Proportion of
Metallic Reserve. Deposits. Discounts, the Metallic
Advances. Reserve to
Deposits.
1854 ... $15,000,000 $ 58,000,000 $ 80,000,000 26%
1855 ... 9,900,000 85,000,000 101,000,000 11%
1856 ... 10,000,000 100,000,000 112,000,000 10%
1857 ... 7,000,000 99,000,000 122,600,000 7%
The reduction of the metallic reserve, increase of deposits and of
discounts and of advances, are here clearly indicated.
From 1853 to 1857 the bank circulation hardly varied $100,000,
indicating that the demand for hard money came from abroad and from the
interior. The circulation was not the cause of the suspension,--at least
such was the opinion expressed by the superintendent of the New York
banks in his report.
In 1856 twenty-five companies were started, and three bankers opened
business with a capital of $7,500,000, of which $7,200,000, was paid in.
In 1857 there were only five of these banks and three bankers having a
capital of $6,000,000, of which only $4,000,000 were paid in. The
collateral deposited by the banks represented $2,500,000 in 1856, on
which credit of $2,000,000 in notes was granted.
In 1857 the same collateral did not exceed $560,000 estimated value, on
which a credit of $383,000 in paper was granted.
At the height of the crisis failures were so numerous that a general
suspension of payments, and, in consequence, a stoppage of business was
dreaded. This suspension, in place of being general, turned out to be
merely partial; it occurred at a juncture when it might well be feared
that it would lead on to the very greatest disasters, but, far from
harming, it helped the market. The banks had suspended payment upon a
common understanding among themselves and with business circles. The
critical moment having passed, tranquillity reappeared as soon as the
course determined on was known.
If suspension of payment hurts the credit of a bank, it does not
necessarily lead to the depreciation of its bank notes.
There are a good many proofs of this: in 1796, when the Bank of England
suspended, its bank notes did not depreciate; and if this state of
things did not last, the blame must be laid upon the excessive issue.
And in France, in 1848 as well as in 1871, the Bank of France suspended
without the depreciation of its bank notes becoming very noticeable. So,
in New York, bank notes passed at 2 or 3 per cent. loss at this crisis.
The crisis disappeared with the end of the year, and resumption of
payments took place between New York and Hamburg, with the return of
specie and a rate of 4 per cent.
It was the same in France and England. A more serious panic and a more
rapid recovery had never been seen. The rigidness and not the severity
of the pressure that had to be exercised shows the condition of
business. There had been most blamable practices employed; but the
market as a whole was sound, and had faced the storm.
Only four banks had suspended, three of which were shaky before the
panic, and the fourth had already resumed payments.
At no other period could one have obtained such an amount of credit upon
a simple paper circulation; fictitious paper was the source of all the
wrecks. To get it into circulation the most varied contrivances were
resorted to, and fraud itself was not wanting; the signatures even
became fictitious, their owners could not be found. Shams and
discriminations under all forms, designed to permit speculation without
capital, without exchange of goods, without real transactions between
the drawer and the acceptor of the bill of exchange, were rife.
In his message, President Buchanan ascribed the crisis to the vicious
system of the fiduciary circulation, and to the extravagant credits
granted by the banks, although he was aware that Congress had no power
to curb these excesses. When there is too much paper, when the public
has created an endless chain of bank notes, representing no real value,
it is enough that the first ring break for the whole gear, thus no
longer held together, to fall to pieces. If we mark the situation of the
New York banks before and during the panic--that is to say, in 1852 and
in 1857, we will ascertain as follows:
June, 1851. June, 1856. June, 1857.
Capital ............ $59,700,000 $92,300,000 $107,500,000
Circulation ........ 27,900,000 30,700,000 27,100,000
Deposits ........... 65,600,000 96,200,000 84,500,000
Paper discounted ... 127,000,000 174,100,000 170,800,000
Cash on hand ....... 13,300,000 18,500,000 14,300,000
This table demonstrates that two items show a great increase: capital
increased $47,000,000 and paper discounted $43,000,000; while, in face
of an increase of $1,000,000 of specie on hand, the note circulation
decreased $800,000.
Far from finding a mistake, we find a proof of the Directors' prudence.
If there was an error in the issuing of paper, it was not on the side of
the banks; it was the public itself that was chiefly in fault.
We find the causes of the panic in the issues of railway obligations and
shares, which had chiefly been placed in European markets, and whose
gross amount was estimated at L1,000,000. The speculation in land and
railroads had been carried on either with borrowed money or by open
credits, and by accommodation notes, back of which there was no second
party.
The mistake of the banks was in trying to conduct their whole business
by their note circulation and to concentrate their capital in the bank
offices, and meanwhile, as they refused to loan to the stockholders of
the banks, discounts in New York fell off $10,000,000. Finally the
capital could not be entrusted to the disposal of the banks and it was
necessary to compel them to make a deposit of $100,000 for each
association, and $50,000 for each banker.
Such were the final advices given by the inspector-general of the banks
of New York at the close of his report, dealing with how to prevent the
recurrence of panics. To have confidence in their efficacy, it was
necessary to forget the past and its lessons.
The reforms already made and those still asked for in the bank system
could yield no remedy for those abuses lying beyond legislative action.
The American newspapers did not hesitate to demand them, well aware that
they would produce no effect; however, they congratulated themselves
with having drawn away from effete Europe one million sterling now
realized upon the soil of the United States without any equivalent given
for it to the foreign lenders.
PANIC OF 1864.--The crisis of 1864 was mixed up in the United States
with the War of Secession; it was a political crisis, and is not
properly to be considered here.
PANIC OF 1873.--During the last two months of 1872 the American market
had been very much embarrassed; the lowest rate of discount was 7 per
cent., and in December it was quoted at even 1/32 of 1 per cent. or a
quarter of 1 per cent. a day!
The year 1873 was anxiously awaited in hope of better times. In the
middle of January, 1873 the rate of interest declined a little to 6 or 7
per cent., but soon the rate of 1/32 of 1 per cent. per day reappeared
and continued until the month of May.
In the first days of April the market was in full panic; it grew
steadier in the first week of May, and in the month following. It
relapsed on September 1st, and requests for accommodation redoubled
until the sharpest moment of the panic. On that day there were no quoted
rates; money could not be had at any price: some few loans were made at
1-1/2 per cent. per day.
This panic broke forth on September 18th, through the failure of Jay
Cooke, after a miserable year, during which money was constantly sought
for and was held at very high prices in all branches of business. As to
the loans for building railroads, they followed one another so rapidly
that, from the month of October, 1871, to the month of May, 1873, they
could not be placed at a lower rate than 7 per cent. Bankers succumbed
beneath the burden of their unsalable issues. This was a grave
misfortune for the railroads. In the single year 1873 there were
constructed 4,190 miles of railroad in the United States, which, at
$29,000 per mile, represented the enormous sum of $121,000,000, and in
the last five years $1,700,000,000.
The commercial situation was not so bad, and the number of failures did
not reach the proportion that might have been feared.
