The panic in Wall Street has not extended to the whole country in the
same form and intensity as the great crises of 1857 and 1873; but, no
doubt, the effect of the shock at the money center will distribute
itself gradually over the entire country. The country is not any worse
off now than it was at the beginning of May; it is, rather, better off,
because an evil has been uncovered and a remedy applied. We did not
think ourselves on the verge of ruin on the first of May, nor do we now
know that we were. The evil we have discovered in action we knew to
be in existence then. But having been forced to take medicine for the
sickness, we shall experience some inconvenience from the drastic dose.
It is hardly possible to make an 1873 over again. None of the factors
of a great general depression exist (so far as we can see); but the
cure of the speculative disorder, from which the whole economical body
must more or less suffer, may be exasperatingly difficult. All chronic
maladies yield very reluctantly to medical treatment; and our economic
maladies are equally stubborn. The seat of the present trouble is the
organization of railroad property and its management; the principal
owners and managers of railroads are speculators in their own property.
This disorder has existed from the beginning of such property. It is a
twist which the property was born with. It has tortured the patient for
fifty years. And to this date no one has applied any adequate remedy.
Reformers abound, but the patient does not hesitate to call them quacks;
and, denying that there is any serious trouble, it asks to be let alone.
We can estimate the evil by a comparison of three groups of figures.
Take first the figures which show the cost of railways. Take next the
figures for the nominal capital in stocks and bonds; add the figures
which show net income. It is not necessary here to give the actual
figures in either group. The fact is that the net income is less than a
fair interest on the actual cost of the roads, and perhaps not one per
cent. on the nominal value as shown by capitalization. A road has cost
five millions; the nominal value is twenty millions; the net income is
six per cent. on four millions. Take out a dozen corporations which
are wholesomely managed, and the rest of the companies are, in varying
degrees, bankrupt as to their nominal capitals and unprofitable as to
their actual cost. Speculation trades upon the delusion that the roads
are presently, or in some “sweet by-and-by,” to pay dividends upon all
their capital. To economize this delusion, the speculative owners of the
lines carefully conceal the facts about the condition of their property,
or pour out these facts in a torrent of apparent losses—according as
they themselves are long or short of the property. The real condition
of a railroad property can not be known except when it is bankrupt. At
other times railroad book-keeping is too confusing for average brains,
and exuberant hope makes the future out of the “astonishing growth of the
country.” To remove the railroad property from the sphere of speculative
manipulation is the pressing demand of all legitimate interests vested
in such property. Until this is done this kind of property will be a
squalling baby in the financial household, falling into convulsions
periodically and alarming and distressing the whole family of industries
and investments.
It is understood that the largest fortunes in the country are made by
magnifying this kind of property. It is known that a panic seldom
strikes its fangs into the manipulator. It is believed that the public
is usually the bitten party in the gambling circle. But in the present
case it is not probable that any but the Wall Street men have much
suffered, or that any fortunes have been made in the street. What has
had to be done is to distribute through the street a large aggregate of
losses incurred since 1881. The sum total exceeds five hundred millions,
according to some statisticians. This sum is divided into two parts:
1st, losses from July 1881 to January 1883, estimated at three hundred
millions; 2nd, losses from January 1883 to May 1884, estimated at two
hundred millions. We mean losses as measured by the fall in market price
of railroad paper of all kinds. It is believed that before 1883 the
public at large had suffered a loss of perhaps two hundred millions, that
since that the said public has had little to do with the Wall Street
market, and that the street (including all the men doing business on the
stock market) has had to distribute a loss of three hundred millions.
It is presumed that the public has, since January 1883, recovered from
its losses, but the street is in the agony of its punishment. It was
inevitable that some of the losses should be thrown on the banks; and
through these losses the panic directly reached the public, in the
double form of impaired confidence and stringency. The country has
borne both evils with good sense. The impairment of confidence did not
become general distrust: the stringency, which for a day or two made
money worth four or five hundred per cent. per annum, passed off in a
week. The fact that the troubles concerned one kind of property only,
and was localized in Wall Street, was quickly understood by the country
at large. The wounded banks were relieved by their neighbors, and the
brokers on whose books the bad balances are found have been left to
settle up their business as they may be able to manage it, while business
in general goes on as before, with, however, a considerable increase of
caution. The first effect of this caution will be depressing. Nor is it
to be denied that considerable depression already existed in legitimate
trades. The trouble is not serious, but it is annoying. At bottom it
is based on an excess of enterprise in a part of the manufacturing and
trading public. Anxious to be rich, they aim at impossible growth in
business. They make certain kinds of goods in larger quantities than the
public will consume them. This trouble may be called over-production or
under-consumption; it does not much matter. Whatever name we give it, the
thing is self-corrective, and involves no large disaster. It compels men
to content themselves with less than they wish, teaches us that we can
not all be millionaires, cuts down our ambition for social importance or
ostentation, but it does not tend toward a crash. It is painful to go
slow when we desire to go fast; but the breaking of bones occurs when
fortuitous combinations permit us to drive on like Jehu. It may be dull,
but it is safe to be dull in the economical world. It is the roaring
activity of prosperous times that makes our financial ruin.