•Av > f .' /3 He ()97 CORNELL UNIVERSITY LIBRARY BUSINESS Cornell University Library HB3711.B97 Financial crises and periods of industri 3 1924 018 931 695 Cornell University Library The original of tliis book is in tine Cornell University Library. There are no known copyright restrictions in the United States on the use of the text. http://www.archive.org/details/cu31924018931695 FINANCIAL CRISES FINANCIAL CRISES AND PERIODS OF INDUSTRIAL AND COMMERCIAL DEPRESSION BY Theodore E. Burton Wiib ST'tajranuf, ^Stbliofftap!)?, anU SfnUej; NEW YORK D. APPLETON AND COMPANY 1903 tT ^KC.KMAJ COPTBIOHT, 1902, Br D. APPLETON AND COMPANY. Puilished Feiruary, 1902. \ OOI^TENTS PAGE Introduction ....... 1 CHAPTER I Definitions ... 6 Substantives, panic, crises, depression — Distinction between depression and poverty — Adjectives, financial, industrial, commercial. CHAPTER II General Facts concerning Crises and Depressions. Periodicity 18 Two classes of disturbances — Relation between them — Depressions without preceding crises — The periodicity of crises — Probable duration of the successive stages of the cycle — Season of the year at which crises occur — Do crises appear only in highly developed coun- tries? — Distinguished as local or general — Degree of severity in different countries — The argument that depressions benefit a majority. CHAPTER III The Phenomena of Crises and Depressions, and the Events precedino them 49 Events preceding them — A crisis preceded by a season of activity — Preceding indications — The phenomena of crises and periods of depression. T Tl CRISES AND DEPRESSIONS CHAPTER IV Causes op Ceises and Depressions 64 Different theories — Responsible cause — Elementary definitions — Fundamental propositions concerning capital — Forms of derangement of capital — Direct loss or waste — Indirect loss or waste — Changes resulting from modern industrial and commercial progress — Ab- sorption of capital and its effect upon foreign trade — Results of invention and improved methods — Progress from the standpoint of consumption — Incidental fea- tures, overaction, speculation, and fraud — Distinctive quality of recent depressions — Alleged causes, lack of confidence, abuse of credit, readjustment because of changes in values or prices, contraction of the circu- lating medium or an insuffieient volume of money, over-production, psychological tendencies, military armaments, and the liquor traffic — Severe because un- expected — Results of waste postponed. CHAPTER V Indications of Prosperity or Depression . . . 136 Employment of labour — Foreign trade, general rela- tion between exports and imports, balance of trade, varying proportion in new and developing countries and in creditor countries — Income taxes — Excise or internal revenue taxes — Bank clearances — Production and prices, agricultural production, iron and steel — Railway tonnage and earnings — Bankruptcies — Social statistics — Other statistics — General tendencies. CHAPTER VI Indications op the Approach op a Crisis or Depres- sion 184 Banking statistics, loans, deposits, paper currency, rates of interest, relation between specie and loans. CONTENTS Tix cash and loans, reserves. Foreign trade, exports and imports of merchandise and of gold — Significance of gold exports or imports in the United States — Rate of exchange — Prices, and general business conditions — Prices of commodities, iron and steel, securities, espe- cially stocks — Conditions in other countries. CHAPTER VII Preventives and Remedies 243 Established laws, governmental control by legislation and administration — Function of the Federal Treas- ury as a bank of issue and as a bank of deposit — Issu- ance of paper money — Elasticity — The Subtreasury system — Certainty as to specie payments — EfEect of changes and agitation — Statistical information — Rela- tion of the State to corporations. The management of banks — Rules as to lending — Effect of furnishing capi- tal by discount — Reserves — Diminishing proportion of capital to loans — Inspection of State banks — Individ- ual action — ^Remedies. CHAPTER VIII Brief Account of Crises and Depressions in the United States 270 Crisis of 1814— Crisis of 1818-'19— Period from 1819 to 1837— Crisis of 1837— Period from 1837 to 1857— Crisis of 1857 — Special features in the United States in 1857 and preceding years — Period from 1857 to 1873 —Crisis of 1873— Period from 1879 to 1890— Period from 1890 to date — Present outlook — Increase in the production o£ gold. CHAPTER IX Summary and Conclusion 306 Viu CRISES AND DEPRESSIONS APPENDIX A PAOB A Selection op Opinions relating to the Causes op Crises and Depressions 311 Walter Bagehot — David Macpherson — ^W. Stanley Je- Tons — Horace White — Bonamy Price — John B. Clark — Paul Leroy-Beaulieu — Leone Levi — J. E. Thorold Rogers — Robert G-iffen — President Van Buren — Pros- pective Review — Bankers' Magazine, London — Albert Gallatin and others — Matthew Marshall — N. C. Pred- eriksen — James Wilson — James A. Lawson — Bankers' Magazine, London — H. T. Easton — Charles A. Conant — Henry C. Carey — Alexander Baring — Robert Baxter — Charles Coquelin — J. W. G-ilbart — Edward Everett — AUred Russel Wallace — Clement Juglar — D. W. Thom— Maurice Block— Edwin Goadby— William Watt— J. B. Howe. APPENDIX B Statistical Data 329 Employment statistics — Foreign trade — Home and foreign valuations of exports and imports of the United States compared — Internal revenue taxes — Bank clearances — Maximum and minimum prices of stocks — Production and consumption of pig iron — Prices of iron and steel in the United States — Statis- tics of capital created and issued in the United King- dom — Railway tonnage — Failures in the United States — Changes in amounts of money in circulation — Wheat crop and prices — Marriages per thousand. Biblioqrapht 347 Index 379 DIAGEAMS PAOB Railway BtnLDiNO in the United States, 1854^1900 . 85 Percentage op Employed in the United Einqdom, 1860-1900 140 Number op Employed in Pennsylvania, 1892-1899 . 143 Per Capita op Eoreign Trade op the United States, United Kingdom, Prance, Belgium, Ger- many opposite 145 Argentine Republic, Exports and Imports, 1886-1894 159 Bank Clearances, New York and London . . . 168 World's Production op Pig Iron, 1870-1900 . . 173 Failures in the United States, 1857-1900 , . . 178 Prices op Anthracite and Bessemer Pig in United States 230 4 CRISES AND DEPRESSIONS more abundant and valuable, is largely tainted witH the same defect. The purpose of this book is to discuss the nature and causes of these recurring disturbances, and to offer some practical suggestions concerning indica- tions of their approach and the possible means for their prevention or mitigation. With the conviction that much of the uncer- tainty which belongs to the discussion is the result of confusion in the use of terms, especial attention is given to definitions and classification. The task is not an easy one. As is pointed out by Professor Cairnes and others, the terms employed in treating economic subjects must be obtained from popular language, and that precision which is obtained in the physical sciences by the use of terms employed for those sciences alone is unattainable.* Much of this confusion is clearly traceable to the indiscriminate use of the words panic, crisis, and depression for the description of phenomena, which, although usually intimately associated, are nevertheless distinct in their essential nature. An effort is made to describe the distinguishing fea- tures of events properly designated by each of these terms. The unparalleled development of the past thirty-five years has, moreover, furnished the basis for an inquiry whether seasons of business depres- sion are not unavoidable features of a transition period, during which a change occurs in methods * The Character and Logical Method of Political Economy, pp. 145-146. INTRODUCTION 5 and instruments of production and exchange, result- ing in a great increase of useful articles and facili- ties, but, in the adjustment to new conditions, attended also by serious derangement and loss. It will also be profitable to investigate the so- called periodicity of crises and depressions, and to inquire whether in fact there is a regular recur- rence of these disturbances, and if so, whether it is the result of fundamental causes or due to chance. In the successive chapters, attention is separately given to the diflFerent phases of the subject. Under this plan it is difficult to avoid repetition. But the method chosen has seemed essential to the clearest presentation of the facts and arguments pertaining to the various questions arising. The portions of Chapter YIII, entitled, The Present Outlook, and Increase in the Supply of Gold, were written in May, 1901, and revised in the following August. A bibliography is appended which is thought to contain a more complete list of books and periodicals specifically relating to this subject than any yet pre- pared. CHAPTEK I DEFINITIONS At the very outset, the consideration of this subject is embarrassed by the confusion and lack of precision which common usage has sanctioned in the use of terms. The substantives most frequently employed to designate financial, industrial, or commercial dis- turbances are: panic, crisis, and depression. Each of these words, in numerous cases, has been used to describe events more properly characterized by one of the others. With each of these substantives are used the qualifying adjectives above mentioned — financial, industrial, and commercial. Substantives Panic. — The word panic is defined as — "A sudden fright, especially a sudden fright without real cause." * Also as — "A sudden, unreasonable, overpowering fear, especially when affecting a large number simul- taneously."f * Webster. f Standard Dictionary. 6 DEFINITIONS 7 Wlien relating to trade or finance, it is defined as — " An exaggerated alarm whicli takes possession of a trading community on the occurrence of a financial crisis, sucli as may be caused by the failure of an important bank, or the exposure of a great commercial swindle, inducing a general feeling of distrust, and impelling to hasty and "violent meas- ures to secure from possible loss, thus often pre- cipitating a general financial disaster which was at first only feared." * The term panic correctly describes the preva- lent disposition during a brief period, in which the real situation, serious perhaps, is made much worse by the general excitement and alarm. We cannot say that under the more modern and improved facilities for information and organization, busi- ness communities are for a considerable period overcome by " sudden fright " or " exaggerated alarm." Crisis. — The word crisis is defined as — " A decisive point or moment, a turning-point, a critical time, a decisive turn." f " The high-wrought state of any affair which immediately precedes a change.":}: " A state of affairs in which a decisive change for better or worse is imminent; now applied espe- cially to times of difficulty, insecurity, and suspense in politics or commerce." * * Century Dictionary. f Worcester. J Crabb's English Synonyms. * Murray's New English Dictionary. 8 CRISES AND DEPRESSIONS John Stuart Mill gives this definition of a com- mercial crisis: " There is said to be a commercial crisis when a great number of merchants and traders at once either have, or apprehend that they shall have, a difficulty in meeting their engagements." * It is evident that neither the derivation of this word nor precision in language warrants its use to describe a prolonged period. Thus, both the words panic and crisis should be used with reference to a brief period which may or may not be followed by a prolonged disturbance. They are usually employed indiscriminately. Panic is the favourite word of the street. Crisis is more commonly used ia books. It would be difficult to find any dividing line in what has been written and said upon the subject in the use of these two words; yet there is a real distinction between them. The former refers more properly to a mental state; the latter to an actual, existing condition. Upon reflec- tion a panic may disappear; but a crisis remains. It is irrational for a community to yield to a panic. It is equally irrational to attempt to ignore a crisis. When a crisis occurs, the alarm of a panic greatly aggravates it. On the distinction between the two, Professor Sumner says, in speaking of the crisis of 1857; " A definite discrimination is intended here be- tween the terms crisis and panic. When certain forces have been set in operation in the commercial * Political Economy, book iii, chap. xii. DEFINITIONS 9 organization by antecedent acts or occurrences, their consequences must follow. " They may combine in such a way or advance to such a pitch that a crisis is produced. " A panic is properly psychological. It is a wave of emotion, apprehension, alarm. " It is more or less irrational. It is superin- duced upon the crisis, which is real and inevitable; but it exaggerates, conjures up possibilities, takes away courage and energy. It is not possible to preach down a crisis; it is a fact and is there; it must run its course, and be accounted with for all there is in it. The soberest man appreciates the facts the best. It is useless to preach confidence to him in the face of the facts which infuse suspicion and warning. A panic can be partly overcome by judicious reflection, by realization of the truth, and by measurement of facts." * Mr. Hammond Chubb, in an article on the Bank Act and the Crisis of 1866, thus distinguishes a panic from a crisis: " A crisis is caused by an insufficiency of capital for carrying on the undertakings which have been set on foot ; a panic is the unreasoning fear of those who find themselves likely to be affected by such a condition of things." f It should be added that a panic is not always a mere incident accompanying a crisis. It may occur as a prior independent event, and the spirit of alarm * A History of Banking in all Nations, vol. i, p. 435. t Journal of the Koyal Statistical Society (London), toL xxxT, p. 184. 10 CRISES AND DEPRESSIONS which characterizes it may assume such proportions as to cause a crisis. Depression. — The word depression is defined as — " A state of dulness or inactivity." * " The state of being lowered in force, activity, or intensity." f " A diminution of prosperity, as of trade." X A period of depression may be briefly defined as a protracted season in which the activities and profits of industry and trade fall materially below their normal level. This term most satisfactorily describes the pro- tracted and wide-reaching checks to advancing pros- perity which affect the industrial and commercial world. In distinction from a panic or crisis it refers to a prolonged period. It is not a matter of days, but of years. During its continuance the discouraging situation must be recognised and calmly met. Recuperative forces must accomplish their work. The following definitions, or statements, clearly express the distinction between a panic or crisis and a period of depression: " A panic or crisis is usually short, sharp, and decisive in its results. A depression is a condition which has duration of time attending it." * " There is an abuse of language when we speak of a crisis which has been going on for the last six * Worcester. f ^ew English Dictionary. J Webster. * Carroll D. Wright. Report on Modem Industrial Depres- sions, 1886, p. 15. DEFINITIONS H years. This seems to betray some confusion of ideas between depression of trade and an entirely different pbenomenon, a crisis or panic in the city when merchants are in agony for the loan of money, and cannot get it." * " A crisis, as the word indicates, is not, or ought not to be, only a transitory situation." f The observance, in English speech, of the dis- tinction contended for in this chapter, is taken for granted in a recent French publication, Le Diction- naire du Commerce, etc., compiled by MM. Yves Guyot and A. Kaffalovich. In defining a crisis, M. Raffalovich says: " It would not have the meaning given if applied to a prolonged state of languor, of atrophy, to a chronic, morbid condition, for which the English employ the word depression, while they reserve the expression crisis for sudden accidents, which fre- quently have a quality of panic." ^ The distinction between a brief season of crisis and a considerable period of depression is recog- nised by many who nevertheless use the word crisis for both." • The following quotations illustrate the different uses of the word. M. Emile de Laveleye says: " This sharp period of the crisis is not of long * Walter E. Smith. The Becent Depression of Trade, p. 15, Oxford Cobden Prize Essay for 1879. f Maurice Block. Revue des Deux Mondes pour 1879, mars- avril, p. 433. X Article, Crise. * See especially the description of two kinds of crises by Paul Leroy-Beaulieu, quoted herein, chap, iv, pp. 124-125. 12 CRISES AND DEPRESSIONS duration. The panic ceases. Foreign capital comes in. Interest lowers. Industry, however, suffers for a much longer time." * M. Courbon, a Trench senator, in his statement before a commission appointed by the French Chamber of Deputies, says: " There are two distinct sorts of crises, the one temporary and the other persistent and profound." f Max "Wirth says: "Two kinds of crises are to be distinguished: Crises of the medium of circula- tion, and crises of capital " (" Krisen der Umlaufs- mittel, und Krisen des Capitals ").jf. In addition to the foregoing, the words crash and collapse are frequently used as descriptive of the sudden breakdown which marks the advent of a crisis. The word pressure, used more frequently, perhaps, half a century ago than now, designates that condition of stringency in financial circles which threatens a crisis, though sometimes used as synonymous with crisis.* Distinction hetween Depression and Poverty. — Before passing from the distinction between panics or crises and depressions, it should be distinctly * Article, Crise, in La Grande Enoyelopddie, vol. xiii, p. 381. f Referred to in Carroll D. Wright's Report on Industrial Depressions, 1886, p. 89. if Greschichte der Handelskrisen, 1890, p. 1. * "A pressure on the money market may be defined (as) a difficulty of getting money in the London market, either by way of discounting bills, or of loans upon Government secur- ities." — J. W. Gilbart, Practical Treatise on Banking, vol. i, p. 96. DEFINITIONS 13 noted that depression is not the same as poverty, although the two may appear contemporaneously. Just as depression describes a condition of greater duration than a crisis, so poverty applies to a con- dition more prolonged than a depression, and one which is essentially permanent. Depression runs its course and disappears. Poverty remains. The study of periods of depression reveals the fact that there are alternate seasons of activity and dulness in trade and industry, but that these alternate seasons do not, in a series of years, prevent an increase of prosperity. Poverty describes a perma- nent loss or abatement of prosperity. Progressive and highly developed countries suffer from depres- sion; unprogressive and decayed countries suffer from poverty. Much has been written upon agricultural de- pression. In describing conditions existing in farming communities where production is rendered less profitable by the competition of other lands, the term depression cannot be considered as cor- rectly describing the situation. When agricultural production or any industry in any locality becomes unprofitable, and continues increasingly so for a period of ten years or more, this permanently de- creased profit can hardly be explained as a phe- nomenon of depression. It indicates that other localities, or other methods, have gained a superi- ority which gives them a permanent advantage. It is more nearly a condition of poverty. The long eras of scarcity and destitution, prevalent in earlier centuries, such as that in England at the time of the 14 CRISES AND DEPRESSIONS "Wars of the Roses, and in the preceding wars with France, or that in France for the greater part of the century preceding the Revolution of 1789,* display little in common with modern depressions. They were rather eras of poverty due to exhaustion by war, to misgovernment, or erroneous economic policies. Adjectives The distinction between the adjectives f em- ployed in this connection is not so satisfactory as that between the substantives mentioned. This is because the conditions which they respectively de- scribe, in a greater degree, appear simultaneously, and the dividing line between them cannot be so clearly drawn. Financial. — The adjective financial is defined as " Of, pertaining to, or relating to finance or money matters.":]: By general usage this adjective relates to the agency of credit as well as to the use of money, and thus includes reference to the relation of debtor and creditor. A crisis in its predominant features is financial. This is particularly true in view of the increasing importance of credit and credit instruments and the development of banking. While the condition of commerce and industry may aflEord the remote causes of the disturbance, it is, in its early manif es- * For a graphic description of this last period, see Taine's Ancient Regime, book v. Translation by John Durand. t For the use of the word "monetary," see p. 110. i New English Dictionary. DEFINITIONS 15 tations, financial, because financial transactions fur- nish the means by which the large volume of indus- trial and commercial operations can be conducted. The essential feature of a panic or crisis is the inability of many debtors to meet their obligations and an apprehension of the inability of many more. The storm centre is among the banks and financial institutions.* 'Not only is it financial in its early manifestations, but a panic or crisis may run its course without seriously involving trade or indus- try. This is especially true if, as sometimes occurs, the crisis is not followed by a period of depression. The activities of commerce and industry may con- tinue unslackened during the disturbance which marks the advent of a crisis, but when the crisis has taken an unfavourable turn and left its wrecks behind, both must suflFer. In a crisis, the ruinous fall in prices manifests itself in securities more than in commodities. It is more keenly felt at the Stock Exchange than at the Produce Exchange. Industrial. — The adjective industrial is de- fined as — " Pertaining to industry or its results, relating to or connected with productive industry or the manufacture of commodities." f By recent usage the words industry and indus- trial are more and more applied to the whole of the mechanism for the production of wealth, not only in manufacture, but in the obtaining of raw ma- * See the figures for the failures in 1893 and the two suc- ceeding years, given in Chapter III, pp. 58-59. t Century Dictionary. 16 CRISES AND DEPRESSIONS terial for manufacture. They are also frequently used with reference to production in agriculture. Commercial. — The adjective commercial is de- fined as — " Kelating to commerce or traffic; mercantile; trading." * The adjective commercial and the substantive commerce both refer to trade or to the exchange of commodities. Industry refers to the original production or manufacture of commodities or articles of utility; commerce to the successive steps by which they are placed where needed or demanded. Of the two, industry, or the original production, would seem to be the more important, and a single word or desig- nation would be simpler; but industry and com- merce describe operations which, though distinct, are so intimately associated as to render their sepa- rate consideration impossible. Improvements in transportation, with equal progress in the transac- tion and management of the business of the mer- chant, have greatly increased production and con- sumption, because, except for these improvements, a large share of that which is now annually con- sumed could. not be brought within the reach of the consumer, f Industry and commerce must thus go hand in hand, and each depends for its life upon the maintenance of the other. In the more extended * Worcester. t Mr. Mulhall estimates that in the fifty years prior to 1896 distributive energy increased three times faster than produc- tion proper. Industries and Wealth of Nations, p. 5. DEFINITIONS 17 period known as a depression, the disturbance is industrial and commercial as well; the financial dis- turbance is subordinate. The adjectives industrial and commercial are therefore properly employed to modify the substantive depression, and the adjec- tive financial in describing a panic or crisis. StrjIMAEY The word crisis, if employed with entire ac- curacy, describes a brief period of acute disturbance in the business world, the prevailing features of which are the breakdown of credit and prices and the destruction of confidence. It has especially to do with the relations of debtor and creditor. The word panic describes a different phase of the same general condition or situation, which is essentially mental or psychological. On different occasions, one or the other phase is the more prominent. The adjective financial is appropriately used with each of these. The term depression, or period of depression, describes a disturbance having a much longer dura- tion, and which cannot be designated as financial. It pertains rather to industry and commerce, and in- cludes the whole field of production and exchange. It is properly described as industrial and commercial. Accordingly, the terms employed herein will be financial panic or crisis, and period of indus- trial and commercial depression, or simply depres- sion. The word crisis will be used as a general term to describe the briefer period, except in the description of events wherein the panic phase seems to have been more prominent. \ 2 CHAPTEK n GENERAL FACTS CONCERNING CRISES AND DEPRESSIONS. PERIODICITY Two Classes of Disturbances. — As already out- lined, these disturbances are of two classes. One includes panics and crises, the other periods of de- pression. The first are of brief duration, the sec- ond more prolonged. Relation between the Two. — A period of depres- sion usually follows a crisis. A crisis usually pre- cedes a period of depression. Each may, however, occur as an independent event. The following are illustrations : The original Black Friday, December 6, 1745, was a day of panic as well as of crisis, caused by the progress of the army of the Pretender. There was a run on the Bank of England, for which the invading army had a special antagonism, because the bank had been regarded as a Whig institution. There was no ensuing depression. With the defeat of the Pretender, the crisis subsided and normal conditions were restored. This crisis was dis- tinctly political as well as financial.* * Every serious political disturbance or revolution is likely to be attended by a crisis. The resulting fall in prices is the 18 FACTS CONCERNING CRISES AND DEPRESSIONS 19 Black Friday, May 11, 1866, sometimes called Overend Friday, was the day of the failure of Over- end, Gumey & Co., in London, one of the most notable failures of a financial institution up to that time. This failure led to a crisis, followed by a period of depression, which, in England at least, was severe. Black Friday, September 24, 1869, was due to the operations of a speculative clique at New York, the members of which created a corner in gold. The onward movement in the industrial and com- mercial world was not cheeked. Mr. GiflFen says that the months of July and August, 1870, at the beginning of the Franco- Prussian War, as well as the close of the war in 1871, marked the occurrence of crises in England, but by reason of the unprecedented prosperity of the time no serious results followed.