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Title: A Brief History of Panics and Their Periodical Occurrence in the United States
Author: Juglar, Clément
Language: English
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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.



October 10, 1915.


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.



October 10, 1915.




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

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

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

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

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

 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.



       |           | 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     |



       |       |SPECIE |       | DIS-  | INDIVI- |NUMBER |       |SURPLUS|
       |CIRCU- |  ON   | LEGAL | COUNTS|   DUAL  |  OF   |       |AND UN-|
       |       |       |       | LOANS |         |       |       |PROFITS|
       |       |       |       |       |         |       |       |       |
 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|       |         |       |       |       |

       |       |SPECIE |       | DIS-  | INDIVI- |NUMBER |       |SURPLUS|
       |CIRCU- |  ON   | LEGAL | COUNTS|   DUAL  |  OF   |       |AND UN-|
       |       |       |       | LOANS |         |       |       |PROFITS|
       |       |       |       |       |         |       |       |       |
 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     |       |       |       |

       |       |SPECIE |       | DIS-  | INDIVI- |NUMBER |       |SURPLUS|
       |CIRCU- |  ON   | LEGAL | COUNTS|   DUAL  |  OF   |       |AND UN-|
       |       |       |       | LOANS |         |       |       |PROFITS|
 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    |

       |       |SPECIE |       | DIS-  | INDIVI- |NUMBER |       |SURPLUS|
       |CIRCU- |  ON   | LEGAL | COUNTS|   DUAL  |  OF   |       |AND UN-|
       |       |       |       | LOANS |         |       |       |PROFITS|
 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.


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

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,

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

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

        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

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

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

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

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

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

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

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

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

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

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

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

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

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.


                                                     Proportion of
     Metallic Reserve.    Deposits.    Discounts,    the Metallic
                                       Advances.     Reserve to

  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

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

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

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

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

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

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

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.

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

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

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

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

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

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

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

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

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."


"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?"


"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."


"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,"


"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


"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,

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.


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