After the failure of Jay Cooke came those of Fiske & Hatch, of the Union
Trust Company, of the National Trust Company, and of the National Bank
of the Commonwealth. On the 20th of September, for the first time, the
Stock Exchange in New York City was closed for ten days, during which
legal-tender notes were at a premium of 1/4 per cent. to 3 per cent.
above certified cheques.
On the 18th there was a run on the deposits. Withdrawals continued on
the 19th and 20th, especially by the country banks, and the banks'
correspondents. No security could be realized upon; and in order to
relieve the situation the Secretary of the Treasury bought $13,500,000
of National 5-20 bonds, stating that he could do no more.
The New York Stock Exchange was reopened September 30th, without any
notable occurrence; but everything was very low. Several other
suspensions occurred--for instance, that of Sprague, Claflin, & Co.
The rate of discount being 9 per cent., a panic was feared in London.
The banks passed the most critical period on October 14th; out of
$32,278,000 legal-tender dollars at the beginning of the panic, only
$5,800,000 remained on hand. Not until the middle of November did the
decline stop and a slight advance take place. Throughout the panic the
bank reserves were much below the legal requirement of 25 per cent; from
the 13th to the 30th of September they fell to 24.44 and 23.55 per cent.
The New York Clearing House in September adopted a measure which
permitted dealings to continue. It authorized the banks to deposit the
bills on hand, or the other securities they had accepted, in exchange
for which they issued certificates of deposit bearing 7 per cent. in
notes of $5,000 to $10,000 to the extent of 70 per cent. of the security
deposited. Thus $26,565,000 of them were put into circulation.
Furthermore, they made a common fund of the legal tenders belonging to
the Associated Banks for mutual aid and protection. The suspension of
payment took place first in New York and then extended to the large
cities of the Union; it lasted forty days, until the 1st of November;
this measure was looked upon as having prevented the greatest disasters.
The table setting forth the situation, compared with the balance sheets
of the Associated Banks of New York on January 1st, April 1st, July 1st,
September 1st, and October 1st of the years 1870, 1871, 1872, and 1873,
shows us the following changes: discounts had fluctuated from
$250,000,000 in January, 1870, to $309,000,000 in September, 1871; they
had become reduced to $278,000,000 in September, 1873, on the eve of the
panic, and from the month of September, liquidation of the panic having
begun, they were reduced to $250,000,000. Deposits from $179,000,000 in
January, 1870, rose to $248,000,000 in July, 1871, with $296,000,000 of
bills discounted, and once more reached $198,000,000 in September, 1873,
with $278,000,000 of discounts and $195,000,000 in December.
Even at the most critical moment of the panic they continued larger than
the usual average of the preceding years.
The metallic reserves played too feeble a role to have caused failure;
they had varied from $34,000,000 in June, 1870, to $9,000,000 in
September, 1871, $18,000,000 in September, 1873, and $23,000,000 in
December, 1873.
The circulation varied still less: from $34,000,000 in January, 1876, it
decreased to $27,000,000 in July, 1872, and remained at the same figure
during the year 1873, if we can judge of this by the balance sheet
rendered on the first day of each quarter. In each case there is no
opportunity for us to charge an excessive issue.
According to the statement of the Comptroller of the Currency, paper
discounted decreased between the 12th of September and the 1st of
November from $199,000,000 to $169,000,000.
To sum up, the circulation had fluctuated very little; deposits from
$99,000,000 had increased to $167,000,000 between the 12th and 20th of
September, at the most critical period; and when suspension was
universal, they had declined to $89,000,000. After the breaking out on
the 18th of October, and since then from the 22d of November, they had
risen to $138,000,000.
The metallic reserve, after a brief revival from $14,000,000 to
$18,000,000 between the 12th and 20th of September, had fallen back to
$10,000,000, only to rise to $14,000,000 in November.
In the midst of these difficulties, the securities of the various States
held up. Since the first months of 1873, the demands of the English
market caused an upward movement in them; in September it was impossible
to make a loan, without using them as collateral. In order to help the
market somewhat, the Treasury bought about $13,000,000 of National
securities on the Stock Exchange, but, lacking resources, that was the
only effort it could make. The German Government invested quite a large
sum in the new five per cents., so that the advance in public securities
lasted through the whole year: the market rate for 5-20's advanced from
91 per cent. in April to 96 per cent. in October, in the midst of the
market's panic.
The $15,000,000 of indemnity awarded by the Geneva Court of Arbitration,
and paid by England for having admitted privateers into her ports, was
put into 5-2O's. Apart from this strength in the public securities, the
railway obligations, especially those upon new roads, were very much
depressed; they could no longer be placed, ninety new companies having
stopped paying their coupons, whilst those of the old lines held their
quotations.
Great speculators, Vanderbilt at the head, formed syndicates, embracing
several companies, and made prices as suited their plans. The death of
Mr. Clarke in June dealt the first blow to this combination, and the
failure of George Bird Grinnell brought about its dissolution.
The liquidation of this tremendous concern kept down prices for a long
time.
The price of gold, still quoted at 112-1/2 per cent. in January, 1873,
rose to 119-1/2 per cent. in April, superinduced by speculation, for at
the height of the panic it declined to 106 on the 6th of November.
It is true that at that time all doubtful accounts were liquidated,
and demands for gold had disappeared; if we were to rely upon the export
figures only, we would find them less than in the preceding years.
Exchange rates were much more depressed; from 109.45, representing par,
they fell to 107.25 for the best 60-day paper. This paper was much
sought after by speculators, who, when discounting it, procured bonds
authorizing them to transfer the titles unless payment was made promptly
at maturity. Prices fell so low that it was often impossible to
negotiate paper at any price. The activity reigning at the beginning of
the year showed itself in the Exchange movement; the excess of imports
over exports rose in the first months to $100,000,000, whilst in the
preceding year it did not exceed $62,000,000; prices ruling in the
American market attracted goods from all quarters.
PANIC OF 1884.--The panic which burst upon the United States in 1884 was
the last thunder-clap of the commercial tempest which had reigned since
the month of January, 1882. Public opinion already recalled the
decennial period which separated the existing panic from that of 1873.
The acute period was of short duration; the crash occurred on May 14th,
and the decline of values had touched bottom by the end of June. From
the 9th of June the people began to steady up, they felt the ground
firmer under their feet. The situation gave evidence of great strength;
and, notwithstanding the dearness of money, and an enormous fall in
prices, there were only a few failures, and at the close of the year
equilibrium was re-established, although the liability of the losses had
risen to $240,000,000. These losses, it is true, were almost entirely
borne by financiers and speculators, rather than by manufacturers and
traders.
The month of May, 1884, concludes the prosperous period which followed
the crisis of 1873. During this period the most gigantic speculations in
railroads occurred; the zenith of the movement was in 1880, and as early
as 1881 a retrograde movement began, only to end in the disasters in
question. The decline in prices had been steady for three years; they
had sunk little by little under the influence of a ruinous competition,
caused by the number of new lines and the lowering of rates, but above
all through the manipulations by the managers on a scale unexampled
until now. In connection with the disasters of May, 1884, the names of
certain speculators who misused other people's money, such as Ward, of
Grant & Ward; Fish, President of the Marine Bank; and John C. Eno, of
the Second National Bank, will long be remembered. General Grant, who
was a silent partner in Ward's concern, was an innocent sufferer, both
in fortune and reputation.
