Panic of 1893 and Its Aftermath

  • By John Caldbick
  • Posted 10/01/2019
  • HistoryLink.org Essay 20874

Less than four years after Washington Territory achieved statehood, what was known as America's "Gilded Age" came to an agonizing end when the nation was struck by the worst economic crisis it had yet experienced. In the late spring of that year a four-month spasm of financial hysteria known as the Panic of 1893 swept the country. During the depression that followed, banks and businesses failed by the thousands, railroads went bankrupt, credit essentially froze, unemployment soared, and tens of thousands of ordinary people lost their homes and savings. In the Northwest the galloping optimism of the previous few years suddenly gave way to widespread despair. The economic catastrophe lasted several years, and its reach, severity, and duration would not be exceeded until the Great Depression of the 1930s. Every part of Washington state was hard hit, nowhere more than in its ambitious young cities.

The Boom Before the Bust

Washington became a state on November 11, 1889, and it was booming. In the preceding 10 years the population grew from 75,116 to nearly 350,000, and in 1890 the federal census bureau took note:

"The growth of Washington has been phenomenal, the population in 1890 being nearly five times that of 1880 ... [T]his growth has been almost entirely during the last five years of the decade. The inducements which have attracted settlers are in the main its fertile soil and ample rainfall, which enable farming to be carried on without irrigation over almost the entire state" ("1890 Census").

Besides farming, the state's economy was dominated by resource extraction, and thousands of newcomers came to the Northwest to man logging operations, mills, and mines. Many settled in and near the state's three largest cities. By 1890 Seattle had almost 43,000 residents, up from 3,553 in 1880; Tacoma had 36,000, more than 35 times its 1880 count; and Spokane, which had only 356 residents in 1880, had more than 19,000 a decade later.

Optimism ruled, and even disasters were taken largely in stride. In the summer of 1889 Seattle and Spokane (then called Spokane Falls) saw their predominantly wooden commercial centers burned to ash. Elegant new buildings of brick, granite, and stone, symbolic of two young cities on the make, quickly replaced the ruins. Spokane, linked to the East by both the Northern Pacific and the Great Northern railroads, was the undisputed economic and transportation center of the Inland Empire, its economy dominated by mining, wheat, and timber. Seattle thrived on timber, coal, and farm products, much of it shipped south from a thriving waterfront. The economy of its main rival, Tacoma, was similarly based, but since 1883 had been bolstered by a transcontinental rail link (something Seattle wouldn't get until a decade later). From wharves on Commencement Bay the region's products were exported to as far away as Asia. Seattle boosters called their city "the boomingest place on the earth," and British author Rudyard Kipling described Tacoma in 1889 as "literally staggering under a boom of the boomiest" (Kipling, 43).

Causes and Effects

Booms are not endless, and optimism and despair are equally contagious. As one economic historian put it, "Bull markets feed on an illusion of endless expansion, unstoppable by any human agency; panics are marked by fears of bottomless decline, which none seem able to arrest" (Sobel, Panic on Wall Street ..., 429).

Some historians point to the 1890 Sherman Silver Purchase Act as the primary cause of the Panic of 1893 and what followed. The act required the federal government to buy 4.5 million ounces of silver every month at market prices, purchased with a new issue of treasury notes and minted into dollar coins, both of which could be redeemed for gold from the U.S. Treasury. Regardless of market prices, the treasury was required by law to value gold at 16 times that of silver, i.e. 16 silver dollars could be exchanged for one gold dollar.

Silver production increased dramatically as new mines opened to meet the government quota. As supplies increased, mined silver's price on the open market plummeted, but the US Treasury was required to maintain the 16-1 ratio when redeeming the silver coins and notes for gold. Gresham's Law -- "bad money drives out good" -- kicked in. Gold began to flow out of the treasury in worrying amounts, and America's financial integrity was seen as dependent on maintaining an adequate supply of gold to meet its obligations.

