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A Brief History of Panics
by Clement Juglar
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"(c) Keep upon all other articles now in the tariff list the actual duties for the period of one year, but after that period and the actual imposition of the proposed new tariff I am discussing shall have begun, put all the articles involved in Class c upon a tariff-for-revenue-only basis, so constructed as not to break down the standard of the American workingman's living."

YEAR TO MARKET STOCK

"This period of one year—say, would allow manufacturers to market their stock on hand or already required to be produced on the basis of the market influenced by the quasi-Government protection extended by the existing tax laws of the nation.

"At the end of this period the manufacturer would be obliged to produce at less cost in order to find a market in competition with his foreign competitor, which competition would result in lower prices that he and his foreign competitors would have to offer to the working people and other citizens of our country,"

EFFECT ON WAGES

"Those working people and other citizens would for a year have been enjoying at lesser cost all of the articles used in the typical American home I have referred to and could without loss therefore well afford to submit to a reduction in wages so long as that reduction in wages was contemporaneous with affording them a proportionate or more than proportionate reduction in cost of the articles for whose purchase those wages were sought to be expended. At the same time, the manufacturer at a proportionately lesser cost of production, through this reduction in wage-paying, would be selling as much or more of his old products at their old profit.

"Could we add to the income from the tariff and internal revenue the sums derived from the sound national inheritance tax I have mentioned above it is evident we would have supplied for the period of change from one tax system to another an 'adequate governor' to use a mechanical illustration, to prevent undue oscillation of prices in the business world."

BANK RESOURCES TO PREVENT STRAIN

"The further use of the existing financial agencies for cooperation of the banks in all sections to mass resources and apply them to prevent undue local strain upon credit dispels the fear of any necessary injury to the financial fabric in effecting this change.

"Grover Cleveland, whose character and principles I have long revered, seemed to me in the application of his plan for tariff reform to have endangered at once the success and the permanence of his reform of the tariff—which you recall was confessedly and very properly not a reformation to free trade—by failing to provide in it a method for avoiding or at least minimizing and shortening any incident disturbance to the business world. His plans, further, failed by not reasonably insuring for the transition period from the old tariff to the new one sufficient national income for national expenses."] have virtually prevented all that? When I sent that plan, which I had stated in an interview in the Baltimore Sun of December 24, 1910, to the various members of the Finance Committee of the United States Senate and to the Committee on Ways and Means of the House of Representatives, very many of them wrote me affirmatively on the subject.

To revert, however to the due order of our tale. It was on January 17, 1893, that Secretary of the Treasury John G. Carlisle, without any new legislative authority, offered to sell $50,000,000 Government bonds already mentioned. If issued during the Silver-repeal fight when Gorman proposed his compromise, and if Carlisle had made it clear very early that as many such issues for gold would be made as were needed to keep the trading public safeguarded against any monetary-business cramping caused by the governmental policy affecting the tariff, a minimum rather than something approaching a maximum of disturbance would have followed. In better spirits because of the issuance of the $50,000,000 Government bonds for gold, the business world worked along. The House had passed the Tariff Bill early in February by a big majority. Business soon looked up decidedly. But the Seigniorage Bill was adopted in March. President Cleveland, that sturdy upholder of the Nation's credit, vetoed it. He knew that any new moral obligation to keep at a parity with gold dollars worth in themselves less than one hundred cents in gold would materially shake domestic and foreign credit.

The veto had a deservedly splendid effect upon all our trading interests. This was increased by the failure of the House to override the President's veto of the Seigniorage Bill. But the Senate had not acted on the Tariff Bill. Business dwindled and there occurred strikes and other widespread labor troubles, especially in the bituminous coal trade. In many parts of the country the militia, and in Chicago United States troops, had to be employed to maintain order. Call money was a drug on the market. The net gold in the Treasury was very low. The Tariff Bill dragged its weary length along. President Cleveland and Chairman William L. Wilson of the Ways and Means Committee of the House insisted that the bill would produce sufficient revenue for the expenses of the Government. Senator Gorman and others in the United States Senate insisted to the contrary and demanded that the tariff on sugar should be kept at a high figure. A bitter controversy ensued. Finally, on August 13th, the House accepted the Senate Tariff Bill. It was time for some affirmative action, for among other threatening conditions the net gold in the Treasury had fallen to the lowest figure since resumption of specie payments in 1879.