The Marine Bank suspended on the 5th of May, and in the following week
the Metropolitan drew down in its train a large number of bankers and
houses of the second order. The confusion was then at its height. Owing
to the very delicate mechanism of the credit circulation, the banks and
the clearing house were the first attacked and the most shaken, but they
immediately formed themselves into a syndicate to resist the storm which
was upsetting all about them. As cheques were no longer paid,
settlements no longer took place, and the credit circulation was
suspended; this stoppage was liable to induce the greatest consequences,
hence it was necessary to be very circumspect. Here it was not possible
to suspend the law, as in England the Act of 1844 was suspended,
permitting an excess of the official limit for the note issue, but the
banks could have been empowered to demand authority to change the
proportion enacted by the law creating National Banks. They had no
recourse to any of these violations of the Statutes, which prove only
too often under such circumstances that regulation by law is impossible;
they satisfied themselves, without having the public powers intervene,
with issuing clearing-house certificates, that is to say, promises,
which they were bound to accept as cheques in settling up the operations
of each day. It was through this help that the Metropolitan Bank was
enabled to resume payments on the 15th of May, the evening of the day
following its suspension. The Second National Bank was a loser through
the acts of its President, Mr. John C. Eno, but his father and the
Directors hastened to make good the deficit. At this moment the
excitement was intense, deposits were withdrawn, and 1 per cent. a day
was paid, and even more, to obtain ready money or credit; under the
influence of numerous sales of securities, exchange fell rapidly,
metallic money was secured in London even, to be hurried to New York.
Never could purchases be made under better auspices. Above all is this
true when we observe that the condition of companies was much better
known than in 1873. The year 1883 had been disturbed by numerous
failures. There had been no crash, but prices, far from advancing, had
held their own with difficulty. On the eve of the breaking out of the
panic there was complaint about the accumulation of goods in the
warehouses, and of the difficulty of making exports. No scheme worked
out, despite a very high protective tariff, and people were asking
themselves what was its effect under the influence of unfavorable
exchanges. Gold flowed away from the country, and cash on hand decreased
each day.
On the 1st of January, 1884, the New York & New England Railroad was
placed in the hands of a receiver by order of the court. The same thing
happened on the 12th of January to the North River Company. In February,
March, and April many houses exhibited their balance sheets. The fall in
prices grew accentuated not only on the Stock Exchange, but in all
markets. The discomfort increased until the 6th of May, the day on which
occurred the failure of the National Marine Bank, whose President was
associated with the house of Grant and Ward, which went down shortly
afterwards with a liability of $17,000,000. This financial disaster made
a great stir. Anxiety spread everywhere, when on the 13th of May the
President of the Second National Bank of New York was also forced to
suspend payment with a liability of $3,000,000; this was the final blow
to credit. Every operation was suspended, all exchange became
impossible; not securities but money was lacking. At one time the panic
was such that the rate of discount and loans rose to 4 per cent. a day!
Although the panic was general, it was rather a panic of securities in
the chief places of the United States, especially in New York.
One no longer knew on whom to count to provide ready money. Offerings
were made on the Stock Exchange where there were no bidders, and the
market disappeared in the midst of a panic which paralyzed every one.
This melancholy state of things was still further aggravated on the 14th
of May by the failure of Donnel, Lawson, & Simpson and Hatch & Foote. On
May 15th it was the turn of the Savings Banks of New York, of Piske &
Hatch, and of many others. It was impossible to obtain any credit from
the banks, and all securities were unsalable, unless at ruinous rates.
Reduced to such an extremity, it was necessary to adopt some course to
help the market and avoid suspension of payments.
The certified checks issued by the banks did not answer, and it was
necessary to have recourse to a new means of settlement. The members of
the clearing house emerged from their usual passive role to intervene
and to do a novel thing: they issued certificates that they accepted in
the name of the most embarrassed institutions whose fall they wished to
avert, in order to prevent the failure of others. Then, as everybody was
making default, the Secretary of the Treasury in his turn wished to aid
the common effort to sustain the credit of the situation, and, in order
to accomplish this by the most regular methods, he pledged himself to
prepay the debt, whose term was close at hand.
Despite these last helps it was easily seen how great must be the
disorder, to induce recourse to such methods. Never had they been
employed until now, which is proof enough of the enormity of the
situation, whose equilibrium, had been disturbed since 1887, the year in
which high prices in everything had been reached on the Stock Exchange.
To still further increase the joint responsibility of the members of the
clearing house, it was agreed that a committee should be charged with
receiving as collateral bills and securities in exchange for which
certificates of deposit bearing 3 per cent. were issued at the rate of
75 per cent. of the amounts deposited. This agreement being adopted, a
way to re-open the National Metropolitan Bank was sought. A selection
made from its collection of bills showed the securities it could pledge
for clearing-house certificates; and, its circulation being thus
re-established, it was enabled on May 15th to take part in settlements.
Upon the announcement of a syndicate composed of the banks and the
clearing house, things settled down; the general distrust diminished;
there was the necessity and wish to realize, but funds were lacking.
The rise in the discount rate attracted foreign capital little by
little, and exchange grew easier. With the help of the syndicate the
credit circulation became re-established, and the rate of discount
declined to 5 per cent. For commercial needs money was always to be had
at 4-1/2 per cent. and at 5 per cent. when at the Stock Exchange it was
necessary to pay 4 per cent. per day!
The panic was terrible from the 3d to the 10th of May; for two days no
one wished to part with his money; it was impossible to borrow on any
collateral, at any price whatever. Hence came a decline in the public
securities, which fell below the low prices of 1873.
The public complained that it could not have foreseen the panic, because
the loss of gold had been concealed by the oft-repeated assurance that
there was a reserve of $600,000,000 in Washington.
Similar situations in 1857 and in 1873 were recalled, and it was
remarked that like troubles had not occurred until after a long period
of high prices, when capital was scarce and the rate of interest high,
whereas this was far from being the case at this period.
It was nevertheless notorious that the decline in prices began two years
back, that the advance in prices had been stopped by the breaking out of
the panic of 1882 in Europe, at Paris, and that since that moment prices
had begun to decline, less rapidly, however, than in Europe, because the
shock had then merely disturbed a market which had not yet recovered
from the panic of 1873, from which, in consequence of the
Franco-Prussian war, France had escaped. The mine not being sufficiently
charged in the United States the explosion had not recurred.
Speculation, unable to restore a new impulse to the rise in prices, was
nevertheless able to hold its own, until May, 1884, when the delayed
explosion finally occurred, covering the market with ruins and bringing
about a liquidation with its accustomed train, a great and lengthy
decline of prices.
We may here note similar delays in the breaking out of panics, in the
period of 1837, 1839, 1864-1866 in France and in England. Even an
involved state of affairs may be hidden by certain conditions, and the
situation, although itself exposed to the same excessive speculation,
may witness the breaking out of the panic which has been delayed for a
certain time, only to occur simultaneously with the beginning of a
decline of prices, and when it is thought that danger has been escaped.