The open-market price of silver continued to decline, and mining it became barely profitable. Many mines closed, throwing men out of work, and those who remained were forced to accept severe pay cuts. The new silver coinage also increased the nation's circulating money supply, which fed inflation -- a blessing for borrowers but a bane for banks. Debtors who regularly relied on credit -- mostly farmers and certain businesses -- could repay loans with dollars that had less purchasing power than the ones they had earlier borrowed. This displeased lenders, and credit began to tighten.

Others blamed the Panic of 1893 on more sudden and shocking events. The bankruptcy of the Philadelphia & Reading Railroad on February 20, 1893, rattled investors and the public. For decades railroads had been laying tracks that were "not needed, through miles and miles of uninhabited wilderness merely to insure that another road would not claim the territory first" (Carlson). Financed by massive debt, railroads that failed often dragged their creditors down too, which had contributed to major recessions in both 1873 and 1883. Fear breeds panic, and there was fear that history was repeating itself. It was, in spades.

Fear drove investors both here and abroad to liquidate their investments in American stocks, bonds, and other securities, then redeem the proceeds for gold from the treasury. On April 2, 1893, the treasury announced that the value of the gold it held had fallen below the $100 million it was required to maintain.

As the crisis deepened, economic activity slowed across the board, unemployment rose, and increasing numbers of bank loans, large and small, went into default. People in cities and towns around the nation stormed the banks to withdraw their savings. Many banks, having loaned out more than was prudent, could not meet the demands. There was no federal deposit insurance in the 1890s. When a bank closed its doors, depositors lost some or all of their life savings.

The crisis squarely hit the stock market for the first time on May 3, 1893, when a massive sell-off sent share prices tumbling across the board. The following day the National Cordage Company, a near-monopoly of American rope makers and a stock-market favorite, went into receivership. The day after that the market crashed even more drastically, and the Panic of 1893 was fully on. It would last from May to August of 1893, and the ensuing depression would last several years. One financial periodical of the day noted:

"Never before has there been such a sudden and striking cessation of industrial activity. Nor was any sector of the county exempt from the paralysis; mills, factories, furnaces, mines nearly everywhere shut down in large numbers ... and hundreds of thousands of men [were] thrown out of employment" ("Railroad Gross Earnings ...").

Scarce Data

In the 1890s there were no state or federal agencies compiling accurate tallies of the unemployed. There was no welfare system or other established programs to help those who had lost everything, and the work of private charities often went unnoted. National banks were but lightly regulated, Washington's state-chartered banks even less so, and private banks not at all.

In the absence of official data, local newspapers of the day provide the most detail on the struggles of businesses, banks, and people. Winnowing that out from hundreds of reels of microfilm is a tedious, eye-tiring task that very few have taken on. But one did -- Bruce A. Ramsey, a former Seattle newspaperman whose 2018 book, The Panic of 1893: The Untold Story of Washington State's First Depression, is an indispensable source from which many of the details that follow were taken.

Failing Banks

Banks are a good place to start, because that's where the money was, or was supposed to be. The first bank in the Washington state to close its doors in 1893 was the Bank of Puyallup, which went under on May 25, three weeks after the New York Stock Exchange crash. Within a month 10 more banks failed, including four in Spokane Falls (three on June 6 alone), two in New Whatcom (now Bellingham), and one each in Tacoma, Palouse, Ellensburg, and Everett. The failure of each bank caused direct misery to many and had wide-ranging ripple effects.

From late June to late July another 13 banks shut their doors, including two more in Spokane, two in Tacoma, and one each in Port Angeles, Sumas, Everett, Anacortes, and Hoquiam. The last Washington bank to fail in 1893, and the first in Seattle to go down, was the Security Savings Bank, which closed its doors on December 9, 1893. In total, 32 Washington banks failed in little more than seven months, and the carnage was not nearly over.  

There were 17 bank failures in 1894, five of which had closed earlier, reopened, and failed again. The following year was worse, with 18 failed banks, three for the second time. In 1896 the rate slowed, but 13 more banks were added to the toll, including two that went under twice. In 1897 the worst of the crisis had passed; only six banks failed that year.

