increase again in 1875 to 82.8 %( the period high). This trend concerned Grant and led to an important observation on June 1, 1874:“ There is no question in my mind that as to the fact that the poorer currency [ fiat ] always will drive the better [ specie ] out of circulation”( italics original). This is Gresham’ s Law, and points to an atypical level of national financial understanding for a President. For example, consider President John F. Kennedy’ s complaint to advisor Ted Sorensen“ that he had trouble distinguishing between the meaning of the words‘ monetary’ and‘ fiscal.’”
President Grant also understood that fiat currency can lead to credit expansion that,“ begat a spirit of speculation—( the currency being of fluctuating value … [ naturally became a subject of speculation in itself ]…)— involving an extravagance & luxury not required for the happiness or prosperity of a people, and involving, both directly & indirectly, foreign indebtedness.” This is significant because, first, it once again shows Grant’ s ability to differentiate speculative finance from the real economy. Second, Grant wrote it on December 7, 1874, which was the only year of his presidency when the national debt increased( by 0.8 %).
During this time, Grant came to believe the time had come for the nation to return to the gold standard. As he explained in his Draft Annual Message of December 7, 1874:“ Gold & Silver are now the recognized mediums of exchange the civilized world over; and to this we should return with the least practicable delay. In view of the pledges of the American Congress when our present Legal Tender system was adopted and debt contracted there should be no delay— certainly no unnecessary delays— in fixing, by legislation, a method by which we will return to a specie.”
On January 14, 1875, President Grant signed the Specie Resumption Act( Senate Finance Bill No. 1044),“ which fixes a date [ January 1, 1879 ] when specie resumption shall commence.” He also sought to raise revenue through tariffs and customs duties to pay down the national debt, which would fall by 0.9 % in 1875 thereby exceeding the prior year’ s marginal increase.
Depression, Recovery and Prosperity
The effects of the Panic of 1873 were acute: the GDP Deflator fell at a compounded rate of – 3 % from 1873 to 1879, while the
Library of Congress
The front page of the September 29, 1873 edition of The Daily Graphic depicts panic, as a health officer, cleaning the garbage out of Wall Street.
stock market fell by 23.79 % in 1873 and 10.59 % in 1874. This was likely a reason why the Republican Party“ decisively lost the 1874 congressional elections.”
The stock market fell by another 16.41 % in 1875 due to widespread levels of financial distress( e. g., 7,740 businesses failed in 1875 compared to 5,183 failures in 1873). It fell again in 1876( by 1.55 %), which was the final full year of Grant’ s presidency. It then increased by 19.51 % in 1877 and 24.87 % in 1878. Significantly, those returns were generated even though the monetary aggregates declined in both of those years. Deflation, therefore, does not always negatively impact financial returns.
The impact of President Grant’ s actions was not just financial as Real GDP grew at a compounded rate of 2.8 % from 1873 to 1878, which was the result Grant sought to achieve. Over the longer-term the economic impacts were even stronger. For example, it was previously noted that the first age of globalization dates from 1870 to 1914; according to David Stockman, those years also marked“ America’ s greatest period of growth and wealth creation.” This is confirmed by“ the data” as Real GDP grew at a compounded rate of 3.4 % from 1873 to 1914 with the population growing at a compounded rate of 2.1 %, and a GDP Deflator of 0.1 %.
The Grant administration established the financial foundation of this period based on three major achievements:( 1) Reducing the national debt by 17.7 %,( 2) Calmly and deliberately leading the nation out of the Panic of 1873 and its aftermath without either radical currency inflation or deficit spending and( 3) Setting the economy on a course back to the gold standard and a more specie-based monetary base.
Despite its successes— real and financial— President Grant’ s approach to financial panic / crisis management contrasts sharply with modern national financial policies, practices and beliefs, including the belief that deflation must be avoided at all costs. At a minimum, his approach and the results it helped generate should be rigorously reexamined given the current state of national finance in the United States, and the risks it poses.
Joseph Calandro, Jr. is a managing director of a global consulting firm and a parttime lecturer at Columbia University School of Professional Studies. He can be reached at jtacalandro @ yahoo. com.
Sources
Anderson, Richard G.“ Some Tables of Historical US Currency and Monetary Aggregates Data.” Federal Reserve Bank of St. Louis. April 2003.
Calandro, Joseph, Jr.“ Ulysses S. Grant and the Panic of 1873.” Quarterly Journal of Austrian Economics 28( 1): 26-52. 2025. https:// doi. org / 10.35297 / 001c. 137926
Calhoun, Charles W. 2017. The Presidency of Ulysses S. Grant. Kansas: University of Kansas Press.
Goetzmann, William N., Roger G. Ibbotson and Liang Pend.“ A New Historical Database for The NYSE 1815 to 1925: Performance and Predictability.” Yale International Center for Finance. July 14, 2000.
Grant, Ulysses S. The Papers of Ulysses S. Grant. Edited by John Y. Simon. 31 vols. Carbondale: Southern Illinois University Press. 1967 – 2009.
Homer, Sidney and Richard Sylla. A History of Interest Rates( 4th Edition). Hoboken, NJ: Wiley. 2005.
White, Ronald C. American Ulysses. New York: Random House. 2016.
Wicker, Elmus. Banking Panics of the Gilded Age. New York: Cambridge. 2006.
38 FINANCIAL HISTORY | Summer 2025 | www. MoAF. org