Financial Panic of 1893

The late 1800s were years of tremendous economic growth and expansion across the United States.  Cities like Sioux City were no exception.  Between 1870 and 1890, Sioux City’s population grew from 3,401 to 37,806.  Men like Daniel Hedges, John Peirce and Arthur Garretson drew incredibly wealthy by investing in Sioux City housing, business and industry.  Most of the money they invested, however, was not their own.  They convinced investors from the Eastern United States and Europe to fund their projects in Sioux City. 

For a while, it seemed like there was no end to the great prosperity that marked the 1880s. Towns like Sioux City were booming everywhere. Railroads linked growing towns to larger markets. Farmers produced more than ever before. Manufacturing firms were growing and unemployment was low. Then, a world wide financial panic, the Panic of 1893, brought everything to a screeching halt. 

Several circumstances combined to generate Panic of 1893. The 1880’s were times of significant economic growth across the United States.  The railroads were rapidly expanding.  During the 1880’s, the railroads laid down thousands of miles of track, engaged in rate wars, and borrowed millions of dollars to support the growth.  Railroad stock sold for much more than it was actually worth. 

During this period of time, farmers were producing record crops and suffering from low prices for their grain.  Many could not make the payments on their mortgages.  Thousands of farmers lost their land as the banks foreclosed on their mortgages. 

Industrialization was on the increase, and there was a rise in foreign investment in the United States.  Financial firms in Europe, especially Britain, invested heavily in American companies. However, in 1889, the European economy began to weaken and European investors started to get nervous.  When the British banking firm of Baring and Brothers collapsed in November of 1890, due to a bad investment in Argentina, European investors started to get panicky.  They began dumping their American stocks and exchanging American dollars for gold.

At the same time, the price of silver was falling. Although both silver and gold circulated as money, the United States dollar, backed by gold, was the favorite worldwide currency. In the United States, a treasury note could be exchanged for either gold or silver. Since silver prices were unstable and gold was more valuable than silver, most people preferred gold. As long as the federal gold reserve remained above the limit of $100 million, this was not a problem.  However, if the reserves of gold went below that $100 million mark, the Treasury would redeem US currency in silver instead of gold.   That made the investment community uneasy. Their discomfort increased when the Philadelphia and Reading Railroad filed for bankruptcy.  The collapse of the Philadelphia and Reading caused many businessmen to question the solvency of other railroads and the financial institutions that backed them.

As European investors cashed in their American stocks, they turned their dollars into gold.  A steady stream of gold left the United States treasury, much of it bound for Europe.   As gold reserves plummeted, the banking and business community began to get nervous.  Many institutions converted their paper to gold, rather than take the chance that they would have to redeem it in silver.

On April 21, 1893, the federal gold reserve limit was reached.  The financial community began to panic. Banks and investors began to worry that loans would be paid for with less valuable silver.   Banks began calling in their loans, and businesses began to fail.

In Sioux City, many of the booming businesses were being run with a great deal of borrowed money.  When the big eastern banks called in their loans, no one could pay.   On Tuesday, April 23, 1893, the Union Loan and Trust Company and Hedges Trust Company collapsed in bankruptcy.  Daniel Hedges also announced that he was personally bankrupt.

The April 26, 1893 issue of the Sioux City Journal stated:  “A number of Sioux City companies have been doing business on too small capital.  They have been floating their paper through the Union Loan and Trust Company, which has endorsed and guaranteed a great deal of it.  During the hard times which we have been experiencing, the eastern creditors have refused to extend this paper or take more of it.”

Regarding Daniel Hedges, the paper went on to say, “Mr. Hedges was unable to meet his debts.  He owed a large amount and his notes were coming due at the rate of many thousands of dollars each day….He could not pay his debts to the Union Loan and Trust Company.”

Nationwide, nearly 15,000 companies and 30 percent of the nation’s railroads went bankrupt in 1893.  Over 500 banks failed and the country entered into an economic depression. The unemployment rate soared to over ten percent, and unemployment remained high for several years.

The Sioux City Stockyards and Combination Bridge project were victims of the Panic of 1893.  During these uneasy economic times, the population dropped by nearly 10,000. Many businesses failed and others downsized.  Sioux City was bruised, but not broken.  The Journal carried advertisements from banks and businesses that announced that they were still solid.  Many companies weathered the storm.  Sioux City struggled to get back on her feet.

In 1894, a group of eastern speculators and investors who had lost money when the Panic came to Sioux City organized the Credits Commutation Company in an attempt to salvage what they could from their Sioux City investments.  They hired F. L. Eaton to some to Sioux City to supervise the recovery.  Under Eaton’s leadership, the stockyards were restored and combination bridge project was finished.  Eaton led the city’s economic recovery and became a respected member of the community.

Many Sioux City boosters and speculators left town after the Panic.  John Peirce stayed for a while and tried to recover some of his losses.  However, eventually he and Daniel Hedges left town.  Edwin Peters, William Gordon and Arthur Garretson remained in the city, slowly repaid their debts and became respected businessmen in the city.

The national Financial Panic of 1893 ended the Boom Years of Sioux City’s growth.  Although the years of tremendous wealth, speculation, and expansion were over, the city continued to grow and prosper. Little by little, she regained her place as a leading agricultural center. In fact, by 1910, the city’s population had grown to over 47,000.  

Sources:

Chicoine, B. Paul, and Scott Sorensen. Sioux City, A Pictorial History. Norfolk/Virginia Beach: Donning Company, 1982. 

Depression of 1893 Auburn University. <http://eh.net/encyclopedia/whitten.panic.1893.php>.

Financial History:  The Panic of 1893<http://www.financialhistory.org/fh/1998/61-1.htm>.

Sioux City Journal 26 Apr. 1893