A Brief History of Panics and Their Periodical Occurrence in the United States Part 8

The banks had to work closely, and the demands of the South and West for currency were severely felt.

PANIC OF 1890.--In this condition the year 1890 opened, and, with ever growing pressure for bank accommodation, displayed great activity throughout all departments of trade and transportation, with an unequalled volume of transactions.

But it was as impossible to grant to the overtrading the money needed,--though the Secretary of the Treasury, in seventy days, threw a million a day into the market by buying Government Bonds,--as it had been for the "Gentleman's Agreement" of 1888--that of the chief railroad presidents--to maintain rates, to permanently sustain prices of railroad securities against an oversupply of them; however, both delayed the inevitable.

The debates on the silver question in Congress, leading to hopes of cheap money, and the higher prices due to this temporary and delusive stimulus; the large gross railroad earnings, demand for structural iron; the Buenos Ayres crisis, leading London to ship us large amounts of our securities; our small wheat, oats, and corn crops, and large cotton crop; the tariff discussion, ending with the McKinley Bill on October 6th, and the low bank reserves and money pressure beginning in August and lasting pretty steadily till December, and an immense shrinking of securities, were the chief features of the year; and failures beginning with that of Decker, Howell, & Co., in New York, on November 11th, and reaching a climax with the embarra.s.sment of Baring Brothers [Footnote: Meanwhile Messrs. Charles M. Whitney & Co., David Richmond, J. C.

Walcott & Co., Mills, Roberson, & Smith, Randall & Wierum, Gregory & Ballou, P. Gallaudet & Co., had failed in New York, the North River Bank of that city had been thrown into a receivership, and in Philadelphia the failure of Messrs. Barker Brothers, had been followed by a number of others. This was all bad enough, but sinks into insignificance when we recall the financial terror inspired by the great and historic house of Baring Brothers proving unable to meet its engagements, amounting to about, L28,000,000. The Bank of England received notice of its difficulties on September 7th, and by the 15th had secured from a syndicate, composed of the great London houses, a guaranty that it would be protected from loss to the amount of L4,000,000 if it would liquidate the Barings' business, and from the British Government the right to issue L7,000,000 of notes provided that sum was used to loan the Barings, and it therefore a.s.sumed on that date the task of paying the Barings' acceptances of L21,000,000 and L7,500,000 of other liabilities.

Thus was averted what would probably have been the greatest panic in the world's history. That which occurred was a mere bagatelle to what was threatened. It is difficult to bestow too much credit upon Mr. William Lidderdale, Governor of the Bank of England, for conceiving and managing this plan. He has saved hundreds of thousands of homes and interests from misery. Under his able administration it is expected to extinguish the Barings' liabilities without calling on the Government, and it is believed something will be saved for the Barings from their former a.s.sets in business. This is deeply to be wished, for though the Barings have continued business under form of a stock concern with a million pounds capital, they are wonderfully restricted as compared with their former state. They have performed in banking too many helpful actions in furtherance of civilization to be eclipsed without sincere regret.] in mid-November, which failure itself greatly accelerated the panic, were the chief events of the year. Railroad building had increased to 6,081 miles, and the consequent new securities were poorly absorbed.

Manufactures were generally prosperous.

The huge imports to take advantage of old tariff rates absorbed much money, while the Baring liquidation and that of other houses identified with South American enterprises, and the distrust bred by our Silver Bill caused a return of our securities, necessitating such a curtailment of credit that our panic took place. From July through December 31st, money ruled high and fluctuating.

The year shows a decline in circulation to $123,000,000, a decline of specie reserve to $178,000,000 with a subsequent rise to $190,000,000, a decline in legal tenders to $82,000,000, and of deposits to $1,485,000,000, while the banks increased to 3,573 with a capital of $657,000,000, and a surplus and reserve of $316,000,000, and discounts and loans rose to $1,932,000,000.

The year 1891 has exhibited the usual incidents succeeding a time of reorganizations after panics and, after a period of selling and settlement, a rehabilitation of affairs and the consequent advance in prices of securities. The unprecedented abundance of our crops as a whole, coupled with the almost universal shortage in European countries, largely aided the rehabilitation. Bank balances reflected this startlingly. On February 26, 1891, loans and discounts and over-drafts amounted to $1,927,654,559.80. On May 4, 1891, loans and discounts and over-drafts amounted to $1,969,-$46,379.67. On the former date capital, deposits, surplus, and undivided profits amounted to $2,462,456,677.92, and on the latter date to $2,567,288,143.45.

On July 9, 1891, discounts, loans, and over-drafts amounted to $1,963,704,948.07, and capital, deposits, surplus, and undivided profits to $2,522,609,679.78.

