Chapter LXXXIV (1)

THE FINANCIAL AND TRADE SITUATION, PAST,
PRESENT

AND FUTURE, REVIEWING THE CRISIS OF 1907, WITH CAUSES AND REMEDIES.[10]

Footnote 10:

An address delivered by Henry Clews at the annual meeting of the
Pittsburg Chapter, American Institute of Banking, at Pittsburg, Pa.,
on Tuesday evening, February 25, 1908.

It gives me no ordinary pleasure to address an audience of Pittsburg bankers, for Pittsburg is the hub of our iron and steel industry, and as it has no rival in the manufacture of iron and steel, it may well feel proud of its supremacy. It is no exaggeration to say that the rise and progress of that industry in Pittsburg is one of the marvels of the age. A few years ago Pittsburg was known in New York as the Smoky City. A little later she became known as the City of Steel and Coal. Now, through the alchemy of the brains of your wise men, she is known as the place where smoke and coal and steel are in some mysterious way mixed up in such a form that they fill your pockets with pure gold. To the millionaire of to-day we bow in deference to his wealth. But to the grimy sons of toil, who planted the seed and bore the burdens of the earlier days, we take off our hats with reverence. The founders of your city chose wisely in selecting this spot for settlement, at the river’s junction, in the midst of rich deposits of coal and iron. It seems rather odd that your two greatest products should be glass, which is brittle, and steel, which is tough. You also excel in producing cork, which is light, and iron, which is heavy. Surely extremes meet in your city as well as rivers. Down our way we wonder what you do not produce when we learn of the diversity of your wares. It certainly seems to me that a man could learn a whole lot if allowed to visit all your various foundries, factories and mills, but it would take him nearly as long as to go through college, as their name is legion. The welcome which you have given me touches me deeply, and I assure you that in future I shall preach the doctrine that there are others in Pittsburg whose mission it is to dispense happiness besides Mr. Carnegie.

If we glance at the history of steel manufacturing in the United States, we find it centered in and very largely confined to Pittsburg, and if we recall the enormous fortunes made in that industry by Mr. Carnegie and many others, under the protection of high tariff, we see one of the greatest wonders of trade development and modern enterprise.

Yet it was not until after the beginning of the war between the North and the South—the great conflict waged from 1861 to 1865—that any large or even considerable amount of steel was manufactured in the United States. But now we lead the world in making it, and Pittsburg is our great source of supply. At the same time, we can justly say that the march of invention and modern improvement in other directions has kept pace with the growth of Pittsburg and our marvelous progress in iron and steel-making.

This reflection is particularly gratifying in view of our recent financial crisis, in which New York was the storm-center, and Pittsburg almost as stormy for a time. But both cities, like the country at large, stood up bravely and made the best of the situation by all the means at their command. Both fortified themselves by a good emergency measure and issued Clearing House Certificates, according to their needs. Pittsburg, however, went one or two better than New York, and, like many other cities, issued scrip; and better still no one in Pittsburg refused it, not even a car conductor for fares. Here was public spirit rising almost to the height of patriotism.

Now, Pittsburg in common with the rest of the country is again about on an even keel financially, with its banks on a cash basis, its cashiers’ certificates and scrip redeemed, and its Stock Exchange reopened. But unfortunately the crisis gave industry a blow from which it has not yet recovered, although conditions are steadily improving all over the United States. The iron and steel industry received the hardest blow of all, and from a feast you quickly passed to a famine, which is a way the iron trade always had. It is proverbially, however, as quick to recover as to collapse; so all we have to do is to keep up our courage and wait, and we may feel assured there is a good time coming. But whether it will come soon, or later, is a question about which iron-masters, financiers, and trade doctors generally are much divided in opinion at present. It is a good sign, however, that work has been resumed in fully three-fourths of the entire Duquesne works of the United States Steel Corporation in Pittsburg, although it is admitted that only 46 per cent of all the Corporation’s works are running.

In September, 1906, when stock and bond prices were manipulated abnormally to a 3½ per cent basis, while six months’ money was loaning at 6 per cent, it was evident that one or the other was too high; and considering the growing demand for the use of money it became quite apparent it was not money that was too dear, but securities. At that time I persistently advised every one to get out of stocks and out of debt, and keep out for a prolonged period.

Since then security values went down prodigiously—$3,500,000,000 would scarcely cover the depreciation at its lowest point of those dealt in on the New York Stock Exchange alone. Our financial situation is vastly different, however, from what it was in any of our previous great panics, of which there have been a number, since that of 1857, which began with the failure of the Ohio Life & Trust Co. at the time of my advent in Wall Street. I have been in all the subsequent panics, and the present conditions differ from those of all the other great financial storms because the wealth of the nation has become so vast as to make it the richest in actual wealth and productiveness of all nations. As a matter of fact, our wealth-making developments have been so extensive and excessive as to have forged ahead of our banking facilities. This has had much to do with our recent setback. Wise and sagacious capitalists saw the handwriting on the wall in Wall Street and elsewhere, and those who did unloaded their securities in 1906, dumping their stocks at top-notch prices, amounting to at least $1,000,000,000, upon weaker-backed people.

