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 THE CAUSES OF THE PANIC 
 OF 1893 
 
 BY 
 
 W. JETT LAUCK 
 
 Sometime FeUow of Political Economy in the University of Chicago 
 Adjunct Professor of Economics and Politics in 
 Washington and Lee University 
 
 BOSTON AND NEW YORK 
 HOUGHTON, MIFFLIN AND COMPANY 
 
 1907 
 
 ^G^e>\
 
 COPYRIGHT 1907 BY HART, SCHAFFNER St MARX 
 ALL RIGHTS RESERVED 
 
 Published June iqoy
 
 U3^ 
 
 To B.
 
 PREFACE 
 
 This series of books owes its existence to the generosity 
 of Messrs. Hart, Schaffner & Marx of Chicago, who 
 have shown a special interest in trying to draw the atten- 
 tion of American youth to the study of economic and com- 
 mercial subjects, and to encourage the best thinking of 
 the country to investigate the problems which vitally affect 
 the business world of to-day. For this purpose they have 
 delegated to the undersigned Committee the task of select- 
 ing topics, making all announcements, and awarding prizes 
 annually for those who wish to compete. 
 
 In the year ending June 1, 1905, the following topics 
 were assigned: — 
 
 1. The cause and extent of the recent industrial progress 
 
 of Germany. 
 
 2. To what is the recent growth of American competition 
 
 in the markets of Europe to be attributed ? 
 
 3. The influence of industrial combinations upon the con- 
 
 dition of the American laborer. 
 
 4. The economic advantages and disadvantages of present 
 
 colonial possessions to the mother country. 
 
 5. The causes of the panic of 1893. 
 
 6. What forms of education should be advised for the ele- 
 
 vation of wage-earners from a lower to a higher 
 industrial status in the United States?
 
 viii PREFACE 
 
 7. What method of education is best suited for men enter- 
 ing upon trade and commerce? 
 The present volume was awarded second prize. 
 
 Professor J. Laurence Laughlin, 
 
 University of Chicago, Chairman. 
 Professor J. B. Clark, 
 
 Columbia University. 
 Professor Henry C. Adams, 
 University of Michigan. 
 Horace White, Esq., 
 New York City. 
 Hon. Carroll D. Wright, 
 Clark College.
 
 CONTENTS 
 
 INTRODUCTION 
 
 Plan and Scope of the Investigation xiii 
 
 CHAPTER I 
 
 ilNESS AND TRADE CONDITIONS IN THE UNITED STATES, 
 1884-1890 
 
 irst Indications of a Revival in Trade and Industry after the Gen- 
 eral Depression in Europe and America. — The Building of New 
 Railroads, 1886-1890. — Revival in Industry and Agriculture. 
 — The Expansion of Interior Trade and the Growth in the Con- 
 suming Power of the Country. — Increase in Importations resulting 
 in a Trade Balance against the United States. — Unusual Amount 
 of American Securities issued during the Years 1886-1890. — 
 Acceptance of American Securities by Foreign Creditors in Pay- 
 ment of Trade Balances. — Growth of a Surplus Revenue. — 
 The Extension of the Protective System. — The Adoption of a 
 Policy of Increased Government Expenditures 1 
 
 CHAPTER II 
 
 THE SILVER MOVEMENT IN THE UNITED STATES 
 
 The Fall in the Value of Silver after 1872. — The Act of 1878. — 
 Operation of the Act of 1878. — Net Result of the Act of 1878. — 
 Causes of the Act of 1890. — Provisions of the Act of 1890. — Sig- 
 nificance of the Act of 1890. — Summary of the Financial Situation 
 in the United States in the Autumn of 1890 16 
 
 CHAPTER III 
 
 GROWTH OF SPECULATION IN GREAT BRITAIN AND BRIT- 
 ISH GAMBLING IN ARGENTINA 
 
 Depression in British Trade and Industry, 1884-1886. — The Re- 
 turn of Confidence and the Rapid Extension of Investments, 1887-
 
 CONTENTS 
 
 1890. — Outgrowth of Speculation. — The Joint-Stock Company 
 Mania. — The Combination of Breweries and the Organization 
 of Trust and Debenture Companies. — Chilean Nitrate Com- 
 panies and Australian Land Mortgage and Financial Flotations. 
 — South African Gold-Mining and Diamond Ventures. — The 
 Turn of the Speculative Movement toward Argentina. — The 
 Boom in Argentine Land Values. — Absorption of Cedulas, or 
 Land Mortgage Bonds, by European Investors. — Excessive Issue 
 of Argentine Public Loans. — The Suspension of Specie Payments 
 and the Evil Effects of a Depreciated and Inconvertible Paper 
 Currency. — Total Argentine Liabilities abroad in 1890. — Brit- 
 ish Capital Commitments in Argentina. — Total Capital Com- 
 mitments in Great Britain during the Period 1887-1890. — The 
 Expansion of Credit Transactions and the Precarious Financial 
 Situation in Great Britain in 1890 36 
 
 CHAPTER IV 
 
 INDUSTRIAL AND FINANCIAL CONDITIONS IN FRANCE AND 
 
 GERMANY, 1884-1890 
 
 Trade and Industrial Depression in France, 1884-1887. — Return 
 of Prosperous Conditions in 1887, and the Organization of the 
 Copper Syndicate. — Failure of the Copper Syndicate and the 
 Societe des Metaux. — Suspension of the Comptoir d'Escompte. — ' 
 Absence of Speculation in France, 1889-1890. — The Spread of 
 Speculation from Great Britain to Germany. — German Capital 
 Commitments in Argentina. — The Joint-Stock Company Mania. 
 — The Threatened Danger of a Panic averted by the Reichs- 
 bank. — Financial Situation in March, 1890 
 
 CHAPTER V 
 
 THE PANIC OF 1890 
 
 The Financial Breakdown in Argentina. — The Resultant Liqui- 
 dation in Great Britain. — The Baring Failure. — Measures 
 adopted by the Bank of England. — Decline in Value of all De- 
 scriptions of Securities. — Forced and Voluntary Liquidation in 
 Great Britain. — The Effects of Conditions in Great Britain upon 
 German Money and Stock Markets. — The Financial and Indus- 
 trial Situation in France during the Fall of 1890. — The Return to 
 the United States of American Securities held in Great Britain, 
 and the Consequent Exports of Gold from the United States. —
 
 CONTENTS xi 
 
 The Low Level of Bank Reserves in the United States. — Severe 
 Stringency in the New York Money Market and the Issue of 
 Clearing-House Certificates. — Decline in Stock Values. — Busi- 
 ness Failures in the United States during 1890. — Continued 
 Return of American Securities by Great Britain during the Year 
 1891 and Exports of Gold from the United States 63 
 
 CHAPTER VI 
 
 RECOVERY FROM THE PANIC OF 1890 AND FINANCIAL 
 CONDITIONS IN THE UNITED STATES, 1891-1893 
 
 The Extraordinary Grain Crop of 1891 in the United States. — 
 Heavy Exports of Grain from the United States in the Face of a 
 European Harvest Shortage. — Imports of Gold and Recovery 
 from the Previous Financial Depression. — Appropriations of the 
 Fifty-First Congress. — Increase in Circulation of the Country 
 through Government Extravagance and Issue of Treasury Notes. 
 — Increase in Legal-Tender Holdings of New York Banks. — Le- 
 gal-Tender Notes used in the Payment of New York Clearing- 
 House Balances. — Increased Percentage of Legal-Tender Notes 
 ised in the Payment of Customs Duties. — The Payment of 
 Government Balances at the New York Clearing-House in Green- 
 vcks and Treasury Notes. — Withdrawal of Foreign Capital and 
 :ports of Gold from the Country. — Presentment of Greenbacks 
 d Treasury Notes at the Treasury for Redemption. — Decline 
 i the Treasury Gold Reserve below the Statutory Minimum, and 
 the General Distrust over the Currency Situation 79 
 
 CHAPTER VII 
 
 THE CRISIS OF 1893 
 
 The Collapse on the New York Stock Market. — Depression of 
 Stock Values. — Run of Depositors upon Interior Banks. — 
 Withdrawal of Banking Deposits from Eastern Reserve Centres. 
 — The Resultant Deficiency in New York Bank Reserves. — The 
 Stringency in the Money Market. — Development of a Money 
 Famine. — Issue of Clearing-House Certificates. — Mercantile 
 and Industrial Failures. — Bank Suspensions and Failures. — 
 Repeal of the Silver Purchase Clause of the Sherman Law and 
 the Return of Confidence 97
 
 xii CONTENTS 
 
 CHAPTER VIII 
 
 THE CAUSE OF THE CRISIS OF 1893 
 
 The Crisis of 1893 cannot be ascribed to a Continued Operation 
 of the Forces which caused the Panic of 1890 in the United States. 
 — Financial and Industrial Conditions in Great Britain, Germany, 
 and France during the Period 1891-1893 showed a Healthy De- 
 velopment. — Hence the Crisis of 1893 in the United States did 
 not arise from any Difficulties abroad. — The Crisis of 1893 
 was local in its Occurrence and Cause. — It was not due to an 
 Extension of Mercantile and Industrial Credits or to a Scarcity of 
 Money in the United States. — It was a Monetary Crisis caused 
 by Widespread Apprehension as to the Fixity of the Gold Standard 
 of Payments 110 
 
 CHARTS 
 
 I. Percentages of Different Kinds of Money used in paying Cus- 
 toms Duties at New York, 1890-1897 87 
 
 n. Net Gold in the Treasury of the United States, 1884-1894 . . 93
 
 INTRODUCTION 
 
 In approaching the problem of the causes of the crisis 
 of 1893, it is necessary to adopt a somewhat unusual mode 
 of procedure, owing to the fact that in November, 1890, 
 three years previous to the crisis of 1893, a severe finan- 
 cial panic was felt in Great Britain, Germany, and the 
 United States. 
 
 Such a breakdown in the financial world as that of 
 1890, followed by a more violent collapse during 1893, 
 suggests a possible connection between these two events. 
 In order, therefore, to clear the ground thoroughly before 
 entering into a direct examination of the causes of the 
 crisis of 1893, it is first necessary to dispose of the pre- 
 liminary question as to the effect, if any, of the panic of 
 1890 upon the crisis of 1893. To do this properly requires 
 the solution of a problem involving two elements: first, 
 to discover the causes of the panic of 1890; and, second, to 
 ascertain whether these causes were still in operation, even 
 in a modified form, after 1890, and consequently whether 
 they were in any way responsible for the crisis of 1893. 
 
 The working-out of the first process in this problem — 
 the inquiry into the causes of the panic of 1890 — obvi- 
 ously necessitates an examination of the financial and 
 industrial movements, both at home and abroad, which 
 were developing during the years immediately preceding 
 1890, and which finally came to a head in the panic of that 
 year.
 
 THE CAUSES OF THE PANIC 
 OF 1893 
 
 CHAPTER I 
 
 BUSINESS AND TRADE CONDITIONS IN THE UNITED 
 STATES, 1884-1890 
 
 First Indications of a Revival in Trade and Industry after the General Depres- 
 sion in Europe and America. — The Building of New Railroads, 1886-1890. 
 — Revival in Industry and Agriculture. — The Expansion of Interior Trade 
 and the Growth in the Consuming Power of the Country. — Increase in Impor- 
 tations resulting in a Trade Balance against the United States. — Unusual 
 Amount of American Securities issued during the Years 1886-1890. — Accept- 
 ance of American Securities by Foreign Creditors in Payment of Trade Bal- 
 ances. — Growth of a Surplus Revenue. — The Extension of the Protective 
 System. — The Adoption of a Policy of Increased Government Expenditures. 
 
 During the year 1882 there was a disastrous financial 
 panic in France. Two years later the United States expe- 
 rienced a similar calamity.^ Out of the general depression 
 following these two events, however, there soon developed 
 a reactionary movement which, year by year, up to 1890, 
 grew stronger and more extensive in its influence. In tak- 
 ing up the first step, therefore, in the preliminary problem 
 of the connection between the panic of 1890 and the crisis 
 of 1893, and going backward to trace out the causes of 
 the panic of 1890, the starting-point is found to be in the 
 United States, where this tendency toward a revival in 
 trade and industry first made its appearance. 
 
 Amid the widespread stagnation which followed the 
 crisis of 1884 in the United States, there was one excep- 
 tional feature which stood out prominently and which 
 
 ^ The Commercial and Financial Chronicle, Financial Review of 
 1884.
 
 ( 
 
 2 THE CAUSES OF THE PANIC OF 1893 
 
 made itself clearly evident in the fact that confidence 
 in the value of railroad property was never lost.^ But 
 owing to the waging of rate wars between competing rail- 
 road lines during the two years 1884-85, and the diminu- 
 tion in the volume of traffic because of the depression 
 in interior trade after the crisis of 1884, dividends on 
 railroad stocks were reduced and in many cases passed. 
 Consequently there was a hesitancy on the part of invest- 
 ors in entering into railroad undertakings of more than 
 ordinary magnitude.^ By the close of the year 1885, 
 
 * This fact appears from an examination of the quotations of some 
 of the representative raikoad stocks on the New York market before 
 and after the crisis of 1884. (The fractional parts of the quotations 
 are omitted.) 
 
 
 1884 
 
 1886 
 
 Stocks. 
 
 January 
 
 June 
 
 December 
 
 December 
 
 
 Low 
 
 High 
 
 Low 
 
 High 
 
 Low 
 
 High 
 
 Low 
 
 High 
 
 Atch., Top. and 
 
 
 
 
 S. Fe 
 
 80 
 
 80 
 
 62 
 
 73 
 
 76 
 
 78 
 
 84 
 
 86 
 
 Chesapeake and 
 
 
 
 
 
 
 
 
 
 Ohio 
 
 13 
 
 15 
 
 5 
 
 10 
 
 5 
 
 6 
 
 11 
 
 13 
 
 Chicago, Burl, and 
 
 
 Quincy 
 
 118 
 
 123 
 
 107 
 
 117 
 
 113 
 
 122 
 
 132 
 
 138 
 
 Chicago, Mil. and 
 
 
 
 
 
 
 
 
 
 St. Paul 
 
 84 
 
 94 
 
 58 
 
 77 
 
 69 
 
 81 
 
 89 
 
 96 
 
 N. Y. Cent, and 
 
 
 
 
 
 
 
 
 
 Hud. River . . . 
 
 110 
 
 115 
 
 94 
 
 108 
 
 83 
 
 92 
 
 101 
 
 106 
 
 Northern Pacific . 
 
 18 
 
 27 
 
 14 
 
 22 
 
 16 
 
 18 
 
 26 
 
 30 
 
 Compiled from The Commercial and Financial Chronicle, Financial 
 Review of 1886, pp. 77-79. 
 
 ^ The year 1884 was marked by a demoralizing rate war, which con- 
 tinued through the early half of 1885, and included within its influence 
 the trunk lines and the roads west of Chicago. It was also especially 
 .strong in the East, where the New York Central and Hudson River 
 Railroad deliberately attempted to drive the Lake Shore out of busi- 
 ness. As might be expected, there was a great reduction in the net earn- 
 ings of the railroads on account of these conditions, and as a result capital 
 refused to embark in railroad enterprise. During the three years 1885 
 to 1887 only 13,649 miles of new railroad were built, in comparison with 
 a construction of 28,127 miles during the preceding period of three 
 years.
 
 BUSINESS AND TRADE CONDITIONS 3 
 
 however, the railroad companies had found it both prac- 
 tical and necessary to divide the traffic and maintain^ - 
 rates. ^ A tolerably certain status in railroad profits was 
 thus assured. During the following summer, when there 
 were indications of good crops in the face of an active 
 foreign demand, and of an improvement in general busi- 
 ness and especially in railroad traffic, confidence in rail- 
 road enterprise was fully restored and capital once more 
 entered freely into railroad construction.^ _ 
 
 In gathering together their forces for a new start in 
 railroad undertakings, the efforts of capitalists were at 
 first directed toward the reorganization of some of the 
 old companies. The main current of enterprise, however, 
 soon turned toward the exploitation of regions in the 
 South, the Southwest, and the Northwest, and the con- 
 struction of new mileage in these sections was actively 
 pushed forward. The lines of the Atchison, Topeka and 
 Sante Fe, the Missouri Pacific, the Chicago and Rock 
 Island, and the roads leading from Chicago to the North 
 and Northwest, were rapidly extended by companies pos- 
 sessing strong credit and capable of carrying their projects 
 to completion with economy and dispatch. The total 
 construction of new lines during the five years beginning 
 with 1886 and ending with 1890 was over 39,000 miles 
 or an increase of more than 30 per cent., and of this total, 
 19,044 miles, or almost one half, was built in the states 
 and territories of the Northwest and Southwest.^ 
 
 The significance of this extraordinary extension of 
 railroad mileage in its bearing upon general industrial 
 conditions becomes evident at a glance. Taking the 
 country as a whole, a very moderate estimate of the cost 
 
 * During the latter half of 1885 the West Shore Railroad was absorbed 
 by its rival the New York Central, and a pool was organized by the 
 trunk lines and other companies to distribute the traffic and maintain 
 rates. 
 
 * The Commercial and Financial Chronicle, Financial Review of 1886 
 p. 1. 
 
 ' The total railroad construction during this period, and the distri-
 
 4 THE CAUSES OF THE PANIC OF 1893 
 
 of railroad construction, including stations, terminals, 
 tunnels, and rollino-stock equipment, could not have been 
 less than $20,000 per mile. The building of 39,000 miles 
 of railroad, therefore, during the period 1886-90 called 
 for an investment, in one way or another, of over $780,- 
 000,000, and the demand for commodities of all kinds 
 flowing from this enormous outlay of capital soon made 
 itself felt in all lines of production. 
 
 The iron and steel industry, which is usually consid- 
 ered to be a barometer of general industrial conditions, 
 advancing step by step with the progress in railroad con- 
 struction, passed through a period of unprecedented 
 
 bution of the mileage among the different states and territories may 
 be readily seen in the following table, compiled from Poor's Manual 
 of Railroads: 
 
 RAILROAD CONSTRUCTION IN THE UNITED STATES, 1886-1890. 
 
 States and Territories. 
 
 1886 
 
 1887 
 
 1888 
 
 1889 
 
 1890 
 
 New England Group . . . 
 Middle Group 
 
 43 
 
 338 
 
 1,288 
 847 
 319 
 
 2,245 
 
 2,481 
 
 513 
 
 131 
 
 227 
 
 1,784 
 
 800 
 
 7G3 
 
 5,351 
 
 3,209 
 
 685 
 
 192 
 
 299 
 
 900 
 
 1,202 
 
 1,025 
 
 1,574 
 
 879 
 
 954 
 
 92 
 451 
 
 911 
 
 1,183 
 
 851 
 
 886 
 
 662 
 
 664 
 
 102 
 
 488 
 
 Central North Group — 
 O., Mich., Ind., 111., 
 Wis. 
 
 734 
 
 South Atlantic Group — 
 Va.,W.Va.,N. C.,S. C, 
 Ga., Fla 
 
 1,190 
 
 Gulf and Miss. Val. 
 Group — Ala., Miss., 
 Tenn., Ky., La 
 
 Southwestern Group — 
 Mo., Ark., Tex., Kan., 
 Colo., N. M., I. T. . . 
 
 Northwestern Group — 
 la., Minn., Neb., Dak., 
 Wyo., Mont 
 
 Pacific Group — Wash., 
 Ore., Cal., Nev., Id., 
 Ariz., Utah 
 
 752 
 928 
 829 
 645 
 
 Total United States... 
 
 8,128 
 
 12,982 
 
 7,028 
 
 5,695 
 
 5,670
 
 BUSINESS AND TRADE CONDITIONS 5 
 
 / prosperity during the years 1886-90.* An expansion in 
 \ iron ore and coal mining quickly followed.^ From these 
 industries so directly connected with the iron and steel 
 trade, the revivifying movement spread outward and 
 included within its influence all branches of manufactur- 
 ing and extractive enterprise.^ At the same time a re- 
 vival in agriculture was clearly in evidence. The remark- 
 able activity in railroad construction during the period 
 1886-90, as already seen, was mainly turned toward 
 the sparsely settled regions of the South, Southwest, and 
 Northwest. The railroad companies entering these dis- 
 tricts were in possession of immense tracts of land, and 
 in order to exploit the country and develop traffic, these 
 holdings, together with large areas of government terri- 
 tory, were thrown open on generous terms to settlers.* 
 
 ^ The rapid increase in the production of iron and steel is shown in 
 the following table compiled from the Annual Reports of the American 
 Steel and Iron Association: 
 
 
 Iron Fur- 
 
 Production of 
 
 Production 
 
 Production of 
 
 Year. 
 
 naces m 
 
 Pig Iron. 
 
 of Bessemer 
 
 Bessemer 
 
 Blast. 
 
 All kinds. 
 
 Steel Ingots. 
 
 Steel Rails. 
 
 
 Number. 
 
 Net tons. 
 
 Net tons. 
 
 Net tons. 
 
 1885 
 
 276 
 
 4,529,869 
 
 1,701.762 
 
 1,074,607 
 
 1886 
 
 331 
 
 6,365,328 
 
 2,541,493 
 
 1,763,667 
 
 1887 
 
 339 
 
 7,187,206 
 
 3,288,357 
 
 2,354,132 
 
 1888 
 
 332 
 
 7,268,507 
 
 2,812,500 
 
 1,552,631 
 
 1889 
 
 344 
 
 8,516,079 
 
 3,281,829 
 
 1,691,264 
 
 1890 
 
 311 
 
 10,307,028 
 
 4,131,535 
 
 2,091,978 
 
 ^ Annual Report of the American Steel and Iron Association, 1889, 
 pp. 17, 24. 
 
 Profits during the years 1886-87 were very large. The price of No. 1 
 pig iron reached $21.50 per ton in 1887, and steel rails sold as high 
 as $40 per ton in March of the same year. Throughout the subsequent 
 period, 1888-90, prices were such as to insure good profits. 
 
 ^ The Commercial and Financial Chronicle, Financial Reviews 
 1886-1890. 
 
 Statistical Abstract of the United States, 1894, p. 352. 
 
 * The combined land sales of the Union, Central, Northern, and 
 Kansas Pacific railroads, together with the Atchison, Topeka and Santa 
 Fe, amounted during the years 1886-87 to 2,696,821 acres. 
 
 The enormous acreage of government lands made available for agri-
 
 THE CAUSES OF THE PANIC OF 1893 
 
 This policy on the part of the railroads and the Federal 
 Government was followed by the influx of a large and 
 industrious population into the newly opened districts, 
 and under its management the soil was quickly brought 
 under cultivation and made to contribute in large meas- 
 ure to the agricultural resources of the country.* The 
 effect was clearly visible during the years 1886-90. The 
 entire period was marked by good crops, profitable prices 
 for agricultural products, and by a healthy and prosper- 
 ous growth among the agricultural as well as the manu- 
 facturing interests. 
 
 This unusual activity in manufacturing and agricultural 
 operations was quickly reflected in a rapid expansion of 
 trade and business. Confidence was fully restored and no 
 diSiculty was experienced in securing loans and discounts. 
 The banks throughout the country steadily extended 
 their credit operations.^ The movement of freight on the 
 
 culture and other purposes, and the close connection between the ex- 
 ploitation of the country and the building of railroads is shown in the 
 following table: 
 
 TOTAL DISPOSALS OF PUBLIC LANDS, BOTH FOR CASH AND UNDER 
 THE HOMESTEAD AND TIMBER CULTURE LAWS, 1885-88. 
 
 States and 
 
 1885 
 
 1886 
 
 1887 
 
 1888 
 
 Total 
 
 Territories 
 
 Acres 
 
 Acres 
 
 Acres 
 
 Acres 
 
 Acres 
 
 Northwest . 
 Southwest . 
 
 Pacific 
 
 Southern. . . 
 
 8,808,172 
 
 3,827,499 
 
 2,386,532 
 
 579,360 
 
 7,414,256 
 
 7,231,625 
 
 2,543,225 
 
 986,501 
 
 6,093,676 
 6,622,192 
 2,700,256 
 1,865,841 
 
 4,933,601 
 5,509,470 
 3,426,361 
 2,332,289 
 
 27,249,605 
 
 23,190,786 
 
 11,026,374 
 
 6,163,991 
 
 Total ... 
 
 16,001,563 
 
 18,175,607 
 
 17,281,965 
 
 16,201,621 
 
 67,660.756 
 
 During the two years 1889-90 there was a decline in railroad con- 
 struction, and the mileage built was more evenly distributed over the 
 country than in previous years. The Commercial and Finandal Chron- 
 icle, vol. xlvii (December 1, 1888), pp. 652-53. 
 
 ' Abstract of the Twelfth Census, 1900, p. 32. The Commercial and 
 Financial Chronicle, Review of 1890, p. 3. 
 
 A large percentage of the new settlers were immigrants from North- 
 ern Europe. Statistical Abstract of the United States, 1895, pp. 355-56. 
 
 ^ There was never any severe and continued stringency in the money 
 market during the period 1886-88, when railroads and other industries
 
 BUSINESS AND TRADE CONDITIONS 7 
 
 railroads during 1886 was largely in excess of any pre- 
 vious year, and with this before unparalleled record as 
 a starting-point, the aggregate tonnage carried, together 
 with the gross receipts from traffic operations, constantly 
 increased during the subsequent four years. ^ A similar 
 
 called for a large amount of funds, and not until the latter half of 1890 
 was there any such difEculty in getting call loans in New York as to 
 interfere with the operations of the Stock Exchange. Throughout this 
 period, however, the banks, as a result of the commercial and indus- 
 trial activity, were greatly increasing their loans and discounts. This 
 fact appears in the following statement of the loans and deposits of 
 national banks, taken from the Reports of the Comptroller of the Cur- 
 rency : 
 
 LOANS AND NET DEPOSITS OF NATIONAL BANKS, WITH RATIOS 
 OF LOANS TO CAPITAL, SURPLUS, AND NET DEPOSITS, AND OF 
 CASH TO NET DEPOSITS, FROM 1885 TO 1890. 
 
 New Tork City. 
 
 Total United States. 
 
 
 Loans 
 Millions 
 
 Ratios of 
 Loans to 
 Capital, 
 Surplus, 
 and Net 
 Depos- 
 its. 
 Per cent. 
 
 Cash 
 
 to Net 
 
 Depos- 
 
 sits. 
 
 Per cent. 
 
 Loans 
 Millions 
 
 Ratios of 
 
 Loans to 
 Capital, 
 Surplus, 
 and Net 
 
 Deposits. 
 
 Per cent. 
 
 Cash to 
 
 Net 
 Depos- 
 its. 
 
 Per cent. 
 
 Oct. 1, 1885 
 Oct. 7, 1886 
 Oct. 5, 1887 
 Oct. 4, 1888 
 Sept. 30, 1889 
 Oct. 2, 1890 
 
 236.8 
 253.7 
 258.0 
 292.5 
 303.9 
 297.1 
 
 62.3 
 71.7 
 70.9 
 69.2 
 72.4 
 71.0 
 
 36.8 
 27.1 
 28.0 
 28.1 
 25.1 
 27.8 
 
 1301.2 
 1443.7 
 1580.0 
 1674.9 
 1805.7 
 1970.0 
 
 67.7 
 71.9 
 73.8 
 72.1 
 73.2 
 75.1 
 
 21.1 
 17.3 
 17.6 
 17.4 
 15.9 
 16.1 
 
 ' The increase in the amount of freight carried and in the total gross 
 earnings of the railroads of the country is shown in the following table, 
 compiled from Poor's Manual of Railroads for 1891, pp. v and xiii: 
 
 TOTAL TONNAGE AND GROSS EARNINGS OF THE RAILROADS 
 OF THE UNITED STATES, 1886-1890. 
 
 
 Freight 
 Carried. 
 
 Tons. 
 
 Gross 
 Earnings. 
 
 DoUars. 
 
 Increase over 
 preceding year. 
 
 Year. 
 
 Freight 
 
 Carried. 
 
 Tons. 
 
 Gross 
 
 Earnings. 
 
 Dollars. 
 
 1886 
 
 1887 
 1888 
 1889 
 1890 
 
 482,245,254 
 552,074,752 
 590,857,353 
 619,165,630 
 701,344,437 
 
 829,940,836 
 
 940,150,702 
 
 960,256,270 
 
 1,002,926,059 
 
 1,097,847,428 
 
 45,205,155 
 69,829,498 
 
 48,782,601 
 28,308,277 
 82,178,807 
 
 57,371,953 
 110,209,866 
 20,105,568 
 42,669,789 
 94,921,369
 
 8 THE CAUSES OF THE PANIC OF 1893 
 
 growth in the total bank clearings of the country was 
 noticeable and was especially marked in the clearing- 
 houses of the Southern, Western, and Pacific States.' 
 The increasing volume of interior trade, which was thus 
 clearly indicated, averaged well in profits and gave to 
 labor steady and remunerative employment. This fact, 
 together with the extraordinary industrial development 
 and the increase in population, added greatly to the wealth 
 and consuming power of the entire country, and led to 
 a demand for commodities which soon overreached the 
 domestic market and was only satisfied by heavy impor- 
 tations of all descriptions of goods. 
 
 The total annual value of imports of merchandise into 
 the United States increased from $577,527,329 in the 
 year 1885 to $789,310,409 in 1890.^ This amazing growth 
 was not confined to any special class of goods, but in- 
 cluded commodities of every kind, ranging in variety 
 from capital instruments to articles of luxury.^ The de- 
 mand for foreign products, which, as already seen, had 
 reached extraordinary proportions because of the in- 
 creased wealth and population of the country, was further 
 stimulated by British producers who, after the year 1887, 
 
 ' The growth in the amount of bank clearings for the entire country 
 as compared with the clearings outside of New York City was as follows 
 {The Commercial and Financial Chronicle, Annual Review for 1891, 
 p. 11): 
 
 BANK CLEARINGS IN THE UNITED STATES. 1885-1890. (000 omitted.) 
 
 Year. 
 
 Total all. 
 
 Outside New York, 
 
 1885 
 1886 
 1887 
 1888 
 1889 
 1890 
 
 $41,474,041 
 49,293,721 
 51,147,529 
 49,541,635 
 56,175,328 
 60,117,891 
 
 $13,321,840 
 15,616,891 
 17,672,973 
 18,441,607 
 20,280,223 
 22,659,283 
 
 ^ Statistical Abstract oj the United States, 1894, p. 73. 
 * Ibid. pp. 228-229.
 