To summarize, from May 1893 to June 1897 there were 86 bank failures in Washington, including repeat failures, only 18 of which were organized, voluntary liquidations. The others simply closed their doors, most often when depositors demanded to withdraw more than the banks had on hand. The closures spread across the map -- 17 of the 32 counties then existing in the state had at least one, and several had many more. Of the 14 banks that tried to reopen, 13 failed again. Only one, a small bank in Conconully, Okanogan County, closed, reopened, and survived.

East of the Cascades

Once started, a panic is not easily stopped. Hardest hit in Eastern Washington were Spokane and Whitman counties, with a total of 21 banks shutting down. Not all were caused by the negligence, recklessness, or criminality of the bankers, although there was plenty of that. Other factors that fed the prolonged depression that followed were equally impervious to intervention. In Eastern Washington, one factor was the plunging value of silver. Two others were wheat prices and weather. And for the third decade in a row, overbuilt and debt-ridden railroads played a large role.

Silver

When Democrat Grover Cleveland (1837-1908) was elected U.S. president in November 1892 it was widely assumed that the Sherman Silver Purchase Act would be repealed to protect the nation's gold reserves. The repeal would not come until nearly a year later, but silver prices plunged still further in anticipation. Mines closed across the nation, including Eastern Washington, throwing miners out of work. Branch railroads serving the mines also failed, adding to the ranks of the unemployed. Several banks in Eastern Washington to which mines or railroads or both were indebted were put at risk, and as nervous depositors began demanding to withdraw their funds the pace of bank failures accelerated.

Wheat and Weather

Wheat was Eastern Washington's leading cash crop, key to the economies of several counties. In 1892 its price fell by 20 cents, to 57 cents a bushel, and the harvest was sparse. Farmers had difficulty servicing their debt; banks were loathe to lend any more than the bare minimum needed to produce the next year's crop. By 1893 the price of wheat had fallen to 40 cents a bushel, but the crop appeared to be one of the best ever, and farmers hoped to make up for low prices by exporting high volumes.

Then, early in the fall harvest season, the rains came. Fifty percent of the crop was destroyed, either before it was harvested or while awaiting shipment. Much of what was left was damaged and good only for animal feed. Loans went unpaid, some heavily mortgaged farms were lost, and banks faltered and closed throughout the wheat-growing region.

Railroads

By early 1893 Spokane had connections to four transcontinental railroads and was on the main line of both the Northern Pacific and the Great Northern. Fevered railroad construction had employed legions of men in parts of Eastern Washington, but by the early 1890s, the railroads had essentially stopped new construction and cut back on maintenance. Uncounted numbers of men were thrown out of work. Despite the cutbacks, on August 15, 1893, the Northern Pacific Railway went bankrupt, and two months later the Union Pacific (which ran a spur line to Spokane from the south) did the same. Bankruptcy receivers had little choice but to shed even more employees and cut wages, adding to the region's woes.

The Great Northern, built by James J. Hill (1838-1916), was better run and survived, although Hill claimed it was necessary to cut his workers' wages as well. In Spokane this prompted a strike, which failed. The economic meltdown, which was ruining banks in the state by the dozens, businesses by the hundreds, and individuals by the thousands, left labor with little bargaining power.

The Spokane Experience

Although Spokane lost most of its commercial district in the fire of August 1889, by the summer of 1893 about 40 parcels of downtown real estate were occupied by expensive new buildings. Almost all had been mortgaged to finance construction, and all but seven would be lost to foreclosure during the panic and the depression that followed.

There were nine bank failures in the city of Spokane (including second failures) and more than 60 percent of municipal funds was inaccessible, held by banks that had suspended operations. Hundreds of families and individuals lost much or all of their savings, and a large but indeterminate number of homes were foreclosed. The assessed market value of all the property in the city was halved between 1892 and 1894; revenue from property tax fell proportionately, further hamstringing the municipal budget. Unemployment soared; as early as January 1894 more than 1,200 idled workers applied for 350 jobs improving the city's waterworks.

