The Five Years' Depression From 1865 to 1870

The years 1860, 1861, and the first part of 1862 constituted the fourth low-priced period. In 1862 commenced what we have in later years learned to call a boom. The demand for iron doubled within a few months, and, as it was impossible to supply such a demand, the price advanced enormously. The war, which had helped to depress business in 1861 and 1862, helped to increase it in 1863 and 1864. For several months during 1864 there was an iron famine. On several occasions the price of iron was advanced $5.00 per ton, between the afternoon of one day and the morning of the next. Many factories were time after time obliged to close their works because of the lack of iron, although they had demand enough to have kept them running night and day. Consumers
fairly pleaded with the iron merchants for even a little to tide them over the stringency. As a special inducement, some consumers deposited money with the iron merchants, weeks in advance, simply with the idea of establishing a prior claim on the first iron that could be spared. Some consumers promised their entire future trade to certain merchants, if they would give them the preference on the first iron they received. Others threatened never to deal with iron houses who would not keep them supplied with iron. Scotch pig iron, by 1864, had advanced 300 per cent. in New York. No. 1 Foundry 295 per cent. in Philadelphia, and 344 per cent. in Cincinnati. For a time, all that could be produced or imported was taken, but during the latter part of the advance, which ranged from $35.00 in August, 1863, to $80.00 in August, 1864, the situation changed. Construction and manufacturing for war purposes continued, but for other purposes investment construction came almost to a standstill. The consumption of iron, which had advanced from 725,000 tons in 1862 to 1,116,000 tons in 1864, dropped to 882,000 tons in 1865. Construction fell off tremendously. Stocks of construction materials accumulated rapidly on all sides, and the price of iron fell 50 per cent. within the next ten months.

The public attributed all these remarkable occurrences to the great Civil War. There is no doubt that the war had a great influence, but there was no war in England, France, Germany, and Belgium, yet, with the exception of Germany, they all suffered severely from an industrial depression. Germany suffered less, because her industries were less extensive. Iron was not so powerful a factor with her in those days, and prices did not realize so large an advance. The industrial depression was very severe in three of these countries, and lasted for several years in all four of them. In 1866, during the depression, there was a financial panic in England and in France, but this did not take place until the depression had been felt for more than a year; moreover, there was no panic in either the United States, Germany, or Belgium, although a depression existed in all three. This would seem to indicate that some depression cause, common to them all, and entirely outside of the panics, was simultaneously at work in each of these five countries.

The Four To Five Years' Depression From 1872 to 1876 and the Panic of 1873.

The years 1870 and 1871 constituted the fifth period of low prices,* during which all the mechanical industries revived. The consumption of pig iron rose from 1,665,000 tons in 1870 to 2,548,000 tons in 1872. Railroad building in 1871 reached the enormous proportion of 7,379 miles, the largest railroad construction ever known up to that time. The advance in the price of Scotch pig iron in New York from January, 1871, to September, 1872, amounted to 103 per cent., and the prices of all other construction materials advanced in its wake, while advances in the price of labor and strikes for higher wages were of frequent occurrence.

Reflecting these advances in labor and materials, the cost of finished construction advanced from 50 to 100 per cent., from the spring of 1871 to the summer of 1872. The effect of the advances in price, in checking the volume of contracts for new constructive enterprises, was not only early, but rapid and pronounced. Contracts had almost ceased at the beginning of 1872. Railroad construction dropped from 7,379 miles in 1871, to 5,878 miles in 1872, to 4,097 miles in 1873. The imports of iron and steel and the manufacture thereof, dropped from 1,325,034 tons in 1872 to 707,661 tons in 1873. The production of rails commenced to fall off in January, 1872, twenty- one months before the panic, and declined steadily from that time. Thus for twelve to twenty-one months before the panic of 1873 took place, the microbe of industrial depression was shown to be at work. Within the twelve months immediately preceding the panic, the mechanical industries had fallen off largely. The price of pig iron had dropped $10.00 per ton, bar iron $39.00 per ton, and iron rails $19.00 per ton.

None of these calamities was the effect of a panic. No panic conditions showed themselves until the industrial conditions had already brought the mechanical industries to a very low ebb, but not to its lowest ebb, as construction in this case continued to fall off in volume for about two years after the panic.

This is another illustration of how certainly every long-lived and mysterious depression which is accompanied by a panic goes down to history as the effect of the panic, no matter what overwhelming proofs may be given to the contrary. The public in after years only remembers the startling and spectacular panic.

In Great Britain it was the same. The panic came in November, 1873, while the depression commenced from one to two years before. From the following quotation, it can be seen how exactly the conditions surrounding the mechanical industries in England during 1872 corresponded to those in the United States. The Engineer, of London, in February, 1873, says:

"The progress of events during 1872 will not soon be forgotten by engineers. The position assumed by the working classes, and the unprecedented demand for iron and machinery, combined to raise the cost of all the principal materials of construction to a point absolutely without parallel."

"The Economist," of London, in March, 1873, said:

Of all the events of the year (1872) the profound economic changes generated by the rise of prices and wages in this country, in Central and Western Europe, and in the United States, has been the most full of moment."