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diff --git a/.gitattributes b/.gitattributes new file mode 100644 index 0000000..6833f05 --- /dev/null +++ b/.gitattributes @@ -0,0 +1,3 @@ +* text=auto +*.txt text +*.md text diff --git a/7361.txt b/7361.txt new file mode 100644 index 0000000..6a3cd1d --- /dev/null +++ b/7361.txt @@ -0,0 +1,4301 @@ +The Project Gutenberg EBook of A Brief History of Panics, by Clement Juglar + +Copyright laws are changing all over the world. Be sure to check the +copyright laws for your country before downloading or redistributing +this or any other Project Gutenberg eBook. + +This header should be the first thing seen when viewing this Project +Gutenberg file. Please do not remove it. Do not change or edit the +header without written permission. + +Please read the "legal small print," and other information about the +eBook and Project Gutenberg at the bottom of this file. Included is +important information about your specific rights and restrictions in +how the file may be used. You can also find out about how to make a +donation to Project Gutenberg, and how to get involved. + + +**Welcome To The World of Free Plain Vanilla Electronic Texts** + +**eBooks Readable By Both Humans and By Computers, Since 1971** + +*****These eBooks Were Prepared By Thousands of Volunteers!***** + + +Title: A Brief History of Panics + +Author: Clement Juglar + +Release Date: January, 2005 [EBook #7361] +[Yes, we are more than one year ahead of schedule] +[This file was first posted on April 21, 2003] + +Edition: 10 + +Language: English + +Character set encoding: ASCII + +*** START OF THE PROJECT GUTENBERG EBOOK A BRIEF HISTORY OF PANICS *** + + + + +Produced by Lee Dawei, David Garcia +and the Online Distributed Proofreading Team. + + + + +A BRIEF HISTORY OF PANICS +AND THEIR PERIODICAL OCCURRENCE IN THE UNITED STATES + +BY CLEMENT JUGLAR + +MEMBER OF THE INSTITUTE, VICE-PRESIDENT OF LA SOCIETE +D'ECONOMIE POLITIQUE + +THIRD EDITION + +TRANSLATED AND EDITED WITH AN INTRODUCTION AND +BROUGHT DOWN FROM 1889 TO DATE + +BY DECOURCY W. THOM + +FORMER MEMBER OF THE BALTIMORE STOCK EXCHANGE AND OF THE +CONSOLIDATED EXCHANGE OF NEW YORK + + + + + + +TO GOLDEN DAYS + + +Tonight at "Blakeford," I set down this dedication of the third edition +of this book which has proved to be the pleasant companion of two +visitations--one at "Wakefield Manor," Rappahannock County, Virginia, in +1891, the other at my old home "Blakeford," Queen Anne's County, +Maryland, in 1915. The memories that entwine it there, and here mingle +in perfect keeping and have made of a dry study something that stirs +anew within me as I consider the work accomplished, my love and +remembrance of the old days, and my love and unforgettingness of these +other golden days under whose spell I have brought the book up to the +present year. + +DECOURCY W. THOM. + +"BLAKEFORD," + +October 10, 1915. + + + + + + +PREFACE TO THIRD EDITION + + +The second edition of this study of _Panics in the United States_ +brought us through the year 1891. I originated about one fourth of it. + +This third edition brings us practically up to date. Of this edition I +originated about one half. I hope it will prove helpful in many ways. I +trust that it will force an appreciable number of men to realize that +"business" or "financial" panic is not merely fear, as some have +asserted; but is based upon the knowledge that constriction, oppression, +unhappy and radical change in this, that, or the other kind of business +must tend to drag down many others successively, just as a whole line of +bricks standing on end and a few inches apart will fall if an end one is +toppled upon its next neighbor. Indeed, the major cause of "business" or +"financial" panic is just reasoning upon existing conditions rather than +a foolish fear of them. Over-trading and loss of nerve constitute the +medium. Recent national legislation has gone far in enabling the +business world in the United States to prevent panics, and farther yet +in providing the means to cope with them when, in spite of precautions, +they shall recur. + +DEC. W. THOM. + +"BLAKEFORD," + +October 10, 1915. + + + + + + +A BRIEF HISTORY OF PANICS + + + + + + +INTRODUCTION + + +COMPRISING A CONDENSATION OF THE THEORY OF PANICS, BY M. JUGLAR, +RENDERED INTO ENGLISH, WITH CERTAIN ADDITIONAL MATERIAL, +BY DECOURCY W. THOM. + + +In this translation, made with the author's consent, my chief object +being to convey his entire meaning, I have unhesitatingly rendered the +French very freely sometimes, and again very literally. Style has thus +suffered for the sake of clearness and brevity, necessary to secure and +retain the attention of readers of this class of books. This same +conciseness has also been imposed on our author by the inherent dryness +and minuteness of his faithful inquiry into hundreds of figures, tables +showing the condition of banks at the time of various panics, etc., +etc., essential to his demonstration. As an extreme instance of the +latitude I have sometimes allowed myself, I cite my rendering of the +title: "_Des Crises Commerciales et de Leur Retour Periodique en +France, en Angleterre et aux Etats-Unis_" merely as "Panics and Their +Periodical Occurrence in the United States": for M. Juglar himself +states that a commercial panic is always a financial panic, as a falling +away of the metallic reserve indicates its breaking out; and I have only +translated that portion dealing with the United States, deeming the rest +unnecessary, for this amply illustrates and proves the theorem in hand. + +To this sketch of the financial history of the United States up to 1889, +when M. Juglar published his second edition, I have added a brief +account to date, including the panic of 1890, the table headed "National +Banks of the United States," and some additions to the other tables +scattered through this book. + +From the prefaces to the French editions of 1860 and of 1889, and other +introductory matter, I have condensed his theory as follows: + +A Crisis or Panic may be defined as a stoppage of the rise of prices: +that is to say, the period when new buyers are not to be found. It is +always accompanied by a reactionary movement in prices. + +A panic may be broadly stated as due to overtrading, which causes +general business to need more than the available capital, thus producing +general lack of credit. Its precipitating causes are broadly anything +leading to overtrading: + +In the United States they may be classed as follows: + +I. PANICS OF CIRCULATION, as in 1857, when the steadily increased +circulation, which had almost doubled in nine years, had rendered it +very easy to grant excessive discounts and loans, which had thus +over-stimulated business, so that the above relapse occurred; or, we may +imagine the converse case, leading to a quicker and even greater +disaster: a sudden and proportionate shrinkage of circulation, which, of +course, would have fatally cut down loans and discounts, and so +precipitated general ruin. + +2. A PANIC OF CREDIT, as in 1866, when the failure of Overend, Gurney, & +Co. rendered the whole business world over cautious, and led to a +universal shrinkage of credit. [I take the liberty of adding that it +seems evident to me that such a danger must soon confront us in the +United States, unless our Silver Law is changed, because of a finally +inevitable distrust of the government's ability to keep 67-cent silver +dollars on an equality with 100-cent gold dollars.] + +3. PANICS OF CAPITAL, as in 1847, when capital was so locked up in +internal improvements as to prove largely useless. + +4. GENERAL TARIFF CHANGES. To the three causes given above the +translator adds a fourth and most important one: Any change in our +tariff laws general enough to rise to the dignity of a new tariff has +with one exception in our history precipitated a panic. This exception +is the tariff of 1846, which was for revenue only, and introduced after +long notice and upon a graduated scale. This had put the nation at large +in such good condition that when the apparently inevitable Decennial +Panic occurred in 1848 recovery from it was very speedy. + +The reason for this general effect of new tariffs is obvious. Usual +prices and confidence are so disturbed that buyers either hold off, +keeping their money available, or else draw unusually large amounts so +as to buy stock before adverse tariff changes, thus tightening money in +both ways by interfering with its accustomed circulation. This tendency +towards contraction spreads and induces further withdrawal of deposits, +thus requiring the banks to reduce their loans; and so runs on and on to +increasing discomfort and uneasiness until panic is speedily produced. +The practical coincidence and significance of our tariff changes and +panics is shown by an extract below from an article written by the +translator in October-November, 1890, predicting the recent panic which +was hastened somewhat by the Baring collapse. [Footnote: +_Inter-relations of Tariffs, Panics, and the Condition of Agriculture, +as Developed in the History of the United States of America_. + +This brief sketch of our economic history in the United States seeks to +show that Protective Tariffs have always impoverished a majority of our +people, the Agriculturists; that agriculture has thus been made a most +unprofitable vocation throughout the States, and that this unsoundness +at the very foundation of the business of the American people has often +forced our finances into such makeshift conditions, that under any +unusual financial strain a panic, with all its wretched accompaniments, +has resulted. + +To consider this properly, we must note the well known fact that in this +land, those who live by agriculture directly, are more than one half of +our population. Their votes can cause to be made such laws as they see +fit, hence, one would expect the enactment of laws to raise the price of +farm products, and to lower the price of all that the farmer has to buy. +But the farmers vote as the manufacturers and other active classes of +the minority of our voters may influence; and only twice in our history, +from 1789 to 1808, and from 1846 to 1860, have enough of the minority +found their interests sufficiently identical with that of the +unorganized farmer-majority to join votes, and thus secure at once their +common end. In consequence of this coalition during these two periods, +two remarkable things happened: 1st, agriculture flourished, and +comfortable living was more widely spread: 2d, panics were very +infrequent, and the hardships and far-reaching discomforts that must +ever attend adjustments to new financial conditions after disturbances +were, of course, minimized. + +It is not fair to deduce very much from the first period of prosperity +among the farmers, 1789 to 1808, for, during this time, there were no +important business interests unconnected with agriculture; but we may +summarize the facts that from 1789 to 1808, there was, 1st, no +protection, the average duty during this time being 5 per cent., and +that laid for revenue only; 2d, that agriculture flourished; 3d, that +there was not a single panic. + +"The Embargo" of 1808, followed by the Non-Intercourse Act in 1809 and +the War of 1812-15, and the war tariff, by which double duties were +charged in order to raise money for war purposes, caused us to suffer +all the economic disasters flowing from tariffs ranging between absolute +protection, and those practically prohibiting, and intensified by the +sufferings inseparable from war. + +During this period agriculture, for the first time in our history, was +in a miserable condition. It is significant that for the first time too, +we had a protective tariff. Though our people made heroic efforts to +make for themselves those articles formerly imported, thus starting our +manufacturing interests, they had, of course, lost their export trade +and its profits. When the peace of 1814 came, we again began exporting +our produce, and aided by the short harvests abroad, and our own +accumulated crops, resumed the profitable business which for six years +our farmers and our people generally had entirely lost. Our first panic, +that of 1814, came as a result of our long exclusion from foreign +markets, being followed by the stimulation given business through +resumption of our foreign trade in 1814, which was immensely heightened +by the banks issuing enormous quantities of irredeemable paper, instead +of bending all their energies to paying off the paper they had issued +during the war. + +But worse than the suffering entailed by this panic, was the engrafting +upon our economic policy of the fallacious theory made possible by the +Embargo and the Non-Intercourse Act, (which was equivalent, let me +enforce it once more, to that highest protective tariff, a prohibitory +one) that _all infant manufactures must be protected, that is, +guaranteed a home market_, though such home market be one where all +goods cost more to the purchaser than similar goods bought elsewhere, +and this in order that the compact little band of sellers in the home +market may make their profit. This demand for protection was made by +those who had started manufactures during the years from 1808 to the end +of the war of 1815, when, as we have seen, imports were practically +excluded. + +In 1816 their demand met explicit assent, for, in the tariff of that +year, duty for protection, not for revenue, was granted; and an average +of 25 per cent. duties for six years, to be followed by an average of 20 +per cent. duties, was laid upon imports. For a few years bad bread crops +in Europe, demand for our cotton, and an inflation of our currency +delayed a panic. + +But, we had started on our unreasoning course. We had tried to ignore +the laws of demand and supply, and had forgotten that it is also +artificial to attempt preventing purchases in the cheapest, and selling +in the highest markets; and to help a few manufacturers we had put up +prices for all that a large majority of our population,--the +agriculturists mainly--had to buy. In a short while the demand for what +the farmers had to sell fell away, and bills could not be met, and their +troubles were added to those of the minority of the consumers of the +country; the volume of business fell off, and a panic came in 1818. The +influences that led up to it continued until 1846, as follows: The great +factors in producing this state of affairs were the successive tariffs +of 1818, with its 25 per cent. duty upon cottons and woollens, and its +increased duties on all forms of manufactured iron, (the tariff of 1824 +which increased duties considerably), and the tariff of 1828, imposing +an average of 50 per cent. duties, and in which the protective movement +reached its acme (omitting, of course, the present McKinley Bill with +its 60 per cent. average duty). In 1832, consequently, a great reaction +in sentiment took place, and the "Compromise Tariff" was passed and +duties were lowered. From this period, the advocacy of a high tariff in +order to protect "Infant Industries," no longer "Infant" was largely +abandoned, and its advocacy was generally based upon the fallacy, less +obvious then than now, of securing high wages to laborers by means of +high import duties. This plea for high duties the laborer found to be +fallacious. + +They (agriculturists mainly) found that they had to pay more for +manufactured goods, so that the manufacturers could still buy their raw +materials at the advanced prices, pay themselves the accustomed or +increased profits, and then possibly pay the laborer a small advance in +wages. + +The advance did not compensate for increased cost of necessaries of +life. If competition reduced the manufacturers' profit, the first +reduction of expenses was always in the laborer's pay. The recognition +of these truths brought about the further reduction of duties until +1842, in which year the tariff was once more raised. It was not until +1846 that we enjoyed a tariff which sought to eliminate the protective +features. It is significant that a period of greater profit and +stability among our business men, but especially among our farmers, was +then inaugurated. This was the first tariff, since that of 1816, not +affected by politics. It lasted-until 1857, and the country flourished +marvellously under it. + +From 1816, when protection was first resorted to, until today, tariff +rates have been almost continually raised, mainly by votes of the +agriculturists, misled by the manufacturers and politicians, influenced +by the manufacturers' money. And a fact worth noting is that financial +panics have come quick and furious. They came in 1818, and in 1825-26, +in 1829-30, and so on, (see page 13). Sudden changes in our tariff rates +have unvaryingly been followed by financial panics within a short +period. Changes to lower rates have not brought panics so quickly as +changes in the reverse direction. + +Low tariff without protective features, maintained steadily, has been +coincident with constantly increasing prosperity to the country at +large: but most especially to the agriculturists. This is readily +understood, for purchases of imported and manufactured goods and all +outfit needed for the farmers' land and family can be made at low--and +owing to the competition that always arises to supply a steady and +natural market--lowering prices. Moreover, the settled prices prevailing +throughout the country allow of assured calculations and precautions as +to business ventures, and permit such a ratio to be established between +expenses and income, that at the end of the fiscal year a profit, not a +loss, may be counted upon. + +This was the experience of our agriculturists during the second and last +prosperous time of our farmers, 1846-60. During that period agriculture +flourished; the tariff was low and there were only two panics, that of +1848, and the one of 1857, and the first (a non-protective one) should +not be considered as precipitated by the tariff of 1846, except that +some few suffered briefly in readjusting themselves to the changed, +(though better), condition of the new tariff. The vast majority of the +nation reaped enormous benefits from the changes inaugurated. + +The panic of 1857 was caused by over-activity in trade speculation, and +over-banking, and the tariff of the same year was really passed to help +avert the panic threatening. It had the contrary effect, it is believed, +for it still further, of course, unsettled rates for goods, when prices +were already unstable. But the point is to be noted that in reality +tariff change followed practical panic in this instance rather than +practical panic tariff change. The high protective war tariffs, +beginning in 1860, and increased for war purposes and granted largely as +an offset for those internal revenue taxes laid to carry on the war, +have been continued as a body ever since, as is well known, despite the +internal revenue taxes having been abolished except on whiskey and +tobacco. It is equally well known that farming has grown less and less +remunerative since 1860, and that the panics of 1864, 1873, and 1884 +have been unfortunate culminations of almost unceasing financial +discomfort, which has been most forcibly exemplified during the last two +months. Even now the financial fabric is in unstable equilibrium, and +this latest monstrosity--the McKinley Bill--imposing the highest tariff +we have ever exacted--an average duty of 60 per cent., and coming when a +panic was due, bids fair to hurry us into another and a terrible +financial panic. If it does not do so, it will be because our crops are +too bountiful to allow it, but it will at least have made the +agriculturists and all buyers of other commodities than agricultural +produce pay more for all purchases. It will bring no more money into +their pockets, but it must take out considerably more. The people +appreciate this. The nation's pocket nerve has been touched. This is the +meaning of the recent election, it seems to the writer. But whether the +impending danger can be averted even if a prompt, though wise and slow +reversal of tariff policy can be forced by the next Congress is +doubtful, for unrest and timidity have been evoked and require time to +be allayed before easy and orderly business operations will in general +be resumed, unless indeed bountiful crops here and demand abroad once +again reverse the logic of the situation. + +Certain it is that our tariff laws must interfere as little as possible +with the natural law of demand and supply in making prices, or we must +be content to suffer from the instability that artificiality always +brings with it. + +Our plain duty is to enact as speedily as possible a tariff that shall +by small but continued changes cut down our protective duties and +substitute non-protective duties until our tariff is for revenue only; +for thus and thus only can the vast majority of the agriculturists buy +what they need most cheaply, and so find that to purchase necessaries +does not cost them more than the total of their sales; and our exports +of produce, chiefly owing to agricultural prosperity, would increase, +thus materially helping to