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

The Panic of 1873 was primarily driven by over-speculation on railroads, which was a significant factor in the economic collapse. During the period leading up to the panic, there was rampant investment in railroad construction, fueled by both domestic and foreign investment. Investors believed that the expansion of railroads would continue to bring in profits, leading to excessive borrowing and financial speculation.

When the market became saturated with railroads and it became evident that many of these investments were not sustainable, confidence began to wane. The tipping point came when a major investment bank, Jay Cooke & Company, which had heavily invested in railroad bonds, collapsed. This event triggered a chain reaction of bank failures and a credit crisis, leading to widespread economic distress.

While high unemployment rates, trade tariffs, and bankruptcies of major corporations were factors that influenced the economy at that time, the immediate cause of the panic was the unsustainable financial practices and the speculative bubble surrounding the railroad industry. This over-speculation created an environment ripe for a financial crisis, making it a central component of the Panic of 1873.