The Panic of 1873 and the California Constitution

Note: I had occasion to do some research recently on The Panic of 1873 and its effects--particularly in California; I thought I would share the fruits of my research with you. -Jennifer

The Panic of 1873 is a particularly interesting research topic* as it came at such a dynamic time for the United States: society was shaking off the ills of the Civil War, Reconstruction was under way, expansion in the West was in full-force, and the economies of the Eastern seaboard were trying to bloom into their full industrial potential. Businesses were being born, and people were on the move. Optimism in the newly reunited country was high, and the potential for individual and national success seemed unlimited. Then calamity struck, and struck hard.

In California, in particular, the legacy of the Panic of 1873 was a political one as much as an economic one--powering grassroot movements and building ideologies that culminated in the formation of the state's constitution.

The Panic
The Panic of 1873--known in the rest of the world as "The Long Depression" or "The Great Depression", was most immediately triggered by the collapse of the railroad bubble, which had seen its apex in the United States in the years following the Civil War. Economic troubles in Europe--a ready lender to US businesses--meant that the market for investment in railroads became a stale one, and many companies on the brink financially (both banks and railroads) felt the effects:

[A] sharp financial panic in May 1873 on the Vienna Bourse warned every European investor and banker that he must watch carefully his commitments and set his financial house in order. The Vienna panic stopped the negotiation in Europe of bonds of new railroads, and made difficult the sale of those of companies of established credit. The glut of American railway bonds in Europe forced the New York bankers to carry the new railroads which they backed, by straining their own individual credit. This became increasingly difficult.¹

Resultant collapses in the banking sector wreaked havoc on the fledgling industrialized US economy, and the country entered a despondent period of "declining markets, exhaustion of capital, a lowering in value of all kinds of property including real estate, constant bankruptcies, close economy in business and grinding frugality in living, idle mills, furnaces and factories...labourers out of employment, reductions in wages, strikes and lockouts, the great railroad riots of 1877, suffering of the unemployed, depression and despair.³." These economic troubles would persist until the economy finally cycled up again in 1879.

The deflation following the panic, and its companion reduction in prices, was particularly hard on farmers who depended upon sustained food prices to keep their operations afloat. Many had also borrowed heavily in the boom times and were now finding themselves either in peril of default, or without means to borrow to fund further expansions of their businesses. Workers in industrial fields--many of whom had been working for now-defunct railroads--were also affected as high unemployment and excess labor pools meant low wages, long hours and little job security⁴.

Politics
These economic hardships were a trigger to political action; grassroots movements became energized and powered calls for change and agitations for legislative and economic reforms across the country. In California, the agitation resulted in a new state constitution.

One party working actively in California in the years following the panic was the Workingman's Party led by the vociferous and provocative Dennis Kearney. This urban movement was characterized by a strong foment on the part of the labor class, along with a denunciation of the monied and propertied echelons of society and the bearer of all capitalist evil: the railroads. The party also soon began to cave to xenophobic tendencies, captured in the mantra "Chinese Must Go":

[R]adicalized white workers denounced capital and the owning class, but they also were already blaming “coolie” labor for dragging wages downward. The completion of the Transcontinental Railroad led to a big influx of skilled Chinese workers, who came to dominate employment in cigar making, shoe making, and textiles. Thousands of white workers came to San Francisco during this same period, seeking work out west in the wake of the economic depression back east. But the railroad brought the depression along with the workers⁵.

The party took to inflammatory rhetoric and intimidation tactics like large-scale rallies and rioting, but called all the while for legislative changes at the state level that would address their concerns about the power of the wealthy and the effect of immigration on labor.

Similar agitations for change were occurring in rural parts of California, where farmers were aggregating to discuss grievances under the auspices of a movement known as The National Grange of the Order of Patrons of Husbandry, or "The Grange". This fraternal order became a political organization of powerful momentum, which took on what farmers saw as two major evils: the excessive rates for freight charged by the tyrannical railroads, and the profligate expenditures of government⁶.

Both factions--rural and urban--soon became unlikely allies in the revision of the California Constitution:

Instead of going on with the idea of revolution, the Workingmen's Party now set out, with the assistance of the discontented Grangers, to capture a majority of the delegates [to the Constitutional convention] to be elected in June, 1878. So successful were their efforts that when the votes were counted it was apparent that the farmers and laborers together had won a clear majority of the seats in the convention. Continuing their co-operation, the Workingmen and Grangers wrote a new constitution for the state that embodied most of their radical ideas.⁷

Many of those ideas--particularly stringent statutes against Chinese immigrants--were later deemed illegal under the US Constitution. The agendas which both political factions brought to the table at the Constitutional convention did leave some legacy, including corporate and railroad regulation, and a number of tax policies. For anyone interested in the details of the California Constitution, both the original 1879 Constitution and the working papers from the 1878 Constitutional Convention are online.

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* I've read on the internet that Glenn Beck recently had words to say about the Panic of 1873 and the Workingman's Party, tagging the event and the organization as the "racist roots" of the union movement. I wrote the majority of this post before his commentary aired, and my discussion of it here has nothing to do with Mr. Beck's commentary or his opinions.

1. Rhodes, JF. History of the United States, Vol. VII. London: MacMillan & Co., 1912. pp. 40-41.

3. Ibid. Page 53.

4. Ayers, et. al., American Passages. Boston: Wadsworth Publishing, 2008. Page 472.

5. Carlsson, Chris. The Workingmen’s Party & The Dennis Kearney Agitation

6. Hittell, TH. History of California, Volume IV. San Francisco: NJ Stone & Company, 1897. Page 517.

7. From Unrest in California, by Prof. J. D. Hicks.