build up our general business so that the +other nations will have to pay us, in the gold we require for +comfortable management of our business, the growing trade balances +against them. + +The rough table below suggests that sudden tariff changes have +precipitated panics, which have come quickly if the change was to higher +protective duties and somewhat slower if the change was to lower +protective duties; that slow and well considered changes doing away with +protective duties generally have not caused disturbances; and that +agriculture has flourished in proportion as we approached tariff for +revenue only. It has for obvious reasons required about one year for +financial trouble to be shown by decrease in value of farm produce as +evinced by wheat-flour exports. + +Special conditions, such as excessive wheat corps here and deficiency +abroad or special tariff favors to flour export, may even increase the +amount exported despite an otherwise untoward effect of the new tariff +upon farmers. I have selected flour exports as the article best +reflecting the chief interest of the farmers, and at the same time the +state of general business for manufacturing, transportation and such +other branches as are concerned with it. + + ------------------------------+---------+-------------------------------- + TARIFFS ,- They have all | | Condition of agriculture and + | been designedly | | incidentally of general + + protective | Panics. | business as suggested by export + | save the one | | of wheat flour from 1790-1890. + '- of 1846. +---------+-------------------------------- + | | Year. Barrels. Dollars. + | | 1790 724,623 4,591,293 + | | 1791 619,681 3,408,246 + | | 1792 824,464 ......... + | | 1793 1,074,639 ......... + | | 1794 846,010 ......... + | | 1795 687,369 ......... + | | 1796 725,194 ......... + | | 1797 515,633 ......... + | | 1798 567,558 ......... + | | 1799 519,265 ......... + | | 1800 653,056 ......... + | | 1801 1,102,444 ......... + | | 1802 1,156,248 ......... + | | 1803 1,311,853 9,310,000 + | | 1804 810,008 7,100,000 + | | 1805 777,513 8,325,000 + | | 1806 782,724 6,867,000 + | | 1807 1,249,819 10,753,000 + | | 1808 263,813 1,936,000 + | | 1809 846,247 5,944,000 + | | 1810 798,431 6,846,000 + ,- Practical | | 1811 1,445,012 14,662,000 + | exclusion of | | ,- 1812 1,443,492 13,687,000 + Say + all imports | | | 1813 1,260,943 13,591,000 + 1814 | through the war = | 1814 | + 1814 193,274 1,734,000 + '- Prohibitory Tariff. | | '- 1815 862,739 7,209,000 + | | ,- 1816 729,053 7,712,000 + ,- Duties for six | | '- 1817 1,479,198 17,751,376 + 1816 + years @ 25% and | 1818 | ,- 1818 1,157,697 11,576,970 + '- thereafter @ 20%. | | | 1819 750,669 6,005,280 + | | | 1820 1,177,036 5,296,664 + 1818 ,- Duties 25% on | | | 1821 1,056,119 4,298,043 + | Cotton and Woollens, | | + 1822 827,865 5,103,280 + + and all duties | | | 1823 756,702 4,962,373 + | on Manufactured | | | 1824 996,792 5,759,176 + '- Iron increased. | 1825-26 | | 1825 813,906 4,212,127 + | | | 1826 857,820 4,121,466 + | | '- 1827 868,492 4,420,081 + | | ,- 1828 860,809 4,286,939 + 1828 { Average duty of 50%. | | | 1829 837,385 5,793,651 + | | + 1830 1,227,434 6,085,953 + | | | 1831 1,806,529 9,938,458 + | | '- 1832 864,919 4,880,623 + ,- Compromise Tariff, | | ,- 1833 955,768 5,613,010 + | gradual reduction | | | 1834 835,352 4,520,781 + | of duties from | | | 1835 779,396 4,394,777 + | 50% average until | | | 1836 505,400 3,572,599 + 1833 + in 1842 the average | 1836-39 | + 1837 318,719 2,987,269 + | was 20%. But this | | | 1838 448,161 3,603,299 + | was levied for | | | 1839 923,151 6,925,170 + | Protection not | | | 1840 1,897,501 10,143,615 + '- merely for Revenue. | | '- 1841 1,515,817 7,759,646 + | | ,- 1842 1,283,602 7,375,356 + 1842 {Imposed higher duties. | | + 1843 841,474 3,763,073 + | | | 1844 1,438,574 6,759,488 + | | '- 1845 1,195,230 5,398,593 + | | ,- 1846 2,289,476 11,668,669 + ,- Imposed lower | | | 1847 4,382,496 26,133,811 + | duties and these | | | 1848 2,119,393 13,194,109 + 1846 | were not for | | | 1849 2,108,013 11,280,582 + + Protection purposes, | | | 1850 1,385,448 7,098,570 + | they were simply | 1848 | + 1851 2,202,335 10,524,331 + '- for Revenue. | | | 1852 2,799,339 11,869,143 + | | | 1853 2,920,918 14,783,394 + ,- Reduced Tariff | | | 1854 4,022,386 27,701,444 + | rates on above | | | 1855 1,204,540 10,896,908 + 1857 + plan because of | | '- 1856 3,510,626 29,275,148 + | redundant | | ,- 1857 3,712,053 25,882,316 + '- prosperity. | 1857 | + 1858 3,512,169 19,328,884 + | | '- 1859 2,431,824 14,433,591 + ,- War Tariff | | + | protection restored | | ,- 1860 2,611,596 15,448,507 + 1860 + as compensation for | 1864 | '- 1861 4,323,756 24,645,849 + | Internal Revenue | | + '- taxes. | | + | | + 1862 As above.......... | | 1862 4,882,033 27,534,677 + 1864 As above.......... | | 1863 4,390,055 28,366,069 + | | ,- 1864 3,557,347 25,588,249 + | | | 1865 2,641,298 27,507,084 + | | | 1866 2,183,050 18,396,686 + | | + 1867 1,300,106 12,803,775 + | | | 1868 2,076,423 20,887,798 + | | | 1869 2,431,873 18,813,865 + ,- 10% reduction, but | | | 1870 3,463,333 21,169,593 + | coffee and tea put | | '- 1871 3,653,841 24,093,184 + 1872 + on Free List and | | ,- 1872 2,514,535 17,955,684 + | whiskey and tobacco | 1873 | | 1873 2,562,086 19,381,664 + '- taxes reduced. | | | 1874 4,094,094 29,258,094 + | | | 1875 3,973,128 23,712,440 + 1875 ,- 10% reduction | | | 1876 3,935,512 24,433,470 + '- above repealed. | | + 1877 3,343,665 21,663,947 + | | | 1878 3,947,333 25,695,721 + | | | 1879 5,629,714 29,567,713 + | | | 1880 6,011,419 35,333,197 + ,- Duties really raised | | | 1881 7,945,786 45,047,257 + | on class of goods | | '- 1882 5,915,686 36,375,055 + | most used, but | | ,- 1883 9,205,664 54,824,459 + | apparently lowered | 1884 | | 1884 9,152,260 51,139,695 + 1883 + the tariff, for | | | 1885 10,648,145 52,146,336 + | it considerably | | + 1886 8,179,241 38,443,955 + | reduced rates on | | | 1887 11,518,449 51,950,082 + | many little used | | | 1888 11,963,574 54,777,710 + '- classes of goods. | | '- 1889 9,374,803 45,296,485 + | | + 1890 ,- McKinley Bill | | ,- 1890 12,231,711 57,036,168 + '- average of 60% duty. | | '- 1891 11,344,304 54,705,616 + | | 1892 15,196,769 75,362,283 + ,- Free silver | | + | and sudden | | 1893 16,620,339 75,494,347 + 1893 + ill-distributed | | 1894 16,859,533 69,271,770 + -94 | and drastic tariff | | 1895 15,268,892 51,651,928 + | reductions and | | 1896 14,620,864 52,025,217 + '- insufficient revenue.| | + | | 1897 14,569,545 55,914,347 + 1897 ,- | | 1898 15,349,943 69,263,718 + | Tariff | | 1899 18,485,690 73,093,870 + | disturbance | | 1900 18,699,194 67,760,886 + | to | | 1901 18,650,979 69,459,296 + | higher | | 1902 17,759,203 65,661,974 + 1903 | rates. | | 1903 19,716,203 73,756,404 + | | | 1904 16,699,432 68,894,836 + + The | | 1905 8,826,335 40,176,136 + | propaganda | | 1906 13,919,048 59,106,869 + 1907 | for | | 1907 15,584,667 62,175,397 + | keener | | 1908 13,937,247 64,170,508 + | regulation | | 1909 10,521,161 51,157,366 + | of | | 1910 9,040,987 47,621,467 + | business. | | 1911 10,129,435 49,386,946 + '- | | 1912 11,006,487 50,999,797 + | | + 1913 ,- Tariff reductions to | | 1913 11,394,805 53,171,537 + | produce a revenue; | | 1914 12,768,073 62,391,503 + | not on a protective | | + + basis. The further | | + | regulating of | | + | business. | | + '- The "World War." | | + ------------------------------+---------+--------------------------------] + +The retarding or precipitating influence of a good or bad condition of +agriculture upon the advent of a panic is also indicated. + +The symptoms of approaching panic, generally patent to every one, are +wonderful prosperity as indicated by very numerous enterprises and +schemes of all sorts, by a rise in the price of all commodities, of +land, of houses, etc., etc., by an active request for workmen, a rise in +salaries, a lowering of interest, by the gullibility of the public, by a +general taste for speculating in order to grow rich at once, by a +growing luxury leading to excessive expenditures, a very large amount of +discounts and loans and bank notes [Footnote: Our recent banking history +has proved rather an exception to this law as far as bank notes are +concerned, because of the obviously unusual cause of sudden and enormous +calling in of government bonds, the basis of bank-note issue.] and a +very small reserve in specie and legal-tender notes and poor and +decreasing deposits. + +On the other hand, the lowest point of depression following a panic is +accompanied by the converse of the symptoms just enumerated. + +Bank balance sheets reflect in cold figures the result of the above +influences. Prices being high, and discounts and loans large in +proportion to deposits, and having steadily increased for years, danger +is near; further, when discounts and loans are not only large in +proportion to deposits, having increased steadily for years, and then +suddenly fallen off noticeably for a considerable time, only to increase +again, danger is imminent. + +On the other hand, a steady and radical reduction of loans and +discounts, following a panic and extending until new enterprises are +very scarce, till prices are very low, till there is wide-spread +idleness among workmen, a decrease in salaries and in interest rates, +when the public is wary and speculation dead, and expenditures are cut +down as far as possible, may be taken to mean a rapid and continued +resumption of every prosperous business: but if the above process is +only partially performed, renewed trouble must result;--in other words, +liquidation to really be helpful (to congested business) must be +thorough. + +A study of the first of the following tables, "National Banks of the +United States," illustrates the above generalization. It is unnecessary +to mention that 1878, 1884, and 1890 have been the last three panic +years. But it is very necessary in studying this table, to bear in mind +that its figures are taken from the standing of the banks at the first +of the year, while the panics generally occurred later in the year: the +last two, for instance in the second and fourth quarter, respectively. +The third and fourth tables will give more exact figures in this +connection. Table Two, dealing with State Banks, is given merely to +round out our banking history as told in figures. + +The increase or diminution of deposits of course reflects a confident +and successful, or a panicky and impoverishing, state of general +business. + + + TABLE NO. 1.--NATIONAL BANKS OF THE UNITED STATES + _________________________________________________________________________ + Percentage of Difference (over or under) | + between Deposits and Loans and Discounts. | + ________________________________________________________________ \ | + Difference between Deposits and Loans and Discounts. (Millions) | | + _________________________________________________________ \ | | + Percentage "Working Capital" exceeds Loans and Discounts.| | | + ____________________________________________________ \ | | | + Excess of Capital (Surplus, Undivided Profits, | | | | + and Deposits) over Loans and Discounts. (Millions) | | | | + _____________________________________________ \ | | | | + | LOANS | "WORKING CAPITAL." | | | | | + | AND |__________________________| | | | | + | DISCOUNTS.| Capital. | | | | | + |______ \ | / ___________________| | | | | + | | | | Undivided Profits | | | | | + | | | | and Surplus, etc. | | | | | + YEAR|MONTH.| | | / _____________| | | | | + | | | | | Deposits | | | | | + | | | | | / ______| | | | | + | | | | | |TOTAL.| | | | | + ========================================================================== + | |-----------In Millions.----------| | | | | + 1863|Oct. 5| 5.464| 7.188|0.128| 8.497|15.913|10.347|65.4|+3.031|35.6 ovr| + 1864|Jan. 4|10.666|14.740|0.432|19.450|34.622|23.956|69.2|+8.784|45.1 " | + 1865|Jan. 2| 166 | 135 | 20 | 183 | 338 | 152 |47.7|+ 17 | 9.2 " | + 1866|Jan. 1| 500 | 403 | 71 | 522 | 996 | 496 |49.8|+ 22 | 4.2 " | + 1867|Jan. 7| 608 | 420 | 86 | 538 | 1064 | 456 |42.8|- 50 | 8.9 und| + 1868|Jan. 6| 616 | 420 | 101 | 534 | 1055 | 439 |41.6|- 82 |15.3 " | + 1869|Jan. 4| 644 | 419 | 116 | 568 | 1103 | 559 |46.4|- 76 |13.3 " | + 1870|Jan.22| 688 | 426 | 124 | 546 | 1096 | 408 |37.2|- 142 |26 " | + 1871|Mch.18| 767 | 444 | 140 | 561 | 1145 | 378 |33. |- 206 |36.7 " | + 1872|Feb.27| 839 | 464 | 147 | 593 | 1204 | 365 |30.3|- 246 |41.4 " | +*1873|Feb.28| 913 | 484 | 163 | 656 | 1303 | 390 |29.9|- 257 |29.1 " | + 1874|Feb.27| 897 | 490 | 173 | 595 | 1258 | 361 |28.6|- 302 |52.4 " | + 1875|Mch. 1| 956 | 496 | 182 | 647 | 1325 | 369 |27.8|- 309 |47.7 " | + 1876|Mch.10| 950 | 504 | 184 | 620 | 1308 | 358 |27.3|- 330 |53.2 " | + 1877|Jan.20| 920 | 493 | 167 | 659 | 1319 | 399 |30.2|- 261 |39.6 " | + 1878|Mch.15| 854 | 473 | 165 | 602 | 1240 | 386 |31.1|- 252 |41.8 " | + 1879|Jan. 1| 823 | 462 | 153 | 643 | 1258 | 435 |34.5|- 180 |27.9 " | + 1880|Feb.21| 974 | 454 | 159 | 848 | 1461 | 487 |33.3|- 126 |14.8 " | + 1881|Mch.11| 1073 | 458 | 176 | 933 | 1567 | 494 |31.5|- 140 |15 " | + 1882|Mch.11| 1182 | 469 | 191 | 1036 | 1696 | 514 |30.3|- 146 |14 " | + 1883|Mch.13| 1249 | 490 | 196 | 1004 | 1690 | 441 |26.1|- 245 |24.4 " | +*1884|Mch. 7| 1321 | 515 | 209 | 1046 | 1770 | 449 |25.3|- 275 |26.2 " | + 1885|Mch.10| 1232 | 524 | 206 | 996 | 1726 | 494 |28.6|- 236 |23.6 " | + 1886|Mch. 1| 1367 | 533 | 212 | 1152 | 1897 | 530 |27.9|- 215 |18.6 " | + 1887|Mch. 4| 1515 | 555 | 231 | 1224 | 2010 | 495 |24.6|- 291 |23.7 " | + 1888|Feb.14| 1584 | 582 | 246 | 1251 | 2079 | 495 |23.7|- 333 |26.6 " | + 1889|Feb.26| 1704 | 596 | 269 | 1354 | 2219 | 515 |23.1|- 350 |25.8 " | +*1890|Feb.28| 1844 | 626 | 290 | 1479 | 2395 | 551 |22.2|- 365 |24.6 " | + 1891|Feb.26| 1927 | 662 | 316 | 1483 | 2461 | 534 |21.7|- 444 |29.8 " | + 1892|Mch. 1| 2044 | 679 | 330 | 1702 | 2711 | 667 |24.6|- 342 |20.1 " | + 1893|Mch. 6| 2159 | 688 | 348 | 1751 | 2787 | 627 |22.6|- 408 |23.3 " | + 1894|Feb.28| 1872 | 678 | 332 | 1586 | 2596 | 724 |27.9|- 286 |18. " | + 1895|Mch. 5| 1965 | 662 | 329 | 1667 | 2658 | 693 |26.2|- 298 |17.8 " | + 1896|Feb.28| 1966 | 653 | 334 | 1648 | 2635 | 669 |25.4|- 318 |19.2 " | + 1897|Mch. 9| 1898 | 642 | 333 | 1669 | 2644 | 746 |29. |- 229 |13.6 " | + 1898|Feb.18| 2152 | 628 | 334 | 1982 | 2944 | 792 |27. |- 170 | 8.5 " | + 1899|Feb. 4| 2299 | 608 | 332 | 2232 | 3172 | 873 |27.6|- 67 | 3. " | + 1900|Feb.13| 2481 | 613 | 363 | 2481 | 3457 | 976 |28.3|+ | 0. | + 1901|Feb. 5| 2814 | 634 | 398 | 2753 | 3785 | 971 |25.7|- 61 | 2.2 " | + 1902|Feb.25| 3128 | 667 | 448 | 2982 | 4097 | 969 |23.7|- 146 | 4.9 " | + 1903|Feb. 6| 3350 | 731 | 516 | 3159 | 4406 | 1056 |24. |- 191 | 5.6 " | + 1904|Jan.22| 3469 | 765 | 562 | 3300 | 4627 | 1158 |25.1|- 169 | 5.1 " | + 1905|Jan.11| 3728 | 776 | 589 | 3612 | 4977 | 1279 |25.1|- 116 | 3.2 " | + 1906|Jan.29| 4071 | 814 | 635 | 4088 | 5537 | 1466 |26.5|+ 17 | .41 ovr| + 1907|Jan.26| 4463 | 860 | 689 | 4115 | 5664 | 1201 |21.3|- 348 | 8.4 und| + 1908|Feb.14| 4422 | 905 | 742 | 4105 | 5752 | 1330 |23.2|- 317 | 7.7 " | + 1909|Feb. 5| 4840 | 927 | 772 | 4699 | 6398 | 1558 |24.4|- 141 | 2.9 " | + 1910|Jan.31| 5229 | 960 | 818 | 5190 | 6968 | 1739 |25. |- 39 | .73 " | + 1911|Jan. 7| 5402 | 1007 | 884 | 5113 | 7004 | 1602 |22.9|- 289 | 5.6 " | + 1912|Feb.20| 5810 | 1031 | 927 | 5630 | 7588 | 1778 |23.5|- 180 | 3.1 " | + 1913|Feb. 4| 6125 | 1048 | 958 | 5985 | 7991 | 1866 |23.4|- 140 | 2.3 " | + 1914|Jan.13| 6175 | 1057 | 991 | 6072 | 8120 | 1945 |23.9|- 103 | 1.7 " | + 1915|Mch. 4| 6499 | 1066 |1012 | 7148 | 9226 | 2727 |29.6|+ 649 | 9.9 ovr| + ----+------+------+------+-----+------+------+------+----+------+--------+ + NOTE:--These Figures are for the standing at the first part of the year + as indicated. + *Panic Years. + + + + + TABLE NO. 2. + + UNITED STATES TABLE OF BALANCE SHEETS. + MILLIONS OF DOLLARS. + + ------+-----------+---------+----------+-----------+----------+---------+ + | | SPECIE | DISCOUNTS| INDIVIDUAL| NUMBER | | + YEAR |CIRCULATION| ON | AND | DEPOSITS | OF | CAPITAL | + | | HAND | LOANS | | BANKS | | + ------+-----------+---------+----------+-----------+----------+---------+ + 1811 | 28 | 15 | | | 89 | 52 | + 1815 *| 45 | 17 | | | 208 | 88 | + 1816 *| 68 | 19 | | | 246 | 89 | + 1819 | 35 | 9 | 73 | | | 72 | + 1820 *| 44 | 19 | | 35 | 308 | 137 | + 1830 | 61 | 22 | 200 | 55 | 330 | 145 | + 1834 | 94 | | | | | | + 1835 | 103 | 43 | 324 | 75 | 506 | 200 | + 1836 | 140 | 40 | 365 | 83 | 704 | 231 | + 1837 | 149 | 37 | 457 | 115 | 713 | 251 | + | | | 525 | 127 | 788 | 290 | + 1838 | 116 | 35 | 485 | 84 | 829 | 317 | + 1839_*| 135 | 45 | 492 | 90 | 840 | 327 | + 1840 | 106 | 33 | 462 | 75 | 901 | 358 | + 1841 | 107 | 34 | 386 | 64 | 784 | 313 | + 1842 | 83 | 28 | 323 | 62 | 692 | 260 | + 1843 | 58 | 33 | 254 | 56 | 691 | 228 | + 1844 | 75 | 49 | 264 | 84 | 696 | 210 | + 1845 | 89 | 44 | 288 | 88 | 707 | 206 | + 1846 | 105 | 42 | 312 | 96 | 707 | 196 | + 1847 | 105 | 35 | 310 | 91 | 715 | 203 | + 1848_*| 128 | 46 | 344 | 103 | 751 | 204 | + 1849 | 114 | 43 | 332 | 91 | 782 | 207 | + 1850 | 131 | 45 | 364 | 109 | 824 | 217 | + 1851 | 155 | 48 | 413 | 128 | 879 | 227 | + 1854 | 204 | 59 | 557 | 188 | 1208 | 301 | + 1855 | 186 | 53 | 576 | 190 | 1307 | 332 | + 1856 | 195 | 59 | 634 | 212 | 1398 | 343 | + 1857_*| 214 | 58 | 684 | 230 | 1416 | 370 | + 1858 | 155 | 74 | 583 | 185 | 1422 | 394 | + 1859 | 193 | 104 | 657 | 259 | 1476 | 401 | + 1860 | 207 | 83 | 691 | 253 | 1562 | 421 | + 1861 | 202 | 87 | 696 | 257 | 1601 | 429 | + 1862 | 183 | 102 | 646 | 296 | 1492 | 418 | + 1863 *| 238 | 101 | 648 | 393 | 1466 | 405 | + ------+-----------+---------+----------+-----------+----------+---------+ + *PANIC YEARS + + + + + TABLE NO. 3. + + UNITED STATES TABLE OF BALANCE SHEETS OF + THE NATIONAL BANKS--QUARTERLY STATEMENT. + MILLIONS OF DOLLARS. + + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + | |SPECIE | | DIS- | INDIVI- |NUMBER | |SURPLUS| + |CIRCU- | ON | LEGAL | COUNTS| DUAL | OF | |AND UN-| + YEAR |LATION | HAND |TENDERS| AND | DEPOSITS| BANKS |CAPITAL|DIVIDED| + | | | | LOANS | | | |PROFITS| + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + |MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN| + | | | | | | | | | + 1865 | 66| 4| 72| 166| 183|1500 |393 |20 | + 2nd Q| | | | | | | | | + 3rd "| |18 |189 | | | | | | + 4th "|171 | | |487 | | | | | + 1866 | | | | |500 | | | | + 2nd "| 213|19 |187 |500 | | | | | + 3rd "| | | | | 522|1644 |415 |71 | + 4th "|280 | | | | | | | | + 1867 | | |205 |603 |564 | | | | + 2nd "| | 9| | |558 | | | | + 3rd "| | | | | 512|1642 |420 |86 | + 4th "|293 | | 92| | | | | | + 1868 | |20 |114 |609 | 532|1643 |420 |101 | + 2nd "| | | 84| | | | | | + 3rd "| | | | | | | | | + 4th "|295 | | | | | | | | + 1869 | |29 | | | |1617 |426 |116 | + 2nd "| | | |657 |580 | | | | + 3rd "| | | 80| | | | | | + 4th "| |48 | | | | | | | + 1870 | | | |686 |574 | | | | + 2nd "| | | |688 | 511|1648 |430 |124 | + 3rd "| | 18| 94 79| |546 | | | | + 4th "|296 | | | | 501| | | | + 1871 | | | |725 | | | | | + 2nd "| | |122 | | | | | | + 3rd "| | 13| 93| | |1790 |458 |140 | + 4th "|318 | | 97 | | | | | | + 1872 | | | |831 |611 | | | | + 2nd "| | |122 | | | | | | + 3rd "| | 10| | | |1940 |479 |147 | + 4th "|336 | | | |620 | | | | + 1873 *| | | | | | | | | + 2nd "| | 16|10 97|885 |656 | | | | + 3rd "|339 | 19| | |622 616|1976 |491 |153 | + 4th "|341 |33 | 92|944 | | | | | + 1874 | | |103 | | | | | | + 2nd "| | 21| | 836| 540| | | | + 3rd "| | | 80|897 | 595|2027 |493 |173 | + 4th "| 331| | |955 |682 | | | | + 1875 | | | | |695 | | | | + 2nd "| | 8| |984 | |2087 |504 |182 | + 3rd "| | | | | 618| | | | + 4th "| 314| | 70| | | | | | + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + *PANIC YEARS + + + + + MILLIONS OF DOLLARS. + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + | |SPECIE | | DIS- | INDIVI- |NUMBER | |SURPLUS| + |CIRCU- | ON | LEGAL | COUNTS| DUAL | OF | |AND UN-| + YEAR |LATION | HAND |TENDERS| AND | DEPOSITS| BANKS |CAPITAL|DIVIDED| + | | | | LOANS | | | |PROFITS| + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + |MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN| + | | | | | | | | | + 1876 | | | | | |2089 |499 |184 | + 2nd Q| | 21| | | 612| | | | + 3rd "| | | | | | | | | + 4th "| 291|32 |90 | | | | | | + 1877 | |49 | 66| 929| | | | | + 2nd "| 290| | | |659 |2080 |479 | | + 3rd "| | 21| | | | | |167 | + 4th "| | | 66| | | | | | + 1878 | |54 | | | | | | | + 2nd "| | 29| | 881| 604| | | | + 3rd "| | | | |625 |2053 |466 |165 | + 4th "|303 | | | | | | | | + 1879 | |41 | 54| 826| 588| | | | + 2nd "| | | | 814| |2048 |454 |153 | + 3rd "| | | | | | | | | + 4th "|321 |79 | 54|933 |765 | | | | + 1880 | | | | | | | | | + 2nd "| |86 | | | | | | | + 3rd "| |109 |64 |974 | |2090 |457 |159 | + 4th "| 317| 105| |1040 | | | | | + 1881 | | | 52| |1000 | | | | + 2nd "| 298|128 | | | 932|2132 |463 | | + 3rd "| | | | | | | |176 | + 4th "|323 | | | | | | | | + 1882 | | 109| |1100 |1100 1000|2268 |483 | | + 2nd "| |112 | | | | | | | + 3rd "| | 102| |1200 |1122 | | |191 | + 4th "|315 | |68 | | | | | | + 1883 | | | | | | | | | + 2nd "| | 97| | | | | | | + 3rd "| 304|115 | | | | | | | + 4th "| | | | | 1000|2501 |509 |196 | + 1884 *| | |80 |1300 |1100 | | | | + 2nd "| |109 | 75| | |2664 |524 | | + 3rd "| 289|128 |77 |1306 | | | |209 | + 4th "| |167 | | 1200|1000 975| | | | + 1885 | | | | | | | | | + 2nd "| |177 |79 | | | | | | + 3rd "| | | 69| 1200| |2714 |527 |206 | + 4th "| 268| | | |1100 | | | | + 1886 | |171 | 62| | | | | | + 2nd "| | 149| |1470 |1152 |2852 |548 | | + 3rd "| | | | |1172 | | |212 | + 4th "| 202| | | | | | | | + 1887 | |171 |79 | | |3049 |578 | | + 2nd "| | | 73|1587 |1285 | | |231 | + 3rd "| | | | | | | | | + 4th "| 164| 159| | | | | | | + 1888 | | 172|83 | | | | | | + 2nd "| |178 | | | | | | | + 3rd "| | | | | |3120 |588 | | + 4th "| 151|182 | | | | | |246 | + 1889 | | | 81|1684 |1350 | | | | + 2nd "| | |97 | | |3170 |596 |269 | + 3rd "| | | | | | | | | + 4th "| 126| 164| | | | | | | + 1890 *| |171 | 84|1811 |1436 | | | | + 2nd "| | | | | |3383 |626 |290 | + 3rd "| |178 | | | | | | | + 4th "| 123|190 | | | | | | | + 1891 | | | 82|1932 |1521 | | | | + 2nd "| | | | | 1483|3601 |662 |316 | + 3rd "| 123|199 | | |1575 | | | | + 4th "| | |100 |1962 |1525 | | | | + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + *PANIC YEARS + + + + + MILLIONS OF DOLLARS. + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + | |SPECIE | | DIS- | INDIVI- |NUMBER | |SURPLUS| + |CIRCU- | ON | LEGAL | COUNTS| DUAL | OF | |AND UN-| + YEAR |LATION | HAND |TENDERS| AND | DEPOSITS| BANKS |CAPITAL|DIVIDED| + | | | | LOANS | | | |PROFITS| + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + |MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN| + 1892 | | | | | | | | | + 1st Q|141 |230 |99 |2044 |1702 |3711 |678 |330 | + 2nd "| |239 | |2171 |1769 | | | | + 3rd "| | |113 | | | | | | + 4th "|145 | 209| | | |3784 |689 |353 | + 1893 | | | | | | | | | + 1st "| 149| | 90|2161 |1751 |3830 |688 |352 | + 2nd "| | 186| | | | | | | + 3rd "| 182| | | 1843| | | | | + 4th "| |251 |131 | | 1451| | | | + 1894 | | | | | | | | | + 1st "|174 |259 |146 | 1872| |3777 |678 | | + 2nd "| | | | | | | | | + 3rd "| 189| | |2007 |1728 | | | | + 4th "| | 218| 119| | | | |339 | + 1895 | | | | | | | | | + 1st "| 169|220 | | 1965| |3728 |662 | | + 2nd "| | | | | | | | | + 3rd "| | | | |1736 | | | | + 4th "|185 | 196| 93|2059 | | | |340 | + 1896 | | | | | | | | | + 1st "| 187| 196| |1982 |1687 |3699 |653 | | + 2nd "| | |118 | | | | | | + 3rd "| | | | | | | | | + 4th "|210 | | 110| 1893| 1597| | |342 | + 1897 | | | | | | | | | + 1st "|202 | 233| | | 1669|3634 |642 | | + 2nd "| | |126 | | | | | | + 3rd "| | | | | | | | | + 4th "| 193|252 | 107|2100 |1916 | | |341 | + 1898 | | | | | | | | | + 1st "| 184| 271|120 | | |3594 |628 | | + 2nd "| | | | | | | | | + 3rd "| | | | | | | | | + 4th "| | | 110|2214 |2225 | | |340 | + 1899 | | | | | | | | | + 1st "| |371 |116 | | | |608 | | + 2nd "| 199| | | | | | | | + 3rd "| | | | | | | | | + 4th "| | 314| 101|2496 |2522 |3602 | |363 | + 1900 | | | | | | | | | + 1st "| 204| 339| 122| | | | | | + 2nd "| | | | | | | | | + 3rd "| | | | | | | | | + 4th "| | |145 |2706 |2623 |3942 |632 |403 | + 1901 | | | | | | | | | + 1st "| 309|399 | | | | | | | + 2nd "| | | | | | | | | + 3rd "| | |164 | | | | | | + 4th "| | 369| 151|3038 |2964 |4291 |665 |448 | + 1902 | | | | | | | | | + 1st "| 309| | | | | | | | + 2nd "| 309| |164 | | | | | | + 3rd "| | | | | | | | | + 4th "| | 366| 141|3303 |3209 |4666 |714 |516 | + 1903 | | | | | | | | | + 1st "| 335| | | | | | | | + 2nd "| | |163 | |3200 | | | | + 3rd "| | | | | | | | | + 4th "| | 378| 142|3481 | |5118 |758 |564 | + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + + + + + MILLIONS OF DOLLARS. + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + | |SPECIE | | DIS- | INDIVI- |NUMBER | |SURPLUS| + |CIRCU- | ON | LEGAL | COUNTS| DUAL | OF | |AND UN-| + YEAR |LATION | HAND |TENDERS| AND | DEPOSITS| BANKS |CAPITAL|DIVIDED| + | | | | LOANS | | | |PROFITS| + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + |MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN|MAX MIN| + 1904 | | | | | | | | | + 1st Q| 380| 453| | | | | | | + 2nd "| | | | | | | | | + 3rd "| | |169 | | | | | | + 4th "| |504 | |3772 |3707 |5477 |776 |594 | + 1905 | | | | | | | | | + 1st "| 424| |178 | | | | | | + 2nd "| | | 157| | | | | | + 3rd "| |495 | | | | | | | + 4th "| | 460| |4016 |3889 |5833 |808 |632 | + 1906 | | | | | | | | | + 1st "| 498|492 |175 | | | | | | + 2nd "| | | | | | | | | + 3rd "| | | | | | | | | + 4th "| | 459| 152|4366 |4289 |6199 |847 |687 | + 1907 | | | | | | | | | + 1st "| | |173 | | | | | | + 2nd "| 543| | | | | | | | + 3rd "| | | | | | | | | + 4th "| |531 | 151|4678 |4819 |6625 |901 |749 | + 1908 | | | | | | | | | + 1st "| | | | | | | | | + 2nd "| | |192 | | | | | | + 3rd "| | | | | | | | | + 4th "| 599|680 | |4840 |4720 |6865 |921 |779 | + 1909 | | | | | | | | | + 1st "| | |198 | | | | | | + 2nd "| 615| | | | | | | | + 3rd "| | | | | | | | | + 4th "| |694 | 176|5148 |5120 |7006 |953 |825 | + 1910 | | | | | | | | | + 1st "| 667| | | | | | | | + 2nd "| | | | | | | | | + 3rd "| | | | | | | | | + 4th "| |672 | 169|5467 |5304 |7204 |1004 |894 | + 1911 | | | | | | | | | + 1st "| 680| | 168| | | | | | + 2nd "| | | | | | | | | + 3rd "| | |185 | | | | | | + 4th "| |761 | |5663 |5536 |7328 |1026 |930 | + 1912 | | | | | | | | | + 1st "| 704| | | | | | | | + 2nd "| |769 |188 | | | | | | + 3rd "| | | | | | | | | + 4th "| | | |6058 |5944 |7420 |1046 |969 | + 1913 | | | | | | | | | + 1st "| 717|749 | | | | | | | + 2nd "| | |189 | | | | | | + 3rd "| | | | | | | | | + 4th "| | | |6260 |6051 |7509 |1059 |1007 | + 1914 | | | | | | | | | + 1st "| 720| |201 | | | | | | + 2nd "| |792 | |6357 |6111 |7493 |1057 |1003 | + 3rd "|1018 | 746| | | | | | | + 4th "| 848| 534| 128| | |7581 |1065 |1007 | + 1915 | | | | | | | | | + 1st "| 746| 591| 127|6499 |6348 |7599 |1066 |1012 | + ------+-------+-------+-------+-------+---------+-------+-------+-------+ + + + + +The adage "buy cheap and sell dear," or its practical equivalent--so +scary and imitative are investors--_Buy during the last of a selling +movement and sell during the last of a buying movement_, resolves +itself, we venture to repeat, into: _Buy when the decline caused by a +panic has produced such liquidation that discounts and loans, after +steady and long-continued diminution, either become stationary for a +period or else increase progressively coincident with a steady increase +in available funds; and sell for converse reasons_. + +These conclusions are also reached by our author through analyses of the +Financial History of England, France, Prussia, Austria, etc. These I +omit as unnecessarily wearisome to the reader since I give that of our +own country. However, I will here quote the following: "What must be +noted is the reiteration and sequence of the same points _(faits)_ +under varying circumstances, at all times, in all countries and under +all governments," and also this table showing all the panics and their +practical coincidence in the past eighty-five years, in France, England, +and the United States. + + France England United States + 1804 1803 + 1810 1810 + 1813-14 1815 1814 + 1818 1818 1818 + 1825 1825 1826 + 1830 1830 1829-31 + 1836-39 1836-39 1837-39 + 1847 1847 1848 + 1857 1857 1857 + 1864 1864-66 1864 + 1873 1873 + 1882 1882 1884 + (a 1889-90 (a 1890-91 1890-91 + p 1894 p 1894 1893-94 + p 1897 p 1897 1897 + r 1903 r 19O3 1903 + o 1907 o 1907 1907 + x 1913 x 1913 1913 + i i + m m + a a + t t + e e + l l + y) y) + + +Truly these thirteen panics in the three countries have been practically +simultaneous and one common cause must have originated them. The only +cause common to all was overtrading to such an extent that neither +credit nor money were to be had, so that a forced liquidation or panic +inevitably ensued. + +The above table effectually does away with the theory that new tariffs +are directly productive of panics. For most certainly new tariffs did +not occur in England, France, and the United States just before or +during all the panic years enumerated, and yet, practically +simultaneously in free-trade England, high-protection France, and +sometimes low-tariff, sometimes high-protection United States have +panics occurred for eighty years. + +But, as I have shown in a note attached to this Introduction, a new +tariff or a general change of duties is apt to precipitate a panic, on +account of the unsettling of business, and that the consequent shaking +of credit adds its quota to the forces finally culminating in a panic +cannot be doubted. As a matter of history with us, substantially new +tariffs have always happened to be the immediate forerunners of a panic, +and this I believe to be true in the case of other countries. + +Why is this? Is it not because the people instinctively turn to +tinkering at and changing their chief tax--the tariff--whenever they as +a whole need financial relief; and have we not shown that such relief is +needed almost every ten years, when the overtrading, inseparable from +the development of all thriving communities has made the call for credit +impossible to grant? + +A new tariff may defer, or hurry, or, occurring simultaneously, will +intensify a panic, but it may not hope to avert one when due: yet if its +changes be very gradual, fixed and long predicted, and of a nature to +bring about or confirm a judicious tariff for revenue only, they will +materially help to put business on so firm and sound a basis that +recovery from the inevitable, and approximately decennial panics, will +be wonderfully expedited. Thus a new tariff is a quite accurate +forewarning of a panic, and is also to no inconsiderable extent a +contributory cause. (See foot-note on page 5, _seq., Interrelations of +Panics, Tariffs, and the Condition of Agriculture_, etc.; and +especially what is said of the panic of 1848, on page 10.) + +M. Juglar has fully analyzed the three phases of our business life into +Prosperity, Panic, and Liquidation, which three constitute themselves +into the business cycle, that for forty years past (that is, since the +present Bank of England Act, and practically since that of the Law +governing the Bank of France, both of which then increased the required +specie reserve) has been of about ten years. These ten years may be +apportioned roughly as follows: say, Prosperity for five to seven years; +Panic a few months to a few years, [Footnote: The panic after 1873 is +the only one I know extending to anything like the length it attained. +This may be ascribed to the immense development and consequent +speculation, and to the inflation of the currency coming after the +period about the Civil War.] and Liquidation about a few years. + +I have already pointed out the signs of prosperity, of panic, and of +liquidation, but in view of existing conditions perhaps it may be well +to restate here the quite familiar fact that the completion of +liquidation that precedes the beginning of another period of prosperity +is characterized by lack of business, steady prices, and a marked growth +in available banking funds. + +[The various tables spread through this pamphlet are fully explained by +their headings and the text.] + +In conclusion I wish to express my thanks for the courtesy M. Juglar +has extended me, and to state my appreciation of the motives, +painstaking patience, and undoubted originality he has shown in +explaining and executing so faithfully and with such genius a most +laborious and yet spirited work. It is only justice that such an +achievement should have been awarded a prize by the French Institute +(Academy of Moral and Political Sciences) and have gained for M. Juglar +the Vice-Presidency of the "Society for the Study of Political Economy." + +DeCourcy W. Thom. + +Wakefield Manor. + + + + + + +A HISTORY OF PANICS IN THE UNITED STATES +CONSIDERED WITH SPECIAL REFERENCE TO AMERICAN BANKS. + + + +The English Colonies soon after their settlement issued paper money. +The first was Massachusetts, which issued it even before her +independence, in 1690, to obtain funds in order to besiege Quebec. + +This example was followed to such an extent that it caused a marked +speculation in favor of hard money, varying according to the quantity of +notes in circulation. In 1745, after a successful campaign against +Louisburg and the taking of that fortress, two million pounds of paper +money were issued, which step decreased its value. When liquidation +occurred these paper pounds were not worth 10 per cent. of their face +value. + +The War of Independence obliged Congress to issue three million of paper +dollars. This amount increased to $160,000,000, so that Congress +declared, in 1779, that it would not issue more than $200,000,000. +Notwithstanding this guaranty, notwithstanding the forced and legal +rating conferred by this enactment, notwithstanding the war spirit, it +depreciated; and in 1779 it was necessary to decree that, disregarding +its normal value, it should be taken at its face. In 1780 it was no +longer taken for customs dues. In 1781 it had no rating and was not even +taken at 1 per cent. of its face value. + +Between 1776 and 1780 the issue of paper money increased to $359,000,000. + +BANK OF NORTH AMERICA.--In 1781 Mr. Morris, Treasurer, persuaded +Congress to form a bank (the Bank of North America) with a capital of +$10,000,000, of which $400,000 should be turned over to help the +national finances. The capital was too insignificant and the course of +politics too unpropitious to accomplish this end. However, the example +encouraged the States to take up their paper money. Upon the adoption of +the United States Constitution the issuing of paper money ceased, and +gold and silver were the only means of circulation. Thence arose great +embarrassment for the Bank of North America, which, hampered by its +loans to the Government, increased its note circulation to an enormous +proportion. The ebb of paper through every channel finally aroused the +public fears, and people refused the notes. Every one struggled to +obtain metallic money, hence it became impossible to borrow, and +bankruptcy followed. Such was the, excitement that the Philadelphians as +a body demanded and obtained from the Assembly of Representatives a +withdrawal of the charter; but the Bank, relying upon Congress, +continued until March 17, 1787; succeeded even in extending its charter +fourteen years; and later obtained a second extension, limited, however, +to Pennsylvania. + +The difficulty experienced in the manufacture of money led Mr. Hamilton, +Secretary of the Treasury, to propose to Congress in 1790 the founding +of a National Bank. After some doubts as to the power of Congress, it +was authorized. It began operations in 1794, under the title of "Bank of +the United States," with a capital of ten millions, eight millions being +subscribed by private individuals, and two millions by the Government. +Two millions of the first sum were to be paid in metallic money, and six +millions in 6 per cent. State bonds; the charter was to run till March +4, 1811. It seemed to be a good thing for the public and the +stockholders, for during twenty-one years it paid an average of 8 per +cent. dividends. In 1819 the question of renewing its privileges came +up, the situation being as follows: + + ASSETS. LIABILITIES. + 6 per cent. Paper $ 2,230,000 Capital Stock $10,000,000 + Loans and Discounts 15,000,000 Deposits 8,500,000 + Cash 10,000,000 Circulation 4,500,000 + + +The profits from the Bank, the prosperous state of the country, and the +increase of productions led people to think that the issuing of paper +money caused it all; seduced by this alluring theory the "Farmers' Bank" +was founded in Lancaster in 1810, with a capital of $300,000. Others +followed; such was the mania that the Pennsylvania Legislature was +forced to forbid every corporation to issue notes. Despite this +preventive message the excitement rose so high that companies, formed to +build harbors and canals, also put notes into circulation; in this way +the law was eluded. + +From 1782 to 1812 the capital of the banks rose to $77,258,000; upon the +1st of January, 1811, there were already eighty-eight banks in +existence. Until the declaration of war (June, 1812), the issuing of +notes was always made with the intention of redeeming them, but the +over-issue soon became general, and depreciation followed. The +periodical demands for dollar-pieces for the East Indian and Chinese +trade were warnings of the over-speculations on the part of those +companies whose members were not personally liable. Traders, who through +their notes or their deposits had a right to credit with the banks, did +not hesitate to ask for $100,000, whereas, formerly they would have +hesitated to ask for $1,000. The war put a stop to the exportation of +precious metals, which, in the ordinary course of things, limits the +issue and circulation of paper. The upshot of this was to redouble the +note issue, each one believing its only duty was to get the largest +amount into circulation. Loans, and enormous sums of money, were +distributed above all reason among individuals and among the States. The +increase of dividends and the ease of obtaining them extended the spirit +of speculation in certain districts, and especially among those who +owned land. The remarkable results shown by the Bank of Lancaster, the +"Farmers' Bank," which, by means of an extraordinary issue of notes, had +yielded as much as 12 per cent. and piled up in capital twice the amount +of its stock, caused it to be no longer thought of as a bank intended to +assist trade with available capital, but as a mint destined to coin +money for all owning nothing at all. Led by this error, laborers, +shopkeepers, manufacturers, and merchants betook themselves to quitting +active occupations to indulge in golden dreams. Fear alone restrained +some stockholders connected with the non-authorized companies, and led +them to seek for a legal incorporation. + +In Pennsylvania, during the session of 1812, an act was passed +authorizing twenty-five banks, with a capital of $9,000,000. The +Executive nevertheless refused to ratify it, and returned it with some +very well-deserved comments. In a second debate the first resolution was +rescinded by a vote of 40 to 38. In the following session the +proposition was renewed with more vigor, and forty-one banks with a +capital of $17,000,000 were authorized by a large majority; the +representations of the Executive proved useless, and they immediately +entered upon their duties with an insufficient capital. + +To discount their own stock was a soon-discovered method. They thus +increased the amount of notes, which depreciated in comparison with hard +money, and dissipated on all hands the hope of exchanging with it. + +In the absence of a demand from abroad for hard money, the demand came +from within our own borders. + +The laws of New England, which were very severe upon the banks, had +placed a penalty of 12 per cent. upon the annual interest payments of +those persons who did not pay their notes. The natural result was a +difference of value between New England and Pennsylvania, which measured +the depreciation caused by paper in the latter district. As remittances +on New England could only be made in hard money, the equilibrium of the +banks was disturbed; they were not able to respond to the demands for +redemption, and a suspension of payments by the banks of the United +States, except those of New England, took place in August and September, +1814. + +THE PANIC OF 1814.--An agreement took place at Philadelphia between the +bank and the chief houses allied with it to resume payments at the end +of the war. + +Unhappily, the public did not demand the accomplishment of this promise +at the time fixed, and the banks, led on by the thirst of gain, issued +an unprecedented amount of bank notes. The general approbation brought +about a still further increase in their number: the bank notes of the +Bank of Philadelphia were at a discount of 80 per cent.; the others at +75 per cent, and 50 per cent., and metallic money disappeared to such an +extent that paper had to be used to replace copper coin. The +depreciation of fiat money raised the price of everything; this +superficial occurrence was looked upon as a real increase, and gave rise +to all the consequences that a general inflation of value could produce. +This mistake on the subject of artificial wealth made landed proprietors +desire unusual proceeds. The villager, deceived by a demand surpassing +his ordinary profits, extended his credit and filled his stores with the +highest-priced goods; and importations, having no other proportion to +the real needs than the wishes of the retailers, soon glutted the +market. Every one wished to speculate, and every one eagerly ran up +debts. Such was the abundance of paper money that the banks were alarmed +lest they could not always find an investment for what they +manufactured. It thus happened that it was proposed to lend money on +collateral, while the greatest efforts to bring about its redemption +were being made. This state of things lasted till the end of 1815, when +it was recognized that the paper circulation had not enriched the +community, but that metallic money had enhanced. + +The intelligent portion of the nation comprehended that even where the +estimated value of property had been highest, the true welfare of +society had diminished. They learned too late the baleful effects of +this circulation of paper money; the greater part of the States and +cities had nothing to show for it. + +A new class of speculators then appeared, trying to pass these worthless +bank notes: forgers of paper money became more active. In the midst of +this disorder a National Bank, which should afford a solid basis for the +paper circulation, was considered. Influenced by these difficulties, and +in hopes of remedying them, the Secretary of the Treasury proposed to +Congress, in September, 1814, a few days after suspension, to found a +national bank, in order to re-establish metallic circulation, an end +which the State banks had failed to accomplish. + +This project, which lent the national credit to the capital of the bank, +was antagonized by a good many members who exaggerated its consequences; +at the same time that they took more or less important sums in bank +notes, or borrowed from the banks upon the nation's guaranty, in order +to re-establish the public credit and to obtain means for prolonging the +war. + +CAUSES OF THE PANIC OF 18l4.