A rope maker's failed bid to corner hemp helped sink markets in 1893
The National Cordage Company, a rope manufacturer and the most actively traded stock of its day, tried to corner the market in imported hemp. Rumours of trouble made lenders call in their loans, it went bust, and the Dow Jones average lost 24% in a single session on May 5, 1893.
That crash was part of the worst American depression before the 1930s. Trouble began on 20 February 1893, twelve days before Grover Cleveland's inauguration, when the overstretched Philadelphia and Reading Railroad went into receivership. Railroads had been wildly overbuilt in an 1880s investment bubble, and wheat prices collapsed that year too. Abroad, Barings Bank had lost heavily in Argentina, and property speculation in Australia and South Africa had imploded.
Silver was at the heart of it. New western mines flooded the country with the metal, and the Sherman Silver Purchase Act of 1890 obliged the government to buy millions of ounces. Holders of silver notes rushed to swap them for gold until Treasury reserves hit their legal floor and notes could no longer be redeemed. Frightened people hoarded coins, refused paper and ran on banks, and foreign investors sold American shares for gold-backed funds. Cleveland blamed the silver law and got Congress to repeal it.
The damage was vast. More than 15,000 companies and 500 banks failed, including the Northern Pacific and Union Pacific railroads. Joblessness reached 43% in Michigan, with New York at 35% and Pennsylvania at 25%, and middle-class families walked away from new homes they could no longer pay for. People chopped wood or broke rocks in exchange for food, and Detroit's mayor, Hazen S. Pingree, turned vacant land into community vegetable gardens under his Potato Patch Plan.
Politics shifted with the pain. Farmers squeezed by falling prices backed the new People's Party, whose 1892 presidential ticket carried five states, and the upheaval ended in a realignment that brought William McKinley to the White House.
Source: Panic of 1893