Confidence is restored and prices have advanced, and should advance still further. There seem to be only three things that could check the advancing market, and of those the two chief ones seem pretty surely relegated to a fairly distant future. These latter two are, in the order of importance: (1) a free silver law, _i.e._, a law making, say, 67 cents' worth of silver pa.s.s for an equivalent of a 100-cent dollar; and (2) a very radical and abrupt change in our tariff law. The remaining and very minor influence is the breaking out of a general European war, which would at first induce a selling of our securities, and so lower prices, but which finally and shortly would benefit us by a subsequent returning flood of money exchanged for our various bread-stuffs, and supplies, and even securities of different sorts.

It would be better for our future if the liquidation of the last panic had been more radical in some cases, notably in land speculation. In this liquidation has not been thorough, and, as far as these cases influence the market, it has remained for a long time unsound, and even now is not fully recovered.

The past twelve months have witnessed a continued settling of old accounts, and the undertaking of new business, in a limited way, despite a somewhat uneasy feeling about silver and the now accomplished Presidential election. But the fact that an a.n.a.lysis of the bank returns to the Comptroller of the Treasury shows that available resources (capital, deposits, surplus, and undivided profits), as compared with demands (loans and discounts), are good and growing, considered in regard to the other signs indicating prosperity (see Introduction), justifies the prediction of the steady development of a prosperous period.

PANIC OF 1893-4.--It was early in 1893 that I wrote the last page of _A Brief History of Panics in the United States_. Two of the three checks to business prosperity to which I then referred, virtually occurred very soon. The determined resolve of the "free silver" members of Congress to continue the heavy monthly utterance of silver dollars redeemable at par in gold kept many business men most disquieted. They saw that the free gold in the Treasury was sinking greatly and steadily.

They knew, also, that there was semi-official a.s.sertion of the right of the United States to redeem its silver dollars in Government notes. The Free-Coinage Bill had been pa.s.sed by the Senate in July. The House defeated it. The legal fights against certain great railroad combinations and frequent labor strikes put additional burdens on the market.

In the United States and abroad the doubt of our willingness and ability to redeem our obligations at par in gold on demand grew most rapidly.

Accordingly, exports of gold increased and h.o.a.rding of it began at home.

To all this was added the expectation of a severe downward revision of our tariff laws if the Democratic Party should succeed, as was expected, in the Presidential election in November.

Business was scared and slowing down and, therefore, using less and less of its working capital. The false ease of increasing loanable funds in the custody of the banks lulled many into a specious confidence. But gold was exported in increasing quant.i.ties. Should the Government issue bonds in exchange for gold for the purposes of redemption? The Philadelphia & Reading receivership occurred. Easy money led to many consolidations of transportation properties and to very many large commitments. Money tightened. In March, it loaned at 60% per annum.

Would President Cleveland call an extra session of Congress in March to repeal the silver law and to issue bonds in order to replenish the free gold in the Treasury? The Stock Market showed a great decline in quotations.

In April, 1894, Secretary of the Treasury Jno. G. Carlisle forbade the further issuance of gold certificates for gold deposited in the Treasury under Act of July 12, 1882, whenever the gold in the Treasury "reserved for the redemption of United States notes falls below $100,000,000."

This further alarmed the business world, which was not rea.s.sured when on the 20th Carlisle announced that the Treasury would pay gold for all Treasury notes so long as he had "gold lawfully available for that purpose." President Cleveland, that stalwart man, uttered this high and firm p.r.o.nouncement on April 24th: "The President and his Cabinet are absolutely harmonious in the determination to exercise every power conferred upon them to maintain the public credit, to keep the public faith, and to preserve the parity between gold and silver and between all financial obligations of the Government." Very good, thought business, but how and when will you act accordingly?

Lack of business confidence increased greatly. Money rates advanced.

Security values fell; imports greatly exceeded exports. Silver certificates were at 83. Something was about to snap in the general business machine. National Cordage broke from 57 to 15-1/2 on May 1st, receivers were appointed, and the panic of 1894 had declared itself and grew worse on the 4th and 5th. Call money rose to 40%. June witnessed great distress in business circles. On the 27th the Government of India stopped the coinage of silver for individuals and decreed the exchange value of the rupee at 16 pence. This lowered the exchange value of our silver bullion certificates to 62. President Cleveland helped matters somewhat by announcing that Congress would be convened early in September. In early July the panic increased somewhat despite the President's call for Congress to a.s.semble on August 7th. Time loans were hardly obtainable. Conditions in August grew worse. Business was almost at a standstill, and failures were very frequent. From August 7th until the affirmative action on the 28th by the House of Representatives as to the repeal of the Silver Act, there was great concern.

