Text | Eating noodles instead of chicken
In October 1857, 62 out of all 63 banks in New York suffered a frenzy of runs, causing the entire banking system to rapidly collapse.
With the fermentation of the crisis, the financial industry in London was also hit unprecedentedly, and Paris and Berlin were not spared afterwards.
After the 1857 crisis, the American railway industry was criticized by the world, and everyone believed that its disorderly expansion led to this crisis.
However, after the crisis, the US railway industry remained unchanged, with no reduction in government support and foreign capital entering.
How did the American railways trigger this crisis? Can the railway industry, without any changes, really continue to drive economic development?
In the 19th century, the railway investment boom
In the late 19th century, enterprises were the designers of modernism, while railway enterprises opened the door to postmodernism in industrial and commercial enterprises
American historian Alfred Chandler said so.
After entering the 19th century, overseas colonial expansion was no longer the best way for a country to develop, although many established empires such as Britain and France still did not abandon this strategy.
By contrast, Americans are much more pragmatic. As a rising star in the capital world, Americans have realized their country's superior geographical environment and regard internal development as the main driving force for economic development.
Today, California and Texas in the Midwest of the United States are ranked among the top two in the US economy, but before the mid-19th century, Washington D.C., New York, and Massachusetts in the northeast remained the economic centers of the entire United States. This situation occurred after the pioneers of the western United States.
Unlike China's later Western Development, the vast territory of the American West was originally a source of wealth, so the US government only needed to guide its citizens without paying huge financial support.
The only issue is how to achieve communication between the east and west.
In 1825, Britain built the first practical railway, and in the following five years, the United States built a railway that extended from Maryland to Ohio. The first steam locomotive in the United States, the Tom Finger, was put into use, marking the beginning of the era of railway fanaticism in the United States.
The initial railways in the United States mostly existed as supplementary means for canals and inland waterways. By 1850, the railway mileage in the United States had rapidly increased to 9000 miles (approximately 14000 kilometers). In the following 30 years, the growth rate of railway mileage further accelerated, and by the 1970s it had expanded to nearly 80000 miles.
The newly built railway has fast operation speed and low transportation costs, quickly replacing the position of inland waterway shipping. In the corn belt of the United States, 80% of farms are built within 5 miles of the railway line, and the US economy has developed a strong dependence on railways.
In 1850, the United States Congress passed a land grant law that attracted private investment in railway construction through land grants. Each white family could apply for 320 to 640 acres of free land.
After the bill was passed, the enthusiasm of American citizens for building railways further increased. One quarter of the entire US GDP came from the railway industry, and nearly half of the railways were built under the drive of the law thereafter.
As the railway industry reaches its peak, new changes have also occurred in the related financial industry.
In 1852, the Belleira brothers founded the first chattel credit company in France. The company declared in its charter that its goal was to "establish a company aimed at encouraging the development of public utilities and consolidating various securities of all enterprises into a common fund, so that the exchange of these securities could also be achieved. Such a company could provide important services.
In fact, this new type of company mainly serves as a credit intermediary, creating cash flow through bonds that are 10 times its own assets. It quickly became popular in the capital market, including the emerging United States.
With the surge of financial institutions such as banks, countless railway bonds and stocks have appeared on Wall Street, presenting a thriving scene in the entire financial market.
While the United States is buried in building railways, the markets of various countries have also initially merged into an interconnected world market. The economic ties between the United States and the United Kingdom are becoming increasingly close.
In the trade between the two countries, British goods dominate, with a large amount of precious metals flowing from the United States to the UK, leading to an increase in idle capital in the UK. The British used massive gold reserves as endorsements to recklessly stir up financial markets.
In 1848, a huge gold mine was discovered underground in California, and British capital flooded into the western United States, pushing the construction of railways in the United States to a new climax.
In 1857, the first world economic crisis
While the American railway industry and the world financial industry continue to be fanatical, Marx, the mentor of the proletarian revolution, is watching all of this with a cold eye.