* The recent crises in the United States in Sep- tember, 1873, and May, 1893, were followed by periods of depression. The name of crisis has been denied by some for those disturbances which were not followed by serious abatement of business activity. Doubtless most noticeable in the securities of the Government afEected or of institutions depending upon it. On February 23, 1848, the day before the abdication of King Louis Philippe, flve-per-cent Government securities at Paris were quoted at 116.75; March 7, after the close of the Bourse, at 97.50 ; March 20, at 73. The stock of the Bank of France was quoted on February 23, at 3180; March 7, at 2400; March 30, at 1650. * The Cost of the Franco-German War; Essays in Finance, First Series, 1880, pp. 60-64. 20 CRISES AND DEPRESSIONS the panic phase was prominent in the instances cited, but, in classifying them, it is appropriate to judge them, not as they appear in retrospect, but according to the experience of contemporaries who were compelled to face the situation as it then existed. To them it was a crisis of a kind similar to those which are followed by prolonged depres- sion. The great fluctuations and losses, at the New York Stock Exchange in May, 1901, certainly caused a crisis which, if the general condition of business had not been sound, would have marked the beginning of a depression. Whether a crisis will be succeeded by a period of depression is not altogether a question of the severity of the shock; much depends upon condi- tions existing at the time. " As a rule," says Mr. John Mills, " panics do not destroy capital; they merely reveal the extent to which it has been previously destroyed by its betrayal into hopelessly unproductive works." * A crisis will be followed by a depression if it occurs contemporaneously with an exhaustion of resources and undue expansion of credit, and indi- cates the existence of actual cause for distress as distinguished from mere fright, or the apprehension of an unfavourable event which does not occur, or a derangement of the circulating medium, the effects of which may be only temporary. Those crises which are not so followed resolve themselves into * Article read before the Manchester Statistical Society, De- cember 11, 1867, on Credit Cycles and the Origin of Commer- cial Panics. FACTS CONCERNING CRISES AND DEPRESSIONS 21 mere temporary shocks, succeeded by prompt and almost complete recovery. They are little more than a clearing of the atmosphere. If a crisis is an independent fact, and has no sequence in the form of prolonged distress, the business world will right itself and go on as before, like a ship after a severe storm, when, although the waves are still high and the wiad has not yet subsided, the mariner sees safety ahead. They are not without beneficial effect, because they check injudicious and extrava- gant enterprise and give warning of the danger of speculation. Crises, when followed by periods of depression, are part of a series of events, and the calamities which ensue are much more serious. They are like the bursting of the thunder-cloud which precedes a storm. They are not only serious in themselves, but, in addition, bring clearly to view the instability of existing business conditions. These conditions may have existed for a long time, but have escaped general recognition until brought to the light by some notable event. Depressions without Preceding Crises. — ^A de- pression may occur without a preceding panic or crisis. In this case, the transition from activity to dulness is more gradual, and not marked by the sudden change which manifests itself on the occur- rence of a crisis; but usually some significant event precedes. The signal for the commencement of the depres- sion in England in 1890 was the embarrassment of the firm of Baring Brothers; but, as stated in Mr. 22 CRISES AND DEPRESSIONS K. H. Inglis-Palgrave's Dictionary of Political Economy: " Even in London there was no panic except in Capel Court." * And in the same connection it is said: " Since 1866 no crisis has occurred in England ■worthy to be classed with the one in May of that year, nor, in fact, with any of those occurring in each of the decades preceding 1866; but industrial and trade depression has several times been pro- tracted and severe." Depression in one country often follows a crisis in another country or countries, with which it has extended commercial relations. The year 1873 witnessed severe crises at Vienna, Berlin, and New York, while none occurred at London or Paris; but at the latter places the derived effect of disturb- ances elsewhere became manifest later. The superior organization of business and the co-operation of banking institutions in later years, the greater quantity and mobility of capital, all have had much to do in diminishing the force of panics or crises. Superior means of communica- tion and of information have contributed to the same result. It is not too much to say that crises are becom- ing relatively less prominent and depressions more so. The severe convulsions characterized by panic and partial suspension of business are much less noticeable than formerly, but depressions have not * Vol. i, p. 463. Article entitled Crises, 1857. 1866, 1890. FACTS CONCERNING CRISES AND DEPRESSIONS 23 lacked in duration or universality. Depressions not preceded by crises have distinctive phenomena. There is not that sudden fall in prices or immediate abatement of activity which occurs at the time of a crisis. Instead of a sudden change there is a slow reaction against the preceding expansion, attended at first by fluctuations in prices and activity. The general tendency is downward, but several succes- sive years may be strikingly alike in the volume of business transacted and in comparative prosperity. This was well illustrated in the first half of the decade beginning in 1881. It is not without reason that there is difference of opinion regarding the time when a depression commenced. There was a crisis in France in 1882, but it was not of suffi- cient magnitude to explain the general depression which occurred later. There was a crisis in bank- ing circles in New York in May, 1884. The years 1882 and 1883 showed abatement from 1881 in many branches of business, but the value and vol- ume of foreign trade in the United Kingdom did not reach its maximum until 1883. In the TJnited States the decline in the price of iron began in 1880, but there had been an exceptional advance in the demand for iron and steel. Production and consumption increased in many branches in the two following years, and were well sustained in 1883. The consideration of this class of depressions assumes importance, because in the development of modem business it is becoming more and more the prevailing type. Crises have occurred in the midst of a depres- 24 CRISES AND DEPRESSIONS sion. These are naturally less severe because of the contraction of business operations at such a time, and because the liquidation incident to the depres- sion has diminished the volume of transactions upon credit and the number of establishments which rest upon unstable foundations. The events following the failure of the City of Glasgow Bank, October 1, 18Y8, illustrate the occurrence of a crisis in the midst of a depression. This crisis is readily dis- tinguished from others in that it occurred when liquidation was well advanced. Crises of this class can often be traced to flagrant neglect of requisite prudence in management, and are usually local rather than general in their extent. The Peeiodicitt of Crises Crises and depressions have been regarded as successive stages of an extended period, to which the name cycle has been given, and which embraces all the varying conditions from the highest degree of prosperity to the lowest point of depression. The word cycle, with this general meaning, was used by Sir William Petty as early as the year 1662. In speaking of the proportion of the produce of land which should be retained as rent, he says, " The medium of seven years, or rather of so many years as makes up the cycle, within which Dearths and Plenties make their revolution, doth give the ordi- nary rent of the Land in Corn." * The periodicity of crises and depressions has * A Treatise of Taxes and Contributions, chap, iv, sec. 13, pp. 24-25. FACTS CONCERNING CRISES AND DEPRESSIONS 25 been very generally recognised. On this point, Prof. Leone Levi says: " Experience teaches us that seven fat-fleshed, well-favoured kine — years of plenty — are generally followed by other seven, poor and very lean, ill- favoured kine — ^years of famine. ... As a matter of fact, there has ever been an alternation of pros- perity and dulness in trade." * As stated by him in another place, the regular course after a collapse is depression, activity, ex- citement, collapse again. The most confident advocates of the theory of periodicity assign to these cycles a definite and nearly equal duration of ten to twelve years. Ac- cording to Mr. John Mills, above referred to, this cycle is divided as follows: After each panic or crisis, the first three years will witness dimin- ished trade, lack of employment, falling prices, a lowering rate of interest, and very considerable dis- tress. Then there will be three years of active trade, slowly rising prices, fair employment, im- proving credit. Then will come three years of unduly excited trade, in which speculation will be rife, prices will rapidly rise, and an unusual num- ber of new enterprises will be begun. The tenth year will be one of crisis, followed again by three years of depression. These three successive stages or seasons, each of three years, are styled by Mr. Mills the Post- Panic Period, the Middle or Revival Period, and * Introduction to Prize Essays of &oadby and Watt upon the Depression of Trade, pp. iii-iv. 26 CRISES AND DEPRESSIONS the Speculative Period. In speaking of their regu- lar succession, he says: " The instances are already too numerous, regu- lar, and persistent to allow any foothold for a theory of fortuitous coincidence. There is no region of scientific inquiry in which the idea of so distinct and prolonged a series occurring hy acci- dent would not at once be scouted." * The financial history of England affords strong corroboration for this contention of Mr. Mills, for crises or depressions have occurred there substan- tially at intervals of ten years, to wit: in 1815, 1825-6, 1836-7, 1847, 1857, 1866, and, as is held by him in another article, and by others, in 1875, though this last depression really commenced at an earlier date. Some writers ascribe these cycles to physi- cal causes, notably to variations in spots upon the sun, and assert that these causes have mani- fested themselves in India and the East, whence their results have been transmitted to other parts of the world. The famines and deficient harvests there have rendered the inhabitants unable to fur- nish, in the average quantity, agricultural produce in exchange for English manufactures. Prof. W. S. Jevons has been regarded as the most prominent advocate of the sun-spot theory, f His views upon * Article above referred to read before the Manchester Sta- tistical Society, December 11, 1867. t Article on Solar Period and the Price of Corn, read at Bris- tol in 1873, Investigations in Currency and Finance, chap, vi, p. 194. See also same work, chap, vii, p. 206 and chap, viii, p. 331. FACTS CONCERNINa CRISES AND DEPRESSIONS 27 sun-spots have been severely criticised; but, upon careful examination, it will appear that he did not assert their controlling influence with that positive- ness which some of his critics have ascribed to him. Several writers, however, have gone so far as to ascribe to sun-spots the most potent agency in de- termining the quantity of agricultural products, and consequently conditions of prosperity from year to year. Whether sun-spots affect harvests is a question of fact. Their periodicity may be regarded as es- tablished; their maxima in recent years occurred in 1848, 1860, 1870, 1881, and 1892.* It may also be conceded that there is a correspondence between their occurrence and the phenomena of terrestrial magnetism and aurora borealis. The opinions ad- vanced to the effect that there is a correspondence be- tween them and heat energy, rainfall, cyclones, quan- tity of atmospheric ozone, or visitations of Asiatic cholera cannot be accepted as established. Their influence in determining the scarcity or abundance of harvests cannot be conceded without further careful examination. The testimony is too conflict- ing and the data not sufficient to warrant admitting so much. On this subject. Prof. 0. A. Young says: " While it is not at all unlikely that investiga- tion will result in establishing some real influence of sun-spots upon our terrestrial meteorology and * See article Sun, by Prof. Simon Newoomb, in Johnson's Cyclopaedia, vol. vii, p. 834. The interval between the max- ima of sun-spots has been differently stated ; 11.11 and 10.45 years are the periods having the largest number of supporters. 28 CRISES AND DEPRESSIONS determining its laws, it is practically certain that this influence is extremely slight and so masked and veiled by other influences more powerful that it is extremely difficult to bring to light." * Historically speaking, it must be said that no connection between sun-spots and prosperity has been established. It cannot be maintained that their influence in India has been very great, nor that the increase or decrease of trade with that country, so frequently referred to by those who have advocated this theory, is sufficiently important to account for the alternate ups and downs of busi- ness in the western hemisphere and Europe, f A vital objection to this theory is found in the dif- ferent conditions existing in different agricultural countries. Some are benefited by less heat than that afforded in the average season and others by more. It is claimed for sun-spots that they coin- * The Sun. Edition of 1895, p. 177. t It is a singular fact that several of the writers who have given prominence to the influence of sun-spots, do not make it clear whether in their opinion they benefit or injure agricul- tural production. The prevalent opinion since the investigations of Sir "Will- iam Herschel in 1801 has been that they benefit harvests. (See Philosophical Transactions, 1801, vol. xci, pp. 265-318.) This opinion has, however, found numerous opponents. For a list of writers favouring or opposing the theory that sun-spots bene- fit harvests, see Bergmann's Geschichte der NationalOkonomi- schen Krisentheorien, pp. 249 et seq. Among its advocates are counted Norman Lockyer, the astronomer, and W. W. Hunter, statistician, of East India. Among those opposed are Prof. Richard A. Proctor, the astronomer, E. D. Archibald, tha physicist, and Herman Pritz. FACTS CONCERNING CRISES AND DEPRESSIONS 29 cide with a greater average of heat and less mois- ture. Thus they would benefit agricultural pro- duction in some localities and injure it in others. The corn crop of Kansas and other portions of the Southwest would have been better in the year 1901 with less heat and more moisture. Others have ascribed changing conditions of prosperity to varying mental moods. Mr. Mills thought the regular recurrence of crises was due to the periodical destruction of belief and hope in the minds of merchants and bankers. To him panic is the destruction of a bundle of beliefs; crisis is not a matter of the purse, but of the mind. The theory of a periodicity of crises, ridiculed by Prof. J. E. Thorold Rogers,* doubted by David A. Wells,f and accepted by Professor Nicholson, :j: but regarded by him as less noticeable than for- merly, would have gained more general acceptation but for the variety of reasons given for it and the extreme and sometimes absurd views of many of its supporters. But, however unsatisfactory the current expla- nations may be, the fact remains that in progressive countries the existence of a tendency to periodicity of crises, with the regular recurrence of a series of events consisting successively of crisis,* depression, * Princeton Review, vol. Iv, p. 223. f Recent Economic Changes, p. 81. i Political Economy, vol. ii, pp. 213-314. * The term "crisis," here and in other places, refers to the time of the change from activity to dulness, whether signalized by the actual occurrence of a crisis or not. 30 CRISES AND DEPRESSIONS improvement, expansion, and a new crisis, is as well established as any tendency in the history of indus- try and trade. To ignore this fact would prevent an accurate analysis or understanding of the sub- ject. The mistake lies in fixing a definite duration for the successive events of the cycle, and in failing to sufficiently recognise exceptional conditions of time, place, and social or economic development. Much depends upon the degree and rapidity of in- dustrial advancement, the maintenance of social order, the presence or absence of sudden changes in fiscal policy, physical conditions, such as failure and abundance of crops, and upon the occurrence of business failures or other events which precipitate a crisis. These periodic disturbances will occur, but not with the regularity of the phases of the moon or with the uniform duration of the seasons of the year. There is a distinct tendency towards the occur- rence of a pressure or disturbance almost attaining the magnitude of a crisis at a time both preceding and succeeding the date of the crisis proper. In several instances the interval, both before and after, has been two years. This pressure usually occurs at the same season of the year as the crisis, and it is likely to occur more than once. This was illus- trated by the revulsion in 1839, two years after the crisis of 1837; and again after the crisis of 1893, by the temporary improvement and later reaction in 1895-96. The disturbance prior to a crisis was illustrated by the severe pressure in 1864 in Eng- land two years before the crisis of 1866. Before FACTS CONCERNING CRISES AND DEPRESSIONS 31 the crisis in the autumn of 1873 in the United States, there was a noticeable stringency in the money market in the autumn of the years 18Y1 and 1872. The same forerunner of disturbance ap- peared in the summer of 1856, prior to the crisis of 1857. In case the disturbance precedes the crisis, the failure to check the onward movement of activity and expansion is probably due to the strong impetus which it has gained. The occurrence of a distinct disturbance after the crisis proper may be ascribed to the fact that the liquidation which fol- lows the crisis is not complete, and that an artificial activity is created without sufficient recognition of the depressed condition of business. The existence of periodicity is more noticeable in countries like England and France, which, along with a high degree of development and large accu- mulations of available capital, have also reached a stage of greater uniformity in commercial and in- dustrial operations. In these countries the accre- tions or losses of wealth in any one year bear a smaller proportion to existing wealth ; nevertheless, they are slowly but surely affected by changing con- ditions at home and abroad. In England the ten- dency to a regular increase and decrease of activity is marked and striking. Periodicity is less notice- able in countries like the United States, where new fields for enterprise are constantly being opened and changes are more frequent. Alternations of pros- perity and dulness are more sharply defined and more frequent, and the regularity in the recurrence of the different phases of the cycle is less perceptible. 32 CRISES AND DEPRESSIONS Peobable Dueation of the Successive Stages op THE Cycle The duration of crises varies. In 1873 tlie failure of Jay Cooke & Co. occurred September 18th. The Stock Exchange was closed September 20th, and was not reopened until the 30th of the same month. Clearing-House certificates were issued. Currency commanded a varying premium until November 1st. At that date — after six weeks and two days — the crisis proper may be said to have come to an end. In England, in 1847, the extraordinary bank rate of 8 per cent was maintained for twenty-eight days; this was a year of high rates and numerous changes; in 1857, the rate of 10 per cent for forty- five days; in 1866, it continued at 10 per cent for eighty-eight days. The time during which these high rates of interest were maintained affords the most correct indication of the duration of each of these crises. M. Clement Juglar, who has given much painstaking attention to this topic, says: " The panic does not continue beyond six weeks or two months; afterward comes the liquidation, which continues for eighteen months or two years." * This season of liquidation, as he calls it, in- cludes the earlier stage of a period of depression. Generally speaking, the intervening period be- tween the end of one crisis and the beginning of * Maurice Block's Dictionnaire General de la Politique, vol. i, p. 593. FACTS CONCERNING CRISES AND DEPRESSIONS 33 another has three distinct stages: first, the de- pression proper; second, a season beginning when diminishing activity has reached its lowest point, in which there is, after a brief stationary period, steady and healthy development; third, a season of rapid improvement, developing into overaction and speculation, after which comes a collapse. The duration of these successive seasons or periods has varied greatly. The usual length has been from two to five years for each. Of the three, the first, or period of depression, characterized by falling prices and progressively diminishing activity, has been longest, almost without exception. Indeed, in a majority of instances, it has continued longer than the two succeeding periods combined, namely, those styled by Mr. Mills the Middle or Eevival and Speculative periods, during which improving conditions prevail. If we accept the usual indications as a guide, the depression following the crisis of 1878 in the United States reached its lowest point in the year 1878, and in Great Britain — ^where the depression became severe later — ^in the year 1879. The de- pression after the crisis of 1893 in the United States was interrupted by a temporary revival, beginning in the autumn of 1895, which, however, disappeared in the following year, and the lowest point was not reached until June or July, 1897. The depression in several European countries, beginning earlier, in 1890 or 1891, gave way first to a stationary condi- tion and then to gradual improvement at the end of 1894. 3 34 CRISES AND DEPRESSIONS . The Season of the Yeae at which Ceises occub Mr. Tooke, Mr. Langton, and others have mentioned the fact that crises usually occur in the autumn months. It is clear that production, whether in agriculture or in manufactures, reaches its maximum, or rather its completed results, in the autumn. This is due partly to the longer days and more favourable working weather of the warmer season, and partly to preparation for the larger demands of winter in the way of clothing, fuel, etc. Large advances of currency are required for the movement of the crops. Larger amounts of money are withheld from general circulation by those who do not make deposits in the banks. During the early autumn and the season succeeding, there are larger expenditures for future supplies. The greater demand for currency at this time is de- scribed as the " autumn drain." The quantity of agricultural production is uncertain, and the de- mand for all kinds of products may be out of har- mony with the supply. Thus, disturbing conditions are likely to exist in the autumn. In the fifty years from 1845 to 1894, inclu- sive, the Bank of England reserves showed a maxi- mum in the month of June in fourteen years, and a minimum in October in thirteen years, the maximum and minimum appearing in these respec- tive months much more frequently than in any other.* * See an article by A. W. Flux, M. A., Manchester Statisti- cal Journal, Session 1894-'95, p. 91. FACTS CONCERNING CRISES AND DEPRESSIONS 35 Mr. Langton, in an article read before the Man- chester Statistical Society, in December, 1857, illus- trated by a chart the fluctuations of currency dur- ing a succession of years. In explaining it, he said: " The first thing which will be noted on inspec- tion of this chart is the quarterly fluctuation, ex- hibiting an almost invariable increase in the demand of the public upon the bank from the second week in each quarter up to the first in the follow- ing. .. , " In the midst of other disturbances this wave may be traced in the magnitude of the operations of the third and fourth quarters, and the almost invariable lull in the second quarter of each year, the third quarter being generally marked by a rapid increase in the demand for accommodation at the bank. The culminating point of the movement, originating in the third quarter of the year, appears to be a moment favourable to the bursting of those periodical storms in which the commercial difficul- ties in the country find their crisis." In some figures furnished by the Commercial and Financial Chronicle of New York, and pub- lished in a report of the Monetary Commission in 1898, attention is called to the large disbursements for payment of interest and dividends on railroad bonds and stocks in the United States in the months of January and July. Payments in these months, amounting in 1898 to $67,000,000 in each, are nearly twice as great as in April and October, the other months showing largest disbursements, and 36 CRISES AND DEPRESSIONS nearly five times as great as in the montlis of Feb- ruary and August.* So great a fluctuation must necessarily cause a decided difference in the strain upon the banking resources of the country in different months of the year. On the other hand, it should be stated that the usual signal for the appearance of a crisis is a con- spicuous failure, or other convulsion, which causes "wide-spread alarm and a more careful scrutiny of existing conditions. These failures do not occur in accordance with any general rules, or at any par- ticular season, consequently it is difficult to gen- eralize as to the season of the year when crises occur.f Do Ceises appear only nsr Highly Developed COUNTEIES? It has frequently been stated that crises and depressions manifest themselves only in a highly civilized state of society, where commerce and in- dustry flourish and there is enterprise and spirit. Also, that until within a comparatively short time they have not been recognised except in England, France, Belgium, the United States, Holland, and the Scandinavian countries, while more recently they have appeared in Austria, Germany, and Russia. * Report of the Monetary Commission, University of Chi cago Press, 1898, p. 310. •f For a statement by months of the comparative number of maximum and minimum prices on the New York Stock Ex- change, see Chapter VI, p. 240. FACTS CONCERNING CRISES AND DEPRESSIONS 37 It is no doubt true that crises occur where credit and enterprise are found. Nations which do not experience these visitations are not on that account to be congratulated, .for their absence indicates a permanent state of stagnation. On the other hand, nations much less advanced than those mentioned have felt the influence of these disturbances. In 1873 and the succeeding years, the date of the most wide-spread and representative of all crises, Brazil, the Argentine Eepublic, and Peru, all experienced the distress which arises from falling prices, de- ficiency of employment, and the results of previ- ous overaction. The disturbance in each of these countries followed an increase of trade relations with more advanced communities and large expendi- tures for public and private works. British Con- sular Eeports of that time fully portray the situa- tion there. The results were much the same as in more advanced nations, with a tendency to increased severity because of the absence of a diversity of resources. If the symptoms were less pronounced or the suflFerings less acute, it was because the indus- trial organism was less complicated. A study of conditions in the Argentine Republic in 1890 affords one of the most valuable object lessons upon the subject of crises.