 BUSINESS AND TRADE CONDITIONS 9 
 
 were aggressively seeking markets abroad and were will- 
 ing to accept foreign securities in payment for their goods.* 
 On the other hand, because of the growth in wealth and 
 population of the United States, a larger percentage of 
 domestic products was consumed at home.^ The ex- 
 portation of grain from India and Argentina was aM ) 
 heo -inning at Jhis t ime to exert a s trong influence in th e 
 wo rld mar ket, and, ~together with "good yields from Euro- 
 pean harvests, lowered the price of cereals at Liverpool. 
 The quantity of American agricultural products which 
 were available for export was, therefore, lessened in 
 value. ^ The result was that the advance in value of our 
 exports, not only to Great Britain but to all other coun- 
 tries, failed to keep pace with the rapid increase in the 
 value of our imports. . During the year 1887 the excess 
 of exports over imports of merchandise amounted, in 
 round numbers, to only twenty-three million dollars, 
 while the imports of gold exceeded exports by thirty- 
 three million dollars, thus leaving a trade balance against 
 the United States of about ten million dollars. In the fol- 
 lowing year imports of gold and merchandise exceeded 
 exports by over sixty-three million dollars.* During the 
 year 1889 imports of merchandise also were over two 
 million dollars greater in value than exports.^ 
 
 During these same years the rapid industrial develop- 
 
 ^ On account of these easy conditions of payment, British goods 
 found a favorable market in this country, the annual purchases from 
 the United Kingdom growing in value from $136,701,780 in 1885 to 
 $186,488,956 in 1890. Statistical Abstract of the United States, 1894, 
 p. 81. 
 
 ^ In 1880 only 17 per cent, of the total value of our agricultural pro- 
 ducts were retained for domestic consumption; in 1889, over 27 per 
 cent, were consumed at home. In 1880 our consumption of domestic 
 merchandise, other than manufactures, was slightly more than 12 per 
 cent, in value of our total production; in 1889 we consumed 19 percent, 
 of the total value of domestic merchandise produced. Statistical Ab- 
 stract of the United States, 1894, p. 157. 
 
 ' A. D. Noyes, Thirty Years of American Finance, pp. 121-122. 
 
 * Statistical Abstract of the United States, 1894, pp. 51, 73. 
 
 6 Ibid. p. 73.
 
 10 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 ment in the United States, as already pointed out, had 
 called for the investment of an immense amount of cap- 
 ital. This capital was obtained by the flotation of an un- 
 usually large volume of securities. The railroad companies 
 in carrying out their extensive construction projects during 
 the five years 1886-90 increased their total indebtedness 
 about tv70 and one half billion dollars, and almost the 
 whole of this extraordinary sum was funded in the shape 
 of stocks and bonds. ^ The annual listing of new issues 
 of bonds on the New York Stock Exchange, the greater 
 part of which were offered by the railroads, was almost 
 100 per cent, greater in value in the year 1890 than in 1885. 
 During the same time the annual listing of new stock 
 issues increased in value over 900 per cent. The value of 
 both the old and the new issues listed during these years 
 was as follows : ^ 
 
 LISTINGS ON THE NEW YORK STOCK EXCHANGE, 1885-1890. 
 
 BONDS. 
 
 STOCKS. 
 
 
 New Issues. 
 
 Total Old and 
 New Issues. 
 
 New Issues. 
 
 Total Old and 
 New Issues. 
 
 1885 
 1886 
 1887 
 1888 
 1889 
 1890 
 
 $103,884,000 
 81,641,000 
 180,386,000 
 261,989,631 
 206,684,000 
 198,158,850 
 
 $197,259,000 
 238,097,690 
 343,477,321 
 511,002,218 
 389,720,000 
 684,867,879 
 
 $17,783,116 
 54,006,350 
 48,726,791 
 62,408,357 
 69,721,717 
 
 164,461,729 
 
 $56,913,116 
 329,469,350 
 270,053,550 
 248,228,275 
 259,649,774 
 437,992,330 
 
 Commencing with the year 1887 there was also a strong 
 movement toward the organization of industrial plants 
 into joint-stock corporations. More than $500,000,000 in 
 stocks and bonds were issued by these combinations dur- 
 ing the four years 1887-90.^ In street-railway, gas, electric 
 
 * Poor's Manual of Railroads, 1891, p. iv. 
 
 ' The Commercial and Financial Chronicle, Financial Review for 1891, 
 p. 12. 
 
 ^ Industrial Combinations in the United States. By Luther Conant, Jr. 
 Publications of the American Statistical Association, vol. vii (March, 1901) 
 p. 12.
 
 BUSINESS AND TRADE CONDITIONS 11 
 
 lighting, and Western land development companies, and 
 similar fields of joint-stock enterprise, the promoter was 
 equally active. Unfortunately, no statistics are available 
 by means of which an accurate estimate might be made 
 of the total amount of securities issued in the United States 
 during the period 1886-90, but from this activity in smaller 
 undertakings, together with the flotations of the railroads 
 and large industrial corporations, some conception may 
 be had of the immense and unusual volume of stocks and 
 bonds offered to home and foreign investors. 
 
 The amount of these securities purchased abroad is 
 even more difficult to estimate than the total sum issued. 
 From the course of international trade, as already pointed 
 out, it was clear, however, that Americans were importing 
 more goods than they could immediately pay for, and 
 were settling their balances by turning over to their for- 
 eign creditors evidences of debt in the shape of stocks and <5 
 bonds. The fact of a constantly decreasing surplus of 
 merchandise exports over imports after the year 1886, 
 which finally resulted in an excess of imports during the 
 two years 1888-89, plainly indicated that millions of dol- 
 lars in American securities, not only of the new issues but 
 of the old listings of the stock exchanges, were being ab- 
 sorbed by the British and European markets. The net 
 importation of over $33,000,000 in gold during the year 
 1887 in the face of a balance of more than $23,000,000 in 
 merchandise exports in favor of the United States, also 
 showed that in addition to the negotiation of heavy loans 
 and the flotation of securities abroad, a large amount of 
 our stocks and bonds were being quietly bought by foreign 
 investors in the open market. As a matter of fact, con- 
 ditions in Great Britain were especially favorable for the 
 placing of new loans and companies. The improvement 
 in trade and business there had inspired the country with 
 confidence, and capital was obtainable on very easy terms. 
 For this reason and also because the bulk of the increased
 
 12 THE CAUSES OF THE PANIC OF 1893 
 
 imports into the United States during the years 1887-90 
 came from the United Kingdom, England became our 
 greatest creditor. A large part of our new railroad issues 
 were floated in that country, more than $100,000,000 in 
 the stocks and bonds of American railroads being taken 
 in the London market during the three years 1887-89.^ 
 British capital also freely entered into other American 
 industrial undertakings and many enterprises of strictly 
 British origin were incorporated to carry on operations 
 in this country, including even joint-stock companies 
 to acquire breweries in the United States and to exploit 
 the newly opened districts of the West and South. The 
 international trade situation, in short, throughout the 
 entire period beginning with the year 1886, and ending 
 with 1890, plainly indicated, (1) that this country was 
 purchasing larger quantities of goods abroad, especially 
 in Great Britain, than it could immediately pay for, and 
 foreign creditors were accepting payment in American 
 securities; (2) that large loans were being negotiated by 
 American capitalists in British and Continental markets; 
 and (3) that European and English investors were not 
 drawing upon their interest accounts, but were investing 
 their balances here as fast as they accrued. 
 
 During this period there was another movement in 
 evidence, however, which in its final consequences was 
 even more far-reaching than the growth in our indebted- 
 ness abroad. The large increase in our imports added 
 greatly to the receipts of the Government from customs 
 duties. At the same time the increased consumption of 
 domestic products arising from our expansion in wealth 
 and population was productive of larger revenues from 
 internal taxes. ^ The exploitation of the Northwest and 
 
 ' The Tendon Economist, Commercial History and Review of the 
 Years 1887-89. 
 
 2 The receipts from internal revenue taxes increased from $116,805,936 
 in 1886 to $142,606,705 in 1890, the receipts from import duties from
 
 BUSINESS AND TRADE CONDITIONS 13 
 
 Southwest also augmented the receipts from the sale of 
 public lands. A combined result soon became apparent 
 in the accumulation of an unprecedented Treasury sur- 
 plus, which finally assumed such proportions as to impede, 
 by the absorption of the circulating medium of the coun- 
 try, the movement of crops and other commercial and 
 financial operations.^ 
 
 The practical remedy for the situation was, of course, 
 the reduction of revenue duties to a point where the re- 
 ceipts from taxation would correspond to the expenses 
 of the Government. It was impossible to adopt this policy, 
 however, because of a protectionist majority in the Senate. 
 In order, therefore, to get rid of the constantly accumu- 
 lating revenue and to prevent the recurring stringency in 
 the money market, the Secretaries of the Treasury, during 
 the three years 1887-89, were forced to purchase Govern- 
 ment bonds, both at par and at a premium, in the open 
 market, to pay in advance the interest charges on Govern- 
 ment obligations, and to deposit Government funds with 
 banks. ^ 
 
 But these measures of relief were unavailing, and the 
 disposal of the surplus revenue soon became a question 
 of practical politics. In his annual reports to Congress, 
 
 $181,471,939 in 1886 to $229,668,584 in 1890. Statistical Abstract of the 
 United States, 1894, p. 20. 
 
 ^ The surplus remaining at the close of each fiscal year after all the 
 obligations of the government had been paid, exclusive of such funds as 
 that for the redemption of the national bank notes, appeared as follows 
 in the Finance Reports, 1886-90. 
 
 1886, 
 
 $103,471,097 
 
 1887, 
 
 80,023,570 
 
 1888, 
 
 119,012,116 
 
 1889, 
 
 105,053,443 
 
 1890, 
 
 37,239,762 
 
 $445,399,988 
 
 ^ As a result of this policy the total interest-bearing debt of the United 
 States was decreased from $1,146,014,100 in 1886 to $725,393,110 in 
 1890. The cost to the national treasury in premium on bonds amounted 
 to almost $46,000,000. Report of the Secretary of the Treasury, 1890, pp. 
 xcvi, cxxiii.
 
 14 THE CAUSES OF THE PANIC OF 1893 
 
 Secretary Fairchild, of the first Cleveland administration, 
 repeatedly recommended a reduction in the customs du- 
 ties.^ As a manifesto of party policy in the approaching 
 campaign, the Democratic majority in the House had 
 already passed the Mills Bill, providing for a substantial 
 reduction in the tariff schedules. Shortly afterwards the 
 Republicans in the Senate squarely met the issue by enact- 
 ing a high tariff measure and announcing their deter- 
 mination to repeal the internal revenue taxes rather than 
 sacrifice the protective principle.^ During the ensuing can- 
 vass, this pronounced position on the tariff question was 
 supplemented by the promises of the Democratic and Re- 
 publican party platforms relative to the administration of 
 the Government finances, the former supporting a policy 
 of retrenchment and economy, the latter advocating a 
 more extended range of Federal expenditure. 
 
 The outcome was the election of President Harrison. 
 The Republican leaders, interpreting his success as a 
 popular approval of their attitude, at once proceeded to 
 put their expressed policy into practical operation. The 
 McKinley tariff law which raised the average rate of duty 
 to 48.71 per cent, and placed sugar and other productive 
 sources of customs receipts on the free list, and which was 
 framed with the object of doing away with the surplus 
 revenue, was passed by Congress and became law on Oc- 
 tober 1, 1890. At the same time the preliminary steps were 
 taken to dispose of the existing Treasury surplus and any 
 further excess, by means of an increase in congressional 
 appropriations. President Harrison, in his first annual 
 message, urged additional appropriations not only for the 
 navy and for coast defense, but even for the Pension De- 
 partment and for river and harbor improvements. Con- 
 gress was not slow to respond, and the aggregate appro- 
 
 ^ Report of the Secretary o} the Treasury, 1887, p. xxxi. Ibid. 1888, 
 p. xxvii. 
 
 ^ Taussig, Tariff History of the United States, pp. 253-254.
 
 BUSINESS AND TRADE CONDITIONS 15 
 
 priations authorized by the Fiftieth Congress, which held 
 its sessions during the fiscal years 1889-90, were more 
 than $61,000,000 greater than the appropriations of the 
 preceding Congress.^ 
 
 But the triumph of the Republican party in securing the 
 adoption of its program of increased expenditures and an 
 extension of the protective system had not been attained 
 without a costly compromise in the form of the Sherman 
 silver purchase law which was enacted by Congress on 
 July 14, 1890. As a matter of fact, this legislative measure 
 was the direct outcome of a movement for the free coinage 
 of silver which had its origin more than twelve years prior 
 to the year 1890, and which, by means of constant agitation, 
 had exerted a strong influence upon the course of our 
 financial affairs. In order, therefore, to obtain a complete 
 understanding of the financial situation in the United 
 States on the eve of the panic of 1890 as well as to secure 
 a proper setting for the continuance of our account, it is 
 necessary to review briefly the silver agitation and the 
 effect of our silver legislation upon trade and industry 
 during the period 1878-90. As a preliminary step to a con- 
 ception of the true significance of the silver movement, 
 a glance must also be taken at the position of silver both as 
 a commodity in the international market and as a money 
 material in the financial systems of other countries at the 
 time the United States was entering upon its first experi- 
 ment in silver legislation. 
 
 * Report of the Secretary of the Treasury, 1891, p. cxii.
 
 CHAPTER II 
 
 THE SILVER MOVEMENT IN THE UNITED STATES 
 
 The Fall in the Value of Silver after 1872. — The Act of 1878. — Operation of 
 the Act of 1878. — Net Result of the Act of 1878. — Causes of the Act of 
 1890. — Provisions of the Act of 1890. — Significance of the Act of 1890. — 
 Summary of the Financial Situation in the United States in the Autumn of 
 1890. 
 
 The middle of the nineteenth century was marked by the 
 discovery of gold in California and Australia, and during 
 the twenty-five years subsequent to the year 1850 there 
 was an extraordinary increase in the world's production 
 of that precious metal, the output from the mines during 
 this period being equal in value to the total amount pre- 
 viously extracted from the time of the discovery of America 
 by Columbus. The remarkable addition to the gold-supply 
 during these years was also accompanied by a steady 
 growth in the production of silver. The percentage of 
 increase in the amount of silver annually given forth by the 
 mines ranged from 25 to 50 per cent in the years imme- 
 diately following 1850, and went still higher at the close of 
 the period, on account of the uncovering of rich deposits 
 in the State of Nevada.^ 
 
 Since gold possesses greater value in smaller bulk and is 
 consequently much mor e desirable for Tnonpfnry piirposjp^ 
 than silver, the lead ingcommercial nations of the world 
 soon began to avail themselves of t he opportunity offere d 
 bvth£_ jnCTeased I^ld-su pply to aHd to their stocksbf 
 gold and to substitute gold for silver in th eir currg iuy. As 
 
 ' The total amount of gold and silver produced in the world before 
 1850, and from 1851 to 1875 was as follows: 
 
 1493-1850 $3,314,553,000 $7,348,450,000 
 
 1851-1875 3,317,625,000 1,395,125,000
 
 SILVER MOVEMENT IN UNITED STATES 17 
 
 early as the year 1852 France commenced to displace her 
 silver coins with gold, and during the period 1852-64 
 she absorbed in this way $1,163,000,000 in gold and 
 $345,000,000 in silver disappeared from her circulation. 
 The Scandinavian Governments soon adopted a policy 
 similar to that of France, and in 1871 Germany also intro- 
 duced a gold currency in place of her previous silver cur- 
 rency. By the year 1874 more than $270,000,000 in silver 
 coins had been exchanged by the German Government for 
 gold, and the surplus stock of silver thus created was offered 
 for sale in the open market. Holland during the year 1873 
 practically adopted the gold standard, and in 1874 France, 
 Belgium, Italy, and Greece, the countries composing the 
 Latin Monetary Union, suspended the free coinage of silver 
 and limited the amount of silver which might be annually 
 coined at the mints of each member of the Union. ^ 
 
 A large amount of silver w^as thus t hrown upon the 
 market by the united action of commercial nations in dis- 
 placing their silver currency with gold. This surplus was 
 also enlarged by t^^ ctf^arlily I'nprpRsjng output of th e^ 
 silver- mines. The resultant excess in the silver-supply was 
 for a number of years absorbed by India and the East, 
 the amount of silver taken by India alone during the period 
 1852-75 being estimated at more than one billion dollars. 
 After the close of the Civil War in the United States, how- 
 ever, the exportation of cotton from India was greatly 
 reduced, and at the same time the indebtedness of India 
 in England, through loans negotiated by the Indian Gov- 
 ernment, was largely increased. Consequently India was 
 not in a position to absorb the large amount of silver that 
 she had done in former years. The outlet for the surplus 
 silver displaced by gold in the currency of European 
 countries was, therefore, to a great extent cut off, and the 
 logical outcome of this large curtailment of demand soon 
 
 * The gold standard was adopted by Italy in 1883, thus causing 
 a further curtailment of the demand for silver.
 
 18 THE CAUSES OF THE PANIC OF 1893 
 
 made itself evident in a rapid decline in the value of silver. 
 The tendency in this direction was first noticeable after the 
 year 1872, and by 1878 the value of a fine ounce of silver 
 had fallen to $1.15, or 17 cents below the quotation of six 
 years earlier. Strange as it may seem, however, it was in 
 the face of this situation, when the commercial nations of 
 Europe were discarding their silver currency and when the 
 value of silver in the international market had declined to 
 a point where the bullion in an American silver dollar was 
 worth only 89 cents, that this country entered upon its first 
 experiment in silver legislation by authorizing a large 
 annual increase in the coinage of silver dollars.* 
 
 The possibility of securing an inflation of the currency 
 ^of the United States by means of the coinage of a cheap 
 silver dollar appealed strongly to those persons who had 
 opposed the resumption of specie payments and who had 
 advocated the continuance of the depreciated legal-tender 
 notes. They eagerly joined forces with the mining and 
 other interests which were peculiarly concerned with main- 
 taining the value of silver, and under the plea that silver 
 had been surreptitiously demonetized by the coinage law 
 of 1873 the agitation for a cheap currency was actively 
 renewed. In December, 1876, a bill for the free coinage of 
 silver was passed by the House of Representatives, but 
 was unfavorably received in the Senate. A similar measure 
 was again passed in the House during November, 1877, by 
 a vote of 163 to 34. In the Senate, however, the free coinage 
 provision was stricken from the bill, and in its place a 
 section was substituted authorizing the Secretary of the 
 Treasury to purchase and coin each month not more than 
 four million nor less than two million dollars' worth of silver 
 bullion. The standard silver dollars coined from this 
 
 * A complete account of the forces leading to the fall in the value of 
 silver, and the displacement of silver by gold in the currencies of the prin- 
 cipal commercial nations after the year 1850, is to be found in J. Laurence 
 Laughiin's History of Bimeiallism in the United States (New York, 1897, 
 4th edition), part ii, pp. 109-206.
 
 SILVER MOVEMENT IN UNITED STATES 19 
 
 bullion were to be a "legal tender at their nominal value, 
 for all debts and dues public and private, except vi^hen 
 otherwise expressly stipulated in the contract." Silver 
 certificates of denominations not less than ten dollars were 
 also authorized and were to be issued by the Secretary of 
 the Treasury on the deposit of silver dollars authorized 
 by the Act, and such certificates were to be "receivable for 
 customs, taxes, and all public dues." In this amended 
 form the bill was accepted by the House, and was finally 
 en acted by Congress on February 9S 1H7S ovpf PrpsiHprit_ 
 
 Ha^s vetoj, Tjj?/v fyj^^<^^ \\c\ — 
 
 Under the operation of tne Act of 1878 each Secretary 
 of the Treasury practically kept within the minimum 
 requirements of the law and did not purchase more than 
 two million dollars' worth of silver per month. The amount 
 of standard silver dollar pieces that could be coined from 
 the silver bullion purchased by two million dollars' worth 
 of legal-tender paper prior to the resumption of specie 
 payments on January 1, 1879, and by gold after that date, 
 varied of course with the price of silver bullion, and 
 averaged about two and one-half million silver dollar 
 pieces per month, or from twenty-seven to thirty-four 
 million standard silver dollars annually. The problem 
 that confronted the Treasury officials was to inject this 
 amount of silver dollars into the permanent circulation of 
 the country. It was obvious that if silver were permitted 
 to accumulate in Government receipts from customs and 
 internal revenue taxes, it would displace a corresponding 
 amount of gold. At the same time, the Treasury gold 
 reserve would soon be exhausted by the payment of Gov- 
 ernment obligations and the currency of the country re- 
 duced to a depreciated silver basis. 
 
 ' A detailed discussion of this enactment, as well as subsequent silver 
 legislation, is to be found in the Report of the Monetarij ( 'omtnission, 1898; 
 F. W. Taussig's The Silver Situation in the United Stales (New York, 
 1893); A. D. Noyes's Thirty Years of American Finance (New York, 
 1898); and J. Laurence Laughlin's History of Bimetallism in the United 
 States, referred to above.
 
 20 THE CAUSES OF THE PANIC OF 1893 
 
 During the two years immediately following the passage 
 of the Act, almost all the silver coined by the Government 
 was piled up in the Treasury. The silver certificates issued 
 in payment for bullion were passed from bank to bank 
 until they found their way into the receipts of the Govern- 
 ment.^ Oiily ^ fsw stayed in circulation. At the close of 
 the fiscal year 1879, of the thirty-six million dollars which 
 had been coined, twenty-eight million remained in the 
 Treasury unrepresented by silver certificates in circulation. 
 The danger of this situation was enhanced during the early 
 half of the year 1880 by a further growth in the Treasury 
 holdings of silver accompanied by an even faster decline 
 in its stock of gold. Fortunately, however, the existing 
 tension was relieved during the latter part of 1880 and 
 the two years, 1881-82, by a change in the course of trade 
 and industry following the resumption of specie payments. 
 Railroad construction was pushed forward on an immense 
 scale, the crops were good, interior trade was active, and 
 there were heavy importations of gold from abroad fol- 
 lowed by an inflow of gold into the Treasury. Under these 
 conditions there was a large demand for currency in small 
 denominations for use in retail transactions and in "moving 
 the crops." Secretary Sherman quickly took advantage 
 of the situation by issuing a circular in September, 1880, 
 offering drafts on the sub-treasuries in the West and South, 
 payable in silver certificates, in return for gold deposited 
 at the New York Sub-Treasury. This policy involved the 
 expense of transporting silver dollars from one section of 
 the country to another, but through its operation a large 
 amount of silver was put into circulation, especially from 
 the sub-treasuries at St. Louis and New Orleans. 
 
 But the active period in industry and trade during the 
 
 ' A significant indication of the distrust of the new silver issues in bank- 
 ing circles was soon made evident by the action of the New York Clearing- 
 House Association on November 12, 1878, when the New York Sub- 
 Treasury was admitted to membership. On that occasion a resolution 
 was passed prohibiting the payment of balances in silver certificates or 
 silver dollars.
 
 SILVER MOVEMENT IN UNITED STATES 21 
 
 period 1880-82 was succeeded by the usual reactionary 
 movement. The year 1883 was one of steadily increasing 
 depression in financial and commercial affairs. The num- 
 ber of small business transactions, and especially those 
 requiring the use of money, diminished, the currency of the 
 country became redundant, a large amount of silver 
 accumulated in the banks, and by the banks was worked 
 off on the Treasury in the payment of customs duties. At 
 the same time the Secretary of the Treasury was required, 
 under the provisions of the Act of 1878, arbitrarily to coin 
 into silver dollars and attempt to put into circulation two 
 million dollars' worth of silver bullion each month, irre- 
 spective of the demands of business and trade. The logical 
 outcome of this course of affairs was soon reached. Since 
 the banks hoarded the gold which came into their posses- 
 sion and poured their silver into the Treasur}^ by way of 
 the customs revenue, the opportunity of replenishing the 
 Treasury holdings of gold was constantly being diminished. 
 On the other hand a steady drain upon the stock of gold 
 already accumulated in the Treasury was caused by the 
 annual purchase of thirty million dollars' worth of silver 
 bullion, by the payment of Government expenditures, and 
 by the redemption of the public debt and the demand ob- 
 ligations of the Government in the form of legal-tender 
 paper. A large supply of silver was, therefore, rapidly 
 accumulated by the Treasury, and at the same time its 
 gold reserves were steadily reduced. The fear was soon 
 openly expressed that the Government would be forced to 
 suspend gold pa^Tiients, and the alarming nature of the 
 situation was intensified by the action of the Sub-Treas- 
 urer in New York City, who, on February 21, 1884, in a 
 letter to the manager of the Clearing-House Association, in- 
 timated that it might be necessary' to use silver in pajTnent 
 of Government balances. This ill-judged hint had the effect 
 of spreading the existing alarm to foreign investors in 
 American securities, who at once returned large blocks of
 
 22 THE CAUSES OF THE PANIC OF 1893 
 
 their holdings to be sold on the American market, with 
 the result that gold was exported from the country and an 
 additional demand made upon the Treasury reserves of 
 that metal. ^ The climax was finally reached in the finan- 
 cial crisis of May, 1884, which, as already seen, was suc- 
 ceeded by a period of restriction in production and of 
 general stagnation in industry and trade that extended 
 through the years 1884-86.^ Under these conditions there 
 was a further accumulation of silver in the Treasury 
 attended by a decline in its holdings of gold. The gold 
 reserve fell to 120 million dollars in November, 1884, and 
 even lower in January, 1885. It was, therefore, clearly 
 evident that immediate action was necessary if the drain 
 of gold from the Treasury was to be stopped and the 
 country saved from a depreciated silver currency. 
 
 On being confronted with this serious situation, the first 
 step taken by the Treasury ofiicials was directed toward 
 the maintenance of the existing stock of gold. Previous to 
 the year 1884 the large surplus revenue had made it pos- 
 sible to pay off many millions of the public debt. During 
 September of that year, however, this policy was discon- 
 tinued and none of the 3 per cent, bonds (then redeemable 
 at the pleasure of the Government) were called in for re- 
 demption until December, 1885. For more than a year 
 the surplus revenue, instead of being employed in the 
 reduction of the national debt, was used to buy silver, and 
 the silver dollars coined from the bullion thus purchased 
 were hoarded in the Treasury and withheld from the 
 already redundant circulation of the country. During 
 this period efforts were also made to encourage gold re- 
 ceipts, and the banks gave moral as well as substantial 
 support to the exertions of the Government in this direction 
 by turning over to the Secretary of the Treasury in July, 
 
 ' During the fiscal year 1884 the excess of exports over imports of gold 
 amounted to $18,250,640. 
 ^ See p. 1 et seq.
 
 SILVER MOVEMENT IN UNITED STATES 23 
 
 1885, $5,915,000 of gold in return for fractional silver. 
 At the same time they announced their intention of fur- 
 nishing additional supplies of gold to the Government 
 should it be deemed necessary. 
 
 On the other hand, new devices were invented to get 
 silver into circulation, bmce tlie issue of national bank 
 notes of smaller denominations th an five dollars had been 
 prohibited b y the Resumption Act of 1879, the currency 
 in one or two dollar denominations at ti ns time consisted 
 almost exclusively of United States notes, or greenbacks. 
 After June, 1885, however, the issue of these greenbacks 
 in denominations less than five dollars was stopped, and 
 ■ when the soiled and torn greenbacks of small denomina- 
 tions were returned to the Treasury for redemption, they 
 were withdrawn from circulation and replaced by green- 
 backs of large denominations. This process of retirement 
 was slow, but by the year 1886 such a vacuum had been 
 created that, under the pressure of a demand for currency 
 of small denominations. Congress was prevailed upon to 
 authorize the issue of one, two, and five dollar silver cer- 
 tificates. Permanent circulation was thus secured for a 
 large amount of silver, which took the place of the small 
 greenbacks previously retired by the Treasury officials. 
 
 These efforts of the Treasury to maintain its gold reserve 
 and provide an outlet for silver were supplemented by the 
 influence of a fortunate change in the course of business 
 after the year 1885. The period 1886-90, as already 
 pointed out, was one of prosperity, marked by a con- 
 stantly increasing volume of importations and the re- 
 sultant accumulation, largely from customs duties, of an 
 unprecedented surplus revenue.^ This surplus was used 
 in paying off the national debt, and, as a consequence, the 
 amount of Government bonds available for the purpose 
 of guaranteeing the issue of national bank notes was 
 rapidly reduced. At the same time, the rate of discount 
 ' See footnote 1, p. 13.
 
 2-i 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 in the loan market became higher as the result of better 
 business conditions, and the banks soon found it much 
 more profitable to lend ^heir funds directly than to invest 
 in Government bonds to be used as a basis for the issue 
 of notes. They, therefore, began to cut down their note 
 issues, and by 1890 the amount of national bank notes 
 outstanding was $120,000,000 less than in the year 1886.^ 
 As the notes thus retired were of small denominations a 
 further opening was made for the use of silver certificates. 
 Moreover, the revival in business and industry after the 
 year 1885, owing to the greater rapidity and extent of 
 domestic trade, especially in the newly exploited regions 
 of the West and South, brought about an increasing 
 demand for the use of silver in the payment of wages and 
 in other small transactions. 
 
 Under these conditions the efforts of the Treasury 
 officials to push silver into circulation were attended with 
 good results. During the five years 1886-90 the Treasury's 
 accumulations of silver decreased to a point where they 
 no longer caused anxiety. Practically all of the silver 
 coined during the two years 1889-90 passed into circula- 
 tion. In the autumn of 1885 there was also an upward 
 movement in the gold reserve, and by the end of that year 
 confidence in the ability of the Government to maintain 
 gold payments had been restored. Consequently during 
 the subsequent period of five years there was a steady 
 
 ^ The following figures, taken from Taussig's The Silver Situation in 
 the United Stales, show the amount of national bank notes outstanding 
 (in millions of dollars) during the six years 1885-1890: 
 
 Year. 
 
 Total Outstanding. 
 
 Net Amount (less lawful 
 
 money deposited for 
 
 redemption). 
 
 1885 
 
 S15.8 
 
 276.3 
 
 1886 
 
 301.5 
 
 219.7 
 
 1887 
 
 272.0 
 
 169.2 
 
 1888 
 
 239.4 
 
 152.4 
 
 1889 
 
 202.0 
 
 130.2 
 
 1890 
 
 179.8 
 
 125.0
 
 SILVER MOVEMENT IN UNITED STATES 25 
 
 inflow of gold into the Treasury, and the gold reserve was 
 ample. 
 