Many of the rich fared no better. One of Spokane's early pioneers, Anthony M. Cannon (1839-1895), opened the town's first bank in 1879, and after the 1889 fire built an extravagant black-marble edifice to house his Bank of Spokane Falls. He also was heavily invested in a few sketchy schemes around the state and was mortgaged to the hilt and beyond. His bank was the third in the state to fail, on June 6, 1893. Within 24 hours, two other Spokane banks that were financially entwined with Cannon shut their doors, and a run by depositors forced the closure of a third, Citizens National (which, unlike most, eventually made its depositors whole). Cannon lost everything and died two years later, nearly penniless, in far-off New York.

Another prominent citizen, James N. Glover (1837-1921), known as the "Father of Spokane," built an opulent 12,000-square-foot mansion in 1888. In July 1893  he lost much of his fortune when the city's First National Bank, of which he was president, failed. The mortgage on his mansion was foreclosed, and Glover was forced to sell it two years later to satisfy his debts.

On both sides of the Cascades, the boomier the town, the further it had to fall. As the leading city in Eastern Washington, Spokane's troubles were writ large, but in kind and effect they were not unique. Whitman County, Spokane County's southern neighbor, with barely half the population, suffered eight bank failures. To the west, on the eastern shoulder of the Cascades, Kittitas County, with fewer than 9,000 people, had three banks fail, and its most prominent citizen, pioneer Walter Alvadore Bull (1838-1898), lost almost everything. There was misery aplenty to go around, and it left few untouched.

West of the Cascades

While Spokane was the unchallenged center of commerce for Eastern Washington, the situation west of the Cascades was more complex. From the 1880s through the early 1890s, Tacoma and Seattle competed to become the leading city on Puget Sound. To the north, New Whatcom (Bellingham), Port Townsend, Anacortes, and Everett had their own ambitions.

The story of Seattle's experience during the panic and the hard years that followed has been told elsewhere, as has the sad saga of the jobless troops of Coxey's Army and their futile march to the nation's capital. Tacoma fell so far, so fast, and in so many ways that only a few brief lowlights are possible here.

As was true everywhere, a hallmark of the panic and depression west of the Cascades was bank failures, which along with rampant unemployment caused the greatest harm to ordinary people. From Whatcom County in the north to Lewis County in the south, 60 banking institutions in Western Washington failed between May 25, 1893, and June 29, 1897. Both the first to go down and the last were in Pierce County, and with a total of 17 failures, including 14 of Tacoma's 21 banks, it led the state.

Following close behind was Whatcom County on the Canadian border, with 13 bank failures, most of them in New Whatcom and Fairhaven (both now part of Bellingham). Heavily dependent on logging, the area's economy was staggered when building and railroad construction ground to a near halt nationwide. New Whatcom ran out of money in 1893 while building a grand new city hall, leaving all but the first floor unfinished. Four clocks on the building's tower had only dials; the town could not afford mechanisms, so the hands were set permanently at seven o'clock.

Chehalis County (now Grays Harbor County), also heavily dependent on logging, saw five banks fail, Snohomish County lost four, and Lewis County three. Of the 19 counties in Western Washington, only five lost no banks -- Wahkiakum, Cowlitz, Clark, and Skamania, all in the far southwest, and San Juan in the north. Even tiny Island County, with a population of less than 1,800, lost one. Ballard, then an independent town adjacent to Seattle, also lost one, as did Slaughter (now Auburn). King County, the most populous in the state, did not fare as badly as some, with only 10 bank closures, including just one in the dismal year 1893.

Local Effects

Failing banks were not the only measure: Centralia in Lewis County lost only one bank (although it failed twice). Fueled by thriving logging and wood-products industries, the town's population had swelled to about 5,000 by 1891. Before 1893 was over it had fallen to 1,200, and at one point an entire city block was bought for $10. Similar demographic catastrophes were happening throughout Western Washington.