* It would thus seem that crises are incident to a . state of progress and expansion rather than de- pendent upon the degree of advancement. * See pp. 156-158. 38 CEISES AND DEPRESSIONS Ceises distinguished as Local oe General Crises and depressions are said to be local or general. That is, they may affect one nation or ex- tend their influence over all nations having intimate commercial relations. They are becoming more and more general. This is due to obvious causes. First, the tendency to overaction and speculation is common to all progressive countries vyhich have a system of credit. Hence, these forces work con- temporaneously in all of them, and tend independ- ently to cause the same results at approximately the same time. Second, the growth of commerce and of international credits tends more and more to create common interests and identical conditions among all commercial nations. The loss of one is in a very important sense the loss of all. A de- crease of purchasing or consuming power in any nation must make its influence felt among the va- rious nations with which it has trade relations. As Mr. Alfred Kussell "Wallace says: " Much has been said as to the blessings of commerce among nations; it is, however, equally true that it causes the suffering of each to be felt by all. The ties of commerce unite nations alike for good and evil, and render the prosperity of each dependent upon the equal prosperity of all the rest. When this great truth is well understood, it may, perhaps, become the peace-maker of the world." * While recognising that periods of depression are becoming more and more general, the fact should * Bad Times, p. 83. FACTS CONCEKNINa CRISES AND DEPRESSIONS 39 not be overlooked that there is a great degree of inequality in the sufferings of different nations. In pointing out the coincident occurence of these dis- asters in many countries, the tendency has been to exaggerate this quality of universality. A careful analysis will show decided inequality, both in dura- tion and in intensity; differences in date of com- mencement are also to be noticed. This inequality is traceable to the unequal severity in the country in which the crisis originates as compared with others to which it is conveyed later, and to the inferior industrial organization and financial institutions of some countries, and, as a consequence, unequal capacity for withstanding the shock. Degeee of Seveeity in Diffekent Countries Frequent attention has been called to the fact that France has suffered less from these visitations than other nations. This has been ascribed to the exceptional frugality of her people, and to the nature of land ownership in that country, viz., the division into small farms, and the greater number and proportion of landed proprietors. While these no doubt have their influence, there are other causes of equal potency, among them a severe bankruptcy law. T\Tiether by the educating forces of law and established institutions, or by tradition, a high standard of business honesty prevails in France. The act of sons in toiling for years to pay the debts of their fathers, and of notaries in paying for the defalcations of one of their number, for the sake of the profession, although without personal associa- 40 CRISES AND DEPRESSIONS tions with him, indicates a standard of integrity and of compliance with business obligations which can- not be without influence upon the material pros- perity of a people. Jt may be surprising that the nation whose soldiers are so noted for dash in war should furnish financiers and business men who are the embodiment of conservatism in their methods, but such is clearly the case. It should also be noticed that along with an almost stationary popu- lation, France shows much less fluctuation than other nations in the volume of trade and the quan- tity of production from year to year; and this makes business very stable and calculations more accurate. Fluctuations, such as sudden changes in prices or in the volume of production, are fruitful causes of crises. From these France is excep- tionally free. The difference from year to year between the quantities of land devoted to the va- rious kinds of agricultural production, as well as in the aggregate quantity of various manufactures, is exceedingly minute when we come to consider the extent of her agricultural territory and of her manufacturing industries. The number of hectares in France under culti- vation for wheat in 1885 was 6,956,765; in 1886, 6,956,167, a difference of only 598 hectares, or less than tIt of one per cent. The difference in the number of hectares in 1881 and 1885 was even less — only 309.* The total values of domestic exports in the three years 1886, 1887, and 1888 were * Statistical Abstract for Foreign Countries, J885 to 1894-'95, p. 330. FACTS CONCERNING CRISES AND DEPRESSIONS 41 respectively 3,248,800,000, 3,246,500,000, and 3,246,700,000 francs.* Taking 1887 as 100, the relative values for the three years named were respectively 100.07, 100, and 100.006. The quan- tity of pig-iron produced in 1893 was 2,003,000 tons; in 1895, 2,004,000 tons, or a difference of only 1,000 tons.f Among the nations of Continental Europe, next to France, and on some occasions more than France, Belgium seems to have shown the greatest corre- spondence to conditions in the United States and the United Kingdom. Holland and Belgium stand at the forefront in the amount of foreign trade per capita. While the trade of Holland is much larger in proportion to population than that of Belgium, a greater share of the trade as well as of the manu- factures of the latter country is made up of articles which are subject to decided fluctuations in price and activity — e. g., iron and steel, glass, stone, zinc, coal and coke. It would seem that England is the country in which a spirit of adventure and speculation has done most to promote crises and depressions. The enormous waste of resources from enterprises, originating in that country, or supported there, can- not be explained by the greater wealth of her people, or the world-wide field which her commerce and colonization have opened up for the investment of capital. In addition to these influences, there has existed a spirit of boldness in enterprise, developing * Statistical Abstract for Foreign Countries, 1885 to 1894-'95, p. 162. t Ibid., p. 316. 42 CRISES AND DEPRESSIONS often into rashness, wliicli has manifested itself in the multitude of promoters seeking capital, and even more strikingly in the great number of inves- tors ready to furnish it. It is probable that the United States furnishes an equal number of promoters of rash or absurd projects; but, whether because available capital has not been so abundant, or because investments are so numerous at home, where a greater degree of scrutiny is possible, these promoters have not found so large a number of gullible investors. A potent reason for these recurring seasons of speculation and rash enterprises in England has been the large accumulations of capital seeking investment. These are frequently so large as to require new fields of activity. It is the greater abundance of disposable wealth and its readier availability for investment, rather than the greater quantity, which distin- guishes the English money market. Reliable his- torians give instances of companies formed and projects for the use of English capital which seem almost beyond belief. In speaking of the redun- dancy of capital existing towards the close of the seventeenth century. Lord Macaulay uses language thoroughly descriptive of conditions frequently re- curring from that day to this: " The natural effect of this state of things was that a crowd of projectors, ingenious and absurd, honest and knavish, employed themselves in devis- ing new schemes for the employment of redundant capital. It was about the year 1688 that the word stock-jobber was first heard in London. In the short FACTS CONCERNING CEISES AND DEPRESSIONS 43 space of four years a crowd of companies, every one of which confidently held out to subscribers the hope of immense gains, sprang into existence. . . . Some of these companies took large mansions and printed their advertisements in gilded letters. Others, less ostentatious, were content with ink, and met at coffee-houses in the neighbourhood of the Koyal Exchange. Jonathan's and Garraway's were in a constant ferment with brokers, buyers, sellers, meetings of directors, meetings of proprietors. Time bargains soon came into fashion. Extensive combinations were formed, and monstrous fables circulated, for the purpose of raising or depressing the price of shares. Our country witnessed for the first time those phenomena with which long experi- ence has made us familiar. A mania of which the symptoms were essentially the same with those of the mania of 1720, of the mania of 1825, of the mania of 1845, seized the public mind. An im- patience to be rich, a contempt for those slow but sure gains which are the proper reward of industry, patience, and thrift, spread through society. The spirit of the cogging dicers of Whitefriars took pos- session of the grave Senators of the City, "Wardens of Trades, Deputies, Aldermen. It was much easier and much more lucrative to put forth a lying prospectus announcing a new stock, to persuade ignorant people that the dividends could not fall short of twenty per cent, and to part with five thou- sand pounds of this imaginary wealth for ten thou- sand solid guineas, than to load a ship with a well- chosen cargo for Virginia or the Levant. Every 44 CRISES AND DEPRESSIONS day some new bubble was puffed into existence, rose buoyant, shone bright, burst, and was forgotten." * Some thirty years later, at the time of the South Sea Bubble, a new crop of preposterous schemes came to light. Among them were companies with the following titles: " Wrecks to be Fished for on the Irish Coast; Insurance of Horses and Other. Cattle (Two Mil- lions); Insurance of Losses by Servants; To Make Salt Water Fresh; For Building Hospitals for Bas- tard Children; For Building of Ships against Pi- rates; For Making of Oil from Sun-flower Seeds; For Improving of Malt Liquors; For Kecovery of Seamen's Wages; For Extracting of Silver from Lead; For the Transmuting of Quicksilver into a Malleable and Fine Metal; For Making of Iron with Pit Coal; For Importing a Number of Large Jack Asses from Spain; For Trading in Human Hair; For Fatting of Hogs; For a Wheel of Perpetual Motion. But the most strange of all, perhaps, was ' For an Undertaking which shall, in due time, be revealed.' Each subscriber was to pay down two guineas and hereafter to receive a share of one hun- dred, with a disclosure of the object; and so tempt- ing was the offer that one thousand of these sub- scriptions were paid the same morning, with which the projector went off in the afternoon." f The time preceding the crisis of December, 182.5, witnessed great overaction in canal building and other improvements in the United Kingdom, * History of England, chap. xix. t Walter Bagehot, Lombard Street, ed. 1896, pp. 137-138. FACTS CONCERNINa CRISES AND DEPRESSIONS 45 also extravagant expansion of trade abroad, par- ticularly with the South American Republics which had recently been freed from the Spanish yoke. The extravagances manifested in the two preceding centuries again appeared. Miss Martineau graphic- ally describes the prevalent fever for sudden acqui- sition of wealth, often coupled with a less sordid desire to be identified with great and useful enter- prises. In illustrating the recklessness displayed in some efforts for increase of foreign trade, she says: " At Eio Janeiro more Manchester goods ar- rived in a few weeks than had been before required for twenty years; and merchandise — much of it perishable — was left exposed on the beach, among thieves and under variable weather, till the over- crowded warehouses could afford room for its stow- age. It is positively declared that warming-pans from Birmingham were among the articles exposed under the burning sun of that sky; and that skates from Sheffield were offered for sale to a people who had never heard of ice. China and cut-glass were, in some places, pressed upon the natives, as prefer- able to cocoanut-shells and cow-horns, which had hitherto been their dishes and drinking-vessels." * In his History of the Bank of England, Mr, Francis declares that in 1825 he saw the prospectus of a company to be formed for the draining of the Eed Sea and the recovery of the gold and jewels left by Pharaoh and his army in the pursuit of the * History of the Peace, vol. ii, p. 412. 46 CRISES AND DEPRESSIONS Israelites. This, of course, was a burlesque, but a burlesque upon some of the projects of the time, •which were scarcely less visionary.* The explanation of these absurdities lies in the fact that this speculative disposition is an inevitable accompaniment of a spirit of enterprise and prog- ress. A disposition which incites to delusive ven- tures of this kind is characteristic of an energetic people. This is proved by the organization, contem- poraneously with these absurd projects, of com- panies for objects which proved useful and played an important part in the future development of Eng- land. Even at the time of the so-called South Sea Bubble, it is maintained that not more than ten per cent of the companies were for other than practi- cable purposes, and that the other ninety per cent proved successful and permanent.f Among the latter were companies for insurance, for fisheries, for trading with America, for improvement of har- bours, for the manufacture of fabrics, and for the production of metals. At the time of the crisis of 1825, manufacturing and trade were increasing rap- idly, and this increase was only temporarily checked by the events at the close of that year. The Aegument that Depressions benefit a Majoeity A passing reference is due to the opinion of those who maintain that depressions are not after * History of the Bank of England, 1847, vol. ii, p. 3. f Eclectic Magazine, vol. xxviii, p. 473 ; reprinted from Hogg's Instructor. FACTS CONCERNING CRISES AND DEPRESSIONS 47 all a calamity nor even disadvantageous. It is con- tended by some that a community is never more prosperous than when a number of persons are com- plaining of hard times. They argue that in so- called " flush times," when all kinds of business are active, prices will be high. This gives an advan- tage to the capitalist or employer. On the other hand, in dull times, prices will be low, and this gives an advantage to the wage-earner, because the pur- chasing power of his wages will be greater. A comparison has been made of the quantities and values of exports from the United Kingdom in the years 1871 and 1873. In the latter year, the quan- tities of many commodities exported were less than in 1871, but the aggregate values of nearly all were more. The increase in the rate of wages was alto- gether less than in prices. From this comparison the deduction is made that the profit of the in- creased price must have gone to the employer. In the succeeding depression wages decreased much less than prices. The foundation for this contention is the inequality of the time requisite for the adjust- ment of wages and prices in changing conditions. It must be conceded that the rate of wages re- sponds more slowly than prices to changes in ac- tivity. The prices of manufactured commodities, espe- cially, rise before wages adjust themselves to the change. This difference in the promptness of ad- justment is even more marked in the comparative conditions of wholesale and retail trade. Eetail 48 CRISES AND DEPRESSIONS prices fall mucli more slowly and rise somewliat more slowly than wholesale prices. If these facts adequately described the whole situation in a depression, the view that an advantage accrues to a majority might be correct; but they do not. Lower prices and diminished profits occur simultaneously with diminished production and employment. Mills are closed and sales decrease. The changed conditions do not affect the manufac- turer and wholesale merchant alone, but the whole field of industry and trade. It is not true that the interests of the employer and employee, or those of the wholesaler and retailer, lie in different direc- tions. The prosperity of the whole community is the prosperity of every part. The serious and inevitable result for workingmen in every depres- sion is that steady employment is more difficult to obtain, and many cannot find it at all. The retailer would be satisfied with the rate of profit current in a time of rising wholesale prices, if trade were brisk and no bad debts were to accumulate upon his books. CHAPTEE in the phenomena of ceises and depressions, and the events precedina them The Events peeceding Them A Crisis preceded hy a Season of Activity. — A financial crisis, with its usual sequence, a period of industrial and commercial depression, is invari- ably preceded by a season of great activity marked by much real or apparent prosperity. In many instances this preceding activity has been so marked as to awaken especial attention, and to call for con- gratulatory comments from those exceptionally well qualified to forecast the future of business. On July 6, 1825, the King's Speech, as read by the Lord Chancellor, in referring to certain bene- ficial measures enacted by Parliament, contained these words: "... and his Majesty confidently trusts that they will contribute to promote that general and increasing prosperity on which his Majesty had the happiness of congratulating you on the opening of the present session, and which, by the blessing of Providence, continues to pervade every part of his kingdom." * In February, 1825, a member of the Council, * Hansard's Debates, vol. xiii, p. 1488. 4 49 50 CRISES AND DEPRESSIONS in speaking of the material condition of the coun- try, declared: " The country was reaping, in honour and repose, all that had been sown in courage, constancy, and wisdom." The crisis occurred in December of that year. March 15, 1873, the London Economist, in its survey of the previous year, said: " The industrial and commercial development of the whole of Germany and of Austria, Hungary, and the southeast of Europe, advances by strides which are most insufficiently understood among us. In the Austrian States the progress is astounding. The Vienna Government and Legislature are no longer the heavy and perpetual drag and discour- agement on all new enterprises which they were a few years ago. On the contrary, their spirit of practical and progressive reform sets an example to other nations. All over the rich countries of the Danube capital and labour are vigorously at work in the discovering and turning to profit the amazing resources which have been lying unheeded for centuries." * The Bourse at Vienna was closed May 9, 1873, and a crisis of great severity occurred, followed by a depression of exceptional length. On December 31, 1892, K. G. Dun & Com- pany's Weekly Review of Trade said: " The most prosperous year ever known in busi- ness closes to-day with strongly favourable indica- tions for the future." * London Economist, Supplement of March 15, 1878, p. 2. ^ , PHENOMEKA OF CRISES AND DEPRESSIONS 51 In a book published early in 1893, giving, -witli additions, a translation of that portion of M. Cle- ment Juglar's work on Crises which pertains to America, Mr. De Courcey W. Thom, the translator, after pointing out some disturbing features, says: " But the fact that an analysis of the bank re- turns to the Comptroller of the Treasury * shows that available resources (capital, deposits, surplus, and undivided profits), as compared vnth demands (loans and discounts), are good and growing, con- sidered in regard to the other signs indicating pros- perity, justifies the prediction of the steady develop- ment of a prosperous period." f The occurrence of the crisis, beginning in May, 1893, is well known. Preceding Indications. — This preceding period is characterized by well-defined indications, some of which develop contemporaneously, but which, so far as they are distinct in time, occur in approximately the following order: 1, An increase in prices, first, of special com- modities, then, in a less degree, of commodities gen- erally, and later of real estate, both improved and unimproved. 2. Increased activity of established enterprises, and the formation of many new ones, especially those which provide for increased production or im- proved methods, such as factories and furnaces, rail- ways and ships, all requiring the change of circulat- ing to fixed capital. * The word "Treasury" occurs in the original. t A Brief History of Panics in the United States, p. 144 52 CRISES AND DEPRESSIONS 3. An active demand for loans at slightly higher rates of interest. 4. The general employment of labour at increas- ing or well-sustained wages. 5. Increasing extravagance in private and pub- lic expenditure. 6. The development of a mania for speculation, attended by dishonest methods in business and the gullibility of many investors. 7. Lastly, a great expansion of discounts and loans, and a resulting rise in the rate of interest; also a material increase in wages, attended by fre- quent strikes and by difficulty in obtaining a suffi- cient number of labourers to meet the demand.* Many of the above tendencies are indications of genuine prosperity. They are precursors of dis- aster only in case of overaction, when the equip- ment for the creation of certain classes of commodi- ties, and their consequent production, is out of har- mony with that for other classes, and speculation takes the place of more legitimate enterprise. It should be especially borne in mind that in the events preceding a crisis, as well as in any sea- son of growing prosperity, the increase of activity as well as of prices is far from equal in different lines. Higher prices will first be quoted in some particular commodity or commodities, and later in the rest. The increase of activity and price is usu- ally most noticeable in articles the production of which can most readily be enlarged or diminished * For a more detailed examination of the indications pre- ceding a crisis, see Chapter VI. PHENOMENA OF CRISES AND DEPRESSIONS 53 by human volition, such as the so-called " industrial elements " — coal, iron and steel, or timber; or in articles required to supply some new demand of convenience or luxury. Food products, especially such as may be called the necessaries oi life, vary much less in price. Their fluctuations depend much more upon natural causes, which are beyond human control, such as the quantity of rainfall and the degree of heat. Instances have not been lack- ing in periods preceding crises in which the prices of certain articles have declined. The following figures giving export values in the United Kingdom, 1870-73, and wholesale prices in the United States, 1897-99, will illus- trate the unequal rise: United Kingdom. Export Valties, Average for Each Year* The prices of the first five items are given in shillings and decimals of shillings ; the last two in pence. 1870. 1871. 1878. 1873. Increase, per cent, IWO to 1873. Coals, per ton Pig-iron, per ton. . . . Salt, per ton Wheat ilour, per cwt. Butter, per cwt Cotton piece goods, ijer yard White or plain wool- len and worsted cloths, per yard. . . 9.64 69.18 9.99 16.31 109.80 3.55 35.17 9.80 61.08 10.47 16.51 116.27 3.33 87.52 15.83 100.85 14.15 17.48 113.23 3.51 41.19 20.90 124.65 18.77 18.97 118.14 3.45 41.00 116.8 110.6 87.88 16.3 7.5 t2.8 16.57 * Statistical Abstract for the United Kingdom, 1868-'82, p. 110, for prices; the percentages in the last column are com- puted from the prices given. t Decrease. 54 CRISES AND DEPRESSIONS United States. Wholesale Prices* for the year, those for the month Instead of average prices of July are given. Increase, July, 1897. July, 1898. July, 1899. per cent, July, 1897, to July, 1899. Steel billets, per $14.00 9.39 1.35 18.00 8.25 45.00 .477 3.55i .07J .0311i 4.65 .0447 $14.75 10.31 1.86 17.00 9.00 45.00 .62i 3.60 .06i .OSlli 6.35 .0509 $33.80 20.45 2.70 28.25 12.50 51.00 .633 3.60 .061 .0311i 4.50 .0521 141.42 Bessemer pig-iron, per ton Wire nails, per 100 lbs 117.78 100. Steel rails, per ton Hemlock boards, 1st qual., per M. Fine boards, do. . . Wool, Ohio fine fleece, per lb. . . Shawls of 42 oz. . . Cotton, upland middling, per lb. Cotton thread, per spool 56.94 51.51 13.33 32.7 ' 1.19 22.22 1 Same price 3.22 1 16 55 Wheat flour, per bbl Granulated sugar, per lb In the period preceding a crisis, fixed capital in factories, furnaces, ships, and railroads will increase in greater proportion than food, clothing, and the consumable goods which are the necessaries of life. A period of prosperity is thus a necessary prel- ude to every' crisis or period of depression. It * Bulletin of the Department of Labor for March, 1900, article on Wholesale Prices, by Roland P. Falkner, Ph. D. The percentages are computed from the prices given. t Decrease. PHENOMENA OP CRISES AND DEPRESSIONS 55 furnishes the impetus for many undertakings whicb are improvident, and the excuse for luxury and ex- travagant expenditure. These are the fruitful sources of disturbance. It should be noticed that the high prices and ac- tivity which precede a crisis usually pass the zenith some months or even a year or two before the crisis occurs. Probably also there will be fluctuations in prices and in the demands for commodities suffi- cient to give warning. In later years there is a distinct tendency towards a longer interval between the date of the maximum of prices and the occur- rence of the crisis. It will be interesting to trace the prices of iron prior to several crises. Prior to the crisis of December, 1825, in Great Britain, the price of iron reached its maximum in the first quarter of that year.* Before the crisis of 1836— '37, manufactured iron in Great Britain reached its maximum price in the second and third quarters of 1836, and attained its maximum production, up to that time, in the year 1836. t Prior to the crises of April and October, 1847, in Great Britain, manufactured iron reached its maximum price in the third quarter of 1845, but there was a great increase of production, which reached its maximum in 1847. Scotch pig-iron reached its maximum price in the second and third * Tooke's History of Prices, vol. ii, p. 406. t Chart, giving a History of the Iron Trade, by W. Q-. Fossick. 66 CRISES AND DEPRESSIONS quarters of 1845.