 The danger of a suspension of gold payments was thus 
 averted. The outcome, however, was by no means satis- 
 factory. Only by the employment of artificial devices, 
 such as the substitution of one and two dollar silver certi- 
 ficates for the greenbacks of small denominations, had the 
 Treasury ofiicials been able to keep silver in circulation 
 and maintain the gold standard during the prosperous 
 period 1886-90. Even then their efforts had been suc- 
 cessful only because they had control of a large surplus 
 revenue, which made it possible to hold the silver dollars 
 and certificates in the Treasury vaults when the silver 
 circulation of the country was redundant. This surplus 
 during the good years 1886-90 aided the Treasury indi- 
 rectly by creating an outlet for the small silver certificates 
 on account of the payment of the public debt and the 
 consequent reduction in the national bank note circu- 
 lation. So far as the Treasury was concerned, the exist- 
 ence of a surplus revenue during almost the entire opera- 
 tion of the Act of 1878 was one of the most favorable 
 factors in the situation. In the event of a depression of 
 business such as marked the two years 1884-85, or the 
 adoption of an ill-considered tariff or fiscal policy by the 
 Government which would radically cut down or cause a 
 deficit in Government revenues, there was every indica- 
 tion that silver would again accumulate in the Treasury 
 and thus endanger the maintenance of the gold standard 
 of payments. 
 
 The policy adopted by the Treasury of retiring United 
 States notes, or greenbacks, of small denominations had 
 without doubt resulted in creating a vacuum in the circu- 
 lation which insured a permanent place for small silver 
 certificates. But the void thus created could only make 
 room for a certain amount of silver, dependent upon the 
 action of the national banks in reducing their note issues.
 
 26 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 If the Treasury officials transgressed this limitation a 
 redundancy of silver in circulation would be the result. 
 Moreover, in its ultimate possibilities, the policy of retiring 
 the one and two dollar legal-tender notes and reissuing 
 them in the form of greenbacks of large denominations 
 was, if anything, more dangerous than the effect of the 
 immediate accumulation of a large amount of silver dollars 
 or silver certificates in the Treasury. The greenbacks 
 of small denominations had hitherto found lodgment in 
 the hands of the people, had been used continually by 
 them in the retail transactions of everyday life, and con- 
 sequently had been returned for redemption only w^lien 
 they became too soiled or damaged to be of any further 
 service. The greenbacks of large denominations which 
 were issued in their place were now held by the banks and 
 were quickly available, should an occasion present itself, 
 for the purpose of drawing off gold from the Treasury. 
 
 The net result, therefore, of the operation of the Act of 
 1878 was not only to increase the demand obligations of 
 the Government payable in gold to the extent of $378,000,- 
 
 000 ^ (the amount of silver dollars coined), but also, by 
 
 1 AMOUNT, COST, AND AVERAGE PRICE OF SILVER PURCHASED 
 
 UNDER THE ACT OF FEBRUARY 28, 1878, AND COINAGE OF 
 SILVER DOLLARS THEREFROM: 
 
 Fiscal 
 Years. 
 
 Fine Ounces. 
 
 Cost 
 
 Average 
 
 Price per 
 
 Fine Ounce 
 
 Coinage of Silver 
 Dollars. 
 
 1878 
 1879 
 1880 
 1881 
 1882 
 1883 
 1884 
 1885 
 1886 
 1887 
 1888 
 1889 
 1890 
 1891 
 
 10,809,350 
 19,248,086 
 22,057,862 
 19 709,227 
 21,190,200 
 22,889,241 
 21,922,951 
 21,791,171 
 22,690,652 
 26,490,008 
 25,386,125 
 26,468,861 
 27,820,900 
 2,797,379 
 
 $13,023,268 
 21,593,642 
 25,235,081 
 22,327,874 
 24,054,480 
 25,577,327 
 24,378,383 
 23,747,460 
 23,448,960 
 25,988,620 
 24,237,553 
 24,717,853 
 26,899,326 
 3,049,426 
 
 $1.20 
 
 1.12 
 
 1.14 
 
 1.13 
 
 1.13 
 
 1.11 
 
 1.11 
 
 1.08 
 
 1.03 
 
 .98 
 
 .95 
 
 .93 
 
 .96 
 
 1.09 
 
 $8,573,500 
 27,227,500 
 27,933,750 
 27,637,955 
 27,772,075 
 28,111,119 
 28,099,930 
 28,528,552 
 29,838.905 
 33,260,831 
 32,718.673 
 33,793,860 
 35,923,816 
 8,740,327 
 
 
 291,272,018 
 
 $308,279,260 
 
 $1.05 
 
 $378,166,793
 
 SILVER MOVEMENT IN UNITED STATES 27 
 
 the substitution of greenbacks of large denominations for 
 small greenbacks, the way was opened for quickly deplet- 
 ing the Treasury of its gold reserve, upon the maintenance 
 of which the payment of its obligations depended. It is 
 true that the silver dollars and certificates were not directly 
 redeemable in gold, but, as a matter of fact, when the 
 silver in circulation became redundant, or when appre- 
 hension existed as to the maintenance of the gold standard, 
 silver dollars and certificates, as already seen, were poured 
 into the Treasury through the customs receipts, a corre- 
 sponding inflow of gold was cut off, and a process of re- 
 demption thus carried out which was as effective in its 
 operations as if silver had been directly presented at the 
 Treasury and gold received for it. To the ever-present 
 possibility of gold being thus displaced in the Government 
 receipts by silver was now added the further danger that 
 gold might be drawn from the Treasury by means of the 
 greenbacks of large denominations which were carried 
 by the banks in their reserves. The maintenance of gold 
 payments was therefore imperiled by the possibility of the 
 Treasury gold reserve being lost in two ways. On the one 
 hand, the additions to the Treasury supply of gold through 
 the payment of import duties were in danger of being cut 
 off; on the other hand, by making the large greenbacks 
 quickly available to the banks, an opportunity was 
 afforded of draining the Treasury of its stock of gold 
 already accumulated. Under these conditions it was clearly 
 evident that the ability of the Treasury to continue gold 
 payments during a period of business depression or lack 
 of confidence had been greatly impaired. 
 
 But the success of the Treasury in keeping silver in 
 circulation and warding off dangers to the standard during 
 the period 1886-90 was interpreted by the advocates of 
 the free coinage of silver to mean that the Government 
 could with impunity greatly increase its silver obligations. 
 The agrarian communities of the West and Northwest,
 
 28 THE CAUSES OF THE PANIC OF 1893 
 
 which desired a larger quantity of money in circulation, 
 and the silver-mining states west of the Mississippi, which 
 sought to check the constant fall in the value of silver, had 
 never been satisfied with the Act of 1878, and had inces- 
 santly agitated the question of the free coinage of silver. 
 Unfortunately for the country, the political complexion 
 of Congress, after the presidential election of 1888, enabled 
 the representatives from these Western States to dominate 
 the situation. 
 
 In the election of that year the Republican candidate, 
 Benjamin Harrison, secured a majority in the electoral* 
 college. President Cleveland, however, was given a larger 
 number of popular votes than his successful opponent. 
 Moreover, his administration of the civil service had lost 
 him many supporters, and political intrigue in New York 
 had deprived the Democratic party of the electoral vote 
 of that state. Under these conditions, it could scarcely 
 be said that the election of President Harrison was a 
 decisive indorsement of the issues he advocated. Con- 
 sequently, when the Republican leaders declared that the 
 result of the election was a popular verdict in favor of 
 protection and prepared to extend the protective principle 
 by framing the McKinley tariff law, they encountered not 
 only distrust in a large wing of their own party, but at the 
 same time were confronted with a practical difiiculty of 
 vital importance within Congress itself. The Republican 
 majority in the House at the opening of the 51st Congress 
 was found to consist of only eight votes, including West- 
 ern Representatives who were lukewarm, if not hostile 
 on the tariff question. In the Senate the situation from 
 a Republican standpoint was even more unfavorable. The 
 party majority in that body consisted of only eight Sena- 
 tors, and without the support of the members from the 
 silver-producing states of the West, who were by no means 
 favorably disposed to an extension of the protective system, 
 the Republicans would actually be in the minority. Under
 
 SILVER MOVEMENT IN UNITED STATES 29 
 
 these conditions it was at once evident that some expedient 
 must be devised to placate the silver wing of the party, if 
 the proposed tariff legislation was to be carried to a suc- 
 cessful conclusion. 
 
 At this juncture Mr. Windom, who was then Secretary 
 of the Treasury, and who was considerably more of a poli- 
 tician than a financier, inaugurated a course of procedure 
 which peculiarly emphasized his talents in the way of 
 political expediency. In his first annual letter to Con- 
 gress he recommended that the Government should buy 
 "silver at the market price, without any assignable limit, 
 and pay for it in notes of the United States, which were 
 to be redeemable in silver bullion or in silver dollars or 
 gold at the option of the Government or the holders of the 
 notes respectively. 
 
 The motive which prompted this ill-considered recom- 
 mendation was at once apparent. It was evidently intended 
 to placate the silver Senators and Representatives, and 
 to secure their support for the McKinley Bill. Every 
 prudent congressman shrank from the effect of such an 
 unlimited inflation of the currency. But practically all 
 that could be done was to limit as far as possible the in- 
 jurious features of this political compromise which had 
 been devised by the Administration. On June 5, 1890, 
 the House passed a bill restricting the issue of notes to 
 $4,500,000 monthly and making them "redeemable in 
 coin, on demand." The Senate, however, promptly turned 
 down this measure and enacted a flat free-coinage bill 
 which it returned to the House. On the same day the 
 McKinley tariff law reached the Senate and that body 
 postponed consideration of the tariff measure until final 
 action had been taken on its free-coinage bill. The situa- 
 tion was awkward for the Administration, as the majority 
 vote in the Senate included, with two exceptions, every 
 Senator from the silver-producing states of the West which 
 Secretary Windom was endeavoring to conciliate. The
 
 30 THE CAUSES OF THE PANIC OF 1893 
 
 House, however, refused to accept the Senate substitute,' 
 and, as is usual in such cases, the Silver Bill was sent to a 
 conference committee of both branches of Congress. After 
 a week of anxiety among the promoters of the Tariff Bill, 
 an agreement was reached by the Senate and House. In 
 this amended form the bill received the approval of Presi- 
 dent Harrison and became law on July 14, 1890.^ 
 
 Because of the fact that the compromise bill was chiefly 
 the work of Mr. Sherman, it became subsequently known 
 as the "Sherman Act." It provided that the Secretary 
 of the Treasury should purchase 4,500,000 ounces of silver 
 monthly, and directed him to pay for this in legal-tender 
 paper called Treasury notes, which were to be "a legal 
 tender in payment of all debts, public and private, except 
 when otherwise expressly stipulated in the contract," 
 were "receivable for customs, taxes, and all public dues," 
 and when held by any national bank were to be counted 
 as part of its legal reserve. These notes were to be directly 
 redeemable at the Treasury or any sub-treasury "in gold 
 or silver coin" at the discretion of the Secretary of the 
 Treasury, and as a guide to future action a parity clause 
 was added declaring it to be "the established policy of the 
 United States to maintain the two metals on a parity with 
 each other upon the present legal ratio, or such other ratio 
 as may be provided by law." After July 1, 1891, no more 
 
 ^ The statement has been made that the silver law of 1890 was enacted 
 not because the silver faction in the Senate demanded silver legislation 
 in exchange for its vote on the tariff bill, but for the reason that the failure 
 to pass the Sherman Law would have resulted in the enactment of a free- 
 coinage bill. This assertion, however, is not borne out by the facts. When 
 the Senate substituted a free-coinage measure for the House Bill the 
 opportunity was given to pass a free-coinage law, but the House refused. 
 Moreover, the claim that a free-coinage bill would have been passed if the 
 Sherman Law had not been enacted assumes that President Harrison 
 would have approved a free-coinage bill. Noyes, Thirty Years of Ameri- 
 can Finance, pp. 147, 148. 
 
 ^ A summary but complete account of the discussion in Congress 
 during the year 1890, and of the action of the HouSe and Senate relative 
 to the proposed silver legislation, is to be had from an article entitled 
 " The Silver Debate of 1890," by R. F. Hoxie, The Journal of Political 
 Economy, vol. i (September, 1893), pp. 535-587.
 
 SILVER MOVEMENT IN UNITED STATES 31 
 
 silver dollars were to be coined than were necessary for 
 the redemption of the Treasury notes. Until that date, 
 2,000,000 ounces of silver per month were to be coined 
 into standard silver dollars. 
 
 In comparison with the Act of 1878, the Sherman Law, 
 therefore, contained two significant features. Although 
 in the first place, it did not repeal but continued the old 
 policy of purchasing silver, yet it made necessary the 
 purchase and maintenance in circulation each year of a 
 larger amount of silver, since the Treasury notes issued 
 under the operation of the Act amounted to about $50,000,- 
 000 annually.^ In the second place the Treasury notes 
 thus issued were made directly redeemable in coin, and 
 under the further statement that it was "the established 
 policy of the United States" to maintain silver and gold 
 "at a parity with each other," the redemption provisions 
 of the Act of 1890 meant that Treasury notes were to be 
 redeemed in gold as long as the Treasury' had any gold in 
 its possession. In addition, therefore, to increasing the 
 almost overwhelming burden of silver obligations already 
 carried by the Government, the Sherman Law made it much 
 more difiicult to preserve the integrity of these obligations 
 by providing a direct means of redemption, through the 
 operation of which the gold reserves accumulated by the 
 Government for redemption purposes might be quickly 
 withdrawn from the Treasury'. 
 
 Thus had the silver movement worked itself out by the 
 latter half of the year 1890. When its probable effect is 
 considered in connection with the contemporary state of 
 
 1 The amount of Treasury notes issued each year under the Act of 1890 
 was as follows: 
 
 Fiscal year, July 1. Treasury notes issued. 
 
 1891 $50,577,498 
 
 1892 51,106,608 
 
 1893 45,531,375 
 
 1894 8,715,521 
 
 $155,931,002
 
 32 THE CAUSES OF THE PANIC OF 1893 
 
 international trade and the policy of the Harrison Ad- 
 ministration relative to the surplus revenue, it is at once 
 apparent that a precarious future was marked out for the 
 Treasury. To ascertain accurately the nature of the dan- 
 gerous tendencies at work it may not be amiss briefly to 
 review the salient features of our story up to this time. 
 
 The period 1886-90 in the United States, it will be re- 
 membered, was marked by a rapid and healthy growth 
 in trade and industrial activity, which called for the flota- 
 tion of an extraordinary amount of railroad and industrial 
 stocks and bonds. The increasing wealth and population 
 of the country during these same years also led to immense 
 importations of foreign commodities, which were largely 
 paid for in American securities. Through this willingness 
 of our foreign creditors to invest their balances in the 
 United States, we had incurred an unusual amount of 
 indebtedness abroad. This fact in itself possessed no 
 grave elements of danger. Under ordinary conditions, 
 owing to the growing wealth and resources of the country, 
 our indebtedness abroad would have soon adjusted itself 
 through the mechanism of international trade. It was at 
 this point, however, that other factors entered in to cause 
 serious apprehension. 
 
 The revenues of the Government had been yielding an 
 excess over expenditures since 1883, and because of the 
 increased customs receipts arising from our heavy im- 
 portations, this surplus reached extraordinary proportions 
 during the period 1886-90. After the election of 1888 the 
 Harrison Administration attempted to get rid of it in two 
 ways : first, by inaugurating a policy of increased expendi- 
 tures, and, second, by enacting the McKinley Tariff Law, 
 one of the objects of which was to cut down Government 
 receipts from customs. But the silver wing of the Repub- 
 lican party, which held the balance of power in Congress, 
 was at this time agitating the question of further silver 
 legislation, and, in order to pass the McKinley Law, it was
 
 SILVER MOVEMENT IN UNITED STATES 33 
 
 first necessary to reach an agreement with this faction. 
 Notwithstanding the fact that under the operation of the 
 Silver Act of 1878 the Treasury had experienced difiiculty 
 in maintaining gold pajonents, the protectionist leaders, 
 in return for the passage of the McKinley Bill, gave their 
 support to the enactment of the Sherman Silver Law. This 
 measure not only added a large annual increment to the 
 silver obligations of the Government, but also provided a 
 direct means of redemption for the Treasury notes which 
 it authorized. 
 
 The dangerous tendency of this tariff and financial legis- 
 lation, considered in connection with the existing silver 
 situation, the policy of increased Government expenditures, 
 and the fact of our indebtedness abroad, can scarcely be 
 overdrawTi. The Government receipts were to be reduced 
 by the McKinley Law, and, at the same time, the funds 
 already held by the Treasury were to be dissipated by 
 means of hea\y expenditures. In the face of this rapid 
 reduction of Government resources, the demand obligations 
 of the Government were to be increased $50,000,000 annu- 
 ally, at a time when the Treasury was laboring under the 
 burden of silver obligations placed upon it by the Act of 
 1878. 
 
 Such was the fiscal policy inaugurated by the Harrison 
 Administration, and as a result of its adoption, it was evident 
 that three ways had been thrown open by means of which 
 the country might be subjected to a financial panic or acute 
 crisis. In the first place, a shock to credit abroad might 
 lead to the return of American securities held by foreign 
 investors. If our foreign creditors employed this means of 
 liquidation to any considerable extent, gold would flow 
 out of the country in payment of our indebtedness abroad, 
 a drain upon the Treasury reserves would be threatened, 
 or actually occur, and would be followed by lack of con- 
 fidence at home in the Treasury's ability to maintain gold 
 payments. In the second place, the same state of affairs
 
 34 THE CAUSES OF THE PANIC OF 1893 
 
 might result from an adverse change in the course of trad 
 and industry attended by a falling-off in Government n 
 ceipts from customs and internal revenue taxes. In thi 
 event the Treasury gold receipts might be reduced to 
 point where the preservation of the gold reserve would b 
 endangered. Finally, through a redundancy of silver i 
 circulation, the customs revenue might be made up of a] 
 increasing percentage of silver currency which would db 
 place an equal amount of gold, as had happened unde 
 the operation of the Act of 1878. If the payments to th 
 Government in silver continued to increase, especially unde 
 a policy of increased Government expenditure, apprehen 
 sion would be felt relative to the ability of the Treasury t 
 make gold payments. As a consequence there would be . 
 further inflow of silver into the customs. Gold would prob 
 ably be hoarded. The Treasury stock of that metal wouL 
 also be rapidly depicted by the use of the large greenback 
 held by the banks and a financial crisis made immineni 
 While the condition of affairs in 1890 did not give reason t 
 believe that any one or all of these dangerous tendencie 
 were immediately threatening, at the same time the existing 
 state of affairs made their occurrence possible. They wer 
 all within the range of possibility, and might operate singl; 
 or in combination. 
 
 This, in brief, during the autumn of 1890, was the pre 
 carious situation in the United States which had beei 
 worked out by the play of various industrial, financial, an< 
 political forces during the preceding seven years. Wit) 
 this state of affairs before us, we may now profitably tun 
 aside to glance at the industrial and financial development 
 abroad during the same period, for the purpose of ascer 
 taining their possible influence upon subsequent event 
 in this country.
 
 CHAPTER III 
 
 lOWTH OF SPECULATION IN GREAT BRITAIN AND BRITISH 
 GAMBLING IN ARGENTINA 
 
 pression in British Trade and Industry, 1884-1886. — The Return of Con- 
 idence and the Rapid Extension of Investments, 1887-1890. — Outgrowth 
 )f Speculation. — The Joint-Stock Company Mania. — The Combination of 
 Breweries and the Organization of Trust and Debenture Companies. — 
 Chilian Nitrate Companies and AustraUan Land Mortgage and Financial 
 'lotations. — ■ South African Gold-Mining and Diamond Ventures. — • The 
 Turn of the Speculative Movement toward Argentina. — The Boom in Ar- 
 ;entina Land Values. — Absorption of Cedulas, or Land Mortgage Bonds, 
 jy European Investors. — Excessive Issue of Argentine Public Loans. — 
 The Suspension of Specie Payments and the Evil Effects of a Depreciated and 
 nconvertible Paper Currency. — Total Argentina Liabilities Abroad in 
 890. — British Capital Commitments in Argentina. — Total Capital Com- 
 nitments in Great Britain during the Period 1887-1890. — The Expansion 
 if Credit Transactions and the Precarious Financial Situation in Great 
 Britain in 1890. 
 
 r Great Britain, during the seven years preceding the 
 nie of 1890, the trade and industrial situation, although 
 ffering in detail, was practically identical in its broader 
 pect with developments in the United States during the 
 me period. The growing competition of Germany and 
 her nations for the trade both of British and of neutral 
 iarkets, the high tariffs, bounties, and other restrictive 
 latures of the commercial policy of foreign governments, 
 Igether with a falling-off in the demand for commodities 
 iv'mg to the depressed conditions in other countries, had 
 nited the outlet for British goods during the four year? 
 ;83-86 and brought about a sharp decline in the foreigf. 
 ade of the United Kingdom.^ The immediate result was 
 large over-production in many lines of British industry 
 ising from the failure to adjust the supply of goods to the 
 stricted demand. This excess of supply was soon fol- 
 
 ' The falling-off in the foreign trade of Great Britain during the period 
 33-86 may be quickly seen from the following table showing the
 
 36 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 lowed by a drop in prices and a downward tendency in 
 profits. As a consequence, efforts were made to curtail pro- 
 duction. Because of the competition of vessel-owners for 
 cargoes, which was intensified by the decline in British 
 commerce, ocean freight rates during the four years 1883- 
 86 were reduced to a point where they were unremunera- 
 tive. Ship-building and its allied industries were, therefore, 
 discouraged. At the same time lessened activity was evi- 
 dent in all other branches of industry. Mines were un- 
 worked, iron furnaces went out of blast, and much indus- 
 trial machinery was thrown out of employment. Internal 
 trade decreased, and the traffic receipts of the railroads 
 were greatly reduced.* The cons equent depression in busj - 
 ness and industry during the period 1884-86 affecte d 
 adve rsely all classes of the population^ A considerable 
 number of laborers were wholly or partially deprived of 
 work, their wages or purchasing power cut down, and 
 another factor added to those which had already caused 
 a sharp decline in the demand for commodities. Prices 
 steadily moved downwards, and profits were reduced to 
 a minimum. Obviously, under these conditions investors 
 were exceedingly cautious in entering into industrial under- 
 takings of any kind, and the new commitments of capital 
 
 imports and exports of merchandise. Statistical Abstract of the United 
 Kingdom, 1890, p. 47. 
 
 VALUE OF THE TOTAL IMPORTS AND EXPORTS OF MERCHANDISE 
 INTO AND FROM THE UNITED KINGDOM 
 
 Tears. 
 
 Imports. 
 
 Exports. 
 
 Total of Imports 
 and Exports. 
 
 1883 
 1884 
 1885 
 1886 
 
 £ 
 426,891,579 
 390,018,569 
 .370,967,955 
 349,863,472 
 
 £ 
 305,437,070 
 295,967,583 
 271,474,308 
 268,959,463 
 
 £ 
 732,328,649 
 685,986,152 
 642,442,263 
 618,882,935 
 
 * The gross receipts of the railroads in the United Kingdom from 
 merchandise traffic decreased from £38,701,319 in 1883 to £36,370,439 
 in 1886. Statistical Abstract of the United Kingdom, 1890, p. 179.
 
 SPECULATION AND GAMBLING 37 
 
 were small. Funds were allowed to accumulate in the 
 banks until more attractive prospects for their investment 
 were discovered.^ 
 
 This state of affairs prevailed until the latter half of the 
 year 1886, when indications of a trade revival grew gradu- 
 ally more and more evident. This upward tendency, how- 
 ever, was spasmodic and uncertain, and failed to make 
 itself felt in many important branches of industry. Not 
 until the following year, when British trade and industry 
 received a direct impulse from the United States, was a 
 sustained movement toward more prosperous conditions 
 inaugurated. 
 
 As a result of the extensive railroad building and the 
 industrial revival in the United States during the year 
 1887, an unusual demand was made upon Great Britain 
 for iron and steel products, woolen goods, and all other 
 commodities usually purchased by this country. Up to the 
 year 1890, as already seen, the amount of British goods 
 thus absorbed by the United States steadily increased. 
 During the year 1887 India and the East also took a large 
 amount of goods from Great Britain and continued to buy 
 heavily during the three subsequent years. Moreover, 
 during the period 1887-90 Canada, Australia, South Africa 
 and other British colonies, together with the South Amer- 
 ican countries, were rapidly building railways and develop- 
 ing their natural resources, and their orders for locomo- 
 tives, bridges, railroad materials, and capital goods and 
 commodities of all kinds were largely placed in the United 
 Kingdom. Under these conditions prices grew higher, 
 profits were increased, and all branches of British industry 
 experienced a steady and prosperous growth. With the 
 
 ^ A full account of the condition of British trade and industry during 
 the period 1875-86, together with a discussion of the causes of the exist- 
 ing depression, is contained in the Report of the Royal Commission on the 
 Depression of Trade (6 vols.), 1886. A summary of this report is to be 
 found in the Journal of the Royal Institute of Bankers, vol. viii (1887), 
 pp. 84-89. See also Tfw Economist (London), Commercial History, and 
 Review (annual supplements) for the years 1884 and 1885.
 
 38 THE CAUSES OF THE PANIC OF 1893 
 
 resultant increase in foreign trade and ocean freight rates, 
 ship-building was also revived, and through its demand 
 for materials an added impulse was given to the iron and 
 steel trade, coal-mining, and other subsidiary industries.^ 
 During the four years 1887-90 the internal trade of Great 
 Britain was also active, and railroad traffic and bank-clear- 
 ings showed a remarkable expansion, the London Clearing- 
 House returns for 1890 being larger than in any previous 
 year in its history.^ Wages were good and labor was fully 
 employed. The entire period 1887-90, in brief, was marked 
 by a healthy growth in wealth and prosperity in Great 
 Britain which not only included within its influence all 
 branches of trade and industry but which also affected in 
 a beneficial way all ranks of society. 
 
 Under these prosperous conditions there was a quick 
 return of confidence and a rapid extension of investments. 
 The over-cautious spirit displayed by the investing public 
 during the two years 1884-85 entirely disappeared after 
 the year 1886, and was superseded by almost the opposite 
 extreme. Industrial stocks of all descriptions were offered 
 for sale and taken with avidity by the public. New loans 
 offered by foreign governments were eagerly subscribed for 
 and foreign securities were largely accepted in payment 
 for the large amount of goods exported from Great Britain 
 to the United States, South America, the British Colonies, 
 and other countries. During the entire period 1887-90, 
 the volume of capital commitments by the British public 
 
 ^ The total value of British exports and imports increased from £618,- 
 822,935 in 1886 to £748,944,115 in 1890. The growth in ship-building 
 during the same period may be seen from the fact that 1185 vessels, with 
 a tonnage of 812,638, were constructed in 1890, as compared with 736 
 vessels, with a tonnage of 331,328, built in 1886. The total value of coal, 
 pig-iron, and other metals produced in the United Kingdom during 1890 
 was almost double the amount produced during 1886. 
 
 ^ The amounts cleared at the London Bankers' Clearing-House 
 increased from £5,902,000,000 in 1886 to £7,801,000,000 in 1890. Rail- 
 road traffic receipts from merchandise in the United Kingdom increased 
 from £36,370,439 in 1886 to £42,220,382 in 1890.
 
 SPECULATION AND GAMBLING 39 
 
 was thus increased by additions from every available 
 source both at home and abroad.^ 
 
 Unfortunately, a large part of these new capital commit- 
 ments was not placed in safe and conservative undertak- 
 ings. The steady improvement in trade and industry, in 
 addition to inspiring the country with fresh confidence, 
 had created very favorable conditions for floating new 
 loans and promoting financial and industrial enterprises. 
 Money was plentiful and obtainable from the banks on 
 easy terms. ^ On account of the prosperous condition of 
 affairs, a considerable percentage of the population, in- 
 cluding even the laboring classes, had been able to accumu- 
 late savings which they were eager to place in some remun- 
 erative investment. Moreover, the successful conversion 
 of the national debt of Great Britain during the year 1888 
 had produced a considerable decline in the rate of interest 
 on all first-class securities, and had stimulated the appetite 
 of the public for new investments. Parliament also had 
 under consideration a legislative measure for the reform 
 of the Companies Act of 1862. Promoters were eager, 
 therefore, to hurry forward new undertakings, in order to 
 take advantage of the facilities of the existing law.^ Their 
 activity in forming and offering new enterprises to the 
 public was met by an increased power and desire on the 
 part of the public to subscribe for them. The result soon 
 became evident in a departure from the usual standards 
 of investment. The appearance of this tendency was coin- 
 cident with the revival of trade during the latter half of 
 1886. During the subsequent period of four years, it de- 
 veloped into a widespread speculative movement which 
 embraced many enterprises of a questionable character. 
 
 * " Our New Investments in 1890," The Economist (London), Decem- 
 ber 27, 1890, pp. 1627-28. 
 
 ' ^ The average minimum rate of discount charged by the Bank of 
 England was sf per cent for 1887, 31 for 1888, and 3| for 1889. During 
 many months of these years the rate dropped as low as 2 per cent. 
 
 ^ "New Loans and New Companies for 1888," The Economist (Lon- 
 don), vol. xlvi (December 8, 1888).
 
 40 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 The first evidences of speculation became manifest in a 
 mania for organizing private business concerijs into joint- 
 stock companies. During the year 1886 alone 110 such 
 conversions were made. This movement gained strength 
 during the following year, and by 1888 it had developed 
 into a craze, which continued throughout 1889 and the 
 first seven months of the year 1890. During the entire 
 period 1886-90, 12,068 new joint-stock companies were 
 registered in Great Britain, with a total nominal share 
 capital of more than one billion pounds. The number of 
 companies registered each year, together with their nominal 
 capitalization, was as follows : ^ 
 
 COMPANIES REGISTERED IN THE UNITED KINGDOM DURING 
 THE PERIOD 1886-1890. 
 
 Years. 
 
 Total Number of 
 Companies. 
 
 Total Nominal Share 
 Capital. 
 
 1886 
 1887 
 1888 
 1889 
 1890 
 
 1,891 
 2,050 
 2,550 
 
 2,788 
 2,789 
 
 £ 
 145,850,702 
 170,172,674 
 353,781,594 
 236,520,674 
 234,563,237 
 
 Total 
 
 12,068 
 
 1,140,888,881 
 
 Some of these new companies represented legitimate 
 industrial undertakings. Others were of a more or less 
 uncertain character, and were the outcome of the over- 
 confident and optimistic attitude of promoters. The con- 
 version of private breweries into joint-stock companies 
 was typical of the latter class of ventures. During the four 
 years 1887-90, the activity of promoters in this direction 
 overran all reasonable bounds. New brewery companies 
 were organized, and private concerns which were already 
 doing business in Great Britain were combined into large 
 corporations. Moreover, during the two years 1889-90, 
 
 • Statistical Abstract of the United Kingdom, 1890, p. 183.
 
