CHAPTER XV NINETEEN hundred seven may be called the Panic Year. In making a study of the panic of 1857 I wrote, "The reason of panics lies deep in the human heart." Passing through the panic of 1873 as a business man, those of 1893 and 1907 as an investor, I have seen no reason to change this opinion. Accepting the theory of periodicity of panics it is unnecessary to explain fully why the period is not always the same; sixteen years elapsed between 1857 and 1873, twenty between 1873 and 1893, and fourteen between 1893 and 1907. But the cause is always the same. If men were always wise, if they themselves or corporations in which they held stock never ran into debt, if there were never fluctuations in the prices of produce in short if all business was done for cash, if men never incurred obligations which they could not at once meet, if they did not spread out with the idea that every extension, every conversion of liquid into fixed capital meant a larger income from their enterprise, financial panics would never occur. But a society of that kind would lack commercial energy, would cease its material progress and, in fact, would be impossible in one based on European civilization. Taking into account the actual state of affairs debt seems a necessary adjunct. Certain men have more energy than money; others more money than energy. It was entirely natural then that out of this condition should be developed on the one side the manager and the Banks are the promoter and on the other the investor. basis of all financial affairs and they are deeply in debt to their depositors. It is a commonplace that the function of a bank is to lend money to borrowers at a higher rate of interest than it pays its depositors. Financial panics mean a loss of confidence, and one of its marks is that Savings Banks depositors start a run on banks where their savings are placed. This puts a strain on National Banks which have a large amount of Savings Bank money and besides have their own troubles to face in the vain endeavor to collect their loans and to meet the demands of their own depositors. So far as I know such have been the characteristics of the panics of '57, '73 and '93. Theodore Marburg in his business dissertation attempted to show that "each recurring panic has its own special causes" but to my mind he in no way traverses the general law. It is true enough that 1857 and 1873 were caused by the too rapid building of railroads, that the operation of the silver purchase provision of the Act of 1890 was a contributing cause to the panic of 1893, but if one needs one word to describe the cause of all these he finds it in "overtrading." A Boston banker found in a printed description of the panic of 1857 substantially the same characteristics as were passing before his eyes in 1907. A. Piatt Andrew, Assistant Professor of Economics at Harvard University, in an article printed in the New Year's number of the New York Journal of Commerce on January 2, 1907, found a close parallel between the situation at the beginning of the year 1907 with that of 1857, and wrote further 1 Address before the American Academy of Political and Social Science, April 10, 1908. that a financial panic might occur during the year as it had a half a century earlier.1 The devotees of high finance ascribed the panic wholly to the Roosevelt policies both "legislative and executive." A cartoon in Life pictured Roosevelt emerging from a bear hunt in the South with the usual eyeglasses, showing his front teeth on the broad grin, dancing in high glee and shooting to the death "Big Game" labelled "prosperity." The cartoon represented the general feeling among financial men as is shown in Roosevelt's speeches and messages, in his private letters and in varied recollections of the period. Everywhere that these men congregated, the conversation was Roosevelt and the financial ruin which he had brought upon the country. A glance at Roosevelt's own description will be useful. "We have our ups and downs," he said on October 22, "no law and the administration of no law can save any body of people from their own folly. If a section of the business world goes a little crazy, it will have to pay for it; and being excessively human, when it does pay for it, it will want to blame someone else instead of itself. If at any time a portion of the business world loses its head, it has lost what no outside aid can supply. If there is reckless overspeculation or dishonest business management, just as sure as fate there will follow a partial collapse. There has been trouble in the stock market, in the high financial world during the past few months. The statement has frequently been made that the policies for which I stand, legislative and executive, are responsi Letter of A. Piatt Andrew, Oct. 15, 1921; Boston Daily Advertiser, Nov. 2, 1907. * Roosevelt, Speech, Oct. 22, 1907, Review of Reviews, ed., 1964. 'Life, Oct. 31. ble for that trouble." In another speech Roosevelt admitted that his policies might have possibly been a contributory cause to the panic; 2 but in a special Message to Congress of January 31, 1908, he said, "So far as the business distress is due to local and not world wide causes and to the actions of any particular individuals, it is due to the speculative folly and flagrant dishonesty of a few men of great wealth who seek to shield themselves from the effects of their own wrong-doing by ascribing its results to the actions of those who have sought to put a stop to the wrong-doing." 3 The panic began with a "flurry in stocks" in March, it gained new strength in August and reached its height during October and November. On the 22d of October the Knickerbocker Trust Company failed; the Electric and Manufacturing Company, of which George Westinghouse was President, applied for the appointment of receivers. General Electric stock which had sold at 162 during the year went to 90, and other shares suffered a like decline. Banks in all of the large cities issued clearing-house certificates of which 84 million dollars were emitted in New York City alone. There were runs on many of the banks and practically all of the banks in large cities requested their customers to make their cheques through the clearing house only and to draw no currency unless absolutely needed. Currency went to a premium of 4 per cent, which lasted from the first day of November through the first half of December. Money on call, if it could be had during the days before 1 Oct. 22, Review of Reviews, ed., 1464. 2 Oct. 1, ibid., 1377. the banks issued clearing-house certificates, was lent at 125 per cent. Summoned from the General Episcopal Convention in Richmond, where he was a diligent reader of the newspapers, J. P. Morgan arrived on the scene and took command. Indeed the financiers desired a general and he was one in whom all had entire confidence. Back of Morgan were the old and experienced men of finance, who had regarded with no favor the operations of the new school of financiers who had been conspicuous in the overtrading that brought on the panic. They might have said with Prometheus, "Youthful pilots rule Olympus." The new school had originated the system of "chain banking" which meant the buying up of the majority of shares of any one bank, then hypothecating these shares and with the proceeds purchasing the control of another bank which was dealt with in a similar manner and so on until a coterie controlled a number of banks which assisted them in their wild speculations that were those of "infatuated promoters and grumbling millionaires." 2 1 Nightly meetings were held in Morgan's library and methods were devised to allay the panic. The Secretary of the Treasury, George B. Cortelyou, came to New York and gave his timely aid. The President took a hand in the same direction and acted with his usual promptOne evening he was informed that two representatives of the United States Steel Corporation desired to see him early next morning, when in company with Secretary of State Root he saw them and gave this account of the interview dated November 4. ness. "Judge E. H. Gary and Mr. H. C. Frick, on behalf 1 Lawton, Atlantic Monthly, 62, 215. |