* The reason for the high price ■was evidently the exceptional demand for new con- struction, f Prior to the crisis of September, 1873, in the United States, railway construction reached its maximum in the year 1871. Pig-iron attained the highest price in the month of September, 1872.:]: The crisis of 1857 in both countries, and that of 1866 in Great Britain, seem to have occurred with less warning. In both these cases, it is evi- dent that the prominence of the failures which occurred hastened liquidation. Whether the crisis begins contemporaneously with the decline in activity and prices, or is delayed for a time, depends upon a variety of circumstances, particularly the presence or absence of alarming failures or other events which destroy confidence; the strength of banks and credit institutions, and their ability to carry the existing enterprises which depend upon borrowing; the development of new demands by increased consumption, etc. * See Fossiok's Chart. f There was a panicky condition in 1845. The main dis- tinction between the two years was that 1845 was marked by a great number of enterprises projected and an accumulation of capital for their completion, much of which remained on de- posit. The year 1847 was characterized by expenditures for the completion of many of these projects. :{ More complete details bearing upon the course of prices prior to a crisis are given in Chapter VI. PHENOMENA OF CRISES AND DEPRESSIONS 57 The Phenomena of Ceises and Periods of Depbession The usual signal for the beginning of a crisis is a conspicuous banking or mercantile failure, or the exposure of some fraudulent enterprise which at- tracts wide-spread attention. This is immediately followed by universal alarm in financial circles. Money is hoarded. Credit is refused. The estab- lished order of affairs, in which a very large share of business transactions is conducted in reliance upon credit, and which depends for its continuance upon the maintenance of confidence, is suddenly overturned. There is a " run " upon banks, frequently re- sulting in the suspension of cash payments. The holder of securities and commodities is unable to dispose of them, except at a ruinous sacrifice. The change which occurs in the relations between buyer and seller, and lender and borrower, is not ade- quately described by saying there is a ruinous fall in prices and an unusual rise in the rate of interest. There is rather an abrupt cessation of normal trans- actions between them. There is a disposition to buy nothing and to do nothing until the storm passes over. There is little satisfaction in studying the prices which prevail during a panic or crisis. Sales are made under such exceptional circumstances, and are marked by such fitful changes from day to day, that they afford no reliable information regarding actual values. Frequent and unexpected failures are sure to occur. After the first shock of alarm has spent its force, the prevailing features are uncertainty 58 CRISES AND DEPRESSIONS and a vague suspicion of instability from which none are free. The end of the crisis comes after the shock has spent its force and when the true situation is un- derstood. If there are no deep-seated causes for the disturbance, prosperous times will continue as before, though with a considerable degree of abate- ment. If such causes do exist, a period of depres- sion ensues. There is no clearly defined boundary line which marks the transition from a crisis to a period of depression, but distinct conditions predominate. During the crisis the embarrassment of banks and bankers is the most prominent feature, because their obligations are payable on demand, and they feel more promptly and more keenly the effect of the change in conditions. As the liquidation inci- dent to the depression progresses, the embarrass- ment of merchants and manufacturers becomes rela- tively more prominent. The following figures illus- trate this, and tend also to show that a crisis, as distinguished from a depression, is predominantly financial. Aggregate liabilities of bankers and banking institutions in the United States failing in 1893 and the two succeeding years : 1893 (year of crisis) $170,295,698 1894 (year of depression) $13,969,950 1895 ( " " ) 22,764,000 Average for the years 1894 and 1895 18,366,975 Excess in 1893 (year of crisis) over average for 1894 and 1895 (years of depression) $151,928,723 or 887 per cent. PHENOMENA OF CRISES AND DEPRESSIONS 59 Aggregate liabilities of all others, including merchants and manufacturers : 1893 (year of crisis) 1231,704,322 1894 (year of depression) $135,030,050 1895 ( " " ) 136,236,000 Average for the years 1894 and 1895 135,633,025 Excess in 1893 over average for 1894 and 1895. . . . $96,071,297 Excess of liabilities from failures of merchants, manufac- turers, and others in 1893, year of crisis, over average for two ensuing years of depression, slightly less than 71 per cent.* It thus appears that the percentage of excess of liabilities in the crisis year over the average for the two succeeding years of depression was nearly twelve times as great (827 to Yl) in banking fail- ures as in mercantile, manufacturing, and all other failures. A comparison of the diflFerent classes of failures in England in 1866, the date of the last actual crisis there, with the two succeeding years of depression, 1867 and 1868, shows a still greater preponderance of banking failures in the crisis year.f The com- parison in both cases would be even more impres- sive if, instead of giving the figures for the years in which the crises occurred, it were confined to the weeks or months which marked their actual dura- tion. A period of depression presents some of the features of a crisis. Numerous failures occur as * The figures giving the amount of liabilities have been fur- nished by the editor of Bradstreet's. f For list of failures, with liabilities, see Record of Failures and Liquidations, by Richard Seyd, pp. 489 et seq. 60 CRISES AND DEPRESSIONS before; but during the crisis the characteristic feature is the inability to obtain credit, or realize by sales, irrespective of the standing of the bor- rowers, or the value of that which they have for sale. At a later time failures are due to actual shrinkage of values, and to probable inability of borrowers to pay. The whole level of prices is lowered as compared with what it was before the crisis; and thus the whole machinery, not only of credit, but also of industry and trade, is thrown out of gear. There is stagnation in trade and in manu- facturing. Wages are lower and men are thrown out of employment. The shrinkage of values continues. Money is not invested in purchases, or in any form of enterprise, because buyers and investors are not sure that prices have reached their lowest level. It is not invested in loans, partly because those who are most competent to transact business, or engage in industry, fear to begin new undertakings with borrowed capital, or develop those already estab- lished, partly because lenders are distrustful of ob- taining again what they lend. As a consequence money is idle, and as the depression continues, rates of interest become lower, not so much because of abundance of money, as because only selected risks are accepted, and new enterprises are not commenced. The conditions during a depression are the con- verse of those preceding a crisis. The latter char- acterize the ascending plane which precedes; the former, the descending plane which follows. The vital inquiry in the time of every depression is to PHENOMENA OP CRISES AND DEPRESSIONS 61 ascertain when the worst has been reached. The turning-point is marked by no sudden shock like that which characterized the crisis. It comes gradually and quietly, and shows the working of recuperative forces, which are sure to tri- mnph. An examination of statistics shows that the actual visible decrease of activity in enterprise and employment, during a period of depression, is much less than is popularly supposed. The investigations made by Mr. Carroll D. Wright, Commissioner of Labor, in framing his Report of 1886, indicate that the decrease in the number of establishments in operation in this country during the year end- ing July 1, 1885, was only Y^ per cent as an average, or 5 per cent absolutely idle, and an additional 5 per cent idle part of the time. The decrease in the number of men employed in agri- culture, trade, and transportation, mechanical and mining industries, and manufactures was the same.* It is probable that the actual percentage was somewhat larger, and it should be remembered that this depression, at least in the United States, was not of the severest type. Its seriousness, how- ever, will seem more impressive when we realize that this percentage indicated the non-employment of a million persons. The number of railway employees of all classes, in the service of the railways of the United States, fell off from 873,602 in 1893 to 779,608 in 1894, * Industrial Depressions, 1886, pp. 65-66. 62 CRISES AND DEPRESSIONS or 10.75 per cent; the niimber per mile of rail- ways fell from 515 in 1893 to 444 in 1894, or 13.78 per cent.* In Great Britain in 1879, the "worst year of the depression occurring after 1873, the percentage of unemployed in certain representa- tive trades reached a very high figure. The trades- union statistics of the United Kingdom show that of the Iron Founders' Society, 22.3 per cent were out of employment; of the Amalgamated Society of Engineers, 13.3 per cent; of the Amalgamated So- ciety of Carpenters and Joiners, 7.6. f It is important to recognise that the percentages showing a decrease in employment do not at all indicate the extent of the derangement. The changes wrought are analogous to the increase or decrease of price in ease of scarcity or surplus in the supply of necessary commodities. Mr. Tooke, in his History of Prices, estimates that formerly a deficiency of one-sixth to one-third in the English harvest resulted in a rise of 100 to 200 per cent in the price of grain.:): So, on the other hand, the price of a surplus controls the price of the whole product. , The examination of the phenomena of depres- sions is not complete without recognition of the great increase in the equipment for production * Eor number of employees, see Statistics of Railways of the United States for 1898, p. 40, issued by the Interstate- Commerce Commission. f Statistical Tables and Reports on Trade Unions, 1893, •pp. 78-80. See Chapter V, pp. 137-141, below. t History of Prices, vol. i, pp. 12-13. PHENOMENA OF CRISES AND DEPRESSIONS 63 which precedes them. This increase makes itself felt in the greater supplies which sooner or later will be available to meet the increasing demands of consumption. Upon further examination it will also appear that its influence is one of the most important factors in causing that inequality of activity and employment which is observed in com- paring alternate seasons of prosperity and depres- sion. CHAPTEE IV CAUSES OF OEISES AND DEPEESSIONS * The student who would seek to explain the causes of crises and depressions must approach the subject with extreme caution. After extended examination, many have reached the conclusion that the discovery of definite and uniform causes is impossible. The degree of uncertainty, however, does not differ from that which is apparent in simi- lar lines of investigation; for, while it is especially noteworthy in seeking the causes of crises, the diffi- culty of reaching definite results in any branch of economic or financial investigation has been con- ceded by many whose ability has been most gener- ally recognised. To quote again from Professor Cairnes : " An economic law expresses, not the order in which phenomena occur, but a tendency which they obey ; . . . therefore, when applied to external events, it is true only in the absence of disturbing causes, and consequently represents a hypothetical, not a positive truth." f * See the selection of opinions given in Appendix A. t The Character and Logical Method of Political Economy, p. 107. 64 CAUSES OF CRISES AND DEPKESSIONS 65 If there has been a failure to reach satisfactory- explanations of the causes of crises and depressions, it has not been due to the absence of interest, or to the lack of suggestions. When these disturbances occur, committees of Congress or of Parliament are appointed to investigate. These committees take testimony and collect voluminous information from many sources. In all the testimony there is an evident exaggeration of the efficiency of laws and of governmental action in remedying the difficulty. In the meantime, individual effort guided by intel- ligence and prudence and co-operating with forces which are invariably, though almost unconsciously at work, solves the difficulty. Different Theories as to Cause. — In the report of Mr. Carroll D. Wright, heretofore referred to, nearly five pages are filled with alleged causes, sug- gested to agents of the Bureau of Labor or to com- mittees of Congress. Among them are these: " Withholding franchise from women." " Want of training of girls for future duties." " Faulty laws relative to the guardianship of children." " The custom of issuing free railroad passes." " High telegraph rates." " The use of tobacco." * In referring to the existing depression in 18Y8, Mr. Jevons says : " It is curious to notice the variety of explana- tions offered by commercial writers concerning the cause of the present state of trade. Foreign com- * Industrial Depressions, pp. 61-63 and 76-78. 5 66 CRISES AND DEPRESSIONS petition, beer-drinking, over-production, trades- unionism, war, peace, want of gold, superabundance of silver. Lord Beaconsfield, Sir Stafford Northcote, their extravagant expenditure, the Government pol- icy, the Glasgow Bank directors, Mr. Edison and the electric light, are a few of the happy and con- sistent suggestions continually made to explain the present disastrous collapse of industry and credit." * Dismissing explanations entirely frivolous, that treatment of the subject will be most valuable which distinguishes between substantial causes and those influences which are merely aggravating or incidental features. At the very beginning, we may eliminate from the list of responsible causes, different economic or fiscal regulations established by custom or govern- mental policy. We are enabled to do this by the recognition of uncontested facts. Crises and de- pressions have occurred almost contemporaneously in different countries, under every prevalent system of banking; in monarchies and republics; in coun- tries having free trade alike with those maintaining revenue or protective tariffs; in those having only metallic money, and in those having metallic and paper money; in such as have irredeemable paper money, and in those having paper money redeem- able in coin; in such as have gold as the standard alike with those having silver; also, in countries having gold and silver with a fixed ratio between them. They have likewise occurred at different * Investigations in Currency and Finance, p. 221. CAUSES OF CRISES AND DEPRESSIONS 67 times in the same country, under all the various regulations adopted. The degree of intensity, of course, will be very much increased by mistaken policies relating to banking, tariff, or currency. Nor can it be denied that the permanent prosperity of a country depends largely upon correct policies in the particulars named. But crises and depressions are essentially temporary derangements of the existing order of things. That order may be good or bad, and one of the most frequent causes of crises has been a too hasty or radical change in established policies. Among the theories most strongly advocated, or containing the largest degree of truth, may be enumerated : 1. Lack of confidence. 2. The abuse or undue extension of credit, either by excessive bank credits or by inflated issues of currency. 3. The readjustment of conditions made neces- sary by inevitable changes in values or prices. 4. A general fall in prices. 5. General changes in prices occasioned by changes in the monetary unit. 6. Contraction of the circulating medium or insufficient volume of money. 7. Over-production or under-consumption, the disturbing effect of which many writers maintain has been greatly intensified by the so-called modern revolution in production and distribution, which, as they allege, has resulted in a general increase of supply out of proportion to demand. It is also 68 CRISES AND DEPRESSIONS asserted that this revolution renders recent depres- sions exceptional in their nature — more lasting and severe. 8. Psychological tendencies; the mental and moral disposition of mankind. It is intended later to consider each of these in order. The Responsible Cause. — ^In seeking the respon- sible cause, it is submitted : 1. Some of the above influences may create a derangement which will tend directly to cause a panic or crisis, and indirectly to cause the more serious and permanent condition known as a depres- sion. Depression may be greatly intensified by some or all of these influences. 2. The central fact in all depressions, as well as in those crises which are followed by depressions, is the condition of capital. These disturbances are due to derangements in its condition which, for the most part, assume the form of waste or exces- sive loss of capital, or its absorption, to an ex- ceptional degree, in enterprises not immediately remunerative. In some form or other this waste, excessive loss, or absorption, is the ultimate or real cause. A somewhat similar idea is expressed by those who say that crises and depressions are due to misdirection of productive energy. The alleged causes enumerated may be the proximate or apparent causes, or they may aggra- vate the disturbance. They may also, when care- fully analyzed, prove to be mere descriptions of the CAUSES OF CRISES AND DEPRESSIONS 69 manner in "which capital is wasted, or of the means for its waste; but to the general causes above named, these disturbances may be traced, however much their operations may be obscured. The numerous crises without ensuing depressions are much more difficult to explain. They are preceded by a variety of causes, and sudden events which cannot be foreseen have much to do with their occurrence. The only satisfactory investigation which can be made is of the crises followed by de- pressions, or of depressions proper. Elementary Definitions: Wealth, Land, Labour, Capital. — For a thorough understanding of this subject it is necessary to review a few elementary definitions. Wealth comprises all things which are alike useful, limited in supply, and transferable. All wealth is produced from, or created by, land, labour, or capital. Land includes every form of nature in earth, seas, or air, together with the natural forces which may be set at work. It is the source of our so- called " raw materials." Laboue includes physical strength and exertion, and the mental qualities which furnish them with method and ingenuity. Capital, technically defined, is wealth withheld from immediate consumption for the purpose of pro- ducing wealth in the future. It includes food, cloth- ing, and fuel for support of those engaged in the production of wealth, necessary seed for planting, raw material for the finished products of manufac- YO CRISES AND DEPRESSIONS tures; or, if we look at the subject from tlie stand- point of the employer or capitalist, money for wages and the purchase of supplies. These may be included under the term circulating capital. There is also fixed capital, which includes tools, machines, factories, buildings occupied or used by those engaged in productive employment, improve- ments upon land, likewise ships and railways with all their equipment.* Nations are rich or poor, not in proportion to the abundance of land or natural resources which they possess, but according as they have an abun- dance or lack of capital. The efficiency of productive energy in creating wealth increases with increased capital in a far greater proportion than the increase of capital. The form of statement is adopted by some, that while capital increases in an arithmetical ratio wealth increases in a geometrical ratio. In the creation of the world's wealth, land is an invariable quantity, f Its productiveness cannot be augmented except by the application of capital and labour to derive or extract wealth from it. * The term capital is used here in its most comprehensive sense. Adam Smith and others have maintained that supplies in the possession of consumers are not capital. Whether they are or not is rather a question for academic discussion than of importance in the determination of this problem. For a sum- mary of opinions on this point, see Hobson's Evolution of Mod- ern Capitalism, pp. 309 et seq. t While, by legal definition, land includes the buildings and improvements upon it, by economic definition, all buildings and improvements are designated as capital. CAUSES OF CRISES AND DBPEESSIONS 71 Tte creation of wealtli upon any considerable scale requires the co-operation of labour and capital. To use a comparison of Prof. Thorold Eogers, they are like the two blades of a pair of scissors. The results which can be secured by labour without capi- tal are practically invariable. The efficiency of labour cannot be increased without the tools which capital furnishes. Adam Smith and others have con- tended that the increased skill and dexterity which labourers have acquired are the result, or rather a part, of capital. Certain it is that without the assistance which capital affords in making a division of labour possible, and in stimulating improved methods of production, labour could gain no material increase in efficiency. Capital, on the other hand, with the co-operation of labour, and land to work upon, is capable of indefinite increase. Upon its expansion all expansion of wealth depends. Fundamental Propositions concerning Capital. — John Stuart Mill, in his chapter entitled " Fun- damental Propositions respecting Capital," says: " The first of these propositions is, that indus- try is limited by capital. ... To employ labour in a manufacture is to invest capital. . . . This im- plies that industry cannot be employed to any greater extent than there is capital to invest. . . . " There can be no more industry than is sup- plied with materials to work up and food to eat. . . . " While on the one hand industry is limited by capital, so on the other every increase of capital gives, or is capable of giving, additional employ- 72 CRISES AND DEPRESSIONS ment to industry, and this without assignable limit. . . . " Every addition to capital gives to labour either additional employment or additional remunera- tion." * On the same subject, Adam Smith says: " Every increase or diminution of capital, there- fore, naturally tends to increase or diminish the real quantity of industry, the number of productive hands, and consequently the exchangeable value of the annual produce of the land and labour of the country, the real wealth and revenue of all its inhabitants." f Forms of Derangement of Capital. — The de- rangement in the condition of capital which causes depressions manifests itself in a variety of ways. All these tend to produce, directly or indirectly, waste or exceptional loss, permanent or temporary. In some forms this waste or loss is obvious enough. In others it is not. It is controlled by human will in some cases. In others it is not. The different forms in which this derangement manifests itself may be grouped in three divisions: I. Direct loss or waste, such as results from pri- vate or public extravagance, from the investment of capital in undertakings which fail, or from natural causes, such as pestilence, the violence of the ele- ments, or unfavourable weather. II. Indirect loss or waste, such as results from * Principles of Political Economy, book i, chap, v, sections 1 and 3. f Wealth of Nations, book ii, chap. iii. CAUSES OF CRISES AND DEPRESSIONS 73 a lack of equilibrium between different classes or lines of production, manifesting itself in a glut of some commodities contemporaneously with a scar- city of others. III. Most important, the inevitable changes which characterize modern industrial and commer- cial progress. These changes may be grouped under two subdivisions: 1. Changes resulting in the absorption of ex- ceptionally large amounts of capital in enterprises the completion of which requires a considerable time, or which, when completed, are not immedi- ately profitable, such as canals, railroads, large fac- tories, and extensive public and private works of every kind. This class of investments of capital shows its effect in the disturbance of the normal relation between expenditures for remote produc- tion and those for production for early use, and has its basis in that preparation for additional supplies to meet the demands of increasing consumption which is characteristic of a progressive society. 2. Changes in methods of production occa- sioned by invention, improved machinery and methods, requiring the substitution of new appli- ances and equipment for old; also changes caused by the development of new fields. All these in- volve the loss of much of the capital theretofore invested, and are attended by serious derangement in the employment of labour. The causes mentioned in each of the three divisions all act and react upon each other and operate concurrently in producing disturbances. 14: CRISES AND DEPRESSIONS Incidental Features. — Incidental to the in- creased activity which manifests itself in a pro- gressive era are the tendencies to overaction, and to engage in an unusual number of unprofitable undertakings; also the speculation and fraud which find an inviting field ia a time of expansion. Often these incidental features seem to assume greater prominence than the principal facts of the situa- tion. It is also true that the absence of equilibrium between different classes of production, mentioned in the second division, is very much intensified by the unequal progress of improvements in different lines of production. For example, improvements in manufactures have been much greater than in agriculture. Each of the groups described may be consid- ered more in detail. I. DiEECT Loss OR Waste or Capital 1. One of the most obvious losses of capital proceeds from extravagance in private or public expenditure. The aggregate earnings or accu- mulations of society must, in a succession of years, exceed the expenses or the quantity consumed. Otherwise progress and improved conditions would be impossible; even a stationary condition could barely be maintained. But, particularly in times of prosperity, the tendency is towards a steady increase of expense or consumption. A people adjust their wants and expenditures to a certain scale. This scale is not likely to be lowered, unless some serious warning is given. This fact shows the CAUSES OF CRISES AND DEPRESSIOKS 75 effect of a general anticipation that tlie future will be as prosperous, or more so, than the past. The natural growth of human wants often results in general extravagance in habits of living, and the consimiption by many, if not by all, of more than their share of the contemporaneous additions to the stock of useful things, and trenches upon prior accumulations. Thus, the capital needed to make provision for future supplies is impaired. Ex- travagance in public expenditure brings the same result. 