As in Brussels and in the United States in 1837-1839 and in England in
1864-1866, large houses and powerful institutions of credit had
maintained a whole scaffolding of speculation which was already out of
plumb, but still able to stand upright through the general effect of the
parts which connected them, and in this unstable equilibrium it sufficed
for a single one to detach itself in order to overthrow the whole
edifice at a juncture at which it was hoped it would continue to stand
and even grow stronger. Does not this prove that after these epochs of
expansion and activity characterizing prosperous periods (and there is
no prosperous period without a rise in prices) a stoppage is necessary,
a panic allowing a period of rest to permit the liquidation of
transactions employed in helping to make a series of exchanges at high
prices, and to allow the capital and savings of countries which had been
too rapidly scattered and exhausted to reconstruct themselves during
these years of tranquillity and of slackening business?
Confidence had already returned in New York despite the steady demands
of the country bankers upon their correspondents, which pulled down the
reserve below the legal limit; nevertheless in the midst of all the
failures there was no suspension of specie payments.
The crisis of 1884, according to the Comptroller of the Currency, had
been less foreseen than the crisis of 1873, and this notwithstanding it
was sufficient to observe the number of enterprises and schemes flung as
a prey to speculation, in order to foresee that financial troubles and
disasters to the country must result.
The continuation of payments in gold, the low prices, and the outlook
for a fine harvest gave courage, preserved the remaining confidence, and
already allowed a speedy resumption of business to be anticipated.
The panic, although spreading over the whole Union, raged especially in
New York. Without wishing to expatiate upon its primary causes, the
Comptroller of the Treasury could not help remarking that it had shown
itself under the same circumstances as recently as in 1873; above all
there were issues for new enterprises; the speculation had rushed to
take them up at a premium, and people now asked their true value.
At this juncture railroad earnings, instead of increasing, showed
weakness, and suffered a slight reaction; the solvency of houses
interested began to be doubted; new loans were refused them, and
immediately the artificially constructed edifice gave way.
To advance prices on the Stock Exchange, the banks had made immense
loans on the shares and obligations of the new railway issues, and as
soon as quotations, artificially maintained at the rates to which they
had been carried, began to drop, everything became unsalable. Until this
occurrence, led on and fascinated by the rise in prices, every one had
bought; hardly was the advance arrested when every one reversed their
operations at the same time. The bankers had loaned not only their
capital but in addition a part of their clients' deposits; brokers had
encouraged a speculation which brought them business; and thus it was
that all hands had flung themselves upon a path that could only lead to
ruin.
The Comptroller of the Currency remarks with pride that, in the midst of
the general upheaval and numerous failures of honorable houses, only two
National Banks were involved: one of them failed, the other suspended
payment.
The amount of liability of the banks and bankers of New York who
succumbed during the month of May was estimated at $32,000,000, whereas
that of the only National Bank which shared their fate did not exceed
$4,000,000, the bank which suspended not having occasioned any loss.
Unhappily the year did not pass without its being necessary to mention
new misfortunes: eleven National Banks failed, and it is a fact that
among the banks and private bankers more than a hundred were counted in
the list.
Despite the close watch bestowed upon the banks it was surprising to
uncover all the tricks to which the National Marine Bank of New York was
given over, and, which until now had escaped the official examiners.
It suspended payment on May 6th, and the same day it was debited with
$555,000; the books had been erased and overcharged for the benefit of
one client alone to the amount of $766,000. He was a debtor to the
amount of $2,400,000, six times the Bank's capital, and a portion of
this debt was under a good many names of subordinate clerks. This same
client had three open accounts, one as administrator, then a general
account, and a special account. The whole thing was fictitious; the
schemers sought to conceal irregularities, and had thus imposed on the
examiners and on the Directors themselves.
The certificates issued by the clearing house, when credit had entirely
disappeared, rendered a great service and sustained a great number of
houses in equilibrium, which without this assistance must have
succumbed. They were granted especially to the banks belonging to the
Association, in order to make their daily settlements.
During the crisis of 1873 the same means had been resorted to, but too
late; the panic was already at its height and the commotion general, so
that nothing could re-establish confidence. This was not the case in
1884: the rapidity and decision with which the Associated Banks took
steps gradually re-established confidence throughout the country. The
maximum of issue did not exceed $24,900,000, of which $7,000,000 were
for the National Metropolitan Bank; from the 10th of June balances at
the clearing house were paid in legal money. Commercial paper, which for
the most part was the collateral for these certificates, had already
been redeemed. The Metropolitan National Bank alone requested time to
liquidate.
The issue of these certificates was very rapid: $3,800,000 on the 15th
day of May, $6,800,000 on the 16th, $6,700,000 on the 17th, or more than
$17,000,000 in these first three days; then on the 19th, 20th, and 22d,
$1,500,000, and that was all. The remainder of the amount was given in
driblets. Payments, although slower, were made from the 1st of July to
the 1st of August.
Let us now run over these occurrences: in 1873 instead of $24,900,000 in
certificates $26,565,000 had been issued; $22,000,000, had been issued
between the 22d and the 29th of September, the redemptions took place
from the 3d of November to the 31st of December.
In both cases the same amount, so to speak, had been sufficient to
answer for all needs. If so small a difference sufficed to save a
disordered market, people could not understand why panics could not be
provided against. It was necessary to remember that this assistance was
only felt when the decline of prices had already re-established an
exchange of goods, bringing about the liquidation of houses
unfortunately involved.
From the month of June, owing to the bank balances or the rate of
exchange, the tranquillity and steadiness which had become
re-established grew daily; after the storm of the first few days no new
disasters had occurred except the failures of Mathew and of Morgan.
The position of the market grew firmer and the clearing house reduced
its loan certificates, which now replaced the former excessive issues of
bank notes. From $24,000,000 they had already decreased to $18,000,000;
of this amount $6,000,000 were taken by banks as a last resource, and
there then remained only $12,000,000 in circulation. These $6,000,000
had served to sustain the shaken banks, and it is pleasant to state that
outside of these requirements the amount needed was no larger.
Failures had ceased in the great centres, but they continued in the
interior of the country; the shock, like a great wave, took a certain
time to overrun the various States.
SUCCESSION OF PANICS IN THE UNITED STATES STUDIED THROUGH THE BALANCES
OF THE BANKS.--Following the historical summary of panics in the United
States it will be useful to have a general table, so as to glance at the
very rare documents which permit us to follow the working of the Banks
through their balance sheets. We know their organization, and we take
upon ourselves to state results flowing from it.
It strikes us at once that abuses and panics have constantly occurred.
Can we note a difference in the frequency and gravity of the casualties,
according to whether we observe them working under the former or the new
(the National Bank) system, inaugurated during the War of the Secession
in 1864, when the machinery for the issue of bank notes was insufficient
for the new requirements?
Without lingering over the regulations before and after 1864, let us
consider the differences we may ascertain by examining the balance
sheets. Unfortunately, the exactness of our observation is lessened on
account of the very diversity of the field it covers.
