"The further use of the existing financial agencies for cooperation of
the banks in all sections to mass resources and apply them to prevent
undue local strain upon credit dispels the fear of any necessary injury
to the financial fabric in effecting this change.
"Grover Cleveland, whose character and principles I have long revered,
seemed to me in the application of his plan for tariff reform to have
endangered at once the success and the permanence of his reform of the
tariff--which you recall was confessedly and very properly not a
reformation to free trade--by failing to provide in it a method for
avoiding or at least minimizing and shortening any incident disturbance
to the business world. His plans, further, failed by not reasonably
insuring for the transition period from the old tariff to the new one
sufficient national income for national expenses."] have virtually
prevented all that? When I sent that plan, which I had stated in an
interview in the _Baltimore Sun_ of December 24, 1910, to the
various members of the Finance Committee of the United States Senate and
to the Committee on Ways and Means of the House of Representatives, very
many of them wrote me affirmatively on the subject.
To revert, however to the due order of our tale. It was on January 17,
1893, that Secretary of the Treasury John G. Carlisle, without any new
legislative authority, offered to sell $50,000,000 Government bonds
already mentioned. If issued during the Silver-repeal fight when Gorman
proposed his compromise, and if Carlisle had made it clear very early
that as many such issues for gold would be made as were needed to keep
the trading public safeguarded against any monetary-business cramping
caused by the governmental policy affecting the tariff, a minimum rather
than something approaching a maximum of disturbance would have followed.
In better spirits because of the issuance of the $50,000,000 Government
bonds for gold, the business world worked along. The House had passed
the Tariff Bill early in February by a big majority. Business soon
looked up decidedly. But the Seigniorage Bill was adopted in March.
President Cleveland, that sturdy upholder of the Nation's credit, vetoed
it. He knew that any new moral obligation to keep at a parity with gold
dollars worth in themselves less than one hundred cents in gold would
materially shake domestic and foreign credit.
The veto had a deservedly splendid effect upon all our trading
interests. This was increased by the failure of the House to override
the President's veto of the Seigniorage Bill. But the Senate had not
acted on the Tariff Bill. Business dwindled and there occurred strikes
and other widespread labor troubles, especially in the bituminous coal
trade. In many parts of the country the militia, and in Chicago United
States troops, had to be employed to maintain order. Call money was a
drug on the market. The net gold in the Treasury was very low. The
Tariff Bill dragged its weary length along. President Cleveland and
Chairman William L. Wilson of the Ways and Means Committee of the House
insisted that the bill would produce sufficient revenue for the expenses
of the Government. Senator Gorman and others in the United States Senate
insisted to the contrary and demanded that the tariff on sugar should be
kept at a high figure. A bitter controversy ensued. Finally, on August
13th, the House accepted the Senate Tariff Bill. It was time for some
affirmative action, for among other threatening conditions the net gold
in the Treasury had fallen to the lowest figure since resumption of
specie payments in 1879.
Business began to revive. The issue of $50,000,000 Government bonds for
gold to replenish the Treasury stock was a very stimulating influence.
The improvement dated virtually from the agreement in February between
the Government and the Morgan-Belmont Syndicate to prevent the export of
gold. In June, 1895, the Government gold was thus brought up to a round
$100,000,000 for the first time since December, 1894. But
notwithstanding the fact that the business outlook was decidedly better,
the inevitable disturbances to business following a general change in
the tariff, unsettled political conditions in Europe and the selling of
American securities owned abroad, the shortage of the American cotton
crop, President Cleveland's Venezuela message, which many persons
thought might bring on war with England, and another decline in the
Treasury free gold, again shook business confidence.
Improvement, however, was stimulated by a remarkable increase in the
supply of money in our balance of trade and by the virtual settlement of
the Venezuelan question. The business situation was steadily clearing.
The ills from the panic of 1893-4 were well behind us. The
Spanish-American war proved to be harmless to us financially, while it
tended to show that National neighborliness could be exercised in a
splendidly unselfish way. By our treaty of peace with Spain on December
10, 1898, an additional emphasis was given to the revival of trade.
During 1899 a great rush to speculate brought the pinches in money
inevitable in those pre-Reserve Bank days, but could not stop the
general broadening of business interests although the industrial
situation was unsatisfactory in spots. Indeed, the succeeding year was
to witness severe industrial trouble destined to cause a general
set-back in business. The situation cleared considerably when the
November elections of 1900 showed the country to be safe from the Bryan
silver policy.