He keenly discovered that unscrupulous speculation and bottomless bonds were hollowing out the entire capital market. Behind the surface prosperity was the continuous rise in prices and the increase in the number of people living in extreme poverty.
As early as September 1853, Marx lamented, "Never before has so much hot money accumulated during periods of prosperity been directly invested in industrial production
From 1852 to 1860, Marx and Engels published up to 95 articles on economic crises in the New York Daily Economic Forum. But before the problem arose, no one cared about their arguments.
In 1856, the Crimean War, which lasted for three and a half years, came to an end and Tsarist Russia reached a reconciliation with the Western European countries. Since then, cheap food produced in Russia has enriched the European market, and American agriculture, which is highly dependent on exports, has been severely impacted.
American farmers have always had the habit of large-scale land acquisition, and since the popularization of the financial industry, borrowing to purchase land has become a new trend. The decline in exports has left many farmers without enough money to repay their loans, and the US financial industry has also been affected.
For the US financial market in the second half of 1857, the New York Herald described it as follows: "There were a large number of unstable and eager to sell stocks in the market, but no buyers could be found and no demand could be seen
On August 19th, Edwin C. Lichfield resigned as the president of Michigan Central Railroad Company. He publicly stated that his reason for resigning was "wanting to spend more time on personal affairs", which is equivalent to telling people that the company is about to have big trouble.
Soon, the stock price of this company fell from $85 to $67, and other railway companies did not fare much better. The Erie Railway fell from $34 to $21, and the New York Central Railway fell from $83 to $74.
In the end, the Michigan Central Railway fell to the point of national takeover, which often means the collapse of the entire industry in the capitalist world.
Under the crisis, the British began to re-examine their investments in the United States, and then they were shocked to find that they had transformed from a gold importing country to a gold exporting country as early as 1851. With the loss of gold, I have no money to use anymore.
In 1856, the Bank of England raised the minimum discount rate to a historically rare 10%. The so-called discount rate refers to the interest rate paid by the holder to the bank to obtain cash in advance. The Bank of England's move is to prevent the bank's gold reserves from being depleted and leading to bankruptcy.
However, at that time, the British had not yet realized the arrival of the crisis. In 1857, the Bank of England raised the discount rate again. This time caused panic in British society, and people began queuing up to withdraw their deposits.
So the UK financial industry was also hollowed out.
As the leader of the capitalist world, the British economy had an impact on the world, and soon countries such as France and Germany also fell, resulting in the first global economic crisis in human history.
In 1857, a total of 4000 businesses in the United States declared bankruptcy, which directly wiped out $300 million in wealth.
According to data released by the US Department of Commerce, the total GDP of the United States in that year was only 4.1 billion US dollars.
The crisis lasted for a total of two years, and the only way left for the United States was to stimulate industrial demand and revive the capital market through a war.
Four years after the crisis, the American Civil War broke out.
On the other side of the Atlantic in Britain, the unemployment rate for workers has increased sixfold. In order to alleviate the crisis, the UK has decided to expand its commodity exports.
This year, Jiangxi, China, suffered a rare locust plague, and the Taiping Rebellion was still spreading. The Second Opium War launched by the British and French entered its second year. Faced with this continuously shrinking market, the British are increasing their dumping efforts.
At the end of that year, the British and French allied forces captured Guangzhou and captured Ye Mingchen, the governor of Guangdong and Guangxi, who resisted the invasion. The British transported him to India and exhibited him like a monkey, but the latter eventually went on hunger strike and died.
In 1873, corruption and panic
The outbreak of the American Civil War in 1861 did not lead the American economy towards collapse, but instead led the United States into a "Gilded Age" of less than half a century. When people realized that this war would not be over for a while, war related industries such as steel and coal became the new darling of capital.