Business began to revive. The issue of $50,000,000 Government bonds for gold to replenish the Treasury stock was a very stimulating influence. The improvement dated virtually from the agreement in February between the Government and the Morgan-Belmont Syndicate to prevent the export of gold. In June, 1895, the Government gold was thus brought up to a round $100,000,000 for the first time since December, 1894. But notwithstanding the fact that the business outlook was decidedly better, the inevitable disturbances to business following a general change in the tariff, unsettled political conditions in Europe and the selling of American securities owned abroad, the shortage of the American cotton crop, President Cleveland's Venezuela message, which many persons thought might bring on war with England, and another decline in the Treasury free gold, again shook business confidence.

Improvement, however, was stimulated by a remarkable increase in the supply of money in our balance of trade and by the virtual settlement of the Venezuelan question. The business situation was steadily clearing. The ills from the panic of 1893-4 were well behind us. The Spanish-American war proved to be harmless to us financially, while it tended to show that National neighborliness could be exercised in a splendidly unselfish way. By our treaty of peace with Spain on December 10, 1898, an additional emphasis was given to the revival of trade. During 1899 a great rush to speculate brought the pinches in money inevitable in those pre-Reserve Bank days, but could not stop the general broadening of business interests although the industrial situation was unsatisfactory in spots. Indeed, the succeeding year was to witness severe industrial trouble destined to cause a general set-back in business. The situation cleared considerably when the November elections of 1900 showed the country to be safe from the Bryan silver policy.

Big business interests took hold of market conditions. Huge combinations of trade interests became the order of the day. The United States Steel trust was the vastest and was the transcendent achievement of J. Pierpont Morgan. The Stock Exchange was wild with speculation. The collapse came there in the famous decline of the 9th of May, 1901, precipitated by the Northern Pacific corner. In a month the market was tranquil again. The shooting of President McKinley produced great financial nervousness. The over-trading abroad, especially in Germany, was influencing us and all the rest of the world, which had not yet recovered from the vast financial cost of the English Boer War.

The ever increasing closeness of business relations the world over—their virtual solidarity, in fact—was being illustrated again with us. A chief example was trouble in the copper groups following a slackened world demand for their products.

Overtrading was doing its usual work. This induced loss of business courage in many quarters, or shall I say a realization that nowhere in the American business system was there any arrangement empowered so to marshal the competent strength of financial America that large and overwhelming disturbances should become impossible in business generally. Indeed, the Government forces seemed to tend contrariwise to big business practices. They took virtually their first step in "trust-busting" when they tried to break up the Northern Securities Company, which had been concocted to handle the celebrated Northern Pacific case. Labor troubles supervened. Many great speculative stock campaigns collapsed. The banks yielded to the imperative need to reduce credits. The year 1902 had almost experienced a widespread panic: but the marshaling of great private resources had restored confidence temporarily, and it closed in peace.

PANIC OF 1903.—Then came the real beginning of the protracted "trust busting" campaign. Business took fright, for it believed it was to be bullied rather than soundly regulated. Great failures oh the Stock Exchange were its sure indications. Fear and distrust was upon all the American business world. Industries languished. Money was easy because less and less employed in trade. The great captains of industrial finance, however, patched up troubles and differences here and there and, availing themselves of the plentiful supply of money, soon had a notable speculation at work. Gradually the country took heart again and business experienced a revival.

It was thought that President Roosevelt, elected in November, 1904, would help bring about discrimination between "good" trusts and "bad" trusts, and whose "trust" is bad! But "trust busting" became an even more popular and political pursuit. Indeed, the abuses practised by many of them had created a situation regarding which the question was becoming in the popular mind simply this, "Shall trustdom rule the people or the people rule the trusts?" The sound control of both before the Constitution of their country must be the happy solution.

The Bill of May 9th of the House of Representatives, giving the Interstate Commerce Commission power to fix railroad rates, was ominous, and little noticed by the general business world; but some noticed and acted. The Senate had not voted; nor did they realize what rate-regulation implied to railroad balance sheets and so to the Stock Exchange. Some interest was selling securities. The business public was awakening to the fact that legislators, legislation, the people, and the law were hot after the business methods of many organizers. Fear, founded on a tardy awakening to facts, declared itself, but spasmodically, for now and again the great captains of finance and industry were trying to save the situation. They successfully aided whatever of momentum there was in general business. But Congressional activity as to any combinations in restraint of trade was unabated. It called upon the President for such information as the Interstate Commerce Commission might have as to a combination in restraint of trade between the Pennsylvania Railroad and certain lines allied with it.

