panic in New York is practically ended. . . . The business of the country
has only suffered a two-days check which rose from timidity or uncertainty.
. . . But the misfortune was not one of great magnitudewas, indeed, of
case on the National Bureau of Economic Research chronology of peaks and troughs, which relied
heavily on price movements. This has been revised based on a new production index in Davis, An
Improved Annual Chronology.
21
Robert A. Margo, The Labor Force in the Nineteenth Century; and Jeremy Atack, Fred
Bateman, and William N. Parker, The Farm, the Farmer, and the Market in The Cambridge
Economic History of the United States, eds. Engerman and Gallman, 2:20784; Unger, Greenback
Era, 226; Jeremy Atack, Susan Previant Lee, and Peter Passell, A New Economic View of
American History: From Colonial Times to 1940, 2nd rev. ed. (New York, 1994); Herbert G.
Gutman, The Tompkins Square Riot in New York City on January 13, 1874: A
Re-Examination of Its Causes and Its Aftermath, Labor History 6:1 (1965): 4470.
Quotation from George T. Strong, The Diary of George Templeton Strong, eds. Allan Nevins and
Milton Halsey Thomas (New York, 1952), 4:498.
22
At least, that is how Irwin Unger perceived the initial response. Unger, Greenback Era, 213.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 409
some public advantage. The railroad interests, so much of them as consist in
nothing but credit, have received a needed admonition.
23
Such optimism did not last, but those observations indicate how the political
landscape shaped the reactions to the panic. Most read the panic in the light
of the previous Black Friday: the Gold Corner of 1869, a speculative
scheme led by financial buccaneers James Fisk and Jay Gould. Newspapers
analyzed the event in the same perspectiveit was a case of speculation
on money gone wrong. Most observers expected a similar outcome: disagree-
able, to be sure, but in the end rather innocuous. Similarly, because the crash
involved a railroad company, many newspapers read the episode in the con-
text of the political struggles that had been agitating the Midwest, and
especially farmers, for several years, around the issue of railroad rate policies.
For some, this all seemed a salutary check to the shady practices of the rail-
road barons.
24
So the financial panic was not a bolt in a clear sky that sparked new thinking
or changed peoples worldview. On the contrary, because it came at a time
when economic issues had been hotly debated for several years, it served
only to confirm Americans in the opinions they had forged in the fires of
political campaigns. By 1873, one issue dominated the conversation on pol-
itical economy: the money question.
Born of the Civil War, the money question had become the lightning rod of
all economic debates. Certainly monetarists today would be happy to learn
that, once upon a time, money was deemed the root of all economic policies.
The issue revolved mostly around greenbacks, the non-convertible currency
that the Union had created to finance the war and made legal tender. Many
people were wary of such paper: Historical precedents in the Western world
had invariably been disastrous. By the end of the war, almost everybody
agreed that restoring convertibility between greenbacks and gold dollars
what was called specie paymentswas the desirable goal. Immediately
after the war, Secretary of the Treasury Hugh McCulloch started to aggres-
sively retire greenbacks from circulation, but he soon met with mounting
23
Ashtabula Sentinel, Sept. 25, 1873; Cincinnati Enquirer, Sept. 23, 1873. Such an outlook was not
peculiar to Ohio; Harpers Weekly thought the new panic was less serious than the 1869 Gold
Corner and believed it would serve as a useful lesson to all. The Financial Outlook, Harpers
Weekly, Sept. 27, 1873, 843.
24
Maury Klein, The Life and Legend of Jay Gould (Baltimore, 1986), 65210; Richard White,
Information, Markets, and Corruption: Transcontinental Railroads in the Gilded Age, Journal
of American History 90 (June 2003): 1943.
410 | Barreyre | The Politics of Economic Crises
resistance. His timing was bad. The country was going through a brief reces-
sion as it was transitioning from a war to a peace economy, and the contrac-
tion McCulloch led intensified the slump. Maybe greenbacks were desirable
after all; at least some congressmen opened the debate as soon as 1866. The
following year, Ohio Democrats successfully seized the topic as an electoral
weapon. Now, even though Reconstruction was center stage, the money ques-
tion had captured the economic imagination of Americans.
25
So heated was the debate that it crystallized into two clear-cut positions; one
was either soft-money or hard-money. Two main features explain this
evolution: moralism and sectionalism. First, the debate was cast very early
in terms barely more subtle than good versus evil. As in every human nature
it is said the angelic and the devilish constantly struggle for the mastery, so
the Treasurer found there was a war in the members of the greenback,
exclaimed one senator in 1870. I think we shall all contemplate that the
good triumphed over the bad, he then concluded, somewhat hastily.