--The bank directors laid the blame upon the +blockade of the ports, which, interfering with, indeed even preventing, +the export of products, occasioned the outflow of the metals. The +national loans to carry on the war also had their influence. From the +beginning of hostilities until 1814 they increased to $52,848,000, +distributed as follows: Eastern States, $13,920,000; New York, +Pennsylvania, Maryland, and District of Columbia, $27,792,000; Southern +and Western States, $11,186,000. + +Nearly all of this was advanced by the cities of New York, Philadelphia, +and Baltimore. The banks made advances beyond their resources, +augmenting their circulation in consequence. [Footnote: The cause of the +crisis, according to the Committee of the Senate, was the abuse of the +banking system; the great number and bad administration of the banks; +and their speculations designed to advance their stock, and to +distribute usurious dividends. When the Bank of the United States saw +the danger that menaced it, it reduced its discounts and circulation. +The circulation of the country banks fell from $5,000,000 to $1,300,000, +and the total circulation from $10,000,000 to $3,000,000. + + Increase and Decrease Circulation in Pennsylvania. + + City Banks. Country. Total. + 1814 ........ $3,300,000 $1,900,000 $5,200,000 + 1815 ........ 4,800,000 5,300,000 10,100,000 + 1816 ........ 3,400,000 4,700,000 8,100,000 + 1817 ........ 2,300,000 3,800,000 6,100,000 + 1818 ........ 1,900,000 3,000,000 4,900,000 + 1819 ........ 1,600,000 1,300,000 2,900,000 + + Number + of Banks. Capital. Circulation. Specie. + 1811 ... 88 $52,000 00 $28,000 00 $15,000 00 + 1815 ... 208 82,000 00 45,000 00 17,000 00 + 1816 ... 246 89,000 00 68,000 00 19,000 00] + + +From the 1st of January, 1811, to the 1st of January, 1815, one hundred +and twenty new banks were registered, thus raising their capital to more +than $80,000,000; this increase took place during a war that entirely +did away with foreign trade. The expenses of the war declared against +Great Britain in June, 1812, were defrayed by notes issued by the banks +of the various States. Six million dollars were obtained from them in +1812, in the following year, 1813, twenty million, and then fifteen +million in exchange for twelve million of Federal stock, issued at the +price of $125 face for every $100 paid in. Until January 1, 1814, in +order to avoid taxation, Treasury bonds were issued in addition to what +was contributed by the banks. + + In 1812 ..................... $3,000,000 + " 1813 ..................... 6,000,000 + " 1814 ..................... 8,000,000 + + +Up to this time no account of their administration had been rendered, +but now Mr. Bland, a Maryland representative, called attention to the +fact that all their operations seemed veiled from the public. +Unfortunately we have been unable to find a statement of the discounts. + +The suspension of specie payments differed with the corresponding state +of affairs in England, inasmuch as it was not general, and, since each +State was independent, the depreciation varied. It became very difficult +to circulate paper, and the Government was again obliged to issue +Treasury bonds, bearing 6 per cent. interest. In February, 1815, peace +having been proclaimed, it was hoped that the banks would resume specie +payments. There was no sign of it. The re-establishment of peace merely +made some of the legal regulations seem less pressing upon the banks. + +In the middle of May, 1815, the first English vessel arrived, and +business became very active again. In May, June, and July it might have +been said "This is the golden age of commerce." Discounts of unsecured +paper were easy, and it was not an unusual occurrence to have notes of +$60,000 offered. + +The banks had authorized a suspension of specie payment in order to +force the issue of bank notes, and to stimulate trade, although Mr. +Carey pretends that no over-trading had taken place. He blames them for +having restricted their loans in October and November, thus producing a +decline in prices; and the necessity of cutting down credits came about, +according to him, from the speculations in National securities. + +Six Philadelphia banks with a capital of $10,000,000 held $3,000,000 in +Government stock. + +On the 15th of February, 1815, when scarcely through with all this +confusion, an effort was made to re-establish for the second time a +United States Bank. It was authorized on the 10th of April, 1816, the +Act permitting the formation of a Company, with a capital of +$35,000,000, divided into 350,000 shares of $100 each, of which the +Government took 70,000 shares and the public 180,000 shares. These last +were payable in $7,000,000 of gold or silver, of the United States of +North America, and $21,000,000 in like money, or, in the funded debt of +the United States either in the 6 per cent. Consolidated Debt at par, +the 3 per cent. at 65, or the 7 per cent. at 106-1/2 per cent.; upon +subscription $30 was payable, of which at least $5 had to be in gold or +silver; in six months after, $35, of which $10 had to be in metal, and +twelve months after the same amount was to be paid in the same manner. +The directors were authorized to sell shares every year to the amount of +$2,000,000, after having offered them at the current price to the +Secretary of the Treasury for fourteen days. The Government reserved the +right to redeem the debt at the subscription price. + +The charter, made out in the name of the president, ran until March 3, +1836. There were twenty-five directors of the concern, five of whom were +appointed by the President of the United States with the consent of the +Senate, and not more than three by the State; the stockholders chose the +others. + +The corporation could not accept any inconvertible property, or any +farm-mortgage, unless for its immediate use, either as security for an +existing debt, or to wipe out a credit. + +It had no right to contract any debt greater than $35,000,000, more than +its deposits, unless by special act; the directors were made responsible +for every violation, and could be sued by each creditor. They could only +deal in gold and silver exchange, and not in other country securities +which could not be realized upon at once. The Bank could purchase no +public debt nor exceed 6 per cent. interest on its discounts and loans. +It could lend no more than $500,000, to the United States, $50,000, to +each State, and nothing to foreigners. It could give no bill of exchange +greater than $5,000; bank notes less than $100 were to be payable on +demand, and greater sums were not allowed to run longer than sixty days. +Two settlements were to take place every year. + +Branches were to be established upon demand of legislative authorities, +wherever 2,000 shares of stock were subscribed for. + +There were to be no bank notes less than $5.00, and every bill of +exchange, or bill payable at sight, was to be receivable by the public +Treasury. + +The duty of the Bank was especially to pay out and receive the public +money, without profit or loss. It was to serve as agent for every State +contracting a loan; the cash belonging to the United States was to be +deposited at the Bank whenever the Secretary of the Treasury did not +dispose of it otherwise, in which case he was to notify Congress. + +Neither the Directory nor Congress could suspend payment of the bank +notes, discounts, or deposits: such refusal carried a right to 12 per +cent. interest. In exchange for this charter the Bank was to give +$1,000,000, to the Government in three instalments. + +The charter was exclusive during its life, excepting in the District of +Columbia, where banks might be authorized, provided their capital did +not exceed $6,000,000. The Bank did not open at once, for it sent an +agent to Europe to look up bullion. Between July, 1817, and December, +1818, it thus procured $7,311,750, at an expense of $525,000. On the +20th of February, 1817, it was decided that, excepting gold and silver +and Treasury notes, no notes would be received at the Government +Treasuries, save such as were payable to the banks in hard money. +Notwithstanding this discrimination the Banks decided not to resume +specie payment until the 1st of July, 1817. + +In the meantime an immense speculation had taken place in its stock, +which was compromising for the Bank and for the credit of its Directory, +because several of its Directors appointed by the Government took part +in it. For example, it became customary to loan a very large amount of +money on the Bank's own stock, as much as $125 on each share of $100. +Thus more than the purchase price was loaned upon them: in furnishing +the means of paying for them by credit, speculation was aroused, and on +the 1st of September, 1817, the market price advanced to $156.50, at +which rate it continued until December, 1818, when it fell to $110. + +At last the public perceived that the excessive issue depreciated the +bank-note circulation, and that a greater shrinkage was imminent. + +An office for the payment of bank dividends was opened in Europe, so as +to increase the price of the stock and the speculation in it through +this facility, rather than for the permanent benefit of the institution. +Let us note here the short-sightedness of the Directors, who thought +they would stem the depreciation of their means of payment by persuading +all the banks to declare what was not true, that the bank notes were +worth par. + +On the 21st of February, still aiming at the same end, they announced +the resumption of specie payment. The State Banks, remembering the +embarrassment of the public, which for two years had paid an exchange of +6 per cent., persuaded themselves that few people would dare to ask for +large sums. They hoped to come to an understanding and to cause the +acceptance of a promise to pay upon a designated day. + +We say "a promise to pay," for this was not a serious proposition, +inasmuch as foreign money and that of the United States had enjoyed a +higher market value for a long time. + +The depreciation of the bank notes might result just as well, from the +fear of the public's enforcing its rights, as from a refusal of the +banks to make good their promises. This understanding was not, properly +speaking, a resumption of specie payment, but rather a kind of humbug. + +In January the banks of New York, Philadelphia, Baltimore, Richmond, and +Norfolk decided to resume specie payment on the 20th of February, +provided the balance showing against them was not demanded by the Bank +of the United States before discounts became $2,000,000, at New York, as +much in Philadelphia, and $1,500,000 in Baltimore; and these conditions +were accepted. + +The discount line of the Bank of the United States was thus greatly +increased; it grew from $3,000,000 on the 27th of February to +$20,000,000 on the 30th of April; to $25,000,000 on July 29th, and to +$33,000,000 on the 31st of October. The Bank imported much metallic +money, redeemed its notes and those of its branches without distinction; +the notes of its Eastern and Southern branches were returned as soon as +those of the North had paid them, and they were newly issued; +consequently eighteen months after this practice began the cash boxes of +the North were drained of their capital, the length of discount was +reduced, and 5 per cent. was charged for sixty days. On April 1, 1819, +only $126,000, cash remained on hand, on the 12th only $7l,000, +remained, $196,000, was owed to the city banks. + +Scarcely had the Directors of the National Bank succeeded in replacing +the paper issued but not redeemed by their bank-note circulation, being +fully aware from their own experience that the circulation could only +reach a limited amount, than they inundated the market with it, and in a +few months all reductions vanished. In this way the market price shortly +resumed its former quotation, and all the difficulties reappeared. This +imprudent management necessarily threw one portion of the public into +debt, from which it had saved itself; and the other portion into the +vortex which it had avoided. The critical moment was delayed somewhat, +but the day of reckoning was near. + +THE PANIC OF 1818.--The Bank at last discovered that it had passed the +bounds of safety through its issues, and that it was at the mercy of its +creditors. It saw firstly, on October 21, 1818, the payment of part of +the State of Louisiana's foreign debt withdraw large sums, and then +Chinese, Indian, and other goods reach fancy prices because of the +depreciation of the circulating medium. All these influences produced a +demand for specie payment which the Bank as a public one was obliged to +meet, under penalty of 12 per cent. interest, and without power to avail +itself of the same accounts as the State banks. + +From this moment it thought fixedly of its safety and of how to reduce +its notes; this reduction obliged the other banks to imitate it, and a +new crisis shook trade in the end of October, 1818. During one year the +National Bank furnished from its cash boxes more than $7,000,000, and +the others more than $3,000,000. + +The State banks naturally followed the same policy in their connection, +and their circulation became reduced as follows: + + On November 1, 1816, to ............ $4,756,000 + " " " 1817, " ............ 3,782,000 + " " " 1818, " ............ 3,011,000 + " " " 1819, " ............ 1,318,000 + + +It will give a faint idea of the excessive issue to state that the only +difficulty was the impossibility of examination by the President and +Cashier, and of their jointly signing the notes, which was made +obligatory by the regulations; hence they asked power from Congress to +grant this right to the Presidents and Cashiers of the Branch Banks. +This facility was refused, but Congress granted a Vice-President and a +Vice-Cashier to sign. With these issues and a simple capital of +$2,000,000, the Bank discounted as much as $43,000,000, during one year, +in addition to $11,000,000, to $12,000,000, loaned upon public +securities. + +In order to carry on its operations, it exchanged in Europe a portion of +its funded debt for gold and silver, and bought specie in the West +Indies. From July, 1817, to July, 1818, it imported $6,000,000, of +specie, at an expense of $500,000, but the excessive issue of paper +drained away the cash more rapidly than the Bank could import it. In the +face of this hopeless struggle, in July, 1818, it entirely changed its +course and reduced its discounts, and 10 per cent. premium was then paid +for cash, and the reduction of nearly $5,000,000, in the discount line +in three months only had a disastrous effect, while at the same time +they would only receive for redemption the notes issued by each Branch +Bank: hence general embarrassment arose, and as the Bank of the United +States was withdrawing cash from the local banks, Congress wished to +forbid the exportation of gold and silver. The committee appointed on +the 30th of November, 1818, to examine the affairs of the Bank concluded +that it had violated its charter: + +1. In buying $2,000,000, of the Public Debt. + +2. In not requiring from the purchasers of its stock the payment of the +second and third instalments in cash, and in the Public Debt of the +United States. + +3. In paying dividends to purchasers of its stock who had not entirely +paid up. + +4. In allowing voting by proxy to a greater extent than the charter +permitted. + +Upon receipt of the report the Governor fled, and the shares fell to +$93. In 1818 the speculation was so wild that no one failed on account +of a smaller sum than $100,000. A drawing-room that had cost $40,000, +and a bankrupt's wine-cellar estimated to have cost $7,000, were cited +as instances of the general prodigality. The Senatorial Committee of +Inquiry declared that the panic imposed ruinous losses upon landed +property, which had fallen from a quarter to even a half of its value. +In consequence forced sales, bankruptcies, scarcity of money, and a +stoppage of work occurred. House-rents fell from $1,200, to $450; the +Federal stock alone held its own at 103 to 104. + +On the 13th of December, 1819, a Committee of the House of +Representatives reported that the panic extended from the greatest to +the smallest capitalists. It concluded by demanding the intervention of +the legislative power to restrain the corporation, which, spreading its +branches throughout the Union had inundated it with nearly $100,000,000, +of new circulating medium. Those who unfortunately owed money lost all +the fruit of long work, and skilled laborers were obliged to exchange +the shelter of their old homes for the inhospitable western forests. +Forced sales of provisions, merchandise, and implements were made, +greatly below their purchase price. Many families were obliged to limit +their most necessary wants. Money and credit were so scarce that it +became impossible to obtain a loan upon lands with the securest titles; +work ceased with its pay, and the most skilful workman was brought to +misery; trade restricted itself to the narrowest wants of life; +machinery and manufactories lay idle; the debtor's prison overflowed; +the courts of justice were not able to look after their cases, and the +wealthiest families could hardly obtain enough money for their daily +wants. + +The Committee appointed by the Senate of Pennsylvania reported on the +29th of January, 1820, that, to prevent a bad administration of the +banks, it was necessary: + +1. To forbid them to issue more than half of their capital in notes. + +2. To divide with the State all dividends in excess of 6 per cent. + +3. Excepting the president, that no director should be re-appointed +until after an interval of three years. + +4. To submit to the State's inspection the bank's business and books. + +From this period excessive profits and losses ceased on the part of the +American banks. The change of directory of the National Bank, called +forth by the unfortunate experience of 1818, was the beginning of a very +fortunate epoch. As was always the case, business affairs resumed their +usual course when liquidation ceased. Among the various causes assigned +for the panic, the increase of import duties had to be pointed out, and +the decrease of the Public Debt which was reduced between 1817 and 1818 +more than $80,000,000. It was impossible to turn any portion of the +public deposits in proper time either into Federal stock or such other +forms of value as its creditors might demand, without staking or +breaking down any respectable institution whatever. But these seem to be +only secondary causes. + +Panic of 1825 to 1826.--In 1824 in Pennsylvania there was a new rage for +banks, and in 1825 there was a repetition of the marvellous days of +1815. American banking bubbles have always been exactly similar to the +English South Sea bubble, and to Law's bank in France. In July, after an +advance dating from 1819, there was a reaction, a panic, and +liquidation. Here we cannot point out any of the causes which we have +indicated above; the growth of trade and the exaggeration of discount +sufficiently explain the difficulties of the situation. + +In Pennsylvania in 1824 a bill was passed re-establishing the charters +of all the banks which had failed in 1814. In New York they thought of +banks alone; companies with a capital of $52,000,000 were formed. Ready +money had never been so abundant, if we can judge of it by the amount of +subscriptions and the great speculations in stocks. + +Three millions were subscribed to the "New Jersey Protection Company" in +one day. But in July, when the decline on the London market was +reported, the want of hard money forced itself into notice. Exchange on +England rose from 5 per cent. to 10 per cent.; the discount on New +Orleans notes, from 3 per cent. became 50 per cent., and on the 4th of +December it had fallen back to 4 per cent. What fluctuation! What +disasters! + +Mr. Biddle, the President of the United States Stock Bank, said that the +crisis of 1825 was the most severe that England had ever experienced, +superinduced as it was by the wild American speculation in cottons and +mines. Cotton cloth fell from 18 to 13 cents per yard; and out of 4,000 +weavers employed in Philadelphia in 1825 not more than 1,000 remained. +The reaction of liquidation was experienced in 1826, and from 1827 money +was abundant. + +EMBARRASSMENT OF THE LOCAL BANKS IN 1828 TO 1829.