This unloading, together with the San Francisco earthquake disaster, which wiped out $350,000,000 of property, struck the staggering blows which did more than anything else to pave the way to the recent panic conditions. The selling out by big holders was followed by all the large railroad systems in the country selling huge amounts of bonds, stocks and short-term notes. These being offered to stockholders of record at apparently tempting prices, were floated. But this great mass of new securities coming on the market was an indigestible one, and absorbed the capital of a very large number of the rich men of the country and put it in fixed form; and most of these heretofore very rich men have ever since been in the position of a man who, having had a “Sherry dinner,” is urged to accept another dinner at Delmonico’s immediately afterwards—his wish strong but his capacity lacking.

What produced the panic was a number of adverse factors happening one after another in rapid succession.

I summarize, briefly, the causes as follows:

FIRST.

The Boer war which left England in almost as bad a financial strait as we were in through the culmination of a similar period of overdoing in trade and speculation in new industrial ventures, together with an excess of new issues of British Consols during the war period resulting in a recent decline in the price of these prime securities to 81—about the lowest price on record.

SECOND.

Germany was in fully as bad a condition owing to extravagant industrial enterprises, rivalling our own, and which required the most careful nursing to avoid a collapse.

THIRD.

France acted alone in financing Russian loans, and in the crisis of the Japanese-Russian war was compelled unwillingly to supply new funds in order to protect the French loans already outstanding. Hence France had little or no money to lend except to the French.

FOURTH.

The Japanese-Russian war brought both of these countries forward for the first time as prominent and important factors in the world’s money market, and both are still, like Oliver Twist, crying for “more.” This conflict and the Boer war combined wasted over $2,000,000,000 of capital.

FIFTH.

Funds were almost unobtainable except at prohibitive rates at the time of our recent crop-moving period, and for causes already mentioned we could not look to Europe for help. Usually Europe discounts New York securities bills for about $300,000,000 at this period, but last year Europe said: “No; we have troubles of our own.”

SIXTH.

The California earthquake with losses of $350,000,000, and the Chili and other earthquakes of less importance and severity in various parts of the world were heavy blows at prosperity.

SEVENTH.

The compulsory unloading of very many millions of dollars of stocks and bonds by large capitalists and operators, together with immense sales of new securities by corporations and railroads, and the manipulation of prices and stocks up to a 3½ per cent interest basis while time money was loaning at 6 per cent, and above, on the best of collateral. Besides which heavy, excessive and reckless operations in real estate and mining enterprises having been made all over the nation, caused large amounts of capital to lose its liquid quality and become fixed.

EIGHTH.

The investigation of the great life insurance companies and the Metropolitan railroad, and the sad disclosures, followed by the absurd fine of $29,400,000 by Judge Landis against a corporation with a capital of only $1,000,000, had a demoralizing effect upon the public mind. This preposterous fine savored of confiscation and alarmed investors.

NINTH.

The Interstate Commerce Commission’s examination of the Chicago & Alton deal and the consequent developments further undermined the confidence of investors.

TENTH.

The making of injudicious loans by the Knickerbocker Trust Co. and the chains of banks, both in Manhattan and Brooklyn, which caused the suspension of the institutions and arrest of officials on criminal charges intensified public distrust, while the collapse of the Copper market unsettled the metal markets all over the world and resulted in a reduction of dividends on copper shares, and a serious break in the price of all that class of securities.

LASTLY.

A gross abuse of our credit system and the consequent inflation of all values, stimulated by loose banking and promoting methods, proved the climax in a series of events which culminated in the sharpest though not the severest panic the present generation has experienced. The main cause of the panic was that of general overdoing. Credit was over-extended; speculation was reckless and ill-advised; expansion of every sort was being carried to excess by over-confidence, until finally the country’s floating capital was practically exhausted through being turned too rapidly from liquid to fixed forms. We have only to glance at the demands upon new capital during the last year or two to realize this fact.

Some idea of the congested state of the stock market may be obtained from the fact that during the last five years the total amount of new securities authorized was $6,800,000,000; the eleven months of 1907 alone accounting for $2,000,000,000 of this total.

During the latter period our railroads authorized $1,400,000,000 securities, of which they were able to issue only one-half, owing to money market conditions. Of industrial securities less than $500,000,000 were authorized, but nearly $400,000,000 of these appear to have been issued.

These figures take no account of the issues of municipal securities, and those of many other business concerns of a minor character, but they are quite sufficient to indicate the extraordinary demands upon the money market during the last two years, demands which in connection with huge speculative borrowings imposed an unbearable strain upon the banks and precipitated the March, August and October collapses in the stock market. Other influences have undoubtedly been at work to cause the breakdown, but no single factor compares in importance with that of the excessive issues of new securities and obligations during the past two years which the country was utterly unable to assimilate.