26
Such a stark moralization is quite striking in a debate so technically complex
and multi-layered, involving the problem of inflation versus contraction; the
discrepancy between international trade (conducted in gold) and domestic
trade (in greenbacks); the workings of the new national banking system; geo-
graphical gaps in interest rates, money supply, and credit availability; and the
adverse consequences of speculation. In spite of that complexity, every aspect
was politically subsumed into two positions set in morally absolute terms. On
the one hand, advocates of the gold standard evoked the moral perils of paper
money: Devoid of any intrinsic value, it was the tool of men dishonorable
enough to seek to evade paying their debts through inflation. On the other
hand, defenders of greenbacks grounded their arguments in the new nation-
alism born in the war: It was, for them, a patriotic currency, a tool used to
fight secession. It was also the money of the people, not of the bankers, well
suited to the democratic character of the United States.
27
The second feature of the money question was its sectional character. Very
rapidly, the issue opposed midwesterners to northeasterners: Whereas the
25
Robert P. Sharkey, Money, Class, and Party: An Economic Study of Civil War and Reconstruction
(Baltimore, 1959); Unger, Greenback Era; Walter T. K. Nugent, The Money Question during
Reconstruction (New York, 1967); Nugent, Money and American Society; Gretchen Ritter,
Goldbugs and Greenbacks: The Anti-Monopoly Tradition and the Politics of Finance in America
(New York, 1997).
26
Congressional Globe, 41st Cong., 2nd sess. (Jan. 24, 1870), 702.
27
The moral approach to the money question is at the crux of Walter Nugents argument in The
Money Question during Reconstruction and Money and American Society. On the role of Protestant
clergymen, see Unger, Greenback Era, 12031.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 411
former started favoring an increase in the circulation of greenbacks, the lat-
ter advocated a forceful policy of contraction to return to specie payments.
This sectional pattern is particularly striking as it divided both
Republicans and Democrats, at a time when Reconstruction strongly polar-
ized the parties. Built upon the ideological issues of slavery, states rights,
and the nation, the Civil War parties did not manage to effectively lock
into positions on the money question. On the contrary, sections shaped
the debate. Whatever the complexities of the political situation and the
differences of opinion at the local level, the Midwest was identified as soft-
money, and the Northeast as hard-money.
28
At the local level, there was no unanimity on the issue: many midwesterners
proved to be hard-money, whereas the Northeast had many soft-money pro-
ponents. However, everybody felt compelled to address the sectional dimen-
sion of money policies, and at the national level this translated into
identifying each section as either soft-money or hard-money. Thus, the
debate was not politically structured along party lines, but along sectional
lines.
This sectionalization had a short but polarizing history by 1873. In several
stages, the money question became more prominent and more disruptive to
party politics. In 1867, Ohio Democrats started to use it as a political
weapon against their states Republicans. The Ohio Idea, or Pendleton
Plan as it was sometimes known, proposed paying off a portion of wartime
bonds with paper money rather than gold or silver. The proposal helped Ohio
Democrats win the state elections that year, but it soon divided the party
nationally. New York Democrats, fearing a soft-money insurgency, maneuv-
ered to make sure that a hard-money man would run as their presidential
candidate in 1868even though their candidate, Horatio Seymour, had a
war record that made him a poor choice against Ulysses S. Grant.
29
28
On the sectional politics of the money question, Nicolas Barreyre, Sectionalisme et politique aux
tats-Unis: le Midwest et la Reconstruction, 18651877 (PhD diss., EHESS, 2008), 97159.
The role of sectionalism in economic issues was studied by Howard K. Beale, The Critical Year: A
Study of Andrew Johnson and Reconstruction (New York, 1930); but his particular analysis encoun-
tered considerable criticism after World War II. See, for example, Stanley Coben, Northeastern
Business and Radical Reconstruction: A Re-Examination, Mississippi Valley Historical Review 46
(June 1959): 6770; and Sharkey, Money, Class, and Party. These scholars did not offer an
alternative model of how sectional tensions shaped the money question. On the importance of sec-
tionalism in American politics, see Richard Franklin Bensel, Sectionalism and American Political
Development: 18801980 (Madison, 1984).