Big business interests took hold of market conditions. Huge combinations
of trade interests became the order of the day. The United States Steel
trust was the vastest and was the transcendent achievement of J.
Pierpont Morgan. The Stock Exchange was wild with speculation. The
collapse came there in the famous decline of the 9th of May, 1901,
precipitated by the Northern Pacific corner. In a month the market was
tranquil again. The shooting of President McKinley produced great
financial nervousness. The over-trading abroad, especially in Germany,
was influencing us and all the rest of the world, which had not yet
recovered from the vast financial cost of the English Boer War.
The ever increasing closeness of business relations the world
over--their virtual solidarity, in fact--was being illustrated again
with us. A chief example was trouble in the copper groups following a
slackened world demand for their products.
Overtrading was doing its usual work. This induced loss of business
courage in many quarters, or shall I say a realization that nowhere in
the American business system was there any arrangement empowered so to
marshal the competent strength of financial America that large and
overwhelming disturbances should become impossible in business
generally. Indeed, the Government forces seemed to tend contrariwise to
big business practices. They took virtually their first step in
"trust-busting" when they tried to break up the Northern Securities
Company, which had been concocted to handle the celebrated Northern
Pacific case. Labor troubles supervened. Many great speculative stock
campaigns collapsed. The banks yielded to the imperative need to reduce
credits. The year 1902 had almost experienced a widespread panic: but
the marshaling of great private resources had restored confidence
temporarily, and it closed in peace.
PANIC OF 1903.--Then came the real beginning of the protracted "trust
busting" campaign. Business took fright, for it believed it was to be
bullied rather than soundly regulated. Great failures oh the Stock
Exchange were its sure indications. Fear and distrust was upon all the
American business world. Industries languished. Money was easy because
less and less employed in trade. The great captains of industrial
finance, however, patched up troubles and differences here and there
and, availing themselves of the plentiful supply of money, soon had a
notable speculation at work. Gradually the country took heart again and
business experienced a revival.
It was thought that President Roosevelt, elected in November, 1904,
would help bring about discrimination between "good" trusts and "bad"
trusts, and whose "trust" is bad! But "trust busting" became an even
more popular and political pursuit. Indeed, the abuses practised by many
of them had created a situation regarding which the question was
becoming in the popular mind simply this, "Shall trustdom rule the
people or the people rule the trusts?" The sound control of both before
the Constitution of their country must be the happy solution.
The Bill of May 9th of the House of Representatives, giving the
Interstate Commerce Commission power to fix railroad rates, was ominous,
and little noticed by the general business world; but some noticed and
acted. The Senate had not voted; nor did they realize what
rate-regulation implied to railroad balance sheets and so to the Stock
Exchange. Some interest was selling securities. The business public was
awakening to the fact that legislators, legislation, the people, and the
law were hot after the business methods of many organizers. Fear,
founded on a tardy awakening to facts, declared itself, but
spasmodically, for now and again the great captains of finance and
industry were trying to save the situation. They successfully aided
whatever of momentum there was in general business. But Congressional
activity as to any combinations in restraint of trade was unabated. It
called upon the President for such information as the Interstate
Commerce Commission might have as to a combination in restraint of trade
between the Pennsylvania Railroad and certain lines allied with it.
The battle between the old style and the new style of managing great
corporations was fairly on. Labor troubles added to the existing
disarrangement of business. San Francisco's vast earthquake and
consuming fire sucked much capital away from financial centres in order
to replace the $350,000,000 of capital destroyed. The money market was
greatly restricted. The stock market showed signs of panic. The
Secretary of the Treasury continued to help the situation as best he
knew how. Notably, he offered $30,000,000 Panama Canal Bonds, and very
successfully sold them. That afforded an additional basis for bank-note
issuing. The stock market responded with a fine upward swing. Heavy
dividends were declared by certain leading railroad and other
corporations. Indeed many high records were made by securities and so
distracted attention from that steady tide of keener inspection and
stricter regulation by the agents of the people which was destined to
unmoor and toss and injure many a financial craft. Railroads asserted
that the country needed a great increase in railroad trackage, but that
the actual treatment of the roads deterred extensions through
frightening capital. So the year 1906 wore away after having sorely
tried the nerves of the whole business world which it left in a most
justly apprehensive state.
