What caused the Depression of 1893, and how did conservative or liberal policies cause it?

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Like the stock market crash of 1929, which is commonly viewed as the beginning of the Great Depression, the so-called "Panic of 1893" is usually seen as ushering in the terrible financial depression that followed. The Panic was set off by the collapse of a large railroad company, the Philadelphia and Reading Railroad, which panicked investors who then flooded the New York Stock Exchange with sell orders. The effects of this rippled through the economy, with the familiar pattern of bank closings, foreclosures, and layoffs bringing the disaster to all corners of the nation.

The causes of this were complex and not really reducible to "liberal" or "conservative" policies as we understand them today. Modern liberalism, which is based in part upon the idea of a welfare state and government intervention in the economy, was nonexistent in the late 1800s. If anything, the Panic gave momentum to the Populist movement, which led to calls for what we might call "liberal" policies. The causes included a decline in gold reserves, which was a severe problem for an economy based on the "conservative" principle of a gold standard. Conservatives at the time, including President Grover Cleveland, blamed the crisis on the Sherman Silver Purchase Act, which caused fears of inflation resulting from the influx of money into the economy.

However, the underlying factors that led to the collapse could be seen in a variety of places, including the completely unregulated banking system mentioned above. In fact, the Panic of 1893 was the fourth such panic in twenty years—there had been financial collapses in 1873, 1884, and 1890. One major issue in the United States was the proliferation of debt among Western and Southern farmers, who struggled to make ends meet when crop prices declined, as they did in the five years or so preceding the economic collapse. Their struggles gave rise to the Populist movement of the period. The years before 1893 had also witnessed a decline in several key economic sectors, including textiles, railroads, and capital goods like steel and coal. Part of this was tied to an economic slowdown in Europe, which dampened the demand for American crops and led to a decrease in European capital investment in American businesses.

Overall, it is difficult to say that "liberal" or "conservative" economic policies caused the Depression, in many ways because the United States lacked a federal economic policy to begin with and because these political categories had completely different meanings in the 1890s than they do today. Liberals today still contend that many of the economic downturns of the period—and as mentioned above, they happened often—were a consequence of the laissez-faire economic approach that libertarian-minded conservatives advocate today. Conservatives, on the other hand, point to fears about monetary policy and about advancing radicalism that frightened investors.

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Most historians say that the Depression of 1893 started because the American economy had experienced something of a bubble.  In the years leading up to 1893, the economy had expanded rapidly.  As is often the case during bubbles, companies had expanded more than was perhaps wise.  This was, arguably, due in part to what you could call liberal policies.  The government had passed laws requiring that silver be purchased and made into currency.  This increased the money supply, making it easier for companies to borrow money to expand.  This excessive expansion meant that the economy was in danger of a crash.

In 1893, the crash occurred.  It was set off somewhat randomly, as investors started to worry that the economy was not as strong as it seemed.  When this happened, there was a run on the stock market and on banks.  Banks had much less money to loan out and companies started to fail.  Consumer and business confidence plummeted.  This caused the depression to get worse.

It is hard to say that either liberal or conservative policies caused the depression.  We must remember that all government was, in those days, much more economically conservative than government today.  The main “liberal” policy that helped bring about the depression, the coinage of silver, is not something that fits into our liberal-conservative splits today.  However, we can argue that an easy monetary policy is more liberal than conservative and, therefore, we can say that liberal policies were in part responsible for the depression.

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