2. Another form of direct loss or waste is the sinking of capital in improvident or unsuccessful enterprises, such as mines which yield no return, or railroads and other undertakings of considerable magnitude which, after the expenditure of large amounts, are not completed, or which, when com- pleted, are found to be altogether unprofitable. 3. Similar in effect to extravagance and im- provident enterprises are the losses due to certain natural causes, such as droughts or cyclones. These destructive forces diminish the supply of the necessaries of life, especially of food. The quan- tity which producers of these commodities, who are also consumers of other commodities, can offer in exchange is lessened, and the sum total of all com- modities is diminished. If, for illustration, the total ordinary consumption or expenditure of the average consumer be estimated at YO per cent for necessaries, 20 per cent for conveniences, and 10 per cent for luxuries, and a drought, or other natural cause, diminishes the supply of food, the 76 CRISES AND DEPRESSIONS consumer must devote a larger percentage of hia expenditure to the purchase of necessaries, and will have a smaller percentage remaining for con- veniences and luxuries, the demand for which is accordingly lessened. On the other hand, the far- mer receives no more for his products, for what he gains by increased price is offset by the decrease of the quantity which he has for sale. Thus the whole course of trade is injuriously affected. The effect of food scarcity is nowhere more keenly felt than in manufacturing communities. Operatives find that the cost of living increases, and the manu- facturer finds that he must sell to a diminished market. The loss occasioned by war, whether in the form of actual waste or destruction, or by the with- drawal of productive labourers, is another way in which capital is wasted. Some reasons will here- after be given why war does not have the immediate infiuence in causing depressions or crises which would be anticipated. All these are forms in which capital is directly lost or wasted. II. Indikect Loss oe Waste. Distuebance of Eqdilibeidm While the causes already mentioned are suffi- ciently evident, there is a form of waste more pro- ductive of crisis which is not so obvious. Therein lies one of the chief causes of these recurring dis- turbances. It is the lack of harmony between sup- ply and demand in the production of certain classes of commodities. Attention has already been called CAUSES OF CRISES AND DEPRESSIONS 77 to the unequal rise in the prices of Tarious articles in the time preceding a crisis.* It has frequently been noticed that periods of depression are charac- terized by the existence of a glut of many articles side by side with unusual scarcity of others, and by reason of the unusual supply of some commodities a popular impression exists that a main feature of the situation is the general abundance of all. At such times attention is called to the fact that ware- houses are filled to overflowing with articles, ordi- narily commanding a ready sale, for which no cus- tomers can be found. A brief examination will show that the absence of customers is not the result of general abundance. A customer is one who has other useful articles to exchange for the contents of the warehouses, or who has money derived from the sale of such other articles. If the things in. the warehouses have any utility, there must be some one who desires them. At least there are those who would take them as a gift. The obstacle in the way of disposing of them is not the absence of demand, but the absence of effective demand, which is based upon a desire for the article and the possession of some equivalent to be given for it. The possession of a useful commodity is the basis of demand for another commodity in exchange. If a commodity which any one possesses does not meet an existing want felt by one who has an equivalent, no exchange is possible. Evidently much of the difficulty in the mainte- nance of an equilibrium between products arises * Chapter III, pp. 53-54. 78 CRISES AND DEPRBSSIOKS from the failure of producers to place themselves sufficiently in accord with consumers, and from their tardiness in keeping pace with constant changes of fashion and taste. There is a well-defined limit to the efficiency of productive energy. If an undue share of this energy is devoted to some special kind of produc- tion, it must be to the detriment or decrease of some other kind of production. In the one there will be an excess and in the other a deficiency of supply. It has been said that production and consumption should keep pace like two wheels of the same vehicle. If all production could be exactly proportioned to demand or consumption there would be few disturbances. On this sub- ject Max Wirth, in his excellent work on Crises, says: " If production in the single branches could be adjusted as accurately as the branches of work in a watch factory, where, to every 1,000 cases, just 1,000 springs, 1,000 faces, etc., are ordered, and where the separate pieces ordered in indefinite num- bers exactly fit to each other, there never would be any over-production, never could a crisis originate. Such systematic order is, however, impossible in a business world, where millions work on their own hook, and each one according to his own notions. There is always more or less of a gorge in one branch by the side of insufficient supply in another. But the more the abyss between demand and sup- ply widens, and the more prices sink or fall, the sooner an extraordinary shaking-up of business is CAUSES OF CRISES AND DEPRESSIONS 79 possible, the nearer the danger of a crisis ap- proaches." * As he states, in the very nature of the case, this exact equilibrium between supply and demand is impossible. The stimulus of competition and of unusual profits is sure to direct the attention of pro- ducers to some favourite commodity, and impel them to provide excessive quantities for the market. The extent of the demand for any article is uncer- tain and speculative. It will vary with natural causes, such as conditions of weather, also with the caprices of buyers. The demand for woollens will decrease in a mild winter; a change of fashion, or a variation in temperature from the normal average, may render the best-made garment almost valueless. Again, the adjustment of demand to supply is a problem of such complication that accurate calcu- lation is impossible. With the increasing division of labour and increase of commercial relations, the field is so large that it is impossible to make exact computations of probable consumption. It in- volves a world-wide survey. He who comes near- est to a comprehensive view is most likely to gain success. The influence of direct loss or waste in caus- ing depression, as described in the first division above, has been very generally recognised. The influence of an absence of equilibrium between different classes of products, as mentioned in * Geschichte der Handelskrisen, 1883, introduction, p. 5. 80 CRISES AND DEPRESSIONS the second division, has also received due atten- tion.* In more recent times, with the great increase of industry and commerce, the causes mentioned in the first two divisions tend to become less effec- tive in creating depressions, while those included in the third division tend to increased effectiveness. Lavish expenditures to gratify private and public extravagance tend to right themselves, and cannot long interfere with the prosperous course of trade. Nations recover from the devastation of war, and from the effects of a scarcity of agricultural prod- ucts. Scarcity of food in the olden times caused im- poverishment. The extent of the suffering arising from scarcity or famine is now greatly lessened by the wide area from which food supplies may be drawn, and the great variety of products from dif- ferent climes, also by the accumulation, not alone of capital, but of capital in the form of food supplies. The third form of derangement or loss due to preparation for the future, and to the progress of commerce and industry, has received occasional ref- erence, but does not seem to have been elaborately analyzed, f This will be considered at some length. * One of the clearest statements of the efEects of lack of equilibrium in producing crises is contained in the Journal des ficonomistes for 1858, vol. xvii, p. 166, in an article by Ambroise Clement. This article seems to have attracted less notice than its merits warrant. f See, in Appendix A, opinion of Professor Jevons, and the quotation from an article in the Bankers' Magazine (London), vol. xviii, p. 5. CAUSES OP CRISES AND DEPRESSIONS 81 III. The Inevitable Changes EEstrLTiNO fbom Modern Industeial and Commercial Progress First Subdivision: Absorption of Capital, the Utilization of which is Postponed. — In considering this subject, the essential fact is the great difference of activity in successive periods in the creation of increased facilities and improvements. If careful examination be given to the period preceding each depression, it will be noticed that it was character- ized by improvements on a large scale, by extensive preparations for an increase in production or dis- tribution. In one era, the building of canals was a leading feature; in another, the building of railways or ships; in another, the opening up of great areas of agricultural territory; in another, the building of numerous factories and the increase of facilities for manufacturing. The occasion for undertakings of so considerable magnitude is the expectation of obtaining commodities more cheaply, or an actual or probable increase of the demands of consump- tion, and the opinion of investors that in supplying these demands large profits can be realized. Often extensive enterprises are commenced because an unusual surplus of capital seeks investment, or be- cause construction is rendered cheap by low prices. The substitution of canals for transportation by beasts of burden, and of railways for canals, afforded a most attractive prospect for expenditure of capital. The accomplishment of any process of manufacture by machinery, which has been per- formed by manual labour, is sure to enlist the inter- 6 82 CRISES AND DEPRESSIONS est of investors. At such a time labour is general- ly employed. The increased demand for divers materials causes a rapid increase in their prices. This increase by repercussion affects all prices, though in a less degree. At the beginning of this period the equipment to supply the increased demand for many things is entirely inadequate, and labour and capital are utUized to add to it. Later, the increased equipment provides a supply in excess of the demand, and there is a notable fall in prices. In providing the increased supply, available capital, if not exhausted, is greatly dimin- ished, and the favourable results, accruing later in the form of a general increase of production and consumption, are deferred for a considerable time. The forms in which there is an exceptional absorp- tion of capital in the different countries are well defined. In the United Kingdom, where the ter- ritory for the construction of railways is, for the most part, occupied, there has not been since 1847 a notable activity in railway building prior to a depression. The extent of the absorption of capi- tal in investments, at home and abroad, the results of which are deferred, is well indicated by the sta- tistics of capital created and issued, which include loans to municipal and private corporations and subscriptions for new companies. rigures are published annually giving not only the amount of applications, but actual money calls. The nominal share capital of joint-stock companies, registering under the Act of 1862, affords a similar indication, though less significant. The very con- CAUSES OF CRISES AND DEPRESSIONS 83 siderable fluctuations in these two items are shown by the following figures: * Tear. Capital created and issued. Actual money calls on same. Xominal capital of joint-Etock companies reg- istered. 1870 (In lOOOs 92,250 154,700 of pounds 80,000 sterling.) 88,353 152,056 1873 1874 110,550 1876 43,200 48,814 1877 38,600 115,250 1881 189,400 1883 254,744 119,222 853,781 1885 77,973 77,875 1888 1889 207,037 49,141 167,804 41,953 1893 96,654 309,533 1896 1897 157,299 1898 101,201 * From these figures it appears that the amount of capital created and issued in 1873 was more than three times as great as in 1876; more than twice as great in 1881 as in 1885, and more than four times as great in 1889 as in 1893. Nominal share capi- tal shows similar fluctuations, and closely corre- sponds to the changing movement in capital created and issued. The most common form for the absorption of capital, as well as the most correct barometer of activity in the United States from 1848 to 1890 was railway building, which, in each case, reached a maximum some months, or years, before the occur- * For a complete statement by years (1870-1900) see Ap- pendix 6, p. 342. 84 CRISES AND DEPRESSIONS rence of the crisis or the beginning of the depres- sion. Prior to the crisis of 1857, the maximum con- struction was in 1856. Prior to that of 1873, it was in 1871. Prior to that of 1884, it was in 1882. The following figures give the number of miles of railway construction in certain years: * 1854 1,360 1869 4,615 1880 6,706 1855 1,654 1870 6,078 1881 9,846 1856 3,643 1871 7,879 1883 11,569 1857 2,487 1872 5,878 1883 6,745 1858 2,465 1873 4,097 1884 3,923 1859 1,831 1874 2,117 1885 3,023 1867 2,249 1875 1,711 1868 2,979 1879 4,809 The diagram on the opposite page shows the increase in each year from 1854 to 1900. After railway building has reached its maxi- mum, construction follows on a very large scale in. docks, warehouses, rolling-stock of railways and other facilities for transportation. These improve- ments are accompanied by extensive building opera- tions. These continue until prices become pro- hibitive, or there is a decrease of demand for en- larged facilities. Kailway building in the United States tends to the greatest activity in years when the prices of material are at the highest figures. This is illustrated by comparing the amount of ex- penditure for railway construction and the prices of materials. The table on page 86, taken from Poor's Manual of the Railroads, shows by periods of five years the cost of those constructed for twenty years, from 1864 to 1883, inclusive. * statistical Abstract of the TTnited States for 1900, p. 374 ,■ ^ ^ Uttndbbds of Miles 1854 5 6 7 8 9 1860 1 a 8 4 5 6 7 8 9 1870 s ^^ --^ •-^ J / \ ^ \ 1 / \ \ V \ \ "• — ■^ 1 2 S 4 5 6 7 8 9 1880 1 2 8 4 5 6 7 8 9 1R90 _,,^ ^^ — ■^ / ^, / \. ' . .^ , — ^ "^ y ~ _ " .-■^ ■^ \ ^ 1 2 8 4 5 6 7 8 9 1900 \ ^ /^ / ( V \ *-^ / 86 CRISES AND DEPRESSIONS Period. Cost of construction. Increase or decrease, period to period. 1864 to 1868 $271,310,000 841,260.000 356,940,000 1,194,540,000 1869 to 1873 1874 to 1878 1879 to 1883 Increase 210 per cent. Decrease 57 " Increase 334 " The following statement of railway construc- tion and the prices of steel rails for the cycles including the crises of 18Y3, 1884, and 1893 will illustrate the same tendency: 1867 to 1878, inclusive. Prices of steel rails, barring a rise in 1872 and 1873, fell from an average price of $166 per ton during the year 1867 to an average price of $42.25 in 1878. The aver- age price by years, during the twelve years named, was $100.70, or approximately $100 per ton. During seven of these years, or 1867 to 1873 inclu- sive, the price was above the average; in five years, or 1874 to 1878 inclusive, it was below. The num- ber of miles built in the five years when the price was below the average was 11,479; during the seven years when the price was above the average, 33,275.* 1879 to 1885, inclusive. In 1879 prices of steel rails rose to an average of $48.25 per ton, reached a maximum average of $67.50 in 1880, and then fell to a minimum average of $28.50 in 1885. During this period of seven years the average price by years was $46.05. During four of these * Gold commanded a varying premium during the years from 1867 to 1878 inclusive, but the signiiicance of the figures given is not materially changed by an allowance for this premium. CAUSES OP CRISES AND DEPRESSIONS 87 years, or 1879 to 1882 inclusive, tlie price was above the average; in three years, or 1883 to 1885 inclusive, it was below. The number of miles built in three years when prices were below the average was 13,691; in the four years when the price was above the average, 32,930. 1886 to 1898, inclusive. In 1886 the price rose again to an average of $34.50 per ton, and, after fluctuations, fell to a minimum average of $17.62 in 1898. During this period of thirteen years the average price of steel rails was $27.93. During nine of these years, or 1886 to 1893 inclu- sive, and 1896, the price was above the average; in four years, or 1894 and 1895, 1897 and 1898, it was below. The number of miles built in the four years when rails were below the average price was 7,582; the number of miles in the nine years when the price was above the average was 50,902.* The effect of this larger cost in years of high prices is worthy of careful attention. The rail- ways constructed when prices are high must com- pete with other transportation routes constructed at a lower cost; or, if not compelled to compete with other routes, must prove profitable or unprofitable according to the relation between income and cost. * See Mileage of Railway Construction, Statistical Abstract of the United States for 1900, p. 374. Average Prices of Steel Rails by Years, same, p. 439 ; also. Iron and Steel and AlUed Industries in all Countries, by James -M. Swank, 1897, p. 41. Until 1877 more iron rails than steel were used in construc- tion, but the general course of prices was the same for both. There was a greater rise in iron rails in 1873 and 1873, years of extensive railway building. 88 CRISES AND DEPRESSIONS The numerous foreclosures and reorganizations ■which followed the building of railways in each of these periods were not altogether due to construc- tion in advance of demands. Scarcely any of them were abandoned. Nearly all of them are in opera- tion to-day, and prove useful additions to the trans- portation facilities of the country; but they were constructed at a cost very much in excess of that upon which their net income would bring a profit- able return. To summarize in a few words the argument that depressions are caused by unusual expendi- tures of capital for prospective demands, it may be said: Production has for its aim the affording of sup- plies for consumption. It may be for the purpose of supplying such consumption as will meet de- mands which are well established, and approxi- mately Tmiform from year to year, nearby con- sumption, or it may be for remote consumption. It may look either to increase of commodities already in use or to altogether new conxmodities. In production for the satisfaction of these two kinds of wants, there is a marked difference in the time intervening before the results of the expendi- ture of capital and labour can be realized. As has been already stated, in considering the maintenance of equilibrium in the production of different kinds of commodities, the amount of production is limited by capital. If a larger share of it is applied to pro- duction for anticipated wants, or in preparation for future consumption, there must be a corresponding CAUSES OP CRISES AND DEPRESSIONS 89 decrease in the production of that required for present wants. It conveys a correct understand- ing of the effect of expenditure for remote con- sumption to say, in the language of trade, that it requires a longer time to bring the goods to market. Effect of Absorption of Capital upon Foreign Trade. — The effect of undue absorption of capital for future uses in producing depressions has been well illustrated in the United States and similar countries by the relation between exports and imports. In the period of expansion preceding a depression, imports will be very large, and will bear an unusually large proportion to exports. With the beginning of the depression, or soon after, there will be a decided change. In any country where available capital has been exhausted in developing new fields, or in preparing for increased production, exports will show a great increase as compared with imports. It is probable that both the quantity and value of imports will decline. The exports will command a lower price than formerly, but will greatly increase in quantity, and so great will be the increase in quantity that the aggregate value will probably increase also. The decrease in imports is due to diminished consuming or purchas- ing power, caused by the exhaustion of capital. The same diminished consuming power tends to increase exports, because a smaller proportion of the domestic product is consumed at home than formerly, and consequently a larger proportion is sent abroad. There is also necessity for increased exportation to meet the obligations incurred abroad 90 CRISES AND BEPRESSIONS during the preceding expansion. Later, however, an even more important factor in increasing exports arises from the fact that the increased equipment, made possible by the utilization of so much capital in providing improved or enlarged facilities, begins to make its influence felt, and renders the produc- tion of many commodities cheaper than in other countries, and thus makes exportation possible where otherwise it would not be. The following trade statistics in the United States illustrate this: * Tears ending June 80th. Exports. Imports. Percentage, Exports to Imports. (In millions 1875 (year of depression) 1876 ( " " ) 1877 ( " « ) 1878 and tenths 513.4 540.3 603.4 694.8 710.4 835.6 903.3 750.5 of millions 533.0 460.7 451.3 437.0 445.7 667.9 643.6 734.6 of dollars.) 96 117 133 158 1879 159 1880 135 1881 140 1883 103 The years 1875, 1876, and 1877 were years of depression. The next two years, 1878 and 1879, witnessed the change to activity. The years 1880, 1881, and 1882 were years of activity. It will be noticed that an adverse balance of trade of almost * To the same effect, see statistics as to exports and imports for the Argentine Republic, p. 157; also for Austria, p. 302. The subject of the varying proportion between exports and imports is more fully considered in Chapters V and VI. The relation between exports and imports is given more detailed consideration in Chapter V. CAUSES OP CRISES AND DEPRESSIONS 91 twenty millions in 1S75 was clianged to a favour- able balance of two hundred and sixty-five millions in 187!), or a difference of two liundred and eighty- five millions. In the earlier portion of the period the principal factor in increasing the exports was diminished consuming power; in the later portion, increased producing- power. In the normal course of events, the increase of exportation will continue for a considerable time after the close of the depression, although the pro- portion to imports will not be so large. The same force which increased production and exports be- fore is still effective. This increase of exports will continue until increased activity at home increases demand and prices, and diminishes exportation. In ISSO and ISSl, respectively, the exports from the United States were valued at $885,000,000 and $902,000,000, showing the continuance of the in- crease; but with enlarging home demands, imports for these two years showed a much larger per- centage of increase. In 18S2, the culminating year up to tliat time of railway building and many other forms of activity, exports fell off $152,000,- 000, while imports increased $82,000,000.* Second Svhdirision: Results of Inrention and Improved jilethods of Production. — Closely associ- ated with the factors enumerated in the former subdivision, and equally promotive of depressions, are the substitution of new methods, the results of invention, improved utilization of capital, and • It should be stutinl that the inferior crops of 1881 aooouut for a oonsiderablo sliare of this decrease of exports. 92 CRISES AND DEPRESSIONS the opening up of new fields. It is impossible to depart from tte establislied conditions, even in the direction of decided general improvement, without entailing loss and bringing serious distress to many- persons. There is not merely a temporary wrench; many investors lose their capital, and many work- men lose their employment. No statistics can be obtained to measure the loss by the absolute dis- mantling or diminished efficiency of manufacturing plants made necessary by the competition of im- proved machinery; but this loss is very large, and is most keenly felt in countries where increase in wealth is greatest. There is the substitution of machinery for skilled or unskilled labour, and the substitution of new and superior mechanism for machines formerly in use. The invention of single machines often multiplies tenfold the producing power of an individual. Mr. Carroll D. Wright cites certain improvements in the manufacture of boots and shoes : " Goodyear's sewing-machine for turned shoes with one man will sew 250 pairs in one day. It would require eight men working by hand to sew the same number. By the use of King's heel-shaver or trimmer, one man will trim 300 pairs of shoes a day where it formerly took three men to do the same. One man with the McKay machine can handle 300 pairs of shoes per day, while without the machine he could handle but five pairs in the same time." * In many departments of industry, equal and even greater advances have been made. It must * Industrial Depressions, 1886, p. 82. CAUSES OF CRISES AND DEPRESSIONS 93 be noted, however, that the displacement of labour by machinery is very unequal in different kinds of production. The statistics of coal mining in the United Kingdom show, on comparison of 1883 with 1897, that the number of coal miners increased by a larger percentage than the output of coal. In 1883 there were 514,933 coal miners employed, while in 1897 there were 695,213. In 1883 there were mined 163,737,000 tons, while in 1897 there were mined 202,119,000 tons. The increase in coal mined was 23.44 per cent, while the increase ia the number of coal miners was 35.01 per cent.