THE PANIC OF 1907.--The panic of 1907 opened with great but feverish
activity in business. Driven by necessity the railroads adopted the
issuance of short-time notes for new capital, as the market would absorb
no long-time obligations except at forbidding interest rates. Any
signally untoward happening could promptly precipitate a panic. The
United States Treasury withdrawal of Government deposits from the banks,
and the collapse of the Knickerbocker Trust Company in New York were
such happenings.
On March 14th, the panic declared itself and pandemonium ruled on the
New York Stock Exchange,--that prominent barometer of business
conditions. In its coming it had exemplified again the characteristic
symptoms of a panic which I have set forth on pages 7-16 of the
introduction to this book. After the spasm of March 14th and the
business cataclysm of the following October, the business world
staggered along, but with the strength merely that results from courage
and the exercise of reserve power husbanding its resources and
lightening its load. The decrescendo movement of another business cycle
had begun. Runs on financial institutions were prominent in our country.
But throughout all the western world resources were strained. Money had
been overused. Money rates were extremely high. Failures were frequent
everywhere. In our own country painful disturbances, relaxation, and
unrest were everywhere apparent. The radical doctrines of many political
leaders tended to further unrest.
The business of the country was halting between the need sanely to
regulate "big business" and the fact that "big business" had been
obliged to fight for prosperity in the welter of unallowable but very
often undeniable conditions. The railroads justly claimed that they were
forbidden living rates. Their opponents accused them of carelessness and
waste. The railroads and the Interstate Commerce Commission were the
protagonists respectively of the conservative and the radical thought of
the country, which is so rich in natural wealth and is inhabited by so
resourceful a people that though by statutes they be well managed or
not, their National wealth increases. So ran the business world away,
but with a very slow and steady approach towards a rational
rectification of disputed legislation as affecting business. Meanwhile
the courageous "captains of industry" were leading in business as best
they could and were better appreciating the temper and needs of the
American people.
Added to the difficulties resulting from our languishing trade at home,
we suffered reflectedly from the constriction of business in Europe,
which was acutely aware that the disturbance in the Balkans threatened
to destroy the peace of Europe. Conditions were not yet quite ready
there for a cataclysmic war. For example, statistics had not quite
demonstrated to Germany that the physique of her people and the rate of
increase of their families were declining while the expenditures for
superpreparedness for war was demanding either retroaction in that
regard or else an expenditure from the principal of their property.
Germany did make in one year the sacrifice of five per cent. of her
principal for yet fuller preparedness for war. Indeed since late in
1908, it is fair to say that consciously or unconsciously the whole
world has been in travail. Whatever broad measures statesmen anywhere
have promulgated, have been subjected to the unusual stress and strain
of world-wide unrest. Like the treacherous undertow that wrenches those
who venture in, has been the world unrest upon all phases, incidences,
and predicates of business. Some of us have long realized this; some
have not.
With November, 1908, came the election of that great constitutionist,
Taft, to the American Presidency upon a platform less radical than that
of his opponent. This heartened the constructive forces of the country.
But very little upbuilding resulted. The coming revision of the tariff
was of itself sufficient further to restrict business undertakings, and
to cause many great producers of goods to arrange to unload at lowering
prices their actual and their future outputs. But the conserving of
resources since the panic had helped the superficial situation, and the
spasmodic stimulus that so often follows a general heightening of the
tariff showed itself after the adoption of the tariff bill in August,
1909.
The illness and after a month or two the death of the great business
leader, Harriman, caused in the securities market a great decline.
Fundamental conditions were unsettled. The best that could be expected
was a see-saw movement until some power should set our country and the
business world at large once more securely on their respective bases.
The Anti-Trust Law, the Interstate Commerce Law, and such like
influences continued to disturb the United States, while Europe was
beneath the surface unendingly agitated.
General business marked time while statesmen or pseudo-statesmen planned
and promised panaceas. President Taft joined that populous group. The
securities market, that barometer of business, fell beneath such
assurance of further unsettlement. How can you continue to trade unless
reasonably sure that conditions will remain fairly constant! All this
militated against a normally quick recovery from a great panic. Little
scares were frequently experienced. Influences matured and presented one
great political party split into two great factions, while the other
chief party endured something of the same development.
