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A Brief History of Panics
by Clement Juglar
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A BRIEF HISTORY OF PANICS AND THEIR PERIODICAL OCCURRENCE IN THE UNITED STATES

BY CLEMENT JUGLAR

MEMBER OF THE INSTITUTE, VICE-PRESIDENT OF LA SOCIETE D'ECONOMIE POLITIQUE

THIRD EDITION

TRANSLATED AND EDITED WITH AN INTRODUCTION AND BROUGHT DOWN FROM 1889 TO DATE

BY DECOURCY W. THOM

FORMER MEMBER OF THE BALTIMORE STOCK EXCHANGE AND OF THE CONSOLIDATED EXCHANGE OF NEW YORK



TO GOLDEN DAYS

Tonight at "Blakeford," I set down this dedication of the third edition of this book which has proved to be the pleasant companion of two visitations—one at "Wakefield Manor," Rappahannock County, Virginia, in 1891, the other at my old home "Blakeford," Queen Anne's County, Maryland, in 1915. The memories that entwine it there, and here mingle in perfect keeping and have made of a dry study something that stirs anew within me as I consider the work accomplished, my love and remembrance of the old days, and my love and unforgettingness of these other golden days under whose spell I have brought the book up to the present year.

DECOURCY W. THOM.

"BLAKEFORD,"

October 10, 1915.



PREFACE TO THIRD EDITION

The second edition of this study of Panics in the United States brought us through the year 1891. I originated about one fourth of it.

This third edition brings us practically up to date. Of this edition I originated about one half. I hope it will prove helpful in many ways. I trust that it will force an appreciable number of men to realize that "business" or "financial" panic is not merely fear, as some have asserted; but is based upon the knowledge that constriction, oppression, unhappy and radical change in this, that, or the other kind of business must tend to drag down many others successively, just as a whole line of bricks standing on end and a few inches apart will fall if an end one is toppled upon its next neighbor. Indeed, the major cause of "business" or "financial" panic is just reasoning upon existing conditions rather than a foolish fear of them. Over-trading and loss of nerve constitute the medium. Recent national legislation has gone far in enabling the business world in the United States to prevent panics, and farther yet in providing the means to cope with them when, in spite of precautions, they shall recur.

DEC. W. THOM.

"BLAKEFORD,"

October 10, 1915.



A BRIEF HISTORY OF PANICS



INTRODUCTION

COMPRISING A CONDENSATION OF THE THEORY OF PANICS, BY M. JUGLAR, RENDERED INTO ENGLISH, WITH CERTAIN ADDITIONAL MATERIAL, BY DECOURCY W. THOM.

In this translation, made with the author's consent, my chief object being to convey his entire meaning, I have unhesitatingly rendered the French very freely sometimes, and again very literally. Style has thus suffered for the sake of clearness and brevity, necessary to secure and retain the attention of readers of this class of books. This same conciseness has also been imposed on our author by the inherent dryness and minuteness of his faithful inquiry into hundreds of figures, tables showing the condition of banks at the time of various panics, etc., etc., essential to his demonstration. As an extreme instance of the latitude I have sometimes allowed myself, I cite my rendering of the title: "Des Crises Commerciales et de Leur Retour Periodique en France, en Angleterre et aux Etats-Unis" merely as "Panics and Their Periodical Occurrence in the United States": for M. Juglar himself states that a commercial panic is always a financial panic, as a falling away of the metallic reserve indicates its breaking out; and I have only translated that portion dealing with the United States, deeming the rest unnecessary, for this amply illustrates and proves the theorem in hand.

To this sketch of the financial history of the United States up to 1889, when M. Juglar published his second edition, I have added a brief account to date, including the panic of 1890, the table headed "National Banks of the United States," and some additions to the other tables scattered through this book.

From the prefaces to the French editions of 1860 and of 1889, and other introductory matter, I have condensed his theory as follows:

A Crisis or Panic may be defined as a stoppage of the rise of prices: that is to say, the period when new buyers are not to be found. It is always accompanied by a reactionary movement in prices.

A panic may be broadly stated as due to overtrading, which causes general business to need more than the available capital, thus producing general lack of credit. Its precipitating causes are broadly anything leading to overtrading:

In the United States they may be classed as follows:

I. PANICS OF CIRCULATION, as in 1857, when the steadily increased circulation, which had almost doubled in nine years, had rendered it very easy to grant excessive discounts and loans, which had thus over-stimulated business, so that the above relapse occurred; or, we may imagine the converse case, leading to a quicker and even greater disaster: a sudden and proportionate shrinkage of circulation, which, of course, would have fatally cut down loans and discounts, and so precipitated general ruin.

2. A PANIC OF CREDIT, as in 1866, when the failure of Overend, Gurney, & Co. rendered the whole business world over cautious, and led to a universal shrinkage of credit. [I take the liberty of adding that it seems evident to me that such a danger must soon confront us in the United States, unless our Silver Law is changed, because of a finally inevitable distrust of the government's ability to keep 67-cent silver dollars on an equality with 100-cent gold dollars.]

3. PANICS OF CAPITAL, as in 1847, when capital was so locked up in internal improvements as to prove largely useless.

4. GENERAL TARIFF CHANGES. To the three causes given above the translator adds a fourth and most important one: Any change in our tariff laws general enough to rise to the dignity of a new tariff has with one exception in our history precipitated a panic. This exception is the tariff of 1846, which was for revenue only, and introduced after long notice and upon a graduated scale. This had put the nation at large in such good condition that when the apparently inevitable Decennial Panic occurred in 1848 recovery from it was very speedy.

The reason for this general effect of new tariffs is obvious. Usual prices and confidence are so disturbed that buyers either hold off, keeping their money available, or else draw unusually large amounts so as to buy stock before adverse tariff changes, thus tightening money in both ways by interfering with its accustomed circulation. This tendency towards contraction spreads and induces further withdrawal of deposits, thus requiring the banks to reduce their loans; and so runs on and on to increasing discomfort and uneasiness until panic is speedily produced. The practical coincidence and significance of our tariff changes and panics is shown by an extract below from an article written by the translator in October-November, 1890, predicting the recent panic which was hastened somewhat by the Baring collapse. [Footnote: Inter-relations of Tariffs, Panics, and the Condition of Agriculture, as Developed in the History of the United States of America.

This brief sketch of our economic history in the United States seeks to show that Protective Tariffs have always impoverished a majority of our people, the Agriculturists; that agriculture has thus been made a most unprofitable vocation throughout the States, and that this unsoundness at the very foundation of the business of the American people has often forced our finances into such makeshift conditions, that under any unusual financial strain a panic, with all its wretched accompaniments, has resulted.

To consider this properly, we must note the well known fact that in this land, those who live by agriculture directly, are more than one half of our population. Their votes can cause to be made such laws as they see fit, hence, one would expect the enactment of laws to raise the price of farm products, and to lower the price of all that the farmer has to buy. But the farmers vote as the manufacturers and other active classes of the minority of our voters may influence; and only twice in our history, from 1789 to 1808, and from 1846 to 1860, have enough of the minority found their interests sufficiently identical with that of the unorganized farmer-majority to join votes, and thus secure at once their common end. In consequence of this coalition during these two periods, two remarkable things happened: 1st, agriculture flourished, and comfortable living was more widely spread: 2d, panics were very infrequent, and the hardships and far-reaching discomforts that must ever attend adjustments to new financial conditions after disturbances were, of course, minimized.

It is not fair to deduce very much from the first period of prosperity among the farmers, 1789 to 1808, for, during this time, there were no important business interests unconnected with agriculture; but we may summarize the facts that from 1789 to 1808, there was, 1st, no protection, the average duty during this time being 5 per cent., and that laid for revenue only; 2d, that agriculture flourished; 3d, that there was not a single panic.

"The Embargo" of 1808, followed by the Non-Intercourse Act in 1809 and the War of 1812-15, and the war tariff, by which double duties were charged in order to raise money for war purposes, caused us to suffer all the economic disasters flowing from tariffs ranging between absolute protection, and those practically prohibiting, and intensified by the sufferings inseparable from war.

During this period agriculture, for the first time in our history, was in a miserable condition. It is significant that for the first time too, we had a protective tariff. Though our people made heroic efforts to make for themselves those articles formerly imported, thus starting our manufacturing interests, they had, of course, lost their export trade and its profits. When the peace of 1814 came, we again began exporting our produce, and aided by the short harvests abroad, and our own accumulated crops, resumed the profitable business which for six years our farmers and our people generally had entirely lost. Our first panic, that of 1814, came as a result of our long exclusion from foreign markets, being followed by the stimulation given business through resumption of our foreign trade in 1814, which was immensely heightened by the banks issuing enormous quantities of irredeemable paper, instead of bending all their energies to paying off the paper they had issued during the war.

But worse than the suffering entailed by this panic, was the engrafting upon our economic policy of the fallacious theory made possible by the Embargo and the Non-Intercourse Act, (which was equivalent, let me enforce it once more, to that highest protective tariff, a prohibitory one) that all infant manufactures must be protected, that is, guaranteed a home market, though such home market be one where all goods cost more to the purchaser than similar goods bought elsewhere, and this in order that the compact little band of sellers in the home market may make their profit. This demand for protection was made by those who had started manufactures during the years from 1808 to the end of the war of 1815, when, as we have seen, imports were practically excluded.