The battle between the old style and the new style of managing great corporations was fairly on. Labor troubles added to the existing disarrangement of business. San Francisco's vast earthquake and consuming fire sucked much capital away from financial centres in order to replace the $350,000,000 of capital destroyed. The money market was greatly restricted. The stock market showed signs of panic. The Secretary of the Treasury continued to help the situation as best he knew how. Notably, he offered $30,000,000 Panama Canal Bonds, and very successfully sold them. That afforded an additional basis for bank-note issuing. The stock market responded with a fine upward swing. Heavy dividends were declared by certain leading railroad and other corporations. Indeed many high records were made by securities and so distracted attention from that steady tide of keener inspection and stricter regulation by the agents of the people which was destined to unmoor and toss and injure many a financial craft. Railroads asserted that the country needed a great increase in railroad trackage, but that the actual treatment of the roads deterred extensions through frightening capital. So the year 1906 wore away after having sorely tried the nerves of the whole business world which it left in a most justly apprehensive state.

THE PANIC OF 1907.—The panic of 1907 opened with great but feverish activity in business. Driven by necessity the railroads adopted the issuance of short-time notes for new capital, as the market would absorb no long-time obligations except at forbidding interest rates. Any signally untoward happening could promptly precipitate a panic. The United States Treasury withdrawal of Government deposits from the banks, and the collapse of the Knickerbocker Trust Company in New York were such happenings.

On March 14th, the panic declared itself and pandemonium ruled on the New York Stock Exchange,—that prominent barometer of business conditions. In its coming it had exemplified again the characteristic symptoms of a panic which I have set forth on pages 7-16 of the introduction to this book. After the spasm of March 14th and the business cataclysm of the following October, the business world staggered along, but with the strength merely that results from courage and the exercise of reserve power husbanding its resources and lightening its load. The decrescendo movement of another business cycle had begun. Runs on financial institutions were prominent in our country. But throughout all the western world resources were strained. Money had been overused. Money rates were extremely high. Failures were frequent everywhere. In our own country painful disturbances, relaxation, and unrest were everywhere apparent. The radical doctrines of many political leaders tended to further unrest.

The business of the country was halting between the need sanely to regulate "big business" and the fact that "big business" had been obliged to fight for prosperity in the welter of unallowable but very often undeniable conditions. The railroads justly claimed that they were forbidden living rates. Their opponents accused them of carelessness and waste. The railroads and the Interstate Commerce Commission were the protagonists respectively of the conservative and the radical thought of the country, which is so rich in natural wealth and is inhabited by so resourceful a people that though by statutes they be well managed or not, their National wealth increases. So ran the business world away, but with a very slow and steady approach towards a rational rectification of disputed legislation as affecting business. Meanwhile the courageous "captains of industry" were leading in business as best they could and were better appreciating the temper and needs of the American people.

Added to the difficulties resulting from our languishing trade at home, we suffered reflectedly from the constriction of business in Europe, which was acutely aware that the disturbance in the Balkans threatened to destroy the peace of Europe. Conditions were not yet quite ready there for a cataclysmic war. For example, statistics had not quite demonstrated to Germany that the physique of her people and the rate of increase of their families were declining while the expenditures for superpreparedness for war was demanding either retroaction in that regard or else an expenditure from the principal of their property. Germany did make in one year the sacrifice of five per cent. of her principal for yet fuller preparedness for war. Indeed since late in 1908, it is fair to say that consciously or unconsciously the whole world has been in travail. Whatever broad measures statesmen anywhere have promulgated, have been subjected to the unusual stress and strain of world-wide unrest. Like the treacherous undertow that wrenches those who venture in, has been the world unrest upon all phases, incidences, and predicates of business. Some of us have long realized this; some have not.

With November, 1908, came the election of that great constitutionist, Taft, to the American Presidency upon a platform less radical than that of his opponent. This heartened the constructive forces of the country. But very little upbuilding resulted. The coming revision of the tariff was of itself sufficient further to restrict business undertakings, and to cause many great producers of goods to arrange to unload at lowering prices their actual and their future outputs. But the conserving of resources since the panic had helped the superficial situation, and the spasmodic stimulus that so often follows a general heightening of the tariff showed itself after the adoption of the tariff bill in August, 1909.