A conservative handling of National policies, or a radical one was the
question in each case. The November elections indicated a popular revolt
against the party in power--the Republican. Unshaken, President Taft
followed his convictions and in his Presidential message, of December,
1910, to Congress called for a halt in legislating to regulate
corporations, until the effect of the laws on the statute books could be
studied. The stock, money, and industrial markets were marking time. Not
to go forward in business or elsewhere is in itself to retrograde. Thus
opened the year 1911. Under the influence of easy money, better business
on some of the western railroads, better dividend declarations here and
there, a rosy "prediction as to the early future of the iron market, and
the belief that the Interstate Commerce Commission would grant better
rates to the railroads, general business felt encouraged and prices
advanced somewhat. But in February the Interstate Commerce Commission
forbade the railroads any increase whatever in rates. The roads were
obliged to institute many cramping economies which to them very often
meant the using up of their corpus and to the business world of the
United States a permeating retrogressive influence. Reductions in
railroad dividends were symptomatic of that. To add to all this there
developed additional business unrest predicated in the general tariff
change favored by the House of Representatives in April.
The United States Supreme Court decision interpreting the Sherman
Anti-Trust Law of 1890 as affecting the Standard Oil Company case and
the American Tobacco Company case were delivered late in May and were
unexpectedly reassuring to business. This was another evidence that the
best thought of the Nation everywhere was seeking to rectify the
looseness of the past without killing business initiative and continued
endeavor. So matters see-sawed in the business world. It was indeed in a
state of unstable equilibrum. Stocks declined now abruptly; then, after
some slight recovery, gently; but the slant was decidedly downward.
The Government felt that its duty required it to push forward the
investigation of industrial corporations; and that the Nation so
demanded. And it was in October that the chief of such corporations--the
United States Steel Trust--had a Government suit for dissolution filed
against it. The sturdy bell-wether of the corporation flock was attacked
by the great United States Government. What would happen to the humbler
members of the flock! Certain court decisions were reassuring to
corporations in November and business brightened for the time being and
during much of December in certain notable instances, for in that month
the Interstate Commerce Commission report appeared and seemed less
drastic in tone.
The year 1912 opened with an additional influence promising increased
alarm and marking of time. I mean that candidates for the Presidential
nomination began their canvasses, which, of course, implied new plans
for making new laws to govern business conditions. Former President
Roosevelt announced his candidacy in February. President Taft was
already constructively in the field. Governor Harmon of Ohio was
mentioned in many quarters as a successful reformer who wished soundly
to guide but not unwittingly injure business, while Underwood was
similarly praised in addition to his record on the recasting of the
tariff into a further revenue measure. Champ Clark, Speaker of the House
of Representatives, was a popular candidate. And Woodrow Wilson loomed
up as though forecast by destiny. At first and in many important
sections of the country considerably more delegates to the Republican
National Presidential Convention were chosen for Mr. Taft than for Mr.
Roosevelt. This and brisker business served to hearten conservative
interests, and the general market revived despite the decidedly downward
influence in our country of the gigantic strike among English coal
operators, who thereby spread trouble throughout the British Empire,
and, through the solidarity of the financial world to-day, affected
every financial centre.
The remainder of the year was dominated by the Presidential canvass.
Taft, called by many a "stand-patter"; Roosevelt, "the insurgent," who
proposed to mend all the troubles of the political public by his usual
brusque methods; and Woodrow Wilson, the "conservative with a move on,"
made their appeals for popular support. Until the verdict in November
a see-saw market took place in the United States, while Europe and
reflectedly the remainder of the world became alarmed lest the war
declared in October by the Balkan States against Turkey should produce
world-wide trouble.
The November Presidential election showed that Woodrow Wilson received
435 votes, Mr. Roosevelt 90, and Mr. Taft 8. However, the popular vote
for Woodrow Wilson was more than 1,000,000 below that cast for Messrs.
Roosevelt and Taft jointly, and about 2,000,000 short of a majority of
all the votes cast for the Presidential nominees--Socialist, Republican,
Democratic, and so on. But the vitally significant fact is that the
popular vote for the "stand-pat" candidate--Mr. Taft--was very small in
comparison with the joint vote of the three candidates whose platforms
called for a drastic handling of National policies,--Debs, Roosevelt,
and Wilson.