In the case of the banks of the United States we have had to content
ourselves with the returns that the Comptroller of the Currency gives in
his annual report on a stated day during the months of February, May,
June, October, and December, beginning with the year 1865. Before that
period we had only the yearly situation of the banks of the different
States upon one given day; we are better informed on the second period;
however, basing our conclusions upon the few balance sheets we possess,
we ascertain the same series of development and increase. Although there
are lapses, still, from another point of view, the table will be more
complete, because it embraces all the banks of the United States. On
such an extended field, it is true, we risk seeing great discrepancies
disappear and lose themselves in the magnitude of the amounts whose
movements we follow. In order better to grasp them, we have put before
us the returns of the banks of the United States, together with those of
the Associated Banks of New York City; we may thus recognize and follow
the share played by each of them.
During the first period of the State Banks (1811-1864), the increase in
the number of the banks was continuous, except for two stoppages, in
1841 and in 1862; in 1841, during the liquidation of the panic of 1839,
and in 1862 at the beginning of the War of Secession; the crisis of 1857
did not interrupt the movement.
The capital of the banks had followed the same changes. From $52,000,000
in 1811 to $368,000,000 in 1840, a reduction to $196,000,000 in 1846,
and finally the last maximum reached in 1861, $429,000,000, at the
breaking out of the war. In 1864 a new organization of the banks under
the name of "National Banks" presented to the State Banks, without
suppressing them, a state of affairs destined to cause their
liquidation, which, in fact, practically occurred.
As in England and France, the amount of discounts, as the balance sheets
give it to us, rose each year during the prosperous period.
Thus from 1830 to 1839 it reached $492,000,000 from $200,000,000, to
decline again to $254,000,000 at the end of the liquidation in 1843.
In the following period the same rising movement from $254,000,000 to
$344,000,000 was reproduced in 1848. The panic in Europe burst forth in
1847; it resounded very slightly in the United States in 1848, as its
subsequent liquidation in 1849 indicates, which only reduced the local
discounts to $332,000,000.
A new period of prosperity followed the preceding events; the growing
movement re-appeared, and from $332,000,000 carried the amount of the
discounts to $684,000,000 between 1849 and 1857. The panic broke out
simultaneously throughout the whole world; but notwithstanding the
wrecks it caused, such was the saving already, so healthy was the
general situation of business, that, after having thrown out a little
scum, the current of affairs resumed its course until 1861, and
discounts had already reached the amount of $696,000,000. This amount is
greater than that we have noted in 1857, but at that time (whilst the
movement continued in Europe up to 1864), despite the shock it received
by the declaration of war here, there was complete stoppage until the
end of the struggle; we have here come across a political panic, not a
business one. Peace re-established, the movement resumed its course
under new conditions and with a reorganization of the banks under the
name of "National Banks." A change was due, but, as everything was made
ready, it was speedy. The first balance sheet of the National Banks
dates from 1864. The amount of discounts had already exceeded the sum of
$100,000,000 in 1865, and grew to $500,000,000 in 1866. Once started the
movement took its own course:
1865 ...... $166,000,000 1870 ...... $725,000,000
1866 ....... 500,000,000 1871 ....... 831,000,000
1867 ....... 609,000,000 1872 ....... 885,000,000
1868 ....... 657,000,000 1873 ....... 944,000,000
1869 ....... 686,000,000
The yearly progression was interrupted as in Europe, and the explosion
occurred at the same time. The rise in prices stopped, and incipient
liquidation became apparent at the end of the year, and reduced the
amount of paper on hand to $846,000,000, but, instead of lasting, as in
Europe, a movement of revival, analogous to that which had followed the
panic of 1864 in England, occurred. The amount of discounts rose from
$856,000,000 to $984,000,000 in 1875, and then, and then only, the real
retrograde movement showed itself as in Europe, and reduced the amount
of the discounts to $814,000,000 in 1879, simultaneously with the
movement in France and in England, when prices had reached the lowest
quotations, and when a resumption of business was about to occur. In a
word, affairs resumed their course; from the end of the year the amount
of paper discounted rose to $933,000,000, and the steady advance as set
forth in table No. 3 continued each year, until it reached
$1,300,000,000 in 1884. The panic had burst forth in Europe in 1882, and
the agitation, so lively was its impulse, lasted during eighteen months;
but, as we have stated, the rise in prices ceased in 1882.
Starting from this time, a reaction appeared. The paper on hand lowered
to $1,200,000,000 in 1885. This liquidation was scarcely noticeable,
because we cover the whole Union, and there is always an upward movement
in the new portions of it which have not yet taken part in business
movements. If we note what occurred in the Associated Banks of New York,
the very place where the greatest amount of business is carried on, the
depression of the amount of paper on hand is most noticeable after the
inflation observed at the height of the panic, while the decrease that
we point out showed itself more slowly with the slackening of business.
Thus, in the last period, the greatest amount of paper appears on
hand--at the close of 1881, $350,000,000, and the minimum in December,
1884, the very year the panic had burst forth, and when, during the
first months, the sum of $351,000,000 reappeared once more; except for a
million, exactly the same amount there was in 1881.
This maximum amount was only an accident, under the influence of
pressing needs at the time of the difficulty, for since 1881 the yearly
reduction of the maximum and minimum amounts ensued. This tendency had
occurred suddenly, and disappeared likewise; the resumption dating from
1885, a year sooner than in Europe.
The discounts of the New York Banks, which had been reduced to
$287,000,000, rose immediately upon the opening of the new period of
prosperity, and a growing activity carried them to $408,000,000 in 1889;
after a few more fortunate years we come to the end of the period of
prosperity and high prices.
We gather the following about discounts from the balance sheets of the
Associated Banks of New York. If we cast our eyes over the balance
sheets of the National Banks of the Union, we must note a falling off of
$100,000,000 in the paper discounted, that is, from $1,300,000,000 to
$1,200,000,000 (1884-1885). After this short period of stoppage, clearly
indicating the necessity for liquidation, discounts resumed their steady
expansion, and rose to $1,470,000,000 in 1886, to $1,587,000,000 in
1887, and finally to $1,684,000,000 in 1888, when we were in the midst
of a period of development and consequently of high prices and of
prosperity; and the same is true in France and England.
The study of a single section of the balance sheets, that of discounts
and loans, has allowed us to follow the periods of prosperity, of panic,
and of liquidation. When we next consider the other sections, we find
the confirmation of our anticipations. Among these sections, in the
order of importance, we notice first, public deposits in the form of
running accounts; they constitute the reverse of the loans and
discounts, whose total is immediately credited to the banks' clients,
and the increase of paper on hand also follows. From 1865 to 1873 the
steady increase was uninterrupted, viz., from $183,000,000 to
$656,000,000; the maximum amount shows itself in the first quarter of
1873, eight months before the maximum of discounts and loans; in 1888
they ran down to $622,000,000; there is, say, a difference of
$300,000,000 between the two totals, and this difference is the same, we
observe, as that between the highest and the lowest of the two sections,
as we notice it in the same year, during the liquidation of the panic of
1873. [Footnote: See table of balance sheets of the Banks of the United
States.]
