It is not often, however, that newcomers in the Street fare as well as

this in the end. For a time they will go on merrily enough, and send

things booming, but in the end most of them get the worst of it. At the

risk of repeating myself, I will say here:

Mr. A. B. Stockwell is a good illustration of the truth of this. At one

time he was worth many millions of dollars. His start in life was as a

purser on a Lake Erie steamboat; his father, it is said, kept a livery

stable in Cleveland. On one of his trips Stockwell was in a position to

show considerable attention to Elias Howe, the inventor of the eye at

the top end of the sewing-machine needle. Mr. Howe was accompanied by

his daughter. Stockwell made himself agreeable to Miss Howe also, and

with such good effect that he managed to win her affections, and soon

thereafter married her.

When Mr. Howe died, Mrs. Stockwell came into possession of her father’s

millions. With this nest egg Stockwell started in Wall Street, and

before anyone realized what had happened he was the most talked-of man

in the district. He put all his wife’s millions in Pacific Mail stock,

secured entire control of the company and elected himself its president.

He came into the Street as plain Stockwell. Then, as the news of his

liberality and good-fellowship spread, he became Mr. Stockwell. After he

got hold of the Pacific Mail he was Commodore Stockwell by common

consent. Everybody bowed and scraped to him, and no man was so high and

mighty that he was not proud to shake his hand.

Stockwell took hold of Pacific Mail at about 40 and sent it up to 107.

It was at this period that he was worth on paper over $15,000,000. But

he found, unfortunately, when it was too late to retreat, that though

Pacific Mail was up to 107 it was not worth that figure when the

unloading commenced.

He was landed high and dry with it all, and the Street told him he was

welcome to it. He tried to sell, and found that there was no market.

Then came violent demands on him to pay up his numerous call loans, and

in order to respond he had to sell regardless of price, and thus a

whirlpool was created which finally sent the stock down to the price at

which he had begun his original purchases. In this one upset he lost all

his paper profits and his wife’s millions besides. That was the most

famous boom in the history of Pacific Mail, notwithstanding Leonard

Jerome’s previous brilliant ups and downs in that property.

Leonard Jerome and his brother Addison had a good time with Pacific Mail

for a while. They ran it up to high figures several times, but finally

met with the same experience that Stockwell did. The two Jeromes, from

being among the wealthiest and most dazzling operators in the Street,

were in the end practically wiped out. Leonard Jerome, who was the

father of Lady Randolph Churchill, had nothing left to bequeath his

daughter except an equity in the house now occupied by the Manhattan

Club on Madison Avenue, which yields an income of about $15,000 a year,

of which Lady Churchill gets $10,000.

These are a few of the booms that have stirred up things in Wall Street

at one time or another, as did the Keene, the Gould, and the Vanderbilt

booms, and the rest I have mentioned.

------------------------------------------------------------------------

CHAPTER LXVIII.

WALL STREET’S WILD SPECULATION, 1900-1904.

MCKINLEY’S REËLECTION AND THE DEFEAT OF BRYANISM SET THE BIG BALL OF

SPECULATION ROLLING ON THE STOCK EXCHANGE.—THE TREMENDOUS VOLUME OF

SPECULATION BY BOTH LARGE AND SMALL CAPITALISTS.—THE RUSH TO

INCORPORATE NEW COMPANIES AND CREATE INDUSTRIAL TRUSTS AND RAILWAY

COMBINATIONS.—THE ENORMOUS CAPITALIZATION OF THE UNITED STATES STEEL

CORPORATION AND OTHER COMPANIES IN EXCESS OF REAL VALUES.—THE RAPID

GROWTH AND POPULARITY OF NEW AND OLD TRUST COMPANIES AND THE EFFECT

OF THEIR COMPETITION IN FORCING BANK CONSOLIDATIONS.—THE BOLD AND

RECKLESS SPECULATIONS IN RAILWAY STOCKS OF THE NEWLY ENRICHED

WESTERN CAPITALISTS.—THE GREAT NORTHERN PACIFIC PANIC OF MAY 9,

1901.—THE CAPTURE OF CONTROL OF THE LOUISVILLE & NASHVILLE RAILWAY

BY JOHN W. GATES, AND ITS REDEMPTION BY J. P. MORGAN & CO., ACTING

IN THE INTEREST OF THE LOUISVILLE & NASHVILLE AND SOUTHERN

RAILWAY.—THE SLOWING DOWN OF WILD AND RECKLESS SPECULATION IN STOCKS

AFTER SEPTEMBER, 1902, THROUGH THE INFLUENCE OF THE BANKS AND

CONSERVATIVE BANKERS, THUS AVERTING FURTHER INFLATION AND A GREAT

CONVULSION.—THE LIQUIDATION AND DEPRESSION OF 1903 A NATURAL

REACTION FROM THE INTOXICATION OF THE PRECEDING PROLONGED BOOM.—THE

GREAT RISE IN COTTON AND THE COLLAPSE OF THE TREMENDOUS BULL

SPECULATION LED BY DANIEL J. SULLY WHEN HE FAILED.—THE SUDDEN FALL

IN THE IRON BAROMETER IN 1903, AND THE GENERAL SITUATION IN 1904.

Wall Street changed with almost magical suddenness from depression and

apprehension to confidence and buoyancy with the defeat of Bryan and his

silver heresy, and the reëlection of McKinley in November, 1900. Large

capitalists all over the country began to buy stocks and bonds on so

heavy a scale that prices shot up rapidly, like the celebrated

Gilderoy’s kite, and very soon orders poured into the Stock Exchange

from people of smaller means everywhere, and a tremendous bull market

for stocks resulted, with too many men staking, or ready to stake, their

bottom dollar on the rise.

The speculative capitalists and large operators of Wall Street, not of

course excepting many of the active Standard Oil magnates and James R.

Keene, naturally availed themselves of this state of affairs to

manipulate stocks on a grand scale. Having loaded up with them early at

low prices, they boomed them with vigor; and we witnessed the beginning

of a carnival of speculation, and an unexampled rush to form

combinations of industrial and railroad interests, or trusts, and

generally to capitalize the concerns taken in for many times the amount

of their previous capital or real value. The stock thus created, after

being admitted to dealings in Wall Street, was made active and bid up by

the promoters to high figures to catch buyers, while the public, which

had become crazy to buy, took it in enormous amounts. It bought in haste

to repent at leisure, for, I regret to say, most of the buyers have it

still; and the aggregate loss its shrinkage in price represents is to be

counted by very many hundreds of millions of dollars.

But it was fortunate for both Wall Street and the nation that the

inflation which ran riot till September, 1902, was then checked by the

conservative action and warnings of the banks and men like myself, for

if it had been allowed to continue for another half year it would have

ended in a disastrous convulsion, a bursting of the bubble, which would

have been felt all over the United States, and in every department of

business, as in and after the panics of 1857 and 1873. I was one of the

first to sound the alarm and call a halt in this dangerously wild

speculation in my weekly letter dated September 13, 1902, in the

following words:

“A man becomes an inebriate by getting himself into a condition

where he ceases to recognize effect as following cause. Under

the influence, at times, of the intoxicating beverage he will

defy both law and order. This is due to the callous condition he

has allowed himself to get into. The stock market of late has

been productive of a similar condition of mind with a majority

of people. They have been engaged now for such a prolonged

period in buying, buying, buying, making profits on all their

ventures, as to make them like the inebriate, callous to all

adverse factors whenever they come up. High prices don’t

frighten them; scarcity and high rates for money don’t frighten

them; cautionary signals don’t frighten them; strikes don’t

frighten them. Buying and holding on have simply become chronic

with them. This may not unlikely continue to be the condition of

the stock market until compulsory liquidation sets in, which the

strain in the money situation will sooner or later produce. I

recommend great caution on the buying side, and, better still,

not buying at all at the prevailing high prices. I see no

possibility of relief to the money market excepting through the

importation of gold. The activity of business all over the

country, together with the moving of the crops, is going to keep

money thoroughly employed at high rates from now onward and all

the way through the new year; therefore, those who buy stocks to

carry hereafter, excepting on big concessions from present

prices, may meanwhile be overtaken with discomfort from

depreciation in values as well as from the difficulty of

obtaining money at reasonable rates.

“HENRY CLEWS.”

The intoxication of the time having gradually given place to sobriety,

and a slow but heavy downward reaction in prices, we escaped the violent

and widespread panic that threatened us, and that would have been

inevitable had we not “slowed down” in time. As it was, the decline was

long-continued and severe, and impoverished or ruined hundreds of

thousands of people, including a vast number of formerly very rich men.

Both big and little speculators became the victims of the downward

plunge of prices: but the country as a whole was saved from serious

disturbance and depression—that is, from the effects of such a

tremendous collapse and crash as menaced Wall Street during nearly the

entire year 1903. This was very fortunate for all our material

interests; and the conservative element in Wall Street is to be

congratulated on having so successfully put on the brakes in time to

prevent a collapse that would have involved and disturbed the nation

from the Atlantic to the Pacific.

The year 1901 was the most remarkable in the financial history of the

United States, and Wall Street was a theater of action whose

performances astonished not only the entire country, but the world.

Their like had never been seen before, not even during the great war

between North and South. It would take volumes to fully describe and

give retrospective clearness to the leading events of that extraordinary

period which made the Stock Exchange continually the scene of wild

excitement, daring manipulation, and unexampled inflation.

To say that Wall Street astonished the natives and made conservative

business men stand aghast is no exaggeration. There were six influential

factors actively at work in that year, namely, the consolidation of

railroad and industrial companies at enormously inflated prices,

including the disastrous Northern Pacific skyrocket “corner,” the

restless sea of reckless stock speculation that swept the American

people into its vortex, with all its razzle-dazzle extravagance, the

transformation of this country from a heavy lender in Europe to a heavy

and urgent borrower, the partial failure of the corn crop, the decline

in prices for nearly all the staples except grain and iron, and the

collapse in earnings and dividends of many new industrial combinations.

These included The Amalgamated Copper Company, and the panicky decline

in its stock, which impoverished or ruined many thousands of investors,

it being first run up to 130 and then rapidly down to 60 by the

manipulators, who sold out and then sold “short,” and who are said to

have made more than fifty millions by the up and down movement.

Subsequently even this low price was cut nearly in two, as the decline

did not stop until 32½ was reached.

A mere recital of events as they occurred would be an eloquent serial

story to those familiar with the alphabet of Wall Street; and there is

no more interesting or exciting serial story than the stock ticker

tells, from day to day, to those interested in the stock market, or one

that often excites more joy or sorrow, or carries with it more weal or

woe, prosperity or ruin. But the ticker, like Tennyson’s brook, will go

on forever during business hours, for we shall never be without a stock

market and speculation.

The transactions of the New York Stock Exchange in 1901 were so

tremendous in volume as to excite wonder. But they only represented the

speculative spirit, the intoxication of the time. The sales in the first

half of the year aggregated 175,800,600 shares of stocks and

$637,100,800 of bonds at par value, an increase of 109,906,300 shares

and $346,900,700 in bonds over the same six months in 1900.

As prices soared the volume of speculation increased, and on January 7th

the day’s total sales amounted to 2,116,500 shares, and then went on

increasing till they reached 3,271,000 on April 30th. Then came the

Northern Pacific bombshell, the panic of May 9th, when stocks came down

even faster than Captain Scott’s coon, and the actual sales were still

larger, but owing to the intense excitement, demoralization, and

confusion that prevailed, it was impossible to keep track of them all,

and the ticker registered only 3,073,300 shares.

This sudden catastrophe convulsed the stock market in a way that alarmed

money lenders, destroyed confidence, and caused a general rush to sell

stocks which brought them down with a crash, involving many thousands in

ruinous losses. The revulsion of feeling, the change in the sentiment of

the Street was as startling as a violent earthquake, and the

consequences were fraught with grave disaster. Up to the very eve of

this great convulsion in the stock market the dance of speculation had

been fast and furious, among both “the big men” and the little, and its

unlooked-for occurrence reminded one of Byron’s lines on the Brussels

ball, given on the eve of the battle of Waterloo, when the sound of

cannon unexpectedly boomed above the music:

“On with the dance! Let joy be unconfined;

No sleep till morn when Youth and Pleasure meet

To chase the glowing hours with flying feet.

The lamps shone o’er fair women and brave men;

A thousand hearts beat happily; and when

Music arose with its voluptuous swell,

Soft eyes looked love to eyes that spake again,

And all went merry as a marriage bell;

But hush! hark! a deep sound strikes like a rising knell,

Arm! arm! it is—it is—the cannon’s opening roar!”

