QJAE: Ulysses S. Grant and the Panic of 1873

From the Quarterly Journal of Austrian Economics.

Abstract:

Ulysses S. Grant’s national financial understanding and expertise (including monetary policy) progressed across his presidency, enabling him to effectively manage the Panic of 1873 and its aftermath. To appreciate the financial challenges President Grant faced we first profile how the Civil War changed the United States economically. The article then turns to a discussion of the post–Civil War investment boom, which famously ended in panic on September 18, 1873. Causes of the panic are not explored or analyzed except to say that the panic (the bust) was implicit in the Civil War expansion of money and credit, which was redirected from wartime military spending to industrial production (including railroads) after the war (the boom). The failure of influential banker Jay Cooke triggered the panic, which set off a recession that was known at the time as the “Great Depression.” Pleas for the government to help by inflating the currency occurred immediately. Responses to the panic by President Grant and the New York Clearing House are discussed and are shown to have together effectively mitigated the effects of the panic. The narrative then turns to Grant’s postpanic national financial actions; namely, his veto of the Currency (or Inflation) Bill of 1874 and his sponsorship of, and signature on, the Specie Resumption Act of 1875. Both actions are consistent with Austrian economic theory and, along with Grant’s reduction of the national debt in seven of the eight years of his presidency and quiet leadership approach, contrast sharply with modern national financial policies, practices, and beliefs. Nevertheless, they set the foundation for “America’s greatest period of growth and wealth creation” (Stockman 2024, 167) and thus should be reexamined given the current state of national finance in the United States and the risks it poses.

Read the full journal article at the QJAE.