In the last period the progression is the same; from $598,000,000 the
amount of deposits advanced to $1,350,000,000, whilst discounts and
loans reached $1,684,000,000; that is to say, there was still a
difference of $334,000,000. The relationship of the two sections was
much more marked than in France and in England, where the amounts
carried in accounts current vary more.
In the United States we then experienced a market based on credit,
which, through discounts or loans by the banks, had reached the amount
of the accounts current, and was about to call the clearing house into
action to settle debts everywhere.
The office of the circulation of bank notes, subsequent to the severe
regulations enacted in 1863 for the organization of National Banks, had
varied in the last two periods that we are studying. From 1863 to 1873,
after the war troubles, in proportion as greenbacks were withdrawn, the
bank notes issued by the National Banks not only took their place, but
replaced those of the State Banks, whose position the National Banks had
taken.
We observe them rise firstly from $66,000,000 to $341,000,000
(1865-1873) at the sharpest period of the panic. We might even charge
them with causing it, if the disproportion alone of the two sums,
$341,000,000 bank notes compared with $944,000,000 of bills discounted,
did not at once repel this theory. It is only necessary to glance at
this idea to see its falsity.
The maximum circulation of bank notes has here coincided with the panic,
a thing which had not happened either in France or in England for a long
time, and instead of presenting its highest figure during the
liquidation of the panic of 1873, it shows us its lowest figure,
$290,000,000 in 1877. Far indeed from increasing at this time as
happened in Europe, the amount of bank notes in circulation decreased by
means of the ebbs of metallic cash into the coffers of the banks: in
reality the cause was lacking here; the ebb of specie was hardly felt at
all.
With $4,000,000 in 1865, the reserve was poorly provided, increasing to
$48,000,000 in 1870. At the end of the bursting forth of the panic of
1873 it became reduced to $10,000,000, at the worst of the panic to
$16,000,000; then, under the influence of a slight whirl, it rose to
$33,000,000 in 1874, without reaching the highest figure of the
preceding period, but soon the flow reappeared and reduced this metallic
reserve to $8,000,000 in 1875. It was not until after this depression
that the true ebb reappeared, when the circulation of bank notes was at
its lowest figure ($290,000,000).
Whilst the $8,000,000 specie reserve grew successively to $54,000,000,
$79,000,000; $109,000,000, and finally to $128,000,000 in 1878, 1879,
1880, and 1881; that is to say, upon the approach of the panic, the
circulation also expanded from $290,000,000 to its highest figure
$323,000,000 in 1882, the year of the European crash and of the stoppage
of the rise of prices in the United States. As to the minimum amount of
the specie reserve, it is to be noted in 1883, between the critical
years 1882 and 1884.
Metallic reserves are too small in the United States for their
fluctuations to exhibit the same regular course they offer us in Europe;
the least need exhausts them, and the smallest payments fill them to
overflowing. The panic soon brought about a default in payment and a
need of metallic money to re-establish equilibrium, but this remedy, if
it does precede panics, sometimes precedes them by a year, as we have
observed in 1883, and the same irregularity is apparent whether we
observe the banks of the whole United States, or the Associated Banks of
the City of New York.
After the panic of 1882-1884, the ebb of specie into the coffers of the
National Banks of the United States and of the Associated Banks of New
York resumed its usual course, and raised its level in the case of the
National Banks from $97,000,000 to $177,000,000 between 1883 and 1885,
and even to $181,000,000 in 1888. This ebb occurred both in England and
France at the same time, proving that cash reserves do not increase to
the detriment of each other; it is a flood of specie or of bar-gold
rendered easily available, through the conclusion of the decline of
prices and the slackening of business, extending to the whole world, and
in which each one partakes in proportion to its wealth, and above all in
proportion to its credit circulation, and of the perfection of the
settlements by means of clearing houses.
This regular course in the metallic reserves is no longer to be noted in
the circulation of bank notes; instead of increasing and of entering its
exchanges during the return of specie into the coffers of the banks,
they again took part in the paper-money reserves. From $323,000,000 in
1882 we see the circulation of bank notes decrease each year little by
little until it is reduced to $151,000,000 in 1888; and this remarkable
fact confronts us in the face of an unheard of expansion of business,
almost 50 per cent. greater than in 1873; and of a twofold simultaneous
reappearance of $84,000,000 specie and of $172,000,000 bank notes. What
then is the role of specie and of bank notes in the course of business
in the United States? Much inferior to that which it plays in Europe in
the absence of the machinery of a clearing house embracing the whole
country, instead of being limited to some large cities.
The multiplicity of banks has strikingly helped the economic progress
of the United States. From 1,500 National Banks in 1865 with a capital
of $393,000,000, the number rapidly rose to 2,089 in 1876.
The panic of 1873 did not hinder the movement; however, during its
liquidation, the number shrank to 2,048, only to rapidly advance to
2,500 by the close of 1882, and 2,664 in 1884, and this movement did not
even suffer a slackening as in 1873 during the liquidation of its
crisis; it continued steadily, and we enumerate 3,120 banks in 1888.
The increase is a third more than in 1876, but it is far from being thus
in the case of the capital, which only rose from $504,000,000 to
$588,000,000--that is, only 16 per cent. The small banks in the new
centres of population are the factor, then, which annually increases the
number.
THE CONDITION OF BUSINESS IN 1888-92.--[Footnote: The facts I state in
this _resume_ are based upon statistics printed in the _Commercial
and Financial Chronicle_.--DEC. W. THOM.]--The year 1888 was fairly
prosperous despite a Presidential election, but securities were heavy,
depression was general, and some few stocks shrank amazingly. Excessive
issue of new railroad securities and disastrous competition between
certain of the Southwestern roads were without prudence. Money was easy,
bank-note circulation continued to decrease till it was only $151,000,000,
and legal tenders to $81,000,000, but specie reserve rose to $181,000,000,
the banking capital to $592,000,000 plus, the exports to $1,350,000,000,
and discounts and loans rose to $1,684,000,000.
The sharp speculations in wheat and the formation of the French copper
corner caused a certain fluctuation in general business. Large crops,
excepting wheat; a flourishing cotton manufacture, a decline in
production of petroleum by agreement, a 6 per cent. decline in pig-iron
production, a very heavy one in Bessemer iron, and a very small export
trade as compared with imports occurred. But in the year 1889, the
export movement, consisting largely of cotton, was very great, being the
greatest since 1880, and near the maximum, and compared favorably with
the immense imports induced by the new tariff of 1890. In fact, the year
1889 surpassed all its predecessors in the volume of trade movements;
the bank clearings showing an increase of 13 per cent. over 1888. The
cotton, corn, and oats crops were the largest ever raised, and the wheat
crop was almost the largest. But cotton brought fair prices, and cotton
manufactures and production of iron were also considerably ahead of any
previous year, while petroleum played an important part at good prices.
Railroad earnings showed a wonderful recovery from 1888, and many
reports gave the largest figures ever recorded.
