Panic of '73

Via Marginal Revolution, Scott Reynolds Nelson writes on the Panic of 1873, which he sees as not only more severe than the Great Depression, but a more apt model for the present: The Real Great Depression. There are some strong points of similarity.

The problems had emerged around 1870, starting in Europe. In the Austro-Hungarian Empire, formed in 1867, in the states unified by Prussia into the German empire, and in France, the emperors supported a flowering of new lending institutions that issued mortgages for municipal and residential construction, especially in the capitals of Vienna, Berlin, and Paris. Mortgages were easier to obtain than before, and a building boom commenced. Land values seemed to climb and climb; borrowers ravenously assumed more and more credit, using unbuilt or half-built houses as collateral. The most marvelous spots for sightseers in the three cities today are the magisterial buildings erected in the so-called founder period.

Financial underpinnings were shaky though, and a forest of new financial instruments was supposed to stabilize the economy but cracked when the going got tough. A major precipitating event was the invasion of European markets by cheap goods from across the ocean - America. A cascading financial calamity destroyed first European and then the US economy.

The depression was long lasting, and the sequellae were severe. Europeans blamed the Jews, and a series of Pogroms began.

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