 SPECULATION AND GAMBLING 41 
 
 the movement was extended to include similar companies 
 which purchased and operated breweries in Canada, the 
 United States, South America, South Africa, and other 
 foreign countries. i\.s a result of these promotions the 
 element of good-will and the prospective earning power 
 of the business in the future were heavily capitalized. 
 Most of the companies, in fact, were floated under condi- 
 tions of over-capitalization and a large proportion of the 
 stock issued went into the hands of promoters and under- 
 writers and other persons aiding in the organization. De- 
 spite this fact, these speculative securities were eagerly 
 taken by the public, and in many cases during the early 
 development of the movement the allotment of stock for 
 sale was over-subscribed. During the entire period 1887- 
 90, more than £100,000,000 worth of brewery stocks was 
 absorbed by British investors and speculators.* 
 
 The speculative movement, however, included com- 
 panies of a much more doubtful character than the brewery 
 flotations. Millions of pounds were subscribed for a multi- 
 tude of diverse undertakings, the prospects of which in 
 most cases were decidedly questionable. Companies were 
 even organized to promote, underwrite, and speculate in 
 the stocks of other companies. These concerns were popu- 
 larly termed "trust and investment companies." Their 
 capital stock was issued in small shares, and the effect of 
 their organization was greatly to encourage speculating 
 and gambling among persons of limited means. Many of 
 them were organized for general speculative purposes, and 
 their power of selecting and acquiring stocks was unre- 
 stricted. Others were floated for the purpose of dealing in 
 special securities, such as municipal gas and water com- 
 panies, Spanish and South American railway issues, or 
 
 • ^ This estimate is based on the returns given The London Economist 
 in its annual reviews of commerce and finance. For a full account of the 
 movement for converting breweries into joint-stock companies, see an 
 article entitled " Brewerj' Companies as Investments," Tlie Economist, 
 vol. xlviii, September 6, 1890, p. 1137.
 
 42 THE CAUSES OF THE PANIC OF 1893 
 
 mining and other stocks. The greater number of these 
 investment companies, however, relied principally for their 
 gains on the promotion and underwriting of new compa- 
 nies. The public was deluded by the issue of prospectuses 
 which contained alluring descriptions of new ventures, 
 and in which reputable business men, peers, and members 
 of Parliament were paraded as directors.* This policy 
 during the time of active demand for investments met 
 with large profits, since there seemed to be no limit to 
 the credulity of the public. On the other hand, it was 
 evident that if for any reason there should be a decline in 
 the support of speculators and investors, heavy losses would 
 be encountered, for the reason that the funds of the trust 
 companies would be tied up in a large mass of undigested 
 securities which the public would refuse to absorb.^ 
 
 Great activity was thus displayed during the period 
 1887-90 in promoting financial and industrial undertakings 
 of a speculative character, the prospects of which were 
 based upon the future conditions of industry and trade in 
 the United Kingdom and the more advanced commercial 
 nations. The main current of speculation, however, turned 
 toward the backward and newly opened countries of the 
 world, where the risks of investment were undoubtedly 
 greater, but at the same time the hope of reward corre- 
 spondingly high. During the two years 1887-88, a land 
 boom which had its origin in a silver-mining craze was in 
 progress in Australia. As a result of appeals for support, 
 
 ' "Some of them [members of Parliament] got their living by this 
 participation in new companies. In the directory of joint-stock com- 
 panies it may be seen that 26 members of the House of Commons were 
 directors in 21S companies; 23 members of the House of Lords were 
 directors in 122 companies, of which 85 pay dividends, 26 have no net 
 income, and 11 were new in January, 1890. One member of the House 
 of Commons estimated that during the three years 1887-89 180 millions 
 had been drawn from the pockets of investors by the bubbles." "The 
 Crisis of 1890," Max Wirth, Journal of Political Economy, vol. i (March, 
 1893), p. 230. 
 
 ^ " New Securities offered in London in 1889," The Economist, vol. 
 xlviii (December 14, 1889).
 
 SPECULATION AND GAMBLING 
 
 43 
 
 the British pubHc invested large sums in Australian mines. 
 Investment and financial companies were also organized 
 to speculate in Australian real property and mortgages. 
 During the period 1886-90, many new companies of doubt- 
 ful prospects were also launched in Great Britain for the 
 purpose of exploiting Chilean nitrate deposits. Moreover, 
 mining ventures in foreign countries came in for a large 
 share of speculation.^ During the five years 1885-89, 
 1386 companies, showing a nominal capitalization of 
 £181,569,545, were registered in Great Britain for the pur- 
 pose of exploring and developing mineral lands. ^ Of this 
 class of flotations gold-mining issues were the most numer- 
 ous. The volume of gold-mining shares offered for sale and 
 absorbed by the public increased each year. From the 
 accompanying table, showing the geographical distribution 
 of gold-mining ventures registered in Great Britain during 
 the three years 1887-89, it will be seen that Africa supplied 
 
 
 1889. 
 
 1888. 
 
 1887. 
 
 Countries. 
 
 No. 
 
 Nominal 
 
 No. 
 
 Nominal 
 
 No. 
 
 Nominal 
 
 
 of 
 
 Capitaliza- 
 
 of 
 
 Capitaliza- 
 
 of 
 
 Capitaliza- 
 
 
 Cos. 
 
 tion. 
 
 Cos. 
 79 
 
 tion. 
 
 Cos. 
 
 tion. 
 
 Britain 
 
 58 
 
 £3,100,400 
 
 ^,836,325 
 
 63 
 
 £3,476,200 
 
 Europe 
 
 32 
 
 2,252,850 
 
 45 
 
 6,556,070 
 
 23 
 
 1,736,000 
 
 Asia 
 
 17 
 
 1,913,100 
 
 14 
 
 1,785,000 
 
 9 
 
 1,562,511 
 
 Africa 
 
 145 
 
 16,651,975 
 
 73 
 
 10,533,205 
 
 42 
 
 4,760,500 
 
 N. America 
 
 66 
 
 9,390,200 
 
 84 
 
 16.531,000 
 
 67 
 
 12,298,830 
 
 S. America 
 
 32 
 
 4,658,400 
 
 31 
 
 6,858,600 
 
 13 
 
 2,660,000 
 
 Australia 
 
 
 
 
 
 
 
 New Zealand 
 
 28 
 
 3,048,500 
 
 39 
 
 4,563,200 
 
 52 
 
 7,508,000 
 
 Total 
 
 378 
 
 41,015,425 
 
 365 
 
 52,663,400 
 
 269 
 
 34,002,041 
 
 * For a more complete discussion of the activity of British speculators 
 in promoting companies to operate in new and undeveloped countries, 
 see " The Crisis of 1890," by Max Wirth, Journal of Political Economy, 
 vol. i (March, 1893), pp. 225-26. Also "Speculation in Australia and 
 Effect on England," The Economist (London), vol. xlvii (May 5, 1888), 
 pp. 564-65. 
 
 ^ "The Growth of Speculation in Mining Shares," The Economist 
 (London), vol. xlviii (January 11, 1890), p. 369.
 
 44 THE CAUSES OF THE PANIC OF 1893 
 
 more than twice as many projects of this character as any 
 other division of the globe. ^ 
 
 The greater majority of the South African gold-mining 
 companies were floated at high prices by promoters and 
 underwriters who, by a manipulation of the markets in 
 South Africa and London, derived large profits from their 
 sale. The shares were generally quoted at small amounts, 
 usually at less than one pound each, and when the com- 
 panies were not officially recognized by being listed on the 
 London Stock Exchange, their stocks were offered for sale 
 by outside operators. As in the case of the investment com- 
 panies, every facility was furnished to persons of small 
 resources to gratify their gambling proclivities. Large 
 amounts of stock were absorbed by the public, and under 
 the stimulus of heavy speculation premiums on shares rose 
 to an unreasonable height, ranging from 50 to 5000 per 
 cent.^ During the same years that this gambling in mining 
 shares was in progress, a similar movement, equal in inten- 
 sity but less widespread in its influence, was also maintained 
 in South African diamond properties.^ Furthermore, in 
 the autumn of 1889, when the public seemed inclined to 
 lessen its commitments in gold-mining and diamond shares 
 until a larger measure of the brilliant promises of the pro- 
 moters had been brought to fruition, professional opera- 
 tors turned their attention to the flotation of land prospect- 
 ing and exploration companies. As a consequence, a large 
 portion of the speculative public, in defiance of reason and 
 common sense, followed their lead, and the gambling in 
 African securities continued, but with abated force, during 
 the first half of the year 1890. 
 
 * The London Economist. Unfortunately figures are not available for 
 showing the number of companies of local origin, the shares of which 
 came in for the largest amount of speculation. The above table, although 
 it falls short of giving the true condition of affairs, furnishes sufficient data 
 as to the magnitude of the speculation in African gold-mining stocks. 
 
 ' "The South African Diamond Industry," The Economist (London), 
 vol. xlv (March 10, 1888), p. 10. 
 
 ' " African Prospecting Companies," The Economist (London), vol. 
 xlvii (October 26, 1889), p. 1538.
 
 SPECULATION AND GAMBLING 45 
 
 But British promoters and speculators did not confine 
 their operations to Africa and Australia. The countries of 
 South and Central America came in for an even greater 
 share of exploitation. Mention has already been made of 
 Chilean nitrate companies. As a result of the policy of 
 British exporters, during the period 1887-90, in accepting 
 payment of trade balances in foreign securities, railroad 
 projects in Uruguay, Chile, Mexico, and Brazil were also 
 largely supported by British capital. The outlay in these 
 countries, however, was insignificant in comparison with 
 British capital commitments in Argentina. As early as the 
 year 1875, the attention of Europe had been attracted by 
 the prospect of securing large profits from the development 
 of the rich natural resources of the River Plate territory. 
 Owing to the unsettled conditions of political affairs in 
 Argentina, however, and the cautious spirit which pre- 
 vailed among European investors, no decisive steps were 
 taken in that direction until the early eighties, when an 
 extended boom in land values had its inception in the 
 southern provinces of that country. 
 
 The boom in land values in Argentina was the direct 
 outcome of the reclamation of large tracts of rich territory 
 from the southern Indian tribes by a series of Government 
 expeditions extending through the years 1876-80.* In 
 
 ' At the time of the advent of the Avellinda-Alsine party to power in 
 Argentina in 1876, Indian tribes reigned supreme over the vast areas of 
 territory which extended from the southern boundary of the province 
 of Mendoza to the Straits of Magellan. The Minister of War, Alsine, 
 organized expeditions against them for the purpose of driving them 
 southward and thus preventing their foraging trips into the settled re- 
 gions of the country. After the death of Alsine in 1878, a regular war was 
 organized against the Indians and those who escaped death or slavery 
 were swept into Patagonia. As the result of this policy, the Government 
 soon found itself in possession of a large extent of territory, for the 
 exploitation of which it desired to attract capital and labor. 
 
 An excellent account of this period in the financial history of Argen- 
 tina is to be found in an article entitled " Argentina — Her Past and Pre- 
 sent," by John Proctor, The Bankers' Magazine (London), vol. li (March, 
 1891), pp. 461-65. See also Spanish American Republics, Theodore 
 Child (New York, 1891), pp. 326-12.
 
 46 THE CAUSES OF THE PANIC OF 1893 
 
 order to facilitate the occupation of these lands, the Argen- 
 tine Government offered liberal terms to purchasers. The 
 payment for lands taken up were allowed to extend over 
 a series of years, the title being given on the receipt of a 
 certain sum down. Notes of the purchaser were accepted 
 for the outstanding amount. To provide capital for the 
 development of the land an additional scheme was devised, 
 consisting of a system of National and Provincial Mort- 
 gage Banks. ^ These banks acted as intermediaries or 
 agents between landowners wishing to mortgage their 
 property and people who were willing to lend their money 
 on landed security. The landholder who wished to secure 
 a loan deposited his titles at a mortgage bank and the bank 
 made a valuation of his estate, and cedulas or bonds of the 
 bank were then issued to the landowners up to half the 
 value of his property. These bonds carried a certain rate 
 of interest for which the landowner was responsible until 
 his titles were redeemed by an annual rate of amortization 
 of the amount borrowed from the bank. Funds were real- 
 ized by the landowner through the sale of the bonds or 
 cedulas in the open market. The payment of the interest 
 charges was guaranteed to the purchaser by the banks, 
 and the ultimate redemption of the bonds was guaranteed 
 by the state and provincial governments. Persons who 
 were non-residents, and who had no means of verifying 
 the security of any particular land investment were thus 
 enabled to become lenders on Argentine real estate.^ 
 
 In outward form, this was a most useful scheme, and 
 cedulas were to all appearances as sound securities of their 
 kind as could have been devised. The system had many 
 serious defects, however, and the sequel showed that its 
 adoption amounted almost to a curse to the country 
 through the stimulus it gave to insane land speculation. 
 
 ^ The National Mortgage or Hypothecary Bank was operated by 
 the National Government; the Provincial banks were under the control 
 of the Government of the Province of Buenos Ayres. 
 
 ^ "The Argentine Crisis — Its Development," Henry B. CoUander, 
 The Fortnightly Review, vol. liv (1899), p. 441.
 
 SPECULATION AND GAMBLING 47 
 
 Persons who could get together a suflScient amount to 
 pay the first installment on the land purchased from the 
 Government, secured their titles, which they then pledged 
 to the mortgage banks for as large an amount as they could 
 obtain. With these funds payments were made to cover 
 further installments on the land as they fell due, until the 
 land could be sold at an enhanced price consequent upon 
 the general rush for land investment. The original pur- 
 chaser then moved onward and repeated the same opera- 
 tion. As a result, land constantly rose in value, and as no 
 restriction had been placed on the power of the banks to 
 issue cedulas, loans were freely made on a boom basis. 
 
 In the second place, the legitimacy of the cedulas issued 
 presupposed rigorous honesty on the part of the banks and 
 the Government. As a matter of fact, however, Argentina 
 was honeycombed with corruption. A coterie of politicians 
 and their henchmen had complete control of the national 
 and provincial governments, and under the guise of politics 
 carried on a scramble for loot. It was therefore an easy 
 matter for a supporter of the party in power, or a member 
 of the political ring, to obtain loans on worthless property. 
 Fraudulent and fictitious valuations were made by the 
 banks and large amounts of the cedulas issued rested upon 
 no real basis of value.* 
 
 The issues of national and provincial cedulas up to the 
 year 1887 were comparatively moderate. After that date, 
 under the combined influence of private speculators. Gov- 
 ernment officials, and politicians, the land boom was rapidly 
 extended and clever financiers found a market for the sale 
 of cedulas in Great Britain and on the Continent. Foreign 
 investors seemed to be seized with a mania for this form of 
 security. Series after series, from A to P, were issued by the 
 banks and quickly absorbed by credulous Europeans, who 
 were ignorant of the true state of affairs and who argued 
 
 1 " Gaucho Banking," W. R. Lawson, The Bankers' Magazine (Lon- 
 don), vol. li, January, 1891, pp. 33-52.
 
 48 THE CAUSES OF THE PANIC OF 1893 
 
 that the cedulaswere a better investment than Government 
 bonds for the reason that in addition to the guarantee of 
 the state and provincial governments they were backed up 
 by real estate.^ 
 
 European investors, however, did not limit their activ- 
 ities to the purchase of cedulas. The Argentine Government 
 was besieged by European promoters and financiers for 
 concessions to construct railroads, docks, waterways, 
 municipal improvements, and every description of public 
 enterprise. Many of these projects were undoubtedly of 
 a legitimate character, and necessary to the development 
 of the country. But the movement in this direction soon 
 exceeded all reasonable bounds. Railroads were built 
 which could not pay operating expenses for years to come. 
 Other industrial undertakings were entered into under 
 the allurement of the existing inflation in values and the 
 prospect of the country's growth in wealth and population 
 in the future. Public works of all kinds were also con- 
 structed without taking into account the real wealth and 
 taxpaying power of the community. The fever of specula- 
 tion, in short, arising from the inflation of land values soon 
 developed into an insane rush for wealth, and with the 
 growth of confidence in Argentine resources European 
 capital was literally poured into the country. 
 
 In addition to the private commitment of capital by 
 foreign investors, the Argentine Governments also, as a 
 result of the demand for public works and of the govern- 
 mental policy of guaranteeing interest charges on railroads 
 and other industrial projects, soon found it necessary to 
 largely increase their indebtedness. The national and pro- 
 vincial administrations negotiated loans by the dozen 
 through European financial houses. Many municipalities 
 also tried their hand at extracting from the foreigner the 
 
 * As early as April, 1888, the cedulas issued amounted to 47,957,000 
 pounds. By the year 1890 the face value of cedulas outstanding was 
 equal to 400,000,000 currency dollars, of which amount about one half 
 was held by foreign investors.
 
 SPECULATION AND GAMBLING 49 
 
 funds from which he was so willing to part. During 
 the three years prior to 1886, various loans effected by 
 the Argentine Republic in European countries had never 
 exceeded an annual total of £7,000,000 and were generally 
 much below this amount. The total borrowings in 1886 
 rose suddenly, and during the three subsequent years 
 reached unprecedented figures.* The extent to which 
 public borrowing was carried may be seen from the fol- 
 lowing estimate of the total loans during the period 
 1886-89: 
 
 TOTAL OF LOANS NEGOTIATED BY ARGENTINA, 1886-1889. 
 
 1886 
 
 £13,500,000 
 
 1889 
 
 £29,000,000 
 
 1887 
 
 14,500,000 
 
 1890 
 
 5,000,000 
 
 1888 
 
 36,000,000 
 
 Total 
 
 98,000,000 
 
 The negotiation of these loans had a twofold effect. In 
 the first place, the funds realized furnished a further incen- 
 tive to Government extravagance and oflScial corruption. 
 In the second place, they gave an additional impulse to the 
 existing speculation. To make matters worse, the country 
 was soon plunged into the evils resulting from a greatly 
 depreciated currency. 
 
 Specie payments in Argentina had been suspended in 
 1885. Two years later an attempt was made in the Free 
 Banking Law of 1887 to put the currency of the country 
 on a uniform basis, by the adoption of a national banking 
 system modeled after that of the United States. The head 
 of this system was the National Bank at Buenos Ayres, with 
 branches located in the various provinces. These banks 
 were authorized to create a paper circulation, and to guar- 
 antee the notes thus issued the banks were required to pur- 
 chase from the Government national bonds. The pay- 
 ments for these bonds were to be made in gold, which was 
 to be kept in the Treasury as the ultimate security of the 
 currency issued by the banks. In compliance with the law, 
 millions of dollars in gold were imported by the provincial 
 
 ' The Bankers' Magazine (London), vol. li (March, 1890), p. 459.
 
 50 THE CAUSES OF THE PANIC OF 1893 
 
 banks and duly paid into the National Treasury as a guar- 
 antee of their note issues. The National Government kept 
 the gold for about a year, when, in defiance of the banking 
 law, the fund was used for the payment of Government ob- 
 ligations. As soon as gold began to leave the Treasury 
 the premium on that metal went up by leaps and bounds. 
 Additional apprehension over the currency situation was 
 also caused by the fact that even Government officials could 
 not give an accurate account of the amount of notes which 
 had been issued by the banks. It was stated to be between 
 250 and 300 million dollars, but these estimates were soon 
 invalidated by the discovery that illegal issues of millions 
 had been made by both national and provincial institutions. 
 Under these conditions the premium on gold during the 
 two years 1888-89 advanced from 50 to 250 per cent., and 
 during the year 1890 practically remained at the latter 
 figure. The Government endeavored to prevent the depre- 
 ciation of paper issues by declaring a forced currency, but 
 this action only served to stimulate further speculation in 
 gold. The resultant variations in the currency affected the 
 interests of every one financially concerned in the develop- 
 ment of the country, and especially the holders of cedulas 
 and other securities which were payable in currency dollars. 
 These dollars after the dissipation of the gold guarantee 
 fund Ifad no real basis of value, and the finishing touches 
 were thus given to cedulas as a wildcat security. 
 
 The financial orgy in Argentina during the period 1887- 
 90 had thus developed to a point where the country was 
 burdened with an immense circulation of inconvertible and 
 depreciated paper currency, an excessive and fraudulent 
 issue of cedulas, and a large public indebtedness. The 
 significant feature of these various forms of Argentine 
 liability, so far as our story is concerned, was the fact that 
 they were principally in the hands of foreign investors. 
 The enormous amount of foreign capital invested in the 
 country is at once apparent from the following statement,
 
 SPECULATION AND GAMBLING 
 
 51 
 
 showing the principal items of Argentine indebtedness held 
 abroad in 1890:^ 
 
 ARGENTINE LIABILITIES ABROAD, 1890. 
 
 Gold Dollars. 
 
 Currency 
 Dollars. 
 
 National Debt 
 
 Provincial 
 
 Municipal 
 
 Cedulas (say) 
 
 Railways 
 
 Miscellaneous and Private Investments 
 
 Gold liabilities in currency, at 300 
 gold premium 
 
 122,283,000 
 
 193,500,000 
 
 23,600,000 
 
 250,000,000 
 200,000,000 
 
 200,000,000 
 
 789,443,000 
 
 200,000,000 
 
 2,368,329,000 
 
 Total liabilities in currency. 
 
 2,568,329,000 
 
 The total indebtedness of Argentina in 1890, both at 
 home and abroad, was as follows: 
 
 TOTAL ARGENTINE LIABILITIES, 1890. 
 
 National Debt 
 
 Provincial 
 
 Municipal 
 
 Cedulas 
 
 Railways 
 
 Miscellaneous and Private Investments 
 
 Gold liabilities in currency, at 300 
 gold premium 
 
 Gold Dollars. 
 
 300,000,000 
 
 195,500,000 
 
 23,660,000 
 
 250,000,000 
 200,000,000 
 
 967,160,000 
 
 Total liabilities in currency 
 
 Currency- 
 Dollars. 
 
 1,153,000 
 13,600,000 
 
 400,000,000 
 
 414,753,000 
 
 2,901,480,000 
 
 3,316,233,000 
 
 The greater part of this Argentine foreign indebtedness 
 of over one thousand million dollars (in terms of gold) 
 
 * " The Argentine Crisis — Its Financial Significance," by W. R. 
 Lawson, The Fortnightly Review, vol. liv (September, 1890), p. 459.
 
 62 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 was held in Great Britain. The appearance of specula- 
 tion in Argentina, as already noted, had been coincident 
 in point of time with the outgrowth of speculative tenden- 
 cies in the United Kingdom, and the two movements had 
 subsequently run parallel with each other. Consequently 
 a steadily increasing volume of investment funds passed to 
 the River Plate through British banks, finance companies, 
 and private channels. Reputable financial houses in Great 
 Britain, like the old established firm of Baring Brothers, 
 underwrote Argentine public loans and disposed of them to 
 the British public. Thirteen Argentine provinces during 
 the period 1886-90 exploited their credit in London to the 
 extent of ,£38,700,000, the National Government negotiated 
 loans amounting to almost £25,000,000, and Argentine 
 municipalities floated about £5,000,000 of their securities 
 in London. British investors also placed between forty and 
 sixty million pounds sterling in Argentine railroad projects, 
 and a similar amount in miscellaneous investments.^ 
 
 The grand total of British capital commitments in 
 Argentina, therefore, reached an immense figure. Con- 
 sidered in connection with the concomitant speculation at 
 home and in South Africa, the enormous extent of the 
 British speculative movement during the four years 1887- 
 90 is clearly evident. Its magnitude may be more clearly 
 realized from a summary statement of the total capital com- 
 mitments in Great Britain during this period : ^ 
 
 TOTAL CAPITAL COMMITMENTS IN GREAT BRITAIN, 1887-90. 
 
 
 1890 
 
 1889 
 
 1888 
 
 1887 
 
 1st Quarter 
 
 2d 
 
 3d 
 
 4th 
 
 £30,243,000 
 59,510,000 
 39,103,000 
 13,709,000 
 
 £56,846,000 
 49,866,000 
 34,526,000 
 48,198,000 
 
 £34,691,000 
 74,957,000 
 22,951,000 
 27,570,000 
 
 £28,599,000 
 35,535,000 
 16,059,000 
 17,873,000 
 
 
 142,565,000 
 
 189,436,000 
 
 160,169,000 
 
 158,066,000 
 
 ' " The Argentine Crisis — Its Financial Significance," by W. R. 
 Lawson, The Fortnightly Review, vo\. liv (September, 1890), pp. 448-51. 
 
 * " Our New Investments in 1890," The Economist (London), vol. 
 xlviii (December 27, 1890), pp. 1627-28.
 
 SPECULATION AND GAMBLING 
 
 53 
 
 Great Britain had thus invested a large percentage of the 
 increased wealth which had accrued from her prosperity 
 in trade and industry during the four years 1887-90 in 
 enterprises of a speculative character. In addition there 
 had been a large expansion of credit, in which many of 
 the transactions had been of an abnormal character based 
 upon inflated and speculative values. Financial houses had 
 underwritten large amounts of securities and relied upon 
 their sale to the public for reimbursement. Individual 
 investors, in many instances, had not only placed their 
 savings in questionable investments, but had also used se- 
 curities of doubtful value as collateral for loans with which 
 to continue their speculating operations. A stimulus had 
 been given to this movement by the joint-stock banks, 
 which had followed the policy of loaning at a moderate 
 rate up to a reserve-point of 10 or 12 per cent, of their 
 liabilities, and then depending upon the Bank of Eng- 
 land for any funds which might be needed to replenish 
 their reserves.^ On account of this action upon the part 
 of the joint-stock banks, the Bank of England could 
 not retain its holdings of gold, and oftentimes found it 
 
 * The following summary statement of some of the strongest joint- 
 stock banks at the end of December, 1890, shows the smallness of their 
 cash reserves as compared with their liabilities. 
 
 London and Western . . . . 
 
 Union 
 
 London Joint-Stock 
 
 City 
 
 London and Southwestern 
 
 London and County 
 
 Imperial 
 
 Alliance 
 
 Consolidated 
 
 Liabilities to 
 Public. 
 
 £ 
 
 26,958,600 
 
 16,809,700 
 
 14,155,100 
 
 9,677,300 
 
 4,897,600 
 
 39,296,100 
 
 4,251,000 
 
 5,403,300 
 
 3,789,800 
 
 125,238,500 
 
 Cash in 
 
 Hand and at 
 
 Bank. 
 
 £ 
 
 3,984,200 
 
 2,814,400 
 
 1,165,700 
 
 783,300 
 
 721,800 
 
 4,981,700 
 
 421,600 
 
 594,300 
 
 621,300 
 
 16,088,300 
 
 Proportion, 
 of Cash to 
 Liabilities. 
 
 % 
 
 14.8 
 16.8 
 
 8.1 
 
 8.1 
 14.8 
 12.7 
 
 9.9 
 10.9 
 16.3 
 
 12.9
 
 54 THE CAUSES OF THE PANIC OF 1893 
 
 necessary to raise the rate of discount for the purpose of 
 securing an increase in the gold supply. As a result 
 of the excessive speculation the credit transactions of 
 the United Kingdom finally increased beyond a safe pro- 
 portion to the gold reserves. On December 31, 1889, the 
 directors of the Bank of England were forced to raise 
 the rate of discount to sLx per cent. As a result of this 
 decisive action, the speculation movement was greatly 
 curbed and a great many bubbles collapsed at their incep- 
 tion. There was no thorough purging of the financial sys- 
 tem, however, and it was clearly evident that any further 
 shock to confidence might result in a fall in values and great 
 losses. In the event of such a forced liquidation, it was 
 extremely doubtful whether the real values which under- 
 lay the speculative movement would sustain the fabric of 
 credit which had been reared upon them.
 
 / 
 
 CHAPTER IV 
 
 INDUSTRIAL AND FINANCIAL CONDITIONS IN FRANCE AND 
 GERMANY, 1884-90 
 
 Trade and Industrial Depression in France, 1884-87. — Return of Prosperous 
 Conditions in 1887, and the Organization of the Copper Syndicate. — Failure 
 of the Copper Syndicate and the Soci^t6 des M^taux. — Suspension of the 
 Comptoir d'Escompte. — Absence of Speculation in France, 1889-90. — The 
 Spread of Speculation from Great Britain to Germany. — German Capital 
 Commitments in Argentina. — The Joint -Stock Company Mania. — The 
 Threatened Danger of a Panic averted by the Reichsbank. — Financial 
 Situation in March, 1890. 
 
 The financial and industrial history of France during the 
 period 1884-90 did not show any features in common with 
 the course of affairs in Great Britain. By the year 1880 
 France had so fully recovered from the Franco-Prussian . 5 
 war that stock-job bing and other forms of re ckless specu- , a 
 lation flourished in Paris. This movement came to a head .C 
 during the ye ar 1882 in a disastrous financial breakdown , V 
 and the r esultant liquidation was attended by much loss /^/ 
 and the uncovering of many corrupt financial practices. ' \ 
 A lack of confidence and activity in business and industrial 
 undertakings followed. This fact, together with the exist- 
 ing depression in other countries, strongly influenced the 
 subsequent course of French industry and trade, and it 
 was not until the year 1887 that signs of relief from the 
 continuous period of stagnation began to make themselves 
 evident. 
 
 The revival in trade and industrial enterprise was fol- 
 lowed by more prosperous conditions. Unfortunately, in- 
 vestors and promoters were unable to confine their energies 
 to proper channels. To the legitimate activity in financial
 
 56 THE CAUSES OF THE PANIC OF 1893 
 
 and industrial circles there was soon added a gigantic 
 scheme for speculating in the price of copper. 
 
 As a result of the discovery of the copper deposits on 
 Lake Superior and in other regions of the United States 
 and South America, and the reopening of the Rio Tinto 
 mines in Spain, the world's supply of copper had been 
 enormously increased. The price, therefore, had steadily 
 fallen.^ French capitalists had obtained control of the 
 Rio Tinto Company, and, under their management it had 
 become very prosperous. The Societe des Metaux, a com- 
 pany formed with the support of the Comptoir d'Escompte, 
 also dealt extensively in copper.^ The directors of the 
 Societe des Metaux, being led astray by the success of the 
 diamond operations in South Africa, sought to monopolize 
 the sale of copper. Under their direction a syndicate of 
 speculators was formed which attempted to control the 
 copper market by buying the entire output of the mines at 
 a fixed price. Contracts were made with the principal 
 copper works of the world, which agreed for the space of 
 three years to sell all their copper to the syndicate at ,£70 
 per ton, the copper ring then raising the price to £80 per 
 ton. These contracts involved the purchase of 150,000 
 tons of copper per year, or an annual outlay of 262,500,000 
 francs. In addition, the syndicate, in order to successfully 
 control the supply, had to buy the output of mines which 
 had refused to contract with it. 
 
 During 1888, the first year of the copper ring's operation, 
 it found its object frustrated by several factors to which it 
 had not given sufficient consideration in forming its plans. 
 In the first place, the supply of copper, under the stimulus 
 of higher prices, was greatly increased. New supplies of 
 the metal came into the market from every direction to 
 profit by the high prices, the world's production of copper 
 
 * Before 1870 the price of copper had ranged from 2000 to 2500 francs 
 per ton. In 1887 it was below 1000 francs. 
 