29
On George Pendletons role in the Ohio Idea, see Thomas S. Mach, Gentleman George Hunt
Pendleton: Party Politics and Ideological Identity in Nineteenth-Century America (Kent, OH, 2007). On
the presidential conventions of 1868, see John Hope Franklin, Election of 1868, in History of
412 | Barreyre | The Politics of Economic Crises
Republicans too were divided, and it took party leaders a lot of energy and
skill to forge a compromise on the issue. The Public Credit Act of 1869,
later touted as a hard-money pledge, was in fact the result of very difficult
negotiations between hard-money, mostly northeastern, Republicans and
their soft-money, mostly midwestern, colleagues. Neither faction was ever
satisfied with it, however, nor was the issue settled.
30
Such a history ensured that when Congress convened in December 1873,
everybody analyzed the situation in light of the money question.
Hard-money men explained that the panic had been brought on by the
speculation encouraged by the gap in value between specie and greenbacks.
They read the crisis as a worse repeat of the Gold Corner of 1869 and
were convinced that all those disturbances would disappear once the dollar
went back to the gold standard. To them, gold had a fixed, intrinsic value,
and they believed that the problem of money supply would be automatically
solved by the resumption of specie convertibility. On the other hand, soft-
money men analyzed the panic as the result of a severe stringency of
money: For them, the crisis would not have happened had the volume of cur-
rency not been kept excessively small. The money market was too tight each
time cash was drained to the Midwest for moving the crops, and the bank
failures could have been avoided if currency had been available for temporary
loans to keep them afloat. It was not a matter of too many greenbacks, but not
enough of them.
The Inflation Session
No new economic policy arose from the market crash. Congress merely
replayed a drama rehearsed many times over the previous years. However,
it entered into such a violent debate about money that the entire session
was soon dubbed the Inflation Session. Though no new argument emerged,
the depression gave a new urgency to pre-existing political debates about the
economy. In short, the various participants seemed suddenly to believe that
the country could escape the crisis only if the money question was resolved,
and the sides hardened their positions with renewed fervor.
The crisis was only partly responsible for the level of tensions in Congress,
for its timing coincided with the reapportionment of the House of
Representatives. The ninth census of 1870 had recorded the rapid
American Presidential Elections, 17891968, eds. Arthur M. Schlesinger Jr. and Fred L. Israel
(New York, 1971), 124766.
30
Sectional tensions are clearly visible in the congressional debates and votes. For a detailed analy-
sis, Barreyre, Sectionalisme et politique, 29194.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 413
demographic growth of the Midwest
31
, now the most populous section of the
country. In the 43rd Congress convening for the first time in December
1873, there would be more representatives from the Midwest than from
any other section. Moreover, the new apportionment added fifty seats to
the House, enlarging it by a fifth.
32
This had huge consequences for political
debate. The slew of freshman representatives made the political dynamics of
the House much more difficult to predict and to manage. Party leaders wor-
ried: The panic is the all absorbing theme, wrote veteran Ohio Republican
(and hard-money advocate) James Garfield, and members are beginning to
feel that it will extend itself far beyond its original boundaries. Congress will
be a Babel of confusion on the questions of finance. He added, So much
depends upon the new members that no one can say what the outcome
will be.
33
Even more, an 1870 congressional battle virtually ensured that the money
question would have been on the table in the 43rd Congress, even without
the panic. Feeling short-changed by the weight of northeasterners on econ-
omic issues, several midwestern congressmen introduced in 1869 an amend-
ment to the census law that would have reapportioned the House as soon as
the 1870 elections. Northeasterners fought it for economic reasons: They
feared that a more powerful midwestern group would succeed in passing soft-
money policies, and they successfully delayed reapportionment until 1872.
The measure would have been practically difficult to implement on the
ground, but the congressional debates linked the new apportionment to the
money question.
34
As the crisis shattered the uneasy compromise within
the Republican Party, the new sectional balance of power in Congress
explained much of the outcome of the debates.
These parliamentarian factors combined with the crisis to fire up Congress
on the money question throughout the session. More than 2,000 bills related
to currency matters were introduced in the first two months of the session.
Debates were long, tense, and feverish. One observer calculated that they
filled more than 1,700 columns of the Congressional Record. The mood
31
The word Midwest is used here for clarity, even though it did not exist at the time.
Contemporaries most often talked of the (Old) Northwest when referring to the states from
Ohio to Kansas and Minnesota.
32
Data from Kenneth C. Martis, Ruth Anderson Rowles, and Gyula Pauer, Historical Atlas of
Political Parties in the United States Congress, 17891989 (New York, 1989).
33
James Garfield to William C. Howells, Nov. 15, 1873, and to Harmon Austin, Nov. 19, 1873,
in vol. 14, ser. 6A, Garfield Papers, Library of Congress.