In 1816 their demand met explicit assent, for, in the tariff of that year, duty for protection, not for revenue, was granted; and an average of 25 per cent. duties for six years, to be followed by an average of 20 per cent. duties, was laid upon imports. For a few years bad bread crops in Europe, demand for our cotton, and an inflation of our currency delayed a panic.

But, we had started on our unreasoning course. We had tried to ignore the laws of demand and supply, and had forgotten that it is also artificial to attempt preventing purchases in the cheapest, and selling in the highest markets; and to help a few manufacturers we had put up prices for all that a large majority of our population,—the agriculturists mainly—had to buy. In a short while the demand for what the farmers had to sell fell away, and bills could not be met, and their troubles were added to those of the minority of the consumers of the country; the volume of business fell off, and a panic came in 1818. The influences that led up to it continued until 1846, as follows: The great factors in producing this state of affairs were the successive tariffs of 1818, with its 25 per cent. duty upon cottons and woollens, and its increased duties on all forms of manufactured iron, (the tariff of 1824 which increased duties considerably), and the tariff of 1828, imposing an average of 50 per cent. duties, and in which the protective movement reached its acme (omitting, of course, the present McKinley Bill with its 60 per cent. average duty). In 1832, consequently, a great reaction in sentiment took place, and the "Compromise Tariff" was passed and duties were lowered. From this period, the advocacy of a high tariff in order to protect "Infant Industries," no longer "Infant" was largely abandoned, and its advocacy was generally based upon the fallacy, less obvious then than now, of securing high wages to laborers by means of high import duties. This plea for high duties the laborer found to be fallacious.

They (agriculturists mainly) found that they had to pay more for manufactured goods, so that the manufacturers could still buy their raw materials at the advanced prices, pay themselves the accustomed or increased profits, and then possibly pay the laborer a small advance in wages.

The advance did not compensate for increased cost of necessaries of life. If competition reduced the manufacturers' profit, the first reduction of expenses was always in the laborer's pay. The recognition of these truths brought about the further reduction of duties until 1842, in which year the tariff was once more raised. It was not until 1846 that we enjoyed a tariff which sought to eliminate the protective features. It is significant that a period of greater profit and stability among our business men, but especially among our farmers, was then inaugurated. This was the first tariff, since that of 1816, not affected by politics. It lasted-until 1857, and the country flourished marvellously under it.

From 1816, when protection was first resorted to, until today, tariff rates have been almost continually raised, mainly by votes of the agriculturists, misled by the manufacturers and politicians, influenced by the manufacturers' money. And a fact worth noting is that financial panics have come quick and furious. They came in 1818, and in 1825-26, in 1829-30, and so on, (see page 13). Sudden changes in our tariff rates have unvaryingly been followed by financial panics within a short period. Changes to lower rates have not brought panics so quickly as changes in the reverse direction.

Low tariff without protective features, maintained steadily, has been coincident with constantly increasing prosperity to the country at large: but most especially to the agriculturists. This is readily understood, for purchases of imported and manufactured goods and all outfit needed for the farmers' land and family can be made at low—and owing to the competition that always arises to supply a steady and natural market—lowering prices. Moreover, the settled prices prevailing throughout the country allow of assured calculations and precautions as to business ventures, and permit such a ratio to be established between expenses and income, that at the end of the fiscal year a profit, not a loss, may be counted upon.

This was the experience of our agriculturists during the second and last prosperous time of our farmers, 1846-60. During that period agriculture flourished; the tariff was low and there were only two panics, that of 1848, and the one of 1857, and the first (a non-protective one) should not be considered as precipitated by the tariff of 1846, except that some few suffered briefly in readjusting themselves to the changed, (though better), condition of the new tariff. The vast majority of the nation reaped enormous benefits from the changes inaugurated.

The panic of 1857 was caused by over-activity in trade speculation, and over-banking, and the tariff of the same year was really passed to help avert the panic threatening. It had the contrary effect, it is believed, for it still further, of course, unsettled rates for goods, when prices were already unstable. But the point is to be noted that in reality tariff change followed practical panic in this instance rather than practical panic tariff change. The high protective war tariffs, beginning in 1860, and increased for war purposes and granted largely as an offset for those internal revenue taxes laid to carry on the war, have been continued as a body ever since, as is well known, despite the internal revenue taxes having been abolished except on whiskey and tobacco. It is equally well known that farming has grown less and less remunerative since 1860, and that the panics of 1864, 1873, and 1884 have been unfortunate culminations of almost unceasing financial discomfort, which has been most forcibly exemplified during the last two months. Even now the financial fabric is in unstable equilibrium, and this latest monstrosity—the McKinley Bill—imposing the highest tariff we have ever exacted—an average duty of 60 per cent., and coming when a panic was due, bids fair to hurry us into another and a terrible financial panic. If it does not do so, it will be because our crops are too bountiful to allow it, but it will at least have made the agriculturists and all buyers of other commodities than agricultural produce pay more for all purchases. It will bring no more money into their pockets, but it must take out considerably more. The people appreciate this. The nation's pocket nerve has been touched. This is the meaning of the recent election, it seems to the writer. But whether the impending danger can be averted even if a prompt, though wise and slow reversal of tariff policy can be forced by the next Congress is doubtful, for unrest and timidity have been evoked and require time to be allayed before easy and orderly business operations will in general be resumed, unless indeed bountiful crops here and demand abroad once again reverse the logic of the situation.

Certain it is that our tariff laws must interfere as little as possible with the natural law of demand and supply in making prices, or we must be content to suffer from the instability that artificiality always brings with it.

Our plain duty is to enact as speedily as possible a tariff that shall by small but continued changes cut down our protective duties and substitute non-protective duties until our tariff is for revenue only; for thus and thus only can the vast majority of the agriculturists buy what they need most cheaply, and so find that to purchase necessaries does not cost them more than the total of their sales; and our exports of produce, chiefly owing to agricultural prosperity, would increase, thus materially helping to build up our general business so that the other nations will have to pay us, in the gold we require for comfortable management of our business, the growing trade balances against them.

The rough table below suggests that sudden tariff changes have precipitated panics, which have come quickly if the change was to higher protective duties and somewhat slower if the change was to lower protective duties; that slow and well considered changes doing away with protective duties generally have not caused disturbances; and that agriculture has flourished in proportion as we approached tariff for revenue only. It has for obvious reasons required about one year for financial trouble to be shown by decrease in value of farm produce as evinced by wheat-flour exports.

Special conditions, such as excessive wheat corps here and deficiency abroad or special tariff favors to flour export, may even increase the amount exported despite an otherwise untoward effect of the new tariff upon farmers. I have selected flour exports as the article best reflecting the chief interest of the farmers, and at the same time the state of general business for manufacturing, transportation and such other branches as are concerned with it.