In Snohomish County, a group of investors that included John D. Rockefeller (1839-1937) established the Everett Land Company in late 1890, and by the spring of 1891 work was underway on a nail factory, a barge works, a paper mill, a smelter, and the surveying, clearing, and platting of the land that would become Everett. Like Centralia, Everett saw astonishing growth, and by spring of 1892 had 5,600 residents, hundreds of frame houses, and schools, churches, theaters, streetcar service, electricity, streetlights, and telephone lines. In 1893 a railroad to the Monte Cristo mines was completed to carry ore to Everett's smelter.

Then it hit. On June 13, 1893, the Bank of Everett shut its doors, never to reopen. Three weeks later the Puget Sound National Bank went down, reopened, and eventually failed again. Everett's factories began to go dark, wages declined by 60 percent, and people started to abandon the town in droves. By 1895 Rockefeller had started to pull his money out. With little economic activity to generate fees, the city was nearly bankrupted, and the streetlights were turned off.

One City's Near-Death Experience

On the eastern shore of Jefferson County's Quimper Peninsula, Port Townsend was suffering even before the Panic of 1893 delivered what very nearly was a coup de grace. Since the 1870s its citizens had bet their future on obtaining a connection to a transcontinental rail line, and time and time again they were disappointed.

In 1889 the city received an offer, with conditions, from the Union Pacific to make Port Townsend the northern terminus of its transcontinental line. The conditions (including a payment of $100,000) were met, and the city looked forward to the great days sure to come. Optimistic investors went rather wild. With barely 4,500 residents, Port Townsend's downtown real-estate transactions in 1890 totaled nearly $4.6 million. By the end of that year there were six banks, six dry-goods stores, six hardware stores, 10 hotels, 28 real estate offices, three streetcar lines, and an impressive new city hall.

In November 1890 a Union Pacific subsidiary that was supposed to be laying the rails from the south was put in receivership, having done almost nothing to advance the railroad (a failure that also brought the Skagit County boomtown of Anacortes to its knees.) Less than two years later, already mortally wounded, commerce in Port Townsend was brought to a near stop by the Panic of 1893. Property values plummeted; by 1895 the late-Victorian office buildings that lined downtown streets, once worth as much as $25,000, were sold for mere hundreds of dollars, only to stand largely vacant for decades. Streetcar lines were torn up and the city's boosters fell silent.

Between 1890 and 1900 nearly one-quarter of Port Townsend's population left, and it would be 1928 before a measure of deliverance came with the opening of a large paper mill. The city never became the metropolis that its citizens hoped it would, but it persevered and would weather the Great Depression better than the larger cities that had left it behind nearly 40 years before.

Recovery

For well more than four years most cities and towns in Washington were at best marooned in economic doldrums, and a few struggled for mere survival. Unlike the sudden spasm of 1893 that triggered the depression, recovery was usually a process of incremental improvement, and some places fared better than others.

For a lucky few, the return to good times, when it came, was swift. In July 1897 Seattle and King County were launched on what would be more than a decade of prosperity when the steamship Portland arrived from Alaska with more than a ton of gold from the Klondike Gold Rush. In Eastern Washington, among other signs of recovery, mining activity increased and wheat prices rebounded. There was a bumper crop in 1896, allowing some farmers to pay off their mortgages, which in turn strengthened the balance sheets of the few surviving banks. 

Most other places, Port Townsend being one, eventually rebounded, but never attained anything near their pre-panic ambitions. A few weren't so fortunate. South Bend in Pacific County had hoped to become the "Baltimore of the West," and in the early 1890s its population hit 3,500. Despite having a railroad connection, South Bend failed badly. It now styles itself the "Oyster Capital of the World," but in 2018 its population was still less half the 1890s peak.

Tacoma, damaged so deeply by the depression in so many different ways, had perhaps the most difficult time recovering. It was unable to straighten out its municipal finances until mid 1900, and would never again seriously compete with Seattle for regional dominance.

It is difficult to claim that many lessons were learned. When it comes to economic crises, history does tend to repeat itself. In the late 1920s, the Great Depression hit the world, and would become a worse and more protracted ordeal. While economists and historians again disagree on the causes, several widely accepted factors were repetitions of those that triggered the Panic of 1893.


