The Super Summary of World History - Alan Dale Daniel [127]
Other occurrences were starting to influence the nation. Western farmers since the end of the Civil War were under great economic pressure because of the government’s refusal to sponsor cheap money; that is, go off the gold standard and print money thereby causing inflation. To overcome some of the problems of the era farmers formed the Grange, an organization helping farmers modernize farming methods, and increasing their political power. The Democrats soon learned to harness the votes of these folks by appealing to their special needs. In the industrial areas of the nation workers began forming unions. One of the first large unions, the National Labor Union, had a real influence on the election of 1872. The membership and power of these early labor unions grew until the Panic of 1873, after which the number of unemployed swelled substantially; thus, shrinking union power. Nonetheless, the power of reform movements to stop government corruption, and help the workers and farmers, advanced during the late 1800s. The resurgent Democrats were the main beneficiaries of these movements. Liberal Republicans wanted similar reforms but failed to gain control of their party. This philosophical split reduced the power of the Republican party.
The Panic of 1873 was severe. In 1866 and 1870, Europe suffered through two wars of limited extent; still, these wars brought on recessions and numerous European business failures. Europeans sold their American securities driving down the price, and reducing their value as collateral held on loans. This in turn affected American banks holding these securities as collateral making their financial positions weaker (for more information on depressions and the accompanying financial mumbo jumbo see our discussion of the Great Depression). In the USA there was no central bank, leading to an inability to transfer funds from bank to bank. For example, a bank failing in Kansas would need money to stay open; however, it would have a hard time getting additional funds from New York banks that held all the cash. Worse, if the New York banks began to fail they could literally make it impossible to for other banks to get money (capital) to continue business operations (remember, they held almost all the money), leading to a chain of failures.
Then the next blow fell. The railroads needed money because shipping was down and the investment houses put money into them thus draining the New York banks of their financial reserves (now no bank had money). When major bank drafts (checks) began showing up New York banks held no money to meet the demand—so they shut their doors (wow, sounds like 1929, 2008 etc). Of course, this caused a wave of bank failures followed by businesses bankruptcies. Between 1873 and 1878, business failures went from 500 per year to 10,000 per year, and about 40 percent of the nation’s factory workers lost their jobs. The price farmers received for their products fell dramatically. This caused a demand for relief, mainly through cheap money polices, such as the unlimited coinage of silver. Farmers, among others, wanted inflation. Inflation would allow the sale of crops for more than they paid to grow them. Tight money policies forced farmers to sell crops at about the same price it cost to grow them, leaving farmers no profit. As tight money policies continued states passed legislation bringing some railroad cheats under control.[148] At least