 ' In the autumn of 1887 the Societe des Metaux, with the aid of a 
 group of financiers, conducted a successful corner in Chile bars.
 
 CONDITIONS IN FRANCE AND GERMANY 57 
 
 in 1888 being 500,000 tons greater than the preceding 
 year. In the second place, people would not buy copper 
 at the enhanced prices. In many cases old copper was 
 used by manufacturers. Wherever possible iron and steel 
 were substituted. Moreover, copper dealers would not 
 replenish their stocks. As a consequence of this limitation 
 of demand in the face of an increase in the supply, the 
 copper speculators, in order to maintain the high level of 
 prices, found it necessary to hoard their supplies of copper 
 and purchase a great amount of the outside production. 
 At the beginning of March, 1889, the syndicate held, in 
 various parts of the world, 160,000 tons of copper. 
 
 In accumulating this amount not only the resources of 
 the Societe des Metaux had been exhausted, but even the 
 entire capital and part of the deposits of the Comptoir 
 d'Escompte, which had rendered assistance to the copper 
 speculators.^ This institution had also guaranteed the 
 contracts of the Societe des Metaux for two years. When 
 the insolvent condition of the bank became known early in 
 March, through the attempted withdrawal of the Russian 
 Government deposits, other depositors endeavored to with- 
 draw their funds, and a general run upon the Comptoir 
 d'Escompte and two other Paris banks was precipitated. 
 The leading bankers of Paris advanced 25,000,000 francs, 
 but this sum was not sufficient. Finally the Bank of France 
 took over the assets of the Comptoir d'Escompte, and, in 
 order to prevent a general financial panic, advanced 
 100,000,000 francs toward meeting its liabilities. In the 
 mean time, the copper syndicate found itself without means 
 to absorb the increasing supply of copper. Consequently it 
 could not keep its contracts, and the large producers began 
 to sell in the open market. The price of copper, therefore, 
 quickly moved downwards. Under these conditions the 
 
 ' The Comptoir d'Escompte had involved in the copper speculation 
 not only its capital of 80,000,000 francs, but even its reserve funds of 
 gO,000,000 francs.
 
 58 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 copper speculators sustained great losses. The Societe des 
 Metaux could not meet its obligations. Finally, during 
 the latter part of March, 1889, it was forced to suspend 
 payments, and the shareholders lost all their capital. 
 
 Two months previous to the failure of the Comptoir 
 d'Escompte and the Societe des Metaux, work had been 
 suspended on the Panama Canal, and the canal company, 
 which had absorbed 1300 million pounds of French capital, 
 was forced into liquidation. As a result of these two almost 
 simultaneous financial catastrophes, France was deterred 
 from entering into the speculative activity which was so 
 prevalent in England during the period 1888-90. These 
 years were spent by France in putting her financial house 
 in order, and were marked by the endeavor to liquidate 
 past excesses and recuperate past losses. The French 
 people were very cautious in entering into new enterprises 
 of any kind, and only a small amount of Argentine issues 
 or other securities of a doubtful character were absorbed by 
 French investors. Consequently there was no inflation 
 of values, and the cash reserves were ample in comparison 
 with the credit transactions of the country. This fact is 
 apparent from the condition of the Bank of France during 
 the period:* 
 
 BANK OF FRANCE, 1886-90. 
 
 First 
 •week 
 
 Assets. 
 
 Liabilities. 
 
 of 
 Janu- 
 ary. 
 
 Coin and 
 Bullion. 
 
 Discounts 
 and Ad- 
 vances. 
 
 Circulation. 
 
 Government 
 Deposits. 
 
 other. 
 
 1886 
 1887 
 1888 
 1889 
 1890 
 
 £ 
 89,344,000 
 94,117,000 
 91,905,000 
 89,223,000 
 100,155,000 
 
 £ 
 55,771,000 
 53,014,000 
 52,703,000 
 59,190,000 
 60,419,000 
 
 £ 
 116,542,000 
 115,101,000 
 113,588,000 
 110,606,000 
 126,209,000 
 
 £ 
 3,250,000 
 9,238,000 
 6,006,000 
 9,650,000 
 12,818,000 
 
 £ 
 16,107,000 
 14,410,000 
 15,278,000 
 17,588,000 
 13,112,000 
 
 ' During the period 1885-90 the trade and industrial situation in 
 Austro-Hungary gave no indication of unusual activity, owing to the fact 
 that the country had never fully recovered from the evil effects of the
 
 CONDITIONS IN FRANCE AND GERMANY 59 
 
 The situation in Germany, however, was entirely differ- 
 ent from that in France. The speculating movement at its 
 very outset was communicated from London to Berlin, 
 and after the year 1887, although the German capital 
 commitments were not so great in amount, the gambling 
 mania was as prevalent in Germany as in Great Britain. 
 As early as 1886 Argentina began to exploit its credit in 
 Berlin, and during the three subsequent years a consider- 
 able amount of Argentine loans were issued at good prices, 
 through the Deutsche Bank and the Disconto-Gesell- 
 schaft. The amount and description of Argentine public 
 securities thus floated in Germany during the period 
 1886-89 appears in the following summarized form:^ 
 
 ARGENTINE LOANS ISSUED IN GERMANY. 
 
 5 per cent. loan of the Province of Buenos Ayres, issued Oc- 
 tober 12, 1886, at 80J per cent $12,511,432 
 
 5 per cent, gold loan of 1886, issued August 25, 1887, at 90 
 
 per cent 10,291,000 
 
 4^ per cent, loan of 1888, issued October 16, 1888, at 85.80 
 
 per cent 19,769,500 
 
 4^ per cent, exterior loan, issued February 20, 1889, at 90 
 
 per cent 27,000,000 
 
 4 J per cent. loan of the City of Buenos Ayres, issued May 1, 
 
 1889, at 86 per cent 9,920,600 
 
 The German people were trained to look upon Argentine 
 loans as first-class securities, and many small investors 
 bought them. Large amounts of other Argentine paper, 
 such as cedulas and railroad stocks and bonds, were also 
 purchased. Moreover, German banking houses, led by the 
 Deutsche Bank, established branches in Argentina and 
 extended credits to Argentine banks. ^ 
 
 The public became uneasy in 1888, however, over the 
 
 future of Argentine finances, and during the following 
 
 crisis of 1873. Austro-Hungary was also more of a debtor than a creditor 
 nation, and consequently was not in a position to indulge in the specu- 
 lative activity which had been a marked feature of the years 1887-90 in 
 Great Britain. 
 
 » The Ecmomist (London), vol. xlviii (November 29, 1890), p. 1511. 
 
 ^ The Deutsche Bank was a partner in the Uebersee Bank at Buenos 
 Ayres; the Disconto-Gesellschaft was also a partner in the Du Barry 
 banking concern of Buenos Ayres and Antwerp.
 
 60 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 year Germany was a heavy seller of Argentine securities. 
 The volume of Argentine paper which still remained in 
 the hands of German investors at the close of the year 
 1890 was estimated at about 100,000,000 marks. ^ These 
 securities were principally held by small investors who 
 were scattered over the country. 
 
 But whatever evils of speculation Germany escaped 
 through her distrust of Argentine securities were more 
 than equaled by her gambling in industrial shares. After 
 the year 1888, when Argentine issues first began to be 
 looked upon with suspicion, German operators turned 
 their attention toward the promotion of financial and 
 industrial enterprises. Precisely as in Great Britain, this 
 movement soon developed into a mania for the organiza- 
 tion of joint-stock companies. During the period 1886-90, 
 1061 new companies were floated, with a total capitaliza- 
 tion of more than 1099 million marks. The number of 
 companies organized each year, and the total capital 
 authorized was as follows : ^ 
 
 NUMBER AND CAPITAL OF JOINT-STOCK COMPANIES ORGAN- 
 IZED IN GERMANY. 1886-90. 
 
 Year. 
 
 Number of New 
 Companies. 
 
 Capital — Million Marks. 
 
 1886 
 1887 
 1888 
 1889 
 1890 
 
 113 
 168 
 184 
 360 
 
 236 
 
 103.94 
 128.41 
 193.68 
 402.54 
 270.99 
 
 Total 
 
 1061 
 
 1099.56 
 
 1 The Economist (London), vol. xlviii (November 29, 1890), p. 1511. 
 In a statement of the Deutsche Bank issued during the first week of 
 December, 1890, its commitments in Argentina appeared as follows: 
 Credits extended to Argentine banks, 2,451,000 marks, of which amount 
 2,000,000 marks were uncovered; investments in Argentine loans and 
 syndicates, 3,395,000 marks. 
 
 2 "The Crisis of 1890," Max Wirth, Journal of Polilical Economy, 
 vol. i (March, 1893), p. 228. See also " The Earnings of German Com- 
 panies, 1887-89," The Economist (London), vol. xlviii (December 20, 
 1890), p. 1605.
 
 CONDITIONS IN FRANCE AND GERMANY 61 
 
 These new companies included all branches of financial 
 and industrial enterprise. Existing industries and business 
 of every description were combined into joint-share cor- 
 porations, and new projects were constantly being floated. 
 The same reckless financial methods were also practiced 
 that had marked the joint-stock company craze in Great 
 Britain. The future condition of trade and industry was 
 heavily discounted, and upon this basis of earning power 
 the amount and value of the stock was fixed. Almost all 
 of the companies were over-capitalized, and a large per- 
 centage of stock was retained by promoters and vendors 
 as a reward for their services. 
 
 Despite these conditions of organization, promoters ex- 
 perienced no difiiculty in disposing of new issues to invest- 
 ors. The gambling proclivities of the public increased 
 each year after 1887. Investors were seduced by radiant 
 prospectuses of new ventures, and the stock of companies 
 of decidedly questionable prospects was quickly absorbed. 
 The volume of credit operations was dangerously extended. 
 Swindling went on unblushingly. Promoters and under- 
 "WTriters devoted all their energies to the flotation of new 
 undertakings, and then sold their own holdings, leaving 
 the companies in the hands of investors who knew little 
 or nothing of the business which they represented. As 
 a consequence large numbers of the new ventures failed, 
 and it soon became evident that unless the insane specula- 
 tion was checked, the country would be exposed to the 
 danger of a financial collapse. 
 
 The first note of warning came from the Reichsbank. 
 This institution, however, adopted a policy entirely differ- 
 ent from that of the Bank of England under similar cir- 
 cumstances in Great Britain. Its discount rate, which had 
 stood at five per cent, during the first two months of 1890, 
 was suddenly lowered to four per cent, during the month 
 of March. An opportunity was thus given to investors 
 to obtain funds without throwing their holdings upon the
 
 62 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 market, and in this way preventing a forced liquidation 
 and a consequent collapse in values. They were not 
 slow in availing themselves of the lowered rates, and the 
 loans and note issues of the bank rapidly increased.^ 
 During the month of March the Reichsbank increased 
 its discounts and advances £7,755,000 and its note issues 
 £7,376,000. 
 
 The threatened danger of a financial panic was thus 
 averted. But the effect of the action of the Reichsbank 
 was only temporary. No permanent disposition had been 
 made of the great mass of credit obligations and the inflated 
 values which had grown out of the previous speculation. 
 They still constituted a menace to the future prosperity 
 of the country, and the indications were that a considerable 
 period of time would be required for their liquidation. 
 
 ^ The condition of the Reichsbank during the first week of January 
 of the three years 1887-89, and during the first week of January, Feb- 
 ruary, March, and April, 1890, appears in the following statement: 
 
 
 Assets. 
 
 Liabilities. 
 
 
 
 
 
 
 
 
 Coin and 
 Bullion. 
 
 Discounts 
 
 and 
 Advances. 
 
 Notes. 
 
 Deposits. 
 
 Discount 
 Kate. 
 
 
 £ 
 
 £ 
 
 £ 
 
 £ 
 
 % 
 
 1887 Jan. 
 
 33,815,000 
 
 30,286,000 
 
 48,325.000 
 
 13,742,000 
 
 5 
 
 1888 " 
 
 38,342,000 
 
 32,404,000 
 
 50,527,000 
 
 16,648,000 
 
 5 
 
 1889 " 
 
 43,016,000 
 
 28,143,000 
 
 53,745,000 
 
 14,526,000 
 
 ^ 
 
 1890 " 
 
 38,251,000 
 
 35,204,000 
 
 50,684,000 
 
 19,590,000 
 
 5 
 
 Feb. 
 
 39,265,000 
 
 27,176,000 
 
 48,063,000 
 
 14,689,000 
 
 5 
 
 Mar. 
 
 41,124,000 
 
 28,770,000 
 
 45,204,000 
 
 20,815,000 
 
 4 
 
 Apr. 
 
 40,152,000 
 
 36,525,000 
 
 52,580,000 
 
 20,006,000 
 
 4
 
 CHAPTER V 
 
 THE PANIC OF 1890 '" 
 
 . 
 
 / The Financial Breakdown in Argentina. — The Resultant Liquidation in Great 
 
 I Britain. — The Baring Failure. — Measures adopted by the Bank of Eng- 
 
 V land. — Decline in Value of All Descriptions of Securities. — Forced and 
 
 \. Voluntary Liquidation in Great Britain. — The Effects of Conditions in 
 
 Great Britain upon German Money and Stock Markets. — The Financial and 
 
 Industrial Situation in France during the Fall of 1890. — The Return to the 
 
 United States of American Securities held in Great Britain, and the consequent 
 
 Exports of Gold from the United States. — The Low Level of Bank Reserves 
 
 in the United States. — Severe Stringency in the New York Money Market 
 
 and the Issue of Clearing-House Certificates. — Decline in Stock Values. — 
 
 Business Failures in the United States during 1890. — Continued Return of 
 
 American Securities by Great Britain during the year 1891 and Exports of 
 
 Gold from the United States. 
 
 The financial situation in Germany and Great Britain 
 during the early months of 1890 was, therefore, exceedingly 
 precarious, owing to the reckless speculation which had 
 prevailed in both of these countries, and especially in 
 Great Britain during the previous four years. The action 
 of the Bank of England, however, at the beginning of the 
 year in raising the rate of discount, as already seen, had 
 exercised a restrictive influence upon British financial 
 excesses. A period of comparative ease and quiet suc- 
 ceeded which lasted until about the middle of the year. 
 At that time the financial troubles in Argentina reached 
 an acute stage, and through their influence upon Great 
 Britain brought financial affairs in that country to a critical 
 stage. The dissipation of the gold reserve, which had been 
 deposited with the Government by the Argentine banks 
 as a guarantee of their note issues, had been followed, as 
 already pointed out, by a lack of confidence in Argentine 
 paper currency, and a consequent rise in the premium on 
 gold, which ranged from 200 to 250 per cent, during the 
 early part of the year 1890. Under these conditions great 
 diflBculty was experienced in carrj'ing on the Argentine
 
 64 THE CAUSES OF THE PANIC OF 1893 
 
 Government. The interest charges on cedulas, together 
 with that on national, provincial, and railroad bonds held 
 abroad, required the annual remittance to Europe of about 
 £7,500,000 in gold.^ Moreover, the annual indebtedness 
 of Argentina abroad was further increased by the fact that 
 her merchandise imports exceeded exports. No gold was 
 produced in the country, and, under the system of depre- 
 ciated paper currency, none was received by the Govern- 
 ment in the payment of taxes. Consequently, it soon 
 became evident to public officials in Argentina that the 
 only way to avoid default of payment on Government 
 obligations was to negotiate fresh loans in Europe for the 
 purpose of paying interest charges on previous issues. 
 This recourse, however, owing to the growing suspicion 
 of European investors, became more and more difficult. 
 An acute crisis was therefore soon reached in Argentine 
 finance. Through its influence a political revolution was 
 inaugurated which in July, 1890, swept the existing 
 administration out of power. 
 
 This change of Government, as might be expected, 
 weakened what little confidence there was left in Great 
 Britain as to the stability of Argentine finance. British 
 investors refused to place any more funds in Argentina, 
 and the price of Argentine securities steadily declined. 
 Consequently the English financial houses which had been 
 floating Argentine loans found themselves in a position of 
 great difficulty. Large masses of securities which they 
 had underwritten, and which they had hoped to sell to the 
 public at a profit, remained in their hands. On account of 
 the fall in value of these securities it was impossible to sell 
 them except at a ruinous loss. For the same reason it was 
 impossible to use them as a collateral for loans. The capital 
 invested was, therefore, locked up, and in order to secure 
 funds to carry on their business, British financial houses 
 
 * "The South American Financial Crisis," The Bankers' Magazine 
 (London), vol. 50 (August, 1890), p. 1254.
 
 THE PANIC OF 1890 65 
 
 were forced to sell consols, American railroad stocks and 
 bonds, and other good securities. These transactions 
 quickly attracted attention, and rumors soon became pre- 
 valent as to the embarrassment of different firms in Lon- 
 don. To make matters worse, about this time there was 
 a collapse in the South African gold-mining companies, 
 followed by the failure of several South African banks. 
 This disaster caused a further drop in stock values. At the 
 same time the financial houses which had been active in 
 promoting mining companies found themselves in posses- 
 sion of a large mass of undigested securities, and in order to 
 protect themselves were compelled to add to the existing 
 alarm by throwing good securities upon the market. Under 
 these conditions, the rumors as to the solvency of various 
 financial houses which were known to be interested in 
 Argentina and South Africa became persistent. The dis- 
 trust thus generated gradually deepened until a climax 
 was reached on November 15, 1890, when it was an- 
 nounced that the great firm of Baring Brothers and Com- 
 pany had been compelled to close its doors. 
 
 The embarrassment of this old-established banking 
 house was due to the fact that it had not taken proper care 
 to keep its assets in a liquid form. It had locked up so 
 much capital in South American securities, and had come 
 under such serious obligations in respect to these, that it 
 did not have funds to meet current liabilities. As late as 
 1889 Baring Brothers had underwritten part of an Argen- 
 tine loan for nearly 5£8,000,000 which the public had re- 
 fused to absorb.^ The immediate cause of the failure of the 
 house wasdueto the insistence of the Argentine Government 
 on its pound of flesh. The Argentine public ofiicials had 
 a lever against Messrs. Baring Brothers in the shape of a 
 liability on the part of that firm to provide about £6,000,000 
 
 ' During the period 1881-89 it was estimated that Messrs. Baring 
 Brothers, together with the Spanish house of Murictta, had put out 
 £42,000,000 in Argentine securities. Of this sum £20,000 000 was issued 
 in 1888.
 
 66 THE CAUSES OF THE PANIC OF 1893 
 
 for the Buenos Ayres Drainage and Water Works. The 
 Argentine Administration proposed to compound this liabil- 
 ity on the condition that Baring Brothers would negotiate 
 a new loan for the purpose of meeting Argentine liabil- 
 ities in Great Britain. Baring Brothers, as a prerequisite 
 to the granting of the loan, demanded a sharp supervision 
 over financial affairs in Argentina.^ The Argentine oJBBcials 
 resented such an interference, and pressed their claims 
 against the house. 
 
 Fortunately, at this critical juncture Baring Brothers 
 and Company acted with the utmost discretion. As soon 
 as they discovered that they would have to suspend pay- 
 ments, they disclosed the state of their affairs to the 
 directors of the Bank of England. The matter was kept 
 secret, and pending an examination of the books of the 
 concern, measures were taken to prevent disaster when 
 the public were informed. After an investigation, the 
 assets of the Barings were found to exceed their liabil- 
 ities, and on the 14th day of November the chief bankers 
 of London were called in to a meeting at the Bank of 
 England, to take counsel over the situation. Those present, 
 having received accounts of Messrs. Barings' position, 
 agreed to guarantee the solvency of the firm up to £4,000,- 
 000. Later in the evening boards of directors of banks 
 and joint-stock companies held similar meetings. By the 
 following day, when the Baring embarrassment was made 
 public, the guarantee fund had risen to £15,000,000, or 
 almost double the amount necessary to stave off a forced 
 liquidation. 2 The affairs of the firm were placed in charge 
 of the Governor of the Bank of England, and that institu- 
 
 * Baring Brothers demanded: (1) that the Argentine Government 
 should not make any unnecessary concessions, (2) that it should not 
 float any additional loans for 10 years, and (3) that no more notes should 
 be issued. A further promise of a strictly economical administration was 
 demanded. 
 
 ^ For the conditions under which this guarantee was extended see 
 The Bankers' Magazine (London), vol. 50 (December, 1890), pp. 1933- 
 1934. Also, "The Licjuidation of the Barings," The Economist (Lon- 
 don), vol. 47 (November 22, 1890), pp. 1465-1466.
 
 THE PANIC OF 1890 
 
 67 
 
 tion made an immediate advance of ,£7,000,000 to cover 
 the liabilities. At the same time the Bank of England 
 adopted precautionary measures relative to its gold re- 
 serve. An arrangement was made with the Bank of France 
 for a loan of .£3,000,000 in gold on the security of Treasury 
 bills, and an additional sum of £1,500,000 of that metal 
 was secured from the Russian Minister of Finance by the 
 sale of Treasury bonds. 
 
 By the adoption of these measures of precaution a gen- 
 eral financial breakdown was averted. Still credit received 
 a severe shock. On November 7 the Bank of England 
 discount rate was advanced to 6 per cent, and remained 
 at that figure until early in December, The joint-stock 
 banks, on account of their apprehensions over the situa- 
 tion, for a short time began to curtail their loans and dis- 
 counts, and it was finally necessary for the Governor of 
 the Bank of England on November 19 to caution some 
 of the leading bankers that in refusing their customers the 
 usual facilities for borrowing, they were taking the sure 
 means of undoing all that had been done to restore con- 
 fidence. The Spanish house of Murietta and Company 
 
 NUMBER OF COMPANIES PUT INTO LIQUIDATION.! 
 
 1890. 
 
 1889. 
 
 Companies. 
 
 Compulsory 
 Liquidation. 
 
 Voluntary 
 Liquidation. 
 
 Compulsory 
 Liquidatioii. 
 
 Voluntary 
 Liquidation. 
 
 Bankinf 
 
 3 
 
 77 
 35 
 
 17 
 
 486 
 195 
 
 82 
 49 
 
 7 
 
 Commercial 
 
 Manufacturing 
 
 431 
 175 
 
 Total England 
 
 115 
 1 
 5 
 
 698 
 48 
 19 
 
 131 
 1 
 1 
 
 613 
 44 
 
 
 15 
 
 
 
 Total United King- 
 dom 
 
 121 
 
 765 
 
 133 
 
 672 
 
 
 
 * The Economisi (London), vol. xlix (January 3, 1891), p. 10.
 
 68 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 had to be sustained, and other financial houses which had 
 issued South American securities had to be assisted by 
 friends. While the number of bankruptcies in the United 
 Kingdom during the year 1890 was less than those for 
 1889, there was a decided increase in the number of com- 
 mercial and financial companies that went into liquida- 
 tion. The statistics for the two years are shown in the 
 table on the preceding page. 
 
 This forced and voluntary liquidatipn, together with 
 the excited condition of investors and operators, caused 
 a decline in all departments of the stock market. Securi- 
 ties shrank in value so greatly that much, if not all, of the 
 previous inflation was swept away. Even first-class se- 
 
 THE STOCK MARKET. STATISTICS OF PRICES 
 
 Trices. 
 
 End Dec. 
 
 1890. 
 
 End Dec. 
 
 1889. 
 
 Rise or Fall 
 in 1890. 
 
 New 2f % Consols (Goschen's) 
 
 New 2^ % Consols (Goschen's) 
 
 Colonial Inscribed Stocks — 
 
 Canada, 3^ % 
 
 Cape, 4% (1883) 
 
 Queensland, 4 % 
 
 Home Corporation Stocks — 
 
 Metropolitan Consolidated, 3J % . . . 
 
 Birmingham, 3^ % 
 
 Home Railway Stocks — 
 
 Caledonian 
 
 London and Northwestern 
 
 North-Eastern Consols 
 
 American and Canadian Railway 
 Shares — 
 
 Central Pacific shares 
 
 Illinois Central shares 
 
 New York Central shares 
 
 Pennsylvania R. R. $50 shares 
 
 South American, etc., stocks — 
 
 Argentine, 5 %, 1886 
 
 Buenos Ayres, 6 %, 1882-86 
 
 Guatemala, 4 % 
 
 Uruguay, 5 % Unified 
 
 951 
 92^ 
 
 103 
 108 
 107 
 
 109i 
 107^ 
 
 119 
 
 177i 
 
 165i 
 
 30 
 100 
 103 
 
 51i 
 
 77^ 
 
 m 
 
 47 
 6H 
 
 97i 
 94| 
 
 105 
 
 llOi 
 
 llli 
 
 112| 
 llOf 
 
 129 
 
 ISlf 
 
 1751 
 
 35i 
 122 
 
 54i 
 
 94 
 99 
 62 
 
 73i 
 
 - If 
 
 - 2i 
 
 - 2 
 
 - 2i 
 
 - 4i 
 
 - 3 
 
 - H 
 
 -10 
 
 - 4i 
 
 -m 
 
 - 5J 
 
 -22 
 
 - H 
 
 - H 
 
 -16i 
 -30i 
 -15 
 -21|
 
 THE PANIC OF 1890 69 
 
 curities were seriously affected in the downward rush of 
 the market/ The inflated South American and other 
 speculative issues, however, came in for the largest amount 
 of depreciation. This fact appears from a comparison of 
 the quotations of some of the leading stocks on Decem- 
 ber 31, 1889, with the quotations of the year previous.^ 
 (See table on p. 68.) 
 
 The fall in the prices of good securities was principally 
 due to the efforts of investors and financial houses to pro- 
 tect their speculative holdings. The process of selling 
 first-class securities in order to prevent the sacrifice of 
 speculative shares, as already seen, had been going on 
 steadily during the first three-quarters of the year. After 
 the failure of the Barings and the consequent liquidation 
 and the collapse of inflated values, underwriters and 
 financial institutions found it more and more difficult to 
 carry the large mass of securities which they had been un- 
 able to foist upon the public. As calls upon them fell due, 
 and as fresh margins, owing to the decline in prices, had 
 to be supplied, it became necessary to throw on the market 
 a constantly increasing amount of salable securities such 
 as consols and the shares of first-class home corporations. 
 Considerable funds were also realized from the sale of 
 the stocks and bonds of railroads in the United States. 
 The continued offering for sale of securities of this char- 
 acter, at a time when there was an unusually active 
 demand for money, not only resulted, as might be ex- 
 pected, in a decline in their value, but also contributed to 
 the general depression of prices in the stock market. 
 
 This downward tendency of stock values was strongly 
 reflected in the German market. The amount of German 
 capital commitments in Argentina, as already seen, had 
 been steadily decreasing since the year 1888, and in 1890 
 
 1 "Why Prices have collapsed on the Stock Exchanf!;e. " The Econo- 
 mist (London), vol. xlviii (November 22, 1800), pp. 1471-72. 
 
 * " Commercial History and Review of 1890," p. 35, Annual Supple- 
 ment of The Economist (London), vol. xiix (February 21, 1891).
 
 70 THE CAUSES OF THE PANIC OF 1893 
 
 the principal holders of Argentine securities were small 
 investors who were scattered throughout the country, and 
 for this reason could not through the sale of their holdings 
 exert a dangerous pressure upon the stock market. Con- 
 sequently German financial houses were not directly 
 threatened by the turn of affairs in Argentina. The Ger- 
 man stock and money markets, however, were indirectly 
 affected by the embarrassment and liquidation in Great 
 Britain following the failure of Baring Brothers. In 
 October, 1890, the discount rate of the Reichsbank was 
 raised from 4 to 5 per cent. In November it advanced to 
 5| per cent, and remained at that point during the rest 
 of the year. During these months also the market rate 
 was almost equal to the bank rate. But the action of the 
 Reichsbank in lowering its rate of discount in March, 
 1890, as already pointed out, had been followed by a restric- 
 tion of speculation and a fall in stock values. The market 
 value of the total shares of industrial companies traded 
 in at Berlin from January to November, 1890, declined 
 over 21 per cent. During the same period there was a fall 
 of more than 10 per cent, in the value of bank shares. 
 After November, 1890, conditions in Great Britain gave 
 a further impetus to the downward movement, and a sharp 
 decline was experienced in all descriptions of securities. 
 Beyond this depression in the stock market, however, no 
 adverse results followed. The influence of affairs in Great 
 Britain during the autumn of 1890 only served to increase 
 the dragging liquidation and depression which had been 
 apparent in Germany from the beginning of the year. 
 
 On the other hand, the situation in Great Britain had no 
 permanently injurious effect upon conditions in France. 
 The caution of French investors, together with the losses 
 of the country in the copper speculation and the Panama 
 Canal Company, had saved France, as already pointed out, 
 from the financial excesses for which Germany and Great 
 Britain were being punished. The gold reserves of the
 
 THE PANIC OF 1890 71 
 
 Bank of France were ample, and in addition to the assist- 
 ance rendered to the Bank of England by the loan of 
 £3,000,000 of gold, £2,000,000 of that metal was sold to 
 the Credit Lyonnais to strengthen its London branch. 
 For a time prices on the Bourse moved downward in 
 sympathy with the British market. This tendency was 
 especially noticeable in the case of Argentine national 
 and provincial bonds, and in the shares of French banks 
 which were supposed to have assisted in the flotation of 
 Argentine securities. Within a few weeks, however, 
 there was a full recovery, and French bank and industrial 
 shares showed a substantial increase in value for the 
 year.^ As a matter of fact, French investors profited by 
 the depressed stock values in Germany and Great Britain 
 by making heavy purchases of securities in London and 
 Berlin. From an industrial and commercial point of view 
 the year 1890 was also satisfactory to France. Foreign 
 trade in both imports and exports was increased, and 
 receipts from railroad traffic showed widespread activity 
 in trade and industry.^ All the visible elements of national 
 prosperity, in brief, gave evidence of a decided improve- 
 ment. 
 
 The collapse in Argentine speculation had thus brought 
 about a financial breakdown and forced liquidation in 
 Great Britain, and had added indirectly to the depression 
 of stock values and the dragging liquidation which was 
 already in progress in Germany. On the other hand, 
 France, because of her previous freedom from speculation, 
 had not sufi^ered any considerable losses. It now remains 
 to be seen what efl'ect this condition of affairs in Great 
 Britain and Germany had upon the financial situation in 
 the United States. 
 
 As a matter of fact, the financial breakdown in Great 
 Britain was of very serious significance to this country. 
 
 * The Economist (London), vol. xlix (January 3, 1891), p. 11. 
 '^ Ibid. vol. xlviii (December 2, 1890), p. 1541.
 