--Is it necessary to +mention these embarrassments? The trouble of 1828 affected only the +local banks and not at a11 those of the United States. The chief cause +was the Bank of the United States' increase of circulation from August, +1822, to August, 1828. From $5,400,000 it had become $13,000,000 without +adding anything to the circulation, merely displacing an equal amount of +local bank notes through drafts of branches that it put into +circulation. These branch banks' drafts were in form of bank notes, +signed by the chief employees of the branches, drawn, it might be, on +each other or on the main bank. A great issue of paper was thus brought +about; without this roundabout method it would have been impossible to +have forced the issue of the notes from the mere physical inability of +the president and cashier to sign so large a number. Congress had always +refused to delegate this power to any other persons; in consequence of +this practice the inevitable result occurred in 1828, as might have been +foreseen, and a conflict between notes of the Bank of the United States +and that of the local banks occurred. + +These drafts circulated everywhere; the branch banks received them on +deposit, but did not redeem them: hence it was necessary to guard +against panic by keeping hold of cash. This course increased the issue +of the Bank of the United States, and of the local banks which +discounted the paper of the central bank as if it were so much cash. The +local banks, then, whose paper did not widely circulate, exchanged their +bank notes for drafts, thus reducing the amount of circulation of the +first, increasing that of the central bank, and hence that of the total +issue of its bank notes; the local banks continued to exchange their +paper with its narrow and limited circulation for drafts of this latter, +which passed everywhere. + +There occurred, then, in 1828 and 1829 an accidental and very brief +scarcity of cash, whose cause we have just indicated; but since the +second half of the year difficulties arising from metallic circulation +had disappeared. + +PANIC OF 183l.--The course of business, having scarcely suffered a +stoppage, continued until 1831, and not till then did The Bank, being +the agent of the Treasury and having $11,600,000 on deposit, would have +been forced to become a borrower in order to pay out the $2,700,000 +demanded from it. However, its request was granted. + +Jackson soon learned with surprise that, business being more impeded +than ever, the President had despatched an agent to England to contract +with the Barings a loan of $6,000,000. Seeing the Bank to be insolvent +he resolved not to renew its charter. The Bank tried to hide its +insolvency by the most foolish land speculations, which had already +caused such great disaster in 1818 and 1820. The issue of bank notes had +given fresh spirit to speculation. These bank notes were received by the +National Treasury and returned to the Bank on deposit, which again +loaned them to pay for land upon security of the land sold, with the +result that the credit granted the Nation was merely fictitious. + +In 1832, Congress having voted for the extension of the Bank's charter, +President Jackson refused to ratify it on account especially of certain +changes, it sought to introduce. "Why," said he, "grant a capital of +$35,000,000 when the first company only had $11,000,000?" + +But though the Bank's charter could not be arranged, the law of July 10, +1832, dealing with the regulation of banks, prescribed that "a report" +upon their exact condition should be submitted to Congress every year. + +In 1833 General Jackson ordered the withdrawal of the Government +deposits from the Bank. The law required that the reasons for the +withdrawal of the deposits should be given, and the secretary, Mr. +Duane, refused to give them, saying the Bank was not insolvent. He was +dismissed and replaced by a more amenable secretary. The deposits were +withdrawn and placed in different State Banks, The Bank of the United +States was obliged to limit its discounts and loans, thus causing +trouble; however, the President wished at any loss to establish a +metallic circulation. + +President Adams favored small paper notes of 25 to 10 cents, to the +extent of $1,000,000. From 1831 to 1837, $3,400,000 twenty-five cent +notes, $5,187,000 ten-cent notes, and $9,771,000 five-cent notes were +issued. To prevent an abuse of this it was necessary to resume a +metallic circulation immediately. In 1833 the amount of small notes +issued had already reached $37,000,000; in 1837 it became $73,000,000; +it even exceeded these figures; it was this circulation of small paper +notes that had to be made smaller than $120,000,000 + +Notwithstanding these frequent panics the national prosperity and the +increase of wealth were unquestionable and astonished all observers. + +From 1817 to 1834 the national expenses diminished from $39,000,000 to +$24,000,000, decreasing even to $14,000,000 in 1835, while the income +grew to $37,000,000. + +From 1826 to 1836 the condition of business, despite the panic of 1831, +grew easier. Industries, agriculture, and commerce were prosperous and +every enterprise was successful. Both in New Orleans and in New York +there was much building, and more than 1508 houses were erected between +January 1 and September 1, 1836. This general prosperity carried with it +the seeds of trouble. + +The rapid increase of the National revenue gave birth to the belief that +capital had increased in the same proportion. This superabundance of +income produced temporarily by the inflation in business was recklessly +thrown away. People speculated in land, projected a hundred railroads, +canals, mines, and every sort of scheme, which would have absorbed +$300,000,000 if carried out. + +The national capital being insufficient, loans were made in England and +Holland, where the rate of interest being more moderate stimulated the +passion for enterprises. Finally, in order to stop the flow of English +capital to America, the Bank of England raised the rate of interest; +this brought people to their senses. They saw the impossibility of +carrying out a third of their schemes. Cotton fell, and panic seized the +public. + +Since 1818 a period of flow and ebb in trade had been seen every five or +six years, but this stoppage was much more serious. The lack of ready +money and capital destroyed confidence. Money was not to be had upon any +collateral; and the banks stopped discounting. The people lacked bread, +the streets were deserted, the theatres empty; social observances were +in abeyance, there were no more concerts, and the whole social round was +stopped. + +The Bank of the United States used various expedients to temporarily +moderate the crisis until the very moment that it burst all the more +violently in 1839, and brought about a new and radical reform. + +From the time that the separation of the Bank of the United States from +the Government and the cessation of its operations as the National Bank +was brought about, the quotation on bank notes considerably decreased, +as well for those payable at sight as for the deferred notes payable in +twelve months. The President sent an agent to London to raise money upon +the bank shares. + +Fearing that General Jackson would not establish a new bank, and by way +of counterpoise, one hundred banks were created with a capital of more +than $125,000,000; issues of bank stock were not to exceed three times +the amount of the capital, but this provision was not observed; the +issue was without regulation and without limits, and during an inflation +in prices of the necessaries of life which had doubled in value, and +which had turned the people's attention to agriculture. The price of +land had for some time advanced tenfold, and the advance in cotton +caused the Southern planters to abandon indigo and rice. + +Imports in 1836 exceeded the exports by $50,000,000, which had to be +paid in gold or silver. This outflow of metal created a great void. + +The advance in the discount rate in the Bank of England under such +circumstances came like a thunder-clap, and the distended bladder burst. +Banks suspended payment, and bank notes lost from 10 to 20 per cent. +Exchange on France and England rose to 22 per cent., all metal +disappeared from circulation, and a thousand failures took place. The +English export houses lost from L5,000,000 to L6,000,000 sterling; +values fell from maximum to minimum. The losses in America were even +greater; cotton fell to nothing. At the worst of the panic people turned +to the Bank of the United States, and its President, being examined as +to the means of remedying the trouble, stated that it was above all +necessary to maintain the credit of the Bank of England in stead and in +place of private credit, which had disappeared. He proposed to pay +everything in bank paper on Paris, London, and Amsterdam. + +When the panic came the Bank was very much shaken. At the beginning of +April, 1837, the New York banks suspended payments because demands for +hard money for export played the chief role; the other banks suspended +in their turn, promising to resume with them. + +The Bank of the United States, suspended also, Mr. Biddle, the +President, asserting that it would have continued to pay were it not for +the injury done by New York. This was false, for the New York banks +shortly after resumed payment, hoping they would be imitated, but the +other banks refused to do so. Mr. Biddle wished, in the first place, to +await the result of the harvest. To uphold the Bank, he tried to bring +about exchanges, both with banks and general business, not only in +America but in Europe, in order to establish a unity of interests which +would sustain him and conceal his real condition. In this he was +successful to a certain degree, for in 1840 in his balance sheet +$53,000,000 of paper of the different States was shown up. He wished +above all to secure the monopoly of the sale of cotton: a senseless +speculation hitherto unexampled, [Footnote: A similar episode has +occurred in our time in the speculation in metals by the "Comptoir +d'Escompte."] the like of which may never be seen again. + +Whilst the Bank came to the relief of New York business through its +exchange and its deferred notes, Biddle posed as the great cotton agent, +on condition that the Bank's agents should be consigned to at Havre and +Liverpool. In their embarrassment this proposition was accepted by the +planters. Cotton was thus accumulated in those two places. This monopoly +advanced the price, and vast sums were realized, which enabled him to +enlarge the scope of his business. In 1837 he was enabled by this means +to draw on London for L3,000,000 sterling; the difference between 5 to 6 +per cent. interest and discount at 2 per cent. produced a very handsome +profit. The cotton merchants prospered as well as the exchange agent, +and Mr. Biddle paid the planters in bank notes which the Bank could +furnish without limit, while he received in Europe hard money for the +cotton; this aroused opposition. + +In the second half of 1837 he established in Missouri, Arkansas, +Alabama, Georgia, and Louisiana a number of new banks, to make advances +to the planters, and to sell their products for them in Europe. They +started with very slight capital, they observed no rules in issuing +paper, their bank notes fell 30 per cent. in 1838, and the planters +would not take them. + +The Bank of the United States, fearing lest foreign capitalists should +take advantage of the difficulties of the planters by buying this +cotton, cheapened on account of the encumbrances upon the district +producing it, resolved to come to the rescue of the Southern banks, and +to join them in their operations by purchasing their shares and their +long-time paper, having two years to run. It thus put $100,000,000 into +the business, and in 1838 it had loaned them upon their cotton crops not +less than $20,000,000 at 7 per cent. payable in three years. + +It had bought the bank shares at 28 per cent. below par; through its help +they had risen again to par; and then it threw them upon the London +market, which absorbed them. In order to explain the immense credit +enjoyed in Europe by the United States and their banks, we must observe +that the extinguishment of the National obligations through surplus +crops threw a false light upon the credit of the States, as well as +particularly upon that of the corporation. For many years American +investments had been sought for above all others in London, and as +nothing happened during the first year to destroy that confidence, the +amount thus employed increased from $150,000,000 to $200,000,000 in +1840. In Pennsylvania $16,000,000 of European money was used in the Bank +of the United States, and $40,000,000 in those of the different States, +all of which was payable in two or three years. + +Mr. Biddle had succeeded in sustaining the different States with the +National credit. He knew how to utilize the credit of American goods in +Europe, and drew from the London market an immense sum against exchange +long-time paper and paper payable in America. The Bank's paper fell from +4 to 6 per cent., and it was in such demand that the Bank of England +took it at 2 to 3 per cent. discount. But finally the market had all +that it could take. The attention of merchants was attracted to Mr. +Biddle's gigantic speculations, who paid paper in America and collected +hard money in London. Business interests complained about the +contraction in the market. The Bank's stock of cotton increased +steadily, and between June and July it rose from fifty-eight to ninety +million bales. + +This speculation had already yielded $15,000,000 profit, but the market +was overloaded, and quotations could not keep up. The planters had made +a great deal by the advance in cotton, but the paper money remitted them +lost from 15 to 25 per cent. A panic was approaching. The cotton crop, +amounting to 400,000 bales, was one fifth less than was expected; they +awaited an advance in price, but the contrary occurred. The high prices +had brought out all the stored cotton; the factories had reduced their +work. Nevertheless bale after bale was forwarded to Liverpool and to +Havre. The sale in this last port in February and March, 1839, having +produced a loss, they continued to store it. As soon as Mr. Biddle was +aware of this stoppage he sought to hide the difficulty by extending his +business. He proposed to start a new bank in New York (the other had +headquarters in Philadelphia) with a capital of $50,000,000. He once +more issued long-time paper, and bought with American paper canals, +rail-roads, and shares which he threw upon the English market. This +lasted until the long-time paper lost 18 per cent. in America, and until +American exchange and investments were no longer received on the +Continent. + +The Parisian house of Hottinguer like its other agents, sold little +until the first of July, and when it saw that the effort to monopolize +cotton could not succeed, fearing to continue this gigantic operation, +it declared that it employed too much capital. In the midst of all this, +some new bills of exchange reached Paris without consignment of +corresponding value; and the house of Hottinguer protested. + +Hope of Amsterdam discontinued his connection. The London agent called +upon the Bank of England for help, which was granted upon the guaranty +of certain firms of that place and a deposit of good American paper. + +Rothschild accepted the refused bills of exchange, after having found +out that a sum of L400,000 would suffice for Mr. Biddle's agent; these +L400,000 offered as a guaranty consisted of Government stock, and of +shares in railroads, canals, and banks. This agreement was not given out +freely, which still further increased the feeling of distrust. A crisis +in which $150,000,000 of European capital were destined to be engulfed +was rapidly approaching. + +BREAKING OUT OF THE PANIC OF 1839.--The English papers had already +warned the people to be distrustful. The _Times_ said it was +impossible to have any confidence in the Bank as long as it would not +resume specie payments. Mr. Biddle defended himself through papers paid +for the purpose, finally in the Augsburg Gazette, while he waited for +the soap bubble to burst. His retained defenders claimed that the +150,000 bales of cotton sent to Europe had not been sold, but received +on commission. Advances in paper had been made which in the month of +August, 1839, were to be paid in notes by the Southern banks, for a new +grant made to the Bank by the State of Pennsylvania permitted it to buy +the shares of other banks, and by this means to gain their management; +their notes lost 20 to 50 per cent. as compared with the Northern banks. + +Through his profit upon the difference of the notes, and through the +payment for the cotton in paper, and through the sale of bullion +exchange, Mr. Biddle had made five to six million dollars, which lay at +his command in London. + +The protection of his bills of exchange made a great impression in +England; the rebound was felt in America, where the panic, moderated in +1837 through the intervention of the Bank, burst forth with renewed fury +in 1839, and brought about the complete liquidation of that +establishment. + +At the same time the English market was very much pressed, for, +according to a notice of the Chamber of Commerce, the number of that +year's bankruptcies was greater than usual. From June 11, 1838 to June, +1839, there were 306 bankruptcies in London, and 781 in the +"provinces,"--in all, 1,087. At Manchester there were 82, at Birmingham +54, at Liverpool 44, at Leeds 33. The London Exchange was flooded with +unsalable paper, an occurrence which had also taken place on a smaller +scale in 1837. + +Such was the interruption of business that interest for money rose to 20 +per cent., and the discount rate for the best paper to 15 or 18 per cent. + +The various States in the Union had contracted debts with inconceivable +ease, and interest payments were provided for by new loans. President +Jackson declared it necessary to make a loan in order to pay interest +moneys. It was deemed inexpedient to impose new taxes to provide for the +cost of the public works. Great was the embarrassment in America, and as +no more money came from England, it was necessary for the Americans to +look for it in their own country. + +Business circles were flooded with long-time paper running at a discount +of one half of 1 per cent. a month. Discount rose to 25 per cent. The +panic was so great that all confidence was destroyed. The Bank of the +United States, in order to maintain its credit, paid its depreciated +long-time paper. + +The struggle between the Bank and its opponents, led by President Van +Buren, re-commenced. These last declared that the Bank had erred in +circulating the $4,000,000 of notes of the old bank, which should have +been retired coincidently with the charter; and the Senate forbade their +circulation. + +The Government claimed large sums from the Bank, the statement of which +showed close to $4,000,000; and, as it could not secure this amount in +money, it was decided to issue $10,000,000 of Treasury bonds. The Bank +party wished to push the Government into bankruptcy, in order to induce +it to turn to them for help, and, through the issue of "circular +specie," oblige it to adopt a system of paper money. + +A bill was brought forward with this view. Biddle, who wished to +increase the circulation, said he could resume specie payments, and thus +forced his shares to rise; but the rejoicing of the Bank party was soon +disturbed by the fact that collectors of taxes were forbidden to receive +any bank note for less than $20, which was not redeemable in hard money. + +After a struggle of eight years the separation became complete, and the +administration of National finances was withdrawn from the Bank. + +In 1836, a law was passed providing that upon the expiration of its +charter, the National funds should be again deposited with it, as soon +as the Bank resumed specie payment. Upon the suspension in 1837, the +Government was forced to abate the law, in order to protect the specie, +and imposed on its financial and postal agents some of the duties of the +Treasury. In 1840, the management of the public Treasury constituted a +separate and distinct department. Such was the liquidation following the +panic, that Congress granted the Bank three months in which it must +either resume specie payment or liquidate. To conform to this decree the +State of Pennsylvania fixed the resumption of specie payments by its +banks, for January 15, 1841. The shares of the Bank, which had yielded +no dividend in 1839, and offered a similar outlook for the first half of +1840, fell to $61. They had been quoted as high as $1,500. General +liquidation and a loss of 50 per cent. was inevitable. This occurred in +1841. Thus ceased for a time the bank mania in the United States. + +We will recall here Buchanan's opinion about the Bank: "If the Bank of +the United States, after ceasing to be a national bank, and obtaining a +new charter in Pennsylvania, had restrained itself to legitimate +banking, had used its resources to regulate the rate of home exchange, +and had done everything to hasten the resumption of specie payments, it +would have resurrected the National Bank. + +"But this is no longer possible; it has defied Congress, violated the +laws, and is mixed up in politics. The people have recognized the +viciousness of its administration; the President, Mr. Biddle, has +concluded the work Jackson began." + +Tables indicating the banks which suspended during the panic: In 1814, +90; in 1830, 165; in 1837, 618; in 1839, 959. The last panic, from 1837 +to 1839, produced, according to some pretty accurate reports of 1841, +33,000 failures, involving a loss of $440,000,000. + +PANIC OF 1848.