- TARIFFS ,- They have all Condition of agriculture and been designedly incidentally of general + protective Panics. business as suggested by export save the one of wheat flour from 1790-1890. '- of 1846. - Year. Barrels. Dollars. 1790 724,623 4,591,293 1791 619,681 3,408,246 1792 824,464 ......... 1793 1,074,639 ......... 1794 846,010 ......... 1795 687,369 ......... 1796 725,194 ......... 1797 515,633 ......... 1798 567,558 ......... 1799 519,265 ......... 1800 653,056 ......... 1801 1,102,444 ......... 1802 1,156,248 ......... 1803 1,311,853 9,310,000 1804 810,008 7,100,000 1805 777,513 8,325,000 1806 782,724 6,867,000 1807 1,249,819 10,753,000 1808 263,813 1,936,000 1809 846,247 5,944,000 1810 798,431 6,846,000 ,- Practical 1811 1,445,012 14,662,000 exclusion of ,- 1812 1,443,492 13,687,000 Say + all imports 1813 1,260,943 13,591,000 1814 through the war = 1814 + 1814 193,274 1,734,000 '- Prohibitory Tariff. '- 1815 862,739 7,209,000 ,- 1816 729,053 7,712,000 ,- Duties for six '- 1817 1,479,198 17,751,376 1816 + years @ 25% and 1818 ,- 1818 1,157,697 11,576,970 '- thereafter @ 20%. 1819 750,669 6,005,280 1820 1,177,036 5,296,664 1818 ,- Duties 25% on 1821 1,056,119 4,298,043 Cotton and Woollens, + 1822 827,865 5,103,280 + and all duties 1823 756,702 4,962,373 on Manufactured 1824 996,792 5,759,176 '- Iron increased. 1825-26 1825 813,906 4,212,127 1826 857,820 4,121,466 '- 1827 868,492 4,420,081 ,- 1828 860,809 4,286,939 1828 { Average duty of 50%. 1829 837,385 5,793,651 + 1830 1,227,434 6,085,953 1831 1,806,529 9,938,458 '- 1832 864,919 4,880,623 ,- Compromise Tariff, ,- 1833 955,768 5,613,010 gradual reduction 1834 835,352 4,520,781 of duties from 1835 779,396 4,394,777 50% average until 1836 505,400 3,572,599 1833 + in 1842 the average 1836-39 + 1837 318,719 2,987,269 was 20%. But this 1838 448,161 3,603,299 was levied for 1839 923,151 6,925,170 Protection not 1840 1,897,501 10,143,615 '- merely for Revenue. '- 1841 1,515,817 7,759,646 ,- 1842 1,283,602 7,375,356 1842 {Imposed higher duties. + 1843 841,474 3,763,073 1844 1,438,574 6,759,488 '- 1845 1,195,230 5,398,593 ,- 1846 2,289,476 11,668,669 ,- Imposed lower 1847 4,382,496 26,133,811 duties and these 1848 2,119,393 13,194,109 1846 were not for 1849 2,108,013 11,280,582 + Protection purposes, 1850 1,385,448 7,098,570 they were simply 1848 + 1851 2,202,335 10,524,331 '- for Revenue. 1852 2,799,339 11,869,143 1853 2,920,918 14,783,394 ,- Reduced Tariff 1854 4,022,386 27,701,444 rates on above 1855 1,204,540 10,896,908 1857 + plan because of '- 1856 3,510,626 29,275,148 redundant ,- 1857 3,712,053 25,882,316 '- prosperity. 1857 + 1858 3,512,169 19,328,884 '- 1859 2,431,824 14,433,591 ,- War Tariff protection restored ,- 1860 2,611,596 15,448,507 1860 + as compensation for 1864 '- 1861 4,323,756 24,645,849 Internal Revenue '- taxes. 1862 As above.......... 1862 4,882,033 27,534,677 1864 As above.......... 1863 4,390,055 28,366,069 ,- 1864 3,557,347 25,588,249 1865 2,641,298 27,507,084 1866 2,183,050 18,396,686 + 1867 1,300,106 12,803,775 1868 2,076,423 20,887,798 1869 2,431,873 18,813,865 ,- 10% reduction, but 1870 3,463,333 21,169,593 coffee and tea put '- 1871 3,653,841 24,093,184 1872 + on Free List and ,- 1872 2,514,535 17,955,684 whiskey and tobacco 1873 1873 2,562,086 19,381,664 '- taxes reduced. 1874 4,094,094 29,258,094 1875 3,973,128 23,712,440 1875 ,- 10% reduction 1876 3,935,512 24,433,470 '- above repealed. + 1877 3,343,665 21,663,947 1878 3,947,333 25,695,721 1879 5,629,714 29,567,713 1880 6,011,419 35,333,197 ,- Duties really raised 1881 7,945,786 45,047,257 on class of goods '- 1882 5,915,686 36,375,055 most used, but ,- 1883 9,205,664 54,824,459 apparently lowered 1884 1884 9,152,260 51,139,695 1883 + the tariff, for 1885 10,648,145 52,146,336 it considerably + 1886 8,179,241 38,443,955 reduced rates on 1887 11,518,449 51,950,082 many little used 1888 11,963,574 54,777,710 '- classes of goods. '- 1889 9,374,803 45,296,485 1890 ,- McKinley Bill ,- 1890 12,231,711 57,036,168 '- average of 60% duty. '- 1891 11,344,304 54,705,616 1892 15,196,769 75,362,283 ,- Free silver and sudden 1893 16,620,339 75,494,347 1893 + ill-distributed 1894 16,859,533 69,271,770 -94 and drastic tariff 1895 15,268,892 51,651,928 reductions and 1896 14,620,864 52,025,217 '- insufficient revenue. 1897 14,569,545 55,914,347 1897 ,- 1898 15,349,943 69,263,718 Tariff 1899 18,485,690 73,093,870 disturbance 1900 18,699,194 67,760,886 to 1901 18,650,979 69,459,296 higher 1902 17,759,203 65,661,974 1903 rates. 1903 19,716,203 73,756,404 1904 16,699,432 68,894,836 + The 1905 8,826,335 40,176,136 propaganda 1906 13,919,048 59,106,869 1907 for 1907 15,584,667 62,175,397 keener 1908 13,937,247 64,170,508 regulation 1909 10,521,161 51,157,366 of 1910 9,040,987 47,621,467 business. 1911 10,129,435 49,386,946 '- 1912 11,006,487 50,999,797 1913 ,- Tariff reductions to 1913 11,394,805 53,171,537 produce a revenue; 1914 12,768,073 62,391,503 not on a protective + basis. The further regulating of business. '- The "World War." - ]

The retarding or precipitating influence of a good or bad condition of agriculture upon the advent of a panic is also indicated.

The symptoms of approaching panic, generally patent to every one, are wonderful prosperity as indicated by very numerous enterprises and schemes of all sorts, by a rise in the price of all commodities, of land, of houses, etc., etc., by an active request for workmen, a rise in salaries, a lowering of interest, by the gullibility of the public, by a general taste for speculating in order to grow rich at once, by a growing luxury leading to excessive expenditures, a very large amount of discounts and loans and bank notes [Footnote: Our recent banking history has proved rather an exception to this law as far as bank notes are concerned, because of the obviously unusual cause of sudden and enormous calling in of government bonds, the basis of bank-note issue.] and a very small reserve in specie and legal-tender notes and poor and decreasing deposits.

On the other hand, the lowest point of depression following a panic is accompanied by the converse of the symptoms just enumerated.

Bank balance sheets reflect in cold figures the result of the above influences. Prices being high, and discounts and loans large in proportion to deposits, and having steadily increased for years, danger is near; further, when discounts and loans are not only large in proportion to deposits, having increased steadily for years, and then suddenly fallen off noticeably for a considerable time, only to increase again, danger is imminent.

On the other hand, a steady and radical reduction of loans and discounts, following a panic and extending until new enterprises are very scarce, till prices are very low, till there is wide-spread idleness among workmen, a decrease in salaries and in interest rates, when the public is wary and speculation dead, and expenditures are cut down as far as possible, may be taken to mean a rapid and continued resumption of every prosperous business: but if the above process is only partially performed, renewed trouble must result;—in other words, liquidation to really be helpful (to congested business) must be thorough.

A study of the first of the following tables, "National Banks of the United States," illustrates the above generalization. It is unnecessary to mention that 1878, 1884, and 1890 have been the last three panic years. But it is very necessary in studying this table, to bear in mind that its figures are taken from the standing of the banks at the first of the year, while the panics generally occurred later in the year: the last two, for instance in the second and fourth quarter, respectively. The third and fourth tables will give more exact figures in this connection. Table Two, dealing with State Banks, is given merely to round out our banking history as told in figures.

The increase or diminution of deposits of course reflects a confident and successful, or a panicky and impoverishing, state of general business.