During this year many consolidations and a number of foreclosures
occurred. Railroad building fell to 5,000 miles compared to 7,000 in
1888. In general business, manufacturing and trade were extremely
active, yielding plenty of work, good wages, and fair profits.
But the wool crop and its manufacture, a decline in the anthracite coal
production, farm-mortgage pressure in the middle West, and low rates for
corn and oats were untoward circumstances. Speculation on the general
exchange was small, indicating a growing congestion, as was proved by
the low bank reserves, especially in the last quarter of the year; but
there was a heavy absorption of investment securities.
Gold, to the amount of $37,000,000, was exported in the first six
months. A small amount of it returned before 1890. Failures exceeded
those of 1888 by 203 in number and about 20 per cent. in money. The
woollen trade contributed much of this showing.
Importations surpassed all previous years, while exports exceeded them
by nearly $20,000,000, and the net export of gold amounted to nearly
$40,000,000. Money was easy during the first quarter, and then for a
week a 10 per cent. rate occurred.
Thereafter, excepting the usual July 1st hardening, easy rates prevailed
till August. Stiffening and fluctuating rates ensued till 30 to 40 per
cent. in exceptional cases had been reached in December.
During the year, bank circulation declined to $126,000,000. Specie
reserve sank to $164,000,000 and rose to $171,000,000 with the ending of
the year; legal tenders to $84,000,000, and the number of banks rose to
3,326; their capital to $617,000,000; their deposits to $1,436,000,000,
and their discounts and loans to $1,817,000,000, and surplus and
undivided profits to $269,000,000.
Unused deposits, capital, surplus, and undivided profits were growing
very small in comparison with loans and discounts at the end of the year.
The banks had to work closely, and the demands of the South and West for
currency were severely felt.
PANIC OF 1890.--In this condition the year 1890 opened, and, with ever
growing pressure for bank accommodation, displayed great activity
throughout all departments of trade and transportation, with an
unequalled volume of transactions.
But it was as impossible to grant to the overtrading the money
needed,--though the Secretary of the Treasury, in seventy days, threw a
million a day into the market by buying Government Bonds,--as it had
been for the "Gentleman's Agreement" of 1888--that of the chief railroad
presidents--to maintain rates, to permanently sustain prices of railroad
securities against an oversupply of them; however, both delayed the
inevitable.
The debates on the silver question in Congress, leading to hopes of
cheap money, and the higher prices due to this temporary and delusive
stimulus; the large gross railroad earnings, demand for structural iron;
the Buenos Ayres crisis, leading London to ship us large amounts of our
securities; our small wheat, oats, and corn crops, and large cotton
crop; the tariff discussion, ending with the McKinley Bill on October
6th, and the low bank reserves and money pressure beginning in August
and lasting pretty steadily till December, and an immense shrinking of
securities, were the chief features of the year; and failures beginning
with that of Decker, Howell, & Co., in New York, on November 11th, and
reaching a climax with the embarrassment of Baring Brothers [Footnote:
Meanwhile Messrs. Charles M. Whitney & Co., David Richmond, J. C.
Walcott & Co., Mills, Roberson, & Smith, Randall & Wierum, Gregory &
Ballou, P. Gallaudet & Co., had failed in New York, the North River Bank
of that city had been thrown into a receivership, and in Philadelphia
the failure of Messrs. Barker Brothers, had been followed by a number of
others. This was all bad enough, but sinks into insignificance when we
recall the financial terror inspired by the great and historic house of
Baring Brothers proving unable to meet its engagements, amounting to
about, L28,000,000. The Bank of England received notice of its
difficulties on September 7th, and by the 15th had secured from a
syndicate, composed of the great London houses, a guaranty that it would
be protected from loss to the amount of L4,000,000 if it would liquidate
the Barings' business, and from the British Government the right to
issue L7,000,000 of notes provided that sum was used to loan the
Barings, and it therefore assumed on that date the task of paying the
Barings' acceptances of L21,000,000 and L7,500,000 of other liabilities.
Thus was averted what would probably have been the greatest panic in the
world's history. That which occurred was a mere bagatelle to what was
threatened. It is difficult to bestow too much credit upon Mr. William
Lidderdale, Governor of the Bank of England, for conceiving and managing
this plan. He has saved hundreds of thousands of homes and interests
from misery. Under his able administration it is expected to extinguish
the Barings' liabilities without calling on the Government, and it is
believed something will be saved for the Barings from their former
assets in business. This is deeply to be wished, for though the Barings
have continued business under form of a stock concern with a million
pounds capital, they are wonderfully restricted as compared with their
former state. They have performed in banking too many helpful actions in
furtherance of civilization to be eclipsed without sincere regret.] in
mid-November, which failure itself greatly accelerated the panic, were
the chief events of the year. Railroad building had increased to 6,081
miles, and the consequent new securities were poorly absorbed.
Manufactures were generally prosperous.
The huge imports to take advantage of old tariff rates absorbed much
money, while the Baring liquidation and that of other houses identified
with South American enterprises, and the distrust bred by our Silver
Bill caused a return of our securities, necessitating such a curtailment
of credit that our panic took place. From July through December 31st,
money ruled high and fluctuating.
The year shows a decline in circulation to $123,000,000, a decline of
specie reserve to $178,000,000 with a subsequent rise to $190,000,000, a
decline in legal tenders to $82,000,000, and of deposits to
$1,485,000,000, while the banks increased to 3,573 with a capital of
$657,000,000, and a surplus and reserve of $316,000,000, and discounts
and loans rose to $1,932,000,000.
The year 1891 has exhibited the usual incidents succeeding a time of
reorganizations after panics and, after a period of selling and
settlement, a rehabilitation of affairs and the consequent advance in
prices of securities. The unprecedented abundance of our crops as a
whole, coupled with the almost universal shortage in European countries,
largely aided the rehabilitation. Bank balances reflected this
startlingly. On February 26, 1891, loans and discounts and over-drafts
amounted to $1,927,654,559.80. On May 4, 1891, loans and discounts and
over-drafts amounted to $1,969,-$46,379.67. On the former date capital,
deposits, surplus, and undivided profits amounted to $2,462,456,677.92,
and on the latter date to $2,567,288,143.45.
On July 9, 1891, discounts, loans, and over-drafts amounted to
$1,963,704,948.07, and capital, deposits, surplus, and undivided profits
to $2,522,609,679.78.
Confidence is restored and prices have advanced, and should advance
still further. There seem to be only three things that could check the
advancing market, and of those the two chief ones seem pretty surely
relegated to a fairly distant future. These latter two are, in the order
of importance: (1) a free silver law, _i.e._, a law making, say, 67
cents' worth of silver pass for an equivalent of a 100-cent dollar; and
(2) a very radical and abrupt change in our tariff law. The remaining
and very minor influence is the breaking out of a general European war,
which would at first induce a selling of our securities, and so lower
prices, but which finally and shortly would benefit us by a subsequent
returning flood of money exchanged for our various bread-stuffs, and
supplies, and even securities of different sorts.
It would be better for our future if the liquidation of the last panic
had been more radical in some cases, notably in land speculation. In
this liquidation has not been thorough, and, as far as these cases
influence the market, it has remained for a long time unsound, and even
now is not fully recovered.