--The entire discounts, which had risen to $525,000,000 in +1837, fell to $485,000,000 in 1838, only to rise again to $492,000,000 +in 1839, and the real liquidation of the panic occurred only then. +Discounts fell at once to $462,000,000, then $386,000,000; the abundance +of capital, and the low price at which it was offered, cleared out bank +paper until it was reduced from $525,000,000 to $254,000,000 in 1843. +[Footnote: We have not the outside figures, the maximum or minimum.] + +The metallic reserve increased from $37,000,000 to $49,000,000 (1844); +the circulation was reduced from $149,000,000 to $58,000,000. + +The number of banks in 1840, from 901 fell to 691 in 1843, and the +capital itself from $350,000,000 in 1840 was reduced to $200,000,000 in +1845 and to even $196,000,000 in 1846. + +All these figures clearly indicate liquidation. The market, freed from +its exchange, was enabled to permit affairs to resume their ordinary +course. + +In fact an upward movement was taking place. Discounts rose from +$264,000,000 to $344,000,006 in 1848. + +Banks increased from 691 in 1843 to 751 in 1848, and their capital grew +from $196,000,000 in 1846 to $207,000,000. The paper circulation rose +from $58,000,000 to $128,000,000 in 1848. Deposits from $62,000,000 +reached $103,000,000 in 1848. The metallic reserve alone fell from +$49,000,000 in 1844 to $35,000,000 in 1848. + +The consequences of the European panic were felt in America, but without +causing much trouble. The liquidation of the panic of 1839 was barely +over, and was still too recent to have permitted sufficient extension of +business. + +Embarrassments were slight and brief; discounts, nevertheless, fell from +$344,000,000 to $332,000,000. + +The store of bullion, in spite of the surplus and the favorable balance +produced by the export of grain to Europe, fell from $49,000,000 to +$35,000,000; with the following year the forward movement recommenced. + +PANIC IN 1857.--The stoppage in 1848 was very brief. Discounts rose +regularly from $332,000,000 to $364,000,000, $413,000,000, $557,000,000, +$576,000,000, $634,000,000, and finally $684,000,000 in 1857. The +progression was irresistible. The circulation rose from $114,000,000 to +$214,000,000. The banks increased at such a rate that, from 707 in 1846, +with a capital of $196,000,000, there were in 1857 1416, whose capital +had risen to $370,000,000,--a very inferior figure, in comparison to +the number of banks, to that of 1840, when 901 banks only had a capital +of $358,000,000. + +The metallic reserve, from $35,000,000 in 1847, easily reached +$59,000,000 in 1856: but it was in proportion neither with the number +of the banks nor their discounts and circulation; and, after all, this +is only a moderate sum. We have not the extreme maximum or minimum, and +the suspension of specie payments took place notwithstanding the amount +of cash on hand, which was greater in 1857 than in 1856. + +Deposits accumulated from $91,000,000 to $230,000,000; they rose to +their greatest height in the very year of the crisis; nevertheless, +they could not be drawn out. + +During the Eastern war the prosperity of the United States had been so +great that the clearing-houses established in New York in 1853, and in +Boston in 1855, offered only a slight opposition to the excessive issue: +at least, in 1837 the Congressional report stated the cash on hand was +$6,500,00--that is to say, $1.00 in metal to each $6,00 in paper. + +In 1857 cash on hand was $14,300,000, or $1.00 in hard money for each +$8.00 in paper. + +The banks had attracted deposits by high interest, and loaned the money +to wild speculators. On the 22d of August, 1857, the amount of loans had +become almost $12,000,000, counting together metal, notes, and deposits. + +From December, 1856, to June, 1857, they had shown great strength. +Discounts had risen from $183,000,000 to $190,000,000 in June; cash on +hand had risen from $11,000,000 to $14,000,000. The only evidence of +weakness, so to speak, was that the withdrawal of deposits had risen from +$94,000,000 to $104,000,000, while the circulation diminished $1,000,000. + +In June "the position of the Bank ought not to have caused any fear, to +the most far-sighted," says the report of the Committee of Inquiry. + +Foreign exchange was favorable, and it is known that is the bankers' +guide. June, July, and August were tranquil, except for a slight +disturbance in business experienced by the country bankers through the +constantly increasing amount of notes presented for redemption, and +among the city bankers by requests for discount. + +The collapse of the "Ohio Life," which had the best New York connection, +was the first muttering of the storm, and was soon followed by the +suspension of the Mechanics' Banking Association, one of the oldest +banks in the country. The suspension of the Pennsylvania and Maryland +banks followed. Public confidence remained unshaken--it relied upon the +circulating medium. + +Only one bank went to protest, and that on September 4th, on a $250 +demand. Another protest followed on the 12th, a third on the 15th, +both for insignificant amounts. Demands in the way of withdrawal +amounted to almost nothing, and there was nothing like a panic. + +The deposits at the savings banks were a little less, but this did not +continue. Only at the close of September was the demand by the country +banks for payment upon the Metropolitan American Exchange Bank for +payment greater than it had ever been. + +On the 13th of October, with exchange at par, an abundant harvest, with +a premium of 1/4 to 1/2 per cent. on metal, the banks suspended specie +payment, but resumed it on the 11th of December. The most critical +period lasted about a month. The first step towards resumption of +payments was made after the resolution adopted by the Committee of +Liquidation to call upon the country banks to redeem the notes of the +Metropolitan Bank, paying an allowance of 1/4 of 1 per cent. interest, +running from the 20th of November. + +At this time the city bankers held, in bills issued and in signed parcels +of $5,000 each, about $7,000,000 due by the country banks. They were thus +enabled to accomplish the payment of their notes at the rate of 20 per +cent. a month by the 1st of January, 1858. The same favor of repaying +their notes at the rate of 6 per cent. was granted to the city banks. + +We need not inquire if, having granted this delay, the banks proved +their liberality. The abundant harvest also assisted liquidation. + +From 1853 to 1857 the metallic reserve fell to $7,000,000, deposits +rose to $99,000,000, and discounts and loans to $122,000,000. + + BANKS OF NEW YORK. + + Proportion of + Metallic Reserve. Deposits. Discounts, the Metallic + Advances. Reserve to + Deposits. + + 1854 ... $15,000,000 $ 58,000,000 $ 80,000,000 26% + 1855 ... 9,900,000 85,000,000 101,000,000 11% + 1856 ... 10,000,000 100,000,000 112,000,000 10% + 1857 ... 7,000,000 99,000,000 122,600,000 7% + + +The reduction of the metallic reserve, increase of deposits and of +discounts and of advances, are here clearly indicated. + +From 1853 to 1857 the bank circulation hardly varied $100,000, +indicating that the demand for hard money came from abroad and from the +interior. The circulation was not the cause of the suspension,--at least +such was the opinion expressed by the superintendent of the New York +banks in his report. + +In 1856 twenty-five companies were started, and three bankers opened +business with a capital of $7,500,000, of which $7,200,000, was paid in. + +In 1857 there were only five of these banks and three bankers having a +capital of $6,000,000, of which only $4,000,000 were paid in. The +collateral deposited by the banks represented $2,500,000 in 1856, on +which credit of $2,000,000 in notes was granted. + +In 1857 the same collateral did not exceed $560,000 estimated value, on +which a credit of $383,000 in paper was granted. + +At the height of the crisis failures were so numerous that a general +suspension of payments, and, in consequence, a stoppage of business was +dreaded. This suspension, in place of being general, turned out to be +merely partial; it occurred at a juncture when it might well be feared +that it would lead on to the very greatest disasters, but, far from +harming, it helped the market. The banks had suspended payment upon a +common understanding among themselves and with business circles. The +critical moment having passed, tranquillity reappeared as soon as the +course determined on was known. + +If suspension of payment hurts the credit of a bank, it does not +necessarily lead to the depreciation of its bank notes. + +There are a good many proofs of this: in 1796, when the Bank of England +suspended, its bank notes did not depreciate; and if this state of +things did not last, the blame must be laid upon the excessive issue. +And in France, in 1848 as well as in 1871, the Bank of France suspended +without the depreciation of its bank notes becoming very noticeable. So, +in New York, bank notes passed at 2 or 3 per cent. loss at this crisis. + +The crisis disappeared with the end of the year, and resumption of +payments took place between New York and Hamburg, with the return of +specie and a rate of 4 per cent. + +It was the same in France and England. A more serious panic and a more +rapid recovery had never been seen. The rigidness and not the severity +of the pressure that had to be exercised shows the condition of +business. There had been most blamable practices employed; but the +market as a whole was sound, and had faced the storm. + +Only four banks had suspended, three of which were shaky before the +panic, and the fourth had already resumed payments. + +At no other period could one have obtained such an amount of credit upon +a simple paper circulation; fictitious paper was the source of all the +wrecks. To get it into circulation the most varied contrivances were +resorted to, and fraud itself was not wanting; the signatures even +became fictitious, their owners could not be found. Shams and +discriminations under all forms, designed to permit speculation without +capital, without exchange of goods, without real transactions between +the drawer and the acceptor of the bill of exchange, were rife. + +In his message, President Buchanan ascribed the crisis to the vicious +system of the fiduciary circulation, and to the extravagant credits +granted by the banks, although he was aware that Congress had no power +to curb these excesses. When there is too much paper, when the public +has created an endless chain of bank notes, representing no real value, +it is enough that the first ring break for the whole gear, thus no +longer held together, to fall to pieces. If we mark the situation of the +New York banks before and during the panic--that is to say, in 1852 and +in 1857, we will ascertain as follows: + + June, 1851. June, 1856. June, 1857. + + Capital ............ $59,700,000 $92,300,000 $107,500,000 + Circulation ........ 27,900,000 30,700,000 27,100,000 + Deposits ........... 65,600,000 96,200,000 84,500,000 + Paper discounted ... 127,000,000 174,100,000 170,800,000 + Cash on hand ....... 13,300,000 18,500,000 14,300,000 + + +This table demonstrates that two items show a great increase: capital +increased $47,000,000 and paper discounted $43,000,000; while, in face +of an increase of $1,000,000 of specie on hand, the note circulation +decreased $800,000. + +Far from finding a mistake, we find a proof of the Directors' prudence. +If there was an error in the issuing of paper, it was not on the side of +the banks; it was the public itself that was chiefly in fault. + +We find the causes of the panic in the issues of railway obligations and +shares, which had chiefly been placed in European markets, and whose +gross amount was estimated at L1,000,000. The speculation in land and +railroads had been carried on either with borrowed money or by open +credits, and by accommodation notes, back of which there was no second +party. + +The mistake of the banks was in trying to conduct their whole business +by their note circulation and to concentrate their capital in the bank +offices, and meanwhile, as they refused to loan to the stockholders of +the banks, discounts in New York fell off $10,000,000. Finally the +capital could not be entrusted to the disposal of the banks and it was +necessary to compel them to make a deposit of $100,000 for each +association, and $50,000 for each banker. + +Such were the final advices given by the inspector-general of the banks +of New York at the close of his report, dealing with how to prevent the +recurrence of panics. To have confidence in their efficacy, it was +necessary to forget the past and its lessons. + +The reforms already made and those still asked for in the bank system +could yield no remedy for those abuses lying beyond legislative action. +The American newspapers did not hesitate to demand them, well aware that +they would produce no effect; however, they congratulated themselves +with having drawn away from effete Europe one million sterling now +realized upon the soil of the United States without any equivalent given +for it to the foreign lenders. + +PANIC OF 1864.--The crisis of 1864 was mixed up in the United States +with the War of Secession; it was a political crisis, and is not +properly to be considered here. + +PANIC OF 1873.--During the last two months of 1872 the American market +had been very much embarrassed; the lowest rate of discount was 7 per +cent., and in December it was quoted at even 1/32 of 1 per cent. or a +quarter of 1 per cent. a day! + +The year 1873 was anxiously awaited in hope of better times. In the +middle of January, 1873 the rate of interest declined a little to 6 or 7 +per cent., but soon the rate of 1/32 of 1 per cent. per day reappeared +and continued until the month of May. + +In the first days of April the market was in full panic; it grew +steadier in the first week of May, and in the month following. It +relapsed on September 1st, and requests for accommodation redoubled +until the sharpest moment of the panic. On that day there were no quoted +rates; money could not be had at any price: some few loans were made at +1-1/2 per cent. per day. + +This panic broke forth on September 18th, through the failure of Jay +Cooke, after a miserable year, during which money was constantly sought +for and was held at very high prices in all branches of business. As to +the loans for building railroads, they followed one another so rapidly +that, from the month of October, 1871, to the month of May, 1873, they +could not be placed at a lower rate than 7 per cent. Bankers succumbed +beneath the burden of their unsalable issues. This was a grave +misfortune for the railroads. In the single year 1873 there were +constructed 4,190 miles of railroad in the United States, which, at +$29,000 per mile, represented the enormous sum of $121,000,000, and in +the last five years $1,700,000,000. + +The commercial situation was not so bad, and the number of failures did +not reach the proportion that might have been feared. + +After the failure of Jay Cooke came those of Fiske & Hatch, of the Union +Trust Company, of the National Trust Company, and of the National Bank +of the Commonwealth. On the 20th of September, for the first time, the +Stock Exchange in New York City was closed for ten days, during which +legal-tender notes were at a premium of 1/4 per cent. to 3 per cent. +above certified cheques. + +On the 18th there was a run on the deposits. Withdrawals continued on +the 19th and 20th, especially by the country banks, and the banks' +correspondents. No security could be realized upon; and in order to +relieve the situation the Secretary of the Treasury bought $13,500,000 +of National 5-20 bonds, stating that he could do no more. + +The New York Stock Exchange was reopened September 30th, without any +notable occurrence; but everything was very low. Several other +suspensions occurred--for instance, that of Sprague, Claflin, & Co. + +The rate of discount being 9 per cent., a panic was feared in London. +The banks passed the most critical period on October 14th; out of +$32,278,000 legal-tender dollars at the beginning of the panic, only +$5,800,000 remained on hand. Not until the middle of November did the +decline stop and a slight advance take place. Throughout the panic the +bank reserves were much below the legal requirement of 25 per cent; from +the 13th to the 30th of September they fell to 24.44 and 23.55 per cent. + +The New York Clearing House in September adopted a measure which +permitted dealings to continue. It authorized the banks to deposit the +bills on hand, or the other securities they had accepted, in exchange +for which they issued certificates of deposit bearing 7 per cent. in +notes of $5,000 to $10,000 to the extent of 70 per cent. of the security +deposited. Thus $26,565,000 of them were put into circulation. + +Furthermore, they made a common fund of the legal tenders belonging to +the Associated Banks for mutual aid and protection. The suspension of +payment took place first in New York and then extended to the large +cities of the Union; it lasted forty days, until the 1st of November; +this measure was looked upon as having prevented the greatest disasters. + +The table setting forth the situation, compared with the balance sheets +of the Associated Banks of New York on January 1st, April 1st, July 1st, +September 1st, and October 1st of the years 1870, 1871, 1872, and 1873, +shows us the following changes: discounts had fluctuated from +$250,000,000 in January, 1870, to $309,000,000 in September, 1871; they +had become reduced to $278,000,000 in September, 1873, on the eve of the +panic, and from the month of September, liquidation of the panic having +begun, they were reduced to $250,000,000. Deposits from $179,000,000 in +January, 1870, rose to $248,000,000 in July, 1871, with $296,000,000 of +bills discounted, and once more reached $198,000,000 in September, 1873, +with $278,000,000 of discounts and $195,000,000 in December. + +Even at the most critical moment of the panic they continued larger than +the usual average of the preceding years. + +The metallic reserves played too feeble a role to have caused failure; +they had varied from $34,000,000 in June, 1870, to $9,000,000 in +September, 1871, $18,000,000 in September, 1873, and $23,000,000 in +December, 1873. + +The circulation varied still less: from $34,000,000 in January, 1876, it +decreased to $27,000,000 in July, 1872, and remained at the same figure +during the year 1873, if we can judge of this by the balance sheet +rendered on the first day of each quarter. In each case there is no +opportunity for us to charge an excessive issue. + +According to the statement of the Comptroller of the Currency, paper +discounted decreased between the 12th of September and the 1st of +November from $199,000,000 to $169,000,000. + +To sum up, the circulation had fluctuated very little; deposits from +$99,000,000 had increased to $167,000,000 between the 12th and 20th of +September, at the most critical period; and when suspension was +universal, they had declined to $89,000,000. After the breaking out on +the 18th of October, and since then from the 22d of November, they had +risen to $138,000,000. + +The metallic reserve, after a brief revival from $14,000,000 to +$18,000,000 between the 12th and 20th of September, had fallen back to +$10,000,000, only to rise to $14,000,000 in November. + +In the midst of these difficulties, the securities of the various States +held up. Since the first months of 1873, the demands of the English +market caused an upward movement in them; in September it was impossible +to make a loan, without using them as collateral. In order to help the +market somewhat, the Treasury bought about $13,000,000 of National +securities on the Stock Exchange, but, lacking resources, that was the +only effort it could make. The German Government invested quite a large +sum in the new five per cents., so that the advance in public securities +lasted through the whole year: the market rate for 5-20's advanced from +91 per cent. in April to 96 per cent. in October, in the midst of the +market's panic. + +The $15,000,000 of indemnity awarded by the Geneva Court of Arbitration, +and paid by England for having admitted privateers into her ports, was +put into 5-2O's. Apart from this strength in the public securities, the +railway obligations, especially those upon new roads, were very much +depressed; they could no longer be placed, ninety new companies having +stopped paying their coupons, whilst those of the old lines held their +quotations. + +Great speculators, Vanderbilt at the head, formed syndicates, embracing +several companies, and made prices as suited their plans. The death of +Mr. Clarke in June dealt the first blow to this combination, and the +failure of George Bird Grinnell brought about its dissolution. + +The liquidation of this tremendous concern kept down prices for a long +time. + +The price of gold, still quoted at 112-1/2 per cent. in January, 1873, +rose to 119-1/2 per cent. in April, superinduced by speculation, for at +the height of the panic it declined to 106 on the 6th of November. +It is true that at that time all doubtful accounts were liquidated, +and demands for gold had disappeared; if we were to rely upon the export +figures only, we would find them less than in the preceding years. + +Exchange rates were much more depressed; from 109.45, representing par, +they fell to 107.25 for the best 60-day paper. This paper was much +sought after by speculators, who, when discounting it, procured bonds +authorizing them to transfer the titles unless payment was made promptly +at maturity. Prices fell so low that it was often impossible to +negotiate paper at any price. The activity reigning at the beginning of +the year showed itself in the Exchange movement; the excess of imports +over exports rose in the first months to $100,000,000, whilst in the +preceding year it did not exceed $62,000,000; prices ruling in the +American market attracted goods from all quarters. + +PANIC OF 1884.