34
Nicolas Barreyre, Runifier lunion: intgrer louest la Reconstruction amricaine, 1870
1872, Revue dHistoire Moderne et Contemporaine 49 (Oct.Dec. 2002): 736.
414 | Barreyre | The Politics of Economic Crises
was uncompromising. The many speechesat least 125 of which were pre-
pared, generally an indication they would be printed as pamphlets for the
upcoming electionsexpounded their views with quasi-religious fervor,
and the votes showed the highest sectional tension Congress had known
on the topic since the war.
35
The hyperbolic tone of the debates was at odds with the modest proposal
under discussion. The bill that finally passed Congressstigmatized as the
Inflation Bill by its adversariesundertook to add only 64 million dollars
to the currency volume already in circulation. A third of that amount had
already been issued during the emergency of the panic, and most of the
rest would be in national banknotes, not greenbacks. It is a sign of the pas-
sion of the debates that such a moderate measure could only pass by a strictly
sectional vote: Midwesterners and southerners voted for it; members from the
Northeast and the West Coast against it. Both parties were openly divided,
and the uncompromising tone hinted that they had been brought dangerously
near explosion.
Such tensions explain why the news of President Ulysses S. Grants veto in
April 1874 sent hard-money men into heights of rhetorical ecstasy, and
their soft-money opponents into fits of rage. The Presidents veto of the
inflation bill is the most important event of his administration, wrote
Harpers Weekly in its lead editorial. It saves the national honor, it redeems
the pledge of the great popular majority which elected him, it renews the hope
of the Republican Party, and it restores the old regard of the country for the
citizen whom it had so gladly honored for his great service in the field. So
much was at stake, apparently. James Garfield even pronounced Grant one
of the luckiest men that ever sat in the Presidential Chair just for having
had the opportunity to veto this bill. Still, many others were shocked,
especially in the Midwest. The Cincinnati Trade List and Commerce Bulletin
warned that the west and south have the means to ultimately command
the situation by their overwhelming majority of voting population, and
when the question comes to a decision by the people, they will scatter the
dry bones of the Shylocks and sophists like chaff before an autumnal
gale. Midwestern Republicans worried. What does Grant mean? one
35
Charles Francis Adams Jr., The Currency Debate of 18731874, North American Review, July
1874, 11165; James A. Garfield, The Diary of James A. Garfield, eds. Harry James Brown and
Frederick D. Williams (East Lansing, MI, 1967), 2:288. Roll-call analysis based on data compiled
by Howard L. Rosenthal and Keith T. Poole, United States ongressional Roll Call Voting Records,
17891990 (Ann Arbor, 2000), http://dx.doi.org/10.3886/ICPSR09822 (accessed Jan. 29,
2011).
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 415
asked. Has he gone over to the enemy? Does he wish to break up the
Republican party by his infernal veto?
36
This, indeed, was a question on every Republican leaders mind. Even though
some, like Speaker of the House James Blaine or Senate Finance
Committee Chairman John Sherman, were quite pleased that any possibility
of an inflationary measure had been killed by the veto, they scrambled to
hold their party together, cajoling and threatening to keep everybody within
the fold. Four prominent senatorsOliver Morton of Indiana, John Logan
of Illinois, Thomas Ferry of Michigan, and Simon Cameron of
Pennsylvaniahad planned to publish an open rebuke of Grants action,
and it took much persuasion to stop them. After two months of haggling,
Congress finally passedand Grant signeda law acknowledging the 26
million dollars of greenbacks that the secretary of the treasury (with Grants
blessing) had issued in the emergency of the panic and authorizing some redis-
tribution of national bank capital from New York and New England to the rest
of the country. A result so small, so close to the status quo after such an epic
battle, so ludicrously trivial as one historian put it, left everybody utterly
unsatisfied. It had barely prevented the Republican Party from exploding but
had set the party up for the most disastrous electoral defeat of its twenty-year
history.
37
A Partial Political Realignment
Yesterdays election was a Waterloo or Sedan to the Republicans. Total rout,
North and South, wrote George T. Strong in his diary in November 1874,
drawing a parallel with the battles that brought down both Napoleons.
38
The
drop in Republican fortunes was indeed spectacular. In the House, they went
from a 70 percent majority to a 37 percent minority. They kept a majority
of seats only in 12 of the 37 states, saving New England but losing key mid-
western states such as Illinois, Indiana, and Ohio and losing all but South
Carolina in the South. Gubernatorial elections were just as discouraging,
as Democrats won California, Missouri, New Jersey, New York, and even
Massachusetts.