TABLE NO. 1. NATIONAL BANKS OF THE UNITED STATES _____________ Percentage of Difference (over or under) between Deposits and Loans and Discounts. ___________ Difference between Deposits and Loans and Discounts. (Millions) __________ Percentage "Working Capital" exceeds Loans and Discounts. _________ Excess of Capital (Surplus, Undivided Profits, and Deposits) over Loans and Discounts. (Millions) ________ LOANS "WORKING CAPITAL." AND _____ DISCOUNTS. Capital. _ / ____ Undivided Profits and Surplus, etc. YEAR MONTH. / ___ Deposits / _ TOTAL. ========================================================================== -In Millions. 1863 Oct. 5 5.464 7.188 0.128 8.497 15.913 10.347 65.4 +3.031 35.6 ovr 1864 Jan. 4 10.666 14.740 0.432 19.450 34.622 23.956 69.2 +8.784 45.1 " 1865 Jan. 2 166 135 20 183 338 152 47.7 + 17 9.2 " 1866 Jan. 1 500 403 71 522 996 496 49.8 + 22 4.2 " 1867 Jan. 7 608 420 86 538 1064 456 42.8 - 50 8.9 und 1868 Jan. 6 616 420 101 534 1055 439 41.6 - 82 15.3 " 1869 Jan. 4 644 419 116 568 1103 559 46.4 - 76 13.3 " 1870 Jan.22 688 426 124 546 1096 408 37.2 - 142 26 " 1871 Mch.18 767 444 140 561 1145 378 33. - 206 36.7 " 1872 Feb.27 839 464 147 593 1204 365 30.3 - 246 41.4 " *1873 Feb.28 913 484 163 656 1303 390 29.9 - 257 29.1 " 1874 Feb.27 897 490 173 595 1258 361 28.6 - 302 52.4 " 1875 Mch. 1 956 496 182 647 1325 369 27.8 - 309 47.7 " 1876 Mch.10 950 504 184 620 1308 358 27.3 - 330 53.2 " 1877 Jan.20 920 493 167 659 1319 399 30.2 - 261 39.6 " 1878 Mch.15 854 473 165 602 1240 386 31.1 - 252 41.8 " 1879 Jan. 1 823 462 153 643 1258 435 34.5 - 180 27.9 " 1880 Feb.21 974 454 159 848 1461 487 33.3 - 126 14.8 " 1881 Mch.11 1073 458 176 933 1567 494 31.5 - 140 15 " 1882 Mch.11 1182 469 191 1036 1696 514 30.3 - 146 14 " 1883 Mch.13 1249 490 196 1004 1690 441 26.1 - 245 24.4 " *1884 Mch. 7 1321 515 209 1046 1770 449 25.3 - 275 26.2 " 1885 Mch.10 1232 524 206 996 1726 494 28.6 - 236 23.6 " 1886 Mch. 1 1367 533 212 1152 1897 530 27.9 - 215 18.6 " 1887 Mch. 4 1515 555 231 1224 2010 495 24.6 - 291 23.7 " 1888 Feb.14 1584 582 246 1251 2079 495 23.7 - 333 26.6 " 1889 Feb.26 1704 596 269 1354 2219 515 23.1 - 350 25.8 " *1890 Feb.28 1844 626 290 1479 2395 551 22.2 - 365 24.6 " 1891 Feb.26 1927 662 316 1483 2461 534 21.7 - 444 29.8 " 1892 Mch. 1 2044 679 330 1702 2711 667 24.6 - 342 20.1 " 1893 Mch. 6 2159 688 348 1751 2787 627 22.6 - 408 23.3 " 1894 Feb.28 1872 678 332 1586 2596 724 27.9 - 286 18. " 1895 Mch. 5 1965 662 329 1667 2658 693 26.2 - 298 17.8 " 1896 Feb.28 1966 653 334 1648 2635 669 25.4 - 318 19.2 " 1897 Mch. 9 1898 642 333 1669 2644 746 29. - 229 13.6 " 1898 Feb.18 2152 628 334 1982 2944 792 27. - 170 8.5 " 1899 Feb. 4 2299 608 332 2232 3172 873 27.6 - 67 3. " 1900 Feb.13 2481 613 363 2481 3457 976 28.3 + 0. 1901 Feb. 5 2814 634 398 2753 3785 971 25.7 - 61 2.2 " 1902 Feb.25 3128 667 448 2982 4097 969 23.7 - 146 4.9 " 1903 Feb. 6 3350 731 516 3159 4406 1056 24. - 191 5.6 " 1904 Jan.22 3469 765 562 3300 4627 1158 25.1 - 169 5.1 " 1905 Jan.11 3728 776 589 3612 4977 1279 25.1 - 116 3.2 " 1906 Jan.29 4071 814 635 4088 5537 1466 26.5 + 17 .41 ovr 1907 Jan.26 4463 860 689 4115 5664 1201 21.3 - 348 8.4 und 1908 Feb.14 4422 905 742 4105 5752 1330 23.2 - 317 7.7 " 1909 Feb. 5 4840 927 772 4699 6398 1558 24.4 - 141 2.9 " 1910 Jan.31 5229 960 818 5190 6968 1739 25. - 39 .73 " 1911 Jan. 7 5402 1007 884 5113 7004 1602 22.9 - 289 5.6 " 1912 Feb.20 5810 1031 927 5630 7588 1778 23.5 - 180 3.1 " 1913 Feb. 4 6125 1048 958 5985 7991 1866 23.4 - 140 2.3 " 1914 Jan.13 6175 1057 991 6072 8120 1945 23.9 - 103 1.7 " 1915 Mch. 4 6499 1066 1012 7148 9226 2727 29.6 + 649 9.9 ovr + - NOTE: These Figures are for the standing at the first part of the year as indicated. *Panic Years.



TABLE NO. 2.

UNITED STATES TABLE OF BALANCE SHEETS. MILLIONS OF DOLLARS.

+ -+ -+ + -+ + -+ SPECIE DISCOUNTS INDIVIDUAL NUMBER YEAR CIRCULATION ON AND DEPOSITS OF CAPITAL HAND LOANS BANKS + -+ -+ + -+ + -+ 1811 28 15 89 52 1815 * 45 17 208 88 1816 * 68 19 246 89 1819 35 9 73 72 1820 * 44 19 35 308 137 1830 61 22 200 55 330 145 1834 94 1835 103 43 324 75 506 200 1836 140 40 365 83 704 231 1837 149 37 457 115 713 251 525 127 788 290 1838 116 35 485 84 829 317 1839_* 135 45 492 90 840 327 1840 106 33 462 75 901 358 1841 107 34 386 64 784 313 1842 83 28 323 62 692 260 1843 58 33 254 56 691 228 1844 75 49 264 84 696 210 1845 89 44 288 88 707 206 1846 105 42 312 96 707 196 1847 105 35 310 91 715 203 1848_* 128 46 344 103 751 204 1849 114 43 332 91 782 207 1850 131 45 364 109 824 217 1851 155 48 413 128 879 227 1854 204 59 557 188 1208 301 1855 186 53 576 190 1307 332 1856 195 59 634 212 1398 343 1857_* 214 58 684 230 1416 370 1858 155 74 583 185 1422 394 1859 193 104 657 259 1476 401 1860 207 83 691 253 1562 421 1861 202 87 696 257 1601 429 1862 183 102 646 296 1492 418 1863 * 238 101 648 393 1466 405 + -+ -+ + -+ + -+ *PANIC YEARS



TABLE NO. 3.

UNITED STATES TABLE OF BALANCE SHEETS OF THE NATIONAL BANKS—QUARTERLY STATEMENT. MILLIONS OF DOLLARS.

+ -+ -+ -+ -+ -+ -+ -+ -+ SPECIE DIS- INDIVI- NUMBER SURPLUS CIRCU- ON LEGAL COUNTS DUAL OF AND UN- YEAR LATION HAND TENDERS AND DEPOSITS BANKS CAPITAL DIVIDED LOANS PROFITS + -+ -+ -+ -+ -+ -+ -+ -+ MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN 1865 66 4 72 166 183 1500 393 20 2nd Q 3rd " 18 189 4th " 171 487 1866 500 2nd " 213 19 187 500 3rd " 522 1644 415 71 4th " 280 1867 205 603 564 2nd " 9 558 3rd " 512 1642 420 86 4th " 293 92 1868 20 114 609 532 1643 420 101 2nd " 84 3rd " 4th " 295 1869 29 1617 426 116 2nd " 657 580 3rd " 80 4th " 48 1870 686 574 2nd " 688 511 1648 430 124 3rd " 18 94 79 546 4th " 296 501 1871 725 2nd " 122 3rd " 13 93 1790 458 140 4th " 318 97 1872 831 611 2nd " 122 3rd " 10 1940 479 147 4th " 336 620 1873 * 2nd " 16 10 97 885 656 3rd " 339 19 622 616 1976 491 153 4th " 341 33 92 944 1874 103 2nd " 21 836 540 3rd " 80 897 595 2027 493 173 4th " 331 955 682 1875 695 2nd " 8 984 2087 504 182 3rd " 618 4th " 314 70 + -+ -+ -+ -+ -+ -+ -+ -+ *PANIC YEARS



MILLIONS OF DOLLARS. + -+ -+ -+ -+ -+ -+ -+ -+ SPECIE DIS- INDIVI- NUMBER SURPLUS CIRCU- ON LEGAL COUNTS DUAL OF AND UN- YEAR LATION HAND TENDERS AND DEPOSITS BANKS CAPITAL DIVIDED LOANS PROFITS + -+ -+ -+ -+ -+ -+ -+ -+ MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN 1876 2089 499 184 2nd Q 21 612 3rd " 4th " 291 32 90 1877 49 66 929 2nd " 290 659 2080 479 3rd " 21 167 4th " 66 1878 54 2nd " 29 881 604 3rd " 625 2053 466 165 4th " 303 1879 41 54 826 588 2nd " 814 2048 454 153 3rd " 4th " 321 79 54 933 765 1880 2nd " 86 3rd " 109 64 974 2090 457 159 4th " 317 105 1040 1881 52 1000 2nd " 298 128 932 2132 463 3rd " 176 4th " 323 1882 109 1100 1100 1000 2268 483 2nd " 112 3rd " 102 1200 1122 191 4th " 315 68 1883 2nd " 97 3rd " 304 115 4th " 1000 2501 509 196 1884 * 80 1300 1100 2nd " 109 75 2664 524 3rd " 289 128 77 1306 209 4th " 167 1200 1000 975 1885 2nd " 177 79 3rd " 69 1200 2714 527 206 4th " 268 1100 1886 171 62 2nd " 149 1470 1152 2852 548 3rd " 1172 212 4th " 202 1887 171 79 3049 578 2nd " 73 1587 1285 231 3rd " 4th " 164 159 1888 172 83 2nd " 178 3rd " 3120 588 4th " 151 182 246 1889 81 1684 1350 2nd " 97 3170 596 269 3rd " 4th " 126 164 1890 * 171 84 1811 1436 2nd " 3383 626 290 3rd " 178 4th " 123 190 1891 82 1932 1521 2nd " 1483 3601 662 316 3rd " 123 199 1575 4th " 100 1962 1525 + -+ -+ -+ -+ -+ -+ -+ -+ *PANIC YEARS