Fortunately, in the midst of the Northern Pacific panic, the financial

belligerents combined to stop it. Their competitive buying for control

of the stock had caused the “corner.” But the extraordinarily high

prices to which it was bid up by those short of it were reached after

the competitive buying had ceased for the want of sellers. The

contestants saw the wisdom of coming to terms to restore confidence and

check the havoc that was being wrought on the Stock Exchange, where

prices had fallen from fifteen to fifty per cent. that day, while

Northern Pacific common stock had sold up to $1,000 a share. So J. P.

Morgan & Co., the bankers of the Hill-Burlington-Great Northern party,

and Kuhn, Loeb & Co., the bankers of the Harriman-Union Pacific party,

met in haste, and came to an agreement as to the Northern Pacific stock

they had bought, the formal announcement of which caused a violent

recovery of prices the next day, but not before the sweep of the besom

of destruction had caused several Stock Exchange failures to be

announced. The recovery was followed by a relapse of equal violence

under a fresh rush to sell, which carried stocks nearly as low as in the

panic, and then by a fresh recovery, a usual feature in a crisis where

credit has been severely shaken and many have been crippled.

The outcome of this agreement between the two sides was the formation of

the Northern Securities Company, practically as arranged for by J. P.

Morgan & Co. and Kuhn, Loeb & Co., Mr. Morgan naming the directors by

mutual consent. Into this repository, or holding company, the Hill and

Harriman companies—that is, both sides to the controversy—put their

Northern Pacific stock, as well as Great Northern stock, and the

Northern Securities Company later issued its own stock to them in

exchange for it.

But when, in 1904, the Northern Securities Company was held by the

United States Supreme Court to be a violation of the anti-trust law, and

it became necessary to distribute its assets, a new controversy arose.

Its directors proposed to make an equal, or _pro rata_, distribution of

the Northern Pacific and Great Northern stocks deposited with it,

whereas President E. H. Harriman, for the Union Pacific, which deposited

the lion’s share of the Northern Pacific, namely, $78,000,000, wanted

all its stock back again; in other words, to eat his cake and have it,

too. As this, if assented to, would have given the Union Pacific control

of the Northern Pacific, President Hill, for the Great Northern

Burlington system, naturally objected, and we all know of the litigation

that followed, and in view of the glorious uncertainty of the law, it

would have been rash to have predicted its final outcome.

On the Stock Exchange, April was the most active month of 1901, the

sales aggregating 41,689,200, a daily average of 1,812,600. On April

24th no less than 652,900 shares of Union Pacific were sold. These

specimen bricks furnish a practical commentary on the rampant

speculation then in progress.

The new incorporations of the year represented an amazing amount of

capital, the total being far in excess of any previous year, even that

of 1899, when many of the large trust combinations were formed. The

largest and probably the most heavily watered combination launched was

the United States Steel Corporation, with its $508,478,000 of common

stock, $510,277,300 of preferred stock, and $304,000,000 of bonds. The

mania for organizing new companies and making combinations of old ones

on largely inflated capital spread to every State in the Union, and the

promoters of industrial enterprises, in particular, seemed to be trying

to surpass each other in piling Pelion on Ossa in excessive

capitalization. Their obvious purpose in most instances was to sell the

stock to the public, and the poor public took the bait and suffered

accordingly, for much of the stock in a great many of the new schemes

became almost entirely worthless, both as collateral and in the stock

market, and the rest experienced very heavy depreciation, and,

figuratively speaking, like the shaky corporations it represented, went

limping along with an uncertain gait and a ragged and down-at-the-heel

appearance suggestive of reduced circumstances and hard times.

In every State there was a flood, if not a deluge, of new companies. In

New Jersey, 2,346 were formed in 1901, with a capitalization of

$4,773,702,000, against 2,181 in 1900, with a capitalization of

$1,350,208,400; and in New York, Ohio, and Texas the incorporation mills

were proportionately active in grinding out new companies with

fictitiously large capital stocks.

Commercial and manufacturing corporations were practically unknown, that

is, in any substantial form, in the United States till about 1850, and

then they followed the development of the railways. In 1848 the first

general corporation act, known as the Manufacturing Act, had been passed

in this State, and companies began to be organized under it; but the law

limited their capital and imposed other restrictions, whereas companies

may now be incorporated for a thousand years with an unlimited amount of

capital. The contrast between 1850 and this era of trusts marks the

great and rapid progress of the country in the interval in population,

commerce, manufacturing industry, banking, railway building, and general

material prosperity.

The growth of trust companies has been the natural outcome of our

industrial and economic development, and the freedom allowed by our laws

in monetary affairs. In England, France, and other European countries

the laws restrict corporation rights and privileges so rigidly that such

companies would find it impossible to do business there as they do here.

Hence trust companies have practically no existence except in this

country. How immensely they have prospered of recent years the banks

know to their cost. In 1882 the gross deposits of all such companies in

the United States were $144,841,000. In 1892 they were $411,659,000; but

after the new industrial combination era began, in 1897, they shot up

with amazing celerity, and new companies sprang up like mushrooms in all

our large cities, and here and there in small towns.

Being competitors of the banks they shared their business, and so

prevented or limited their natural growth, and forced many of the bank

consolidations that have since taken place. At the end of June, 1902,

their deposits had mounted up to $1,525,887,000. Here was an increase of

$1,114,228 in ten years to about half of the total individual national

bank deposits of the country, for these on July 16, 1902, were

$3,098,875,772. Moreover, in the city of New York the trust company

deposits exceed, or did exceed, the individual deposits of the national

banks, those of the latter on September 15, 1902, aggregating

$603,565,374, while on June 30, 1902, the deposits of the trust

companies, as shown by their semi-annual reports to the State

Superintendent of Banking, were $760,776,124. This comparison is a very

suggestive revelation of where the money goes and how the trust

companies prosper at the expense of the banks.

In 1902, again, a few leading factors, or influences, controlled

American finance, and shaped the real financial history of the year.

These were the good corn crop, following the bad one, and other

satisfactory harvests; the overstraining of American bank resources to

supply the vast requirements of the new trust and flotation enterprises

when the capital and currency of the country were required for its

regular trade and ordinary business; the enormous increase in our

foreign importations contemporaneously with a very heavy decrease in our

exports; the great rise in the price of the raw materials used in our

manufactures, as well as in the cost of labor; the strenuous efforts of

large speculative capitalists to extend and hold permanent control of

their respective railway and industrial enterprises and undertakings;

the reckless and unprecedented Vesuvius-like eruption of speculation in

railroad and other stocks by wealthy and newly enriched Western stock

operators known as “the Chicago Crowd” and “the Pittsburg Crowd,”

respectively, aided by heavy bank loans at high rates; and finally the

refusal of the public to follow them any longer as buyers. This accords

with what I have said about the influence of the conservative banks and

bankers in calling a halt on the wild speculation for a rise which raged

up to the latter part of September in that year.

The exploit, in 1902, of John W. Gates, backed by his speculative

associates, in buying a majority of the Louisville & Nashville Railway

stock, was his last successful venture to make a big haul of millions on

the Stock Exchange. After that he and they met with very heavy losses in

their continued efforts to boom stocks. But Mr. Gates was paid a profit

of ten millions of dollars on his Louisville & Nashville purchases by J.

P. Morgan & Co., a partner in that firm having made the bargain with him

at the Waldorf-Astoria Hotel, at three o’clock in the morning, after it

had been discovered that Mr. Gates had really bought control of the

stock.

It transpired, in evidence, that Mr. Perkins had gone there at that hour

for this purpose, and found Mr. Gates in bed. The object in giving him

so large an amount above what he had paid for the stock he had just

bought was to get him out of the way as a mischief-maker, for with him

in control of the Louisville & Nashville, there was no telling what he

would do to demoralize the Southern Railway system. He was looked upon

as a bull in a china shop, to be coaxed and tempted out, regardless of

expense, before he began to toss the crockery with his horns.

So when he said to Mr. Perkins, “As you want the stock so badly, to keep

the Belmont board in control and protect the Southern Railway, I will

let you have it if you will pay me ten millions more than it cost,” the

proposition was promptly accepted; and the deal was closed on this

basis. The Louisville & Nashville and the Southern Railway companies

were supposed to have been jointly interested in the purchase, but the

Gates stock was finally turned over to the Atlantic Seaboard Air Line.

Buying control of the Louisville & Nashville by Mr. Gates was a far

bolder operation than President Hill’s purchase of the stock of the

Burlington & Quincy for the Great Northern, or than the Moore Brothers’

purchase of control of the Rock Island and their subsequent great

inflation of its stock and bonded debt, because Gates bought it merely

as a speculation, without any desire to manage the road. He was

fortunate in being able to sell it so easily to those he had frightened

by his daring coup.

It is interesting to compare the leading influences, or principal

factors, in Wall Street in 1903 with those of 1901 and 1902. Stock

Exchange transactions in that year were very much smaller than in 1902,

but not nearly as much so as the total in 1902 had fallen below those of

1901, the year of the greatest activity and excitement in this memorable

speculative period. The sales in 1903 aggregated 161,099,800 shares,

against 188,497,600 in 1902 and 265,945,700 in 1901. The largest total

on any one day in 1903 was 1,539,000, against 1,996,000 in 1902 and

3,202,200 in 1901. The largest in any month in 1903 was that of January,

16,002,300, against 26,568,000 in April, 1902, and the smallest in 1903

was 10,731,000 in November, against 7,884,900 in June, 1902.

The barometer of the iron trade was still rising at the opening of 1903.

Good crops had been gathered and were being sold at good prices; railway

earnings were large, and railway companies were making heavy

expenditures for new equipment and improvements, and every department of

business and manufacturing industry seemed prosperous, with the iron

trade enjoying its full share of that prosperity. So heavy, indeed, was

the demand for iron and steel that the capacity of our works was unequal

to it, and we were importing iron and steel largely, as we had been in

1902.

But in June the iron industry experienced one of its time-honored

lightning changes. That barometer suddenly fell. The demand subsided

with surprising celerity in all lines, and by November prices in some of

these were fifty per cent. lower than in January. The boom in the iron

trade which commenced in 1899 was at an end after lasting for four

years. At the end of the year, however, the trade began to revive, and

1904 witnessed a slow but steady improvement in it, as the reports of

the United States Steel Corporation’s earnings have shown. Consequently

that highly inflated company, after being forced in 1903 to suspend

dividends on its common stock, was encouraged to continue them at seven

per cent. on its preferred stock. But this carried cold comfort to the

hundreds of thousands who had been impoverished by buying these stocks

at the high prices at which they were floated here and in Europe.

Before the end of 1903 liquidation on a large scale in stocks had run

its course and exhausted itself, and the market quieted into comparative

steadiness; and in 1904 we had, on the whole, nothing more than a dull

trading market, with the outside public very largely absent. But there

has been a general tendency toward slow improvement, although the net

earnings of both railways and industrial companies have, on the average,

shown a heavy shrinkage, a reflection of the reduced volume of trade and

more or less industrial depression following the overstimulated boom of

previous years. Just as 1901 was the year of the most unbridled and

unrestrained inflation, 1902 witnessed a constant battle against the

tendency to a downward reaction, and 1903 saw and felt the reaction,

which was all the more severe because it had been so long delayed.

In the cotton market, however, as wild and extraordinary a bull

speculation raged in 1903 and the early part of 1904, under the lead of

Daniel J. Sully in New York, and William P. Brown and a Southern clique

in New Orleans, as ever excited the Stock Exchange. Through their

manipulation, helped by the statistical position of cotton and the

prospect of reduced production, cotton rose, under an enormous and

unprecedented volume of transactions, from about eight cents a pound

here to seventeen cents, with frequent violent fluctuations, and Mr.

Sully was avowedly planning to carry it up to twenty cents, when he

found his resources insufficient to carry, on a falling market, the

amount of cotton sold to him. So after going up like a rocket, he came

down like the rocket stick, although his previous profits by the rapid

rise had run into several millions. It was well that a halt was thus

practically called to this excited speculation and excessive advance in

cotton, for it had inflicted heavy losses upon spinners and caused the

closing of many mills. Sully’s failure was the logical result of a too

daring speculative campaign, and reminds us of that vaulting ambition

which overleaps itself and falls on the other side.

Glancing at other countries, I find that Canada made more material

progress in 1903 than in any previous year in her history, business

increasing substantially in nearly every branch of trade and finance,

stimulated by bountiful crops and 150,000 immigrants. But in England the

continued decline of British Consols to the lowest prices in a

generation reflected a low financial barometer, the legacy of the costly

South African war. France, however, made the best showing of the year in

Europe in finance and general prosperity, while in Germany a vigorous

industrial revival lifted that country out of its previous depression

consequent on over-speculation and bank failures.