The past twelve months have witnessed a continued settling of old
accounts, and the undertaking of new business, in a limited way, despite
a somewhat uneasy feeling about silver and the now accomplished
Presidential election. But the fact that an analysis of the bank returns
to the Comptroller of the Treasury shows that available resources
(capital, deposits, surplus, and undivided profits), as compared with
demands (loans and discounts), are good and growing, considered in
regard to the other signs indicating prosperity (see Introduction),
justifies the prediction of the steady development of a prosperous
period.
PANIC OF 1893-4.--It was early in 1893 that I wrote the last page of
_A Brief History of Panics in the United States_. Two of the three
checks to business prosperity to which I then referred, virtually
occurred very soon. The determined resolve of the "free silver" members
of Congress to continue the heavy monthly utterance of silver dollars
redeemable at par in gold kept many business men most disquieted. They
saw that the free gold in the Treasury was sinking greatly and steadily.
They knew, also, that there was semi-official assertion of the right of
the United States to redeem its silver dollars in Government notes. The
Free-Coinage Bill had been passed by the Senate in July. The House
defeated it. The legal fights against certain great railroad
combinations and frequent labor strikes put additional burdens on the
market.
In the United States and abroad the doubt of our willingness and ability
to redeem our obligations at par in gold on demand grew most rapidly.
Accordingly, exports of gold increased and hoarding of it began at home.
To all this was added the expectation of a severe downward revision of
our tariff laws if the Democratic Party should succeed, as was expected,
in the Presidential election in November.
Business was scared and slowing down and, therefore, using less and less
of its working capital. The false ease of increasing loanable funds in
the custody of the banks lulled many into a specious confidence. But
gold was exported in increasing quantities. Should the Government issue
bonds in exchange for gold for the purposes of redemption? The
Philadelphia & Reading receivership occurred. Easy money led to many
consolidations of transportation properties and to very many large
commitments. Money tightened. In March, it loaned at 60% per annum.
Would President Cleveland call an extra session of Congress in March to
repeal the silver law and to issue bonds in order to replenish the free
gold in the Treasury? The Stock Market showed a great decline in
quotations.
In April, 1894, Secretary of the Treasury Jno. G. Carlisle forbade the
further issuance of gold certificates for gold deposited in the Treasury
under Act of July 12, 1882, whenever the gold in the Treasury "reserved
for the redemption of United States notes falls below $100,000,000."
This further alarmed the business world, which was not reassured when on
the 20th Carlisle announced that the Treasury would pay gold for all
Treasury notes so long as he had "gold lawfully available for that
purpose." President Cleveland, that stalwart man, uttered this high and
firm pronouncement on April 24th: "The President and his Cabinet are
absolutely harmonious in the determination to exercise every power
conferred upon them to maintain the public credit, to keep the public
faith, and to preserve the parity between gold and silver and between
all financial obligations of the Government." Very good, thought
business, but how and when will you act accordingly?
Lack of business confidence increased greatly. Money rates advanced.
Security values fell; imports greatly exceeded exports. Silver
certificates were at 83. Something was about to snap in the general
business machine. National Cordage broke from 57 to 15-1/2 on May 1st,
receivers were appointed, and the panic of 1894 had declared itself and
grew worse on the 4th and 5th. Call money rose to 40%. June witnessed
great distress in business circles. On the 27th the Government of India
stopped the coinage of silver for individuals and decreed the exchange
value of the rupee at 16 pence. This lowered the exchange value of our
silver bullion certificates to 62. President Cleveland helped matters
somewhat by announcing that Congress would be convened early in
September. In early July the panic increased somewhat despite the
President's call for Congress to assemble on August 7th. Time loans were
hardly obtainable. Conditions in August grew worse. Business was almost
at a standstill, and failures were very frequent. From August 7th until
the affirmative action on the 28th by the House of Representatives as to
the repeal of the Silver Act, there was great concern.
Then hope revived; but hoarding of currency increased. Great banking
interests in New York helped the situation mightily by importing over
$40,000,000 gold. September was an anxious but more hopeful month as the
prompt adoption by the Senate of the Free-Silver Bill was anticipated.
However, the weary debate dragged on in the Senate. President Cleveland
demanded the unconditional adoption of the House measure. Certain
compromisers, led by Senator Arthur P. German of Maryland, suggested
that during each of the following fifteen months the Government purchase
the minimum amount of 1,000,000 ounces of silver, and then stop all such
purchases against which silver certificates had to be issued. This plan
for speedy action President Cleveland and the Secretary of the Treasury
opposed as worthless unless concurrently there was an issue of
$100,000,000 of Government bonds to replenish the gold in the Treasury.
They asserted that new legislation must be had before any such bonds
could be validated. So the business world continued to suffer.
Let me here state the fact, that without any fresh authorization,
Secretary of the Treasury Carlisle did in January, 1895, issue
$50,000,000 of Government bonds to replenish the free gold in the
Treasury, and that an injunction suit against their sale was dissolved
by Judge Cox at Washington on the 30th of that month. Gorman had been
right. The credit of the country would not have suffered by the
additional issuance of some final $60,000,000 (?) of silver certificates
if the gold in the Treasury had concurrently been upbuilt to the extent
of $50,000,000 to $100,000,000; but an immensity of business loss would
have been averted.
But to resume the orderly recital of those times. October dragged along
its weary length, while the Senate debated and business withered.
Finally, on the 30th, the Senate accepted unconditional repeal of the
Free-Silver Act. On November 1st, it became a law. The fear of
repudiation thus escaped, though with fearful loss, the country plunged
into all the unsettlement caused by a too sudden and too extensive
change in the tariff. These changes were announced by the House
Committee on December 27th.
The conditions mentioned in the last paragraph beginning on page 22 of
the introduction to this book, were at work. Before the market had
recovered from the "Silver panic" of 1893-4, the terror caused to the
business world by the proposed very decided changes in the customs dues
laid hold upon every trader in the United States and reflectedly upon
every one of its citizens. It shook business throughout. Would not such
a plan as is set forth in the footnote below [Footnote: "Mr. DeCourcy W.
Thorn expressed himself yesterday as heartily indorsing the Democratic
celebration to be held in this city January 17 next, to which all the
party leaders will be invited and at which subjects of interest to the
party will be discussed.
"When asked to give his opinion on some of the questions worthy of
discussion at this gathering Mr. Thorn mentioned the tariff and economy
in the conduct of national affairs.
"In the coming national Democratic celebration," he said, "I hope
suggestions dealing with a rational reformation of the tariff and the
need for national economy of every kind will be duly considered, and
that on these two subjects alone, to be treated thoroughly but
temperately, will this national Democratic gathering advise our party as
to its best course to pursue.
"In three successive Presidential canvasses since the Civil War the
Democratic party has received a majority vote of the people of the
United States, and in my opinion would have gained three thereby,
instead of the alternate two, elections to the Presidency if the tariff
issue, the major one of the two great issues--namely, tariff and
economy--on which they won, had been so sought to be applied as not to
threaten unduly to affect general business."