39
36
The Veto, Harpers Weekly, May 9, 1874, 390; James Garfield to Burke Hinsdale, Apr. 23,
1874, vol. 16, ser. 6A, Garfield Papers; Cincinnati Trade List and Commerce Bulletin, reprinted in
Jonesboro (IL) Gazette, May 16, 1874; John Deweese to John Logan, Apr. 24, 1874, box 2,
Logan Papers, Library of Congress.
37
Terry L. Seip, The South Returns to Congress: Men, Economic Measures, and Intersectional
Relationships, 18681879 (Baton Rouge, 1983), 18993; Unger, Greenback Era, 24448, quo-
tation 246.
38
Strong, Diary, Nov. 4, 1874, 4:541.
39
Edward McPherson, A Hand-Book of Politics for 1876: Being a Record of Important Political Action,
416 | Barreyre | The Politics of Economic Crises
It is always difficult to gauge what motivates voters to choose one candidate,
or one party, over the other. This is especially so for the nineteenth century,
which left no opinion polls.
40
Nevertheless, many clues point to the impor-
tance of the money question in those dramatic results. A recent study of the
1874 election in Indiana shows that economic factors correlated best with
the Democratic vote, suggesting that economic issues turned this competitive
state into a solidly Democratic one.
41
In the North at large, Republican
voters seemed to have stayed home rather than change party allegiance.
42
Most party leaders agreed that the money question was one of the main
reasons for their defeat. The [temperance] crusade and the inflation non-
sense were the chief factors in our disaster, wrote one Republican strategist
with regard to Ohio. Many across the North reached the same conclusion:
The financial settlement cannot be postponed until after another
Presidential election, neither party will be in shape to then win the battle.
43
Economic crises are commonly said to be bad for parties in power. There is
statistical truth in this. The proposition is too general, however, to have much
analytical power. The 1874 election affords more detailed insights.
Republicans paid dearly less for the crisis itself than for their inability to
take positive action to remedy either the economic crisis or the situation
that had triggered it. After months of debates in Congress had raised the
hopes of many, especially in the Midwest and the South, the veto had dashed
them. There, Republican candidates and newspapers were particularly on the
defensive, scrambling to justify the veto and to rebuke Democratic accusa-
tions that Grant had sold out to rich northeastern interests, assertions
given credence by the many corruption scandals that plagued his
administration.
44
National and State, from July 15, 1874 to July 15, 1876, 6th ed. (Washington, 1876), 255; Donald,
Baker, and Holt, The Civil War and Reconstruction, 628; Martis, Rowles, and Pauer, Historical Atlas
of Political Parties.
40
Other elements in the voting process should make us wary of overinterpreting election results: see
Richard Franklin Bensel, The American Ballot Box in the Mid-Nineteenth Century (Cambridge, 2004).
41
Samuel DeCanio, Religion and Nineteenth-Century Voting Behavior: A New Look at Some
Old Data, Journal of Politics 69 (May 2007): 33950.
42
Paul Kleppner, The Third Electoral System: Parties, Voters and Political Cultures, 18531892
(Chapel Hill, 1979), 12628.
43
J. I. Smith to John Sherman, Oct. 22, 1874, vol. 128, Sherman Papers, Library of Congress.
The temperance issue on the 1874 ballot was a local matter in Ohio. Utica (NY) Herald, quoted in
Alton (IL) Telegraph, Nov. 19, 1874. Here, my conclusion directly contradicts Gillette, Retreat from
Reconstruction, 23658.
44
On those scandals, Mark W. Summers, The Era of Good Stealings (Oxford, 1993); Margaret
Susan Thompson, The Spider Web: Congress and Lobbying in the Age of Grant (Ithaca, 1985).
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 417
In the South, moreover, the veto deprived local Republicans of the only
viable political platform they had: forward-looking economic policies. The
financial panic and the railroad failures hit southern state treasuries hard,
because they had heavily invested in railroad construction as an economic
stimulus. Now Republicans could no longer claim that they could improve
the Souths economic situation through influence on federal policies or
access to northern credit. To many, the veto had proven that northeasterners
would have their way, whatever party southerners voted for. This left
southern Republicans particularly vulnerable to the vicious race-baiting of
the Democrats. Moreover, the Civil Rights bill then moving through
Congress made things even worse politically. This homage to the recently
deceased Massachusetts senator Charles Sumner would ban all kinds of racial
segregation, including in cemeteries and schools. Above all, the Civil Rights
bill was a Republican attempt to unite their badly divided party around
Reconstruction issues, a strategy that had worked in the past. Although
the bill failed to mobilize Republican voters in the North, it fueled the racist
tactics of the Democrats in the South.