The illness and after a month or two the death of the great business leader, Harriman, caused in the securities market a great decline. Fundamental conditions were unsettled. The best that could be expected was a see-saw movement until some power should set our country and the business world at large once more securely on their respective bases. The Anti-Trust Law, the Interstate Commerce Law, and such like influences continued to disturb the United States, while Europe was beneath the surface unendingly agitated.

General business marked time while statesmen or pseudo-statesmen planned and promised panaceas. President Taft joined that populous group. The securities market, that barometer of business, fell beneath such assurance of further unsettlement. How can you continue to trade unless reasonably sure that conditions will remain fairly constant! All this militated against a normally quick recovery from a great panic. Little scares were frequently experienced. Influences matured and presented one great political party split into two great factions, while the other chief party endured something of the same development.

A conservative handling of National policies, or a radical one was the question in each case. The November elections indicated a popular revolt against the party in power—the Republican. Unshaken, President Taft followed his convictions and in his Presidential message, of December, 1910, to Congress called for a halt in legislating to regulate corporations, until the effect of the laws on the statute books could be studied. The stock, money, and industrial markets were marking time. Not to go forward in business or elsewhere is in itself to retrograde. Thus opened the year 1911. Under the influence of easy money, better business on some of the western railroads, better dividend declarations here and there, a rosy "prediction as to the early future of the iron market, and the belief that the Interstate Commerce Commission would grant better rates to the railroads, general business felt encouraged and prices advanced somewhat. But in February the Interstate Commerce Commission forbade the railroads any increase whatever in rates. The roads were obliged to institute many cramping economies which to them very often meant the using up of their corpus and to the business world of the United States a permeating retrogressive influence. Reductions in railroad dividends were symptomatic of that. To add to all this there developed additional business unrest predicated in the general tariff change favored by the House of Representatives in April.

The United States Supreme Court decision interpreting the Sherman Anti-Trust Law of 1890 as affecting the Standard Oil Company case and the American Tobacco Company case were delivered late in May and were unexpectedly reassuring to business. This was another evidence that the best thought of the Nation everywhere was seeking to rectify the looseness of the past without killing business initiative and continued endeavor. So matters see-sawed in the business world. It was indeed in a state of unstable equilibrum. Stocks declined now abruptly; then, after some slight recovery, gently; but the slant was decidedly downward.

The Government felt that its duty required it to push forward the investigation of industrial corporations; and that the Nation so demanded. And it was in October that the chief of such corporations—the United States Steel Trust—had a Government suit for dissolution filed against it. The sturdy bell-wether of the corporation flock was attacked by the great United States Government. What would happen to the humbler members of the flock! Certain court decisions were reassuring to corporations in November and business brightened for the time being and during much of December in certain notable instances, for in that month the Interstate Commerce Commission report appeared and seemed less drastic in tone.

The year 1912 opened with an additional influence promising increased alarm and marking of time. I mean that candidates for the Presidential nomination began their canvasses, which, of course, implied new plans for making new laws to govern business conditions. Former President Roosevelt announced his candidacy in February. President Taft was already constructively in the field. Governor Harmon of Ohio was mentioned in many quarters as a successful reformer who wished soundly to guide but not unwittingly injure business, while Underwood was similarly praised in addition to his record on the recasting of the tariff into a further revenue measure. Champ Clark, Speaker of the House of Representatives, was a popular candidate. And Woodrow Wilson loomed up as though forecast by destiny. At first and in many important sections of the country considerably more delegates to the Republican National Presidential Convention were chosen for Mr. Taft than for Mr. Roosevelt. This and brisker business served to hearten conservative interests, and the general market revived despite the decidedly downward influence in our country of the gigantic strike among English coal operators, who thereby spread trouble throughout the British Empire, and, through the solidarity of the financial world to-day, affected every financial centre.

The remainder of the year was dominated by the Presidential canvass. Taft, called by many a "stand-patter"; Roosevelt, "the insurgent," who proposed to mend all the troubles of the political public by his usual brusque methods; and Woodrow Wilson, the "conservative with a move on," made their appeals for popular support. Until the verdict in November a see-saw market took place in the United States, while Europe and reflectedly the remainder of the world became alarmed lest the war declared in October by the Balkan States against Turkey should produce world-wide trouble.