One question of great interest in relation to our new industrial

combinations is whether a proper readjustment of their hugely inflated

capital and excessive charges will place them permanently in a condition

of efficiency, productiveness, solvency, and prosperity, or whether they

will ultimately drift, one by one, into the hands of receivers through

their inability to make both ends meet, or become hopeless wrecks, like

the Shipbuilding Trust. The same fate is liable to overtake many other

large flotations into which there was a too copious flow of water,

supplemented by chicanery and misrepresentation. Many of these have been

organized in disregard and defiance of legitimate finance, and have

exposed the stock market and all the monetary interests depending upon

them to risks and disastrous disturbances inseparable from organizations

whose foundations rest largely on wind and water and on prospectuses and

book-keeping that often failed to tell the truth, the whole truth, and

nothing but the truth.

It was well that a stop was practically put to the creation of such

inflated industrial combinations, as well as to needless combinations

and highly inflated stock issues among the railroads for power and

profit and stock-jobbing purposes, by the course of the Wall Street

banking interest, to which I have referred, in coming to the conclusion

that the over-watering of new companies, the marketing of new stocks,

and the rise of prices on the Stock Exchange had been carried beyond the

point of safety, and that the outside public had bought more speculative

industrial and railway stocks than they would be able to carry on a

falling market.

They argued, therefore, that their buying power and their inclination to

buy were nearly exhausted, and that the stock market had become largely

a field of action for certain heavy and reckless speculators, each of

whom had suddenly made many millions by the formation of new trusts and

railway combinations. Some of these had become multi-millionaires

through the early sale of the heavy amounts of United States Steel stock

they received in exchange for their plants when that huge corporation

was launched in its sea of water. In this they were like some others who

enriched themselves by their industrial combinations in the West before

they branched out in Wall Street.

Very large bank loans to the brokers of these big operators were

gradually called in and fresh accommodations refused them. Without loans

it was impossible for them to buy and run up stocks to inordinately high

prices, as they had been doing. Therefore they found that, to a large

extent, their occupation was, like Othello’s, gone. They were eagles

with clipped wings.

The heavy liquidation by large and small operators in 1903 caused a

heavy and almost continuous decline in prices on the Stock Exchange.

Many rich men were compelled by this shrinkage and the calling in of

their loans by the banks to sell out heavy lines of both railway and

industrial stocks. Not a few of these lost practically all their

capital, while nearly all the rest sold a large part of their best

holdings to protect the remainder, which became unmarketable.

This period of liquidation and depression left Wall Street and the

country at large in 1904 thickly sprinkled with poor rich men,

capitalists with a good deal of property, real and personal, including

stocks, but all unsalable in the market except at an almost ruinous

loss. Their policy is naturally to hold on to what they have left till

the tide turns, and if they are strong enough to be able to do this they

will doubtless meet with their reward. History repeats itself in Wall

Street as well as elsewhere, and with this prospect in view they can

cheerfully say, as the old song says, “There’s a good time coming, boys;

only wait a little longer.”

Meanwhile, those who were active in Wall Street during this eventful

period of inflation and speculation must note, more than others, the

vast change that has come over sentiment and opinion in Wall Street and

everywhere else.

Both Wall Street and the outside public have lost the faith that they

had in many of the stock-market leaders, the men who were once followed

blindly in their schemes of inflation and regarded as omnipotent in

their execution. The power and prestige of these leaders, for the

present at least, have passed entirely away, and none are so poor as to

do them reverence. The devotees of the Street no longer worship the old

idols.

Wall Street and the public also lost faith in all new ventures and new

railway and industrial bond and stock issues, as well as in the good

judgment and good faith of the promoters and corporations concerned. The

revelations of fraud, chicanery, and excessive capitalization that have

been made in the courts and elsewhere, have undeceived even the dullest

and most credulous believers in the schemes and schemers that took the

country by storm in the days of Wall Street’s wild and pyrotechnical

speculation.

Out of evil there cometh good, and this great change from blind

credulity and inordinate inflation to discriminating distrust and severe

contraction has exerted a wholesome effect in paving the way to a

sounder, safer, and generally better state of things both in and out of

Wall Street. But meanwhile one bad sign is noteworthy. The large

corporations, being unable to market new bond issues, are borrowing

heavily from banking syndicates at five to six per cent. on notes

running from one to three years. There is danger in this, and the way of

the borrower on these terms may, like that of the transgressor, be hard.

But the end may justify the means; and the nation is still growing as

rapidly and as grandly as ever in our history from ocean to ocean.

There is nothing to provoke pessimism in the magnificent strides we are

making in the march of progress; Wall Street is always sure to reflect

this progress and our growth in material prosperity, as well as any

periods of depression we may encounter, for it is the great barometer

not only of the country and the times, but very largely of the world.

------------------------------------------------------------------------

CHAPTER LXIX.

REVIEW OF THE PANIC YEAR, 1903.

The year 1903 passed into history with few pleasant memories. To a great

number of individuals it was a year of disappointment and loss. To the

very few it was a year of golden experience, demonstrating anew that

real success only comes from rigid adherence to sound business

principles and abstention from illegitimate speculation. Those who

remained steadfast to well-established methods of finance and business

weathered the storms of the year with little injury; while those who

defied economic laws and ventured on the untried highways to success

were, later, chiefly engaged in repairing battered fortunes and

gathering together their scattered senses.

Nineteen hundred and three was chiefly conspicuous as marking the

culmination and collapse of the great trust movement which began five or

six years ago. The country had fairly gone combination mad, both capital

and labor emulating each other in the furious race toward combination

and monopoly. All consequences were blindly disregarded, only the

advantages of combination receiving any serious attention, and no regard

whatever was paid to the workings of these huge combinations. Whoever

pointed out their inherent defects, their defiance of natural economic

laws, their ineradicable opposition to human nature, their socialistic

tendencies, their opposition to individuality, their inability to

suppress competition—whoever was bold enough to oppose these tendencies

on such grounds was swept aside with contempt and indifference. This

phase of the movement, however, was by no means the end of the trust

mania. It received an enormous stimulus from Wall Street, where the

clever promoter quickly discovered in the increased profits and power of

these combines something new to capitalize. These forced profits,

together with the premiums paid to original owners for control of good

will and for promoters’ commissions, were the basis of an enormous

overcapitalization, the new concerns frequently being capitalized at

several times their real value. Not less than $6,000,000,000 of these

new creations was made within a few short years, forming the basis of a

colossal speculation, backed by unequaled financial power and launched

upon an unprecedented industrial boom. It is not the purpose of this

brief review to cite instances of failure. Fortunately, the losses

resulting from inability to unload on the public fell chiefly upon those

best able to bear them, the panic being strictly financial and,

fortunately, not commercial or industrial. For the original shareholders

in these combinations who failed to sell, the losses were chiefly on

paper; but they were sufficiently heavy to seriously cripple many rich

men whose fortunes had been locked up in these enormously inflated new

creations. Syndicate after syndicate was formed to finance these

organizations; some made fabulous profits, but others were closed out

with heavy losses, bringing the country to the verge of the greatest

panic in history. Fortunately, the country’s general prosperity was only

slightly impaired by the tremendous strain thus imposed on Wall Street.

The storm was finally safely weathered because of the prudence of our

bankers and the strength of our national resources, as well as the

continued prosperity of the farmer, who once more proved himself the

backbone of the nation. These experiences have effectually killed the

trust mania, and its revival is exceedingly improbable. Big

corporations, it is true, will remain, for the reason that they are the

best known means of doing the world’s work; but the era of excessive

capitalization of good will, promoters’ fees, monopoly profits, and the

delusions of visionary economists is happily at an end. Whether the

final days of reckoning for the trusts have been seen or not is a

question that must be left until the ultimate test of business adversity

is applied, which we sincerely hope is still far distant. At best, the

future of the industrials is dubious. Along with, and as a natural

sequence of, the trust movement came the labor movement. The power of

combination once discovered was as badly misused by labor as by capital;

even worse, for the demands of labor were pushed to such extremes of

extortion and injustice as to throttle business and arouse popular

indignation among those who still preserved some ideas of individual

freedom.

Next to the trust movement the most potent influence in the business

world was the simply phenomenal boom in the iron and steel trade. The

world had never seen such rapid development before. This was based

principally upon the enormous demands of American railroads, which have

been practically reconstructed in order to meet the tremendous rush of

traffic which the nation’s growth has imposed upon them. The big car and

the big locomotive necessitated heavier rails, new bridges, and new

terminal facilities; so that hundreds and hundreds of millions were thus

expended, very largely out of current earnings, but in many cases, also,

by the creation of new capital issues. It is probable that the heaviest

portion of this work has been done, yet much remains to be completed,

and railroads will be heavy buyers of steel to continue projected

improvements. Another powerful stimulus to the iron trade was the use of

the steel frame building for office purposes. This meant a revolution in

office buildings, and the business centers of all our large cities are

undergoing a process of reconstruction which is far from complete, and

was brought to an abrupt halt by the extortionate demands of labor. In

addition to these two great sources of demand the uses of iron and steel

are steadily extending with the progress of invention, the cheapening of

their cost, and the high price of lumber. The iron trade’s pace was too

rapid to last, and the reaction came with unexpected severity in the

latter half of 1903, precipitated, of course, by the financial reaction,

which, along with the labor agitation, discouraged all new enterprise.

------------------------------------------------------------------------

CHAPTER LXX.

LEADING WALL STREET EVENTS UP TO THE FALL OF

1907.

The natural result of the panic of 1903, and the long period of

depression in Wall Street, was that an unprecedentedly large surplus

reserve was accumulated by the New York banks in 1904, reaching its

maximum in August. This was still further swelled in 1905, when

speculation for a rise again assumed formidable proportions, and new

high records were made in the stock market. Both bank loans and deposits

reached a magnitude never before known, and the activity on the Stock

Exchange, combined with that in trade, and land, mining, and other

speculations outside of Wall Street, caused the clearing house exchanges

to greatly exceed those of any previous year.

Our foreign imports also increased till they made new high records,

although our exports failed to keep pace with them. This large import

trade reflected both the rising fortunes of the rich, who had suffered

severely during the depression of 1903, and the general prosperity. Our

imports are the barometer of the times. When these are good, they are

large; but in bad times they shrink enormously, for a large percentage

of them represent luxuries, and we are a luxury-loving people, and, in

comparison with Europeans, our manner of living is expensive, not to say

extravagant.

Before the end of 1905 the banks of the rest of the country followed

those of New York in reporting deposits and loans larger than ever

before, whereas in the early part of it their only high record was in

the amount of their cash reserves. This showed the great demand for

loans and discounts to meet the requirements of the rapidly increasing

volume of trade and speculation.

The amount of money available for loans was largely reduced in the early

part of 1905 by our heavy exports of gold. But it was subsequently

increased by the issue, up to December 1st, of sixty millions in

National Bank note circulation, which was so much fuel added to the fire

of speculation, not, however, in Wall Street, as much as in the

interior, where there was a rage for new enterprises of all kinds,

mostly speculative. Everyone with money enough to make a venture seemed

to be seeking a short cut to wealth.

This inland speculation and business activity, particularly in the West

and South, caused the exchanges or clearings of the banks all over the

country, except in New York, which was comparatively dull, to reach

larger totals than ever before. Our iron production and foreign imports,

at the same time, made new high records.

The gold in the United States Treasury, owned by the Government,

increased under the tariff on imports from $193,072,614, early in 1905,

to $291,258,135, near the end, and the total amount held by it,

including that held against outstanding gold certificates, increased to

$816,354,352, the largest in the Government’s history, and also the

largest held by any government or institution in the world. The next

largest sum ever held elsewhere was $591,600,000, by the Bank of Russia,

in 1898. Yet on January 31, 1895, the total amount of gold held by Uncle

Sam—that is, by the Treasury—was only $97,353,776, and on February 12th

this had dwindled to $41,340,181, owing to the run on the Treasury

through fear that the Government might be forced to suspend gold

payments. But President Cleveland’s prompt action in selling bonds for

gold—to the Morgan-Belmont syndicate—averted this possibility.

Before glancing at more recent events, it is well to refresh our

memories by looking back at the most conspicuous features of the

stirring period in Wall Street’s history, extending from the beginning

of 1901 to 1906. In 1901 we had a year of extraordinary developments,

including new company organizations and old company amalgamations, wild

and reckless speculation by the outside public, heavy borrowing of

European money to carry on this speculation, the failure of the corn

crop, and, except for corn, a heavy fall in the prices of our products.

In 1902 Wall Street was flooded with new bond and stock flotation

schemes, all clamoring for bank loans, although the activity of trade

called for all the loanable capital available. Coincidently, there was

wild and reckless speculation in stocks by newly made industrial

millionaires with large bank resources and enormous loans at their

command. The outside public, however, were not tempted by the bait they

offered. Hence, the banks had an excessive burden of loans, all the

greater because of the determination, at any risk, of the speculative

capitalists to carry out their flotation schemes so as to control great

industrial, railway, and other corporations. Meanwhile, there was an

immense increase in our foreign imports and a decrease in our

agricultural exports, and a great rise in raw materials and the cost of

labor. But, fortunately, the year gave us a good corn crop and other

satisfactory harvests.

