Collection of the Museum of American Finance
The post-Civil War railroad boom was a prime cause of the Panic of 1873, and railroads were numerous among the casualties. That does not mean that railroad finance came to a halt, as indicated by this Rome, Watertown and Ogdensburgh( New York) Rail Road Company bond certificate for $ 1,000, issued July 1, 1874.
industry’ s distress themselves. For example, on October 19, 1873, he responded to a letter from the president of the Metropolitan Bank in New York City where he asked,“ cannot the Bank Presidents be brought together and resolve to aid each other, and the business interests generally. The government then will do all in its power.” Note that Grant’ s wording is a request not a question, and the request communicated his desire for banking to support the business of the real economy( in contrast with speculation in the financial economy) before the government did“ all in its power.” This sequence of roles and responsibilities is fundamental to Grant’ s approach to national finance.
Third, and contrary to modern practices, Grant did not deficit spend to mitigate panic-generated distress; on the contrary, he reduced the national debt by 0.8 % in 1873!
Finally,“ Grant’ s quiet leadership and steady hand, quite different from Franklin D. Roosevelt’ s public cheerleading in confronting the Great Depression 60 years later, did much to calm troubled waters.” And with calmer waters the Panic of 1873 ended. However, the economy remained volatile( e. g., the stock market closed the year down 23.79 %) so pleas for the government to help by inflating the currency continued.
The Currency Bill of 1874
Following the financial crisis of 2007 – 08, the Federal Reserve continued its inflationary strategy— quantitative easing— for another dozen or so years. While the Fed undertook many new initiatives after that crisis, their objective— inflate the postpanic money supply to stimulate economic activity— was not new. Grant was pressured to do the same thing after the Panic of 1873, which coalesced in the Currency Bill( Senate Bill No. 617) that would have significantly increased the monetary base. The bill passed both houses of Congress with a majority of the Republican party supporting it, and was sent to Grant for his signature.
Given the politics of the Currency( or Inflation) Bill, Grant considered it carefully, after which he decided to veto it despite both his party’ s endorsement and special interest pressures. His veto is consistent with the above comments on Grant’ s decision-making process; namely, making the right decision as he understood it without regard to special interests or partisan politics to the contrary. He announced the veto in a cabinet meeting on April 21, 1874, and followed up with a written explanation to Congress the next day.
The Specie Resumption Act of 1875
Monetary affairs remained foremost on Grant’ s mind following his veto. A reason for this was likely the composition of the monetary base. In 1873, fiat currencies( US notes / greenbacks and national bank notes) represented 82 % of the monetary base, which increased to 82.4 % in 1874 and would
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