Drastic recasting of the rules of any game unsettles play. The market
dropped. But fortunately for the country the ripe and balanced and
active intellect and character of Woodrow Wilson, elected President,
lent much re-assurance against the extensive political surgery he had
been chosen to perform. All knew that he would be thorough and
reasoning. All the grievous handicaps that business suffers from
uncertainty of regulation, it was thought would be overcome as promptly
as possible. But the pledged great change of the tariff was enough to
induce retrenchment of business endeavor. With a major factor unusual in
any proposition, how can stability, much less progress, be expected in
any interest?
THE PANIC OF 19l3.--Retrogression in business began very early in 1913
and increased until mid-October, 1914. On October 3, 1913, the new
Tariff had become a law; but other reforms still jostled business.
However, by mid-October, 1914, the Interstate Commerce Commission seemed
to have become less radical in its views, the Industrial Trade
Commission was at work apparently studying the essentials of the
industrial situation, the United States Supreme Court was delivering
opinions in check of indeterminate statutory meddling with business and
the splendid potential of the Reserve Bank system was offering for use.
It is hard not to overstate the vast re-assurance offered to business by
linking together the banking power of the country through the Reserve
Bank system. Just as an enormously large number of troops skilfully
thrown into an endangered--a panicky--position will ensure success, so
can the vast resources of the Reserve Bank system restore financial
order when panic fear is declaring itself. During the past two years of
threatening from the disturbances in Mexico, our country has learned to
forecast the benefit that the Reserve Bank system predicates; but our
stay and confidence has been the cool and far-seeing statesmanship of
our great President, Woodrow Wilson.
The breaking out of the "World War" in August, 1914, had so flooded our
market with securities held in Europe that the Stock Exchange, following
the continental example, closed from July 31st till November 28th, when
the New York Stock Exchange and other American stock exchanges opened
for restricted business in bonds and on December 15th to unlimited
trading in stocks and bonds. Other kinds of exchanges acted much the
same. This checked business in every direction, despite the great
issuance of temporary Clearing House certificates. In two months the
latter tendency was changed in many quarters.
Then began the "war boom." Gradually it has spread, bringing such
enormous profits in all our lines of business supplying the needs of the
"Great War," that the first twelve months of it showed more than a
billion dollars trade balance in our favor, and that balance then began
increasing on a progressive scale. Money is yet plentiful. All business
is stimulated. Our crops are unexampled in quantity and money value.
Everything points to great prosperity unchecked until the "Great War"
ceases and withdraws the stimulating demand for our supplies.
Then will come a readjustment of our trade. Money will have become
actually or potentially scarce because of the previous vast expansion of
our business, and all the banking power of our country will be requisite
to prevent a crashing panic. The Reserve Banks will have gotten fully to
work by then, it is to be hoped. They will be needed to lead in the
life-saving operations. Such first aid to the injured will obviate such
financial sufferings as the old-time panics presented. They can hardly
be expected to reduce the casualties to the volume of the slow panic in
securities in the year 1913, for the volume of business involved at
present is vastly more swollen and the kind more circumscribed.
It is interesting to note that panics have continued to appear about as
regularly as usual, but less crushingly, since 1890, the date up to
which the first and second editions of this book had traced them.
Remedial or partially preventive measures have been more and more
utilized by the financial powers to control them. Never will panics
cease so long as trade and fear are exemplified on this earth, but just
as modern medicine is overcoming the dangers threatening the physical
man, so is modern finance overcoming panic and the other dangers which
threaten financial stability. After all, reserve power and only a
rational use of financial resources are the surest preventive of panic.
And that the American people have not been forced through entrance into
the "World War" to deplete their reserve strength, especially in a
financial way, is due to the splendid conduct of our great President. He
is leading this country to unexampled prosperity. Instead of consenting
that old abuses in the business world should continue until an
over-indignant public had grown riotously injurious, he has guided the
current of their wrath, initiated or promulgated the methods for
redressing their grievances, and has saved to the country, to its
people, and to general business itself, the splendid and full service of
business enterprise freed from the abuses and handicaps that unregulated
conditions had forced it to employ in the unrestrained struggles of the
open mart.