Then came 1903 with its train of disasters. Investors took alarm at the

masses of new securities thrown upon the market, and withdrew from it.

The securities consequently became unsalable, and prices declined

rapidly. This forced liquidation in bonds and stocks of all kinds,

particularly the better kinds, to save the poorer from sacrifice by the

syndicates, corporations, firms, and persons who were over-extended and

unable to respond to the calling in of loans by the banks and other

money lenders. Wall Street was full of “undigested securities,” on which

it was impossible to borrow any longer. So multitudes of holders had to

sell them for what they would bring. Then came a heavy decline in iron

and steel, among other things, an equally heavy reduction of the profits

of industrial corporations, with many corresponding reductions in

dividends, and a very sharp contraction in our before greatly expanded

foreign imports owing to the hard times. We had a rich man’s panic, and

plenty of poor rich men. But, again, we had abundant grain crops,

although the cotton crop was very short, which resulted in our shipping

more cotton to Europe in the autumn than ever before, while its price

was abnormally high.

In 1904 we saw one effect of the depression of 1903 in the abnormally

large surplus reserves of the New York banks, when money on call for

about eight months loaned largely as low as one per cent. Only four

times before had these reserves been exceeded. Then came the largest

gold exports ever made by us. In June the stock market began to recover

under spirited speculation for a rise, together with much buying by

investors. But reckless professional speculators carried prices so high

that the market collapsed in December. During the year there had been a

slow yet general revival of trade, in the face of extremely high prices

for cotton, resulting from a short crop and a bull movement, which

paralyzed the cotton manufacture, and caused many mills to close both

here and in England. But happily this was followed by the most bountiful

cotton crop we ever had, owing to the high price of the staple having

stimulated cotton planting all over the South. A heavy fall in the price

of cotton resulted, in which the bull leader failed. But the grain crops

met with disaster, and were the smallest since 1900, which resulted in

the highest prices since 1898, and the smallest exports to Europe since

1872. The presidential campaign in the meantime passed without creating

a ripple in the tide of Wall Street.

In 1895, simultaneously with much discussion of the world’s increasing

gold product, we saw both here and in the Old World, especially in the

latter part of the year, unexampled monetary stringency with very high

rates for money. The surplus reserve of the New York banks was wiped out

twice, that is, they twice fell below the dead line of the required

twenty-five per cent. reserve on their deposits, while the Bank of

England’s condition was the lowest since 1890, and the Bank of Germany’s

the lowest since 1897. Yet we had a very active and excited bull

speculation in stocks, just as Germany had, despite the high rates for

money, and its abnormal scarcity consequent on its vast employment in

trade and speculative enterprises outside of Wall Street.

That the world’s increased gold product largely stimulated speculation

for a rise, both by adding to the amount of gold in circulation and the

amount of paper money issued by the banks against it, is certain. Its

effect has not been seen in lowering rates of interest, but in lowering

its own value, or purchasing power, by reason of its increased supply

or, in other words, by raising the prices of stocks, commodities, labor,

and whatever else money buys. So the increased supply of gold has only

quickened the uses for it by fostering speculation, and the demand for

speculation has outrun the increased supply of gold—that is, money—and

correspondingly raised interest rates, as well as prices. In 1905 our

national prosperity was crowned with abundant harvests, the corn crop

having been the largest on record, and that of wheat the second largest.

This gave a fresh impetus to trade and speculative enterprise, with

increased railway and industrial earnings, and production, especially in

iron and steel products, at a higher pitch than ever before. Dividends

and reserves also increased in proportion. Russia’s disastrous war was

waged without causing any national disturbance in Wall Street, and her

largely reduced crop of wheat helped us to secure better prices for our

own surplus wheat in Europe. So it is an ill wind that blows no one any

good.

In 1905, too, we witnessed the stormy upheaval in the Equitable Life

Assurance Society, begun by the acrimonious duel between President

Alexander and Vice President Hyde, which led to the general exposure of

the waste, extravagance, graft, and corruption in life-insurance

management, through the investigation of the New York Legislative

Committee. The loss of new insurance business, caused by the popular

distrust of the companies exposed, had its principal effect in Wall

Street in their reduced power to buy bonds; and the prolonged stagnation

in the bond market after they ceased to be large buyers was largely

attributable to this cause. But the exposure was much needed and did

great good in correcting abuses of power and turning the rascals out.

Our exports of domestic merchandise kept pace with our tremendous

industrial prosperity, and these more than doubled in the ten years

ending with June, 1906. Raw cotton, provisions, and iron and steel

manufactures were exported in the fiscal year 1906 to a value exceeding

$300,000,000, iron and steel showing the largest increase, and seventeen

articles, or classes of articles, had an export value of from ten to

forty-two millions. While iron and steel have taken third place, raw

cotton still holds the first, and provisions the second, and copper

manufactures have advanced from the eleventh to the fourth place. But

refined mineral oil, that was third, is now the eleventh, and flour has

dropped from fourth to seventh, although showing an increase of seven

millions, and wheat from seventh to thirteenth.

On the other hand, our exports of agricultural implements were five

times as great in 1906 as in 1896, which advanced them from the

twenty-third to the fourteenth place in the list. Our cotton

manufactures, too, advanced in value from twelfth to eighth, that is,

from $16,750,000 to $53,000,000. There is, however, still room for a

great increase in these, and the outlook favors a large and growing

demand for them in China, the Philippines, and South America. We have

become a great manufacturing and mining, as well as agricultural,

nation, and a lower tariff on raw materials would swell our exports

enormously. That will come in time; but at present politics stand in the

way.

In 1906 we saw a continuation of the same big bull speculation in stocks

that, with varying fortunes, had been progressing since June, 1904, with

Edward H. Harriman, president of the Union Pacific Railway system, and

James J. Hill, president of the Great Northern Railway system, the most

conspicuously dominant figures in the railway world, and, incidentally,

in the world of Wall Street. Prices on the Stock Exchange, and the rates

for money, both on call and time, were abnormally high, and still

tending upward, till both frequently exceeded six per cent. in August,

and, in some instances, jumped as high as thirty per cent. early in

September, the excess above six, in the case of time loans, being

represented by a commission. This, on the eve of the usual drain of

money westward and southward, to move the crop, caused much anxiety for

the future, as it was entirely without precedent in that month. But the

Secretary of the Treasury, through bank deposits and gold imports, was

relied upon to relieve the stringency when it became more acute later

on, under the actual drain of money West and South. He did so by

renewing his offer, made in April, to deposit gold with national banks

when secured by bonds, to the amount of any gold they wanted to import,

the deposits to be returned when the gold arrived. Thus they were saved

loss of interest in transit, and gold was imported largely.

The money market seemed to have no terrors for the great speculative

capitalists in control of the stock market. Prices were still bid up

boldly, and the Harriman and Hill stocks, in particular, were marked up

to figures never before quoted, just as Reading and the other anthracite

coal stocks had been long before and have been since.

The chief sensation of the year 1906 in the stock market was produced by

the Harriman announcement on Friday, August 17th, that the semi-annual

dividend on Union Pacific had been raised to five per cent., or from a

six-per-cent. per annum basis to ten per cent.; and that an initial

dividend of two and a half per cent., or at the rate of five per cent.

per annum, had been declared on Southern Pacific. These unexpectedly

large dividends and the delay in making them known, after they had been

acted upon by the directors on Wednesday, and finally on Thursday,

greatly excited and disturbed Wall Street. They were dividends that

staggered the bears and astonished the bulls, and caused an advance of

sixteen per cent. in Union Pacific and five per cent. in Southern

Pacific stock that day. They also made the whole market run into a wild

bull speculation, stimulated by a rush of “shorts” to cover their

contracts, and a sudden influx of fresh buyers from the outside public.

Reckless buying by these made it easy for the bull leaders to run prices

up sharply, especially as it was expected or feared by many that the

example set by Union Pacific in dividend raising would, or at least

might, be followed by certain other large companies, both railway and

industrial, whether the increase was justified by actual net earnings,

or only intended for stock-jobbing purposes.

The criticisms of President Harriman and his associates to which these

sensationally large and peculiarly announced dividends gave rise, were

too trenchant to bear quotation or description. But Mr. Harriman was

said to have added ten millions to his personal fortune by the rise in

Union Pacific and Southern Pacific stock, which preceded and followed

these very generous distributions to the stockholders.

The fact that Mr. Harriman, the son of a quiet country clergyman, should

have been able to come into Wall Street and climb the ladder to wealth

and power as he has done, and with such amazing celerity, shows the

unlimited possibilities of the Street as a gold mine, for the Union

Pacific Railway system, like the other great railway systems whose

stocks and bonds have always been dealt in here, was practically born

and financed in Wall Street. His rise to a position of such prominence

and vast power is far more wonderful even than the career of Russell

Sage as a Wall Street money maker; for Russell Sage never had any power

but his money, whereas Edward Henry Harriman represents and controls

thousands of millions’ worth of other people’s property, employing tens

of thousands of persons. He is a moving spirit in dozens of banks and

other corporations, including the Wells Fargo Express Company, outside

of the Union Pacific and Southern Pacific system of railways and

steamships. The great stock market struggle between Harriman and Hill

for the control of Northern Pacific in 1901 was a battle royal on a

grand yet disastrous scale, that will always be memorable in the history

of Wall Street.

When Russell Sage died in July, 1906, within a few days of his reaching

ninety years, leaving not far from a hundred millions of money, he left

a will which reflected his sagacity as a money saver, for he left all he

had, except a few unimportant bequests, to his wife. He did so, I infer,

instead of distributing his great wealth himself, because he knew that

the State inheritance tax would only be one per cent. on what he gave

her, while it would be five per cent. on what he left to such relatives

as he had surviving, as well as to all others.

It was, to a certain extent, “the ruling passion strong in death,” for,

of course, he knew that his wife had no use or desire for so much money.

Although his bequeathing it to her was a tribute to her goodness and a

symbol of their happy married life, she would probably have preferred to

shoulder a much lighter load of wealth. Its distribution will be no

ordinary task, although it will doubtless be a labor of love with Mrs.

Sage.

Russell Sage, in his manner of life, all now agree, set a good example

of frugality and industry in an extravagant and pleasure-loving age, and

hence he is held by many to have been a public benefactor. His unusually

economical and plain habits, together with his great wealth and great

age, naturally made him conspicuous and also a target for the wits, and

in this way he became better known through caricature than

matter-of-fact description. But that was one of the penalties of

publicity. He passed from poverty to great wealth entirely of his own

creation without being spoiled by it, and remained one of the plain,

unpretentious people till the end.

He owed all he had to Wall Street, and his career illustrated, more than

any other has ever done, how fertile a field for fortune making Wall

Street may prove to a sagacious man, of untiring industry, who knows how

to cultivate it, and can see and avail himself of its splendid

opportunities. His rise from extreme poverty to immense wealth, through

his own unaided exertions, shows how one man, single-handed, may do

wonders and turn all he touches to gold, and that, too, in Wall Street.

We are living in a stirring and rapidly progressive time, and the great

and growing importance of the New York Stock Exchange was reflected by

the rise in the price of a membership in it in 1906 to not very far from

a hundred thousand dollars.

The year 1906 was one of immense activity and prosperity in trade.

Prices were high and still advancing, and profits large, particularly

those of industrial corporations. At the same time a mammoth bull

movement was running its course on the Stock Exchange, and the grain

crop turned out larger than ever before in our history, while enormous

issues of new securities were announced by both railway and industrial

corporations. These new issues severely taxed the resources of the money

market, already being too heavily drawn upon by the “big men” of the

Street to promote their wild bull campaign in stocks, and spasms of

stringency were frequent. Indeed, the year 1906 from beginning to end

witnessed a continuation of those inordinately heavy demands for money

from Wall Street and corporations, and these led to the disturbed

monetary conditions which were first felt in September, 1905. It was an

eventful year, a year of immense activity on the Stock Exchange, in

which much that was unprecedented occurred. It was a year in which the

stock market, after touching high record prices and violent ups and

downs, went gradually, in an excited speculation, from bad to worse, in

a limited sense, or from one critical stage to another, till it reached

the year’s end. Then it averaged only nine per cent. below the highest

prices. But it became, in spite of the boldest bull manipulation,

gradually weaker and more demoralized. The bull movement at length met

its Waterloo in the spring of 1907, because the plunging millionaires

who had been bidding them up found no buyers for their stocks. So they

had to liquidate heavily, like the rest. It was another rich man’s

panic.

From a slow and irregular decline stocks good, bad, and indifferent

passed into the rapids of a bear market, with the bears, emboldened by

success, recklessly aggressive, and on March 14th prices broke from ten

to twenty-five per cent. under their fierce attacks, and relentless

hammering, supplemented by an avalanche of long stock forced for sale

under stop orders that had been reached, or through weakened and

exhausted margins, or by holders unwilling to take any further loss.