 72 THE CAUSES OF THE PANIC OF 1893 
 
 In a previous chapter ^ it was shown that during the period 
 1886-90 the United States had purchased enormous 
 quantities of merchandise in the United Kingdom. Pay- 
 ments for this merchandise had been made in American 
 securities, chiefly in the form of American negotiable 
 railroad stocks and bonds. Our abnormal excess of mer- 
 chandise imports during the years preceding 1890 repre- 
 sented, therefore, capital largely invested by Great Britain 
 in American railroads. 
 
 As a result of the liquidation in Great Britain during 
 the year 1890, this capital, as might be expected, was re- 
 called. Underwriters and investors in Great Britain, as 
 already seen, owing to the growing distrust of Argentine 
 issues during the first three quarters of 1890, were forced 
 to sell first-class securities in order to realize funds to pre- 
 vent the sacrifice of their speculative holdings. A con- 
 siderable percentage of the securities which were thus 
 offered for sale were the negotiable American railroad 
 securities which had been absorbed by Great Britain 
 during the period 1886-90. These were at once returned 
 to the United States. During the forced and volun- 
 tary liquidation which followed the suspension of Bar- 
 ing Brothers, a constantly increasing volume of Ameri- 
 can securities were sent back to this country by Great 
 Britain to be sold. British capital commitments in the 
 United States also ceased. As a result of this action by 
 Great Britain, gold flowed out of the United States. The 
 net exports of that metal from this country during the 
 two months prior to August 10 amounted to $16,000,000. 
 
 This outflow of gold occurred at a time when the banks 
 of the United States were not in a position to stand the loss. 
 The industrial activity in the West and South during the 
 early half of the year 1890 had been attended with heavy 
 demands for funds. At the same time, the bank reserves 
 of the New York City banks, which had almost reached 
 the minimum limit of 25 per cent, of deposits at the close 
 * Chapter I.
 
 THE PANIC OF 1890 
 
 73 
 
 of 1889, still continued at this low level during the first 
 half of the year 1890. On the 16th of August the bank 
 surplus in New York fell below the legal requirement. 
 From that time a deficit was shown in the weekly bank 
 statements of the New York banks for eleven weeks out of 
 the twenty remaining to the end of the year. The largest 
 deficit was on September 13, when it reached $3,306,900.^ 
 Under these conditions, the hea\y and continuous de- 
 mand for money in the interior of the country, together 
 with the withdrawal of gold for export, soon brought about 
 serious trouble in the American money market, which later 
 developed into a severe stringency. As early as August 8 
 rates on call loans advanced to 20 and 25 per cent.^ Two 
 weeks later J per cent, commission a day was paid in 
 addition to 6 per cent, per annum, or an equivalent of 
 186 per cent, a year. For two weeks during the middle of 
 
 ^ The amount of the surplus and the ratio of reserves to deposits of the 
 New York Clearing-House banks appears m the following statement : 
 
 NEW YORK CLEARING-HOUSE BANKS STATEMENT (OOO's omitted) 
 
 
 Surplus Reserve. 
 
 Reserve to 
 Deposits. 
 
 August 
 
 2 
 
 deficit 
 deficit 
 deficit 
 deficit 
 deficit 
 
 deficit 
 deficit 
 
 deficit 
 deficit 
 deficit 
 
 deficit 
 
 $ 
 8,959 
 1,286 
 
 655 
 2,512 
 
 536 
 1,401 
 3,306 
 1,905 
 14,075 
 11,511 
 3,155 
 
 349 
 
 124 
 
 701 
 2,544 
 
 832 
 89 
 
 382 
 2,429 
 
 607 
 4,498 
 7,72p 
 
 Per cent. 
 27.1 
 
 9 
 
 25.3 
 
 
 16 
 
 24.8 
 
 
 23 
 
 24.3 
 
 
 30 
 
 24.8 
 
 
 6 
 
 24.6 
 
 
 13 
 
 24.1 
 
 
 20 
 
 25.4 
 
 
 27 
 
 28.4 
 
 October 
 
 4 
 
 27.7 
 
 
 11 
 
 25.7 
 
 
 18 
 
 24. 
 
 
 25 
 
 24.9 
 
 November 
 
 1 
 
 25.1 
 
 
 8 
 
 24.3 
 
 
 15 
 
 24.7 
 
 
 22 
 
 24.1 
 
 
 29 
 
 25.1 
 
 December 
 
 6 
 
 24.3 
 
 
 13 
 
 25.1 
 
 
 20 
 
 26.1 
 
 
 27 
 
 27. 
 
 
 
 
 The quotations for prime commercial paper in the New York money
 
 74 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 September, and for a similar period after news of the 
 Baring failure in England, the same extraordinary rates 
 were demanded. Finally, the New York banks resolved 
 to relieve the existing stringency by the emergency oper- 
 ation of issuing Clearing-House certificates. The first 
 certificates were authorized by the New York Clearing- 
 House Association on the 11th of November. After that 
 date further issues were made in accordance with the 
 demand. The maximum amount outstanding at one time 
 was on December 13, when there were $15,205,000. By 
 the end of the year this amount had been reduced to 
 $12,995,000. Clearing-House certificates were also author- 
 ized in Boston on November 17, and in Philadelphia on 
 November 18. The maximum issue in the former city 
 was $5,065,000, and in the latter $8,870,000.^ 
 
 This extraordinary stringency in the money market was 
 attended by commercial and financial disaster. The agita- 
 tion of the silver question in Congress during the early 
 part of 1890 had been followed by speculation in silver 
 bullion and silver stocks. This movement soon spread to 
 other departments of the stock market, and finally attained 
 the proportion of a general boom in stock values which 
 
 market from August to December, 1890, as reported by The Commercial 
 and Financial Chronicle, ranged from 6 to 9 per cent. Quotations for 
 call loans during the same period were as follows: 
 
 Week 
 
 
 Week 
 
 
 
 ending 
 
 Call Loans. 
 
 ending 
 
 
 Call Loans. 
 
 Friday. 
 
 
 Friday. 
 
 
 
 Aug. 1 
 
 2 and 6 
 
 Oct. 17 
 
 2J and 6 
 
 8 
 
 3 20 
 
 24 
 
 3 
 
 8 
 
 15 
 
 3 25 
 
 31 
 
 3 
 
 30 
 
 22 
 
 3 6+ i per day. 
 
 Nov. 7 
 
 3 
 
 25 
 
 29 
 
 2 15 
 
 14 
 
 2i 
 
 6+ h per day. 
 
 Sept. 5 
 
 3 12 
 
 21 
 
 2 
 
 6+ J per day. 
 
 12 
 
 3 6+ i per day. 
 
 28 
 
 2 
 
 8+ i per day. 
 
 19 
 
 2 6+ i per day. 
 
 Dec. 5 
 
 3 
 
 15 
 
 26 
 
 2 6 
 
 12 
 
 2 
 
 6+ } per day. 
 
 Oct. 3 
 
 2 6 
 
 19 
 
 2 
 
 6 
 
 10 
 
 2i 7 
 
 26 
 
 3 
 
 6 
 
 ^ Report of the Comptroller of the Currency, Treasury Report, 1891, 
 pp. 327-30.
 
 THE PANIC OF 1890 
 
 75 
 
 reached its highest point during the month of May.* 
 During succeeding months stock values dechned and the 
 hea^'y selhng of securities in Great Britain, followed by 
 the stringency in the American money market, was quickly 
 reflected in a downward movement of stock values in the 
 United States. The range in price during the year 1890 
 of the leading stocks on the New York market appears 
 in the following table: 
 
 PRICES OF LEADING STOCKS IN 1890. 
 (Fractional part of quotations omitted.) 
 
 Opening 
 (Jan. 1). 
 
 Highest. 
 
 Closing 
 (Dec.Sl). 
 
 101 
 
 107 (May 23) 
 
 92 
 
 106 
 
 111 (June 3) 
 
 101 
 
 147 
 
 175 (May 14) 
 
 132 
 
 33 
 
 50 (May 15) 
 
 28 
 
 117 
 
 120 (Jan. 31) 
 
 97 
 
 30 
 
 39 (June 10) 
 
 21 
 
 22 
 
 24 (May 6) 
 
 14 
 
 30 
 
 34 (May 19) 
 
 16 
 
 102 
 
 108 (Jan. 21) 
 
 70 
 
 58 
 
 95 (May 21) 
 
 57 
 
 83 
 
 87 (May 14) 
 
 76 
 
 Railroads: 
 
 Baltimore and Ohio 
 
 N. Y. Central and Hudson 
 
 Delaware and Hudson 
 
 Atchison, Topeka and Santa Fe 
 
 Illinois Central 
 
 Northern Pacific 
 
 Norfolk and Western 
 
 Miscellaneous: 
 
 American Cotton Oil Trust .... 
 
 Pipe Line Certificates 
 
 Sugar Trust 
 
 Western Union Tel 
 
 As a result of this depression in stock values, stock 
 operators and speculators, who had loaded up with large 
 masses of securities in anticipation of a silver inflation, 
 lost immense sums. Many brokers and investors, together 
 with a number of financial houses, owing to the stringency 
 of the money market, were unable to secure funds to pro- 
 tect their holdings, or, on the other hand, they found it 
 necessary to dispose of first-class securities at a loss, and, 
 as a consequence, were forced to suspend payments. 
 Moreover, many importers and dealers, as weU as manu- 
 
 ^ During the month of May, 1890, 11,052,779 .shares of stock of a 
 par value of $1,051,139,065 and an actual value of $628,978,858, were 
 sold on the New York Stock Exchange; during May, 1889, 7,155,711 
 shares of a par value of $673,794,760 and an actual value of $420,969, 966 
 were sold.
 
 76 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 facturers, had extended their credit as far as possible in 
 laying in stocks of commodities in anticipation of a rise 
 of prices after the enactment of the McKinley Tariff Bill, 
 In many cases the financial stringency prevented them 
 from securing funds to meet their obligations, and they 
 also were driven into bankruptcy. Finally, the high rates 
 for loans in the money market almost amounted at certain 
 periods to a suspension of credit, and were responsible for 
 the failure of a great many mercantile houses and indus- 
 trial establishments which were dependent upon unin- 
 terrupted accommodations, and which, under normal con- 
 ditions, would have had small difficulty in continuing their 
 operations. The number of mercantile failures reported 
 during the year was 10,907, with liabihties of $189,856,964. 
 During the year 1889 the number of failures was 10,882, 
 representing liabilities of $148,784,337.1 
 
 The greater number of failures in 1890, however, did not 
 represent any serious unsoundness in financial and com- 
 mercial circles. Interior trade was active. Bank clearings 
 and railroad earnings were also larger than in the pre- 
 ceding year. Our foreign trade showed a large increase. 
 The production of iron and steel was greater than the 
 output during the year 1889.^ Moreover, the business 
 failures themselves during the year 1890, in the light of 
 the stringency in the money market, clearly indicated that 
 
 ' The Commercial and Financial Chronicle, Annual Supplement, 
 Financial Review of 1890, p. 15. 
 
 ^ The following summary furnishes at a glance a brief industrial com- 
 parison of the two years 1889 and 1890 : 
 
 Bank clearings in the U. S 
 
 Imports of merchandise 
 
 Exports of merchandise 
 
 Gross earnings of railroads 
 
 Pig-iron produced (tons of 2000 lbs.) 
 
 Steel rails produced (tons of 2240 
 
 lbs.) 
 
 1889. 
 
 1,175,327,997 
 770,521,965 
 827,106,347 
 991,935,331 
 8,516,079 
 
 1,403,700 
 
 $60,117,891,393 
 
 823,318,782 
 
 857,623,677 
 
 1,086,039,735 
 
 10,307,028 
 
 1,522,204
 
 THE PANIC OF 1890 
 
 77 
 
 industry and business were in a safer position, and con- 
 ducted on a wider margin, than during the preceding year. 
 This fact becomes apparent from a comparison of the 
 failures of the first three-quarters of each year during the 
 two years 1888-90. 
 
 First Nine Months of 
 
 Number of 
 Failures. 
 
 Amount of 
 Liabilities. 
 
 1890 
 
 7581 
 
 7879 
 
 $100,771,820 
 105,055,898 
 
 1889 
 
 
 From these figures it is evident that the proportion of 
 casualties during the first three-quarters of 1890 was less, 
 although the strain was greater than during the previous 
 year. The latter quarter of 1890 was, of course, marked 
 by exceptional conditions, and the number of failures 
 as compared with previous years was greatly increased. 
 It was due to the solid position of our industries, however, 
 that the financial breakdown in the latter part of the year 
 was not more widespread and disastrous. At the same 
 time, the fact that the industrial and business collapse had 
 not been more extended furnished hope that the country 
 would not be long in recovering from the effect of the 
 panic. 
 
 Great Britain and Germany, however, continued their 
 process of liquidation, and the effect was keenly felt in the 
 United States. Temporary respite from the stringent 
 condition of the money market was obtained during the 
 early part of December, 1890, by the importation of 
 $5,000,000 in gold from abroad. During the first half of the 
 year 1891 the money market was also much easier, and 
 there was never any recurrence of the extraordinary rates 
 for call loans which had prevailed during the preceding 
 six months. American securities, however, continued to 
 be returned by Great Britain. Although Great Britain
 
 78 THE CAUSES OF THE PANIC OF 1893 
 
 and Germany were recovering from the effects of the 
 Baring panic, confidence in foreign investments had not 
 returned. Consequently there was no demand from 
 abroad for American securities, but on the contrary a 
 constant effort to get rid of them. Imports of merchandise 
 into the United States were also heavy during the first 
 half of 1891, owing to the fact that some of the schedules of 
 the McKinley Law, such as the duties on tinplate, did not 
 go into effect until the middle of the year. Because of the 
 small crops of 1890 and the lessened European demand, 
 the exports of agricultural products from the United 
 States were not sufficient to offset these two tendencies in 
 the international trade situation. The result was an out- 
 flow of gold from the United States which lasted from 
 February to late in the month of July, 1891.^ There was 
 also depression in business and industry, and the decline 
 in stock values continued until a very low level was reached. 
 During the first half of 1891 there were, in short, no indi- 
 cations of relief in the United States from the indirect 
 but evil effects which had grown out of the Argentine 
 collapse and the Baring failure. 
 
 * The net total of gold exported during these months was $72,786,666.
 
 CHAPTER VI 
 
 BECOVERY FROM THE PANIC OF 1890 AND FINANCIAL 
 CONDITIONS IN THE UNITED STATES, 1891-93 
 
 The Extraordinary Grain Crop of 1891 in the United States. — Heavy Exports 
 of Grain from the United States in the Face of a European Harvest Shortage. 
 
 — Imports of Gold and Recovery from the Previous Financial Depression. 
 
 — Appropriations of the Fifty- First Congress. — Increase in Circulation of 
 the Country through Government Extravagance and Issue of Treasury 
 Notes. — Increase in Legal-Tender Holdings of New York Banks. — Legal- 
 Tender Notes used in the Payment of New York Clearing-House Balances. — 
 Increased Percentage of Legal-Tender Notes used in the Payment of Customs 
 Duties. — The Payment of Government Balances at the New York Clearing- 
 House in Greenbacks and Treasury Notes. — Withdrawal of Foreign Capital 
 and Exports of Gold from the Country. — Presentment of Greenbacks and 
 Treasury Notes at the Treasury for Redemption. — Decline of the Treasury 
 Gold Reserve below the Statutory Minimum, and the General Distrust over 
 the Currency Situation. 
 
 After the first of August, 1891, a fortunate turn in the 
 international grain situation brought about a radical 
 change in the depressed conditions which had prevailed 
 in the United States during the preceding nine months. 
 The wheat crop of 1891 in the United States was the larg- 
 est up to that time which had ever been growTi. The re- 
 turns show^ed a yield of 611,780,000 bushels in 1891 against 
 399,262,000 bushels in 1890. The same remarkable in- 
 crease was also true of the corn and oats crop. Moreover, 
 the cotton crop in 1891 was unprecedented.^ The most 
 significant feature in the situation, however, lay in the 
 fact that this extraordinary increase in the production of 
 cotton and cereals in the United States was coincident with 
 a shortage in European harvests. The Russian wheat 
 
 1 The yield of corn in the United States in 1891 was 2,009,154,000 
 bushels against 1,489,970,000 bushels in 1890; the vield of oats in 1891 
 was 738,394,000 bushels against 523,621,000 bushels^n 1890. The cotton 
 crop in 1891 was 9,038,707 bales against 8,655,618 bales in 1890, and 
 7,313,726 bales in 1889.
 
 80 THE CAUSES OF THE PANIC OF 1893 
 
 crop, which, next to that of the United States, was most 
 largely depended upon by European consumers, was al- 
 most a total failure. The grain shortage in France was one 
 of the most serious in the history of the country. The 
 Russian Government issued a ukase against the export of 
 rye on August 10, and another against the export of wheat 
 on November 21. A decree removing the import duty on 
 wheat was also promulgated in France. The market for 
 American grain was therefore broad and eager. On ac- 
 count of the small crops of the two years 1889 and 1890 the 
 European demand for American cereals quickly developed 
 and the pressure of export grain from the United States 
 during the autumn of 1891 was very great. The export 
 of breadstuffs almost equaled the enormous outward 
 trade during the year 1879-80 following the resumption 
 of specie payments.* 
 
 Under these conditions, a radical change in the inter- 
 national trade situation quickly developed. Exports of 
 gold ceased in July. Although imports of merchandise 
 into the United States increased, the trade balance during 
 August turned sharply in favor of this country. From that 
 time until the end of the year the net importation of gold 
 amounted to about $37,500,000.2 ^j^j^ ^.j^jg [^^^^ of gold 
 into the country, the bank reserves became ample and 
 the money market easy. As a matter of fact, the absence 
 of the usual stringency in the New York money market 
 during the closing months of the year was quite notable, 
 call loans ranging in December from 2 to 4 per cent. 
 Improvement in the prices of stocks and bonds also began 
 early in August, and except for a downward turn in the 
 months of October and November, there was a steady 
 gain in values. Quotations stood at a much higher point 
 at the closing of the year than at the opening. Great 
 
 * Sfafistical Absirad of the United States, 1903, p. 337, Department 
 of Commerce and Labor, Washington. 
 
 ^ Report of the Secretary of the Treasury, 1892, p. 258.
 
 CONDITIONS IN UNITED STATES — 1891-93 81 
 
 Britain, owing to the disclosures which had followed the 
 Baring liquidation, had not recovered full confidence in 
 foreign securities, and the new capital commitments in 
 London were small in comparison with previous years. 
 At the same time, conditions were so improved in the 
 United Kingdom that it was no longer necessary to recall 
 British capital invested in America.^ On the contrary, 
 Great Britain was a purchaser of American securities 
 during August and September, 1891, and during the 
 month of December there was a marked advance in 
 American railroad issues on the London Stock Exchange.^ 
 While the heavy exports of grain did not affect very 
 sharply the interior trade situation in the United States, 
 beyond adding to the transportation business, the pros- 
 pects of increased activity and better prices were very 
 bright. The iron and steel trade also showed signs of 
 expansion as early as August, and in the latter part of 
 the year more furnaces went into blast and the demand 
 for iron and steel products constantly grew larger.^ On 
 all sides there were indications of a revival, and of a com- 
 plete recovery from the previous financial depression. 
 The extraordinary American grain crop, in brief, in the 
 face of an extensive European demand, furnished an 
 unprecedented basis for a healthy industrial and trade 
 expansion, and, if the finances of the United States had 
 been in a sound condition, the country would have probably- 
 entered upon a period of unsurpassed prosperity. As it 
 w^as, however, the natural economic development of the 
 country at this time was checked, and finally subverted,]' 
 by the evil effects of the previous silver legislation and the 
 general fiscal policy of the Harrison Administration. 
 It was pointed out in a previous chapter that the Har- 
 
 * " Commercial History and Review of 1891," Annual Supplement to 
 The Economist (London), vol. 50. 
 
 ^ The Economist (London), vol. 49 (December 26, 1891). p. 1651. 
 
 ^ "The Financial Review of 1891," Annual Supplement to The Com- 
 mercial and Financial Chronicle, p. 1.
 
 82 THE CAUSES OF THE PANIC OF 1893 
 
 rison Administration, when it assumed control of the Gov- 
 ernment, in 1889, adopted a twofold policy for the purpose 
 of getting rid of the surplus revenue which during the years 
 preceding 1890 had been a marked feature of the fiscal 
 situation.* On the one hand, the McKinley Bill was so 
 framed as to eliminate some of the most productive 
 sources of public revenue, such as the receipts from duties 
 on sugar.^ On the other hand, Congress was encouraged 
 to enter upon a course of increased expenditures. The 
 Fiftieth Congress, as already seen, was not slow in putting 
 the latter part of this policy into operation, and had 
 greatly increased the annual appropriations of the Gov- 
 ernment. But its successor, the Fifty-First Congress, 
 which held its sessions during the two years 1891 and 
 1892, went even further in the way of Government extrava- 
 gance. During its first session it raised the annual outlay 
 for pensions over $16,000,000, and during its second ses- 
 sion added a further increase of more than $46,000,000. 
 It ran up appropriations for rivers and harbors almost 
 $6,000,000. It also authorized about $3,000,000 additional 
 for forts and fortifications. Similar increases were made 
 in the provisions for the various permanent departments 
 of the Government. Every committee seemed to make its 
 calculations with the idea that there was an unlimited 
 fund upon which to draw. The total budget for the year 
 1891 was more than 69 million dollars larger than that for 
 1890; and the total outlay for 1892 was 36 million dollars 
 greater than that for 1891. The combined appropriations 
 of the Fifty-First exceeded those of its predecessors by 
 more than 148 millions.^ 
 
 This extravagant policy soon had the desired result. 
 Under its operation the surplus revenue was not only 
 
 * See p. 14. 
 
 ^ It provided also for the payment of a bounty to producers of 
 domestic sugar. 
 
 ^ An itemized statement of the appropriations of Congress during the 
 period 1890-93 is to be had in the Report of the Secretary of the Treas- 
 ury, 1893, p. cxvi.
 
 CONDITIONS IN UNITED STATES— 1891-93 83 
 
 wiped out, but the Treasury was even threatened with a 
 deficit. As early as April, 1891, the Treasury was forced 
 to suspend the redemption of the public debt, except such 
 an amount as was necessary to meet the sinking fund 
 requirement.^ Moreover, all the demands upon the Treas- 
 ury which were not compulsory were refused. Despite 
 . these and similar expedients, however, there was a Treas- 
 ury deficit of more than $1,000,000 during the fourth 
 quarter of the fiscal year 1891.^ Larger deficits occurred 
 during the second and fourth quarters of 1892.^ Fortu- 
 nately, in each of these cases an expansion of revenues 
 during the other periods of the year prevented an annual 
 deficit in Government receipts as compared with expend- 
 itures. 
 
 But not only the extravagance of Congress caused a 
 serious diminution in Government resources. The in- 
 creased disbursements of the Government, by dissipating 
 the surplus revenue which would have otherwise accu- 
 mulated in the Treasury, also added largely to the amount 
 of money in circulation. At the same time a steady stream 
 of Treasury notes, through the operation of the Sherman 
 Act of 1890, was being poured into the circulation of the 
 country. This law, as already seen, authorized the pur- 
 chase of 4,500,000 ounces of silver each month, to be 
 paid for in legal-tender Treasury notes, and was practically 
 equivalent to guaranteeing an increase in the circulating 
 medium of something like $50,000,000 annually.^ Alto- 
 gether, as a result of the silver issues of the Treasur\% and 
 of the increased expenditures of the Government, the money 
 in circulation in the United States during the eighteen 
 months ending December 31, 1891, had been increased to 
 the extent of $172,276,526. Within the last six months 
 
 * Report of fhe Secretary of the Treasury, 1891, p. xxvi. 
 2 Ihid., p. 233. ^ Ibid., 1892, p. 30. 
 
 * At the end of the fiscal year 1891 there were oiitstiuidiiif!; $50,228,417 
 of Treasury notes of 1890. At tlie end of the fiscal year 1892 this 
 amount had been increased to $100,863,230. — Report of tJic Secretary 
 of the Treasury, 1892, p. 61.
 
 84 THE CAUSES OF THE PANIC OF 1893 
 
 of this period, — between July 1, 1891, and January 1, 
 1892, — the circulating medium of the country under- 
 went an expansion of $104,207,636.* 
 
 If the forms of money which were thus used to increase 
 the circulation had been of a sound character, or if the 
 state of business and trade — the increase of small cash 
 transactions — had been such as to demand more money, 
 there would have been no serious significance attached 
 to this extraordinary expansion of the circulating medium 
 of the country. As it was, however, the difficulty pre- 
 viously experienced by the Treasury officials, even dur- 
 ing the exceptionally prosperous period 1886-90, in main- 
 taining in circulation the silver certificates authorized by 
 the Act of 1878, pointed to the fact that any arbitrary 
 increase in the currency, such as the automatic issue of 
 $50,000,000 of Treasury notes each year, would be at- 
 tended with much hazard. 
 
 Unfortunately for the country, this inherent danger in 
 the operation of the Sherman Law soon made itself evident. 
 The business activity which attended the harvesting and 
 marketing of the enormous grain crop of 1891 absorbed 
 for a time the increased circulating medium of the country. 
 Owing to the urgent demand of the European market, 
 however, the movement of the season's crop and the ex- 
 port of grain was over at an earlier date than usual. With 
 the European buyers of grain thus satisfied, the harvest 
 trade contracted, and the Western banks at once found 
 their vaults full of idle currency. In November, 1891, 
 this currency began to move East in great quantities. The 
 supply of currency in New York immediately showed an 
 increase. The tendency of most serious import in con- 
 nection with the movement soon became apparent in the 
 rapid growth in the legal-tender holdings of the New York 
 banks. Prior to the passage of the Silver Law of 1890 their 
 legal-tender holdings had never exceeded the demands 
 • Report of the Secretary of the Treasury, 1892, p. 103.
 
 CONDITIONS IN UNITED STATES — 1891-93 85 
 
 of their customers. Beginning with the autumn of 1891, 
 however, each succeeding harvest season was followed by 
 the movement of an increased amount of greenbacks and 
 Treasury notes of 1890 from the interior to the East. This 
 tendency is apparent from the following table showing the 
 legal-tender holdings of the New York Clearing-House 
 banks from November, 1891, to June, 1893:^ 
 
 LEGAL-TENDER HOLDINGS OF NEW YORK CLEARING-HOUSE 
 BANKS, 1891-93 (OOO's omitted) 
 
 I'irst Week of 
 
 
 
 November, 
 
 1890, 
 
 $22,101 
 
 December, 
 
 1890, 
 
 23,963 
 
 January, 
 
 1891, 
 
 26,571 
 
 June, 
 
 1891, 
 
 6,687 
 
 January, 
 
 1892, 
 
 37,814 
 
 June, 
 
 1892, 
 
 55,159 
 
 August, 
 
 1892, 
 
 60,278 
 
 January, 
 
 1893, 
 
 46,157 
 
 June, 
 
 1893, 
 
 58,683 
 
 This accumulation of greenbacks and Treasury notes 
 of 1890 in the New York banks would ordinarily have had 
 no significance beyond the fact that the currency of the 
 country was greatly in excess of the needs of trade. Under 
 the operation of the silver legislation of 1890, however, the 
 situation was one of serious import. Bankers soon realized 
 that under the Sherman Law of 1890 there was no limit to 
 this increase in their legal-tender holdings. On the con- 
 trary, the limit of their gold reserves might be reached in 
 a single season. To protect their depositors, therefore, 
 they sought to retain their gold reserves and to get rid of 
 as large an amount of their legal-tender holdings as pos- 
 sible. The Treasury notes of 1890, as already seen, were 
 redeemable in gold and were available for all banking 
 purposes. Consequently they could not be excluded from 
 settlements at the New York Clearing-House, as had hap- 
 pened in the case of the silver certificates authorized by 
 
 ^ Compiled from Clearing-House Statements published in The Com- 
 mercial and Financial Chronicle.
 
 86 THE CAUSES OF THE PANIC OF 1893 
 
 the Act of 1878. The result was an increasing use of Treas- 
 ury notes and greenbacks in settlements between the 
 banks. In 1890 the legal-tender notes had been used in 
 the payment of only one per cent, of New York Clearing- 
 House balances. In 1891 thirty-five per cent, of the bal- 
 ances were paid in legal tenders. During the year 1892 
 the percentage of legal-tender payments had risen to fifty- 
 seven and a half. 
 
 The next step taken by the banks to reduce their sup- 
 plies of legal tenders was one which, as already pointed 
 out, was taken during the two years 1884 and 1885, 
 when the silver circulation under the Act of 1878 became 
 redundant. It consisted in working off on the Treasury 
 silver issues and greenbacks by way of the customs 
 revenue. During the first six months of 1890 about 
 ninety per cent, of the customs revenue at New York 
 was received in gold. During the subsequent two years 
 the percentage of payments in gold steadily decreased. 
 In June, 1891, gold coin and certificates formed only 
 about twelve per cent, of the total receipts ; in June, 
 1892, they were eight per cent.; in December, 1892, four 
 per cent.; and by the end of April, 1893, gold payments 
 practically ceased. Gold was thus gradually displaced in 
 the Government customs receipts by silver certificates, 
 Treasury notes of 1890, and greenbacks. As early as 
 June, 1891, forty-four per cent, of the customs duties at 
 New York were paid in greenbacks and twenty-nine per 
 cent, in Treasury notes. In June, 1892, forty-nine per 
 cent, of the customs revenues were received in Treasury 
 notes and twenty-six per cent, in greenbacks. During the 
 year 1892, as a whole, and the first quarter of 1893, about 
 seventy-five per cent, of the customs revenues came in the 
 shape of greenbacks and Treasury notes. From June, 
 1892, a constantly increasing percentage of payments was 
 also made with silver certificates.^ The percentage of the 
 * Report of the Secretary of the Treasury, 1893, p. 36.
 
 CONDITIONS IN UNITED STATES — 1891-93 87 
 
 various kinds of money used for customs payments at 
 New York is graphically exhibited in the following 
 chart : * 
 
 KINDS OF MONEY RECEIVED IN MONTHLY PAYMENTS 
 
 FOE CUSTOMS AT NEW YORK. BY PBECKNTAOES 
 
 jlTreaBury Notes and 
 3 UnitedStates Notes. 
 fGold Coin and 
 |.Gold Certificates, 
 
 Silver Coin and 
 Silvei^eitlficates. 
 
 The tendency of this flow of greenbacks, Treasury 
 notes, and silver certificates into the customs revenue was 
 to place the Treasury in the same embarrassing position 
 it had occupied during the two years 1884 and 1885, when 
 its receipts of gold were displaced by silver certificates, and 
 the maintenance of its gold reserve was endangered by 
 disbursements of gold to meet Government obligations. 
 But the Treasury notes of 1890, as already seen, were 
 entirely different from the silver certificates in that they 
 
 ^ This chart is a partial reproduction of Chart I of the Report of the 
 Indianapolis Monetary Commission.
 