The November Presidential election showed that Woodrow Wilson received 435 votes, Mr. Roosevelt 90, and Mr. Taft 8. However, the popular vote for Woodrow Wilson was more than 1,000,000 below that cast for Messrs. Roosevelt and Taft jointly, and about 2,000,000 short of a majority of all the votes cast for the Presidential nominees—Socialist, Republican, Democratic, and so on. But the vitally significant fact is that the popular vote for the "stand-pat" candidate—Mr. Taft—was very small in comparison with the joint vote of the three candidates whose platforms called for a drastic handling of National policies,—Debs, Roosevelt, and Wilson.

Drastic recasting of the rules of any game unsettles play. The market dropped. But fortunately for the country the ripe and balanced and active intellect and character of Woodrow Wilson, elected President, lent much re-assurance against the extensive political surgery he had been chosen to perform. All knew that he would be thorough and reasoning. All the grievous handicaps that business suffers from uncertainty of regulation, it was thought would be overcome as promptly as possible. But the pledged great change of the tariff was enough to induce retrenchment of business endeavor. With a major factor unusual in any proposition, how can stability, much less progress, be expected in any interest?

THE PANIC OF 19l3.—Retrogression in business began very early in 1913 and increased until mid-October, 1914. On October 3, 1913, the new Tariff had become a law; but other reforms still jostled business. However, by mid-October, 1914, the Interstate Commerce Commission seemed to have become less radical in its views, the Industrial Trade Commission was at work apparently studying the essentials of the industrial situation, the United States Supreme Court was delivering opinions in check of indeterminate statutory meddling with business and the splendid potential of the Reserve Bank system was offering for use.

It is hard not to overstate the vast re-assurance offered to business by linking together the banking power of the country through the Reserve Bank system. Just as an enormously large number of troops skilfully thrown into an endangered—a panicky—position will ensure success, so can the vast resources of the Reserve Bank system restore financial order when panic fear is declaring itself. During the past two years of threatening from the disturbances in Mexico, our country has learned to forecast the benefit that the Reserve Bank system predicates; but our stay and confidence has been the cool and far-seeing statesmanship of our great President, Woodrow Wilson.

The breaking out of the "World War" in August, 1914, had so flooded our market with securities held in Europe that the Stock Exchange, following the continental example, closed from July 31st till November 28th, when the New York Stock Exchange and other American stock exchanges opened for restricted business in bonds and on December 15th to unlimited trading in stocks and bonds. Other kinds of exchanges acted much the same. This checked business in every direction, despite the great issuance of temporary Clearing House certificates. In two months the latter tendency was changed in many quarters.

Then began the "war boom." Gradually it has spread, bringing such enormous profits in all our lines of business supplying the needs of the "Great War," that the first twelve months of it showed more than a billion dollars trade balance in our favor, and that balance then began increasing on a progressive scale. Money is yet plentiful. All business is stimulated. Our crops are unexampled in quantity and money value. Everything points to great prosperity unchecked until the "Great War" ceases and withdraws the stimulating demand for our supplies.

Then will come a readjustment of our trade. Money will have become actually or potentially scarce because of the previous vast expansion of our business, and all the banking power of our country will be requisite to prevent a crashing panic. The Reserve Banks will have gotten fully to work by then, it is to be hoped. They will be needed to lead in the life-saving operations. Such first aid to the injured will obviate such financial sufferings as the old-time panics presented. They can hardly be expected to reduce the casualties to the volume of the slow panic in securities in the year 1913, for the volume of business involved at present is vastly more swollen and the kind more circumscribed.

It is interesting to note that panics have continued to appear about as regularly as usual, but less crushingly, since 1890, the date up to which the first and second editions of this book had traced them. Remedial or partially preventive measures have been more and more utilized by the financial powers to control them. Never will panics cease so long as trade and fear are exemplified on this earth, but just as modern medicine is overcoming the dangers threatening the physical man, so is modern finance overcoming panic and the other dangers which threaten financial stability. After all, reserve power and only a rational use of financial resources are the surest preventive of panic. And that the American people have not been forced through entrance into the "World War" to deplete their reserve strength, especially in a financial way, is due to the splendid conduct of our great President. He is leading this country to unexampled prosperity. Instead of consenting that old abuses in the business world should continue until an over-indignant public had grown riotously injurious, he has guided the current of their wrath, initiated or promulgated the methods for redressing their grievances, and has saved to the country, to its people, and to general business itself, the splendid and full service of business enterprise freed from the abuses and handicaps that unregulated conditions had forced it to employ in the unrestrained struggles of the open mart.

DECOURCY W. THOM.

THE END

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