Yet enormous as was this paniclike fall in prices on that disastrous

day, many stocks went still lower in the breaks that followed the sharp

rally that succeeded it. So March, 1907, ended as it began, in gloom and

depression, which was followed by comparative dullness but little

recovery in April and May. In June, however, it became evident that

liquidation had exhausted itself, and all unfavorable factors had been

discounted by the decline. Hence, although the market was almost

entirely professional, with the outside public as apathetic as ever, it

began to develop an upward tendency, notwithstanding the sharp rise in

grain and cotton due to the extensive damage done by an unusually cold

spring, and the fact that we shipped $15,000,000 in gold to France in

June.

This vast and thorough liquidation had been mainly by the bull pools and

richest speculative capitalists in Wall Street, and involved tremendous

losses. These leaders of the bull movement had been caught overloaded

with stocks, carried over from the previous boom that they had

recklessly engineered. They were forced to sell because the banks were

either calling in their loans, which they were unable to replace, or

calling from time to time for more margin to offset the decline in

prices. Thus their cash resources were being constantly impaired.

Meanwhile, money loaned at abnormally high rates, and five times in the

spring, autumn, and winter of 1906 the New York banks showed a deficit

in their reserve. Money, therefore, was very hard to borrow, because

these giants of speculation had overtaxed the banks’ resources by

borrowing too much. Coincidently the outside public held aloof from the

stock market, owing to the great activity of trade and the wild

speculation in land, mines, building, and other new enterprises all over

the country.

This speculation from Maine to California absorbed an immense amount of

money, of which Wall Street saw nothing, and it left the large

speculative holders of stocks without any market for them, except among

the professional traders. No wonder they staggered, and finally, in the

spring of 1907, succumbed under the heavy loads they were carrying,

which they had mistakenly bid up to excessively high prices in a vain

attempt to bring in the public as buyers. Wall Street was then the only

blue spot on the map of the United States.

To relieve the pressure for money there, and so help to bull stocks, the

large interests in Wall Street, excepting J. P. Morgan & Co., imported

from Europe $40,000,000 of gold in the spring of 1906 and $45,000,000 in

the autumn.

This last great importation caused the Bank of England to raise its

minimum rate of discount from three to four, then to five, and then

again to six per cent., the highest since the Boer War. The rate, it was

intimated, would have been advanced to seven per cent. had we taken any

more of the yellow metal. The purchase of so much gold in England was

made possible only through the Secretary of the Treasury, Mr. Leslie M.

Shaw, practically advancing the means for importing it by lending gold

to the banks, secured by collaterals, the loaned gold to be returned

when the imported gold arrived.

The spring gold importations followed the great San Francisco earthquake

and fire, on April 18th, involving an estimated loss of $250,000,000.

Most of this, however, fell upon British, German, and other foreign

fire-insurance companies, which relieved this country financially to a

corresponding extent, although New York shipped more than $50,000,000 of

gold to San Francisco to fortify the banks in that city.

After the stock market had been sold to a standstill and its weak

timbers eliminated, by May, 1907, it was only natural, in view of its

previous drastic liquidation and heavy decline, that with good crop

weather following the backward spring, stocks should advance. The keel

of a future bull market of large dimensions had been laid by the

disastrous liquidation that had occurred, and we subsequently witnessed

its development on a rapidly ascending scale. It is a law of nature that

action follows reaction.

This reminds us that Wall Street easily passes from one extreme to

another, and that very often the dawn is nearest when the night is

darkest, in finance as well as nature. Moreover, Wall Street is always

with us, just as the poor are, and the stock market is a serial story

that never ends.

In July, the improvement in the stock market, and especially the

Harriman stocks, was very decided, with the indications favoring a wider

and more active speculation, for as yet it was almost entirely

professional. In this movement the Standard Oil and Harriman party were

the bull leaders, with Union Pacific the leading stock. Notwithstanding

their vigorous efforts, however, the outside public remained entirely

apathetic, and there was growing anxiety as to the future of the money

market. This was increased by our having, unexpectedly, to ship gold to

Europe, nearly all of it to the Bank of France, as well as by depressed

monetary conditions there, with much disturbance, under heavy

liquidations, in London and Berlin. Even British Consols declined from

week to week, till they touched 81, the lowest price recorded since

1848, the year of the Smith O’Brien rebellion in Ireland, when they sold

down to 80.

Then came an angry and threatening contest, and stormy litigation,

between the States of North Carolina and Alabama and the Southern

Railway Company, involving also other Southern States and railways. The

main conflict was between the States named and the United States Courts

on the 2¼ and 2½ cents a mile rate law. This went so far as to cause a

revocation of the license of the Southern Railway to operate its lines

in Alabama. The situation for a time was extremely critical, but a truce

was at length arrived at, the Southern Railway agreeing to obey the

State law, and leave the ultimate decision to the United States Supreme

Court.

While this disturbing controversy was at a white heat, the $29,240,000

fine inflicted by Judge Landis, of the United States District Court, at

Chicago, on the Standard Oil Company of Indiana, fell like a thunderbolt

upon not only Wall Street, but investors all over the country. This was

on Saturday, the 3d of August, and it looked so like confiscation, and

so alarmed the large speculative capitalists, who had been supporting

the stock market, that they at once withdrew their supporting orders

and, for self-protection, became heavy sellers themselves of the stocks

they held. They foresaw the effect of this disturbing decision, and the

course of the Southern States towards the railways, upon investors, in

causing liquidation. Simultaneously, a threatening report from the

Bureau of Corporations added fuel to the fire of distrust.

Day after day, for twelve business days, following the opening of the

stock market on Monday, the 5th, there was an almost uninterrupted and

very heavy decline in prices for both railway and industrial stocks, the

best and highest priced being the heaviest sufferers, and falling from

ten to twenty-five per cent. The scare among holders of stocks increased

as prices declined, and demoralization in the market carried these

generally below the lowest in the panic of March. It was very largely

another rich man’s panic, due to fears as to what might come next to

disturb confidence in the value and future dividends of both railway and

industrial stocks. The worst of it was, the innocent were, as usual,

made to suffer with the guilty. But after a storm there cometh a calm,

and so it was in this case, and perhaps all’s well that ends well. But

the ordeal was a very severe one, particularly for the large holders of

stocks, and made the year 1907 still more memorable than before.

Rumors of impending Wall Street and industrial corporation failures, as

usual in times of disturbance, filled the air, but only one important

industrial failure and one unimportant Wall Street suspension occurred

in August, and the gradual return of confidence caused a gradual

improvement on the Stock Exchange, although the semi-annual dividend on

Southern Railway preferred stock was reduced from 2½ to 1½ per cent.,

and the dividends on Erie’s first and second preferred stocks were

declared payable in four per cent. scrip warrants instead of cash.

Toward the end of the month the Secretary of the Treasury announced that

weekly deposits would be made in the national banks till October 15th,

and this at once began to ease the money market and further strengthen

confidence.

Early in September, however, there came a relapse in the stock market,

and another Stock Exchange failure. This recurrence of disturbance and

depression was partly due to stagnation, followed by demoralization in

the copper trade, both here and in Europe, which caused a reduction in

the price of copper by the selling agency of the Amalgamated Co. from 25

cents a pound to 18 cents, and not long afterwards to 15 cents.

Meanwhile the Calumet and Hecla, the Quincy, and other copper companies

had reduced their dividends, owing to the small demand for copper, and

Amalgamated copper stock declined rapidly to 57½, against 121 in

January. In Boston, also, the copper stocks broke in the same

demoralized way under heavy liquidation.

Railway shares sympathized with this extreme weakness of copper and the

copper stocks, but not as much as American Smelting, the U. S. Steels,

and other industrial stocks, and gradually the copper crisis ceased to

dominate them. At the same time the general market for both railroad

stocks and bonds was strengthened by the great success of the

$40,000,000 issue of 4½ per cent. bonds by the City of New York, the

loan being five times over-subscribed. This showed there was a large

amount of money in the country awaiting investment in good securities.

Yet, later, new low records were made for sundry railway and industrial

stocks, including Southern Railway common and preferred, and the stock

market, in its nervous and irregular fluctuations, told of the timidity

of the bulls and the boldness of the bears, consequent on shrinkage in

the iron trade, and uncertainty as to the business future.

------------------------------------------------------------------------

CHAPTER LXXI.

THE GREAT CRISIS OF 1907.

The worst forebodings of September were far more than realized in

October, when the monetary disturbance, and distrust of credits, spread

from the Stock Exchange and Wall Street to the banking interests, and

involved the whole country in a panic that will always make the year

1907 memorable in our history.

Until the collapse in the “Curb” market of the stock of the United

Copper Co., followed, on the 17th of October, by the failure of the two

Stock Exchange firms that had been manipulating this Heinze specialty

for Heinze interests, the panicky conditions of the year had been

practically confined to the stock market and the interests directly

affected by it. But that collapse, involving those Heinze failures, fell

like a bombshell not only on the stock market, but on the banks of which

F. A. Heinze, the president of the United Copper Co., had, not long

before, purchased control. The fact that two of his brothers were

members of one of the failed firms—Otto Heinze & Co.—caused heavy

withdrawals of deposits from these banks, and particularly the

Mercantile National Bank, of which he had become the president.

The New York Clearing House Committee took alarm the same day and

examined the Mercantile. The result was that it demanded the resignation

of all its officers and directors that night, as a condition preparatory

to giving it any assistance. They complied, President Heinze among them,

and the bank was assisted to pay its clearing-house balances for several

days. But these were so large that further assistance was then refused.

Thereupon one of its old directors succeeded in bringing in new capital

and new directors on the day following, Sunday, so that the bank was

enabled to continue business without a break.

But meanwhile the contagion of distrust was spreading, and there was a

run on the deposits of not only the Heinze but the Thomas and the Morse

banks, the Thomases and the Heinzes having been equally prominent with

Morse in buying control of banks for speculative purposes. The Clearing

House Committee took them all in hand, and demanded the resignations of

their officers and directors. In this way they stamped these bank

promoters out of the banks they had managed to get control of. Then the

banks were assisted.

Suspicion soon fell upon certain trust companies with speculative

affiliations, more or less connected with the same promoters. Suddenly a

heavy and spectacular run upon the Knickerbocker Trust Company, the

second largest in New York, with more than sixty millions of deposits,

caused it to close its doors on the first day of the run. This was on

Tuesday, the 22d of October. The immediate cause of the run was the

resignation, on the previous day, of Charles T. Barney, its president,

coupled with the notification to the banks of the National Bank of

Commerce, on the same day, that it would not clear for the Knickerbocker

Trust Co. after the following day. So, this being published in the

newspapers, the depositors rushed to withdraw their deposits.

The Clearing House and Mr. J. P. Morgan, when appealed to, refused to

assist the Knickerbocker on the ground that they found it was not

solvent. The collapse of the Knickerbocker was immediately followed by

extensive runs on small banks and trust companies in New York and

Brooklyn, as well as on the savings banks, and about a dozen of the

former, including seven in Brooklyn, closed their doors. But the savings

banks took advantage of the sixty and ninety days’ time allowed them by

law for the payment of deposits after notice.

Following these minor banking suspensions there were long-continued runs

on the Trust Company of America and its Colonial Branch, and the Lincoln

Trust Company, with all-night lines of waiting depositors. But, finally,

after a hard struggle, these were examined by Morgan committee experts

and found solvent, whereupon, in the banking conferences held for a

number of days and nights at the residence of Mr. J. P. Morgan, it was

agreed to provide them with all the money necessary to meet the run. To

Mr. Morgan great credit is due for the arduous work he undertook to

better the banking situation in this critical period of storm and

stress.

New low records for stocks were made meanwhile under very heavy

liquidation, Union Pacific touching 100, and Amalgamated Copper 41¾, on

the 24th of October, and all others sinking to lower depths in about the

same proportion, while the abnormal scarcity and high rates for money

caused trading on margins to be generally suspended by brokers.

Transactions were, of course, largely curtailed by being placed on a

cash basis, but the buying of odd lots for investment was very heavy all

through the crisis. The decline in Amalgamated was accelerated by copper

selling down to 12 cents a pound. But much of the liquidation in the

stock market was caused by the banks and trust companies calling in

their loans on stock collaterals, and thus forcing the borrowers to

sell.

The hoarding of money, and the withdrawal of deposits from the banks and

trust companies, became so extensive that these institutions had little

or none to lend, and for several days call loans were made on the New

York Stock Exchange at rates ranging from 50 to 100 per cent per annum,

and in exceptional instances as high as 125.

[Illustration:

_E. H. Harriman._

_1906_

]

The United States Treasury came to the relief of the money market by

making—under the personal direction of Secretary Cortelyou—unusually

heavy deposits in the National banks of the City of New York, as well as

in other cities which were drawing heavily on their New York balances.