In discussing the cause of the recent panicky contraction and disturbance in the business and financial world, nothing, however, could be further from the truth than to charge it all to the great corporation exposures and prosecutions.

As I have said, there were many other things that contributed to bring about last year’s depression and disturbance, and to cast over the bright sky of business prosperity the heavy clouds of distrust, reaction and panic.

The recent clouds in the financial sky can remotely be attributed in a large measure to the effect of the tremendous railroad, industrial and commercial development of the last ten years, which brought about capital requirements in excess of the ability of the country to supply them.

Naturally and necessarily, this resulted in precautionary steps being taken by bankers and others to limit demands that capital could not supply.

This conservatism and consequent contraction of the overwhelming volume of business will, it is believed, prove the strongest force in averting further trouble and disaster.

In an effort to meet the demands of the enormous business offered them, the great railway and industrial corporations sought to enlarge their equipment at vast expense. In this they acted unwisely. They overtraded. It was perhaps excusable not very long ago, when confidence was in its zenith and credit superabundant, to attempt the financing of mammoth undertakings. But unexpectedly and like a bolt out of a clear sky, came the startling insurance and other exposures, and gradually timidity took the place of confidence.

Then capital, which is always more timid than usual at such times, began to contract, and many railroad and industrial corporations found themselves unable to borrow the large sums needed to meet their extraordinary expenditures.

The banks, in many instances, having already over-extended credits, were unable to provide the necessary funds, and new securities, owing to excessive supplies and other causes, ceased to find the ready market that they had enjoyed for so long a period. Investors took wing. Curtailment, therefore, in every direction became a necessity; President Roosevelt can no more be blamed for the recent depression and panicky disturbance than he can be credited with all the great prosperity that preceded the crisis.

That this reaction, culminating in a panic so severe, came just at the time it did, is largely if not wholly coincidental. It cannot be denied, however, that the startling disclosures of wrongdoing on the part of many of the great railroad and industrial corporations disturbed the confidence of the public to the core, and paved the way to it.

Being now myself optimistic, I look on the sunny side and hope for the best. It is, however, a time for conservatism, and while trusting in Providence, it is well to keep our powder dry. It is a good time to cultivate the virtue of patience, and make haste slowly until all the aftermath of the panic, in the way of liquidation and the elimination of unsound timber from business structures, is completed.

This will leave everything in the financial and industrial world stronger than before. It will also leave us with a higher standard of business morality resulting from the exposure of looting and other illegal practices and abuses of power in the management of large corporations. The stoppage of the evil of rebating by the railroads is of itself a great gain in this respect, and for this we have to thank President Roosevelt.

As to the future, Pittsburg and the iron and steel trade should be the first to feel improvement in the general business of the country, for iron is still the best barometer of the times, as it leads all other industries in both depression and recovery, and what an eventful history Pittsburg can point to, the world knows.

It was at Pittsburg that the Bessemer process was first applied to steel making in America, and the giant strides in the industry that followed its supersedure of the open-hearth process not only astonished ourselves but all Europe. It was a new departure on a grand scale, this application of science to mechanical methods, a revelation that was marvellous in the trade expansion and wealth it produced.

Yet it is not improbable that before long, if not immediately, the Bessemer process by which this immense development was achieved will be very generally superseded by the open-hearth process of steel making, which originated and had its early development in this country. Thus in the whirligig of time it will displace the Bessemer process, by which it was itself displaced. This, as you are of course aware, is owing to improvements, chiefly by Talbott, an American engineer, in the open-hearth process, which for a long time has been considered almost out of the race in competition with the Bessemer process. This reminds us that history repeats itself.

The open-hearth process has now been brought to such perfection that its superiority over the Bessemer process is declared by many in the trade to be established. Thus practice makes perfect, and time works wonders. Its superiority over the Bessemer process is said to have been particularly demonstrated in dealing with ores of any but a very low phosphorus grade. This American improvement in the open-hearth process has been already widely recognized and adopted in England, and we are in this way repaying the debt we owed to that country for the Bessemer process.

The steel manufactured in the United States last year aggregated 23,246,000 tons, of which 12,275,000 tons were by the Bessemer process and 10,971,000 tons by the open-hearth process. There were also some other varieties of production, copied from processes in use on the European Continent, but the general drift, I am informed, is now towards the open-hearth process.

Out of Pittsburg, of course, I should not talk so much about steel, but iron and steel are Pittsburg’s bread and butter. This reminds me that apart from agriculture the principal sources of our national wealth are minerals and manufacturing. Mining and manufacturing are primary and fundamental industries. Our agricultural income last year, according to the United States census estimates, was about seven thousand millions of dollars, while the metals mined were valued at about two thousand millions, against $1,902,517,565 in 1906.

