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Cooke had grown wealthy during the Civil War, when he had obtained a monopoly on the sale of government bonds in the United States. Following the war, he moved into railroad finance, investing in a new transcontinental railroad, the Northern Pacific. At breakfast the morning after the housewarming, the financier known as the Tycoon (a variant of the Japanese title “shogun”) gave the president no indication of the distress he felt as he read alarming telegrams from his New York office of Jay Cooke & Co. Rushing to Philadelphia in his carriage, Cooke learned that the New York branch had closed. He ordered the closing of the Philadelphia headquarters and abruptly burst into tears.

The collapse of the largest bank in the United States led to a wave of bankruptcies of banks, railroads, and other companies. Mass unemployment produced civic unrest. In New York City, police beat hundreds of unemployed men and women in the Tompkins Square Riot of 1874. In 1875, a group of Irish coal miners, the Molly Maguires, went on strike, and in 1877 a nationwide railroad strike led to intervention by federal troops and the arrest of its leader, Eugene Debs, who later became the Socialist Party candidate for president.

Another panic in 1893 caused another recession, the original Great Depression. More violence between employers and workers followed, making the United States the Western country with the greatest amount of labor violence at the time. The distress of southern and western farmers sparked the populist movement, which frightened elites and culminated in William Jennings Bryan’s nomination for the presidency in 1896.

A PANIC-PRONE BANKING SYSTEM

Although the depressions of the late nineteenth century were global, the particular form they took in the United States was influenced by America’s peculiar banking system. Definitions of panics vary, but according to one account there were nationwide bank panics in the United States in 1819, 1837, 1839, 1857, 1861, 1873, 1884, 1890, 1893, 1896, and 1907, in addition to three waves of bank failures between 1931 and 1933.
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The United States continued to suffer from banking panics at a time when the problem was disappearing from other, similar countries. The explanation is found in America’s uniquely fragmented and brittle banking structure.

Banking panics have been relatively rare in countries whose banking systems are based on a small number of banks with many branches. Unique among modern countries, the United States had thousands of tiny banks, many of them “unit banks” with only a single office. These unit banks served the interests of the local elites who owned them and could loan themselves and their allies the money of their neighbors. The Jeffersonian and Jacksonian defenders of small country banks protected them from competition by big city banks by state laws and federal laws not only limiting interstate branch banking but also, in some states, banning branch banking within the state. In states that allowed branching, banks with branches were far less likely to fail than unit banks.
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National branch banking in nations like Canada and Australia that permitted it, reduced the fragility of local banks by reducing their dependence on fluctuations in the local or regional economy. While the United States had more than eight thousand independent banks in 1890, Canada at the same period had only about forty.
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In Canada a few individual banks failed, but thanks to branching there were no national banking panics after the 1830s.
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In Canada following World War I, there was only one major bank failure, in the 1920s, and no banks failed at all during the Great Depression. In Australia, where national branch banking was legal, there was only one national panic, in 1893, to interrupt a record otherwise free of them.
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In contrast, bank failures were common in the United States in the 1920s and in the Depression the entire system collapsed.

America’s fragmented system of tiny unit banks imposed other costs on the economy. Their greater riskiness meant that America’s small unit banks had higher reserve ratios and lower loan ratios than Canada’s larger, more stable branch banks.
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Another cost of American unit banking was variations in interest rates among urban and rural banks and regions like the East, West, and South.

The decentralized, fragmented nature of the US banking system, characterized by thousands of small banks, meant that functions performed in more centralized banking systems had to be carried out by arm’s-length transactions among separate institutions. One institution was the private clearinghouse system, which allowed banks to repay other banks with clearinghouse certificates based on bank assets. This freed up cash that the bank could pay out to depositors in panics like those of 1873, 1893, and 1907. In addition to private clearinghouse systems, there were private banks that acted as lenders of last resort, like the Suffolk Bank of Massachusetts, which played this role in New England during the Panic of 1837.