* In the consideration of the influence of ma- chinery and labour-saving devices, two opposing errors have obtained wide acceptation : First, that labour-saving devices are an evil. Second, that they confer an immediate and un- mixed benefit. It is a grave error to suppose that the increased productive power which multiplies the quantity of available commodities can be an evil, because there * Fifth Annual Abstract of Labour Statistics, 1899, pp. 64,81. It should be noted that in the statistics for 1897, persons employed in private branch railways and tramways and in ■washing and coking of coal were included, while in 1883 they were not. This would diminish the difference somewhat. The number so employed is not separately given for 1897, but in 1892 was 19,343. This decrease in the quantity of coal mined in proportion to the number of men employed has not occurred in the United States, because mechanical inventions and ma- chinery have been more generally used. 94 CRISES AND DEPRESSIONS is still an illimitable demand for more, and every increase of supply contributes to the satisfaction of human wants. On the other hand, the en- tire or partial destruction of the capital formerly used to supply demands, which under improved methods are otherwise supplied, and the displace- ment of labour, cause a derangement not unlike that occasioned by absolute waste or destruc- tion. The opening up of new fields in agriculture and for the obtaining of raw material has the same gen- eral effect as the improvements accomplished by invention. The increase of available agricultural lands contemporaneously with railway building in 1873, and prior thereto, rendered large areas of land much less valuable. The value of many resi- dence lots in cities has been diminished in the same manner by the development of street and suburban railways. Effects of Progress as viewed from the Stand- point of Consumption. — The effect of progress in promoting depression may be viewed from the standpoint of increased consumption as well as from that of improved methods of production. The most progressive peoples are eager to obtain the best of everything available. There is an increased demand for and a disposition to use as ordinary conveniences of life, things which formerly were either regarded as luxuries or had been unknown, such as gas in the place of candles, and electric lighting as a partial substitute for gas. In the same category may be classed a number of modern CAUSES OF CRISES AND DEPRESSIONS 95 improvements in sanitary conditions, whether se- cured by public enterprise, as municipal sewers, or by private initiative, as in the more careful construction of dwellings; also in the location of houses with regard to air, light, and the prospect afforded. Improved methods of transit have made available for residence much larger areas in the neighbourhood of cities. The disposition to secure the benefit of these advantages is by no means to be decried. The lower death-rate and better stand- ard of health, as well as the greater degree of enjoyment and higher prevalent standard of taste which result from them, must be a benefit from an economic as well as from a social standpoint; but the changes wrought by these improvements in the standard of living cause a much more rapid exhaus- tion of capital and bring a slower return than would occur in a less progressive society. Alike in kind is that derangement in the condi- tion of capital which arises from the substitution of one article for another, when the change does not result in so great an advance as in the substi- tution of gas for candles. In response to the modern demand for the very best instruments and appliances, these changes are constantly taking place. We may instance the substitution of wire nails for cut nails. There was in existence an equipment which was ample for supplying the lat- ter, but the former were regarded as preferable. A new equipment was provided for wire nails, which in less than twenty years practically sup- planted the cut nail. Thus, in the history of the 96 CRISES AND DEPRESSIONS period, we have double capital invested for tlie pur- pose of supplying nails. Everywhere in the most progressive countries there is manifest the destruction or abandonment of the old and the adoption of the new. That which is regarded as perfect in one decade is thrown aside as worthless in the next. An industrial revo- lution is constantly in progress. If unprogressive countries do not experience depressions, it is because there is no such industrial movement or commer- cial growth. They do not pass through eras dis- tinguished by preparation for increase of produc- tion, nor do their inhabitants enjoy that great increase of commodities and facilities which is gained by more progressive peoples. Incidental Featuees Tendency to Exceptional Overaction. — Side by side with the destruction which inevitably accom- panies an improving condition is the tendency to overdo in those things which are new. Upon analysis it will appear that this tendency is quite different from a speculative disposition. It is due to the ever constant desire to accomplish the greatest results with the least labour and in the readiest way. The disposition to enter new and fertile territory, and by overaction there, to pro- mote crisis and depression has frequently been noticed. The same temptation to overaction in exploiting valuable inventions operates with still greater force. CAUSES OF CKISES AND DEPRESSIONS 97 Speculation and Fraud. — The large profits afforded by successful enterprises and those which give new or additional facilities stimulate specu- lation; speculation stimulates fraud. These find a fruitful field for their operations in the inflated prices and the multitude of projects which precede every crisis. But, though they may precipitate crises, they are not the ultimate cause either of the extravagances of the time or of the collapse which follows. Speculation is rife in a time of rising prices. Rising prices proceed from an increase of demand out of proportion to supply, so that specu- lation in an article has its basis in increased demand for that article. Increased demand is characteristic of an energetic and progressive people. Distinctive Quality of Recent Depeessions It thus appears that in their distinctive quality recent depressions are a necessary incident of that progress which is characteristic of modern civiliza- tion. They are part of a transition period from a lower to a higher plane of production and consump- tion, and are preliminary to the enjoyment, on that higher plane, of a greater quantity and variety of the necessaries, conveniences, and luxuries of life. This period of transition may be roughly divided into three shorter periods. The first is characterized by the employment of labour and the expenditure of unusual amounts of capital in prepa- ration for increased or improved production. This is followed by the second period, which is a season 7 98 CRISES AND DEPRESSIONS of readjustment to new conditions in which there ia a great disparity in the supply of numerous com- modities and facilities and the demand for them. The prices of many kinds of property decrease on account of oversupply due to increased equipment for production, improved methods, or the competi- tion of new fields. This readjustment is accom- panied by serious loss to those whose capital has been rendered useless or whose labour has been dis- placed. This is the period of depression. In the third period a readjustment to the changed condi- tions is accomplished and the benefits accruing therefrom are secured. Different Theories as to the Causes of Crises AND Depressions It will now be profitable to consider in order the alleged causes of crises and depressions which have been most strenuously supported, and to ex- amine the elements of truth or error contained in each. Lack of Confidence. — The effect of lack of con- fidence in causing panics or crises cannot be over- looked. It cannot be measured by any rule, or explained in accordance with any economic prin- ciple, yet its influence must be recognised. The effect of a great failure, or of an exposure of fraud in the management of a prominent corporation or banking institution, is paralyzing upon business. Liquidation is hastened and credit for the most commendable enterprises is refused. But we must CAUSES OF CRISES AND DEPRESSIONS 99 not accept the popular impression, prevalent in many quarters, that this is the sole source of the difficulty, a view especially favoured by speculators and by all those who hope for gain from rising prices. One thing is certain: in times of excessive expansion, there is too much confidence; in times of depression, too little. Unfortunately, an excess of confidence was our undoing. The men who pro- moted the calamity were full of energy and hope. Confidence is a quality of the mind. Its possession is essential for the utilization of opportunities which present themselves and for the maintenance of that degree of activity which is appropriate under existing conditions, but it cannot create wealth. In its influence upon prosperity, the effect of confidence is analogous to that of proper economic policy or the security of property. Each is essen- tial for the maintenance of prosperity, but they cannot create it. Their absence destroys, but their presence can only be effective when co-operating with other forces. 'So great progress is possible when they are lacking. As a destructive force, the influence of an ab- sence of confidence is very great. But unless con- fidence is rational and rests upon solid foundations, it injures more than it benefits. Its possession may stimulate enterprise, but however much we may admire enterprise, it is out of place when prudence should hold sway. In case there is a genuine de- pression, to blame men for lack of confidence is to blame them because they prefer to act in recogni- 100 CRISES AND DEPRESSIONS tion of the existing situation rather than in igno- rance of it. The vital error of this theory is the idea that business operations should be conducted in reliance upon conjecture rather than upon fact. The Abuse or Undue Extension of Credit, either iy Excessive Bank Credits or by Inflated Issues of Currency. — In the consideration of this problem it should be said that confidence is a quality of one who engages in commerce or industry. Credit is confidence reposed in one so engaged. This theory is supported by the admitted fact that crises occur most frequently where credit is most in use. Credit, like confidence, is in the first instance a matter of belief. It is belief attended by action. This belief may be well founded or baseless. The indebtedness which one may safely incur is measured by the convertible value of his property. Credit is dangerous when out of pro- portion to available or convertible capital. If prices fall, or enterprises fail, the convertible value of the property of debtors must greatly diminish, and many of them are unable to meet their obliga- tions. As a result, a crisis is probable. Rightly analyzed, however, credit is a means employed in connection with other and more potent forces. It determines the magnitude rather than the nature of undertakings. In every advanced society there is a speculative or extravagant ten- dency, more or less active according to the apparent prosperity of the time, and the opportunities afforded for obtaining capital for investment. Credit is one means of obtaining control of capital, CAUSES OP CRISES AND DEPRESSIONS 101 and thus promoting enterprise. Many pages have been written in support of the position that credit creates capital, or that it is itself capital. It is sufficient to say that it greatly facilitates the use of capital and stimulates production. It insures the constant employment of labour and the continuance of the machinery of production. It enables under- takings requiring a long time before they can afford results, to proceed side by side -with those which bring prompt return. By its use the manufac- turer and the merchant increase their stocks, and all those engaging in business can greatly enlarge their field of operations. In the transaction of business, credit marks the third stage of develop- ment, as follows: 1. Simple barter, in which he who owned an article of value could dispose of it only in exchange for something of value owned by another who de- sired the article owned by him. 2. The use of money having universal value, and affording at the same time a standard of value and a medium of exchange. By its use he who owns an article of value can exchange it for money, irrespective of the possession by the buyer of any specific commodity which the seller desires. 3. The use of credit, by which the owner parts with his wealth for the promise of future payment, and for no immediate equivalent, but in reliance upon the ability and honesty of the borrower. Just as the use of money, as compared with barter, diminished the difficulties of trade, so the use of credit greatly facilitates operations, as compared 102 CRISES AND DEPRESSIONS witli a situation in wMch money alone is used. Credit enables the borrower to do what otherwise only the actual owner of capital could do. The general result of the use of credit is to pro- vide for enterprises by a greater number of per- sons, on a much larger scale, and with greater convenience. Thus, the difference between the conditions which arise from an extended or a limited use of credit is rather one of magnitude than otherwise. The same general tendencies would be at work in either case. If we consider, it will be seen that the cause of the abuse of credit is a spirit of speculation created under the influence of successful opera- tions and large accumulations of capital, or an attempt to keep alive unprofitable enterprises, or the indulgence in extravagance and waste some- where. Banks having the power to issue bills do not issue them, and thereby expand credit, un- less there is a demand for larger credit, unless the spirit of speculation and expansion is already rife. Lenders do not lend money, nor do wholesale dealers grant credit, except in response to demands upon them. They but fall in line with their sur- roundings, and yield to influences powerfully at work. Bankers are frequently blamed as the re- sponsible cause of crises. No doubt many of them at the time of a convulsion, and in the days preced- ing or succeeding it, are at fault, some for too great conservatism, others for too great liberality in the granting of discounts. Their critics find fault with them alike for bringing on the crisis by granting CAUSES OF CRISES AND DEPRESSIONS 103 loans too freely, and for making it severe by refus- ing them. In these crises they are largely con- trolled by their environment; they do not create conditions. They but reflect the good or bad times, which come without their behest, and the existence of which they must recognise. Under the head of abuse of credit we may include another explanation of crises, namely, in- flation of the currency. This is not independent of abuse of credit. Both lead to the same thing, because an increase in the volume of the circulat- ing medium increases the opportunity for the ex- pansion of credit.* As affecting crises, inflation of the currency stimulates the speculative fever and promotes un- profitable enterprises. It is particularly true that, if irredeemable paper money is issued in any con- siderable quantity, prices are sure to rise. An unnatural rise in prices is the most fruitful parent of injudicious investment. Investors do not stop to think that while an article may bring many more dollars than before, the dollar has not the same purchasing power. The result of inflation was never better illustrated than in the period during and after the late Civil "War. An increase in nomi- nal values was caused by the large increase of paper money. This created a desire for new and, in * A distinction should, of course, be made between inflation proper and an enlargement of the currency in response to the demands of increasing business, or to take the place of that ■which has been withdrawn from active circulation in time of panic. An increase at such time is not inflation. 104 CRISES AND DEPRESSIONS many cases, useless undertakings. In the eight years from 1866 to 1873 inclusive, a greater mileage of railways was built than from the com- pletion of the first railway in the United States in 1830 to the end of 1865. Many of these were commenced after the premium on gold had fallen, and prices were more nearly normal; but the buoy- ant spirit of enterprise, which had been stimulated by rising prices and unusual profits, still continued, and resulted in the severest crisis this country ever experienced. y^Thit, Readjustment to New Conditions because of ^inevitable Changes in Values or Prices; a General f Fall in Prices; Changes in the Monetary Unit. — ( Under this head may be included the theory of ^ those who regard a depression as merely the result of a general fall in prices, and of those who ascribe the difiiculty to changes in the monetary unit. Business engagements consist in obligations to do or furnish something in the future, the price or value of which is fixed by a standard existing in the present. Industrial operations are conducted in dependence, in a general way, upon the maintenance of a certain level of prices. It is maintained that crises are due to the fact that these obligations must be performed at a time when the range of prices is so different from that prevailing when the com- pensation was fixed or contract made, that one of the parties must lose. It will readily appear that if there is a considerable change in prices, such derangement might ensue as to cause a crisis, and the effects of the change would protrude them- CAUSES OP CRISES AND DEPRESSIONS 105 selves into the future, so as to aggravate a de- pression. The beginning of a crisis is little more than the sudden development of wide-spread inability to meet obligations. If the convertible property of debtors should faU in price, the ability to pay would be greatly diminished. In actual experience, this theory, more than either of the two preceding, would seem to give the immediate cause of the diffi- culty, and on some occasions the sufficient cause, so far as the mere crisis phase is concerned. But, if the disturbance is prolonged, the real difficulty is deeper. It should not be forgotten that for every seller there is a buyer; for every borrower there is a lender. That which one loses by a change in prices the other gains. It is a well-known fact that in all our great manufacturing centres, after a season of low prices, numerous mechanics and arti- sans withdraw money from savings-banks, and, tak- ing advantage of the situation, purchase or build houses for themselves. It is also well known that a low price of raw materials is frequently the ground for investment in industrial undertakings, which are needed and will be profitable, and which would not have been commenced in a time of high prices. The general economic condition of a nation is not changed by a rise or fall of prices, because prices merely measure the value of property. So far as such rise or fall is concerned, there would remain the same quantity of things useful as be- fore. If there is less of national wealth it is not due to fall of prices, but to some other cause. 106 CRISES AND DEPRESSIONS A legislature, for the benefit of debtors, might pass laws staying the collection of debts, or a despot might declare that fifty pieces of money should be regarded as equal to one hundred in payment of obligations theretofore made; but neither of these measures would cure a depression. They might relieve debtors and injure creditors, but could not set the wheels of industry in motion. It is true that a change in prices, by causing the bankruptcy of many persons and the discourage- ment of others, removes many useful members from active participation in trade or industry, and, as a practical fact, the discouraging effect upon business of a steady fall in prices cannot be exag- gerated. It destroys the accuracy of all calcula- tions and dissipates hopes of profit. It falls with peculiar weight upon those who are relying on credit. At times, however, such a fall should rather be regarded as a salutary warning of the dangers of overaction, and of the necessity of adaptation to new conditions. Every progressive era must be characterized by especial danger to those who em- bark in business in reliance upon credit, because the tendency of invention and modern development is to create a lower price level; and in spite of tem- porary alternations of rise and fall, this general tendency must always be at work. Speculators may hold commodities, hoping to gain from a rise of prices. Merchants and manu- facturers may suffer losses from a fall in prices. This fall may threaten or cause a crisis, and, as a result, wide-spread liquidation and bankruptcy may CAUSES OF CRISES AND DEPRESSIONS 107 occur. These are tlie visible signs of crises, but behind them the real causes appear. Either the resources of buyers have been diminished by waste or locked up in something not immediately re- munerative, so that the effective demand for com- modities is lessened; or the development of im- proved methods, or of new fields for the production of the commodities, is such that the cost of produ- cing them is diminished.* A fall in prices causes only a transfer of wealth from one individual to another. Between the mere transfer of wealth and its loss there is a vital difference. As upon all other branches of this inquiry, a surprising difference of opinion has de- veloped concerning the comparative effect in pro- ducing depressions, of money lost in speculation and actual loss of capital. To illustrate, let us contrast two transactions: 1. The sum of $10,000,000 is paid to a mine- owner for a mine which proves to be worthless, and nothing is expended for its development. The money has simply changed hands from buyer to seller, without the transfer of any equivalent. 2. The sum of $10,000,000 is actually expended in labour and materials for the development of a mine. No mineral is obtained, and the mine proves to be worthless, so that the capital expended upon it is wasted. In the first case there is only a trans- fer of money from one person to another, while in the second not only does the investor pay out * See first and second subdivisions, under Division III, pp. 81 and 91 of this chapter. 108 CRISES AND DEPRESSIONS his money, but it is wasted. It will be noticed tbat in the second case there is an absolute destruction of wealth, while in the first there is none. Which transaction tends the more to produce depression? All will agree that the second has such tend- ency. As to the first, some contend that, equally with the second, it tends to produce depression; while others maintain that it has no such tendency at all. The latter view would be correct, if we consid- ered only general principles and disregarded certain traits of human nature. A mere transfer of property from one person to another cannot be so injurious as the absolute destruction of wealth. But we cannot overlook the evils which may spring from such transactions as those illustrated by the first ex- ample. It is a common saying that no man retains what he steals, or judiciously invests what he gains by sudden speculation or unexpected windfall. Not only will the loser by such a bargain become a smaller consumer, and, under the influence of dis- couragement, a poorer producer; but the gainer will inevitably expend his money in extravagance, or he will engage in similar transactions, in the hope of further multiplying his gains without participa- tion in legitimate business. The distinction between the two cases illustrated attracts less attention, be- cause in every period of excessive activity, numer- ous instances of both appear contemporaneously. At such a time, not only will there be injudicious and wasteful enterprise leading to actual loss of capital, but also a spirit of speculation, under the CAUSES OF CRISES AND DEPRESSIONS 109 influence of whicli much property changes hands at absurd prices. An important fact apparently supporting the theory that a crisis is caused by speculation, is the large quantity of property, both real and per- sonal, which is held in expectation of a rise in price. There is no present demand for such property at the prices asked. When a crisis occurs these values prove entirely fictitious, and sales can only be made at much lower figures. This results in serious loss and a necessity for readjustment according to the actual situation. The Contraction of the Circulating Medium or an Insufficient Volume of Money. — The two may be considered together. These expressions, as com- monly employed, seem to refer not to metallic money, the quantity of which is not a matter of arbitrary control, but rather to credit or paper money, whether issued by the government or by banks. No doubt serious disturbance and loss would be caused by a sudden or arbitrary contrac- tion in the volume of outstanding paper money. Prices would fall. It would be difficult to maintain the existing lines of credit. But a distinction should be made between that decrease or contrac- tion which proceeds from arbitrary regulation and that which results from conditions of trade or from a panic which causes hoarding. That system of note issues is most perfect which provides for all situations, including not only ordinary demands, but also the exceptional cases of sudden shrinkage. It is hardly probable that under rational manage- 110 CRISES AND DEPRESSIONS ment material contraction of the currency would be attempted, except to correct inflation in a time of depreciated paper money, or to substitute a better form of currency to take the place of that which is withdrawn. Monetary panics, so called, have occurred of which the distinctive feature is an unusual scarcity of money. They may happen when the relations jDctween demand and supply seem to be normal and the essential conditions of prosperity exist; but, by reason of some sudden shock, money is withdrawn from circulation. For such emergencies provision should be made, but it is not a question of the quantity of outstanding paper currency. At such a time there would be a great shrinkage in the quantity of available money whatever the amount ordinarily in circulation. Temporary increase of currency at such a time, if properly guarded, will, no doubt, be helpful. If the state of industry is a healthy one, the danger will soon pass away; money will circulate again and normal conditions return. If conditions are not prosperous, then the scarcity of money is not the real cause of the disturbance. In either event, the temporary scarcity is an effect and not a cause, though it must be conceded that when the distress has been caused by other influences, the scarcity of money greatly intensifies it. It would be difficult to find a crisis traceable to insufficient volume of paper money. Examina- tion of statistics will show that crises occur rather when there is an unusual amount of credit money in circulation, and sometimes when there is an ex- CAUSES OF CRISES AND DEPRESSIONS 111 ceptional supply of metallic money. In the year 1837, in the United States, there was not only the greatest aggregate amount of paper money in circu- lation up to that time, but also the greatest quan- tity per capita. The year 185Y also shows the greatest aggregate amount of paper money in cir- culation up to that year, and, with the exception of one year, the greatest quantity per capita; in 18T3 and 1893 the amount also surpassed all previous years, and in per capita was near to the maximum. Yet these four years were years of severe crises. Even more notable is the unusually large propor- tion of paper money to specie in crisis years.* Volumes have been written upon this subject, more particularly with reference to questions of coinage of silver and tjie currency. It is contended that prices are determined by the relation between the volume of money (some include all kinds of money, others, nietallic or basic money only) and the total quantity of commodities. Consequently it is maintained that as the volume of money diminishes, prices decrease and financial loss and crises occur. This expresses only a part of the truth. As affording a rule to follow, it is a grave error, for it entirely overlooks another factor — namely, the efficiency of money. The efficiency of money depends upon its rapidity of circulation, and the extent to which substitutes are employed to take its place. The facts upon this point as regards prices are very well expressed by John Stuart Mill: * See Muhleman's Monetary Systems of the "World, pp. 138- 130, 135, 140. 