--The panic which burst upon the United States in 1884 was +the last thunder-clap of the commercial tempest which had reigned since +the month of January, 1882. Public opinion already recalled the +decennial period which separated the existing panic from that of 1873. +The acute period was of short duration; the crash occurred on May 14th, +and the decline of values had touched bottom by the end of June. From +the 9th of June the people began to steady up, they felt the ground +firmer under their feet. The situation gave evidence of great strength; +and, notwithstanding the dearness of money, and an enormous fall in +prices, there were only a few failures, and at the close of the year +equilibrium was re-established, although the liability of the losses had +risen to $240,000,000. These losses, it is true, were almost entirely +borne by financiers and speculators, rather than by manufacturers and +traders. + +The month of May, 1884, concludes the prosperous period which followed +the crisis of 1873. During this period the most gigantic speculations in +railroads occurred; the zenith of the movement was in 1880, and as early +as 1881 a retrograde movement began, only to end in the disasters in +question. The decline in prices had been steady for three years; they +had sunk little by little under the influence of a ruinous competition, +caused by the number of new lines and the lowering of rates, but above +all through the manipulations by the managers on a scale unexampled +until now. In connection with the disasters of May, 1884, the names of +certain speculators who misused other people's money, such as Ward, of +Grant & Ward; Fish, President of the Marine Bank; and John C. Eno, of +the Second National Bank, will long be remembered. General Grant, who +was a silent partner in Ward's concern, was an innocent sufferer, both +in fortune and reputation. + +The Marine Bank suspended on the 5th of May, and in the following week +the Metropolitan drew down in its train a large number of bankers and +houses of the second order. The confusion was then at its height. Owing +to the very delicate mechanism of the credit circulation, the banks and +the clearing house were the first attacked and the most shaken, but they +immediately formed themselves into a syndicate to resist the storm which +was upsetting all about them. As cheques were no longer paid, +settlements no longer took place, and the credit circulation was +suspended; this stoppage was liable to induce the greatest consequences, +hence it was necessary to be very circumspect. Here it was not possible +to suspend the law, as in England the Act of 1844 was suspended, +permitting an excess of the official limit for the note issue, but the +banks could have been empowered to demand authority to change the +proportion enacted by the law creating National Banks. They had no +recourse to any of these violations of the Statutes, which prove only +too often under such circumstances that regulation by law is impossible; +they satisfied themselves, without having the public powers intervene, +with issuing clearing-house certificates, that is to say, promises, +which they were bound to accept as cheques in settling up the operations +of each day. It was through this help that the Metropolitan Bank was +enabled to resume payments on the 15th of May, the evening of the day +following its suspension. The Second National Bank was a loser through +the acts of its President, Mr. John C. Eno, but his father and the +Directors hastened to make good the deficit. At this moment the +excitement was intense, deposits were withdrawn, and 1 per cent. a day +was paid, and even more, to obtain ready money or credit; under the +influence of numerous sales of securities, exchange fell rapidly, +metallic money was secured in London even, to be hurried to New York. +Never could purchases be made under better auspices. Above all is this +true when we observe that the condition of companies was much better +known than in 1873. The year 1883 had been disturbed by numerous +failures. There had been no crash, but prices, far from advancing, had +held their own with difficulty. On the eve of the breaking out of the +panic there was complaint about the accumulation of goods in the +warehouses, and of the difficulty of making exports. No scheme worked +out, despite a very high protective tariff, and people were asking +themselves what was its effect under the influence of unfavorable +exchanges. Gold flowed away from the country, and cash on hand decreased +each day. + +On the 1st of January, 1884, the New York & New England Railroad was +placed in the hands of a receiver by order of the court. The same thing +happened on the 12th of January to the North River Company. In February, +March, and April many houses exhibited their balance sheets. The fall in +prices grew accentuated not only on the Stock Exchange, but in all +markets. The discomfort increased until the 6th of May, the day on which +occurred the failure of the National Marine Bank, whose President was +associated with the house of Grant and Ward, which went down shortly +afterwards with a liability of $17,000,000. This financial disaster made +a great stir. Anxiety spread everywhere, when on the 13th of May the +President of the Second National Bank of New York was also forced to +suspend payment with a liability of $3,000,000; this was the final blow +to credit. Every operation was suspended, all exchange became +impossible; not securities but money was lacking. At one time the panic +was such that the rate of discount and loans rose to 4 per cent. a day! + +Although the panic was general, it was rather a panic of securities in +the chief places of the United States, especially in New York. + +One no longer knew on whom to count to provide ready money. Offerings +were made on the Stock Exchange where there were no bidders, and the +market disappeared in the midst of a panic which paralyzed every one. + +This melancholy state of things was still further aggravated on the 14th +of May by the failure of Donnel, Lawson, & Simpson and Hatch & Foote. On +May 15th it was the turn of the Savings Banks of New York, of Piske & +Hatch, and of many others. It was impossible to obtain any credit from +the banks, and all securities were unsalable, unless at ruinous rates. +Reduced to such an extremity, it was necessary to adopt some course to +help the market and avoid suspension of payments. + +The certified checks issued by the banks did not answer, and it was +necessary to have recourse to a new means of settlement. The members of +the clearing house emerged from their usual passive role to intervene +and to do a novel thing: they issued certificates that they accepted in +the name of the most embarrassed institutions whose fall they wished to +avert, in order to prevent the failure of others. Then, as everybody was +making default, the Secretary of the Treasury in his turn wished to aid +the common effort to sustain the credit of the situation, and, in order +to accomplish this by the most regular methods, he pledged himself to +prepay the debt, whose term was close at hand. + +Despite these last helps it was easily seen how great must be the +disorder, to induce recourse to such methods. Never had they been +employed until now, which is proof enough of the enormity of the +situation, whose equilibrium, had been disturbed since 1887, the year in +which high prices in everything had been reached on the Stock Exchange. + +To still further increase the joint responsibility of the members of the +clearing house, it was agreed that a committee should be charged with +receiving as collateral bills and securities in exchange for which +certificates of deposit bearing 3 per cent. were issued at the rate of +75 per cent. of the amounts deposited. This agreement being adopted, a +way to re-open the National Metropolitan Bank was sought. A selection +made from its collection of bills showed the securities it could pledge +for clearing-house certificates; and, its circulation being thus +re-established, it was enabled on May 15th to take part in settlements. + +Upon the announcement of a syndicate composed of the banks and the +clearing house, things settled down; the general distrust diminished; +there was the necessity and wish to realize, but funds were lacking. + +The rise in the discount rate attracted foreign capital little by +little, and exchange grew easier. With the help of the syndicate the +credit circulation became re-established, and the rate of discount +declined to 5 per cent. For commercial needs money was always to be had +at 4-1/2 per cent. and at 5 per cent. when at the Stock Exchange it was +necessary to pay 4 per cent. per day! + +The panic was terrible from the 3d to the 10th of May; for two days no +one wished to part with his money; it was impossible to borrow on any +collateral, at any price whatever. Hence came a decline in the public +securities, which fell below the low prices of 1873. + +The public complained that it could not have foreseen the panic, because +the loss of gold had been concealed by the oft-repeated assurance that +there was a reserve of $600,000,000 in Washington. + +Similar situations in 1857 and in 1873 were recalled, and it was +remarked that like troubles had not occurred until after a long period +of high prices, when capital was scarce and the rate of interest high, +whereas this was far from being the case at this period. + +It was nevertheless notorious that the decline in prices began two years +back, that the advance in prices had been stopped by the breaking out of +the panic of 1882 in Europe, at Paris, and that since that moment prices +had begun to decline, less rapidly, however, than in Europe, because the +shock had then merely disturbed a market which had not yet recovered +from the panic of 1873, from which, in consequence of the +Franco-Prussian war, France had escaped. The mine not being sufficiently +charged in the United States the explosion had not recurred. +Speculation, unable to restore a new impulse to the rise in prices, was +nevertheless able to hold its own, until May, 1884, when the delayed +explosion finally occurred, covering the market with ruins and bringing +about a liquidation with its accustomed train, a great and lengthy +decline of prices. + +We may here note similar delays in the breaking out of panics, in the +period of 1837, 1839, 1864-1866 in France and in England. Even an +involved state of affairs may be hidden by certain conditions, and the +situation, although itself exposed to the same excessive speculation, +may witness the breaking out of the panic which has been delayed for a +certain time, only to occur simultaneously with the beginning of a +decline of prices, and when it is thought that danger has been escaped. + +As in Brussels and in the United States in 1837-1839 and in England in +1864-1866, large houses and powerful institutions of credit had +maintained a whole scaffolding of speculation which was already out of +plumb, but still able to stand upright through the general effect of the +parts which connected them, and in this unstable equilibrium it sufficed +for a single one to detach itself in order to overthrow the whole +edifice at a juncture at which it was hoped it would continue to stand +and even grow stronger. Does not this prove that after these epochs of +expansion and activity characterizing prosperous periods (and there is +no prosperous period without a rise in prices) a stoppage is necessary, +a panic allowing a period of rest to permit the liquidation of +transactions employed in helping to make a series of exchanges at high +prices, and to allow the capital and savings of countries which had been +too rapidly scattered and exhausted to reconstruct themselves during +these years of tranquillity and of slackening business? + +Confidence had already returned in New York despite the steady demands +of the country bankers upon their correspondents, which pulled down the +reserve below the legal limit; nevertheless in the midst of all the +failures there was no suspension of specie payments. + +The crisis of 1884, according to the Comptroller of the Currency, had +been less foreseen than the crisis of 1873, and this notwithstanding it +was sufficient to observe the number of enterprises and schemes flung as +a prey to speculation, in order to foresee that financial troubles and +disasters to the country must result. + +The continuation of payments in gold, the low prices, and the outlook +for a fine harvest gave courage, preserved the remaining confidence, and +already allowed a speedy resumption of business to be anticipated. + +The panic, although spreading over the whole Union, raged especially in +New York. Without wishing to expatiate upon its primary causes, the +Comptroller of the Treasury could not help remarking that it had shown +itself under the same circumstances as recently as in 1873; above all +there were issues for new enterprises; the speculation had rushed to +take them up at a premium, and people now asked their true value. + +At this juncture railroad earnings, instead of increasing, showed +weakness, and suffered a slight reaction; the solvency of houses +interested began to be doubted; new loans were refused them, and +immediately the artificially constructed edifice gave way. + +To advance prices on the Stock Exchange, the banks had made immense +loans on the shares and obligations of the new railway issues, and as +soon as quotations, artificially maintained at the rates to which they +had been carried, began to drop, everything became unsalable. Until this +occurrence, led on and fascinated by the rise in prices, every one had +bought; hardly was the advance arrested when every one reversed their +operations at the same time. The bankers had loaned not only their +capital but in addition a part of their clients' deposits; brokers had +encouraged a speculation which brought them business; and thus it was +that all hands had flung themselves upon a path that could only lead to +ruin. + +The Comptroller of the Currency remarks with pride that, in the midst of +the general upheaval and numerous failures of honorable houses, only two +National Banks were involved: one of them failed, the other suspended +payment. + +The amount of liability of the banks and bankers of New York who +succumbed during the month of May was estimated at $32,000,000, whereas +that of the only National Bank which shared their fate did not exceed +$4,000,000, the bank which suspended not having occasioned any loss. + +Unhappily the year did not pass without its being necessary to mention +new misfortunes: eleven National Banks failed, and it is a fact that +among the banks and private bankers more than a hundred were counted in +the list. + +Despite the close watch bestowed upon the banks it was surprising to +uncover all the tricks to which the National Marine Bank of New York was +given over, and, which until now had escaped the official examiners. + +It suspended payment on May 6th, and the same day it was debited with +$555,000; the books had been erased and overcharged for the benefit of +one client alone to the amount of $766,000. He was a debtor to the +amount of $2,400,000, six times the Bank's capital, and a portion of +this debt was under a good many names of subordinate clerks. This same +client had three open accounts, one as administrator, then a general +account, and a special account. The whole thing was fictitious; the +schemers sought to conceal irregularities, and had thus imposed on the +examiners and on the Directors themselves. + +The certificates issued by the clearing house, when credit had entirely +disappeared, rendered a great service and sustained a great number of +houses in equilibrium, which without this assistance must have +succumbed. They were granted especially to the banks belonging to the +Association, in order to make their daily settlements. + +During the crisis of 1873 the same means had been resorted to, but too +late; the panic was already at its height and the commotion general, so +that nothing could re-establish confidence. This was not the case in +1884: the rapidity and decision with which the Associated Banks took +steps gradually re-established confidence throughout the country. The +maximum of issue did not exceed $24,900,000, of which $7,000,000 were +for the National Metropolitan Bank; from the 10th of June balances at +the clearing house were paid in legal money. Commercial paper, which for +the most part was the collateral for these certificates, had already +been redeemed. The Metropolitan National Bank alone requested time to +liquidate. + +The issue of these certificates was very rapid: $3,800,000 on the 15th +day of May, $6,800,000 on the 16th, $6,700,000 on the 17th, or more than +$17,000,000 in these first three days; then on the 19th, 20th, and 22d, +$1,500,000, and that was all. The remainder of the amount was given in +driblets. Payments, although slower, were made from the 1st of July to +the 1st of August. + +Let us now run over these occurrences: in 1873 instead of $24,900,000 in +certificates $26,565,000 had been issued; $22,000,000, had been issued +between the 22d and the 29th of September, the redemptions took place +from the 3d of November to the 31st of December. + +In both cases the same amount, so to speak, had been sufficient to +answer for all needs. If so small a difference sufficed to save a +disordered market, people could not understand why panics could not be +provided against. It was necessary to remember that this assistance was +only felt when the decline of prices had already re-established an +exchange of goods, bringing about the liquidation of houses +unfortunately involved. + +From the month of June, owing to the bank balances or the rate of +exchange, the tranquillity and steadiness which had become +re-established grew daily; after the storm of the first few days no new +disasters had occurred except the failures of Mathew and of Morgan. + +The position of the market grew firmer and the clearing house reduced +its loan certificates, which now replaced the former excessive issues of +bank notes. From $24,000,000 they had already decreased to $18,000,000; +of this amount $6,000,000 were taken by banks as a last resource, and +there then remained only $12,000,000 in circulation. These $6,000,000 +had served to sustain the shaken banks, and it is pleasant to state that +outside of these requirements the amount needed was no larger. + +Failures had ceased in the great centres, but they continued in the +interior of the country; the shock, like a great wave, took a certain +time to overrun the various States. + +SUCCESSION OF PANICS IN THE UNITED STATES STUDIED THROUGH THE BALANCES +OF THE BANKS.