A Storm of Cheap Goods: New American Commodities and the Panic of 1873

The Long Depression that began in 1873 is eerily familiar: New banks in the newly-organizing empires of France, Austria-Hungary and Prussia made cheap mortgages in the capital cities of Paris, Vienna and Berlin. Questions about the fundamentals of these banks led to a steep rise in the interbank lending rate. A massive collapse in the stock markets followed. The story is familiar but the deeper cause, as I see it, had to do with cheap goods from the American Midwest. Around 1870, wheat exporters from Russia and Central Europe faced new competitors that drastically undersold them: Midwestern farmers. Using grain elevators, conveyer belts, and massive steam ships, they exported trainloads of wheat to Western Europe, particularly Britain, the biggest international buyer of wheat. Commodity prices on the Black Sea and in Central Europe plunged. By 1872, cheap petroleum was also undermining the price of rapeseed oil, while cheap tinned beef from America was replacing Hungarian beef on the hoof. The crash came in Central Europe in May of 1873, as it became clear that Central European assumptions about the continual growth of wealth were too optimistic. In the face of what Europeans came to call the American Commercial Invasion, a new agricultural superpower had arrived, one whose low costs threatened European trade, and a European way of life. This short paper will consider the commercial invasion itself, as well as European responses.