America’s peculiar system of decentralized one-office banks also produced the “pyramid reserve” system, with small banks keeping some of their money with big urban money-center banks. The money-center banks then made call loans to stock-market investors. This invited trouble, because when distressed country banks recalled their reserves, the money-center banks would demand repayment of their call loans from investors, which might trigger a stock-market panic.

HUDDLED MASSES

In 1867–1868, the United States surpassed Britain in gross domestic product (GDP), becoming the world’s largest economy.
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The growth of the size of the American economy was driven by a combination of productivity growth with a rapid increase in population, driven by mass immigration from Europe between the 1840s and World War I.

The US population increased from forty million in 1870 to seventy-six million in 1900. Two-thirds of the growth was the result of natural increase, one-third the result of immigration.

Of the seventy-six million Americans in 1900, a third were either foreign born or the children of foreign-born parents. In 1910, the foreign-born and their first-generation children accounted for more than 70 percent of the population in New York, Chicago, Boston, Milwaukee, and Detroit.
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The Statue of Liberty was unveiled at a ceremony attended by President Grover Cleveland on October 28, 1886. The
New York Herald
described the scene: “Amid the uproar and excitement that succeeded the consecration of the statue, there glided through the Narrows a huge steamship crowded with European immigrants. From her decks the eyes of the strangers were fixed upon the wonderful drama in progress before them. The cannon smoke and vapor rolled up, and ringed in a huge, fire-fringed semicircle, they saw before them the mighty figure of Liberty. Imagination can only conceive of what to their tired eyes, weary with the hardships, the hopelessness and the cruelties of the Old World, this apparition must have conveyed.”
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Although the purpose of the Statue of Liberty was to commemorate the French-American alliance during the American Revolution, it became an inspiring symbol to the millions of immigrants who passed it before arriving to be processed for entry to the United States at Ellis Island. The link between the statue and immigration was reinforced by “The New Colossus,” the 1883 poem by Emma Lazarus engraved into the base:

Not like the brazen giant of Greek fame,

With conquering limbs astride from land to land;

Here at our sea-washed, sunset gates shall stand

A mighty woman with a torch, whose flame

Is the imprisoned lightning, and her name

Mother of Exiles. From her beacon-hand

Glows world-wide welcome; her mild eyes command

The air-bridged harbor that twin cities frame.

“Keep, ancient lands, your storied pomp!” cries she

With silent lips. “Give me your tired, your poor,

Your huddled masses yearning to breathe free,

The wretched refuse of your teeming shore.

Send these, the homeless, tempest-tost to me,

I lift my lamp beside the golden door!”

Immigrants sometimes mistook the torch held aloft by the goddess of Liberty for something else. One Hungarian thought that Lady Liberty was holding a broom. In his novel
Amerika
(1927), Franz Kafka, with appropriate surrealism, describes the Statue of Liberty’s “arm with the sword.”
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The difficulties of immigrants with English sometimes produced comic results. When an Ellis Island official, reading off a checklist, asked a woman if she approved of the overthrow of the United States government by subversion or violence, she hoped to give the right answer by replying, “Violence.”
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In 1914, before World War I interfered with immigration, 878,052 of 1,218,480 immigrants to the United States entered through Ellis Island.
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One of the new immigrants was Rocco Corresca, an orphan from Italy who ran a shoe-shine business in turn-of-the-century New York. “I and Francesco are to be Americans in three years,” he told an interviewer. “The court gave us papers and said we must wait and we must be able to read some things and tell who the ruler of the country is.”
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“Ach, it is just like what I see when I dream of heaven,” a German girl said after she and a friend on a visit to a Coney Island amusement park had enjoyed the loop-the-loop, the razzle-dazzle, and the chute.
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Other immigrants found pain and abuse in their new home, like the Greek pushcart peddler who reported: “I could not speak English and I did not know enough to pay the police. . . . Once a policeman struck me on the leg with his club so hard that I could not work for two weeks. That is wrong to strike like that a man who could not speak English.”
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A Swede named Axel Jarlson followed his brother to America, after his uncle Olaf, a sailor, explained: “In America they give you good land for nothing, and in two years you could be a rich man; and no one had to go in the army unless he wanted to.”
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Jarlson, who settled a farm in Minnesota, told a journalist: “One thing I like about this country is that you do not have to be always taking off your hat to people. . . . Here any man of good character can have a vote after he has been a short time in the country, and people can elect him to any office. There are no aristocrats to push him down and say that he is not worthy because his father was poor.”
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LABOR’S CAMPAIGN FOR IMMIGRATION RESTRICTION