 88 THE CAUSES OF THE PANIC OF 1893 
 
 were available for the payment of Clearing-House bal- 
 ances. Secretary Foster, therefore, when confronted with 
 a rapid shrinkage of gold receipts and the consequent 
 possibility of a fall in the Treasury gold reserve to the 
 danger-point, decided that the Government's own dis- 
 bursements should be stopped. Accordingly, during the 
 fiscal years 1891 and 1892 a constantly decreasing amount 
 of gold was paid into the New York Clearing-House in 
 settlement of balances against the New York Subtreasury. 
 After December, 1892, gold payments to the New York 
 Clearing-House were practically abandoned. On the other 
 hand, during the fiscal year 1891, $31,957,946 in Treas- 
 ury notes were used in the payment of Clearing-House 
 balances. In the fiscal year 1892 the amount of Treasury 
 notes used for this purpose was increased to $57,826,734. 
 A large volume of greenbacks during these two years was 
 also sent to the Clearing-House by the Government. From 
 June, 1892, to July, 1893, the settlement of Government 
 balances was almost exclusively effected in these two 
 forms of currency.^ 
 
 Gold was, therefore, hoarded both by the Government 
 and by the banks. At the same time, as already pointed 
 out, fresh supplies of gold for the Treasury were cut off 
 through the displacement of gold in the customs receipts 
 by Treasury notes, greenbacks, and silver certificates. 
 As a consequence, the net amount of gold in the Treasury 
 steadily declined (see Chart II, p. 93), and apprehension 
 began to be felt as to the ability of the Treasury to con- 
 tinue gold payments unless the existing drain upon its 
 reserves was stopped. This apprehension soon affected 
 foreigners who had funds invested in the United States. 
 The embarrassment in Great Britain following the Baring 
 disaster had disappeared by the autumn of 1891, as al- 
 ready seen, and the process of sending securities to the 
 United States to relieve Great Britain's financial neces- 
 ' Report of the Secretary of the Treasury (Finance), 1893, p. 40.
 
 CONDITIONS IN UNITED STATES — 1891-93 89 
 
 sities had long since ceased. But the currency situation 
 in the United States had been viewed with alarm by Brit- 
 ish investors as early as 1891.^ The continued agitation 
 of the silver question in Congress and the constant fear 
 that a free-coinage silver law would be passed, together 
 with the attitude of the United States in the Brussels 
 Monetary Conference of 1892, did not serve to lessen 
 but rather to increase their apprehensions. In its issue 
 of February 20, 1892, the "London Economist," in dis- 
 cussing Richard P. Bland's report on a free-coinage meas- 
 ure, made the following comment on the condition of the 
 currency in the United States : ^ 
 
 "The constant agitation on the question [free coinage of sil- 
 ver], however, is proving injurious to the States. It frightens 
 away capital, checks enterprise, and paralyses industry. And 
 now that the Silver party have openly adopted the repudiation 
 of gold contracts as the chief plank in their platform, its deaden- 
 ing and depressing influence may be expected to become still 
 more pronounced." 
 
 Four months later "The Economist" gave expression 
 to the increasing apprehension in Great Britain relative 
 to the currency situation in this country. In its issue of 
 July 9, 1892, it said:^ 
 
 "It is very evident that if the Treasury continues to lose gold, 
 and at the same time piles up liabilities payable in gold on de- 
 mand, as it has been doing since the Act of 1890 was passed, it 
 is likely before very long to become involved in serious difficul- 
 ties. ^Its reserve is approaching the 'apprehension point,' the 
 point, that is, at which people will begin to fear that its stock of 
 gold will not be sufficient to meet the demands that may be made 
 upon it, and will be disposed to make a rush to convert their 
 notes, lest, if they delay, conversion will be impossible. Already 
 
 ^ " United States Currency and Finance," The Economist (London), 
 vol. 49 (December 26, 1891), p. 1648. 
 
 ^ " The Report of the United States Coinage Committee," The Econo- 
 mist (London), vol. 50 (February 20, 1892), p. 244. 
 
 ^ "United States Currency and Finance," The Economist (London), 
 vol. 50, p. 887.
 
 90 
 
 THE CAUSES OF THE PANIC OF 1893 
 
 there is a good deal of nervousness, as is shown by the sensitive- 
 ness of the American stock markets to the continued efflux of 
 gold to this side. . . . The States thus appear to be drifting 
 into grave monetary trouble." 
 
 Consequently, when gold was hoarded by the United 
 States Government and the New York banks, and when 
 the tendency toward an embarrassment of the Treasury 
 became more and more pronounced, British and other 
 foreign investors in American securities hastened to get 
 rid of their holdings before a very general distrust and 
 large sales would cause a fall in prices. The excess of 
 merchandise exports from the United States over imports 
 during the fiscal year 1892 was $202,000,000 in round 
 numbers, and yet no gold was sent back in payment. 
 Payments were made by the return of American securi- 
 ties. Moreover, there was an excess of exports over im- 
 ports of gold during 1892, which showed that even the 
 remarkable credits in merchandise which we had accu- 
 mulated abroad were not sufficient to offset the withdrawal 
 of funds from the United States by foreign investors. 
 The United States was not only asked to settle its in- 
 debtedness abroad, but foreign creditors also refused to 
 make any further commitments of capital in this country. 
 Under the pressure of these conditions, the drain of gold 
 from the country during subsequent years constantly in- 
 creased. The exportation and importation of gold and 
 the net exportation during the three fiscal years 1891-93 
 was as follows: 
 
 IMPORTS INTO AND EXPORTS OF GOLD FROM THE UNITED 
 STATES, 1891-93. 
 
 Year ending June 30. 
 
 Imports. 
 
 Exports. 
 
 Excess of 
 
 Exports over 
 
 Imports. 
 
 1891 
 
 $18,232,567 
 49,699,454 
 21,174,381 
 
 $86,362,654 
 
 50,195,327 
 
 108,680,844 
 
 $68,130,087 
 
 1892 
 
 495,873 
 
 1893 
 
 87,506,463 
 

 
 CONDITIONS IN UNITED STATES — 1891-93 91 
 
 Up to the end of the fiscal year 1892, gold for export 
 from the United States had been provided by drawing 
 through the New York Clearing-House upon the gold 
 reserves of the associated banks of that city. But, as al- 
 ready seen,* this situation had been changed through the 
 operation of the Silver Law of 1890 in causing balances to 
 be settled at the New York Clearing-House in legal-tender 
 notes. Subsequent to June, 1892, the check which a ster- 
 ling banker received for his bill of exchange in London, 
 after passing through the Clearing-House, was met in 
 legal-tender notes. These notes could not be used in New 
 York by the sterling bankers to pay their drafts on Lon- 
 don, and the banks with which they carried deposits were 
 unable to provide the necessary gold out of their own 
 reserves. As a consequence, there were only two ways 
 available to secure gold. In the first place, the necessary 
 amount might be secured by offering a premium. Such 
 action, however, would have constituted an assault upon 
 the public credit, and an open acknowledgment of the 
 depreciation of the currency of the country. On the other 
 hand, greenbacks or Treasury notes might be carried to 
 the Treasury and gold secured through their redemption. 
 It was for this purpose — to protect the currency of the 
 country from depreciation — that the Treasury gold 
 reserve had been provided. Bankers, therefore, who 
 needed gold for export, brought greenbacks to the Treas- 
 ury to be redeemed. 
 
 During the previous history of the Treasury but a very 
 small amount of legal-tender notes had been thus pre- 
 sented for redemption. The amount redeemed during 
 the thirteen years 1879-91 had been only $34,000,000.2 
 But the expedient of withdrawing small greenbacks and 
 substituting greenbacks of large denomination adopted 
 by the Treasury officials in 1886, in order to make room 
 
 1 See p. 88. 
 
 ^ Report of the Secretary of the Treasury (Finance), 1893, p. 13.
 
 92 THE CAUSES OF THE PANIC OF 1893 
 
 for silver certificates in the circulation, had resulted, as 
 already pointed out,^ in placing the greenbacks of large 
 denomination in the reserves of the banks, where they 
 were readily available to draw gold from the Treasury, 
 in the event of an emergency such as confronted the coun- 
 try during 1892. The Treasury notes of 1890 were also 
 redeemable in gold, and, having through the redundancy 
 of the currency accumulated in the bank reserves, might 
 be quickly used in making demands on the Treasury. 
 With the means thus at hand, rapid inroads were made 
 upon the Treasury's stock of gold. The heavy exports of 
 gold from the country during the latter half of 1892 and 
 the early part of 1893 were almost wholly drawn from the 
 Treasury by the presentment of Treasury notes and green- 
 backs. The amount of notes redeemed during the three 
 fiscal years 1891-93, and the connection between the re- 
 demption of legal-tender notes and the flow of gold from 
 the country, is shown in the following table : 
 
 REDEMPTION OF GREENBACKS AND TREASURY NOTES AND 
 EXPORTS OF GOLD, 1891-93. 
 
 Fiscal 
 Year. 
 
 Greenbacks 
 redeemed. 
 
 Treasury Notes 
 redeemed. 
 
 Total 
 Redemptions. 
 
 Exports of 
 Gold. 
 
 1891 .... 
 
 1892 .... 
 
 1893 .... 
 
 $5,986,070 
 
 5,352,243 
 
 55,319,125 
 
 $3,773,600 
 46,781,220 
 
 $5,986,070 
 
 9,125,843 
 
 102,100,345 
 
 $86,362,654 
 
 50,195,327 
 
 108,680,844 
 
 This drain upon the Treasury gold reserve through the 
 redemption of greenbacks and Treasury notes brought 
 the existing apprehension as to the maintenance of gold 
 payments to a disastrous climax. It has already been 
 shown how the silver law of 1890 brought about a re- 
 dundancy of the currency, and an accumulation of legal 
 tenders in the New York banks as early as 1891. As a 
 » See p. 23.
 
 CONDITIONS IN UNITED STATES — 1891-93 
 
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 •SJ'BHOCI JO ffnomij^
 
 94 THE CAUSES OF THE PANIC OF 1893 
 
 result of this accumulation of legal-tender notes, as also 
 pointed out, a constantly increasing percentage of the 
 customs revenues, after the marketing of the grain crop 
 of 1891, was received in greenbacks and Treasury notes. 
 The inflow of gold to replenish the Treasury surplus was 
 thus greatly curtailed. At the same time it was found that 
 the outflow of gold from the Treasury was rapidly in- 
 creased by the extravagant appropriations of the Fiftieth 
 and Fifty-first Congresses.^ To this alarming situation 
 was now added the drain upon the gold reserves caused 
 by the direct redemption of Treasury notes and green- 
 backs. The Treasury gold reserve in short was being dis- 
 sipated by Government expenditures and the redemption 
 of legal-tender notes, while additional supplies of gold 
 were being cut off through the displacement of gold in 
 the customs receipts by the greenbacks and silver currency. 
 As early as June, 1892, as will be seen in the accompany- 
 ing chart, the Treasury gold reserve had been reduced 
 to $114,231,883. In his report to Congress for that year 
 Secretary Foster declared that the redemption machinery 
 of the Government was in peril. ^ After this date the grow- 
 ing redundancy in the silver circulation caused by the 
 automatic issue of $50,000,000 Treasury notes annually 
 was attended by increased hoarding of gold by the banks, 
 heavier exports of gold from the country, and the present- 
 ment of a larger amount of legal-tender paper at the Treas- 
 ury for redemption. Under these influences, the gold 
 reserve was mq,intained with increasing difficulty and the 
 alarm over the Treasury situation became more pro- 
 nounced and widespread. By the close of January, 1893, 
 the gold reserve had declined to $108,181,713, a bare eight 
 million dollars more than the danger minimum of $100,- 
 000,000.^ Conditions had reached such a critical stage 
 
 ^ Reporf of the Secretary of the Treasury (Finance), 1893, p. cxxviii. 
 ^ Ibid., p. xxix. 
 3 Ibid., p. 75.
 
 CONDITIONS IN UNITED STATES — 1891-93 95 
 
 early in February that Secretary Foster gave orders to the 
 Bureau of Printing and Engraving to prepare plates for 
 a bond issue under the provisions of the Resumption Act. 
 About six or eight million dollars in gold, however, was 
 obtained early in February from the New York banks 
 in return for legal-tender notes, and with this assistance 
 the Treasury was kept afloat until the finances of the Gov- 
 ernment could be turned over to the incoming Cleveland 
 Administration. 
 
 When Secretary Foster turned over the control of the 
 Treasury to the Democratic Administration, the gold re- 
 serve was only $100,982,410, and the total of all other 
 kinds of money in the Treasury was scarcely $25,000,000.^ 
 By April 15, Secretary Carlisle was forced to issue an order 
 to suspend the further issue of gold certificates for gold 
 deposited in the Treasury as required in the Act of July 
 12, 1882, which stated that no more gold certificates should 
 be issued when the gold in the Treasury "reserved for 
 the redemption of United States notes falls below $100,- 
 000,000." On April 22, the gold reserve actually fell below 
 the $100,000,000 limit. Several days before this occurrence, 
 the feverish condition of the money market and the anxiety 
 over the currency situation were intensified by a rumor 
 that Secretary Carlisle intended to abandon the policy 
 of redeeming Treasury notes in gold. The Silver Law of 
 1890, as already cited, authorized the Secretary to "re- 
 deem such notes in gold or silver coins at his discretion." 
 Since the gold reserve had declined to the statutory mini- 
 mum, it was argued that Secretary Carlisle would tender 
 only silver coins for these notes and thus place the coun- 
 try upon a basis of silver payments. Secretary Carlisle, 
 on April 20, announced that he would pay gold for Treas- 
 ury notes so long as he had "gold lawfully available for 
 that purpose." This reply still left the matter in doubt. 
 Consequently it added to the existing alarm and caused 
 ^ Report of the Secretary of the Treasury (Finance), 1893, p. 75.
 
 96 THE CAUSES OF THE PANIC OF 1893 
 
 an increase in the gold exports from the country.* Two 
 days later, however, President Cleveland publicly declared 
 that both 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." But the uneasiness of the country, 
 which had been constantly increased by the undermining 
 of the Treasury, refused to be allayed. On the contrary, 
 it soon developed into a panic which was followed by wide- 
 spread disaster. 
 
 ^ The exports of gold from New York and Boston during this week 
 amounted to $8,000,000.
 
 CHAPTER VII 
 
 THE CRISIS OF 1893 
 
 The Collapse on the New York Stock Market. — Depression of Stock Values. 
 — Run of Depositors upon Interior Banks. — Withdrawal of Banking 
 Deposits from Eastern Reserve Centres, and the Resultant Deficiency in 
 New York Bank Reserves. — The Stringency in the Money Market. — De- 
 velopment of a Money Famine. — Issue of Clearing-House Certificates. — 
 Mercantile and Industrial Failures. — Bank Suspensions and Failures. — 
 Repeal of the Silver Purchase Clause of the Sherman Law and the Return 
 of Confidence. 
 
 The first evidence of the culmination of the long-felt 
 uncertainty as to the maintenance of gold payments came 
 in the shape of a collapse on the New York Stock Ex- 
 change . The same reasons which had led British and 
 European investors to distrust the currency situation in 
 the United States had already affected Americans. The 
 amount of new commitments of capital by American in- 
 vestors had been steadily decreasing since the passage of 
 the Sherman Law.^ After the beginning of the year 1893 
 this tendency assumed an aggravated form, manifesting 
 itself not only in a lessened activity in new undertakings, 
 but also in an endeavor to withdraw from old enterprises. 
 During the first five months of 1893, when the condi- 
 tion of the Treasury grew worse week by week, and the 
 change from a gold to a silver basis of payments became 
 more and more probable, investors became exceedingly 
 anxious to dispose of their holdings of securities before 
 the critical moment arrived. In the very nature of things 
 they desired to realize on their investments before the gold 
 standard of payments was abandoned. As this distrust 
 of the currency developed and the efforts to realize were 
 » See p. 106.
 
 98 THE CAUSES OF THE PANIC OF 1893 
 
 stimulated, there was a steady fall in stock quotations. 
 The climax was reached immediately after the decline, on 
 April 22, 1893, of the gold reserve below the danger-limit 
 of $100,000,000. After that date the attempt on the part 
 of investors to liquidate in the face of the general dis- 
 trust of the Treasury situation was followed during the 
 first week of May by a panic and a sharp fall in values on 
 the New York Stock Exchange.^ The rush of investors 
 to sell their holdings affected adversely all classes of se- 
 curities. Several brokerage firms were unable to protect 
 themselves and were forced to suspend payments. The 
 extent of the panic was also increased by the discovery 
 that the stock speculation which had prevailed during the 
 early months of the year had been stimulated by many 
 questionable financial practices.^ The depression in stock 
 values which began under these conditions was increased 
 by further developments in the currency situation, and in 
 most cases continued until the end of the year. The extent 
 of the decline in prices is apparent from the accompany- 
 ing table (page 99), showing the opening, closing, and 
 lowest quotations during 1893 of a few leading stocks at 
 the New York Stock Exchange.^ 
 
 This breakdown on the stock market was the begin- 
 ning of widespread financial disaster. As a matter of fact 
 it furnished an occasion for the outbreak of the general 
 distrust of the currency situation which had been gaining 
 strength since the beginning of the yeari The discredit 
 of the currency, or the fear as to the fixity of the gold stand- 
 ard of payments, assumed outwardly the shape of a loss 
 of confidence in banks and financial institutions. Bark 
 depositors realized that in the event of the general liqui- 
 
 * Annual Supplement to The Commercial and Financial Chronicle, 
 1894, Financial Review of 1893, pp. 8, 9. 
 
 ^ This was especially true in the case of the National Cordage Com- 
 pany, the stock of which had been foisted upon the public through the 
 manipulation of dividends by its directors. 
 
 ^ Annual Supplement to The Commercial and Financial Chronicle, 
 1894, Financial Review of 1893, p. 7.
 
 THE CRISIS OF 1893 99 
 
 RANGE OF LEADING STOCKS IN 1893. 
 
 Opening. 
 
 Lowest. 
 
 Closing. 
 
 Railroads. 
 
 Baltimore and Ohio 
 
 New York Central and Hudson 
 
 Pennsylvania 
 
 Atchison, Top. and Santa Fe .. . 
 
 Chicago, Mil. and St. Paul 
 
 Illinois Central 
 
 Northern Pacific (pref.) 
 
 Union Pacific 
 
 Chesapeake and Ohio 
 
 Louisville and Nashville 
 
 Miscellaneous. 
 
 American Sugar 
 
 American Tobacco Co 
 
 National Cordage 
 
 Pacific Mail Steamship 
 
 United States Rubber Co 
 
 Western Union Telegraph Co. . . 
 
 94 
 
 109 
 
 54 
 
 34 
 
 77 
 99 
 47 
 39 
 
 22 
 
 72 
 
 111 
 121 
 138 
 
 27 
 46 
 96 
 
 54 July 27 
 92 July 26 
 46 Dec. 18 
 9 Dec. 30 
 46 July 26 
 86 July 18 
 15 Aug. 16 
 15 July 26 
 12 July 26 
 39 Dec. 28 
 
 61 July 26 
 43 July 31 
 
 7 Aug. 25 
 
 8 July 27 
 17 Aug. 17 
 67 July 26 
 
 67 
 98 
 48 
 10 
 56 
 89 
 18 
 18 
 16 
 44 
 
 81 
 70 
 
 20 
 14 
 
 42 
 82 
 
 dation of credit obligations which had been presaged by 
 the panic in the stock market, financial institutions would 
 not be in a position quickly to convert their assets into 
 gold, and, on account of their small gold reserves, would 
 be unable to pay their obligations in gold. This feeling, 
 which was strong in the interior of the country and espe- 
 cially prevalent over a wide section of the West and South, 
 finally during the months of May and June led to a run 
 upon many Western banks. Moreover, the Government 
 and the banks were already hoarding gold, and it was but 
 a short step to the hoarding of gold and specie by indi- 
 viduals who feared that the country would be reduced to 
 a depreciated silver currency as a basis of payments. This 
 apprehension not only caused the hoarding of gold by 
 individuals, but also led depositors in their rush upon 
 interior banks to demand specie in payment of their 
 accounts. 
 
 Under the provisions of the National Banking Law, 
 banks in the interior of the country are required to main-
 
 100 THE CAUSES OF THE PANIC OF 1893 
 
 tain a cash reserve equal to fifteen per cent, of their de- 
 posits. Only two fifths of this reserve, however, must 
 necessarily be held in the vaults of the interior banks. 
 The remaining three fifths may be kept on deposit at 
 reserve banks in certain designated cities. Since the de- 
 mand for loans was usually light in Western sections of 
 the country, except in the harvest season, the bulk of the 
 country's bank reserves had come to be held by certain 
 Eastern reserve agents which usually paid two per cent, 
 interest for the use of the funds. This was especially true 
 during the years subsequent to 1890. Mention has already 
 been made of the flow of legal-tender notes from the West 
 to the East after the harvest of 1891, and of theh" accumu- 
 lation in the banks of New York. This movement was 
 symptomatic of the general tendency of idle Western funds 
 to move toward the East. During the two fiscal years 1891 
 and 1892 the deposit by Western banks of reserve funds 
 in the East increased one third. During the same period 
 Western deposits in New York City were doubled. At the 
 close of the year 1892 the deposits of interior banks in 
 Eastern centres amounted to $204,000,000. ^ All of this 
 immense amount was payable on demand. When the 
 run of depositors upon Western and other interior banks 
 began in May, these institutions, therefore, in order to 
 meet the pressing demands for cash, at once recalled their 
 reserves and other funds which they had on deposit in the 
 East. 
 
 The effect of this action upon the New York bank de- 
 posits and reserves at once became evident. During the 
 month of June about $33,000,000 of deposits were with- 
 drawn from the Clearing-House banks. The withdrawal 
 of cash to the interior steadily continued during the next 
 two months. The deposits of the Clearing-House banks, 
 which were $431,000,000 in round numbers on June 3, 
 
 * Noyes's Thirty Years of American Finance, p. 190. Report of the 
 Secretary of the Treasury, 1893 (Finance), pp. 431, 433.
 
 THE CRISIS OF 1893 
 
 101 
 
 had been reduced by August 29 to $370,000,000. As a 
 consequence of this strain, the reserves of the New York 
 Associated Banks fell below the statutory minimum of 
 twenty-five per cent, on July 8, and the deficiency thus 
 begun continued until September 9. The greatest deficit 
 was one of $16,545,375 on August 12. The movement 
 of funds to the interior of the country, and the resultant 
 decrease in the reserves and deposits of New York banks 
 from June to September, may be readily seen from the 
 following figures showing the deposits, reserves, and ratio 
 of reserves to deposits of the New York Clearing-House 
 banks : ^ 
 
 NEW YORK CLEARING HOUSE BANKS. DEPOSITS, RESERVES 
 AND RATIO OF RESERVES TO DEPOSITS, JUNE-SEPT., 1893. 
 
 (OOO's omitted.) 
 
 Week 
 ended 
 
 Deposits. 
 
 Specie. 
 
 Legal 
 Tenders. 
 
 Reserves to 
 Deposits. 
 Per Cent. 
 
 Surplus Reserve. 
 
 June 3 . . 
 
 $431,411 
 
 $70,156 
 
 $58,683 
 
 29.8 
 
 $20,987 
 
 10 .. 
 
 418,925 
 
 69,529 
 
 46,623 
 
 28.4 
 
 14,420 
 
 17 .. 
 
 406,536 
 
 68,218 
 
 42,192 
 
 27.1 
 
 8,776 
 
 24 .. 
 
 398,064 
 
 65,923 
 
 39,074 
 
 26.3 
 
 5,481 
 
 July 1 . . 
 
 397,979 
 
 62,988 
 
 37,758 
 
 25.3 
 
 1,251 
 
 8].. 
 
 398,679 
 
 61,703 
 
 32,884 
 
 23.7 
 
 5,082 deficit 
 
 15.. 
 
 394,174 
 
 62,268 
 
 32,005 
 
 23.9 
 
 4,269 deficit 
 
 22 .. 
 
 390,476 
 
 63,853 
 
 32,509 
 
 24.6 
 
 1,256 deficit 
 
 29.. 
 
 382,177 
 
 62,631 
 
 28,610 
 
 23.8 
 
 4,301 deficit 
 
 Aug. 5 . . 
 
 372,640 
 
 55,884 
 
 23,265 
 
 21.2 
 
 14,017 deficit 
 
 12.. 
 
 372,203 
 
 53,624 
 
 22,880 
 
 20.5 
 
 16,545 deficit 
 
 19 .. 
 
 370,302 
 
 58,352 
 
 22,177 
 
 21.7 
 
 12,045 deficit 
 
 26 .. 
 
 370,479 
 
 62,930 
 
 22,951 
 
 23.1 
 
 6,736 deficit 
 
 Sept. 2.. 
 
 374,010 
 
 66,960 
 
 25,074 
 
 24.5 
 
 1,567 deficit 
 
 The rapid withdrawal of specie and currency from New 
 York, as shown above, and from other Eastern money 
 centres, by banks in the West and South, was of course 
 followed by a large diminution of the money supply of 
 New York and other Eastern cities. The existing supply 
 
 * Annual Supplement, The Commercial and Financial Chronicle, p. 23, 
 Financial Review, 1894.
 
 102 THE CAUSES OF THE PANIC OF 1893 
 
 was further depleted by the general withdrawal of savings 
 and deposits from financial institutions, on account of the 
 fear that silver and notes redeemable in silver would fall 
 much below gold values. At the same time the curtail- 
 ment of bank loans, the general rush to liquidate all forms 
 of obligations, and the necessity for funds to provide new 
 margins for holdings of securities, created an unusual and 
 intense demand for legal money of all kinds. There was, 
 in short, a remarkable shrinkage in the Eastern money 
 supply in the face of an intense demand for money, and 
 the logical result of the situation was an extraordinary 
 increase in the rates on call loans and commercial paper. 
 During the latter part of June the rates for call loans in 
 New York ranged as high as seventy-four per cent. On 
 July 28 the rate was seventy- two per cent., and on August 
 4 fifty-one per cent, was demanded. During these same 
 months the rates on first-class commercial paper ranged 
 from eight to twelve per cent. These high quotations were 
 practically nominal, however, for the reason that only a 
 very small amount of funds could be secured even at these 
 unusual rates of interest. The extraordinary stringency 
 in the New York money market from the close of June 
 to the beginning of September is at once apparent from 
 a glance at the accompanying table, on the next page, 
 which shows the weekly quotations for call loans and 
 commercial paper during this period.^ 
 
 On account of the constantly growing demand for money 
 from far and near, the hoarding of money by individuals, 
 and the universal desire to convert goods, securities, and 
 all descriptions of obligations into gold because of the fear 
 of a reversion to a silver standard of payments, the tight- 
 ness in the money market finally developed into a money- 
 famine. Time-loans were scarcely obtainable. Many city 
 banks adopted the extreme measure of refusing to cash 
 
 * Annual Supplement, The Commercial and Financial Chronicle, p. 35, 
 Financial Review, 1894.
 
 THE CRISIS OF 1893 
 
 103 
 
 RATES FOR CALL LOANS AND COMMERCIAL PAPER AT NEW YORK 
 JUNE-SEPTEMBER, 1893. 
 
 Week ending Friday, 
 
 June 2 
 
 9 
 
 16 
 
 23 
 
 30 
 
 July 7 
 14 
 21 
 28 
 
 Aug. 4 
 11 
 18 
 25 
 
 Sept. 1 
 
 Call Loans. 
 
 2 to 5 
 
 2 to 12 
 
 4 to 25 
 
 to 25 
 
 to 74 
 
 to 25 
 
 to 20 
 
 to 11 
 
 2 to 72 
 
 2 to 51 
 
 2 to 6 
 
 2 to 6 
 
 3 to 7 
 2 to 6 
 
 Prime Paper. 
 
 6 to 9 
 
 6 to 7 
 6| to 8 
 
 7 to 15 
 
 8 to 12 
 8 to 12 
 8 to 12 
 8 to 12 
 8 to 12 
 8 to 12 
 8 to 12 
 to 12 
 to 15 
 2 to 18 
 
 the checks of their own depositors, except in cases where 
 it could be shown that the money was absolutely necessary 
 for personal and business uses. Finally, during the early 
 part of August, a premium was offered for gold, silver, 
 notes, or currency of any kind, and various kinds of media 
 of exchange were devised and used by business and in- 
 dustrial concerns in the payment of wages and other trans- 
 actions.^ Despite these expedients, however, the premium 
 on money lasted throughout the month of August, varying 
 from one to five per cent, without regard to the kind of 
 money obtained. Under the pressure to get anything with 
 which to settle the next day's obligation, gold, silver, and 
 paper were all eagerly accepted and rose to the same 
 premium.^ 
 
 In addition to the device of offering a premium for 
 money, three other plans were adopted for relieving the 
 currency famine. In the first place, national banks de- 
 
 ^ "The Currency Famine of 1893," John De Witt Warner, Sound 
 Currency, vol. ii, no. 6 (February 15, 1895), p. 339. 
 
 ^ This was a curious pliase of a money stringency which had been 
 caused by the distrust of a silver currency, but, as a matter of fact, it 
 was only an incident of the existing situation and showed no confidence 
 in silver.
 
 104 THE CAUSES OF THE PANIC OF 1893 
 
 posited United States bonds with the Comptroller of the 
 Currency, and thus increased their note circulation. In 
 the second place, Clearing-House certificates were issued in 
 large amounts. Finally, Clearing-House certificates were 
 used by a combination of New York bankers as a credit 
 to facilitate the importation of gold from abroad. From 
 these three sources the amount of available currency 
 during the two months of July and August was increased 
 to the extent of $128,831,276, divided as follows: ^ 
 
 Clearing-House certificates, in four Atlantic cities ^ . . . . $62,165,000 
 
 Imports of gold into the United States 46,398,930 
 
 Increase in national bank circulation 20,267,346 
 
 Total increase in two months $128,831,276 
 
 Clearing-House certificates were first issued freely in 
 New York City on June 21, in an attempt to break down 
 the extraordinary rates for loans. Similar issues had 
 already been made in Philadelphia as early as June 16, 
 and during the latter part of August and the beginning 
 of September, Boston, Baltimore, and Pittsburg followed 
 suit. The extent of the movement and the amount of 
 loan certificates issued in the cities named are indicated 
 in the following table : ^ 
 
 City. 
 
 Date of Issue of 
 First Certificate. 
 
 Date of Largest Amount 
 Outstanding. 
 
 Largest 
 
 Amount 
 
 Outstanding. 
 
 New York .... 
 Philadelphia . . 
 