45
Thus, the political effect of the crisis, in terms of balance of power between
the two parties, was in a large part due to the kind of political response par-
ties were able to muster. This, in turn, was a legacy of the money question
debate, which had developed into a highly charged sectional issue. The deeply
unsatisfactory outcome of the debates, for all involved, left the Republican
Party at the brink of explosion and led it to a severe electoral defeat in
1874, handing the House majority to Democrats for the first time since
1861. The Democrats were not more united on the issue, however, and
they would rapidly pay for those divisions in the following months.
Conversely, the long acrimonious debates in Congress focused public atten-
tion on the money question, making it the common lightning rod of all
economic discontent. Money issues became a major concern of the
Granges, which were already political forces in the midwestern states.
Hitherto, the post-war farmers movements had been more concerned with
railroad regulation than currency. The crisis and the debates on the money
question pushed the Grangers toward that issue, although some hesitated
to be distracted from the railroad problem. The turmoil over money acceler-
ated the agrarians conversion from bullionism to greenbackism. This shift
45
Barreyre, Runifier lunion; Donald, Baker, and Holt, The Civil War and Reconstruction, 623
26; Gillette, Retreat from Reconstruction, 190210. On Republican economic policies in the
South, Mark W. Summers, Railroads, Reconstruction, and the Gospel of Prosperity: Aid under the
Radical Republicans, 18651877 (Princeton, 1984).
418 | Barreyre | The Politics of Economic Crises
had started before the panic, especially in Illinois where farmers had merged
to some degree into a wider antimonopolist movement.
46
The frustrating
outcome of the congressional session, moreover, fueled an insurgent trend
to create third parties. For some observers, Republicans seemed incapable
of strong leadership on economic issues. Democrats appeared equally divided,
with a powerful southern wing more interested in overturning Reconstruction
than dealing with economic problems. These observers concluded that they
would have to create a new party around their priorities. In 1874,
Republicans and Democrats were intensely worried that the rapidly growing
Granges would do just that, and the sighs of relief were all too apparent when
the farmers organization resolved not to do so that year. Nevertheless, the
Grangers new support for greenbacks was a crucial factor in the creation
of a Greenback Party in November.
47
The consequences of a focus on the money question, however, reached even
further: It helped Democrats reconquer the South. As pointed out earlier, the
crisis deprived southern Republicans of their economic platforms, leaving
them vulnerable to race-baiting as Democrats successfully identified them-
selves as the white mans party. Nationally, the money question eroded
Republican support for Reconstruction. Even though most southern
Democrats supported a new greenback issue, the southern branch of the
party presented their revolt against southern Republican governments as a
matter of fiscal responsibility. They cast southern Republicans investments
in railroads as fiscal failures, just as irresponsible as the inflationary policies
that northeastern, hard-money Republicans railed against. Southern
Democrats biased descriptions of southern blacks also came to resonate
more and more with northern elites fears of discontented workers. The crisis
had not created workers unrest and activism, but it certainly fueled it. So
soon after the Paris Commune, such agitation frightened many, as the
Tompkins Square riot proved. The Liberal Republican movement of
187172 had already shown that northeastern elite intellectuals sought a
more stable social order (with people like themselves at the top). However,
humiliating electoral defeat in 1872 had put some of their arguments to
rest, until the economic crisis reinvigorated them. Their idea that it was
46
On the economic background of the farmers revolt, Atack, Bateman, and Parker, The Farm,
the Farmer, and the Market; Robert Higgs, The Transformation of the American Economy, 1865
1914: An Essay in Interpretation (New York, 1971). On the Granges, George H. Miller,
Railroads and the Granger Laws (Madison, 1971); Ritter, Goldbugs and Greenbacks, 12336;
Unger, Greenback Era, 195233.
47
This was true of both Republicans and Democrats. See for instance Quincy (Illinois) Whig, Feb. 12,
1874; Joliet Republican, Jan. 24, 1874; Cincinnati Enquirer, Jan. 5, 1874; James A. Garfield to
Enos P. Brainerd, Feb. 9, 1874, vol. 15, ser. 6A, Garfield Papers.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 419
time to finish Reconstruction and give the direction of the country to its
natural elite furthered northern acquiescence to the violent conquest of
power by Democratic planters in the South. Southern blacks and northern
discontented workers came to be viewed as one dangerous group whose pol-
itical power meant trouble.
