page_title: Panic of 1873
section_title: Germany and Austria-Hungary
hierarchical_section_title: Panic of 1873 / Europe / Germany and Austria-Hungary
caption_attribution_description: English: Black Friday on May 9, 1873 at the Vienna stock exchange, wood engraving from 1873 Deutsch: Schwarzer Freitag an der Wiener Börse am 9. Mai 1873, Holzschnitt, 1873
context_page_description: The Panic of 1873 was a financial crisis that triggered an economic depression in Europe and North America that lasted from 1873 to 1877 or 1879 in France and in Britain. In Britain, the Panic started two decades of stagnation known as the "Long Depression" that weakened the country's economic leadership. In the United States, the Panic was known as the "Great Depression" until the events of 1929 and the early 1930s set a new standard.
  The Panic of 1873 and the subsequent depression had several underlying causes for which economic historians debate the relative importance. American inflation, rampant speculative investments, the demonetization of silver in Germany and the United States, ripples from economic dislocation in Europe resulting from the Franco-Prussian War, and major property losses in the Great Chicago Fire and the Great Boston Fire helped to place massive strain on bank reserves, which, in New York City, plummeted from $50 million to $17 million between September and October 1873.
  The first symptoms of the crisis were financial failures in Vienna, the capital of Austria-Hungary, which spread to most of Europe and to North America by 1873.
context_section_description: A similar process of overexpansion took place in Germany and Austria-Hungary, where the period from German unification in 1870 and 1871 to the crash in 1873 came to be called the Gründerjahre ("Founders' Years"). A liberalized incorporation law in Germany gave impetus to the foundation of new enterprises, such as the Deutsche Bank, and the incorporation of established ones. Euphoria over the military victory against France in 1871 and the influx of capital from the payment by France of war reparations fueled stock market speculation in railways, factories, docks, steamships, the same industrial branches that expanded unsustainably in the United States. In the immediate aftermath of his victory against France, Bismarck began the process of silver demonetization. The process began on 23 November 1871 and culminated in the introduction of the gold mark on 9 July 1873 as the currency for the newly-united Reich, replacing the silver coins of all constituent lands. Germany was now on the gold standard. Demonetization of silver was thus a common element in the crises on both sides of the Atlantic Ocean.
  On 9 May 1873, the Vienna Stock Exchange crashed since it was unable to sustain the bubble of false expansion, insolvencies, and dishonest manipulations. A series of Viennese bank failures ensued, causing a contraction of the money available for business lending. One of the more famous private individuals who went bankrupt in 1873 was Stephan Keglevich of Vienna, a relative of Gábor Keglevich, who had been the master of the royal treasury (1842–1848) and in 1845 had cofounded a financial association to fund the expansion of Hungarian industry and to protect the loan repayments, similar to the 1870 Kreditschutzverband, an Austrian association for the protection of creditors and the interests of its members in cases of bankruptcy. That made it possible for a number of new Austrian banks to be established in 1873 after the Vienna Stock Exchange crash.
  In Berlin, the railway empire of Bethel Henry Strousberg crashed after a ruinous settlement with the government of Romania, bursting the speculation bubble in Germany. The contraction of the German economy was exacerbated by the conclusion of war reparations payments to Germany by France in September 1873. Two years after the foundation of the German Empire, the panic came and became known as the Gründerkrach or "Founders' Crash". In 1865, Keglevich and Strousberg had come into direct competition in a project in what is now Slovakia. In 1870 the Hungarian government and in 1872 the Emperor-King Franz Joseph I of Austria resolved the question of the competing projects.
  Although the collapse of the foreign loan financing had been predicted, the events of that year were in themselves comparatively unimportant. Buda, the old capital of Hungary, and Óbuda were officially united with Pest, thus creating the new metropolis of Budapest in 1873. The difference in stability between Vienna and Berlin had the effect that the French indemnity to Germany flowed into Austria and Russia, but the indemnity payments aggravated the crisis in Austria, which had benefited by the accumulation of capital not only in Germany but also in England, the Netherlands, Belgium, France, and Russia.
  Recovery from the crash occurred much more quickly in Europe than in the United States. Moreover, German businesses managed to avoid the sort of deep wage cuts that embittered American labor relations. There was an anti-Semitic component to the economic recovery in Germany and Austria, as small investors blamed the Jews for their losses in the crash. Soon, more luxury hotels and villas were built in Opatija, and a new railway line was extended in 1873 from the Vienna–Trieste line to Rijeka, making it possible to go by tram from there to Opatija. The strong increase of port traffic generated a permanent request for expansion. The Suez Canal was opened in 1869. 1875–1890 became "the golden years" of Giovanni de Ciotta in Fiume (Rijeka).
caption: Black Friday, 9 May 1873, Vienna Stock Exchange
exif: {"Image Copyright": "akg-images"}