MILLIONS OF DOLLARS. + -+ -+ -+ -+ -+ -+ -+ -+ SPECIE DIS- INDIVI- NUMBER SURPLUS CIRCU- ON LEGAL COUNTS DUAL OF AND UN- YEAR LATION HAND TENDERS AND DEPOSITS BANKS CAPITAL DIVIDED LOANS PROFITS + -+ -+ -+ -+ -+ -+ -+ -+ MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN 1892 1st Q 141 230 99 2044 1702 3711 678 330 2nd " 239 2171 1769 3rd " 113 4th " 145 209 3784 689 353 1893 1st " 149 90 2161 1751 3830 688 352 2nd " 186 3rd " 182 1843 4th " 251 131 1451 1894 1st " 174 259 146 1872 3777 678 2nd " 3rd " 189 2007 1728 4th " 218 119 339 1895 1st " 169 220 1965 3728 662 2nd " 3rd " 1736 4th " 185 196 93 2059 340 1896 1st " 187 196 1982 1687 3699 653 2nd " 118 3rd " 4th " 210 110 1893 1597 342 1897 1st " 202 233 1669 3634 642 2nd " 126 3rd " 4th " 193 252 107 2100 1916 341 1898 1st " 184 271 120 3594 628 2nd " 3rd " 4th " 110 2214 2225 340 1899 1st " 371 116 608 2nd " 199 3rd " 4th " 314 101 2496 2522 3602 363 1900 1st " 204 339 122 2nd " 3rd " 4th " 145 2706 2623 3942 632 403 1901 1st " 309 399 2nd " 3rd " 164 4th " 369 151 3038 2964 4291 665 448 1902 1st " 309 2nd " 309 164 3rd " 4th " 366 141 3303 3209 4666 714 516 1903 1st " 335 2nd " 163 3200 3rd " 4th " 378 142 3481 5118 758 564 + -+ -+ -+ -+ -+ -+ -+ -+



MILLIONS OF DOLLARS. + -+ -+ -+ -+ -+ -+ -+ -+ SPECIE DIS- INDIVI- NUMBER SURPLUS CIRCU- ON LEGAL COUNTS DUAL OF AND UN- YEAR LATION HAND TENDERS AND DEPOSITS BANKS CAPITAL DIVIDED LOANS PROFITS + -+ -+ -+ -+ -+ -+ -+ -+ MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN MAX MIN 1904 1st Q 380 453 2nd " 3rd " 169 4th " 504 3772 3707 5477 776 594 1905 1st " 424 178 2nd " 157 3rd " 495 4th " 460 4016 3889 5833 808 632 1906 1st " 498 492 175 2nd " 3rd " 4th " 459 152 4366 4289 6199 847 687 1907 1st " 173 2nd " 543 3rd " 4th " 531 151 4678 4819 6625 901 749 1908 1st " 2nd " 192 3rd " 4th " 599 680 4840 4720 6865 921 779 1909 1st " 198 2nd " 615 3rd " 4th " 694 176 5148 5120 7006 953 825 1910 1st " 667 2nd " 3rd " 4th " 672 169 5467 5304 7204 1004 894 1911 1st " 680 168 2nd " 3rd " 185 4th " 761 5663 5536 7328 1026 930 1912 1st " 704 2nd " 769 188 3rd " 4th " 6058 5944 7420 1046 969 1913 1st " 717 749 2nd " 189 3rd " 4th " 6260 6051 7509 1059 1007 1914 1st " 720 201 2nd " 792 6357 6111 7493 1057 1003 3rd " 1018 746 4th " 848 534 128 7581 1065 1007 1915 1st " 746 591 127 6499 6348 7599 1066 1012 + -+ -+ -+ -+ -+ -+ -+ -+



The adage "buy cheap and sell dear," or its practical equivalent—so scary and imitative are investors—Buy during the last of a selling movement and sell during the last of a buying movement, resolves itself, we venture to repeat, into: Buy when the decline caused by a panic has produced such liquidation that discounts and loans, after steady and long-continued diminution, either become stationary for a period or else increase progressively coincident with a steady increase in available funds; and sell for converse reasons.

These conclusions are also reached by our author through analyses of the Financial History of England, France, Prussia, Austria, etc. These I omit as unnecessarily wearisome to the reader since I give that of our own country. However, I will here quote the following: "What must be noted is the reiteration and sequence of the same points (faits) under varying circumstances, at all times, in all countries and under all governments," and also this table showing all the panics and their practical coincidence in the past eighty-five years, in France, England, and the United States.

France England United States 1804 1803 1810 1810 1813-14 1815 1814 1818 1818 1818 1825 1825 1826 1830 1830 1829-31 1836-39 1836-39 1837-39 1847 1847 1848 1857 1857 1857 1864 1864-66 1864 1873 1873 1882 1882 1884 (a 1889-90 (a 1890-91 1890-91 p 1894 p 1894 1893-94 p 1897 p 1897 1897 r 1903 r 19O3 1903 o 1907 o 1907 1907 x 1913 x 1913 1913 i i m m a a t t e e l l y) y)

Truly these thirteen panics in the three countries have been practically simultaneous and one common cause must have originated them. The only cause common to all was overtrading to such an extent that neither credit nor money were to be had, so that a forced liquidation or panic inevitably ensued.

The above table effectually does away with the theory that new tariffs are directly productive of panics. For most certainly new tariffs did not occur in England, France, and the United States just before or during all the panic years enumerated, and yet, practically simultaneously in free-trade England, high-protection France, and sometimes low-tariff, sometimes high-protection United States have panics occurred for eighty years.

But, as I have shown in a note attached to this Introduction, a new tariff or a general change of duties is apt to precipitate a panic, on account of the unsettling of business, and that the consequent shaking of credit adds its quota to the forces finally culminating in a panic cannot be doubted. As a matter of history with us, substantially new tariffs have always happened to be the immediate forerunners of a panic, and this I believe to be true in the case of other countries.

Why is this? Is it not because the people instinctively turn to tinkering at and changing their chief tax—the tariff—whenever they as a whole need financial relief; and have we not shown that such relief is needed almost every ten years, when the overtrading, inseparable from the development of all thriving communities has made the call for credit impossible to grant?

A new tariff may defer, or hurry, or, occurring simultaneously, will intensify a panic, but it may not hope to avert one when due: yet if its changes be very gradual, fixed and long predicted, and of a nature to bring about or confirm a judicious tariff for revenue only, they will materially help to put business on so firm and sound a basis that recovery from the inevitable, and approximately decennial panics, will be wonderfully expedited. Thus a new tariff is a quite accurate forewarning of a panic, and is also to no inconsiderable extent a contributory cause. (See foot-note on page 5, seq., Interrelations of Panics, Tariffs, and the Condition of Agriculture, etc.; and especially what is said of the panic of 1848, on page 10.)

M. Juglar has fully analyzed the three phases of our business life into Prosperity, Panic, and Liquidation, which three constitute themselves into the business cycle, that for forty years past (that is, since the present Bank of England Act, and practically since that of the Law governing the Bank of France, both of which then increased the required specie reserve) has been of about ten years. These ten years may be apportioned roughly as follows: say, Prosperity for five to seven years; Panic a few months to a few years, [Footnote: The panic after 1873 is the only one I know extending to anything like the length it attained. This may be ascribed to the immense development and consequent speculation, and to the inflation of the currency coming after the period about the Civil War.] and Liquidation about a few years.

I have already pointed out the signs of prosperity, of panic, and of liquidation, but in view of existing conditions perhaps it may be well to restate here the quite familiar fact that the completion of liquidation that precedes the beginning of another period of prosperity is characterized by lack of business, steady prices, and a marked growth in available banking funds.

[The various tables spread through this pamphlet are fully explained by their headings and the text.]

In conclusion I wish to express my thanks for the courtesy M. Juglar has extended me, and to state my appreciation of the motives, painstaking patience, and undoubted originality he has shown in explaining and executing so faithfully and with such genius a most laborious and yet spirited work. It is only justice that such an achievement should have been awarded a prize by the French Institute (Academy of Moral and Political Sciences) and have gained for M. Juglar the Vice-Presidency of the "Society for the Study of Political Economy."

DeCourcy W. Thom.

Wakefield Manor.



A HISTORY OF PANICS IN THE UNITED STATES CONSIDERED WITH SPECIAL REFERENCE TO AMERICAN BANKS.



The English Colonies soon after their settlement issued paper money. The first was Massachusetts, which issued it even before her independence, in 1690, to obtain funds in order to besiege Quebec.

This example was followed to such an extent that it caused a marked speculation in favor of hard money, varying according to the quantity of notes in circulation. In 1745, after a successful campaign against Louisburg and the taking of that fortress, two million pounds of paper money were issued, which step decreased its value. When liquidation occurred these paper pounds were not worth 10 per cent. of their face value.

The War of Independence obliged Congress to issue three million of paper dollars. This amount increased to $160,000,000, so that Congress declared, in 1779, that it would not issue more than $200,000,000. Notwithstanding this guaranty, notwithstanding the forced and legal rating conferred by this enactment, notwithstanding the war spirit, it depreciated; and in 1779 it was necessary to decree that, disregarding its normal value, it should be taken at its face. In 1780 it was no longer taken for customs dues. In 1781 it had no rating and was not even taken at 1 per cent. of its face value.

Between 1776 and 1780 the issue of paper money increased to $359,000,000.

