What was a major contributing factor to the Panic of 1873?

The Panic of 1873 was primarily triggered by over-speculation on railroads, which had become a speculative investment hotbed throughout the late 1860s and early 1870s. Investors poured substantial amounts of money into railroad expansion, leading to the construction of more railroads than were necessary or sustainable for the economy at that time. This bubble was exacerbated when the speculative ventures began to fail—most notably, the failure of Jay Cooke & Company, a major investment bank heavily involved in financing railroads, which declared bankruptcy in 1873. The collapse of such a significant institution had a ripple effect on the economy, causing a loss of confidence among investors and leading to widespread financial panic. Consequently, the economy contracted, triggering bank failures, business bankruptcies, and a severe downturn in economic activity that contributed to a depression lasting several years. This context illustrates how over-speculation on railroads was a critical factor in precipitating the financial crisis of 1873.