But still the banks and trust companies continued to lose their ordinary

deposits rapidly, and the money thus withdrawn by the timid and

distrustful was taken out of circulation by being placed in safe-deposit

boxes, tin boxes, wallets, and other receptacles. This hoarding was

foolish, as well as harmful and un-American.

New York had to deal with a banking crisis. So, on Saturday, the 26th of

October, the members of the New York Clearing House met, and resolved to

issue, on and after that date, Clearing House certificates—bearing six

per cent interest—to be used by the banks of the Association in paying

their daily balances at the Clearing House, instead of currency. These

the Clearing House at once began to issue, when called for by any bank,

to the amount of 75 per cent of the value of any acceptable assets it

might deposit with the Clearing House. This gave immediate relief to the

banks, and especially those whose reserves of currency were most largely

depleted, for they immediately availed themselves of their issue.

At the same time they saw that, in addition to the government deposits,

large importations of gold were necessary to replace, at least in part,

the hoarded money, and aid in restoring confidence. The Clearing House

certificates, by releasing much of their gold and legal tender notes,

enabled them, through “cable transfers,” to purchase gold in England for

shipment to New York, and by the end of the first week in November

$50,000,000 had been purchased by banks and bankers for shipment to the

United States, and nearly half that amount had already reached New York.

But some of the importing banks were in other cities, including Chicago,

Philadelphia, Boston, Pittsburg, and San Francisco.

These heavy importations, however, disturbed the London money market,

and on Thursday, the 31st of October, the Bank of England raised its

minimum rate of discount from 4½ to 5½ per cent, to check the outflow of

gold. This not proving sufficient, it raised it to 6 per cent on the

Monday following, and to 7 per cent on Thursday, the 7th of November, a

higher rate than had been reached since 1873, the year of the great

panic in this country and in Germany, when the Bank of England rate was

advanced to 9 per cent. But once, in 1866, it went up to 10 per cent.

The Bank of France also, on the 7th of November, 1907, raised its rate

from 3½ to 4 per cent, owing to the drain of gold to this country; and

such an advance is very rare in France. For seven years, up to the

spring of 1907, it had stood at 3 per cent. The Bank of Germany also

advanced its rate to 7½, and the Bank of Belgium to 6 per cent. These

rates showed how severely the loss of this gold was felt in Europe. By

November 16 our gold purchases aggregated $70,000,000.

In the interval the clearing houses in all the large cities of the

United States had, in self defence, followed the example of New York in

issuing clearing house certificates. Currency, too, had been selling at

a premium ranging from 2½ to 5 per cent for certified checks, owing to

its great scarcity. At Pittsburg the Stock Exchange was closed

immediately after the announcement of the failure of the three

Westinghouse companies there. Other failures were very numerous.

In Pittsburg, Chicago, New Orleans, and many other cities, the local

clearing houses printed clearing house checks of small denominations,

from 25 cents or one dollar up, to be taken out and paid out by the

banks instead of currency, when found necessary. Several of the Western

Boards of Trade closed, owing to the demoralization in the grain market,

caused by the heavy decline in prices under the rush to sell in order to

raise money, while many banks all over the country issued their own

cashiers’ checks for both small and large amounts, instead of currency

or clearing house certificates, in payment of depositors’ checks. The

banks were in a partial state of suspension from Maine to California.

The extent of the drain on bank reserves may be inferred from the fact

that the statement of totals for all the New York associated banks for

the week ending on Saturday, November 2, showed that they were

collectively $38,838,825 below the dead-line of 25 per cent reserve on

their deposits, without counting Government deposits, which had been

very large. The detailed statement of each bank’s condition was not

published on that date, and continued to be withheld till after the

crisis had passed into history.

This large deficit of the New York banks caused much uneasiness and a

further sharp decline in the stock market, but the frequent day and

night conferences of leading bank officers with Secretary Cortelyou and

Mr. J. P. Morgan, to devise ways and means of relieving the extreme

stringency and distrust of the monetary situation, were productive of

much good. This was especially the case in bringing the trust companies

together to act as a unit through a committee, of which Edward King,

President of the Union Trust Co., was made chairman. This committee was

organized in the office of J. P. Morgan & Co., which, indeed, was the

headquarters for all banking relief outside of the Clearing House.

Unfortunately for Europe, our purchases there of so many millions of

dollars’ worth of gold, within three weeks, seriously unsettled the

London, Paris, and Berlin stock exchanges, and a continuous decline in

stock and bond prices attended its export to this country. But,

notwithstanding the relief we obtained from this great source, the banks

here still continued under a heavy strain. An indication of this was

found in the statement of the New York Clearing House, giving the totals

for the week ending on Saturday, the 9th of November, the third week of

the acute stage of the crisis.

It showed that the deficit of the associated New York City banks, in

their legal reserve, had increased $13,085,800 over that of the week

before, making their total deficit $51,921,625. But as the Clearing

House statements are made up on averages for each week, and not on the

actual condition of the banks at the end of the week, the gold imported

was only credited from the dates on which it was received by the banks.

Moreover, this statement was made on rising averages, that of the week

before on falling averages.

A conspicuously important feature of the arrangements made at the Morgan

conferences for supplying the needs and taking care of the Trust Company

of America was the sale, at par—$100 a share—of the majority of the

stock of the Tennessee Coal, Iron and R.R. Co.—which had been largely

hypothecated with it—to the United States Steel Corporation, payment for

the stock to be made in its 5 per cent sinking fund bonds at 84. This

exchange of Tennessee stock for the Steel bonds was promptly made

through J. P. Morgan & Co., on and after November 7, thus adding another

large property to the many other subsidiary properties of the U. S.

Steel Corporation.

This transfer was one of the most notable events of the memorable panic

year—1907—the wreckage of which it will take a long time to clear away.

But meanwhile the country will have started on a new career of

prosperity, and with eighty-four millions of people to develop its

boundless resources, we need have no fear but that its recovery will be

rapid, and its future as great and grand as we could desire. Moreover,

it will be all the better and stronger, and all the higher in its

business standards, for the severe yet purifying ordeal through which it

has passed.

------------------------------------------------------------------------

CHAPTER LXXII.

THE CAUSES OF THE CRISIS OF 1907.[2]

Footnote 2:

An address by Henry Clews, LL.D., delivered at Cooper Institute, New

York City, February, 1908.

The wiseacres in Wall Street and elsewhere had to take many sledgehammer

blows in this panic year. They had become like Tom Toddy—too big-headed

for their bodies. When a man knows it all, then his danger commences. My

advice is, never follow such a leader, but wait patiently and the time

will come when you can safely copper him.

In September, 1906, when stock and bond prices were advanced abnormally

to a 3½ to 4 per cent basis, while six months’ money was loaning at 6

per cent, it was evident that one or the other was too high; and

considering the growing demand for the use of money it was quite

apparent it was not money that was too dear, but securities. At that

time I persistently advised everyone to get out of stocks and out of

debt, and keep out for a prolonged period, only making quick turns

meanwhile.

Since then security values have gone down prodigiously—$3,500,000,000

will scarcely cover the depreciation of those dealt in on the New York

Stock Exchange alone; so those who took my advice and got out at top

prices can well afford now to buy back their stocks, if dividends are

not reduced. No one can foresee changes in these. But everything that is

good is fairly cheap and below intrinsic value, based upon present

returns. Our financial situation is vastly different to any previous one

after great panics, of which there have been many, since the one of 1857

brought on by the failure of the Ohio Life & Trust Co., at the time of

my advent in Wall Street: so I have been in all these panics.

The conditions now differ from those of all the other great financial

storms because the wealth of the nation has become so vast as to make it

the richest in actual wealth and productiveness, per capita, of all

nations. As a matter of fact, our wealth-making developments have been

so excessive as to have forged ahead of our banking facilities. This has

had much to do with our recent setback. Wise and sagacious capitalists

saw the handwriting on the wall in Wall Street and elsewhere, and those

who did unloaded their securities last year, dumping their stocks at

top-notch prices, amounting to at least $800,000,000, upon weaker-backed

people.

This unloading, together with the San Francisco earthquake disaster,

wiped out, in prices, $350,000,000 of property, and struck the

staggering blows which did more than anything else to pave the way to

the recent panic conditions. The selling out by big holders was followed

by all the large railroad systems in the country selling bonds, stocks

and notes. These, being offered to stockholders of record at apparently

tempting prices, were floated. This great mass of new securities coming

on the market was an indigestible one and absorbed the capital of a very

large number of the rich men of the country and put it in a fixed form:

and most of these heretofore very rich men have ever since been in the

position of a man who, having had a “Sherry dinner,” is urged to accept

the hospitality of a friend to take a “Delmonico dinner.”

What produced the panic was a number of adverse factors happening one

after another in rapid succession. The first was the unloading by

sagacious holders of securities at high prices; the second was the

immense creation and selling of new securities by the railroads for

improvements; the third, the revelation of scandals started by Mr.

Hughes, the investigator of the life insurance companies. We all know

what happened in that connection. Then came the Interstate Commerce

examination of Mr. Harriman as a witness and his revelations under oath;

then the $29,400,000 fine by Judge Landis on the Standard Oil Co. of

Indiana, and finally, the insistence by Governor Hughes, against

overwhelming opposition, of the passage of the Utilities Bill, under

which the investigation of the Metropolitan Surface Railroad was started

and which unearthed what really caused the shares of that great company

to fall from their high price of $127 per share to $20 a share—about the

present price. This was the straw that broke the camel’s back and caused

an entire breakdown of confidence; which is usually the major part of

the foundation of credit. The undermining of this caused the closing of

the doors of the Knickerbocker Trust Co. Then a state of chaos ensued

and bedlam broke loose, and almost everybody in Wall Street stood aghast

wondering what would happen next.

As I have faithfully presented my side of the case to you, in a crude

way, I ask you, as though you were impaneled on a jury, the question:

Why should all the blame of producing the recent panic be laid to

President Roosevelt? The real causes of all the trouble can be summed up

as follows: (1) The high finance manipulation in advancing stocks to a

3½ to 4 per cent basis, while money was loaning at 6 per cent and above,

on six and twelve months’ time on the best of collaterals; (2) capital

all over the nation having gone largely into real estate and other fixed

forms, thereby losing its liquid quality; (3) the making of injudicious

loans by the Knickerbocker Trust Co., hence suspension; (4) the

unloading by certain big operators of $800,000,000 of securities,

following which were the immense sales of new securities by the

railroads; (5) the California earthquake, with losses amounting to

$350,000,000; (6) the investigation of the life insurance companies; (7)

the Metropolitan Street Railroad investigation; (8) the absurd fine by

Judge Landis of $29,400,000 against a corporation with a capital of

$1,000,000; (9) the Interstate Commerce Commission’s examination into

the Chicago & Alton deal and the results thereof.

These were substantially the causes which led up to and really brought

about our present disastrous condition. Did President Roosevelt do any

of these things? Not one of them. But Governor Hughes was the brilliant

investigator of the life insurance companies, and also unearthed the

Metropolitan Railroad scandal through being the author of the Public

Utilities law. Yet Mr. Roosevelt is condemned by many, while Mr. Hughes

is praised by the people all over the country. I ask on this showing if

there is any justice in putting the entire blame for the present

disturbed state of financial affairs upon President Roosevelt’s

shoulders, without including Governor Hughes, as both have been equally

engaged in the same reform movement.

I am not willing to affirm that either is to blame, for both have simply

done their duly in enforcing the laws, and exposing wrongdoing. How in

my opinion the market will turn permanently when the big men of Wall

Street commence to take back what they sold, which they can already do

at a difference in prices of from 30 to 50 per cent. With the

$70,000,000 of imported gold here and on the way from Europe, together

with an increase in bank notes, there will soon be no lack of money in

this country. What is now wanted is more confidence to increase credits.

To import more gold will embarrass London and other foreign money

centers. This should be avoided by stopping further gold imports. Cheap

money alone will not of course put up stocks. The governing factors will

be the state of trade, and net earnings, and the “big men” will be

governed by these.

------------------------------------------------------------------------

CHAPTER LXXIII.

RECENT MEN OF MARK.

CHARLES M. SCHWAB.

Born in Pennsylvania, May 30, 1851; rose, from the bottom, to be

President of the Carnegie Steel Company, then, on its incorporation,

became President of the United States Steel Corporation, but resigned,

and later became President of the Bethlehem Steel Company; has large

mining interests, especially in Nevada; he travels much, but resides on

Riverside Drive, New York, in one of the largest houses in the city,

built as an exact copy of a historical French château near Paris.

DANIEL GRAY REID.