BANK OF NORTH AMERICA.—In 1781 Mr. Morris, Treasurer, persuaded Congress to form a bank (the Bank of North America) with a capital of $10,000,000, of which $400,000 should be turned over to help the national finances. The capital was too insignificant and the course of politics too unpropitious to accomplish this end. However, the example encouraged the States to take up their paper money. Upon the adoption of the United States Constitution the issuing of paper money ceased, and gold and silver were the only means of circulation. Thence arose great embarrassment for the Bank of North America, which, hampered by its loans to the Government, increased its note circulation to an enormous proportion. The ebb of paper through every channel finally aroused the public fears, and people refused the notes. Every one struggled to obtain metallic money, hence it became impossible to borrow, and bankruptcy followed. Such was the, excitement that the Philadelphians as a body demanded and obtained from the Assembly of Representatives a withdrawal of the charter; but the Bank, relying upon Congress, continued until March 17, 1787; succeeded even in extending its charter fourteen years; and later obtained a second extension, limited, however, to Pennsylvania.

The difficulty experienced in the manufacture of money led Mr. Hamilton, Secretary of the Treasury, to propose to Congress in 1790 the founding of a National Bank. After some doubts as to the power of Congress, it was authorized. It began operations in 1794, under the title of "Bank of the United States," with a capital of ten millions, eight millions being subscribed by private individuals, and two millions by the Government. Two millions of the first sum were to be paid in metallic money, and six millions in 6 per cent. State bonds; the charter was to run till March 4, 1811. It seemed to be a good thing for the public and the stockholders, for during twenty-one years it paid an average of 8 per cent. dividends. In 1819 the question of renewing its privileges came up, the situation being as follows:

ASSETS. LIABILITIES. 6 per cent. Paper $ 2,230,000 Capital Stock $10,000,000 Loans and Discounts 15,000,000 Deposits 8,500,000 Cash 10,000,000 Circulation 4,500,000

The profits from the Bank, the prosperous state of the country, and the increase of productions led people to think that the issuing of paper money caused it all; seduced by this alluring theory the "Farmers' Bank" was founded in Lancaster in 1810, with a capital of $300,000. Others followed; such was the mania that the Pennsylvania Legislature was forced to forbid every corporation to issue notes. Despite this preventive message the excitement rose so high that companies, formed to build harbors and canals, also put notes into circulation; in this way the law was eluded.

From 1782 to 1812 the capital of the banks rose to $77,258,000; upon the 1st of January, 1811, there were already eighty-eight banks in existence. Until the declaration of war (June, 1812), the issuing of notes was always made with the intention of redeeming them, but the over-issue soon became general, and depreciation followed. The periodical demands for dollar-pieces for the East Indian and Chinese trade were warnings of the over-speculations on the part of those companies whose members were not personally liable. Traders, who through their notes or their deposits had a right to credit with the banks, did not hesitate to ask for $100,000, whereas, formerly they would have hesitated to ask for $1,000. The war put a stop to the exportation of precious metals, which, in the ordinary course of things, limits the issue and circulation of paper. The upshot of this was to redouble the note issue, each one believing its only duty was to get the largest amount into circulation. Loans, and enormous sums of money, were distributed above all reason among individuals and among the States. The increase of dividends and the ease of obtaining them extended the spirit of speculation in certain districts, and especially among those who owned land. The remarkable results shown by the Bank of Lancaster, the "Farmers' Bank," which, by means of an extraordinary issue of notes, had yielded as much as 12 per cent. and piled up in capital twice the amount of its stock, caused it to be no longer thought of as a bank intended to assist trade with available capital, but as a mint destined to coin money for all owning nothing at all. Led by this error, laborers, shopkeepers, manufacturers, and merchants betook themselves to quitting active occupations to indulge in golden dreams. Fear alone restrained some stockholders connected with the non-authorized companies, and led them to seek for a legal incorporation.

In Pennsylvania, during the session of 1812, an act was passed authorizing twenty-five banks, with a capital of $9,000,000. The Executive nevertheless refused to ratify it, and returned it with some very well-deserved comments. In a second debate the first resolution was rescinded by a vote of 40 to 38. In the following session the proposition was renewed with more vigor, and forty-one banks with a capital of $17,000,000 were authorized by a large majority; the representations of the Executive proved useless, and they immediately entered upon their duties with an insufficient capital.

To discount their own stock was a soon-discovered method. They thus increased the amount of notes, which depreciated in comparison with hard money, and dissipated on all hands the hope of exchanging with it.

In the absence of a demand from abroad for hard money, the demand came from within our own borders.

The laws of New England, which were very severe upon the banks, had placed a penalty of 12 per cent. upon the annual interest payments of those persons who did not pay their notes. The natural result was a difference of value between New England and Pennsylvania, which measured the depreciation caused by paper in the latter district. As remittances on New England could only be made in hard money, the equilibrium of the banks was disturbed; they were not able to respond to the demands for redemption, and a suspension of payments by the banks of the United States, except those of New England, took place in August and September, 1814.

THE PANIC OF 1814.—An agreement took place at Philadelphia between the bank and the chief houses allied with it to resume payments at the end of the war.

Unhappily, the public did not demand the accomplishment of this promise at the time fixed, and the banks, led on by the thirst of gain, issued an unprecedented amount of bank notes. The general approbation brought about a still further increase in their number: the bank notes of the Bank of Philadelphia were at a discount of 80 per cent.; the others at 75 per cent, and 50 per cent., and metallic money disappeared to such an extent that paper had to be used to replace copper coin. The depreciation of fiat money raised the price of everything; this superficial occurrence was looked upon as a real increase, and gave rise to all the consequences that a general inflation of value could produce. This mistake on the subject of artificial wealth made landed proprietors desire unusual proceeds. The villager, deceived by a demand surpassing his ordinary profits, extended his credit and filled his stores with the highest-priced goods; and importations, having no other proportion to the real needs than the wishes of the retailers, soon glutted the market. Every one wished to speculate, and every one eagerly ran up debts. Such was the abundance of paper money that the banks were alarmed lest they could not always find an investment for what they manufactured. It thus happened that it was proposed to lend money on collateral, while the greatest efforts to bring about its redemption were being made. This state of things lasted till the end of 1815, when it was recognized that the paper circulation had not enriched the community, but that metallic money had enhanced.

The intelligent portion of the nation comprehended that even where the estimated value of property had been highest, the true welfare of society had diminished. They learned too late the baleful effects of this circulation of paper money; the greater part of the States and cities had nothing to show for it.

A new class of speculators then appeared, trying to pass these worthless bank notes: forgers of paper money became more active. In the midst of this disorder a National Bank, which should afford a solid basis for the paper circulation, was considered. Influenced by these difficulties, and in hopes of remedying them, the Secretary of the Treasury proposed to Congress, in September, 1814, a few days after suspension, to found a national bank, in order to re-establish metallic circulation, an end which the State banks had failed to accomplish.

This project, which lent the national credit to the capital of the bank, was antagonized by a good many members who exaggerated its consequences; at the same time that they took more or less important sums in bank notes, or borrowed from the banks upon the nation's guaranty, in order to re-establish the public credit and to obtain means for prolonging the war.

CAUSES OF THE PANIC OF 18l4.—The bank directors laid the blame upon the blockade of the ports, which, interfering with, indeed even preventing, the export of products, occasioned the outflow of the metals. The national loans to carry on the war also had their influence. From the beginning of hostilities until 1814 they increased to $52,848,000, distributed as follows: Eastern States, $13,920,000; New York, Pennsylvania, Maryland, and District of Columbia, $27,792,000; Southern and Western States, $11,186,000.

Nearly all of this was advanced by the cities of New York, Philadelphia, and Baltimore. The banks made advances beyond their resources, augmenting their circulation in consequence. [Footnote: The cause of the crisis, according to the Committee of the Senate, was the abuse of the banking system; the great number and bad administration of the banks; and their speculations designed to advance their stock, and to distribute usurious dividends. When the Bank of the United States saw the danger that menaced it, it reduced its discounts and circulation. The circulation of the country banks fell from $5,000,000 to $1,300,000, and the total circulation from $10,000,000 to $3,000,000.

Increase and Decrease Circulation in Pennsylvania.

City Banks. Country. Total. 1814 ........ $3,300,000 $1,900,000 $5,200,000 1815 ........ 4,800,000 5,300,000 10,100,000 1816 ........ 3,400,000 4,700,000 8,100,000 1817 ........ 2,300,000 3,800,000 6,100,000 1818 ........ 1,900,000 3,000,000 4,900,000 1819 ........ 1,600,000 1,300,000 2,900,000

Number of Banks. Capital. Circulation. Specie. 1811 ... 88 $52,000 00 $28,000 00 $15,000 00 1815 ... 208 82,000 00 45,000 00 17,000 00 1816 ... 246 89,000 00 68,000 00 19,000 00]

From the 1st of January, 1811, to the 1st of January, 1815, one hundred and twenty new banks were registered, thus raising their capital to more than $80,000,000; this increase took place during a war that entirely did away with foreign trade. The expenses of the war declared against Great Britain in June, 1812, were defrayed by notes issued by the banks of the various States. Six million dollars were obtained from them in 1812, in the following year, 1813, twenty million, and then fifteen million in exchange for twelve million of Federal stock, issued at the price of $125 face for every $100 paid in. Until January 1, 1814, in order to avoid taxation, Treasury bonds were issued in addition to what was contributed by the banks.

In 1812 ..................... $3,000,000 " 1813 ..................... 6,000,000 " 1814 ..................... 8,000,000

Up to this time no account of their administration had been rendered, but now Mr. Bland, a Maryland representative, called attention to the fact that all their operations seemed veiled from the public. Unfortunately we have been unable to find a statement of the discounts.