112 CRISES AND DEPKESSIONS " The proposition respecting the dependence of general prices upon the quantity of money in circu- lation must be understood as applying only to a state of things in which money — that is, gold or silver — is the exclusive instrument of exchange, and actually passes from hand to hand at every purchase, credit in any of its shapes being un- known. When credit comes into play as a means of purchasing, distinct from money in hand, the connection between prices and the amount of the circulating medium is much less direct and intimate, and such connection as does exist no longer admits of so simple a mode of expression." * Mr. Tooke, the author of the standard work on prices, also says: " There is not, so far as I have been able to discover, any single commodity in the whole range of articles embraced in the most extensive list of prices, the variations of which do not admit of being distinctly accounted for by circumstances peculiar to it . . .f Circumstances do frequently operate with such force as to reduce prices in the face of an expanding currency, and to advance prices when the currency is diminishing. In point of fact, the expansion is frequently rather an effect than a cause of enhanced prices." Again, the volume of money in use or circulation does not depend upon the amount issued. Pub- lish a rumour some morning that a leading bank is in a shaky condition, and before sunset there will be * Political Economy, book ili, chap, viii, see. 4. f History of Prices, vol. ii, p. 349. CAUSES OP CRISES AND DEPRESSIONS 113 a conttaction of available currency greater than any law-making power or finance minister ever accomplished in the same time. It requires little consideration to recognise that, given a certain quantity of money, there may be two conditions; one, that of universal distrust, when money is kept out of circulation; another, that of general confidence, when borrowers are trusted and money is readily obtained. In the latter event a certain quantity of money may be sufficient to transact the business of a community or a country; in the former, a far greater quantity will not supply the demand. Attention has already been called to the occur- rence of crises in years when there was an unusual quantity of money in circulation. It is also true that an insufiicient volume of money is not the cause of extended seasons of distress. This is con- clusively proved by a well-established fact. In all depressions prices go down while money is accumu- lating in banks and rates of interest are going down, so that at the worst of every depression we have a great abundance of money and low rates of interest side by side with low prices. Low rates were quoted at New York in 1878, in 1886, and 189Y, and at London the lowest rates prevailed in 1859, 1868, 1S79, 1S85, and 1895, all severe or severest years of depression. On the other hand, there are not lacking nota- ble instances in which an exceptional abundance of money has been a moving cause of depression. This has been true, not only of paper money, but 8 114 CRISES AND DEPRESSIONS of gold and silver money, and also of capital which they represent. The great increase of money in Germany due to the payment of the French in- demnity is one illustration of this. Enterprises were undertaken which at other times would have been impossible, and in private as well as public expenditures there was an era of extravagance. Half in humour and half in earnest, a German comic newspaper said: " Let us have another war; let us be beaten and pay an indemnity and then we shall be prosperous again." It would, however, be far from correct to say that this great indemnity was not a benefit to Germany. Much of it was wasted, no doubt; but a much larger share was expended in enterprises ultimately very beneficial, but the bene- fits of which were long deferred. The ground for the unfavourable comparison with France was that in the latter country the war had caused an earlier liquidation, and there was an absence of those ex- tensive projects and investments which were pos- sible in Germany. The mining of large quantities of gold or the sudden development of some new source of wealth has the same tendency to bring expansion in enter- prise, together with a general increase of all kinds of expenses, and to cause the locking up of large quantities of capital in projects not promptly remunerative. The Boston Board of Trade, in a report made in April, 1858, upon the events of 1857-'58, mentioned as an important fact in caus- ing the depression, " the discovery of the rich and extensive gold mines of California, by which many CAUSES OF CRISES AND DEPRESSIONS 115 hundred millions of gold have been rapidly added to the currency of the world." The tendency of large accessions or accumula- tions of capital to cause disturbance is well ex- pressed by Mr. Bagehot: " At intervals . . . the blind capital of a coun- try is particularly large and craving; it seeks for some one to devour it, and there is ' plethora ' ; it finds some one, and there is ' speculation '; it is de- voured, and there is * panic' " * Thus, paradoxical as it may seem, the starting- point for crises and depressions may be found in abundance rather than in scarcity, whether of money or of capital. Over-production or TJnder-consumption. — In support of this theory it is said that every crisis or depression is marked by a glut of supplies in the market, by the inability to dispose of stocks of mer- chandise or to transfer convertible property of any kind at fair prices. Increased production in itself, however great, cannot be a misfortune or cause a crisis. It is a benefit until the time, impossible of anticipation, when all shall have secured as much as they want. Human wants are of infinite variety, and the strongest desire is for abundance. Modem invention, improved facilities for transpor- tation, better methods in the transaction of business and in the utilization of capital, all tend towards securing greater abundance. These must be a * Essay on Edward Gibbon, vol. ii of Collected Works, p. 3. For the whole quotation of which the above is a part, see Ap- pendix A, pp. 311-312. 116 CRISES AND DEPRESSIONS benefit, because they increase the supply of the necessities and comforts of life. The gradual progress from our first parents, clothed in nature's garb, to the elaborately gowned women and well- dressed men of the present day, is due to increased productive power, especially in the manufacture of fabrics suitable for clothingi In brief, general over-production is impossible. But if by the term " over-production " is meant disproportionate pro- duction of some things; that the machinery of production is out of harmony, making too much of this and not enough of that, a condition is described that may be a cause of depression. It is not, how- ever, a correct use of terms to call that condition " over-production." It is merely the absence of equilibrium between different kinds of production already mentioned. That upon which greatest stress is laid by those who ascribe crises and depressions to over- production is the adoption of labour-saving ma- chinery, the improvements and inventions which help to create abundance and greatly increase the aggregate supplies of the human race. These must, in the long run, be a benefit, for we do not work for the sake of working, but for the sake of the things that we produce by work, and the larger the num- ber of things we produce and the easier the work, the better our condition. But there is a constantly recurring necessity for adjustment to new conditions. Some economists tell us remorselessly that those who have learned a trade must, when machinery begins to do the CAUSES OF CRISES AND DEPKESSIONS 117 work they have done, learn another trade, or turn their attention to other employment. But this is not so easy, particularly if a man has reached mid- dle life, so that he cannot easily learn another trade, or if other lines of employment are already more than full. Likewise, if a man has built a factory, and invested in it all his capital, and improved machinery makes his investment useless, it is little consolation to him to tell him he must change to something else; he has his all in that factory.* There is between the old conditions and the establishment of the new a time of transition in which numerous interests must sufFer. In the long run, it must be admitted that great benefit is con- ferred. The human race is richer, but for a multi- tude of individuals the loss is serious ; and so many are involved that, often in the midst of great abimd- ance, depression may exist. Especial prominence has been given by the sup- porters of the theory of over-production to the so- called modern revolution in production and distri- bution, which, in recent years, it is maintained, has * "In some books on political economy the removal of capi- tal from one employment to another is spoken of lightly, as if it were an easy process. No delusion can be greater. Such changes can, of course, be made in some kinds of business with- out very serious loss. A banker, whose fixed plant consists of a few chairs and tables, may, if he has been prudent, wind up his affairs and invest his capital elsewhere. But a manufac- turer or farmer, with money sunk in all sorts of ways, cannot sell his plant without heavy loss, except in very peculiar times and under extraordinary circumstances." — William Fowler, M. P., Contemporary Review, vol. xlvii, p. 538. 118 CRISES AND DEPRESSIONS multiplied the necessaries and conveniences of life more rapidly than the demand. It is asserted that this revolution has rendered recent depressions ex- ceptional in their nature, more lasting and severe. Among those holding this opinion may be men- tioned the late Mr. David A. Wells. He placed special stress upon the increased machinery of pro- duction and distribution, and called attention to the fact that the great depression of a little more than a quarter of a century ago began soon after the opening of the Suez Canal, contemporaneously with which appeared exceptional improvements in the machinery and economy of distribution of such products as wheat, rice, wool, and meats; or in increased sources of supply, as in copper, tin, nickel, silver, and quinine. He quotes M. Georges de Laveleye, who main- tains that the industrial activity of the greater part of the past century was devoted to fully equipping the civilized countries of the world with economic tools, and that the work of the future must neces- sarily be that of repair and replacement, rather than of new construction, and adds : " A more important inference, and one that fully harmonizes with the existing situation, is, that the equipment having at last been made ready, the work of using it, for production, has in turn begun, and for the first time the world has become satu- rated, in recent years, with the results of these modern improvements." * * Contemporary Review, vol. lii, pp. 291-293. Recent Eco- nomic Changes, p. 63. CAUSES OF CRISES AND DEPRESSIONS 119 Mr. "Wells also says: " All investigators seem to be agreed tliat the depression of industry, in recent years, has been experienced with the greatest severity in those countries where machinery has been most largely adopted; the least, or almost not at all, in those countries and occupations where hand labour and its products have not been materially interfered with or supplanted . . . as in China, Turkey, Mexico." * In another article he states that the years 1879, 1880, 1881 for the United States were years of abundant crops and great foreign demand, and are generally acknowledged to have been prosperous; while the years 1882, 1883, 1884 are regarded as having been years of extreme depression and reaction, yet the movement of railroad freights greatly increased during the latter period, f In further support of this contention he states elsewhere that side by side with facts as to the destruction by loss of capital in worthless enter- prises, conversion of circulating capital into fixed, and extravagant consumption, should be placed the fact that statistics not only fail to reveal the existence of any great degree of scarcity, but, on the contrary, prove that those countries in which depression has been, and is most se- verely felt, are the very ones in which desirable commodities of every description — railroads, ships, houses, live-stock, food, clothing, fuel and luxu- ries — have year by year been accumulating with * Contemporary Review, vol. lii, p. 293. f Ibid., p. 385. Recent Economic Changes, p. 82. 120 CEISBS AND DEPRESSIONS the greatest rapidity and offered for use and consumption at rates unprecedented for cheap- ness. If lack of capital by destruction or perver- sion had been the cause, the rate of profit on the use of capital would have been higher. But the fact is that the rate of profit on even the most promising kinds of capital, during recent years, has been everywhere exceptionally low.* In the above paragraphs Mr. Wells states very forcibly the theory which now has so many advo- cates, namely, that production has recently out- stripped consumption, or that the world has become " saturated " with the results- of these modern improvements. On careful analysis it will appear that his views as to the cause of depressions are in the same line with those advocated in this chapter, though he does not give sufficient recognition to several important particulars. It is especially erroneous to regard the industrial and commercial movement as having reached a development such that further advancement must stop. It is not correct to say that the civilized countries of the world have become fully equipped with economic tools, and that the work of the future must neces- sarily be that of repair and replacement rather than of new construction. The tendency to aban- don the existing equipment and supersede it with new construction was never more pronounced than now. An impression was prevalent in the least prosperous years of recent decades that the days of great activity would not return again; that a partial * Popular Science Monthly, vol. xxxi, pp. 303-304. CAUSES OF CRISES AND DEPRESSIONS 121 paralysis had fallen upon industry and trade from ■which they could not recover. The prosperity which has followed each depression, notably that of the last few years, has dispelled this impression. The conditions which led to the opinion that the indus- trial movement had reached a standstill have been succeeded in each case by greater activity than ever before existed. Mr. Wells also failed to recognise the very great increase of consumption in recent years contemporaneously with increased produc- tion. In view of this increase, the apparently ex- cessive quantity of available commodities in a time of depression cannot be regarded as indicating over- production by a mere comparison with the quantity in previous years. Prof. Kichmond Mayo-Smith, in his recent work on Statistics and Economics, has Annual Consumption Per Capita in Different Coun- tries in Different Years* Meat, France. . . Meat, England.. Tea, Germany Petroleum, Germany. Flour, United Kingdom Tea, Eggs, Batter and margarine, " Cocoa, " Bacon and ham, " Re&ned sugar, " 25.9 kilos 1868. 100.5 kilos 1871-'75. .02 kilos 3.75 kilos isn. 150 lbs. 3.91 lbs. 12.6 4.7 lbs. .23 lbs. 3.4 lbs. 5.28 lbs. 33 kilos 1890. 124.5 kilos 1801-'95. .05 kilos 14-82 kilos 1896. 257 lbs. 6.77 lbs. 40 11.1 lbs. .62 lbs. 15.9 lbs. 41.58 lbs. Increase, per cent. 27.41 23.88 150.00 295.2 71.33 47.57 217.46 136.17 169.56 367.64 686.55 * Statistics and Economics, part ii, pp. 40, 41, 46, 47. 122 CRISES AND DBPEESSIONS collected data showing the great increase of the consumption of certain articles in recent years. The table on page 121, giving selections from his work, will illustrate this. The above list, with the exception of petroleum, is made up of food products. In manufactured articles the average increase of consumption is much greater. In the quantity of cotton used in manufacture the increase in Germany in the twenty years from 1871-'75 to 1891-'95 was from 2.84 to 4.95 kilograms per capita,* or 74.3 per cent. In the Statistical Abstract of the United States, it appears that in this country in the twenty years from 1875 to 1895 the increase in cotton used in manufacture was even greater, or from 11.9 to 22.75 pounds per capita,f or 91.1 per cent. The increase in the world's production of pig-iron — which may be taken as the approximate consump- tion—from 1875 to 1895 was from 13,675,000 tons to 28,871,000 tons,:]: or 111.12 per cent. Most re- markable of all increases of staple products in any country is that of crude steel in the TTnited States, the production of which, in the twenty years last mentioned, increased from 389,799 to 6,114,834 tons,* or 1,468.71 per cent. Again, Mr. Wells omits to recognise the greater tendency to failure of equilibrium between vari- * Statistics and Economics, part ii, p. 46. f Statistical Abstract of the United States, 1900, intro- ductory leaf. X Iron and Steel and Allied Industries of all Countries, 1897, by James M. Swank, p. 14. » Ibid., p. 15. CAUSES OF CRISES AND DEPRESSIONS 123 ous kinds of production -whicli invariably mani- fests itself in a time of rapid growth, and the more frequent changes in taste and fashion occurring at such a time. This failure of equilibrium explains the abundance of desirable commodities existing during the time of the depression in the late decade to which he refers. It may be conceded that the depression has been most pronounced in countries where machinery has been most largely adopted, a result largely traceable to the increase of manufac- tured products as compared with that of agricultural products. It may be that all classes of useful ar- ticles increased in that period, but they increased in very unequal proportions, and this lack of equilibrium was a leading feature of the depres- sion. The depression must continue until there is a readjustment of production, and equilibrium under new conditions is attained. As regards Mr. Wells's statement that if lack of capital by destruction or perversion had been the cause, the rate of profit on the use of capital would have been higher, while in fact it is lower, this con- dition presents nothing difficult of explanation. It is sufficient to say that there are two ways in which capital is employed: one is in the maintenance of the ordinary existing volume of trade and industry for present consumption, the other is in the forma- tion or promotion of new enterprises or new con- struction. The latter often creates the more active demand for capital, but in a time of depres- sion this latter demand is greatly diminished, if not entirely suspended, as a result of which much 124 CRISES AND DEPRESSIONS capital is for a time idle; money, its representative, accumulates in banks, and profits become lower. The eminent French economist, M. Paul Leroy- Beaulieu, gives qualified support to the theory of general over-production. He divides crises into two classes, one of which he styles commercial or financial, the other, general economic (economiques generales). In bis Treatise on Political Economy he says : " Crises are a momentary derangement of the economic gear, due to the fact that, for various causes, the market for important categories of products suddenly becomes considerably restricted, and this, by repercussion, hinders the sale of all. " It is in the circulation, frequently also, but not always, in the apparatus of credit, that crises begin to manifest themselves, but they have their principal roots in production and consumption, in the lack of actual equilibrium between the one and the other. " Economic crises are of two kinds, very diverse and very distinct: . . . " 1. Crises called commercial and financial. These are periods of depression and embarrassment succeeding periods of excitement which arouse the imagination of producers and cause abuses of credit. " 2. The second class of crises, which has been less studied, is that of general economic crises, which have their root in very great changes, frequently in great progress accomplished in production. These crises may become severe without any abuse CAUSES OF CRISES AND DEPRESSIONS 125 of credit, without any slackening of public confi- dence. They are the crises which are much the most intense and prolonged." * In further description of the distinction be- tween the two kinds of crises, he says: " The former occur with frequent periodicity almost every decade, and last a short time. The latter occur at longer intervals, and more irregu- larly, but continue longer." f General economic crises, he avers, result from " great and sudden progress in production," al- though he concedes the general principle that, if we have in view a very long time, there cannot be " a universal and definite excess of production for the whole human race. This universal excess would manifest itself only when the human race, abun- dantly provided with the commodities essential for its existence, and with those intended for its enjoy- ment, should prefer an increase of leisure to a new increase of consumption." X When " great and sudden progress in produc- tion " brings on a general economic crisis, it be- comes " necessary that there should be new adap- tations to meet this sudden progress, and these adaptations require time and extraordinary effort. It is like a crisis of birth or acclimation. ... It is advisable to revise attentively all conditions of production." * Extended quotations have been made from the writings of M. Leroy-Beaulieu, because he states so * Traitfi d'ifeconoinie Politique, vol. iv, p. 406. t Ibid., p. 409. t Ibid., p. 450. « Ibid., p. 451. 126 CRISES AND DEPRESSIONS clearly the necessity for time as a factor in educat- ing consumers to appreciate the value of new com- modities, and in inducing those changes of habit and taste which are necessary to prevent an accu- mulation of products. At times there seems to be a sort of inertia in disposing of essential and very desirable commodities, so great as to give plausi- bility to the contention of those who maintain that over-production is a positive fact. Their whole argu- ment may be summarized' by saying that the world more readily adopts innovations in production than in consumption. Improvements in production pro- ceed from the more progressive, while increased consumption must proceed from a larger number who adopt changes more slowly. This slowness in making use of new or increased supplies is very unequal in different countries, though its effect is apparent everywhere; but this does not constitute general over-production. It rather describes a sit- uation, in which there is a temporary absence of adjustment between different lines of production. There has never been a time when a scarcity of some articles of consumption was not a noticeable fact. To say that general over-production is pos- sible is to allege that the human race can create more than it can use, and that men love to toil rather than to enjoy, deductions contradicted by all experience. Along with statistics which are alleged to show over-production, we have the undoubted fact that a large share not only of the human race as a whole, but of those who dwell in the most advanced CAUSES OP CRISES AND DEPRESSIONS 127 countries, earnestly desire — in many eases suffer for — tlie very commodities of which it is alleged there is a superabundance, and, further, they are able and willing to do their part in producing other things craved by those whose commodities they de- sire. It may be conceded that habit and slowness in adopting changes increase the difficulty of harmo- nizing production and consumption in all their varied lines — a problem incapable of exact solution — but they do not explain the general nature of the diffi- culty which would exist in spite of the influence of habit and did exist and cause keen distress before the explanation of excess of production was thought of. It has been argued by some of the supporters of the theory under consideration that if lack of equilibrium were a cause of depression, there would be a fall in the price of some articles and a rise in the price of others. To this it is a sufficient an- swer to say that, in times of depression, dimin- ished activity and the greater supplies furnished by the increased equipment for production, tend to diminish all prices. The absence of equilibrium is conclusively proved by the admitted fact that there is a notably unequal fall in the prices of different commodities, just as there is an unequal rise preceding a depression.* As regards the argument that recent depres- sions are much more severe and of a distinct type, it has already been stated that crises have become less prominent and depressions more so. The con- trast between the years of greatest and least ac- * See Chapter III, pp. 53-54. 128 CRISES AND DEPRESSIONS tivity is not so marked. The duration of the depressions is usually longer and the recovery more gradual than formerly, but in their essential char- acter they are the same as in the years preceding the opening of the Suez Canal in 1869, an event to which many writers refer as contemporaneous with great advances in production and distribution. If, with increase of credit and the greater rapidity with which improvements are made, destructive forces have increased, recuperative forces have increased also. On the occasion of earlier disturbances, the un- usual severity of the depressions and the exceptional developments preceding them have been given a prominence as great as that ascribed to the period following the opening of the Suez Canal. In a carefully prepared work by a Swedish writer. Pro- fessor Bergfalk, published at Upsala in 1859, the author, with much detail, points out the exceptional conditions existing iu the period from 1848 to 1857. He gives the following as the co-operating causes which led to the crisis of 1857: 1. The wonderful extension of the modern system of communication by steamship lines, rail- roads, and electric telegraph lines. 2. The abolition of the English Navigation Act in the year 1849, and the changes directly or indi- rectly caused by this in other countries; also the removal of certain prohibitions and restrictions upon exports and imports. 3. The strong tendencies in most branches of industry to grow and expand on a large scale. CAUSES OF CRISES AND DEPRESSIONS 129 4. The discovery of rich gold mines in Cali- fornia and Australia. 5. The abolition of the last remnants of the feudal system in German and English laws. 6. The political movements of the year 1848, which gave to European capital a direction partly from Europe to the United States, and partly from state loans to industrial enterprises. 7. The war in the East, which partly in itself and partly in connection with the failure of the crops in "Western Europe, caused a revolution in the in- dustrial world, inseparable from every war, and an increase in the commerce between Western Europe and the Levant. 8. The liberation of the mouth of the Danube from Russian dominion.* These changes certainly make a showing worthy to be compared with the more distinctively indus- trial advance prior to 1873. The greater part of the past century may be characterized as an era of awakening, a time of constant advancement, in which progressive forces were at work. Unfortunately, these forces caused the era to be strewn with many wrecks, misfortunes which, if rightly considered, must be seen to be inseparable from the benefits which have been gained. Psychological Tendencies; the Mental and Moral Disposition of Mankind. — It must be conceded that after full consideration is given to general economic * Bidrag till Handelskrisernas Historia, Prof. P. E. Berg- falk, pp. 88-84. 