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CHAPTER 5 U.S. Financial Markets from 1865 to the Great Depression

Wars tend to generate a temporary increase in demand for goods and services. Funding for reconstruction following the Civil War generated some banking demand, but not at a level that overcame the usual problems of shrinking employment and adjustment from wartime production to peacetime demand. Many people became dislocated due to a lack of jobs. Thousands of soldiers who were hardened by war and not trained to perform available civilian jobs stood idle. The inability of former Confederate supporters to change their thinking, animosity from retribution at the time of the North’s occupation during Reconstruction, and other limitations combined to enflame race relations. This led, eventually, to a shameful period during which the federal government averted its eyes and allowed reenslavement to run rampant in the South. A century passed before the nation forcefully addressed many of the racial issues that were generated during the late 1800s.

During the period between the Civil War and the Great Depression, the United States became the world’s leading economic power. The Gilded Age brought personal fortunes to railroad and industrial pioneers, and to the bankers and speculators who financed them. Many were built on a foundation of squandered natural resources, labor and safety abuses, and by the abuse of legal process. There were outrageous legal precedents whereby states wrote laws that excused bribery of officials, ...