The suspension of specie payments differed with the corresponding state of affairs in England, inasmuch as it was not general, and, since each State was independent, the depreciation varied. It became very difficult to circulate paper, and the Government was again obliged to issue Treasury bonds, bearing 6 per cent. interest. In February, 1815, peace having been proclaimed, it was hoped that the banks would resume specie payments. There was no sign of it. The re-establishment of peace merely made some of the legal regulations seem less pressing upon the banks.

In the middle of May, 1815, the first English vessel arrived, and business became very active again. In May, June, and July it might have been said "This is the golden age of commerce." Discounts of unsecured paper were easy, and it was not an unusual occurrence to have notes of $60,000 offered.

The banks had authorized a suspension of specie payment in order to force the issue of bank notes, and to stimulate trade, although Mr. Carey pretends that no over-trading had taken place. He blames them for having restricted their loans in October and November, thus producing a decline in prices; and the necessity of cutting down credits came about, according to him, from the speculations in National securities.

Six Philadelphia banks with a capital of $10,000,000 held $3,000,000 in Government stock.

On the 15th of February, 1815, when scarcely through with all this confusion, an effort was made to re-establish for the second time a United States Bank. It was authorized on the 10th of April, 1816, the Act permitting the formation of a Company, with a capital of $35,000,000, divided into 350,000 shares of $100 each, of which the Government took 70,000 shares and the public 180,000 shares. These last were payable in $7,000,000 of gold or silver, of the United States of North America, and $21,000,000 in like money, or, in the funded debt of the United States either in the 6 per cent. Consolidated Debt at par, the 3 per cent. at 65, or the 7 per cent. at 106-1/2 per cent.; upon subscription $30 was payable, of which at least $5 had to be in gold or silver; in six months after, $35, of which $10 had to be in metal, and twelve months after the same amount was to be paid in the same manner. The directors were authorized to sell shares every year to the amount of $2,000,000, after having offered them at the current price to the Secretary of the Treasury for fourteen days. The Government reserved the right to redeem the debt at the subscription price.

The charter, made out in the name of the president, ran until March 3, 1836. There were twenty-five directors of the concern, five of whom were appointed by the President of the United States with the consent of the Senate, and not more than three by the State; the stockholders chose the others.

The corporation could not accept any inconvertible property, or any farm-mortgage, unless for its immediate use, either as security for an existing debt, or to wipe out a credit.

It had no right to contract any debt greater than $35,000,000, more than its deposits, unless by special act; the directors were made responsible for every violation, and could be sued by each creditor. They could only deal in gold and silver exchange, and not in other country securities which could not be realized upon at once. The Bank could purchase no public debt nor exceed 6 per cent. interest on its discounts and loans. It could lend no more than $500,000, to the United States, $50,000, to each State, and nothing to foreigners. It could give no bill of exchange greater than $5,000; bank notes less than $100 were to be payable on demand, and greater sums were not allowed to run longer than sixty days. Two settlements were to take place every year.

Branches were to be established upon demand of legislative authorities, wherever 2,000 shares of stock were subscribed for.

There were to be no bank notes less than $5.00, and every bill of exchange, or bill payable at sight, was to be receivable by the public Treasury.

The duty of the Bank was especially to pay out and receive the public money, without profit or loss. It was to serve as agent for every State contracting a loan; the cash belonging to the United States was to be deposited at the Bank whenever the Secretary of the Treasury did not dispose of it otherwise, in which case he was to notify Congress.

Neither the Directory nor Congress could suspend payment of the bank notes, discounts, or deposits: such refusal carried a right to 12 per cent. interest. In exchange for this charter the Bank was to give $1,000,000, to the Government in three instalments.

The charter was exclusive during its life, excepting in the District of Columbia, where banks might be authorized, provided their capital did not exceed $6,000,000. The Bank did not open at once, for it sent an agent to Europe to look up bullion. Between July, 1817, and December, 1818, it thus procured $7,311,750, at an expense of $525,000. On the 20th of February, 1817, it was decided that, excepting gold and silver and Treasury notes, no notes would be received at the Government Treasuries, save such as were payable to the banks in hard money. Notwithstanding this discrimination the Banks decided not to resume specie payment until the 1st of July, 1817.

In the meantime an immense speculation had taken place in its stock, which was compromising for the Bank and for the credit of its Directory, because several of its Directors appointed by the Government took part in it. For example, it became customary to loan a very large amount of money on the Bank's own stock, as much as $125 on each share of $100. Thus more than the purchase price was loaned upon them: in furnishing the means of paying for them by credit, speculation was aroused, and on the 1st of September, 1817, the market price advanced to $156.50, at which rate it continued until December, 1818, when it fell to $110.

At last the public perceived that the excessive issue depreciated the bank-note circulation, and that a greater shrinkage was imminent.

An office for the payment of bank dividends was opened in Europe, so as to increase the price of the stock and the speculation in it through this facility, rather than for the permanent benefit of the institution. Let us note here the short-sightedness of the Directors, who thought they would stem the depreciation of their means of payment by persuading all the banks to declare what was not true, that the bank notes were worth par.

On the 21st of February, still aiming at the same end, they announced the resumption of specie payment. The State Banks, remembering the embarrassment of the public, which for two years had paid an exchange of 6 per cent., persuaded themselves that few people would dare to ask for large sums. They hoped to come to an understanding and to cause the acceptance of a promise to pay upon a designated day.

We say "a promise to pay," for this was not a serious proposition, inasmuch as foreign money and that of the United States had enjoyed a higher market value for a long time.

The depreciation of the bank notes might result just as well, from the fear of the public's enforcing its rights, as from a refusal of the banks to make good their promises. This understanding was not, properly speaking, a resumption of specie payment, but rather a kind of humbug.

In January the banks of New York, Philadelphia, Baltimore, Richmond, and Norfolk decided to resume specie payment on the 20th of February, provided the balance showing against them was not demanded by the Bank of the United States before discounts became $2,000,000, at New York, as much in Philadelphia, and $1,500,000 in Baltimore; and these conditions were accepted.

The discount line of the Bank of the United States was thus greatly increased; it grew from $3,000,000 on the 27th of February to $20,000,000 on the 30th of April; to $25,000,000 on July 29th, and to $33,000,000 on the 31st of October. The Bank imported much metallic money, redeemed its notes and those of its branches without distinction; the notes of its Eastern and Southern branches were returned as soon as those of the North had paid them, and they were newly issued; consequently eighteen months after this practice began the cash boxes of the North were drained of their capital, the length of discount was reduced, and 5 per cent. was charged for sixty days. On April 1, 1819, only $126,000, cash remained on hand, on the 12th only $7l,000, remained, $196,000, was owed to the city banks.

Scarcely had the Directors of the National Bank succeeded in replacing the paper issued but not redeemed by their bank-note circulation, being fully aware from their own experience that the circulation could only reach a limited amount, than they inundated the market with it, and in a few months all reductions vanished. In this way the market price shortly resumed its former quotation, and all the difficulties reappeared. This imprudent management necessarily threw one portion of the public into debt, from which it had saved itself; and the other portion into the vortex which it had avoided. The critical moment was delayed somewhat, but the day of reckoning was near.

THE PANIC OF 1818.—The Bank at last discovered that it had passed the bounds of safety through its issues, and that it was at the mercy of its creditors. It saw firstly, on October 21, 1818, the payment of part of the State of Louisiana's foreign debt withdraw large sums, and then Chinese, Indian, and other goods reach fancy prices because of the depreciation of the circulating medium. All these influences produced a demand for specie payment which the Bank as a public one was obliged to meet, under penalty of 12 per cent. interest, and without power to avail itself of the same accounts as the State banks.

From this moment it thought fixedly of its safety and of how to reduce its notes; this reduction obliged the other banks to imitate it, and a new crisis shook trade in the end of October, 1818. During one year the National Bank furnished from its cash boxes more than $7,000,000, and the others more than $3,000,000.

The State banks naturally followed the same policy in their connection, and their circulation became reduced as follows:

On November 1, 1816, to ............ $4,756,000 " " " 1817, " ............ 3,782,000 " " " 1818, " ............ 3,011,000 " " " 1819, " ............ 1,318,000

It will give a faint idea of the excessive issue to state that the only difficulty was the impossibility of examination by the President and Cashier, and of their jointly signing the notes, which was made obligatory by the regulations; hence they asked power from Congress to grant this right to the Presidents and Cashiers of the Branch Banks. This facility was refused, but Congress granted a Vice-President and a Vice-Cashier to sign. With these issues and a simple capital of $2,000,000, the Bank discounted as much as $43,000,000, during one year, in addition to $11,000,000, to $12,000,000, loaned upon public securities.

