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The Panic of 1873 and the "Long Depressi...

Bruner, Robert F.

Case

The Panic of 1873 and the "Long Depression" (B)

Bruner, Robert F.

F-1825 | Published July 27, 2018 | 3 pages Case

Collection: Darden School of Business

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In 1878, President Rutherford B. Hayes must decide whether to sign the Bland-Allison Act and commit the United States to minting silver coins and thus return to a bimetal standard of currency. At issue is whether to grow the nation's money supply to sustain its galloping rate of economic development, or to constrain the money supply growth to enable the country to return to the international gold standard at the pre-Civil War parity to the British pound. National sentiment immediately after the war had been on the side of currency deflation, but the Panic of 1873 marked a turn in sentiment toward inflation. These cases focus on how and why that turn occurred, and its consequences. The B case provides an epilogue.

(1) Explore deflationism as government policy following wartime inflation. Students should understand the government's motives for pursuing such a policy and the arguments of critics in response. The late 19th century saw a significant rise in interest groups, protest movements, and new political parties that sought to end the deflationary policies of the US government, but also embark on policies to inflate the money supply and prices. (2) Survey the so-called Long Depression of the 1870s, including its causes, impact, and consequences. This case presents the opportunity for students to consider the meaning and economic indicators of a depression. (3) Consider the optimal jurisdiction over monetary policy. At the time of this case, the executive branch of the US government (specifically the president and Treasury department) directed policy. But the case illustrates the takeover of monetary policy by Congress. Who is best to decide on monetary policy? Experts, or representatives of the people? This is an issue that persists to the present day.