The Panic of 1893 was a period of economic depression in the United States of America. It began in 1893 and lasted until 1897. During this period, the unemployment rate increased very rapidly and many big businesses, including famous banks, had to be closed.
There were many things that led to the Panic of 1893. In America, one of these was the way railroad companies worked. Many railroad companies had overbuilt themselves and often took unnecessary risks, such as buying the operations of a competitor in order to increase their own size even if it didn’t do them much good.
Also, the production of silver had increased in USA and the government tried to buy millions of ounces of silver to help the silver mining industry. But the American dollar was backed by gold and purchasing silver was not a very smart decision, although it did help thousands of people associated with silver mining.
In February, 1893, the first major economic failure happened. The Philadelphia and Reading Railroad company declared bankruptcy. The American government felt that purchasing all that silver was causing problems with the economy, so the government stopped purchasing silver.
This led the people to believe that an economic crisis was taking place and so the panic began. Out of concern for their own financial well-being, people started taking their money from banks. This depleted the banks that ran out of money and so, the businesses that relied on the money from the banks no longer had any money. This created a rippling effect, ultimately affecting the economy of not only USA but also of Europe and UK.
The two metals, silver and gold, played an important role during the Panic of 1893. As mentioned above, the US government first decided to buy large amounts of silver but when the crisis began, it stopped purchasing silver. So people who had silver now tried to trade off their silver for gold.
Similarly, the investors and businessmen in Europe now wanted to return the American goods and get back their gold. Gold was considered a perfectly secure option, so everyone wanted to exchange dollars and goods so that they could have gold and be safe from the economic crisis. But the US Treasury had limited amounts of gold and so, soon people could no longer get gold.
The effects of the Panic of 1893 were serious for the American economy. The Panic lasted until 1897 and during this period, around 15,000 businesses failed. These included major railroad companies such as the Union Pacific Railroad, Northern Pacific Railway and the Topeka & Santa Fe Railroad.
Nearly 500 banks also suffered failure and closed. The overall unemployment rate in USA reached as high as 19%, with 43% unemployment rate in Michigan and 35% unemployment rate in New York. Farmers also went destitute because their exports were no longer valued at much. In all, many people had to live a very hard life during the Panic and sometimes, it became hard even to have enough to eat.