The railway industry, which had caused the economic crisis before, was not left out. In 1961, Lincoln approved the first Pacific Railway Act during the war, marking the beginning of a huge railway project spanning the East West of the United States.
After the Civil War, the United States once again attracted a large amount of foreign investment, this time not only British capital, but also German and French investors were moved by the news. As the main force of economic development, the railway industry naturally gained the largest share of the cake.
In 1969, the Pacific Railway was completed, and the American railway industry once again reached its peak. Over the next 30 years, the North Pacific Railway, South Pacific Railway, Santa Fe Railway, and Greater North Railway were successively put into use, building a railway network for the United States to connect the country.
However, behind the brilliant achievements, there are many secrets that are not humane enough for outsiders.
At this time, the railway companies that created the "American miracle" were actually the same ones established before the Civil War. These companies enjoy extensive privileges in various states of the United States, such as building toll facilities and setting fee standards. As long as they are willing, they can even establish their own banks and issue bonds.
By relying on these privileges, they created a de facto monopoly on the American railway industry. Even if other companies want to survive, they can only rely on these privileged companies.
In order to promote the development of the railway industry, the US government has formulated a large number of incentive policies, most of which are similar to the Land Grant Act of 1850.
From 1850 to 1870, the US government allocated 175 million acres of land to businesses. Among them, Union Pacific Railway Company obtained 189 million acres, South Pacific Railway Company obtained 210 million acres, and North Pacific Railway Company obtained 390 million acres.
Several Pacific Railroad companies have obtained more than half of the land area provided by the US government. These lands have not been used for production, but have been hoarded to hype up land prices, and land prices in many parts of the western United States have increased tenfold within a year.
In 1864, executives from the Central Pacific Railway Company and the United Pacific Railway Company went to Washington together to complain to Congress about the insufficient government support for them. While lobbying, the two companies also presented a large amount of money.
So in 1864 and 1868, the US government twice expanded the privileges granted to businesses under the Pacific Railroad Act, allowing them to obtain 6400 acres of land and $16000 in loans for every mile of railway construction.
After the start of the North Pacific Railway project in 1871, then the richest man in the United States, Jay Icuk, once again bribed members of Congress, causing the government to provide more land to the project than the combined area of several states.
In 1872, Henry McComb, an employee of the Chattel Trust Company, revealed to The Sun in New York about the bribery of legislators by the United Pacific Company due to a commercial dispute, which made the gray chain of interests in the railway industry known to the public.
The US Congress spent a year thoroughly investigating this matter, and ultimately found out that Union Pacific Railroad had declared $93.55 million in construction costs to Congress, but only $50.72 million was actually spent, with nearly half of the money going into the pockets of corrupt officials and wealthy businessmen.
In this corruption case, Speaker of the House James Gillespierre Bryan, celebrity congressman Garfield, and two former vice presidents, including Colfax and Henry Wilson, all participated. The Republican government led by then President Grant swept the floor.
The disclosure of the case directly led to the Great Panic of 1873, where Americans lost trust in the railway industry, and one-third of the railway companies went bankrupt during the crisis. The North Pacific Railway project was forced to shut down, and a new economic crisis swept through the United States and affected capital markets worldwide.
After the Great Panic of 1873, the Democratic Party occupied the United States House of Representatives, and the Republican Party had to abandon their long-standing radical reconstruction policy.
The US government has carried out drastic reforms to the civil service system, eliminating the system of political party distribution of spoils.
However, the US judicial department has not provided any results regarding the direct responsible persons for the corruption incident. The United States is still the same.
References
Xie Tingdong. On Corruption in the Railway Industry during the Gilded Age in the United States [D]. Southwest University, 2021
You Yangyang. Research on Marx's Discussion of the 1857 Economic Crisis [D]. China University of Mining and Technology, 2022
Anonymous. The Economic Crisis from 1857 to 1858 [J]. Science and Technology for Development, 2009 (04): 40-41