48
Still, this general shift in political thinking cannot be understood outside
specific political events. The Inflation Session and its failure led to a
Republican defeat in the North, a defeat tied to the money question. The
Republican attempt once again to mend their divisions with a Reconstruction
measure, the Civil Rights bill, fueled racial fears and violence in the South
and compounded a Republican defeat there. The new Democratic majority in
the House ensured that no new Reconstruction measure could pass the next
Congress. It was this course of events that convinced more and more
Republicans in the North that Reconstruction had become a hopeless political
ground. They had to find a new economic stand less divisive within the party.
That was the significance of the hard-won compromise Republicans reached in
the lame-duck session: enacting the Civil Rights Act as the final Reconstruction
measure (it would, indeed, be its last law) and forging the Specie Resumption
Act. This bill was not the triumph of hard-money as it has often been pre-
sented, but a compromise between the different factions of the Republican
Party on the issue.
49
Thus, in many ways, the 1873 crisis ended Reconstruction not so much
because northerners had other things in mind (although shifting priorities
did play a role), but because Republicans translated the crisis into the
money question and proved utterly unable to convince voters they were
doing anything meaningful to solve the problem. The result was a
Democratic majority in the House that would block all legislation on
Reconstruction and a shift in Republican strategy away from
Reconstruction as a goal. The compromise forged in the lame-duck session
of 187475 was fragileno real consensus existedbut the recent elec-
toral backlash had taught most Republicans that holding on to it might be
their only way to political survival.
48
Foner, Reconstruction, 51224; Michael E. McGerr, The Meaning of Liberal Republicanism:
The Case of Ohio, Civil War History 28 (Dec. 1982): 30723; Perman, Road to Redemption;
Richardson, Death of Reconstruction; John G. Sproat, The Best Men: Liberal Reformers in the
Gilded Age (Oxford, 1968); Philip Mark Katz, From Appomattox to Montmartre: Americans and
the Paris Commune (Cambridge, MA, 1998).
49
Barreyre, Sectionalisme et politique, 395400; Unger, Greenback Era, 24963; Allen
Weinstein, Prelude to Populism: Origins of the Silver Issue, 18671878 (New Haven, 1970), 3352.
420 | Barreyre | The Politics of Economic Crises
Recently, one historian persuasively contended that what is truly astonishing
about the controversial election of 1876 is the extraordinary Republican
comeback in the North in the midst of a continuing depression.
50
In
fact, much of the two years leading to it was a direct consequence of the
early political response to the financial panic and economic crisis.
Democrats were now more divided on the money question than
Republicans, who kept to their new compromise. Moreover, the appearance
of the silver issue further complicated the problem.
51
So divided were the
Democrats on the money question and so electorally squeamish were the
Republicans about it that both parties tried to avoid it in 1876. Instead,
they studiously looked for other campaign issues: Republicans fell back to
waving the bloody shirt; Democrats took up reform. Nevertheless, having
earlier identified the depression with the money question, the parties failed
to escape it. The result was such a close election that it triggered a three-
month political crisis. Republican Rutherford Hayes finally acceded to the
White House but let Louisiana, Florida, and South Carolina fall into
Democratic hands.
52
The 1876 election sealed a partial political realignment that had started two
years earlier and opened a two-decade period of highly competitive politics.
Nationally, both parties were extremely close, and federal power constantly
changed hands during that time. From 1875 to 1897, the same party
had clear control of the presidency and both houses of Congress for only
four years: the Republicans from 188991 and the Democrats from
189395. This competitiveness was largely a consequence of the crisis.
However, the tough economic conditions did not simply push suffering
voters to vote out the party in power, nor did it merely distract northerners
from Reconstruction issues, as has often been written in very general terms.
Rather, the Republican Partys response to the crisis, conditioned by several
years of tense debates around the money question, almost fatally divided
Republicans, catalyzing a series of electoral setbacks. At a crucial turning
point, they were impotent in attempting to preserve Reconstruction in the
South, although they would continue to wave the bloody shirt for several
years. The Republican Partys retreat from the South, along with challenges
to it from third parties (especially the Greenback Party) sprung from the
Republicans inability to act on economic problems in a way that ensured
50
Holt, By One Vote, xiii.
51
Silver had been demonetized in early 1873, although most people had not noticed. This only
became a political issue in 1876. Weinstein, Prelude to Populism, 832.
52
Keith Ian Polakoff, The Politics of Inertia: The Election of 1876 and the End of Reconstruction (Baton
Rouge, 1973); Holt, By One Vote; Barreyre, Sectionalisme et politique, 41532.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 421
the loyalty of its electoral base. Therefore, the economic crisis that started in
1873 translated into a shift to a political landscape of highly competitive
parties, creating both instability of power and inertia of policy.