In order to carry on its operations, it exchanged in Europe a portion of its funded debt for gold and silver, and bought specie in the West Indies. From July, 1817, to July, 1818, it imported $6,000,000, of specie, at an expense of $500,000, but the excessive issue of paper drained away the cash more rapidly than the Bank could import it. In the face of this hopeless struggle, in July, 1818, it entirely changed its course and reduced its discounts, and 10 per cent. premium was then paid for cash, and the reduction of nearly $5,000,000, in the discount line in three months only had a disastrous effect, while at the same time they would only receive for redemption the notes issued by each Branch Bank: hence general embarrassment arose, and as the Bank of the United States was withdrawing cash from the local banks, Congress wished to forbid the exportation of gold and silver. The committee appointed on the 30th of November, 1818, to examine the affairs of the Bank concluded that it had violated its charter:

1. In buying $2,000,000, of the Public Debt.

2. In not requiring from the purchasers of its stock the payment of the second and third instalments in cash, and in the Public Debt of the United States.

3. In paying dividends to purchasers of its stock who had not entirely paid up.

4. In allowing voting by proxy to a greater extent than the charter permitted.

Upon receipt of the report the Governor fled, and the shares fell to $93. In 1818 the speculation was so wild that no one failed on account of a smaller sum than $100,000. A drawing-room that had cost $40,000, and a bankrupt's wine-cellar estimated to have cost $7,000, were cited as instances of the general prodigality. The Senatorial Committee of Inquiry declared that the panic imposed ruinous losses upon landed property, which had fallen from a quarter to even a half of its value. In consequence forced sales, bankruptcies, scarcity of money, and a stoppage of work occurred. House-rents fell from $1,200, to $450; the Federal stock alone held its own at 103 to 104.

On the 13th of December, 1819, a Committee of the House of Representatives reported that the panic extended from the greatest to the smallest capitalists. It concluded by demanding the intervention of the legislative power to restrain the corporation, which, spreading its branches throughout the Union had inundated it with nearly $100,000,000, of new circulating medium. Those who unfortunately owed money lost all the fruit of long work, and skilled laborers were obliged to exchange the shelter of their old homes for the inhospitable western forests. Forced sales of provisions, merchandise, and implements were made, greatly below their purchase price. Many families were obliged to limit their most necessary wants. Money and credit were so scarce that it became impossible to obtain a loan upon lands with the securest titles; work ceased with its pay, and the most skilful workman was brought to misery; trade restricted itself to the narrowest wants of life; machinery and manufactories lay idle; the debtor's prison overflowed; the courts of justice were not able to look after their cases, and the wealthiest families could hardly obtain enough money for their daily wants.

The Committee appointed by the Senate of Pennsylvania reported on the 29th of January, 1820, that, to prevent a bad administration of the banks, it was necessary:

1. To forbid them to issue more than half of their capital in notes.

2. To divide with the State all dividends in excess of 6 per cent.

3. Excepting the president, that no director should be re-appointed until after an interval of three years.

4. To submit to the State's inspection the bank's business and books.

From this period excessive profits and losses ceased on the part of the American banks. The change of directory of the National Bank, called forth by the unfortunate experience of 1818, was the beginning of a very fortunate epoch. As was always the case, business affairs resumed their usual course when liquidation ceased. Among the various causes assigned for the panic, the increase of import duties had to be pointed out, and the decrease of the Public Debt which was reduced between 1817 and 1818 more than $80,000,000. It was impossible to turn any portion of the public deposits in proper time either into Federal stock or such other forms of value as its creditors might demand, without staking or breaking down any respectable institution whatever. But these seem to be only secondary causes.

Panic of 1825 to 1826.—In 1824 in Pennsylvania there was a new rage for banks, and in 1825 there was a repetition of the marvellous days of 1815. American banking bubbles have always been exactly similar to the English South Sea bubble, and to Law's bank in France. In July, after an advance dating from 1819, there was a reaction, a panic, and liquidation. Here we cannot point out any of the causes which we have indicated above; the growth of trade and the exaggeration of discount sufficiently explain the difficulties of the situation.

In Pennsylvania in 1824 a bill was passed re-establishing the charters of all the banks which had failed in 1814. In New York they thought of banks alone; companies with a capital of $52,000,000 were formed. Ready money had never been so abundant, if we can judge of it by the amount of subscriptions and the great speculations in stocks.

Three millions were subscribed to the "New Jersey Protection Company" in one day. But in July, when the decline on the London market was reported, the want of hard money forced itself into notice. Exchange on England rose from 5 per cent. to 10 per cent.; the discount on New Orleans notes, from 3 per cent. became 50 per cent., and on the 4th of December it had fallen back to 4 per cent. What fluctuation! What disasters!

Mr. Biddle, the President of the United States Stock Bank, said that the crisis of 1825 was the most severe that England had ever experienced, superinduced as it was by the wild American speculation in cottons and mines. Cotton cloth fell from 18 to 13 cents per yard; and out of 4,000 weavers employed in Philadelphia in 1825 not more than 1,000 remained. The reaction of liquidation was experienced in 1826, and from 1827 money was abundant.

EMBARRASSMENT OF THE LOCAL BANKS IN 1828 TO 1829.—Is it necessary to mention these embarrassments? The trouble of 1828 affected only the local banks and not at a11 those of the United States. The chief cause was the Bank of the United States' increase of circulation from August, 1822, to August, 1828. From $5,400,000 it had become $13,000,000 without adding anything to the circulation, merely displacing an equal amount of local bank notes through drafts of branches that it put into circulation. These branch banks' drafts were in form of bank notes, signed by the chief employees of the branches, drawn, it might be, on each other or on the main bank. A great issue of paper was thus brought about; without this roundabout method it would have been impossible to have forced the issue of the notes from the mere physical inability of the president and cashier to sign so large a number. Congress had always refused to delegate this power to any other persons; in consequence of this practice the inevitable result occurred in 1828, as might have been foreseen, and a conflict between notes of the Bank of the United States and that of the local banks occurred.

These drafts circulated everywhere; the branch banks received them on deposit, but did not redeem them: hence it was necessary to guard against panic by keeping hold of cash. This course increased the issue of the Bank of the United States, and of the local banks which discounted the paper of the central bank as if it were so much cash. The local banks, then, whose paper did not widely circulate, exchanged their bank notes for drafts, thus reducing the amount of circulation of the first, increasing that of the central bank, and hence that of the total issue of its bank notes; the local banks continued to exchange their paper with its narrow and limited circulation for drafts of this latter, which passed everywhere.

There occurred, then, in 1828 and 1829 an accidental and very brief scarcity of cash, whose cause we have just indicated; but since the second half of the year difficulties arising from metallic circulation had disappeared.

PANIC OF 183l.—The course of business, having scarcely suffered a stoppage, continued until 1831, and not till then did The Bank, being the agent of the Treasury and having $11,600,000 on deposit, would have been forced to become a borrower in order to pay out the $2,700,000 demanded from it. However, its request was granted.

Jackson soon learned with surprise that, business being more impeded than ever, the President had despatched an agent to England to contract with the Barings a loan of $6,000,000. Seeing the Bank to be insolvent he resolved not to renew its charter. The Bank tried to hide its insolvency by the most foolish land speculations, which had already caused such great disaster in 1818 and 1820. The issue of bank notes had given fresh spirit to speculation. These bank notes were received by the National Treasury and returned to the Bank on deposit, which again loaned them to pay for land upon security of the land sold, with the result that the credit granted the Nation was merely fictitious.

In 1832, Congress having voted for the extension of the Bank's charter, President Jackson refused to ratify it on account especially of certain changes, it sought to introduce. "Why," said he, "grant a capital of $35,000,000 when the first company only had $11,000,000?"

But though the Bank's charter could not be arranged, the law of July 10, 1832, dealing with the regulation of banks, prescribed that "a report" upon their exact condition should be submitted to Congress every year.

In 1833 General Jackson ordered the withdrawal of the Government deposits from the Bank. The law required that the reasons for the withdrawal of the deposits should be given, and the secretary, Mr. Duane, refused to give them, saying the Bank was not insolvent. He was dismissed and replaced by a more amenable secretary. The deposits were withdrawn and placed in different State Banks, The Bank of the United States was obliged to limit its discounts and loans, thus causing trouble; however, the President wished at any loss to establish a metallic circulation.

President Adams favored small paper notes of 25 to 10 cents, to the extent of $1,000,000. From 1831 to 1837, $3,400,000 twenty-five cent notes, $5,187,000 ten-cent notes, and $9,771,000 five-cent notes were issued. To prevent an abuse of this it was necessary to resume a metallic circulation immediately. In 1833 the amount of small notes issued had already reached $37,000,000; in 1837 it became $73,000,000; it even exceeded these figures; it was this circulation of small paper notes that had to be made smaller than $120,000,000

Notwithstanding these frequent panics the national prosperity and the increase of wealth were unquestionable and astonished all observers.

From 1817 to 1834 the national expenses diminished from $39,000,000 to $24,000,000, decreasing even to $14,000,000 in 1835, while the income grew to $37,000,000.

From 1826 to 1836 the condition of business, despite the panic of 1831, grew easier. Industries, agriculture, and commerce were prosperous and every enterprise was successful. Both in New Orleans and in New York there was much building, and more than 1508 houses were erected between January 1 and September 1, 1836. This general prosperity carried with it the seeds of trouble.

The rapid increase of the National revenue gave birth to the belief that capital had increased in the same proportion. This superabundance of income produced temporarily by the inflation in business was recklessly thrown away. People speculated in land, projected a hundred railroads, canals, mines, and every sort of scheme, which would have absorbed $300,000,000 if carried out.

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