--Following the historical summary of panics in the United +States it will be useful to have a general table, so as to glance at the +very rare documents which permit us to follow the working of the Banks +through their balance sheets. We know their organization, and we take +upon ourselves to state results flowing from it. + +It strikes us at once that abuses and panics have constantly occurred. +Can we note a difference in the frequency and gravity of the casualties, +according to whether we observe them working under the former or the new +(the National Bank) system, inaugurated during the War of the Secession +in 1864, when the machinery for the issue of bank notes was insufficient +for the new requirements? + +Without lingering over the regulations before and after 1864, let us +consider the differences we may ascertain by examining the balance +sheets. Unfortunately, the exactness of our observation is lessened on +account of the very diversity of the field it covers. + +In the case of the banks of the United States we have had to content +ourselves with the returns that the Comptroller of the Currency gives in +his annual report on a stated day during the months of February, May, +June, October, and December, beginning with the year 1865. Before that +period we had only the yearly situation of the banks of the different +States upon one given day; we are better informed on the second period; +however, basing our conclusions upon the few balance sheets we possess, +we ascertain the same series of development and increase. Although there +are lapses, still, from another point of view, the table will be more +complete, because it embraces all the banks of the United States. On +such an extended field, it is true, we risk seeing great discrepancies +disappear and lose themselves in the magnitude of the amounts whose +movements we follow. In order better to grasp them, we have put before +us the returns of the banks of the United States, together with those of +the Associated Banks of New York City; we may thus recognize and follow +the share played by each of them. + +During the first period of the State Banks (1811-1864), the increase in +the number of the banks was continuous, except for two stoppages, in +1841 and in 1862; in 1841, during the liquidation of the panic of 1839, +and in 1862 at the beginning of the War of Secession; the crisis of 1857 +did not interrupt the movement. + +The capital of the banks had followed the same changes. From $52,000,000 +in 1811 to $368,000,000 in 1840, a reduction to $196,000,000 in 1846, +and finally the last maximum reached in 1861, $429,000,000, at the +breaking out of the war. In 1864 a new organization of the banks under +the name of "National Banks" presented to the State Banks, without +suppressing them, a state of affairs destined to cause their +liquidation, which, in fact, practically occurred. + +As in England and France, the amount of discounts, as the balance sheets +give it to us, rose each year during the prosperous period. + +Thus from 1830 to 1839 it reached $492,000,000 from $200,000,000, to +decline again to $254,000,000 at the end of the liquidation in 1843. + +In the following period the same rising movement from $254,000,000 to +$344,000,000 was reproduced in 1848. The panic in Europe burst forth in +1847; it resounded very slightly in the United States in 1848, as its +subsequent liquidation in 1849 indicates, which only reduced the local +discounts to $332,000,000. + +A new period of prosperity followed the preceding events; the growing +movement re-appeared, and from $332,000,000 carried the amount of the +discounts to $684,000,000 between 1849 and 1857. The panic broke out +simultaneously throughout the whole world; but notwithstanding the +wrecks it caused, such was the saving already, so healthy was the +general situation of business, that, after having thrown out a little +scum, the current of affairs resumed its course until 1861, and +discounts had already reached the amount of $696,000,000. This amount is +greater than that we have noted in 1857, but at that time (whilst the +movement continued in Europe up to 1864), despite the shock it received +by the declaration of war here, there was complete stoppage until the +end of the struggle; we have here come across a political panic, not a +business one. Peace re-established, the movement resumed its course +under new conditions and with a reorganization of the banks under the +name of "National Banks." A change was due, but, as everything was made +ready, it was speedy. The first balance sheet of the National Banks +dates from 1864. The amount of discounts had already exceeded the sum of +$100,000,000 in 1865, and grew to $500,000,000 in 1866. Once started the +movement took its own course: + + 1865 ...... $166,000,000 1870 ...... $725,000,000 + 1866 ....... 500,000,000 1871 ....... 831,000,000 + 1867 ....... 609,000,000 1872 ....... 885,000,000 + 1868 ....... 657,000,000 1873 ....... 944,000,000 + 1869 ....... 686,000,000 + + +The yearly progression was interrupted as in Europe, and the explosion +occurred at the same time. The rise in prices stopped, and incipient +liquidation became apparent at the end of the year, and reduced the +amount of paper on hand to $846,000,000, but, instead of lasting, as in +Europe, a movement of revival, analogous to that which had followed the +panic of 1864 in England, occurred. The amount of discounts rose from +$856,000,000 to $984,000,000 in 1875, and then, and then only, the real +retrograde movement showed itself as in Europe, and reduced the amount +of the discounts to $814,000,000 in 1879, simultaneously with the +movement in France and in England, when prices had reached the lowest +quotations, and when a resumption of business was about to occur. In a +word, affairs resumed their course; from the end of the year the amount +of paper discounted rose to $933,000,000, and the steady advance as set +forth in table No. 3 continued each year, until it reached +$1,300,000,000 in 1884. The panic had burst forth in Europe in 1882, and +the agitation, so lively was its impulse, lasted during eighteen months; +but, as we have stated, the rise in prices ceased in 1882. + +Starting from this time, a reaction appeared. The paper on hand lowered +to $1,200,000,000 in 1885. This liquidation was scarcely noticeable, +because we cover the whole Union, and there is always an upward movement +in the new portions of it which have not yet taken part in business +movements. If we note what occurred in the Associated Banks of New York, +the very place where the greatest amount of business is carried on, the +depression of the amount of paper on hand is most noticeable after the +inflation observed at the height of the panic, while the decrease that +we point out showed itself more slowly with the slackening of business. +Thus, in the last period, the greatest amount of paper appears on +hand--at the close of 1881, $350,000,000, and the minimum in December, +1884, the very year the panic had burst forth, and when, during the +first months, the sum of $351,000,000 reappeared once more; except for a +million, exactly the same amount there was in 1881. + +This maximum amount was only an accident, under the influence of +pressing needs at the time of the difficulty, for since 1881 the yearly +reduction of the maximum and minimum amounts ensued. This tendency had +occurred suddenly, and disappeared likewise; the resumption dating from +1885, a year sooner than in Europe. + +The discounts of the New York Banks, which had been reduced to +$287,000,000, rose immediately upon the opening of the new period of +prosperity, and a growing activity carried them to $408,000,000 in 1889; +after a few more fortunate years we come to the end of the period of +prosperity and high prices. + +We gather the following about discounts from the balance sheets of the +Associated Banks of New York. If we cast our eyes over the balance +sheets of the National Banks of the Union, we must note a falling off of +$100,000,000 in the paper discounted, that is, from $1,300,000,000 to +$1,200,000,000 (1884-1885). After this short period of stoppage, clearly +indicating the necessity for liquidation, discounts resumed their steady +expansion, and rose to $1,470,000,000 in 1886, to $1,587,000,000 in +1887, and finally to $1,684,000,000 in 1888, when we were in the midst +of a period of development and consequently of high prices and of +prosperity; and the same is true in France and England. + +The study of a single section of the balance sheets, that of discounts +and loans, has allowed us to follow the periods of prosperity, of panic, +and of liquidation. When we next consider the other sections, we find +the confirmation of our anticipations. Among these sections, in the +order of importance, we notice first, public deposits in the form of +running accounts; they constitute the reverse of the loans and +discounts, whose total is immediately credited to the banks' clients, +and the increase of paper on hand also follows. From 1865 to 1873 the +steady increase was uninterrupted, viz., from $183,000,000 to +$656,000,000; the maximum amount shows itself in the first quarter of +1873, eight months before the maximum of discounts and loans; in 1888 +they ran down to $622,000,000; there is, say, a difference of +$300,000,000 between the two totals, and this difference is the same, we +observe, as that between the highest and the lowest of the two sections, +as we notice it in the same year, during the liquidation of the panic of +1873. [Footnote: See table of balance sheets of the Banks of the United +States.] + +In the last period the progression is the same; from $598,000,000 the +amount of deposits advanced to $1,350,000,000, whilst discounts and +loans reached $1,684,000,000; that is to say, there was still a +difference of $334,000,000. The relationship of the two sections was +much more marked than in France and in England, where the amounts +carried in accounts current vary more. + +In the United States we then experienced a market based on credit, +which, through discounts or loans by the banks, had reached the amount +of the accounts current, and was about to call the clearing house into +action to settle debts everywhere. + +The office of the circulation of bank notes, subsequent to the severe +regulations enacted in 1863 for the organization of National Banks, had +varied in the last two periods that we are studying. From 1863 to 1873, +after the war troubles, in proportion as greenbacks were withdrawn, the +bank notes issued by the National Banks not only took their place, but +replaced those of the State Banks, whose position the National Banks had +taken. + +We observe them rise firstly from $66,000,000 to $341,000,000 +(1865-1873) at the sharpest period of the panic. We might even charge +them with causing it, if the disproportion alone of the two sums, +$341,000,000 bank notes compared with $944,000,000 of bills discounted, +did not at once repel this theory. It is only necessary to glance at +this idea to see its falsity. + +The maximum circulation of bank notes has here coincided with the panic, +a thing which had not happened either in France or in England for a long +time, and instead of presenting its highest figure during the +liquidation of the panic of 1873, it shows us its lowest figure, +$290,000,000 in 1877. Far indeed from increasing at this time as +happened in Europe, the amount of bank notes in circulation decreased by +means of the ebbs of metallic cash into the coffers of the banks: in +reality the cause was lacking here; the ebb of specie was hardly felt at +all. + +With $4,000,000 in 1865, the reserve was poorly provided, increasing to +$48,000,000 in 1870. At the end of the bursting forth of the panic of +1873 it became reduced to $10,000,000, at the worst of the panic to +$16,000,000; then, under the influence of a slight whirl, it rose to +$33,000,000 in 1874, without reaching the highest figure of the +preceding period, but soon the flow reappeared and reduced this metallic +reserve to $8,000,000 in 1875. It was not until after this depression +that the true ebb reappeared, when the circulation of bank notes was at +its lowest figure ($290,000,000). + +Whilst the $8,000,000 specie reserve grew successively to $54,000,000, +$79,000,000; $109,000,000, and finally to $128,000,000 in 1878, 1879, +1880, and 1881; that is to say, upon the approach of the panic, the +circulation also expanded from $290,000,000 to its highest figure +$323,000,000 in 1882, the year of the European crash and of the stoppage +of the rise of prices in the United States. As to the minimum amount of +the specie reserve, it is to be noted in 1883, between the critical +years 1882 and 1884. + +Metallic reserves are too small in the United States for their +fluctuations to exhibit the same regular course they offer us in Europe; +the least need exhausts them, and the smallest payments fill them to +overflowing. The panic soon brought about a default in payment and a +need of metallic money to re-establish equilibrium, but this remedy, if +it does precede panics, sometimes precedes them by a year, as we have +observed in 1883, and the same irregularity is apparent whether we +observe the banks of the whole United States, or the Associated Banks of +the City of New York. + +After the panic of 1882-1884, the ebb of specie into the coffers of the +National Banks of the United States and of the Associated Banks of New +York resumed its usual course, and raised its level in the case of the +National Banks from $97,000,000 to $177,000,000 between 1883 and 1885, +and even to $181,000,000 in 1888. This ebb occurred both in England and +France at the same time, proving that cash reserves do not increase to +the detriment of each other; it is a flood of specie or of bar-gold +rendered easily available, through the conclusion of the decline of +prices and the slackening of business, extending to the whole world, and +in which each one partakes in proportion to its wealth, and above all in +proportion to its credit circulation, and of the perfection of the +settlements by means of clearing houses. + +This regular course in the metallic reserves is no longer to be noted in +the circulation of bank notes; instead of increasing and of entering its +exchanges during the return of specie into the coffers of the banks, +they again took part in the paper-money reserves. From $323,000,000 in +1882 we see the circulation of bank notes decrease each year little by +little until it is reduced to $151,000,000 in 1888; and this remarkable +fact confronts us in the face of an unheard of expansion of business, +almost 50 per cent. greater than in 1873; and of a twofold simultaneous +reappearance of $84,000,000 specie and of $172,000,000 bank notes. What +then is the role of specie and of bank notes in the course of business +in the United States? Much inferior to that which it plays in Europe in +the absence of the machinery of a clearing house embracing the whole +country, instead of being limited to some large cities. + +The multiplicity of banks has strikingly helped the economic progress +of the United States. From 1,500 National Banks in 1865 with a capital +of $393,000,000, the number rapidly rose to 2,089 in 1876. + +The panic of 1873 did not hinder the movement; however, during its +liquidation, the number shrank to 2,048, only to rapidly advance to +2,500 by the close of 1882, and 2,664 in 1884, and this movement did not +even suffer a slackening as in 1873 during the liquidation of its +crisis; it continued steadily, and we enumerate 3,120 banks in 1888. + +The increase is a third more than in 1876, but it is far from being thus +in the case of the capital, which only rose from $504,000,000 to +$588,000,000--that is, only 16 per cent. The small banks in the new +centres of population are the factor, then, which annually increases the +number. + +THE CONDITION OF BUSINESS IN 1888-92.--[Footnote: The facts I state in +this _resume_ are based upon statistics printed in the _Commercial +and Financial Chronicle_.--DEC. W. THOM.]--The year 1888 was fairly +prosperous despite a Presidential election, but securities were heavy, +depression was general, and some few stocks shrank amazingly. Excessive +issue of new railroad securities and disastrous competition between +certain of the Southwestern roads were without prudence. Money was easy, +bank-note circulation continued to decrease till it was only $151,000,000, +and legal tenders to $81,000,000, but specie reserve rose to $181,000,000, +the banking capital to $592,000,000 plus, the exports to $1,350,000,000, +and discounts and loans rose to $1,684,000,000. + +The sharp speculations in wheat and the formation of the French copper +corner caused a certain fluctuation in general business. Large crops, +excepting wheat; a flourishing cotton manufacture, a decline in +production of petroleum by agreement, a 6 per cent. decline in pig-iron +production, a very heavy one in Bessemer iron, and a very small export +trade as compared with imports occurred. But in the year 1889, the +export movement, consisting largely of cotton, was very great, being the +greatest since 1880, and near the maximum, and compared favorably with +the immense imports induced by the new tariff of 1890. In fact, the year +1889 surpassed all its predecessors in the volume of trade movements; +the bank clearings showing an increase of 13 per cent. over 1888. The +cotton, corn, and oats crops were the largest ever raised, and the wheat +crop was almost the largest. But cotton brought fair prices, and cotton +manufactures and production of iron were also considerably ahead of any +previous year, while petroleum played an important part at good prices. +Railroad earnings showed a wonderful recovery from 1888, and many +reports gave the largest figures ever recorded. + +During this year many consolidations and a number of foreclosures +occurred. Railroad building fell to 5,000 miles compared to 7,000 in +1888. In general business, manufacturing and trade were extremely +active, yielding plenty of work, good wages, and fair profits. + +But the wool crop and its manufacture, a decline in the anthracite coal +production, farm-mortgage pressure in the middle West, and low rates for +corn and oats were untoward circumstances. Speculation on the general +exchange was small, indicating a growing congestion, as was proved by +the low bank reserves, especially in the last quarter of the year; but +there was a heavy absorption of investment securities. + +Gold, to the amount of $37,000,000, was exported in the first six +months. A small amount of it returned before 1890. Failures exceeded +those of 1888 by 203 in number and about 20 per cent. in money. The +woollen trade contributed much of this showing. + +Importations surpassed all previous years, while exports exceeded them +by nearly $20,000,000, and the net export of gold amounted to nearly +$40,000,000. Money was easy during the first quarter, and then for a +week a 10 per cent. rate occurred. + +Thereafter, excepting the usual July 1st hardening, easy rates prevailed +till August. Stiffening and fluctuating rates ensued till 30 to 40 per +cent. in exceptional cases had been reached in December. + +During the year, bank circulation declined to $126,000,000. Specie +reserve sank to $164,000,000 and rose to $171,000,000 with the ending of +the year; legal tenders to $84,000,000, and the number of banks rose to +3,326; their capital to $617,000,000; their deposits to $1,436,000,000, +and their discounts and loans to $1,817,000,000, and surplus and +undivided profits to $269,000,000. + +Unused deposits, capital, surplus, and undivided profits were growing +very small in comparison with loans and discounts at the end of the year. + +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 embarrassment 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 assumed 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 +assets 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 pass 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 analysis 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 assertion of the right of +the United States to redeem its silver dollars in Government notes. The +Free-Coinage Bill had been passed 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 hoarding 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 quantities. 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 reassured 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 pronouncement 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 assemble 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 hoarding 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 anticipated. +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 asserted 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 Cox 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 canvasses 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 classes. + +"(_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 class, I believe, as those +indicated by Abraham Lincoln, when he said, 'God 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 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. + + + + + +End of Project Gutenberg's A Brief History of Panics, by Clement Juglar + +*** END OF THE PROJECT GUTENBERG EBOOK A BRIEF HISTORY OF PANICS *** + +This file should be named 7361.txt or 7361.zip + +Produced by Lee Dawei, David Garcia +and the Online Distributed Proofreading Team. + +Project Gutenberg eBooks are often created from several printed +editions, all of which are confirmed as Public Domain in the US +unless a copyright notice is included. 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