Most immigrants improved their lives by moving to the United States, in some cases dramatically. But their presence in the labor market drove down wages and permitted American employers to engage in divide-and-rule tactics. According to one estimate, in the absence of the immigration that took place after 1870, the US population in 1890 would have been 27 percent smaller in 1910 and the real wage would have been 9 percent higher.
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The 1911 US Immigration Commission concluded that “in many cases the conscious policy of the employers [is] mixing the races in certain departments and divisions . . . preventing concert of action on the part of the employees.”
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A manager of one of Carnegie’s factories in Pittsburgh explained in 1875: “My experience has shown that Germans and Irish, Swedes, and what I denominate Buckwheats (young American country boys), judiciously mixed, make the most effective and tractable force you can find.”
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In order to raise wages and bargaining power for workers, the labor movement campaigned for immigration restriction. Frequently it used racist arguments. In 1905, Samuel Gompers of the American Federation of Labor wrote that the “Caucasians are not going to let their standard of living be destroyed by Negroes, Chinamen, Japs, or any others.”
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Gompers coauthored a pamphlet in 1906 entitled
Meat vs. Rice: American Manhood Against Asiatic Coolieism. Which Shall Survive?
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Between the 1880s and the early twentieth century, labor activists succeeded with a mixture of economic argumentation and racist rhetoric in prevailing on Congress to bring most immigration from Asia to a halt. The campaign by labor and old-stock nativists to restrict European immigration would not succeed until the 1920s, following the revival of immigration from Europe after World War I.

FROM THE KNIGHTS OF LABOR TO THE AFL

The American labor movement’s campaigns to restrict immigration were among its few successes. In the decades after the Civil War, the battles fought by organized labor, many of them violent, usually ended in defeat. In the late 1870s and early 1880s, the United States had five times as many unionized workers as Germany, at a time when the two nations had similar populations.
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There were more strikes in 1890—around twelve hundred—than in any other year in American history.

The National Labor Union, formed in 1866, became a third party and collapsed by 1872, bequeathing to posterity its campaign for the eight-hour day. Beginning in 1870 with nine members, the Knights of Labor had grown into a mass organization that numbered 728,000 by 1884 and admitted unskilled workers, blacks, and women. But it never recovered from the Haymarket riot.

In May 1886, during a strike against the McCormick Harvesting Company in Chicago, a police officer killed a striking worker. Anarchists called for a rally in Chicago’s Haymarket Square. When police moved to disperse the rally, a bomb went off, killing seven police officers. Police fired into the crowd, killing four civilians. In trials that have been criticized as abuses of justice, seven anarchists were convicted. Four were hanged, three were pardoned by Illinois governor John Peter Altgeld, and one committed suicide. Although Terence Powderly, the head of the Knights of Labor, denounced the anarchist movement, the Knights were tainted by association in the public mind and the number of its members shrank to ninety-five thousand in 1892 and none in 1901.
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In return for his support of the Republican Party in 1896, Powderly was appointed by President McKinley to be the second commissioner general of immigration. Serving from 1897 to 1902, Powderly used his prominence to campaign for protecting white American labor from Asian immigration.