Then hope revived; but h.o.a.rding of currency increased. Great banking interests in New York helped the situation mightily by importing over $40,000,000 gold. September was an anxious but more hopeful month as the prompt adoption by the Senate of the Free-Silver Bill was antic.i.p.ated.

However, the weary debate dragged on in the Senate. President Cleveland demanded the unconditional adoption of the House measure. Certain compromisers, led by Senator Arthur P. German of Maryland, suggested that during each of the following fifteen months the Government purchase the minimum amount of 1,000,000 ounces of silver, and then stop all such purchases against which silver certificates had to be issued. This plan for speedy action President Cleveland and the Secretary of the Treasury opposed as worthless unless concurrently there was an issue of $100,000,000 of Government bonds to replenish the gold in the Treasury.

They a.s.serted that new legislation must be had before any such bonds could be validated. So the business world continued to suffer.

Let me here state the fact, that without any fresh authorization, Secretary of the Treasury Carlisle did in January, 1895, issue $50,000,000 of Government bonds to replenish the free gold in the Treasury, and that an injunction suit against their sale was dissolved by Judge c.o.x at Washington on the 30th of that month. Gorman had been right. The credit of the country would not have suffered by the additional issuance of some final $60,000,000 (?) of silver certificates if the gold in the Treasury had concurrently been upbuilt to the extent of $50,000,000 to $100,000,000; but an immensity of business loss would have been averted.

But to resume the orderly recital of those times. October dragged along its weary length, while the Senate debated and business withered.

Finally, on the 30th, the Senate accepted unconditional repeal of the Free-Silver Act. On November 1st, it became a law. The fear of repudiation thus escaped, though with fearful loss, the country plunged into all the unsettlement caused by a too sudden and too extensive change in the tariff. These changes were announced by the House Committee on December 27th.

The conditions mentioned in the last paragraph beginning on page 22 of the introduction to this book, were at work. Before the market had recovered from the "Silver panic" of 1893-4, the terror caused to the business world by the proposed very decided changes in the customs dues laid hold upon every trader in the United States and reflectedly upon every one of its citizens. It shook business throughout. Would not such a plan as is set forth in the footnote below [Footnote: "Mr. DeCourcy W.

Thorn expressed himself yesterday as heartily indorsing the Democratic celebration to be held in this city January 17 next, to which all the party leaders will be invited and at which subjects of interest to the party will be discussed.

"When asked to give his opinion on some of the questions worthy of discussion at this gathering Mr. Thorn mentioned the tariff and economy in the conduct of national affairs.

"In the coming national Democratic celebration," he said, "I hope suggestions dealing with a rational reformation of the tariff and the need for national economy of every kind will be duly considered, and that on these two subjects alone, to be treated thoroughly but temperately, will this national Democratic gathering advise our party as to its best course to pursue.

"In three successive Presidential canva.s.ses since the Civil War the Democratic party has received a majority vote of the people of the United States, and in my opinion would have gained three thereby, instead of the alternate two, elections to the Presidency if the tariff issue, the major one of the two great issues--namely, tariff and economy--on which they won, had been so sought to be applied as not to threaten unduly to affect general business."

PROTESTS AGAINST EXTRAVAGANCE

"All will agree with me that a reasonable economy, instead of the actual wild extravagance of government, is more than ever a national need. Who will disagree with me, that in addition to the contribution from internal revenue, the tariff should be used merely to contribute towards the due expenses of the Government economically administered, but so applied as not to break down the standard of American citizenship, as exemplified in the working people of our country; and eked out, if it is possible, by contributions into the national treasury of sound inheritance taxes?"

URGES CUT ON NECESSARIES

"Is it not possible to apply that general plan as follows: Divide, say, all of the articles now upon the tariff list into three cla.s.ses.

"(_a_) All such as are usually found in the typical American homes--I mean the homes of those admirably called by Grover Cleveland the 'plain people,' who are just the same cla.s.s, I believe, as those indicated by Abraham Lincoln, when he said, 'G.o.d must greatly love the common people, for he made so many of them'--and put that list of articles on a free list or a severely tariff-for-revenue-only list.

"(_b_) Create a second division composed of all the articles of luxury. Put upon them the very highest tariff they will stand and yet come into the country, except in the case of articles of antique art.

These latter should be admitted free.

"(_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 Cla.s.s _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 compet.i.tion with his foreign compet.i.tor, which compet.i.tion would result in lower prices that he and his foreign compet.i.tors 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 ill.u.s.tration, 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 ma.s.s 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 pa.s.sed the Tariff Bill early in February by a big majority. Business soon looked up decidedly. But the Seigniorage Bill was adopted in March.