Born in Richmond, Ind., August 1, 1858; became Vice-President of Second

National Bank there; then went into the tin plate industry, and in 1895

became one of the organizers of the American Tin Plate Company,

afterwards merged in the United States Steel Corporation; removed to

Chicago in 1897, and to New York in 1899, and was one of the Executive

Committee of the United States Steel Corporation when organized in 1901;

also became a director and leading spirit in the Rock Island Railway

Company in association with the two Moore brothers, William H. and James

Hobart, the Chicago reorganization lawyers. All three are now residents

of New York.

THOMAS FORTUNE RYAN.

Born in Virginia, October 17, 1851; came to Wall Street in 1870 from

Baltimore and the drygoods trade; became prominent in the consolidation

and extension of metropolitan street railroads, and also gas and

electric light systems here and in Chicago, and in the American Tobacco

Company, and later bought control of the stock of the Equitable and the

Washington Life Insurance companies; has been director of many other

corporations, and is also Vice-President of the Morton Trust Company.

JOHN WARNE GATES.

Born at West Chicago, Ill., 1855; kept a hardware store there; then

became salesman in Texas for barbed wire; later established the Southern

Wire Company in St. Louis and Braddock Wire Company near Pittsburg;

after absorbing two other companies, sold out to Federal Steel Company,

which was then absorbed by United States Steel Corporation. He thus

acquired great wealth, and became a large operator in Wall Street, and

organized the firm of C. G. Gates & Co., now dissolved. After buying

control in the open market of the Louisville & Nashville Railway, he

sold it to J. P. Morgan & Co.

AUGUST BELMONT.

Born February 18, 1853; son of the late August Belmont, and head of

August Belmont & Co., bankers, and New York representatives of the

Rothschilds; is President of the Interborough Rapid Transit Company and

other corporations; also of the Coney Island Jockey Club and other turf

organizations, and keeps up a large racing stable, is also a director in

a number of banks and railways and other companies, and politically,

like his father, a leading Democrat; is a member of many clubs and

associations; graduated at Harvard in 1875, and has a New York residence

at 44 East 34th Street, but lives much of the year at his country home

at Hempstead, Long Island. He is well known, too, as the financial

director of the Belmont Tunnel, across the East River, between New York

and Long Island City.

WILLIAM H. MOORE.

Born in Utica, N. Y., October 25, 1848; located in Chicago with his

younger brother, James Hobart Moore, in 1873, and both were admitted to

the Illinois bar, and practiced as W. H. & J. H. Moore, making a

specialty of reorganizing corporations; reorganized the Carnegie Steel

Company, and formed the four corporations in “the Moore group” that were

absorbed by the United States Steel Corporation; later controlled the

Rock Island and other railway and industrial corporations, partly in

conjunction with Daniel Gray Reid.

ANTHONY NICHOLAS BRADY.

Born at Lille, France, August 22, 1843; came to the United States with

his parents when a child; opened a tea store in Albany in 1864, and

afterwards other tea stores there and in Troy; became a promoter and

director of gas and electric light corporations in Albany, Troy,

Chicago, New York, and other cities, and, later, of street railway

companies in Brooklyn and elsewhere; acquired a controlling interest in

the People’s Gas Company of Chicago and a very large one in the Brooklyn

Rapid Transit Company, into which he merged his Brooklyn companies; is

also a large stockholder in the American Tobacco Company and many other

industrial companies; resides at 411 State Street, Albany, but his

office is at 54 Wall Street.

STUYVESANT FISH.

Son of the late Hon. Hamilton Fish, Governor of the State of New York

and Secretary of State in General Grant’s Cabinet. Born June 24, 1851,

at New York, N. Y. Educated at Columbia College, New York, graduated

1871. Entered railway service October 1, 1871, after which he, up to

June 20, 1872, became clerk in the Illinois Central Railroad, New York

office; June 20 to October, 1872, secretary to president of same

company; November 1, 1872 to December 31, 1874, clerk with Morton, Bliss

& Co. at New York, and Morton, Rose & Co. at London; January 1, 1875 to

March 15, 1877, managing clerk Morton, Bliss & Co., holding their power

of attorney; December 14, 1876 to March 6, 1879, member New York Stock

Exchange; March 16, 1876, elected Director Illinois Central Railroad,

and appointed treasurer and agent for purchasing committee New Orleans,

Jackson & Great Northern Railroad; November 8, 1877, elected secretary

Chicago, St. Louis & New. Orleans Railroad; and March, 1882,

vice-president Chicago, St. Louis & New Orleans Railroad; January 7,

1883 to April 2, 1884, second vice-president Illinois Central Railroad;

April 2, 1884 to May 14, 1887, vice-president; May 18, 1887 to November

7, 1906, president same road; President American Railway Association

April 27, 1904 to April 25, 1906; Chairman Seventh Session International

Railway Congress, Washington, D. C., May, 1905. Elected Director of the

National Park Bank, March, 1883, and so remains; elected a Trustee of

the Mutual Life Insurance Company of New York in the year 1888 and

continued as such until February 23, 1906, when he resigned. What Mr.

Fish did for the Illinois Central Railroad Company while its President,

is shown in the following extract from the London _Statist_, and also in

the Annual Reports of the Directors of the Company, which make a

marvellous exhibit of Mr. Fish’s able and sagacious management during

his long régime:

The Illinois Central is the most important of the systems running north

and south between Chicago and the Gulf of Mexico. At one time its

prosperity chiefly depended upon the cotton crop; but although this crop

still gives it a large traffic, its prosperity has been built up by the

acquisition of a large share of the grain and maize traffic. In the old

days corn, or maize, was sent through the Western States for shipment

_via_ Boston, New York, and Baltimore, but the Illinois Central has now

succeeded in diverting a vast portion of it to New Orleans. It now

derives its revenue from carrying a large traffic at low rates in

competition both with the Eastern lines and with the water transit of

the Mississippi; In recent years the Company has built extensions which

now enable it to participate in the coal and iron ore traffic required

by or originating in the Birmingham iron district. The Illinois Central

has always enjoyed good management. In its early days, when the accepted

principle of railway working was to charge high rates and to carry very

little traffic, its policy conformed to that of other well-managed

undertakings. For the past twenty years its policy has changed; it has

sought to render to the public the maximum of service for the lowest

possible rate. The success of this policy has exceeded all expectations.

In the twelve months to June 30th last the Company carried traffic at a

lower rate than ever before, and yet obtained a record profit, both

actually and relatively to its capital expenditure. This success has

resulted from good management, economy of operation, and economy of

capital expenditure.

GOVERNOR HUGHES AND WALL STREET.

In respect to the present agitation at Albany, as recommended by

Governor Hughes, to investigate Wall Street methods, I do not hesitate

to say that as the head of the firm of Henry Clews & Co. I am perfectly

willing at any time to allow a representative, appointed by either the

Federal or State authorities, to examine the books of my firm, as the

result of such an examination can reflect nothing but credit on our

business methods. I should, however, object and refuse to show, in any

instance, the names of our customers, as our relations with them are

confidential and will not be betrayed. Ever since our firm was

established we have made a practice of issuing notices of purchases or

sales to clients, giving in each case the name of the broker from whom

bought, or to whom sold. This is now, I believe, the custom in other

offices, and is a guarantee that brokers execute the orders on the floor

of the New York Stock Exchange.

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CHAPTER LXXIV.

NEEDED PUBLICITY AND REFORM IN CORPORATIONS.

Years ago I saw the inevitable end of the methods of some of the

unscrupulous managers and manipulators of corporations, and began to

agitate the employment of certified public accountants to examine into,

and report to the stockholders, the true condition of the companies

involved. Had my suggestions been adopted there would have been little

cause for the recent investigation by the government officials, as the

reform now sought would have been accomplished long before the present

stringency of money became a disturbing element all over the world, and

would not have led to the semi-panicky conditions which prevailed so

disastrously in 1907. An address on “Publicity and Reform,” which I

delivered before the Wharton School of Finance, University of

Pennsylvania, in April, 1906, includes my urgent adoption of the policy

I have referred to, and reads as follows:

We live in a progressive age, and we are at present passing through a

period of salutary business reform. This reform means improvement, and

business men of all kinds should help and not retard it. The banking,

railway, and insurance communities should, in particular, do all they

can to promote it and invite the fullest publicity as to their

transactions and methods of doing business. In this connection the

opposition developed in the New York Legislature to the investigation of

the banks was a mistake of judgment, because it was calculated to excite

distrust, whereas willingness to submit to thorough investigation would

allay it.

This opposition drew more public attention to the agitation for a

general bank department examination than would otherwise have been

attracted to it, and the unwillingness to submit to it suggested that

there was a screw loose, or something to conceal in connection with some

of the State banks; and that they were therefore vulnerable to attack,

or at least open to criticism. This suspicion those concerned should

have avoided by not only boldly facing the legislative music, but

inviting it and leaving everything open and above board. Corporations

and banking and mercantile firms that become at all objects of suspicion

should, in their own interests, speedily clear themselves, by inviting

the fullest examination and publicity. Unsoundness and irregularity, if

such existed, would thus be exposed and weeded out, instead of being

nursed in secret, and so doing harm and impairing confidence in

corporations and firms perfectly sound and regular in their methods and

practices. The sound concerns would stand better than ever after passing

through this ordeal of publicity. The New York Legislature, as well as

the Legislatures of the other States, should respond to the popular

agitation for publicity by passing laws requiring all corporations,

including banks and trust companies, to make at least semi-annual

reports of their condition, certified to by registered public

accountants, with power invested in the State Superintendents to order

special examinations by such accountants, at any time, when deemed

necessary; that is, whenever they were suspected of being unsound or

irregular in their business methods. This should be done for the

protection of others as well as to clear them of suspicion and restore

their credit, if found to be sound and straight. Only the insolvent and

the crooked would have anything to fear from this wholesome publicity.

In this way disaster might be averted and impaired confidence promptly

restored. I lay stress upon the employment of skilled accountants

because the certified results of their examinations would be accepted as

conclusive of the actual conditions being as they stated or described.

They would speak with authority. It should be made a felony for an

accountant to make a false or misleading report, and he should ever

after be disqualified from practising.

To meet the growing demand for them, every college and university should

have a department for the special training of accountants, who on

graduating should receive a diploma or degree, as in the medical or

legal profession. Already the position held by certified accountants is

high, but it should be raised still more by the action of the

universities and colleges. Some of these have established departments

for accountants, where the students undergo thorough training by men who

have had practical experience in the profession, but all institutions of

learning ought to have them and maintain them in a high state of

efficiency in view of their importance to the business community. The

opposition to publicity shown by the New York State banking interest, as

represented in the Legislature, where it has choked off probing, has

thereby aroused fresh suspicions and much adverse criticism. It is not

surprising that many are led to suspect that there is much concealed

that ought to be revealed.

The strong desire for secrecy in the management of corporations,

especially with life insurance companies, is obviously in defiance of

public sentiment, and the Legislature should now make the house-cleaning

thorough while it is about it. If it does less it will fail in its duty.

It is indeed very surprising, under the circumstances, that the officers

and trustees of the great life insurance companies should have supposed

that anything short of complete cleansing and purification would satisfy

their policyholders and the public.

The bankers of the country are, more or less, intimately concerned in

seeing this Augean insurance stable thoroughly cleaned out, for, unless

it is, distrust will linger, and the life insurance taint will, more or

less, continue to extend to the banks, bankers, bond dealers, and trust

companies, with which the life insurance companies necessarily have to

do business.

For the banking interests to virtually ignore the past, and say to the

life insurance companies, “Go, and sin no more,” would be

pusillanimously evading the requirements of the situation. The cloud

that drifted over Wall Street from the insurance investigation must be

entirely dispersed by the fullest investigation and publicity and the

establishment of a new regime in insurance management and its banking

methods and affiliations.

It is the duty of life insurance trustees to co-operate to this end, and

for them to refuse to do so is to imply consciousness of their own

inability to stand the searching ordeal. If such there be, owing to

their purchases or sales of securities, in connection with their

respective companies, or any other doings that cannot bear the light or

are open to criticism, they should be ventilated and exposed without

fear or favor.

The efforts to smother further life insurance investigation, which had

their counterpart in the opposition to the proposed banking department

investigation, should be frowned down by public opinion, both in the

interests of morality and good business practices. The banks and the

banker should, like Caesar’s wife, be above suspicion, and not less so

the life insurance manager and trustee.

Turning to the railways, we find the need of stricter laws in matters

that favor a few at the expense of the many, as, for instance, in the

giving of rebates. To prevent these, not a mere fine, which can be

easily paid, should be imposed, but the offence should be made a

misdemeanor, punishable with imprisonment. Railway officials would then,

with the danger of an indictment and a term in prison before them,

hesitate to violate the law. For their own reputation, as well as for

the sake of their families, they would be likely to avoid that secret

and unlawful rate-cutting, disguised by the payment of rebates, which

has done so much in the past to foster unholy monopolies and crush

competition to the ruin of thousands.