This metallic product for the year, it is estimated, was turned by manufacturing it into materials having a market value of fifteen thousand millions of dollars. If we add that of agriculture, the metallic products, and manufacturing, together, we have a total valuation for the year of twenty-four thousand millions of dollars. The fertility of our natural resources is here shown by their rapid rate of development. But this, while contributing so largely to our present national wealth, is not an unmixed good. We should always bear in mind that the more we take out of the earth, and the more we strip our forests of timber, the less we have remaining. In forestry, however, we are now preparing for the future by replanting, but we cannot replant minerals.

The mineral products of this country have more than trebled since 1890; more than doubled since 1899; and are more than five fold what they were in 1880. From 1900 to 1906 our mineral product increased at a rate representing a hundred and ninety millions a year.

I am quoting these statistics as a reminder of the vastness of our natural resources, and the recuperative power of the nation, which is one of the most encouraging features of the national situation. These resources are the backbone of the country’s greatness; and those who can see nothing cheerful in the outlook and to whom everything at times looks as blue as indigo, will do well to think of them, for they are Nature’s national banks, that can never fail, and unfailing sources of our national prosperity.

It was these resources, in the form of exports to foreign countries, that enabled us to purchase and pay for—without borrowing or asking favors—the one hundred millions of gold that we imported to relieve the crisis. Here was indisputable evidence of the large international trade balance in our favor, and of our monetary and commercial independence of the rest of the world; and this gold we still hold, although in the ordinary course of commerce we may reasonably export some of it before long, for we have plenty to spare and money is superabundant at two per cent on call in Wall Street. Meanwhile our exports of produce and other merchandise continue extremely heavy, and they were never heavier than during the crisis, that is, in the last three months of 1907, while in January, 1908, they rose to a total value of one hundred and twenty-eight millions, or $17,742,352 more than in January, 1907. This is all the more favorable because our imports since the crisis have very largely decreased. In our January exports, cotton alone represented $76,687,508 of the total, and breadstuffs $24,463,503.

As to our national finances and the defects of our currency system, there is much that calls for reform, but there seems to be little or no prospect at this session of Congress of the passage of a comprehensive financial measure, although it is a remedy we need. We shall therefore have to rest content for the time being with the much amended emergency currency measure, familiar to us as the Aldrich Bill. This provides only for the issue of a maximum of five hundred millions of currency by the Government to the national banks, to ward off a panic or mitigate its effects, the banks to pay six per cent interest per annum for whatever they take of this emergency currency, and give security in acceptable railway, municipal and other bonds for it to the Treasury.

So far, so good. I am, therefore, strongly in favor of the Aldrich measure as a panic remedy, naturally so as I originated the fundamental part of it. It will do much to prevent panics, and will effectually stop the hoarding of currency that accompanies them, for what inducement would there be to hoard it when a supply of five hundred millions of new currency would be open to the banks? There could be no extreme scarcity of money then; nothing in any way approaching the stringency that not only New York but the whole United States suffered under in the last three months of 1907.

Yet the great remedy, the comprehensive financial reform measure we need will be ultimately passed by Congress, and its provisions will include the modification of the Sub-Treasury system, which has always been a source of much mischief through locking up Government money received for Customs duties and internal revenue taxes, that ought to be kept in circulation. The proposition, however, to establish a central national bank in New York, or anywhere else, as a substitute for it, is to be strongly deprecated. It would be a rich plum for those who controlled it, but would excite the jealousy and hostility of all the other banks. Moreover, such a bank would in effect be a revival of the old United States Bank, against which, and the scandals and corruption connected with it, President Jackson made war so vigorously as to force it into liquidation. The second experiment of a United States bank was no less involved in scandal and no less a failure than the first, and in each case there was the same inglorious end, compulsory liquidation. Both, too, were used as political machines, and guilty of favoritism and many abuses of power, and a new central bank would give us another big political and speculative machine, liable to the same evils and objections. Therefore all bankers should resolutely oppose a central bank. It would not be a remedy for any of the evils complained of, but, instead, furnish us with a new complication.

While we can hardly expect any fundamental changes in our currency system at present, one improvement might easily be made in it by Congress at once, and that is by the removal of restrictions on the amount of national bank notes taken out or canceled per month, as well as by establishing a bank-note redemption bureau at every United States Sub-Treasury, so as to save the delay and expense of sending to and from the Redemption Bureau at Washington, that all the national banks are now subjected to. As a minor remedy this should be urged upon Congress.

Turning to the United States bonds pledged with the Treasury to secure the national bank notes, we all know that they are as good as gold, if not better, but still they are evidences of debt, and it is a false economic principle to issue currency on such a basis. Moreover, it is costly for the Government, for it practically and permanently prevents it, in the interest of the national banks, from redeeming the bonds deposited to secure national bank notes, out of its surplus income. Still it has great merit in giving us a safe and sound bank currency. Ultimately this system, born of the civil war, will be superseded by a better one, but this will doubtless be done in a manner which will not interfere with or impair vested interests.