 Boston 
 
 Baltimore 
 
 Pittsburg 
 
 June 21 
 June 16 
 June 27 
 June 27 
 Aug. 11 
 
 Aug. 29 to Sept. 6 
 Aug. 15 
 
 Aug. 23 to Sept. 1 
 Aug. 24 to Sept. 9 
 Sept. 15 
 
 $38,280,000 
 
 10,965,000 
 
 11,445,000 
 
 1,475,000 
 
 987,000 
 
 Total $63,152,000 
 
 ' Annual Supplement, The Commercial and Financial Chronicle, p. 31, 
 Financial Review, 1894. 
 
 2 This total does not include the $987,000 in loan certificates issued 
 by the Pittsburg banks as shown in a subsequent table. 
 
 ' Treasury Report, 1893, p. 358. 
 
 The issue of Clearing-House certificates greatly exceeded that of pre- 
 vious years. In 1873 the New York Clearing-House Association issued
 
 THE CRISIS OF 1893 
 
 105 
 
 These efiforts on the part of the banks to provide cur- 
 rency and other means of payments tended to mitigate 
 the severity of the crisis and to assist many business and 
 industrial concerns which were in dire straits. They were 
 not powerful enough, however, to prevent extensive 
 financial and industrial losses. 
 
 The depression in stock values has already been re- 
 viewed.* On the other hand the mercantile and indus- 
 trial failures throughout the year were phenomenal. 
 The aggregate liabilities of mercantile and industrial 
 establishments which failed in 1893 were three times as 
 great as the liabilities embraced in the failures of 1891, 
 and almost twice as great as those of the panic year 
 1890. The total number of failures during 1893, and the 
 liabilities involved, exclusive of railroads and banks, is 
 given below. ^ For purposes of comparison the returns 
 for 1892 are also added: 
 
 MERCANTILE AND INDUSTRIAL FAILURES, 1892-93. 
 
 • 
 
 First 
 Quarter. 
 
 Second 
 Quarter. 
 
 Third 
 Quarter. 
 
 Fourth 
 Quarter. 
 
 Total. 
 
 1893. 
 
 Number . . . 
 Liabilities. . 
 1892. 
 
 Number . . . 
 Liabilities.. 
 
 3,202 
 47,338,300 
 
 3,-384 
 39,284,349 
 
 3,199 
 121,582,539 
 
 2,119 
 22,989,331 
 
 4,015 
 82,470,040 
 
 1,984 
 18,659,235 
 
 4,826 
 95,389,010 
 
 2,857 
 33,111,252 
 
 15,242 
 346,779,889 
 
 10.344 
 114,044,167 
 
 An examination of these figures reveals two interesting 
 facts relative to the disastrous conditions which prevailed 
 during 1893. In the first place they show that the mer- 
 cantile and industrial failures began to increase before 
 1893. The reason for this is plain. The distrust in for- 
 
 only $26,565,000, and the Philadelphia Clearing-House $6,785,000. In 
 1890, as already seen, the total issue of Clearing-House certificates by 
 New York, Philadelphia, and Boston banks was $29,140,000. 
 
 > See p. 99. 
 
 ^ Compiled from the Annual Supplement, The Commercial and Finan- 
 cial Chronicle, p. 17, Financial Review, 1894.
 
 106 THE CAUSES OF THE PANIC OF 1893 
 
 eign countries as to the American currency situation, as 
 already seen, had led to the withdrawal of foreign capital 
 invested in this country. At the same time further com- 
 mitments of capital were refused. Moreover, the distrust 
 in the ability of the Treasury to maintain gold payments 
 soon affected Americans as well as foreigners, and made 
 them exceedingly cautious in entering into new inter- 
 prises.^ The result was that industrial and trade activity 
 were curtailed on every side. Prices also declined and the 
 margin of profits gradually grew smaller. Under these 
 conditions, the weaker industrial and mercantile con- 
 cerns experienced difficulty in maintaining their solvency, 
 and as a consequence the amount of failures during the 
 last quarter of 1892 and the first quarter of 1893 showed 
 a decided increase. With the growth of distrust of the 
 currency situation and the resultant stringency in the 
 money market dyring the spring and summer of 1893, the 
 difficulty of conducting business was intensified, and only 
 the strongest corporations and mercantile houses were 
 able to continue operations. As it was, many of these were 
 forced to suspend, and the smaller establishments which 
 had been already weakened by the depressed conditions 
 prevailing during the previous year were forced to close 
 their doors. ^ 
 
 To these widespread merca ntile a nd industrial failures 
 during 1893 there was also added the col lapse of a number 
 of great railway c orporations, such as the Reading, the 
 Nort hern t^aciiic, the Uni on Pacific, the Atchison, Topeka 
 and^ante te, the Erie, and the New York and New Eng- 
 land - The most prominent feature of the crisis during the 
 summer of 1893, however, as well as the most distinctive 
 
 * This tendency was clearly apparent in the decline of new listings 
 of stocks and bonds on the New York Stock Exchange. New issues of 
 stocks and bonds were $23,000,000 less, in round numbers, in 1892 than 
 in 1891, and the listings for 1893 were $42,000,000 below the reduced 
 level for 1892. Annual Supplement, The Commercial and Financial 
 Chronicle p. 13, Financial Review, 1893. 
 
 2 Ibid., 1894, pp. 16-18, Crisis of 1893 and the Year's Failures.
 
 THE CRISIS OF 1893 
 
 107 
 
 and exceptional, was the numerous bank failures and 
 suspension s. During the five years preceding 189^5 there 
 'had been an annual average of about twelve national bank 
 failures. About forty-four banks each year also had gone 
 into voluntary liquidation. In comparison with these 
 figures, 158 national banks suspended, and 46 went into 
 voluntary liquidation, during the first nine months of 1893. 
 Of the national banks which suspended, three were located 
 in the IViiddle States, 38 in the South, 49 in the West, 
 and 66 in the Pacific States and territories.* Private 
 banks and financial institutions also came in for a propor- 
 tional share of disaster. The entire number and classes of 
 banks and financial establishments which suspended and 
 those which resumed, from January 1 to September 1, 
 1893, together with their assets and liabilities, is shown in 
 the following table, compiled by the Comptroller of the 
 Currency : ^ 
 
 BANKS, ETC., WHICH SUSPENDED. JAN. 1 TO SEPT. 1, 1893. 
 
 Class. 
 
 Number. 
 
 Assets. 
 
 Liabilities. 
 
 State Banks 
 
 172 
 
 47 
 
 13 
 
 6 
 
 177 
 
 $41,281,848 
 
 17,673,938 
 
 14,337,500 
 
 760,803 
 
 20,237,259 
 
 $36,903,266 
 
 Savings Banks 
 
 16,830,809 
 
 Loan and Trust Companies . . 
 
 Mortgage Companies 
 
 Private Banks 
 
 22,354,000 
 
 1,790,000 
 
 19,315,455 
 
 
 
 
 415 
 
 94,291,348 
 
 97,193,530 
 
 The financial and industrial chaos which was produced 
 by these unprecedented bank failures reigned throughout 
 
 ^ Treasury Report, 1893 {Report of Comptroller Eclrls), pp. 347-349. 
 
 The number of suspensions in the South and West was especially 
 great for the reason that the banks in those sections of the country had 
 extended their loans during the year 1892. When the run of depositors, 
 as already described, upon these institutions was started in J>ine, the 
 banks were not able to convert their assets into a liquid form and in many 
 cases the demands of depositors were so pressing that the banks were 
 compelled to close their doors at a time when their reserve deposits were 
 already on the way to them, having been sliipped from Eastern centres. 
 
 2 Treasury Report, 1893 {Report of Comptroller Eckels), p. 351.
 
 108 THE CAUSES OF THE PANIC OF 1893 
 
 the summer of 1893. The turning-point came during the 
 latter part of August. On the 30th of June PresiHent 
 Cleveland issued a call for Congress to meet i n extraordin - 
 ary session on th e Vth ot Augus t. Shortly after the con- 
 vening of Congress a bill repealing the silver p urchase 
 clause of the law of 1 890 was introduced in the House, and 
 after a sharp debate was passed, on August 28, by a major- 
 ity of 131 votes. Although the Senate delayed action until 
 October 30, when it finally passed the measure, the unex- 
 pected vote of the House restored confidence in the coun- 
 try's financial integrity, and marked the close of the most 
 acute period of the crisis. Contemporary evidence of this 
 fact was furnished by an authoritative financial journal 
 which made the following significant comment on the situa- 
 tion : ^ 
 
 "This [the vote of the House] was the turning-point of the 
 whole financial crisis of 1893; confidence was restored like 
 magic; money began to come back into the banks and kept on 
 accumulating, until on December 30 the surplus reserve of the 
 New York banks reached $80,115,150; the Clearing-House 
 certificates were drawn in gradually, and by November 1 all 
 were canceled. After the decisive vote in the popular branch 
 of the National Legislature the country never lost confidence, 
 and ultimate repeal was considered certain notwithstanding 
 the desperate opposition in the Senate." 
 
 After the first week in September the money market 
 relaxed until funds were loaned on call in New York during 
 the latter part of December at the unprecedented rate of 
 f of one per cent. A revival on the stock market followed, 
 and a large share of the losses in stock values during the 
 summer were recovered by the end of the year. But 
 the influence of the extraordinary failures during the acute 
 period of the crisis, and the burden of silver obligations 
 which had been issued by the Government since 1878, still 
 
 ^ Annual Supplement, The Commercial and Financial Chronicle, p. 2, 
 Financial Review, 1894.
 
 THE CRISIS OF 1893 109 
 
 remained, and marked out a precarious future both for the 
 Treasury and for the trade and industry of the country. 
 It is not necessary, however, to enter into these subsequent 
 years of trade and industrial stagnation, and of Govern- 
 ment fiscal and monetary difficulty. The movements which 
 culminated in the financial and industrial breakdown 
 during the summer of 1893 have already been traced in 
 considerable detail. The nature and extent of the cata- 
 strophe have also been described. Consequently the object 
 of the investigation has been attained since a position has 
 now been reached where a conclusion may be safely drawn 
 as to the cause of the crisis.
 
 (^ 
 
 CHAPTER VIII 
 
 THE CAUSE OF THE CRISIS OF 1893 
 
 The Crisis of 1893 cannot be ascribed to a Continued Operation of the Forces 
 which caused the Panic of 1890 in the United States. — During the Period 
 1891-93 Financial and Industrial Conditions in Great Britain, Germany, 
 and France showed a Healthy Development. — Hence the Crisis of 1893 in 
 the United States did not arise from any Difficulties Abroad. — The Crisis of 
 1893 was Local in its Occurrence and Cause. — It was not due to an Ex- 
 tension of Mercantile and Industrial Credits or to a Scarcity of Money in the 
 United States. — It was a Monetary Crisis caused by Widespread Appre- 
 hension as to the Fixity of the Gold Standard of Payments. 
 
 In attempting to reach a decision as to the cause, or 
 causes, of the crisis of 1893 in the United States, it is evi- 
 dent, in the first place, that the crisis of 1S9.Swa g not rliif^_ 
 to a continuation of those forces which brought about the 
 panic in this country durino; the autumn of 1890 . The 
 stringency in the American money market, the collapse of 
 stock values, and the resultant industrial and financial 
 failures in the United States during that year, as already 
 seen, were a reflection of the state of affairs which had been 
 precipitated in Great Britain by English speculation in 
 Argentina and other countries. In the fall of 1890 Great 
 Britain, in the height of her distress, found it necessary to 
 recall part of the funds which she had invested in American 
 railroads, and to sell in this country part of her holdings of 
 American and other negotiable securities. 
 
 But the necessity for this forced sale of securities in the 
 United States by British investors, as already pointed out', 
 had soon ceased.^ The combined action of the Bank of 
 England and the financial houses of London in guarantee- 
 ing the assets of the firm of Baring Brothers and in freely 
 extending bank accommodations prevented a severe panic 
 
 » See p. 79.
 
 THE CAUSE OF THE CRISIS OF 1893 111 
 
 in Great Britain. A large measure of confidence was soon 
 restored, and loans were obtainable on easy terms. By the 
 first of April, 1891, the discount rate of the Bank of Eng- 
 land had been reduced to 3 per cent. In June, 1891, the 
 rate fell to 2| per cent., and the average for the entire year 
 was Sj^j per cent. The average market rate for the year was 
 1 y^j- per cent, lower than the rate of the Bank of England. 
 Under these conditions British investors and financial houses 
 could easily obtain loans on gilt-edged securities, and were 
 not compelled, therefore, to sell securities in the United 
 States in order to meet their own financial necessities. 
 Moreover, after the immense grain crop in the United 
 States during 1891, as already indicated, gold was imported 
 from Great Britain by the United States. In the autumn 
 of 1891 American railroad stocks and bonds were also 
 favored purchases on the London Stock Exchange, and at 
 the close of that year the entire list of American railroad 
 securities showed an increase in value as compared with 
 the closing quotation of the year 1890, ranging from four to 
 twenty per cent.^ Had the currency situation in the United 
 States been sound at that date, there would have been no 
 further recall of British capital or return of American 
 securities by British investors. It is true that during the 
 two subsequent years, as already seen, there was a con- 
 stantly growing tendency on the part of Great Britain and 
 other foreign countries to realize on their investments in 
 the United States.^ But the sale of securities by foreigners 
 in this country and the outflow of gold from the United 
 States during these years was due to a set of forces entirely 
 different from those which caused the return of American 
 securities in 1890 by British investors. In 1890 British 
 holders of American securities were forced to adopt this 
 policy in order to realize funds to meet their own obliga- 
 
 ^ Annual Supplement, The Economist. (London), vol. 50 (February 20, 
 1892), p. 3G, Commercial History and Review of 1891. 
 2 See p. 89.
 
 112 THE CAUSES OF THE PANIC OF 1893 
 
 tions; during the subsequent years, 1891-93, they were 
 constrained to sell American securities by the fear that the 
 United States would be unable to maintain gold payments. 
 The Baring failure, in short, and the consequent liquidation 
 in Great Britain had no influence upon conditions in the 
 United States after the early part of the year 1891, and the 
 financial collapse in the United States during 1893 cannot 
 possibly be ascribed to a continued operation of the causes 
 which were responsible for the panic of 1890 in this country. 
 
 It is equally apparent, in the second place, that the crisis 
 of 1893 did not arise from any other causes which had their 
 origin outside of the United States. This conclusion is 
 incontrovertible, for the reason that financial and industrial 
 conditions in other commercial nations during the three 
 years, 1891-93, were not marked by any developments 
 which could have possibly reacted disastrously upon this 
 country. On the contrary, foreign countries during this 
 period suffered severely from the state of affairs in the 
 United States. 
 
 Industrial and financial affairs in Great Britain during 
 the three years, 1891-93, were conducted with such caution 
 and conservatism as to contrast sharply with the previous 
 period of reckless speculation. The confidence of investors 
 in domestic enterprises was weakened by the discovery of 
 the rash and corrupt financial practices which came to 
 light through the publicity attached to the liquidation of 
 the numerous trust companies and other concerns which 
 had figured so prominently in the speculative movement 
 that had absorbed such a large amount of the savings of 
 the public in the years preceding 1890. At the same time 
 the growing apprehension in Great Britain after 1891 over 
 the currency situation in the United States, the default of 
 the Uruguayan Government in 1892, the political revolution 
 in Brazil in 1893, the development of a banking crisis in 
 Australia in the same year, together with the continued 
 state of uncertainty relative to Argentine finances, also had
 
 THE CAUSE OF THE CRISIS OF 1893 113 
 
 the effect of impairing the confidence of British investors 
 in foreign industrial and financial undertakings. They 
 refused to place their funds in any investments except 
 first-class securities. As a consequence the amount of new 
 capital commitments in Great Britain steadily decreased.^ 
 Although the discount rates were low,^ the stock market 
 was depressed, and there was an entire absence of specula- 
 tion. 
 
 This financial depression was strongly reflected in the 
 domestic industry of the United Kingdom. The countries 
 of Central and South America were unable to get the credit 
 which they had formerly enjoyed in London, and conse- 
 quently were forced greatly to lower their purchases of 
 British goods. The market for British commodities in the 
 United States was also curtailed by the prohibitive rates 
 of the McKinley tariff law, and the industrial and financial 
 crash in this country during 1893. On, account of the depres- 
 sion existing in Germany and France, those countries also 
 reduced their purchases in Great Britain. The foreign 
 trade of the United Kingdom during the period 1890-93 
 steadily declined, and it was not until the year 1895 that 
 any pronounced upward movement developed.^ 
 
 * The total capital created and issued in Great Britain during the 
 four years 1890-93 was as follows : 
 
 1890 £142,565,000 
 
 1891 104,594,910 
 
 1892 81,137,177 
 
 1893 49,141,188 
 
 * The average discount rate of the Bank of England, and the average 
 market rate during the years 1890-93 was as follows : 
 
 
 Bank of England. 
 Per Cent. 
 
 Market. 
 Per Cent. 
 
 1890 
 
 4/10/ 4 
 3/ 5/11 
 2/ 9/11 
 3/ 1/ 4 
 
 3/13/11 
 
 2/10/ 
 1/ 9/ 5 
 2/ 2/ 
 
 1891 
 
 1892 
 
 1893 
 
 
 ^ The foreign trade situation in Great Britain during the period
 
 114 THE CAUSES OF THE PANIC OF 1893 
 
 This reduction in the volume of foreign trade, as a matter 
 of course was attended by a decreased activity in domestic 
 trade and industry.^ Although the volume of interior trade 
 was maintained, prices were lower and profits smaller. 
 The entire period 1891-93 in Great Britain, in short, was 
 marked by the continued effort to liquidate past losses, to 
 avoid future excesses, and to conduct financial and indus- 
 trial operations on a safe and conservative basis. These 
 efforts were in the main successful. Trade and industry, 
 in view of the many adverse influences which they had to 
 encounter, both at home and abroad, made a remarkably 
 good showing, and met with no serious disasters. Each 
 year after 1890 the financial structure was placed on a 
 more sound and solid basis, and the movement away from 
 the disastrous conditions which had been precipitated by 
 the financial collapse in 1890 was steadily maintained.^ 
 
 Conditions similar to those in Great Britain prevailed in 
 Germany. The reckless speculation in that country which 
 culminated in the financial collapse of 1889 was followed 
 by financial and industrial depression up to the close of the 
 year 1893. In a previous chapter it was ascertained that the 
 year 1890 in Germany was marked by a decline in stock 
 
 1890-93 appears in the following table, which shows the increase or de- 
 crease per cent, of the volume of foreign trade as compared with previous 
 years; 
 
 
 Total Imports and 
 Exports. 
 Per Cent. 
 
 Exports of 
 
 Home Produce. 
 
 Per Cent. 
 
 1890 
 
 1891 
 
 0.39 decrease 
 0.25 decrease 
 1.17 decrease 
 1.68 decrease 
 
 0.51 decrease 
 5.30 decrease 
 
 1892 
 
 3.43 decrease 
 
 1893 
 
 2.10 decrease 
 
 
 
 ^ London Bankers' Clearing-House returns decreased from £7,801,- 
 048,000 in 1890 to £6,478,013,000 in 1893. Railroad trafEc receipts 
 were reduced from £32,902,000 in 1891 to £30,632,900 in 1893. A part 
 of the decrease in 1893, however, was due to mining strikes which cur- 
 tailed shipments of coal. 
 
 ^ Annual Supplement, The Economist (London), vols. 1-lii, Commer- 
 cial History and Review, 1891-93,
 
 THE CAUSE OF THE CRISIS OF 1893 115 
 
 values and a liquidation of past excesses.^ During the 
 three subsequent years this process continued. The taste 
 for capital adventure was lost. The public was exceedingly 
 timid about placing its funds in new enterprises, and only 
 first-class securities were purchased. Almost all descrip- 
 tions of stocks and bonds decreased in value. Conse- 
 quently there was a steady reduction in the amount of Ger- 
 man capital commitments, and in the number and total 
 capitalization of joint-stock companies organized.^ Idle 
 funds accumulated in the banks, and the rates of discount 
 were low.^ In the domain of trade and industry this finan- 
 
 1 See p. 69. 
 
 ^ The total capital commitments in Germany during the period 
 1890-94 was as follows. From a comparison of the figures it will be seen 
 that there was a marked decrease during the three years 1889-92, and 
 an upward movement commencing with the year 1893. 
 
 TOTAL CAPITAL COMMITMENTS IN GERMANY. 
 
 1889 
 1890 
 1891 
 1892 
 1893 
 1894 
 
 Million Marks. 
 
 1745 
 1520 
 1217 
 1016 
 1266 
 1289 
 
 Practically the same tendency is evident from a comparison of the 
 number and capitalization of joint-stock companies organized dinging 
 the same period: 
 
 
 Number of 
 Companies. 
 
 Total Capital 
 (Million Marks). 
 
 1889 
 
 360 
 236 
 160 
 127 
 95 
 92 
 
 402.54 
 
 1890 
 
 270.99 
 
 1891 
 
 90.24 
 
 1892 
 
 79.82 
 
 1893 
 
 77.26 
 
 1894 
 
 88.26 
 
 
 
 Le Marche Financier, 1894-95, A. Raffalovich, pp. 107-108. 
 
 ^ The average bank rate of discount at Berlin was 3.81 per cent, in 
 1890, 3.09 per cent, in 1891, 1.79 per cent, in 1892, 3.21 ]icr cent, in 
 1893, and 1.77 per cent, in 1894. — Le Marche Financier en 1894, p. 113.
 
 116 THE CAUSES OF THE PANIC OF 1893 
 
 cial prostration of the country was severely felt, and was 
 evidenced, as in Great Britain, by lower prices and a re- 
 duced margin of profits. 
 
 Even under these adverse conditions, however, industry 
 and business were remarkably well sustained. Germany 
 suffered no shortage in her agricultural production during 
 the year 1892, when the wheat harvests in France and 
 Russia were almost total failures. The German grain crop 
 of 1893 was also satisfactory. Under these conditions the 
 work of financial recuperation was steadily pushed for- 
 ward. Losses were written off, over-commitments of cap- 
 ital were reduced, and on every side a general policy of 
 retrenchment was pursued. The result was that German 
 domestic trade and industry gave evidence of a revival as 
 early as 1893, and during the following year there was an 
 increase in foreign and interior trade, and a general move- 
 ment toward more prosperous conditions. Railroad traffic 
 receipts were better, bank clearings were larger, the volume 
 of capital emissions was greater, and bank and industrial 
 stocks were quoted at higher prices.^ Germany, in short, 
 during the latter half of 1893 began to free herself from the 
 liquidation of the previous three years, and to enter upon 
 a period of unchecked prosperity. 
 
 The financial and industrial situation in France during 
 the period 1891-93 was somewhat different from that in 
 Great Britain and Germany, for the reason, as already 
 seen, that France had fortunately been prevented by the 
 failure of the copper syndicate and the Panama Canal 
 Company from entering into the reckless speculation which 
 characterized the German and English financial situation 
 during the years immediately preceding 1890. Conse- 
 quently there was no heavy liquidating movement in France 
 after that year such as prevailed in Great Britain and Ger- 
 many. Moreover, during these same years, French trade 
 and industrial movements were depressed, partly by the 
 
 * Le Marche Financier en 1894, Le Marche de Berlin, pp. 83-124.
 
 THE CAUSE OF THE CRISIS OF 1893 117 
 
 refusal of French investors to place their capital in new 
 enterprises, and partly by the eflfect of adverse conditions 
 which existed in foreign countries. At the same time there 
 were no evidences of any speculation or of the commitment 
 of capital in hazardous undertakings. The Paris Bourse 
 was firm, and more activity was displayed than at London 
 or Berlin. Financial institutions were in excellent condi- 
 tion, large amounts of idle funds were accumulated, and the 
 rates of discount were low. The condition of trade and 
 industry also was not of a nature to cause serious anxiety. 
 Toward the close of the year 1892 there was a change for 
 the better Encouraged by a similar movement in England, 
 French investors seemed to regain confidence, and em- 
 barked in extensive mining operations in South Africa. 
 During the following year large issues of Government 
 securities were followed by the development of an upward 
 movement in prices on the Paris Bourse. The timidity 
 of investors and speculators disappeared. Foreign and 
 domestic trade also showed decided improvement, and 
 a general movement toward more prosperous conditions 
 was inaugurated.^ 
 
 From this brief summary of financial and industrial con- 
 ditions in Great Britain, France, and Germany during the 
 period 1890-93 it is clearly evident, therefore, that the 
 crisis of 1893 in the United States could not have been due 
 to any difficulties abroad. The general situation in Great 
 Britain and Europe during these years was marked by a 
 steady upward movement from a condition of financial de- 
 pression to one of prosperity. Germany and France at the 
 close of 1893 were entering upon a trade and industrial 
 revival. Great Britain followed their lead in the early part 
 of the year 1894. Consequently there were no conditions 
 in these countries which were analogous, or had any causal 
 connection with the financial crisis in the United States. 
 The conclusion is irresistible that the disastrous break- 
 
 * Le Marche Financier en 1894, pp. 1-26.
 
 118 THE CAUSES OF THE PANIC OF 1893 
 
 down in the United States during the summer of 1893 was 
 local, not only in its occurrence, but also in its cause, or 
 causes, and that it is not necessary to go beyond the 
 borders of this country in search of an explanation of the 
 calamity. 
 
 But what was the local and the true cause of the crisis of 
 1893 in this country ? Perhaps it has already been inferred 
 from the review of developments in the United States 
 during the years preceding 1893. In the light of these 
 developments, t he financ ial breakdown in 1893 cannot 
 be said to have been d ue to a scarcity of money in the 
 United States at that time, for the Silver Act of 18*78 had 
 increased the available circulation $378,000,000, m round_ 
 numbe rs, and a fter 1890 the Sherman L aw added some- 
 thing Ii ^e $50,000,000 annually to the circulating medium 
 of the country . D uring the entir e period 1878-93 the 
 amount of money m circulation more ttian doubled .^ Cori^ 
 sequenjl^ the money supply was ample. On the other 
 han37 i t cannot be maintained that the crisis of 1893 was 
 caused by an extension of mercantile credits such as 
 brought about the disastrous collapse of 1873 , for it has 
 already been pointed out ^ that business houses and indus- 
 trial 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 Ameri- 
 can capital likewise refused to enter into doubtful financial 
 or industrial undertakings. So far as the withdrawal of 
 foreign and domestic funds, however, brought about in- 
 dustrial and business disaster, it was not a direct cause 
 
 * Report of the Secretary of the Treasury, 1893, p. cxv. 
 ' See p. 105. ' See p. 105 ct seq.
 
 THE CAUSE OF THE CRISIS OF 1893 119 
 
 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 widesprea d fea r, both at 
 home and abroad, that the United IS tates would not be able 
 to maintain a gold standard of payments . The very nature 
 of the crisis itself of 1893 bears out this conclusion. It 
 was essentially a monetary crisis , an d its typical teature 
 con sisted in the numerous failures of banks and financial 
 mstitutions. Moreover, the precipitation of and the 
 recovery from the crisis furnishes additional evidence to 
 bear out the foregoing claim. The beginning of the crisis, 
 as already seen, was marked by the decline of the Treas- 
 ury gold reserve, on April 22, below the $100,000,000 
 limit ; the ending of the resultant industrial and financial 
 chaos dated from the repeal, on August 28, 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, as already seen, 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 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 (see 
 Chart II, p. 93). As a consequence, apprehension as to 
 the maintenance of gold payments became widespread,
 
 120 THE CAUSES OF THE PANIC OF 1893 
 
 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 arti- 
 ficial devices to create a vacuum in the circulation. Con- 
 fidence was thus temporarily restored, and during the 
 period 1886-90 gold payments were made into the 
 Treasury. The Treasury gold reserve increased by the 
 year 1890 to $195,000,000 (see Chart II, p. 93). 
 
 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, and, as already shown, 
 almost doubled the amount of silver obligations annually 
 issued by the Government. The country might have pro- 
 gressed safely under the Act of 1878, but the question of the 
 fixity of the gold standard was opened afresh by the opera- 
 tion of the Sherman Law. The currency of the country soon 
 became redundant, and, as had hflppened jn the two years 
 1884-86, silver certificates an d Treasurv notes were use d 
 in the payments of public dues, while gold was hoarded . 
 Consequently the Treasury gold reserve rapidlv declined^ 
 and fear for the maintenance of the standard again arose. 
 Because its supplies of gold were decreased by the displace- 
 ment of gold by silver currency in the Government revenues, 
 the Treasury adopted the policy of hoarding gold and 
 making its payments through the New York Clearing- 
 House in the form of legal -tender notes. This action led to 
 a further impairment of confidence. Foreign investors and 
 exporters saw th e danger in the situation even before th e 
 people of thi s country, and began to withdraw the funds 
 wliich they had invested in this co iint]-y finring thp pepod 
 1886-90. Moreover, they called for the payment of trade 
 balanc es m gold- Gold was, therefore, demanded for export . 
 B^ the banks in the Un ited States were hoarding gold, _ 
 and gold for export could practically be obtaine d onlyby 
 ^ See p. 22 et seq.
 
 THE CAUSE OF THE CRISIS OF 1893 121 
 
 the presentation of legal-tender notes a t the Treasury for 
 redemption, ihis operation caused a further inroad upon 
 tiie i'reasury 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, 1893, 
 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 uni- 
 versal demand, however, to convert property into cash or 
 some other liquid form of exchange, those having obliga- 
 tions to meet found it impossible to secure funds, and the 
 result was soon seen in widespread industrial and financial 
 disaster. Distrust of the fixity of the standard gave way to 
 unreasoni ng panic, and it was not until the House of Re- 
 prese ntativesre pealed t)ie hhprm?in I i^w that the pub lic 
 beli e ved th at the gold standard was not going to be aban- 
 doned. With the growth of this conviction confidence was 
 restored like magic; gold again flowed into the Treasury, 
 and its depleted reserves were increased. 
 
 The fiscal policy of the Harrison Administration, — the
 
 122 THE CAUSES OF THE PANIC OF 1893 
 
 increase of Government expenditures and the cutting-down 
 of Government receipts from customs, — by weakening the 
 resources of the Treasury, provided favorable conditions 
 for the play of the fundamental cause of the crisis, and thus 
 hastened the precipitation of the disaster. The withdrawal 
 of the enormous amounts of foreign funds during the years 
 1891-93, which had been invested in the United States 
 during the prosperous period 1886-90, also rapidly drained 
 the Treasury of its gold reserves through the necessity of 
 providing gold for export. This process, however, as 
 already shown, was not itself a cause, but on the contrary- 
 was a consequence of the operation of the true cause of the 
 crisis of 1893. The fundamental and effective cause of the 
 crisis of that year was the fear as to the fixity of the gold 
 standard, or, in other words, the apprehension, which was 
 prevalent both in this country and abroad, that the United 
 States would be unable to maintain the gold standard 
 of payments.
 
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