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of the volume of business has filled order books and paved the way for a new rise in prices. Such is the stage of the business cycle with which the analysis begins, and, having accounted for its own beginning, the analysis ends.

C. THE ANTECEDENTS OF CRISES

102. The Causes of the Panic of 18937

BY W. JETT LAUCK

But what was the local and the true cause of the crisis of 1893 in this country? It cannot be said to have been due to a scarcity of money in the United States at that time. During the entire period 1878-93 the amount of money in circulation more than doubled. Consequently the money supply was ample. On the other hand, it cannot be maintained that the crisis of 1893 was caused by an extension of the mercantile credits such as brought about the disastrous collapse of 1873, for business houses and industrial establishments during the period 1891-93, instead of extending, were curtailing their operations, and were arranging their plans in the expectation of a breakdown in the financial machinery of the country. They could not have engaged in any extended or hazardous activities if they had been inclined to do so, for the reason, as already seen, that very little, if any, foreign capital was obtainable for investment in the United States after 1891, and American capital likewise refused to enter into doubtful financial or industrial undertakings. So far as the withdrawal of foreign and domestic funds, however, brought about industrial and business disaster, it was not a direct cause of the crisis, but only the result which flowed out of the operation of the primary and fundamental cause.

This cause to which the crisis of 1893 is directly and wholly attributable consisted of a widespread fear, both at home and abroad, that the United States would not be able to maintain a gold standard of payments. The very nature of the crisis itself bears out this conclusion. It was essentially a monetary crisis, and its typical feature consisted in the numerous failures of banks and financial institutions. Moreover, the precipitation of and the recovery from the crisis furnishes additional evidence to bear out the foregoing claim. The beginning of the crisis was marked by the decline of the Treasury gold reserve, on April 22, below the $100,000,000 limit; the ending of the resultant industrial and financial chaos dated

'Adapted from The Causes of the Panic of 1893, 118-121. Copyright by Hart. Schaffner & Marx (1907).

from the assurance, on August 28, of the repeal of the Silver Law of 1890.

The apprehension in 1893 as to the fixity of the gold standard of payments arose indirectly out of the silver agitation and legislation during the period 1878-90, and was directly traceable to the operation of the Sherman Silver Purchase Law of 1890. For seventeen years, 1878-90, the gold standard of payments was constantly threatened, and the crisis of 1893 was practically the culmination of this long period of uncertainty. Under the operation of the Silver Act of 1878, the country received a serious shock to its confidence. in the fixity of the gold standard. During the two years, 1884-86, when the silver issues of the country became redundant, the distrust in the ability of the Treasury to maintain gold payments became so great that gold was withheld in the payments of customs duties, and silver certificates were worked off on the Treasury. Additions. to the Treasury's supply of gold were thus cut off, and the gold reserve declined to $115,000,000. As a consequence, apprehension as to the maintenance of gold payments became widespread, and a panic was narrowly averted. As it was, the stream of silver was only prevented from overflowing the Treasury by the action of the Treasury officials in employing artificial devices to create a vacuum. in the circulation.

The advocates of the free coinage of silver, however, held the balance of political power during the first session of the Fifty-first Congress, and as a result of their agitation the Sherman Law was passed, which almost doubled the amount of silver obligations annually issued by the Government. The currency of the country soon became redundant, and silver certificates and Treasury notes. were used in the payments of public dues, while gold was hoarded. Consequently the Treasury gold reserve rapidly declined, and fear for the maintenance of the standard again arose. Foreign investors. and exporters saw the danger in the situation even before the people of this country, and began to withdraw the funds which they had invested in this country during the period 1886-90. Moreover, they called for the payment of trade balances in gold. Gold was, therefore, demanded for export. But the banks in the United States were hoarding gold, and gold for export could practically be obtained only by the presentation of legal-tender notes at the Treasury for redemption. This operation caused a further inroad upon the Treasury gold reserve. Larger amounts of funds were drawn from the country, and increasing amounts of gold flowed out of the Treasury in the redemption of legal-tenders. The limit was finally reached. on April 22, 1895, when the gold reserve fell below the danger-line.

At that time the fears of the public over the question of the standard of payments reached a climax.

As soon as it became known that the gold reserve of the Treasury had declined below the danger-point of $100,000,000 the apprehension relative to the fixity of the standard developed into a panic. There was an immediate rush to realize on all descriptions of property before the gold standard was abandoned. The public were afraid of the adoption, as the standard of payments, of a silver dollar which was worth only fifty cents in gold. At the same time overwhelming demands were made upon the banks to pay their accounts in gold or specie, and the cash thus obtained by depositors was hoarded and the existing money supply contracted. Under these conditions gold seemed scarce. In reality gold was only relatively scarce in comparison with the abnormal offering of property for sale on account of the fear of the silver standard. In the face of the universal demand, however, to convert property into cash or some other liquid form of exchange, those having obligations to meet found it impossible to secure funds, and the result was soon seen in widespread industrial and financial disaster.

103. The Irrepressible Crisis

BY W. H. LOUGH, JR.