Owing to the short time now left of this session of Congress, nothing more than the “Aldrich” bill can possibly be enacted at this time. Its simplicity is a recommendation to Congress. But, nevertheless, Congress should later pass a permanent currency bill, a bill which will settle every question as to the finances of the nation, at once and for a century to come. Such a bill is possible, and in fact it would be the simplest kind of measure for the Government to adopt—one to provide for just the kind of currency, and the amount of currency the business of the nation, the banks, and the people should have; one to provide for a perfectly elastic currency without creating the slightest depreciation of money or danger of loss to banks or Government. It should provide a perfect way of obtaining money to move the crops, and furnish an all-sufficient means of preventing or breaking panics. It should make the money of the United States still more current and acceptable in all parts of the world. This would make the nation greater in the eyes of other nations, and give the United States Treasury a proper command of the commerce and finances of the world, within ten years after being put into operation.

All the Government need do to effect such change in the finances of the country, and to acquire all such advantages for the Government and the people, in my opinion, is to wipe out the whole system of National Bank Currency, and give such banks, or any banks, Government currency direct, upon the same securities and such other kinds of securities as the Government is willing to accept, and permit the banks to increase or diminish the amount it obtains whenever the business of the banks requires it; every bank to do no more than give sufficient security for the money. The Government need do no more than to take the security and hand the bank the money. The Government should be paid for the use of the money a low rate of interest, say one per cent. No bank should be required to pay more.

The credit of the Government will be all sufficient for the credit of the currency, and every dollar of it would be perfectly secured by the security given the Government for it by the banks. The issuing of the money by the Government under this system would not injure the credit of the Government in the slightest degree. Banks should be allowed to increase or diminish the amount of money they obtain in amounts which can be decided by the law. Such a system would be satisfactory to all the people, except the national banks. These banks have been given the privilege of having their names on the money they issue long enough. The money of the banks has ever been Government money. The Government has promised to pay it if the banks did not, and has had the means of paying. Let the Government do as it should: issue all the money. Let it be circulated by banks which give proper security for it. Enlarge the means of securing the Government, by accepting State and Municipal bonds, or even Railroad bonds, to the extent of say 50 per cent, and Government bonds for the other 50 per cent.

The amount of additional business this change in the finances of the country would make the Government, would be no greater than any other change would make, and would be much less than what will be necessary if the present bill before the Senate is passed. All the great work and expense of settling up the affairs of broken national banks and paying off their notes will be stopped.

There would be no such things then for the Government to settle. The Treasury can be required by the law to keep all the currency issued for the purpose, that may be taken up, distinct and separate from all Treasury receipts from other sources.

The severity of the panic ordeal of 1907 that the New York banks passed through was reflected in the issue to them by the New York Clearing House, on and after October 22d, of, in all, a hundred millions of loan certificates, although the largest amount of these outstanding at any one time was eighty-four millions. This form of banking relief is purely American and has never been adopted in Europe. The maximum issue of Clearing House loan certificates in the panic of 1893 was $41,690,000, and in the panic of 1873 $26,565,000. But in 1893 New York bank deposits were only $400,000,000; in 1907 they were $1,050,000,000, exclusive of Trust Companies. The maximum of certificates in 1907 was reached in the third week of November, but the Clearing House banks showed their largest deficit in reserve—$54,100,000—in the first week in November. Simultaneously the loan certificates issued by the Boston Clearing House reached their largest aggregate, $11,995,000. It is noteworthy also that three powerful New York banks then held one-third of all the loan certificates issued by the New York Clearing House. One of these held $13,500,000; another $10,000,000; and the third $7,500,000. The obvious object of this was to enable the strong banks to loan a part of their cash reserves to weak associates.

The Clearing House Committee and the New York banks individually and collectively did splendid work in mitigating as far as possible the effects of the panic, while the Secretary of the Treasury, Mr. Cortelyou, rendered very valuable service by co-operating with the national banks to reduce the monetary stringency through large Treasury deposits and facilitating the importation of gold.

Mr. Morgan and several other private bankers also rendered praiseworthy service during the panic, and my firm did its part by loaning to the members of the Stock Exchange, at the most critical period, three million dollars at moderate rates of interest.

The New York Clearing House is a non-incorporated association, but its reserve is the foundation for an enormous amount of the country’s commercial credit. Of course, the banks and others holding practically unsalable collateral for loans, that the borrowers were unable to repay, were forced to help the borrowers and save themselves from loss by continuing to hold them through the crisis for a better market. There were many cases of this kind, particularly among the Trust Companies, and there has been much slow and careful after-panic liquidation of such collateral, and much of it has still to be done. It is, however, being facilitated by the decided improvement that has taken place in the market for first-class bonds.

Capitalists who for the past two or three years had been dissatisfied with the returns of ordinary investments and who had gone into hazardous speculations and extensive underwriting of new bond issues in the hope of large and quick profits, have been sobered by their heavy losses and are now seeking safety in prime investment bonds.

