The Panic of 1873—or the first “Great Depression,” as it was known at the time—lasted more than five years. It wiped out 121 railroads, destroyed more than $15 billion in value at today’s prices, and bankrupted 18,000 other businesses. Countless small-time investors who had put their hard-earned money into the speculative railroad bubble were wiped out.
Among the first institutions to go under was the Freedman’s Savings Bank, which held the life savings of many formerly enslaved Americans. Cooke’s brother Henry D. Cooke, the governor of Washington, D.C., lent the bank’s capital to stave off the collapse of Jay Cooke & Company.
Some “of the first people [to] lose everything in this crash were freed slaves from the Civil War, and they do that because of Jay Cooke and Henry Cooke and their corrupt bargain,” says White.
One of the most disturbing consequences of the Panic of 1873 was the loss of trust among the many small, sometimes well-informed investors who had invested in risky Northern Pacific bonds. If Cooke and his many well-connected agents couldn’t be trusted, who could? “Their trust had been violated,” wrote White in a 2003 article for The Journal of American History. “Most disturbingly, [the New York Sun noted] those deceived were ‘the intelligent classes, who read newspapers, mingle in affairs and have constant access to information.’”
In the depression’s aftermath, unemployment surged to 14 percent nationally and as high as 25 percent in New York City. Many Civil War veterans became transients, spawning the rise of now-familiar terms like “tramp” and “bum.” Unlike these “forgotten men,” Cooke recovered his fortune by investing in a Utah silver mine; he died in 1905, once again a wealthy man.
After being badly burned by the stock market, a generation of investors was scarred. “Depressions linger, because people are afraid to invest,” Gordon says. “We get crashes on Wall Street about every 20 years, because that’s how long it takes people to forget what happened the last time. A generation of new guys think they’re as smart as they come, and then it turns out that they’re human, like the rest of us.”