We may make a list of twelve factors to be considered in sizing up the present situation. They are arranged approximately in inverse order to their immediate influence.

1. The state of the public mind.

2.

Production and volume of credit in extractive industries.

3. Production and volume of credit in manufacturing industries. Production and volume of credit in transportation industries.

4.

5. Output of mortgages and bonds.

6. Output of credit currency.

7. Output of loans and discounts.

8. Output of book credits.

Trend of general prices.

10. Treasury and bank reserves of cash. II. Output of gold.

12. Tendency of foreign exchange.

Adapted from an article in Moody's Magazine, III, 586-592. Copyright (April, 1907). This article was outlined in February, 1907, and barely missed getting into the March number of Moody's in which editorial mention of it was made. Its statements as to financial weakness were, at least in part, verified by the extreme declines in security values during the month of March.

If we could get complete and accurate information about each one of these twelve factors we could come to some definite and practically certain conclusion as to the business future. Suppose we try to sum up briefly the data available at present about each of the factors named.

I. It is obvious that neither over-confidence nor speculative mania is or has been especially strong. On the contrary, intelligent opinion is notably conservative. Retrenchment, not headlong expansion, is the order of the day. Land booms have been reported from various parts of the country, but apparently they have not been attended with the excitement that has existed in such cases at other times.

2. The extractive industries, agriculture and mining, have made new records in volume of production in the year just passed without interfering with prices to any marked extent. The yields of corn and winter wheat were greater than ever before. Other crops were, on the whole, extraordinary, and 1906 came as the climax of several previous years of large agricultural output. The prospects for 1907 are favorable.

3. Manufacturing industries, as is well known, have made great strides in the last three years. To take two examples which happen to be at hand, we find new buildings contracted for in 1906 worth $750,000,000 and we find an output of 25,000,000 tons of pig iron in 1906, against 23,000,000 tons in 1905, the best previous year. The pig iron was used largely for structural steel and railroad equipment. A falling off in the demand for these two products would undoubtedly affect a great amount of outstanding securities, and short time credit. In the opinion of excellent judges, a decline in the demand is already at hand, and will in all probability become more evident as the year progresses. As to other lines of manufacturing we may say, in general, that production is large and increasing, but apparently not yet excessive.

4. New railroad trackage built in 1906 reached a total of over 6,000 miles; but this new mileage is nothing compared to that contemplated for the next few years. The Northwestern railroads are especially active, and in that region the "era of competitive railroad building," predicted by E. H. Harriman, is at hand. What the effects will be on the large volume of new railroad stocks remains to be seen. Within the last two months railroad managers have begun to move a little more slowly in extending and improving their lines. Nevertheless railroad rebuilding and enlargement is still progressing on a great scale, for transportation facilities are plainly inadequate.

5. In considering long time debts, we should note first the striking unpopularity of bonds with the investing public. The reluctance of investors to put their money into mortgages and bonds is, of course, a natural result of high prices and big semi-speculative profits, which make bond returns look small.

6. In the amount of credit currency issued by the government we find, of course, no important change in the last few years. The volume of bank notes outstanding, however, has steadily increased from $172,000,000, in 1894, to about $585,000,000, now. The fact that the increase has been brought about by more liberal laws and by the lowered price of government bonds, rather than by business demands, naturally leads us to suspect its stability.

7. The present status of bank loans and discounts is best indicated by the following totals of this item for all national banks: 1896, $1,873,000,000; 1900, $2,710,000,000; 1906, $4,300,000,000. These are most surprising figures in view of the comparatively slight increase in population and real capital during the same period. They grow more astonishing still when we think of the great increase in other banking business during the last ten years. The rate of increase would be almost beyond belief if the figures were not thoroughly trustworthy.

8. Under the term "book credits" I mean to include all the great body of accommodation extended by merchants to individual customers and by wholesalers to retail firms. Of course it is impossible to compute its amount. All we can say is that, beyond question, it must exceed in volume anything that this country has ever previously known. If a wave of credit restriction should set in, a great many individuals and firms would be compelled to shorten sail in a hurry.

9. The trend of general prices in the last few years is too well known to call for much discussion. Dun's index numbers for a few years past are as follows: 1897, 75.5; 1898, 79.9; 1899, 80.4; 1900, 95.3; 1901, 95.7; 1902, 101.6; 1903, 100.4; 1904, 100.1; 1905, 100.3; 1906, 105.2. These prices are the inevitable result of the output of gold and of credit during this period.

10. The total gold coin and certificates in circulation in the United States was, in 1896, $497,000,000; in 1900, $811,000,000; in 1906, $1,263,000,000. The total national bank reserves of lawful money, in September, 1896, was $343,000,000; in 1900, $520,000,000; in 1906, $626,000,000. The ratio of cash on hand to deposits at corresponding periods of the last few years has been: 1896, 19.1%; 1900, 15.9%; 1901, 14.7%; 1902, 13.2%; 1903, 14.3%; 1904, 15%; 1905, 14% 1906, 12.7%. Looking over the banking field, we see a general downward tendency in the proportion of cash reserves

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