Had the market for bonds not improved as it has, it would have been practically impossible for the New York Central and other Railway Companies to have marketed the large amount of notes they have succeeded in selling since the beginning of this year. The after effects of the panic, as well as the panic itself, would also have been far worse than anything we have witnessed had it not been for the previous heavy stock-market liquidation, a liquidation that in many cases had been practically continuous from the end of 1906, and that was most drastic and disastrous in August, 1907.

That the banking situation has become normal is indicated by the elimination of loan certificates and the resumption of normal methods by all the Clearing Houses in the United States, and particularly by the resumption of the weekly detailed bank statements by the New York Clearing House. This occurred on February 8th for the first time after their suspension on October 26, 1907, and was supplemented by statements of the non-Clearing House banks and Trust Companies, including actual as well as average conditions. This last is a new and commendable feature, which every Saturday will enable us to learn how all the banking institutions in New York City and its several boroughs stand, both individually and collectively, in their average and their actual condition.

That we are assured of a superabundance of money at low rates of interest is evident from the large and growing accumulations of surplus funds in the banks from Maine to California, and the light demand. All the indications favor a protracted period of extreme ease in the money market, modified only by gold exports and the withdrawal by the Government, from time to time, of some and probably a large part of its deposits in national banks. This again reminds us that the Sub-Treasury system makes the Government an unlimited hoarder of money, with only evil results. This, alone, calls for its modification.

But while the large aggregate of the surplus funds of the banks testifies to the return of confidence, and with it the return to banking channels of hoarded money, it also reflects the dullness of trade and much idle machinery and unemployed labor. Hence the bank clearings of the United States in January were twenty-five per cent less than in January, 1907. This condition of affairs has been and still is severely felt by the Railways, whose largely reduced gross and net earnings and long lines of empty cars tell why a number of them, like many industrial corporations, have reduced or passed their dividends, or paid them in scrip. More railway and industrial corporations will probably have to accommodate themselves to circumstances and do likewise in consequence of reduced earnings. That we expect, and are prepared for, while the trade depression lasts, and hence we all hope and trust it will be short.

Meanwhile we cannot ignore the political situation in this Presidential year, and the disturbing and depressing effect of the recent message of President Roosevelt to Congress, with its onslaught on Wall Street, followed by the unjust bitter attack of Mr. Bryan on Stock Exchange speculation, which he denounced as gambling. Wall Street was thus ground between the upper and nether millstones of the Republican and the Democratic parties; it was fired on from both sides with hot shot, grape and canister, without any good reason.

Speculation in stocks, as conducted through Stock Exchange brokers, is no more gambling than speculation in real estate or ordinary merchandise. All trade is more or less speculative because it involves risks. If it did not involve risk there would not be so many mercantile failures as there are every year, yet no one calls trade gambling. Every time a merchant buys a line of goods, he makes a venture, not knowing whether they will rise or depreciate in market value on his hands. He buys also on credit, just as he gives credit to his customers; and what is the difference in principle between this form of credit and the credit a stock broker gives his customers who pay ten per cent on the par value of their purchases while the broker provides the balance and holds the stocks as security? This is the margin, which is a credit in the account of each of them; and I call it a credit instead of a margin, which is a better word for brokers to use.

The present anti-speculation crusade is accompanied by many delusions and very imperfect ideas concerning the conditions and equities of business operations. Who is to decide which are speculative transactions and which are not? Business cannot be conducted without making contracts entering into the future, and that is speculation. The builder who contracts to build you a home is a speculator; the manufacturer who agrees to deliver a thousand cases of cotton goods sixty days hence is dealing in futures, and all operations extending into the future are unavoidably of a speculative character. Even marriage is often called a lottery. It is quite impossible and thoroughly stupid to try to eliminate speculation, for it is an essential element in all business transactions, except those for cash. If business were reduced to the latter basis, it would soon become injuriously restricted and more exposed to corners and violent fluctuations than ever.