The 1873 panic, like any economic event of such magnitude, was a particu-
larly potent political phenomenon. To understand its impact, historians need
to go beyond the basic fact that many lives were upended by financial cata-
strophe. For politics informed the way Americans viewed the crisis, how they
tried to tackle it, and why they largely failed. To understand how the long-
term effects of the crisis reshaped society and politics as well as the economy,
we need to analyze how the economic event was embedded in a political struc-
ture and political processes in what I term the politics of the 1873 crisis.
Importantly, the crisis was not a break in political history, as nothing new
emerged from it: no new political idea, no new political phenomenon.
This probably partly explains why so many historians have passed over the
event and rarely choose 1873 as a significant chronological turn in their
studies. However, the crisis did have a large impact on national and state
politics. The political consequences of the crisis can be subdivided into
three interrelated processes: sorting, exacerbating, and catalyzing.
Above all, the panic dramatically sorted among political issues. Before it
occurred, the money question was already among the main topics on the pol-
itical agenda. Suddenly, however, all other questions, including some other
prominent economic issues such as the tariff, were pushed from the limelight.
This sorting was linked to the way Americans understood the crisis, an
understanding grounded in past debates (and notably, the reaction to the
Gold Corner of 1869). Interestingly, the crisis did not promote any new
ideas but rather reaffirmed old perspectives. Because in 1873 the money
question was still an unresolved issue, both sides saw in the market crash a
validation of their position. The economic disaster did not spark fresh think-
ing, but hardened old thinking.
Therefore, the crisis exacerbated political divisions on the money question
even as it sorted the issue above all others. The dire economic and social
situation gave a new urgency to political debates, and this life-or-death
atmosphere led politicians to unyielding, uncompromising stances.
Tellingly, Republicans failed to do what they had repeatedly managed in
the past: to use Reconstruction to strengthen party unity and leverage a com-
promise, however uneasy, on economic issues. Instead, their divisions now lay
bare, especially after Grants veto. Democrats were no less divided on the
topic, however, as the following two years proved. The 1874 election
422 | Barreyre | The Politics of Economic Crises
frightened Republicans into a compromise they held onto afterwards;
Democrats could not agree. However, the exacerbating effect of the crisis
could also be felt in the South. There, it fueled the pre-existing electoral
strategy of race-baiting, further marginalizing the more moderate
Democrats already badly hurt by the failure of their centrist strategy in
the 1872 elections. Again, uncompromising positions prevailed.
53
Shifting political priorities and radicalizing positions combined into a third
pattern: catalyzing a partial realignment. For some time now, many political
observers had predicted a reconfiguration of parties: After Reconstruction
settled the Civil War issues, both parties born (or revamped) in the 1850s
would lose their raison dtre, with new parties bound to emerge.
54
Signs
already abounded before the panic, and the Liberal Republican movement
was a conscious attempt to trigger such a realignment. Still, the 1872 elec-
tion had mostly proved that Liberals had little traction in the electorate and
that both parties retained the allegiance of voters along the same lines as they
had since the beginning of the Civil War. It took the crisis to trigger a recon-
figuration: by sorting between the old political issues (rather than creating
new ones) and by giving a magnified sense of urgency to them, the panic
shook enough people from their habitual allegiances. It therefore created
the conditions necessary to bring about a realignment many had predicted.
Nevertheless, the reconfiguration did not quite look like what people had
anticipated. Observers of politics, along with many politicians, had imagined
that realignment would clarify the positions of both parties on economic
issues. It did not. The 1876 electoral mess quite dramatically exemplified
the new partisan balance it ushered in. Republicans retreated from the
South but regained much of the ground they had lost in the North two
years earlier; there, insurgent third parties shaved some voters from both par-
ties. The realignment had only been partial, and no party could clearly dom-
inate the political stage. That situation would only end with another
spectacular election, also in the midst of an economic crisis: 1896.
53
On the marginalization of moderate Democrats in the South, which to be sure started before the
crisis, Perman, Road to Redemption, 13548.
54
On the sense that parties felt precarious for many politicians, Michael F. Holt, Change and
Continuity in the Party Period: The Substance and Structure of American Politics, 1835
1885 in Contesting Democracy: Substance and Structure in American Political History, 17752000,
eds. Byron E. Shafer and Anthony J. Badger (Lawrence, KS, 2001), 93115.
The Journal of the Gilded Age and Progressive Era | 10:4 Oct. 2011 423