In the lime-light of publicity the irregular rebate practices of the

railways, for the benefit of large and favored shippers, would be

impossible; and equally so would have been the go-as-you-please and

extravagant management of the life insurance companies as revealed by

the insurance investigation. Under the new order of things, regulated by

stricter laws, it should be made impossible for these irregularities

ever to occur. The death-knell should also be sounded by these stricter

laws and reforms of much of the “graft” that has been epidemic in

political and business life. Publicity of accounts would be a protection

to all solvent concerns and expose and eliminate the unsound and the

fraudulent that would otherwise be a menace to them, and it should be

welcomed by all who have nothing to fear from such publicity.

We are passing through a reform—yea, a revolutionary period in business

affairs. But good will come out of it, for with our improved business

methods will come a higher sense of responsibility and a keener

perception of duty, which cannot fail to inspire correspondingly greater

confidence and produce more certain results. We shall thus have more

conservatism in business and fewer speculative hazards and crookedness

than before.

Therefore, let the march of reform be unimpeded, for it will lead us to

a higher financial and commercial eminence than even that on which we

already stand, and hasten the time when this country will be the world’s

greatest financial and commercial centre.

It would seem that many need more conservatism and prudence in their

business ventures, and they would be the better for having the

lime-light of publicity thrown on them. When the sky-rockets of the

business world fall they are not the only sufferers, for they injure

others who are perfectly sound and conservative by creating distrust of

all.

The accounting and publicity I advocate would expose, check, and prevent

the irregularities and the one-man power abuses that have ended in so

many collapses. The one-man control of large corporations must come to

an end. An ounce of prevention is better than a pound of cure.

Corporations, too, should show that they have souls by not neglecting

the welfare of their employes. They should promote their health by

giving them healthy surroundings where they work, and also by making

graduated provision for old age service, or pensions in case of

disability, after long service. This, or giving them a share in the

profits of the business, would do much to narrow the gulf between labor

and capital.

The one-man power in large corporations, with a lot of dummy directors

subservient to it, should also come to an end. Dummy directors are no

better than so many decoy ducks that mislead the public. They are

directors who do not direct, and are not expected to direct by those in

control who selected them for election. They are consequently a false

pretence. No man ought to accept a place as director or trustee of an

institution, or corporation, particularly in a banking, railway,

industrial or life insurance company, who does not fully appreciate the

responsibility of the position and the care and vigilance it demands,

and intend to faithfully and conscientiously perform its duties. To

intentionally become a dummy director is reprehensible, and directors in

dealing with the officers of their corporations should have opinions of

their own and not be afraid to express them. They are not alone

responsible for their own errors or wrongful acts, but for failure to

expose and put a stop to the wrongdoing of the officers or employees

under their control, and they should not assume such duties when they

cannot properly attend to them.

I once knew a man of very great business renown, who during the last

thirty years of his life was much sought after because he possessed the

qualifications necessary to make him a most satisfactory dummy or dumb

director. Hence he was connected with a very large number of companies.

He was a man of wealth, retired from business, and had great capacity,

but it was of the avoirdupois kind. His chief qualification consisted in

his always attending punctually all the meetings. He came early and

stayed till the end. He watched closely to determine which way the

majority vote was going and always went with it. He was never known to

open his mouth, except when the luncheon was served after the directors’

meeting had adjourned. He was much lamented by corporation managers when

he died. He was their favorite director, on the ground, as claimed, he

gave no trouble and was perfectly satisfied with the result of every

meeting. When he was handed his five-dollar gold piece for attendance it

caused him to go home rejoicing. I cite him as a specimen brick among

dumb and dummy directors.

Directors should make it their business to learn all that is going on in

the corporations and institutions that they direct, so that they may

qualify themselves to act intelligently, instead of in a blindfolded

way, as is too commonly the case. They should assert their rights, and

direct in fact as well as in name, but of course necessarily leaving all

the details to the officers. They, too, should avoid grinding axes of

their own at the expense of their companies, and co-operate with both

State and Federal officials in the strict observance and enforcement of

the laws, and never connive or wink at their evasion.

All these influences for the better would promote public confidence in

our ways of doing business, and indirectly also contribute to the

stability of our monetary position. What we greatly need is a more

stable money market in Wall Street. Such erratic changes in the rates

for Stock Exchange loans that we sometimes see would create a convulsion

in Europe if they were possible there. But as they are not possible

there, why should they be here? We are destined to ultimately become the

monetary centre of the world, but that cannot be till we acquire the

stability of the Old World in interest rates.

A freak money market, jumping up to absurdly high rates and then down

again, is as dangerous as it is intolerable. It is inimical to the

proper transaction of legitimate business, and a disturbing factor that

should be made as impossible in New York as it is in London, Paris, or

Berlin. What we need, among other things, to prevent it is more care and

conservatism in banking circles. In the European money centres the rates

for money rise and fall in response to supply and demand, just as they

do here, but within narrow limits beyond which they never pass. There is

no good reason why it should not be so with us.

It is to be hoped that the eminently well qualified members of the

committee appointed by the New York Chamber of Commerce—consisting of

Messrs. Vanderlip, Conant, Straus, Claflin, and Clarke—will reach a

solution of the problem of the money market and define how far its

vagaries and irregularities are owing to a want of sufficient currency,

capital, or credit, or sudden and excessive demands for loans,

consequent on excessive activity in speculation, or unwillingness to

lend in times of distrust and panic.

In European countries monetary stability can always be relied upon; and

that element of stability, which our money market now lacks, must exist

here before we can command the confidence of the world as the world’s

financial centre. But we are now rapidly taking steps in the right

direction, and the reform movement in business and legislation can come

none too soon for our national welfare. Let the good work of reform go

on and prosper, for from it we shall reap an abundant harvest in the

future.

There was no good and sufficiently sound reason why money, on call,

should have loaned in Wall Street at rates ranging from 100 to 125 per

cent. per annum—as it did in December last, when in other cities all

over the country it loaned no higher than six per cent. These money

spasms, while local in their actual effect, exert a disturbing and

demoralizing moral influence which is far-reaching. Such pernicious

activity in the money market is not natural. It is due to artificial

causes and ill-regulated methods affecting our local supply and demand.

For the rates of interest to be leaping wildly up and down, in the loan

crowd of the Stock Exchange, and changing violently every few moments,

according to the shifting bids and offers of the excited borrowers and

lenders, would seem to be absurd and laughable enough for opera bouffe.

But in the banking and Stock Exchange business it is a serious evil,

involving large results.

Such an abnormal money market is, of course, not very often seen, but it

occurs often enough to make it important for us to study its causes and

seek a remedy for such monetary excesses. It is indeed a topic so

serious as to call for the gravest consideration. Yet neither the

stringency nor these minute to minute, or hour to hour, fluctuations

were caused by any fluctuation going on in the volume of the currency or

any except local influences.

What we have to guard against and prevent is these occasional spasms.

Against the slow general rise and fall of interest rates for money of

from, say, 2 to 6 per cent per annum and vice versa, there is nothing to

be said, for the movement is a legitimate one, a natural result of the

varying supply and demand. We see it in the Old World, as well as the

New World, but such rocket-like soarings, and such eccentric ups and

downs as Wall Street has experienced from time to time, are peculiar to

itself. It must, however, outgrow them, and the sooner it does so the

better. It is not my purpose in this address to show how the end in view

may be best accomplished, but that it can and will be accomplished

within no long time is certain. The fault is not so much due to the want

of elasticity in our currency system as to our local methods of doing

business in stocks and lending and borrowing money to carry them.

The causes of general monetary stringency are always apparent, but the

cause of the local scarcity of cash that sends the money rate up 5, 10,

20 or even 50 per cent in an hour or so among a small group of borrowers

and lenders in the Stock Exchange, could evidently be avoided, as it is

in Europe, and it is the business and duty of both borrowers and lenders

here to avoid it.

One thing tending to produce occasional local stringency is that our

money market has to contend with the evil effects of the New York

Sub-Treasury, or rather the Sub-Treasury system, that locks money up

that ought to be kept in circulation. Every Sub-Treasury acts

practically as a Government bank, just as the old United States National

Bank in Philadelphia did, and takes in all the money it can get, but

pays out none, except on Government vouchers. So it does not perform all

the functions of a bank, and we should have a more elastic currency if

the Sub-Treasury system were abolished, which it doubtless will be in

time. Theoretically, we have no United States National Bank, yet

practically we have one in every Sub-Treasury. Until Congress amends the

Sub-Treasury and National Currency laws, the banks and trust companies

could by a united understanding prevent extreme money rates, by agreeing

not to charge in excess of 10 per cent interest; or, what would be

better still, 7 per cent, on call loans during periodical money strains.

While they would lose some immediate profits, they would be abundantly

compensated later on by making New York a greater, safer, and stronger

financial centre, which would materially increase their business.

In Germany, emergency currency may be issued by the banks in times of

stringency. This, in effect, releases them from the limit on reserves,

just as, in panics, a Government order in council releases the Bank of

England from the limit placed on its note issues, and allows it to issue

its notes to an unlimited extent. The consequent inflation of the

currency under both the German and English systems, and the revival of

confidence produced by it, brings relief in the money market.

But our only way of obtaining similar relief is for the Secretary of the

Treasury to order Treasury deposits to be made in National banks on the

security of United States bonds, or if he is willing to accept them,

first class State or city bonds. Assuming the banks to have the bonds,

the Treasury may not always have the money to spare for this purpose

beyond its proper working balance, and at the best it is a make-shift

expedient.

That we need a more elastic currency is indisputable, and also such

changes in our custom of borrowing and lending money on collaterals on

the Stock Exchange as will secure stability in rates of interest there,

even in times of stringency. The time will come when the circulation of

the National banks will be based on gold, instead of United States

bonds, and in that way our monetary system will more closely approach

that of the principal European nations. But we need not prepare to cross

the bridge until we come to it.

With regard to the other matters referred to, it is always well to

strike while the iron is hot, and at present the reform movement in

legislation affecting life insurance and banking concerns is at white

heat, not only in the State of New York, but elsewhere, and it should be

pressed forward until all the results aimed at are secured.

In the first place, to accomplish this the life insurance and bank

investigations already in progress, or proposed, should be carried out

to the fullest extent, and, through the employment of expert and

independent book-keepers and accountants, made so thorough as to leave

nothing hidden or in doubt. The results in detail should then be

promptly published, and in a form that all could understand, so that the

public would know the plain, unvarnished truth. In this way rumors and

suspicions of underhand doings, bribery and corruption, graft, fraud,

deficiencies in accounts, misappropriation of funds, and concealed

insolvency, would, if not confirmed, be contradicted and swept away,

thus leaving the concerns before under suspicion in all the better

credit and standing.

Not only should all this be done now, but the State Legislature should

be equally prompt in passing the laws necessary to maintain this high

standard of publicity in the future, and making it mandatory upon the

banking and insurance departments to order frequent examinations into

the condition of all State banks and banking and insurance concerns by

expert accountants, and publish their findings. All opposition to such

investigation and publicity is of itself calculated to excite suspicion,

whether it comes from banks, trust companies, life insurance officers,

and trustees, or other concerns, or parties in interest. Industrial and

other corporations of all kinds, including railways, ought also to be

made, by mandatory laws, subject to stricter supervision and periodical

examination as to their financial condition. Hence the Attorney-General

of this and other States should be invested with new powers to this end,

and the provisions of the laws should be made mandatory upon them. They

should call for verified statements of earnings, profits, expenses,

capitalization, indebtedness, dividends, property valuations,

liabilities and assets, so that large corporations would cease to be

blind pools, and fraud and misrepresentation would be checked by being

exposed; and it is exposure and publicity which is most dreaded by those

who prefer crooked ways to open and above board business methods and

integrity of purpose. But those who have nothing to hide have much to

gain from it, and should welcome the lime-light of this new era of

publicity. Secrecy is only the defence of the weak.

The recent decision of the Supreme Court of the United States in the

Tobacco and Paper Trust cases, that corporations cannot take refuge in

secrecy, but must give testimony as to all their transactions, when

required, even where it is self-incriminating, is a great victory of the

people. It marks the beginning of a new departure in corporate

management by enforcing existing laws, and requiring that publicity of

accounts, which large industrial, railway, and other corporations, and

most notably the large industrial trusts, have hitherto so strictly

guarded against and avoided, after the blind pool fashion.

The decision is that the law as it stands, giving a witness the

constitutional privilege of refusing to give testimony tending to

incriminate himself, does not extend to or cover his refusal to produce

books and papers that would incriminate his, or any other corporation,

the immunity being wholly personal. He cannot, therefore, assert it

either in behalf of a third person or a corporation, yet strange to say

this clear and convincing reasoning has never been put forward by

lawyers opposing the trusts. But it will make the way of the corporation

transgressor harder in the future.