As to legitimate or illegitimate speculation, who is to decide between the two, and where is the line to be drawn? If the investor buys securities in advance of his income, expecting to complete the purchase later on, is that legitimate? Suppose circumstances compel him to change his mind and sell before his original purchase is completed, is that legitimate? And in what respect does such a transaction differ from the ordinary marginal contract? It may, perhaps, differ in intent; for the speculator usually buys with a view to taking advantage of temporary fluctuations. Yet, who would be bold enough to investigate the intentions of buyers or sellers? Only the most drastic kind of force could compel divulgence of such secrets, and is it possible to establish any such system of espionage in this country? Speculation, as often stated in these advices, when confined to reasonable limits is beneficial. It is the natural balance wheel of commerce and finance. By its means and through the conflict of opinion between buyers and sellers real values are established by simpler and more reliable means than by any other known methods. No Government investigation will ever ascertain the real value of our railroads so well as the higgling and bargaining between buyers and sellers, which is alike the moving spirit of commerce and the arbiter of values on all Stock Exchanges the world over. Speculation is liable to be carried to excess, and abuses in speculative methods undoubtedly exist; but these are better corrected by a strong and elevated public opinion than through any legal measures based upon political claptrap. There is a flood of nonsense in this campaign against speculation, anti-option, etc., which does not find believers here but may in other parts of the country. It consists very largely of political humbug, and is nothing more than one of the usual methods by which crafty politicians play upon the ignorance and prejudice of the masses for their own advantage. After the elections this mania will probably pass away, to be then recognised as one of the psychological features usually following a panic. Previous instances of this sort of agitation were the granger and populist movement, which exhibited many of the present symptoms of political insanity. Nevertheless, such agitation may do serious harm, and its fallacies should be fearlessly exposed in order to prevent the people from being deceived and misled. Even now this agitation, especially us manifested in hostile State Legislatures, is seriously interfering with that restoration of confidence that is absolutely necessary to business recovery. It is keeping both capital and labor idle. Capital is proverbially timid, and until such attacks cease enterprise is sure to be more or less repressed. Of course there are abuses that need rectifying, but it is folly to carry restraint to the point of extinction. Because a few individuals play golf to harmful excess, would any sane person suppress so wholesome a sport? Yet that is precisely the policy of many of the reformers of the present day. Too frequently these reform movements savor of ignorance. Their purpose is frequently admirable; but the country sadly needs more sanity in their application.

President Roosevelt condemns “options” very vigorously, as if they were now dealt in on the Stock Exchange, as they once were, ranging from three to sixty days; but they have not been traded in there for many years, all purchases and sales of stock being deliverable and receivable on the day following the transactions on the floor of the Exchange, except those specifically for “cash,” which means, to be delivered and received the same day. But on the Cotton, Produce and Coffee Exchanges, and Chicago Board of Trade, nearly all the transactions are in “futures”—and these are a boon to cotton and grain growers and coffee importers, who, through them, can sell their growing crops and importations months before they actually possess and are ready to deliver them, so in advance making sure of the prices they will get for their farm products and importations.

This is speculation, yet perfectly legitimate, and I think that if President Roosevelt and Mr. Bryan knew more about these markets and the N. Y. Stock Exchange from actual experience, they would see the injustice of much that they have said in decrying the evils of speculation. Black sheep and exceptional wrongdoing should not be held up as examples of all and everything in Wall Street; and because unscrupulous men sometimes embezzle in order to get money to speculate with, Wall Street should not be held responsible for their crime, any more than a river should be blamed for a man’s suicide because he jumps into it to end his troubles. There is nothing illegal or against public welfare in a broker buying and selling stocks and bonds for his customers in conformity with the rules of the N. Y. Stock Exchange, nor can there ever be; and I know that such business is just as honorable and legitimate as the buying and selling of iron, dry goods or real estate on credit. It is credit that keeps alive the business world.

The attacks on the financial center of this country are indiscriminate, and I am sorry that President Roosevelt, who has done so much good in other respects, should have nipped the bud of reviving confidence in the stock market in the way he did, for his denunciation of Wall Street, coupled with Mr. Bryan’s wholesale and wild condemnation of the Stock Exchange, led to a renewal of liquidation in the stock market, and a fresh decline in prices through creating fresh distrust of their holdings among investors.

The New York Stock Exchange is a great national and international market, and its 1100 members compose a very honorable and wealthy body of men, whose integrity in all their business transactions is unquestioned. They are bound not only by the rules of the Stock Exchange to be absolutely honorable and strictly honest in their dealings, but their own interests and their relations with their fellow members and their customers compel them to be so, and to be also above suspicion. Summary punishment, even to expulsion from membership, would follow any dishonorable or dishonest act on the part of any of them, and such instances are of extremely rare occurrence. It is therefore unjust to stigmatize these men, these bankers and brokers of good business standing and good social position, in the manner they have been stigmatized recently by Mr. Bryan; and again I think that if he knew Wall Street better than he does he would have been more discriminating, and would have confined his severest criticism to the speculative capitalists who have probably at times abused the Stock Exchange by the manipulation of stocks.

The so-called practice of “washing” is strictly prohibited by the rules of the Stock Exchange, but as it is very hard to detect and prove, in some instances, doubtless it may possibly have gone unpunished. The Stock Exchange, however, earnestly endeavors to ferret out and prevent and severely punish all violations of its rules.