Sources:

Bruce A. Ramsey, The Panic of 1893: The Untold Story of Washington State's First Depression (Caldwell, Idaho: Caxton Press, 2018); N. W. Durham, History of the City of Spokane and Spokane Country, Washington (Chicago: S. J. Clarke Publishing Company, 1912) 449-450; J. Franklin Pierce, "The Panic of 1893," Columbia Magazine, Vol. 7, no. 4 (Winter 1993-1994), pp. 39-44; John Fahey, "The Million-Dollar Corner: The Development of Downtown Spokane, 1890-1920," The Pacific Northwest Quarterly, Vol. 62, no. 2 (April 1971), pp. 77-85; Robert Sobel, The Entrepreneurs: Explorations Within the American Business Tradition (Washington, D.C.: Beard Books, 2000), 136; Robert Sobel, Panic on Wall Street: A History of America's Financial Disasters (Washington, D.C.: Beard Books, 2000), 427-430; Caroline Denyer Gallacci, The City of Destiny and the South Sound: An Illustrated History of Tacoma and Pierce County (Carlsbad, CA: Heritage Media Corp., 2001); Charles Hoffman, "The Depression of the Nineties," The Journal of Economic History, Vol. 16, no. 2 (June 1956), p. 138; David O. Whitten, "Depression of 1893," August 14, 2001, EH.Net Encyclopedia website accessed August 31, 2019 (https://eh.net/encyclopedia/the-depression-of-1893); Robert McNamara, "Financial Panics of the 19th Century," July 3, 2019, ThoughtCo website accessed September 14, 2019 (https://www.thoughtco.com/ /financial-panics-of-the-19th-century-1774020); "Panic of 1893," Saylor Academy website accessed September 1, 2019   (https://resources.saylor.org/wwwresources/archived/site/wp-content/uploads/2011/08/HIST312-10.1.2-Panic-of-1893.pdf); Mark Carlson, "Causes of Bank Suspensions in the Panic of 1893," Explorations in Economic History, Vol. 42, No. 1, pp. 56-80; John Steele Gordon, "The Other Great Depression," American Heritage Magazine, Vol. 42, No. 3 (May-June 1991); "Railroad Gross Earnings in August," The Commercial and Financial Chronicle, Vol. 57, No. 2 (September 1893), p. 446; Nancy Arlene Driscol Engle, "Benefiting a City: Women, Respectability and Reform in Spokane, Washington, 1886-1910 (Ph.D diss., University of Florida, 2003) 20-23; "Historic Homes: The Glover Mansion," Nostalgia Magazine website accessed September 8, 2019 (http://www.nostalgiamagazine.net/2018/04/24/historic-homes-the-glover-mansion/); Rudyard Kipling, From Sea to Sea and Other Sketches: Letters of Travel, Vol. 2 (New York: Doubleday, Page & Company, 1913), 43; HistoryLink Online Encyclopedia of Washington State History, "1880 Census: Tenth Decennial Census" (by John Caldbick), and "1890 Census: Eleventh Decennial Census" (by John Caldbick), "Turning Point 7: A Bumpy Ride: Seattle's Economic Booms, Busts, and Comebacks" (by Walt Crowley and the HistoryLink.org Staff), "Panic of 1893: Seattle's First Great Depression" (By J. Kingston Pierce), "Northwestern Industrial Army marches to join Coxey's Army on April 25, 1894" (by David Wilma); "Port Townsend -- Thumbnail History (by John Caldbick); "Spokane -- Thumbnail History" (by Laura Arksey), "Seattle -- Thumbnail History" (by Walt Crowley), "Tacoma -- Thumbnail History" (by David Wilma and Walt Crowley), "South Bend -- Thumbnail History (by Jennifer Ott), "Bellingham -- Thumbnail History (by Emily Lieb), "Anacortes -- Thumbnail History (by Phil Carter), "Everett -- Thumbnail History (by Margaret Riddle), "Port Angeles -- Thumbnail History" (by Kit Oldham) https://www.historylink.org/ (accessed August 31-September 5, 2019).


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