Americans called the slump after 1873 the Great Depression until 1929 came along
The crash of 1873 started in Vienna and spread across Europe and North America, dragging economies down until 1877 and in Britain and France until 1879. Americans named it the Great Depression, a title it held until the 1930s delivered something worse. In Britain it opened two decades of stagnation remembered as the Long Depression.
The fuse was lit by success. After German unification and victory over France in 1871, French war reparations poured in. German states used the money to pay off their debts, retiring government bonds and leaving savers with cash to invest. Much of it went into shares in railways, factories, docks and steamships, helped by a looser incorporation law that spawned new firms such as Deutsche Bank. Germans call 1870 to 1873 the Founders' Years.
Money itself was shifting too. Otto von Bismarck began taking Germany off silver on 23 November 1871, and the gold mark arrived on 9 July 1873; the United States also dropped silver, a common thread on both sides of the Atlantic. Bond markets were highly concentrated: after 1850 the Rothschilds and Barings Bank issued 70% of the world's bonds.
On 9 May 1873 the Vienna Stock Exchange gave way under bad loans, insolvencies and fraud, and a string of bank failures followed. In Berlin, Bethel Henry Strousberg's railway empire collapsed after a disastrous deal with Romania, and the end of French payments that September squeezed Germany further; the result was dubbed the Founders' Crash. In America, railroad speculation, inflation, and heavy losses from the Chicago fire of 1871 and Boston's in 1872 had already strained banks, and in the space of September and October 1873, New York's bank reserves sank from $50 million to just $17 million.
Europe recovered faster than the United States, and German firms avoided the harsh wage cuts that soured American labour relations. Friedrich Spielhagen made the crash the centre of his 1877 novel The Breaking of the Storm, an early portrait of the erratic, predatory capitalism of imperial Germany.
Source: Panic of 1873