After every great panic, the Stock Exchange has been made a scape-goat, and unjustly assailed as the main cause of the trouble. The fact however that the two great opposing forces in national politics are now united in their attacks upon Wall Street is unusual, and foreshadows more attacks of the same disturbing character during the presidential campaign. This is a depressing factor in both the financial and trade situation, and we see evidence of it in all directions. It is, of course, a factor that retards recovery from the crisis by retarding the growth of confidence, and how far its influence will extend we have yet to see. But of one thing we may be sure, and that is, we shall be reminded of it very forcibly from time to time from the batteries on both sides of the political battle ground until after the November election; then the guns will cease to belch their thunder. Hence we must be prepared for it in the interval and make the best of it, remembering the old adage-“Forewarned, Forearmed.” But never before has politics hurled its javelins so fiercely against Wall Street, and that practically means all the Stock Exchanges in the country. The joint attack is against stock speculation, and no Stock Exchange in the world ever was or ever can be free from that. It would obviously be absolutely impossible to distinguish investment from speculative transactions on the floor of the Stock Exchange, or tell whether long or short stock was being bought and sold. Because speculative capitalists in control of large corporations have managed them dishonestly for their own benefit, and in furthering their schemes and speculations employed stock brokers and used the Stock Exchange, it and its members should not be held responsible for the wrongdoing of these men, as it is a market open to all the world, just as is the London Stock Exchange or any Bourse in Continental Europe. To restrict its scope and operations by law would be to lessen its usefulness to investors and corporations issuing securities, and destroy its utility as a free market for all.

Wall Street being not only a local but a national and international financial center, the whole world, not only the whole country, is tributary to it, and it is indispensable to the whole country. Yet it is made the target at present for all sorts of political abuse, and various schemes have been urged for suppressing trading in stocks, all of which are of course chimerical, for as long as we have securities, there must, in justice to the millions of holders, be a market for them. Without it there would be a sort of chaos of confusion and abnormal prices, for it is the speculator who is often the most keen and discriminating in judging the true value of securities. The much maligned “bear” is the safety valve of the market. He often prevents the manipulation of the price of a stock to an unfairly high figure by exposing the weak points in the situation, which is a protection to a prospective buyer.

A great deal of shallow abuse is still being showered on the Stock Exchange from all parts of the country. This always follows a panic. It pleases a certain class of ignorant and misguided people to hear Wall Street denounced and maligned on every opportunity. It matters little whether the accusations are right or wrong. So pessimistic is public opinion that the worse the charges the more numerous the believers. No one looks on the other side; no one is told of the manifold services and advantages of Wall Street as a financial center. No one is taught that Wall Street is merely a central market for capital, just as Chicago is for wheat, Boston for wool, New Orleans for cotton, etc. How many appreciate the fact that Wall Street is as essential to the business life of the country as is the Legislature at Washington to our political life? How many realize that Wall Street is the primary nerve center of the American business world; that a blow struck there is an injury to the whole financial and business fabric of the nation? How many forget that in Wall Street the investor can deal with greater advantage to himself, as a rule, than in any other financial market? How many understand that there the country can best settle its accounts; send its savings, and make its investments more readily and on better terms than anywhere else? The very individuals who most violently abuse Wall Street are often among the first to go there for financing new enterprises or to pick up cheap investments. Thither, also, these same grumblers hasten in order to “get rich quickly.” When they succeed nothing is heard about the “wickedness” of Wall Street, and they flatter themselves as to their own superior shrewdness. But when these same individuals lose, then Wall Street is nothing but a “gambling hell and a cesspool of iniquity.” They fail to recognize that their losses are the result of their own cupidity, or inability to discriminate between sound and unsound investments. They usually lose because of their own bad judgment; but nevertheless, there is no end to their objurgations.

Now Wall Street after all is little different from any other department of business and industry. Its makeup naturally includes men with similar failings and similar impulses to good and evil that exist everywhere; men who are better than the politicians who make capital by abusing Wall Street; men who are better than some of the trusts or the unions which aim to selfishly and often relentlessly grasp all within their power. It may also include a very few who unscrupulously manipulate property for their own advantage and at every opportunity. But it also includes a vast majority of men of high principles, of great foresight and of enlightened self-interest; men who recognize that their own welfare is dependent upon their regard for the welfare of others. Most of such men are rarely heard of, and their good deeds and honorable achievements are not exploited in the daily press, which is naturally interested in the search for the abnormal. Wall Street probably contains a much larger percentage of strong brainy men than any other community, because right there centers the management of large affairs and great organizations which demand the highest ability. True, Wall Street attracts some men of unscrupulous and predatory instincts because of the great opportunities for accumulating wealth by devious and often improper methods. The occasional flotation of questionable schemes and the improper use of funds held in trust undoubtedly are sometimes among the greatest evils connected with Wall Street. They are evils that its best men are most anxious to see eliminated, and it is satisfactory to know that strong efforts are being made in this direction. It cannot be too strongly stated that many of the abuses which aggravated the late panic could not be repeated, and have been stopped forever. Whatever defects remain, the business standards of Wall Street are upon a distinctly higher plane than existed some time ago. In spite of troubles and pessimism the world is growing better and better. But so long as fools with money are to be found, just so long will there be sharpers ready to take the one and leave the other. It is useless to expect the millennium. Human nature changes slowly, and the only means of checking abuses is to establish rules and standards of a high order, and to keep alive a public opinion that will insist upon their enforcement. An alert and vigorous public opinion is often more effective in preventing evil than the punitive measures which are applied after the wrong has been done.