9 130 CRISES AND DEPRESSIONS laws, many of the phenomena of crises remain ca- pable of explanation only as the result of various characteristics of human nature, which cannot be classified according to any established rule, and seem to be more or less capricious, such as the ten- dency of men to move in a mass; the disposition to alternate moods of hope and discouragement, of trust and distrust; to excessive action and inaction by turns. In view of the influence of these various char- acteristics, it has been deemed sufficient explana- tion by some to say that the cause of crises rests in the mental and moral disposition of mankind. In an important sense this is true of everything in human affairs. Great changes in political or economic conditions occur only in response to some powerful tendency in human nature. But in order to make progress in investigation, it is necessary to examine and analyze the specific lines in which mental and moral forces work, and to seek to give them, as far as possible, definite and concrete form, conceding the influence they must exert. No human trait is more marked than the love of acquisition, and in this love of acquisition will be found, in its various workings, the source not alone of many benefits and great progress, but also a contributing cause of all the phases of our business and industrial life. Prompted by the de- sire for accumulation, human activity, like forces in the physical world, is along the line of least resistance. In other words, a man seeks to ob- CAUSES OF CRISES AND DEPRESSIONS 131 tain wealth in the easiest and quickest way. If he can obtain by speculation larger amounts or quicker accumulations than by the usual plodding way, he is likely to become a speculator. Thus we shall have abnormal buying. We shall have new enterprises for which there is no call; the abandonment of the work of the producer for the business of the broker or the promoter. The re- sult is, that business is overdone or incompetently managed, credit is abused and, if this movement is wide-spread, financial collapse will ensue. Other well-known traits are the fondness for pleasure and display, and the extravagance which they engender. These tend to bring waste. Another characteristic is the desire to perform work with the least labour and the greatest profit. This leads to invention and improvements in production and in the methods of transacting business. This characteristic, salu- tary as it is, nevertheless causes disturbances, local and temporary, but promotive at times of industrial depression. The admitted fact to which attention is called by the advocates of this theory, is the ready dispo- sition of investors to furnish capital for undertak- ings in a time of activity, and the disposition to withhold it in a season of dulness. While it must be conceded that the varying moods of individuals have much to do in increasing activity and inten- sifying dulness, these moods only explain a part of the changing movement. Every period of ac- tivity arises from unusual opportunities for profit. At such a time, mines have been discovered or 132 CRISES AND DEPEESSIONS profitable fields have been opened, promising trans- portation lines are being constructed, or increasing demands for consumption afford an opening for new construction. Investments bring a large re- turn. Wben all these have been exploited and the exaggerated returns which were obtained at the be- ginning of the activity have ceased, contrary con- ditions follow. Profits are small and results are uncertain. That men should invest in one season and refrain from investing in another indicates nothing capricious. They simply act in accordance with ordinary rules of conduct. The disposition to invest when large profits can be realized is not unlike that in a period when there is a special de- mand for men of a particular trade or profession. This causes numerous persons to enter that trade or profession. In either case the ordinary laws of supply and demand govern human action. Military Armaments and Liquor Traffic. — Much has been said in works of this character upon the burden of military armaments and the great amounts expended for drink. Commercial and industrial disturbances have been traced to these causes. "While these no doubt have their evil side, it must be remembered that we have to deal with existing conditions. These two forms of expendi- ture have existed for centuries. The established course of affairs has adapted itself to them so that only by very considerable increase in the waste incident to military organization or in the expense for drink can we find a cause of periods of depres- sion. CAUSES OF CRISES AND DEPRESSIONS 133 Having reviewed the alleged causes of crises and depressions, it will be profitable to consider some incidental facts pertaining to them. Crises Severe iecause Unexpected. — Crises have their most serious effects because they are unex- pected. A recognised decrease of capital or wealth may continue for a long time and yet no crisis occur. As stated by Prof. Bonamy Price: " Crisis is not merely another word for poverty. If the diminution of wealth is met by wise curtailment of speculation, even in its legiti- mate form, property may dwindle, but the con- vulsions peculiar to a crisis will not be devel- oped." * And again the same author says: " It is not the magnitude of the loss alone which constitutes a crisis. A bad harvest in Eng- land is a loss of £30,000,000; that is, you have got to buy or purchase £30,000,000 of capital twice over. But it does not generate a financial storm. The same is true of war. Nothing destroys like war. Again, take the cotton famine in England. It was a terrific loss of money. The poor men had no wages; all the vast apparatus of capital was earn- ing nothing."f The calamities were anticipated. Overaction is contemporaneous with the lack of attention to the results which must follow it. The manufacturer or merchant proceeds in a season of activity with a groundless confidence that the activity is normal and that it will continue. It is * North British Review, vol. liii, p. 473. f Bankers' Magazine (New York), vol. xxix, p. 363. 134 CRISES AND DEPRESSIONS this groundless confidence whicli impels him to strain his credit and increase his production or his holdings. In the language of Hecate to the witches in the play of Macbeth : " And you all know secur- ity is mortals' chief est enemy." This fact affords a reason why war and famine may not be attended by crises. Their results are foreseen and provided for. There are, of course, other factors involved in time of war. The emer- gency of the situation and the spirit of patriotism give a stimulus to industry. The Results of Waste or Derangement Post- poned. — It is also true that the destruction of wealth, as by the waste of war or improvident en- terprise, and the derangement caused by the lock- ing up of capital in preparation for future con- sumption, do not show their results in crisis or depression until some time has elapsed. At such times all available savings are expended, and such support as can be gained from the influx of capital from abroad by foreign loans, withdrawal of invest- ments or otherwise, is fully utilized. After the exhaustion occasioned by war, there is, for a time, great activity in providing supplies, which have been rendered scarce by extraordinary demands. As a result, during war or a period of unusual en- terprise, and for a time thereafter, the true situa- tion is obscured by exceptional activity, by the fact that labour is generally employed, prices are high and rising, and speculation is rife. A similar ac- tivity after the destruction of great quantities of property by fire or flood, has led to the delusion CAUSES 01' CRISES AND DEPRESSIONS 135 that a season of restoration, following one of these visitations, is one of prosperity. The after-effect, in either case, is not unlike the experience of a spendthrift, who wastes his substance in excessive expenditure, enjoying the time, but soon awakes to the fact that his sources of support are gone. CHAPTER V INDICATIONS OF PKOSPEEITT OE DEPRESSION In order to understaiid the characteristic fea- tures of depressions, it will be profitable to consider first, in retrospect — that is, by an examination of conditions in past years — ^what are the general indi- cations of prosperity or depression. In the next chapter certain indications will be considered with a "view to forecasting the probable approach of crises or depressions. There is a considerable difference of opinion concerning the time when depressions have actually, existed, or, at least, have reached their severest stage. This difference of opinion is attributable to the habit of accepting the opinion of persons familiar only with one particular branch of busi- ness; to the undue prominence ascribed to the range of prices, or to some single department of statistics; also to an impression that these periods are exactly contemporaneous everywhere, although it is evident that, if the disturbance or revival started in one country, or countries, and its influence was trans- ferred to others, there must be an interval between the date of commencement in the respective coun- tries. The best results will be obtained by an ex- 136 INDICATIONS OF PROSPERITY OR DEPRESSION 137 animation of a considerable number of indications and by tracing their concurrence with admitted sea- sons of prosperity and depression. Among the indications most frequently consid- ered in this connection are the employment of labour; trade with foreign countries, including the general as well as the varying proportion between exports and imports; the amount of revenue col- lected, particularly excise or internal revenue taxes; the volume of bank clearances; agricultural produc- tion; the production, consumption, and prices of certain staple articles of manufacture, notably iron and steel, which are required to provide for en- larged or improved facilities; railway tonnage and earnings; business failures; certain social statistics. Each of these will be considered in order. The Employment of Laboue The employment of labour affords a most valu- able indication. When those who seek work can readily find it, it is evident that the fixed capital of a country is not idle, and that its circulating capital is ample for present needs. As those who labour for hire constitute so large a share of the consum- ing community, the steady employment of the labouring classes will greatly enlarge the market for commodities, and thus prevent, or tend to pre- vent, that accumulation of products which is a fea- ture of every depression. Production is larger also the more general the employment of labour. The maximum of employment is reached prior 138 CRISES AND DEPRESSIONS • to the crisis or the beginning of the depression, usually in the preceding year; the Tninimmn of em- ployment is usually reached in the year which is marked by other indications as the severest one of the depression. The more general employment in the year preceding a depression goes to confirm the opinion that the greatest degree of prosperity is reached some time before the breaking out of the crisis or commencement of the depression. It is noticeable also that in a time of depression production does not decrease in an equal ratio with employment. This is another important proof of the fact to which attention has already been called, that in these periods an important feature is the improvement in methods of production, under which, with a less amount of labour, an equal or larger product may be obtained. An examination of statistics leads to the con- clusion that this indication, the employment or non-employment of labour, shows most reliably the presence or absence of prosperity. That it is not more generally accepted is due to the fact that our statistics are so meagre, and that we are unable to make comparisons for an extended period; but, so far as figures are available, they show that the pro- portion of employment points out in a most strik- ing manner the degree of prosperity in trade and industry. Mr. George H. Wood, in the Journal of the Koyal Statistical Society for 1899,* gives a col- * Journal of the Royal Statistical Society, vol. Ixii, pp. 639-666. INDICATIONS OF PROSPERITY OR DEPRESSION 139 lection of statistics of non-employment in the United Kingdom for nearly forty years, collated from the Annual Statistical Tables and Reports on Trade Unions, and the later publication known as the Annual Abstract of Labour Statistics, official documents compiled by the Labour Department of the Board of Trade. He lays particular stress upon the percentage of unemployed in each year. These statistics comprise only the unemployed members of certain trade unions, including ma- chinists, carpenters and joiners, tailors, iron, steel, tin, and blast furnace workers, shipwrights, black- smiths, etc.; but as these unions include nearly all the workers in certain occupations, and comprise those which experience the greatest fluctuations in employment, his figures can be taken as showing the condition of employment in those branches which fluctuate most with changing conditions of activity. The diagram on page 140, derived from Mv. Wood's tables and from the later annual issues of the Abstract of Labour Statistics, shows the up- ward and downward movement in the percentage of employment from 1860 to 1900.* * See Table III, pp. 645-646, of the above article ; also the Seventh Annual Abstract of Labovu: Statistics, 1900, p. 76. The percentages indicated by the black line are taken from the Annual Statistical Tables and Reports on Trade Unions; those indicated by the dotted line, after 1886, are from the An- nual Statistical Abstracts of the Labour Department. The dif- ference between them is only slight. See also exact percentages given in Appendix B, p. 329. The percentage of employed is given instead of percentage of I I P cm g PBBOBNTAGEa EMPLOYED 1860 1 ^2 3 4 5 6 7 8 9 1870 1 2 3 4 5 6 7 8 9 1880 1 2 8 4 5 6 7 8 9 1890 1 2 3 4 5 6 7 8 9 1900 ■ — " «^ ' — \ _K — " ^ y s s — "■ ..^ \ . / y ^ / A /f ^ — ' ■^" — — ^ _ ___ -~^ ■ — _ / , 1 — ^ ^ / •-^ '^n 'ss- *»*» ''»* 1 \ ^ ■;> — ' , -' ^ ">^ '"* ■*^^ \ \ ' __ ^_ INDICATIONS OF PROSPERITY OR DEPRESSION 141 Other statistics giving the unemployed in a more limited number of occupations prior to 1860 are presented in the tables in the Fourth and Fifth Eeports on Trade Unions.* This diagram, with reports pertaining to the years prior to 1860, shows that the highest per- centages of employment in the United Kingdom, where statistics cover the longest period and are most complete, occurred in the years 1856, 1865, 1872, 1882, 1890, and 1899, years preceding re- spectively the depressions or crises occurring or beginning in 1857, 1866, and 1873, and the periods of diminished activity beginning in 1883 and 1891. It will be noticed that employment in 1900 shows a decrease from 1899, thus pointing to 1900 as the year of a change to diminished activity. Whether 1900 shall prove a more prosperous year than 1901 and the succeeding years is a question which the future must determine. The lowest percentages were reached in 1858, 1868, 1879, 1886, and 1893,t the worst years of the respective depressions. Of these years, 1879 was the worst. It showed the largest proportion of unemployed in almost all branches for which statistics are available, and may be called the annus pessimus of English labour. This shows also the exceptional severity of the de- pression occurring between 1870 and 1880. non-employed. The percentage for each year is given in the diagram at the line designating that year. * For statistics prior to 1860, see especially Statistical Tables and Report on Trade Unions, Fifth Report (1893) ; also Appen- dix B, p. 329. f There may be a question between 1898 and later years. 142 CRISES AND DEPRESSIONS In the United States statistics as to non-employ- ment are not available for so long a period, and no general figures for the whole country have been col- lected. Several States have collected data. Most of the reports upon the subject, however, place more stress upon the number employed than upon the percentage of employment. In order to give the greatest value to statistics stating the number en- gaged in any particular occupation, it is important to include a survey of the whole field of employ- ment. An increase in the number employed in any trade may arise from an increase in population, or from an increase in production in some particular line, and thus be the result of changes from one occupation to another, so that it is difficult to derive correct inferences regarding the general condition of labour from the number employed in any par- ticular branch of production. These statistics, however, are of very considerable value. In the State of Pennsylvania figures are available for a period of eight years, from 1892 to 1899 inclusive, of the average number of persons employed in 354: establishments engaged in divers industries, includ- ing manufactures of iron and steel, glass, ship- building, locomotives and engines, as well as cer- tain textile manufactures. These figures point to the year 1894 as the least prosperous in the last decade. They also tend to confirm the statement already made that there was a revival of industry in the year 1895, which was not sustained in the following year.* * Chapter II, p. 33. " INDICATIONS OF PROSPERITY OR DEPRESSION 143 The following statement gives the number em- ployed each year: * Yeors. Number of establish- ments considered. Total number of persons employed. 1893 354 n u ft U u 136,883 122,278 109,383 127,361 118,092 1893 1894 1895 1896 1897 121,281 1898 137,985 1899 154,422 The following diagram more clearly indicates the comparative number employed each year: 1893 1893 1894 1895 1896 1897 1898 1899 180,000 a 145,000 S 140,000 a 135,000 K 130,000 / / / / \ / \ / J \ / \, / 130,000 115,000 110,000 \, / N A / Employment statistics in Pennsylvania. * Annual Report of the Secretary of Internal ASairs, State of Pennsylvania, for 1899, part iii, p. 258. In the Twenty-fourth Annual Report of the Bureau of Sta- tistics of Labor of the State of Massachusetts, pp. 128-129, the IM CRISES AND DEPRESSIONS Foreign Teade: The General Relation between Exports and Imports and the Varying Rela- tion BETWEEN Them In trade statistics, the increase or decrease in the aggregate value of both exports and imports — that is, the total foreign trade — has marked most accu- rately the varying degree of activity from year to year. An increase in the total value of exports and imports indicates a large volume of trade due to ex- portation or importation, or both. In the United Kingdom in the decade ending in 18Y0 the maximum value of imports and exports per capita was in the year 1866. In the following decade the maximum was in 1873. From 1867 up to that date there had been an increase each year, which was exceptionally large in 1871 and 1872. The minimum following was in the year 1879, there being a steady decline, with the exception of the year 1877, in each year after 1873. In the following decade the maximum was in the years 1882 and 1883; then a decline percentage of unemployed is given for five years, from 1889 to 1893, as follows: Ypor Percentage v» — I r - - ^ ~ ^ ^ ' — — — — — — — — — — — — — — — — — — - ^ ,_ L -I ^ ~ ^ ^ ~ '~ ^ ~" ~ .__ -~- — — — — — — — — — — — — — — — — — - _ __ _ _ ""^ ~ !~ ^ _ _ __ _ — . 7 ^ ^ — ^. - "" ~ ~ ~ ~ - — — — — - — — — — — — — - _ __ __ _ _ 3 _ _ 1 _ _ ^_,y / V s- ~ " ~ ~ ~ — — "~ — — — — — ~ — — — — — — — — — — — — - _ \ — f ■^"^ v V ^ \ ~ ~ ^ ~~ ~ ~ ~~~ ~~~ -— ~- — — — — — — — — — — — — — — - _ \- \ f< ^ / ~ ~ ~ ~ ~ '~ — -' — — — — — — — — — — — — — - — — - ^ / ^ \ ■- -. 7 ^ ~ ~ ~ ~ ^ ^ — ~ — — — — — — — — — — — — — — - ^ >: ^ y^ \ \- - ~ "" ^ ~ "^ ^ ~~ — - — — — — — — — — — — — — - /^ < / J — — — ~ ~ ^' " ~ ^ """ ~~ ~" — — — — — — — — — — — - - ^ ■^ >; \ I - — =- - ~~ ~ "^ ~ ~ ^ — — — — — — — — — — — — — — — — — — — - ^ — — — — — V. ^ "^ ■^-^'-^ ;;::;;;;;— — — — — — — ^ ::: - ^ — — — — - — — — — — — — — - — - — — ^- — — — _ — _ — — — — — - r - 2 ~_ " ~ " — — — — — — - — — — — N s^ \ — — — — — — — — < ::; — >- — — — — — — — — — — — — — — — — — — — — — - - - — - - - - - - - - - - - — — — - - = ~ r - - - - - - - — — - \ •s - - - - ~ "" ~ " ~~ — ^- ^ ■s — — — — — — — — — — - 1 ^ ~ ~ ~ ~ ■ ~~' — ■^ — — — — — — — — — - TRADE PER CAPITA 2 0> C2 CO f- O 1-? -^ 00 O? ^ O O GO t- c^ a c\t a a a C'^ a oi c^ oj w t-h t-i 1 gl I 5 \ § = ■i oo ■t-l O 1^ O »0 O lO CHO O i^ O lO O iO o *o Cl(MC»(M«(MC^i-tT-ir-iT-V'-''-H'<-(»-ii-< s a d O lO O O O tf? O 'O o I.O O lO O lO o '''5 O lO O O O lO O lO o 1.'? O 1-? O lO O lO O lO O lO O "^ O If^ o, ITS o in CD i-^ (-, lr^ r~. .-^ ^ .^ ^ .^ -^ .-> ^ 00 % — 1 — 1 — 1 — 1 — 1 — 1 1 1 1 1- 00 00 t~ t- CO CD O O 'O -^ o z < li. — S D O LJ 1 "■ ' "■" ^~ "^ "— "~" — 1 — ' — 1 ' "^ ~~ ~~' mm- n r """ n n r u a. u z < s o ~~ n r r n ■^^^ / ::; ^ " ^ ^ ""--.^^ ^ r — — ■^ - ^ ■s \ \ •^ 1 1 — . -J \ \ 1 \ s "~- J u ^^^ Sj s \ \ - \ \ \. ^ ^ \ ) / ^ -^ / /■ ^ \ ^^ '- — — — 1 ' /' / 1 ■< ^ -J~- / \ \ ■^ ^ \ --^ ^ ^^ ^ - ■^ -«- N \ \ ^ — ^ \ • - ^ > ^ y ^ — "^ ^ -' '' -^ ^ \ L-| / \ / ' \ \ \ ( - " si / > / N ■ 7 — ^ \ ^ s \ \ \ ^ / ^ \ -~ — L- \ I , ? ~ / > -- -^ A i -^ - ^ _ _ _ _ 1 ^ ^ ,^ _ L — _ ~ — — — — — — -^ — — — — — — — — — — L — . ^ ;^ - — — — — — — — — — — ^ — — — — — — — — — — — — — _ — \ — — — — — — — ~ > — — — — r — — "" — — ~" — — — — — — — — ~ — — — — n — — — — "" r -^ — ~ — — — — — — \ "s s % ~~ 35 C r-l T o o c c 5 K Si s 1 5 c D li O If CO 1 ^ M CO tJ « '3 P CD T( ^ (D 1:1 ■4-» P fA tl) <« A t3 a 05 a> t> ■K ■r^ ;i p< a d Ti a a 01 r-l VI -M PiOO K CO ^ p. d lij © -H ■^ a 2 O «4-( « rH Tji TH oo i> l> CD OS O CO oo t- CO £- c» o TH IH tH th ports iron manu- tures ireof. « OS CO i> to CO e> !>• t-H OS lo -a" « to O CO la LO «s lO t- to 05 00 lo Perce age. impo based avera to to to 00 od O (S CO CO 00 O 1-1 ■* o* to 00 00 00 rH T-t tH tH ■^^f §s. lO CO »H tH OS CO US t-l J> •* iilli p irf l-H ■* TH ■* ■* lO « t- 00 o OJ o O tH OS O TH TH tH TH tH T-I f^ ».Qa t-ok tH OS OS to 00 lO OS 1> lO ee e&l§- M tH J> ■fl! O CO CO J> OS C' I- Ir- i- £- lO OJ 03 O S-p tH tH ■rH i OS is ej O tH 00 tH tH OS o § ^5 lO ^ §^ ^g &i 1 lO !> 00 sg" 1--TH- to" «" OS TH oo' os" o tH 09 co' ^' QO 00 00 00 OS OS OS OS OS QO 00 oo tH tH OD 00 tH tH oo 00 tH tH 00 00 tH TH " IH 158 CRISES AND DEPRESSIONS very great, but greater still in imports of iron and manufactures thereof, and greatest in imports of material for construction of railways and tele- graphs. It ■will be noticed that the aggregate of imports was twice as great in 1890 as in 1891, though exports were larger in the latter year. Im- ports of iron were more than five times as great in 1889 as ia 1891. Imports of railway and kindred material were nearly twenty times as great in 1890 as in 1894, though the total of exports was larger in the latter year. The figures on page 15Y portray the situation.* The diagram opposite traces the movement shown by the figures in columns 1, 2, 6, and 8, of the table on the preceding page. The Varying Proportion in Creditor Countries or those of Matured Development. — It has been maintained by high authority that tendencies in a creditor country are the reverse of those in debtor countries; that in a time of prosperity, exports maintain more than the average proportion to imports, while, in a time of depression, imports increase more than exports. On principle, strong arguments can be made for this contention. A creditor country grants large credits to other coun- tries, and in a time of prosperity these credits are largely for commodities exported either from the country affording the credit or from another of the group of creditor countries. In addition to money * See also exports and imports for Austria-Hungary, 1866 to 1876, Chapter VI, p. 202, and for the United States, 1875 to 1879, Chapter IV, p. 90. 1886 1887 1888 1889 1890 1891 1893 1893 mi 165 160 155 150 145 140 135 130 135 120 B-llS ^110 Sl05 «100 i 95 (S 90 5 83 °80 g75 ^ 70 § 65 W 60 ^55 50 45 40 35 30 25 30 15 10 5 1 S, 1 \ 1 \^ 1 \ I \ I 1 \ 1 \ ^1 \ y / V \ / / \ \ A / \ ( ( y \ /^' / \, \ y \ /f / \ \ ^ <^ / V .\ ^.^y^ / \ ' ^^^ / \ / ^ \ / \ /' /n" \ ,/ \ o , MPORTS / \ z^- \ '•^^ N \, .^ — F^^"' \ > V •-\r5u ■ X,_ ^ ^, s ^,.^— N -x- -"'' S' / 1 s '*"*~, ^, ,,' / 1 ^^■^^ ^ ^ \ •w^ SN ^' > s ? .^.^- ■V, .^ \, I ^ ^ ^ ^^ - — ^ Billions op Dollars INDICATIONS OP PROSPERITY OR DEPRESSION 169 Peodtjction and Peices of Certain Staple Commodities In considering indications of prosperity, prod- ucts may be divided into two classes: first, those largely beyond human control, whicb are dependent upon conditions of weather, etc. ; and, second, those for the most part within human control, such as manufactured products. The First Class, Illustrated hy Agricultural Products. — ^As has been already stated, the volume and price of agricultural products exert a material influence upon prosperity. The demand for the necessities of life will not slacken, although supply is limited. Higher prices for wheat and com bring disadvantage to consumers and do not bring a corre- sponding advantage to producers, because the high price is caused by smaller production, so that both producer and consumer suffer. The depressing effect of a failure of crops is especially felt in those countries which depend chiefly upon agricul- ture and have little diversity in their products. Conditions of crops, however, are so closely watched, and the effects of a large or small yield are so thoroughly measured, that they influence business conditions less than would be anticipated. Scarcity in one country is frequently contempora- neous with a surplus in another, and with improved means of communication the effect of a deficient crop in any one country is minimized. Abundant supplies of wheat are shipped from Puget Sound to Liverpool and Hamburg and frozen meat from 170 CRISES AND DEPBESSIONS "New Zealand to London. Prices, however, stow a much greater fluctuation than would seem to be justified by inequalities in supply.* The striking changes from year to year in the price of wheat illustrate, though less than formerly, the principle enunciated by Mr. Tooke and others, that the value of the surplus determines the price of the whole, and that a small fraction of decrease increases the price altogether out of proportion to the deficiency of supply. The effect of war in creating unusual demands or cutting off sources of supply is similar to that of scarcity. The Second Class, Illustrated hy Iron and Steel. — The production, consumption, and prices of iron and steel afford more valuable indications than other commodities. They furnish a test of the ex- tent of construction in a country, and particularly of the preparation for increased production. Attention has already been called to the exist- ence of an interval between maximum prices and the succeeding crisis, and to the tendency towards a longer interval in later years. Prices of iron and steel especially illustrate these tendencies. Pro- duction does not diminish so early as prices. It often continues at a maximum until the very begin- ning of the depression, and sometimes until later. These facts are easily explained. Enterprise in re- sponse to larger demands first exerts itself in the building of railroads or factories, the object of which is to increase production and the means for * For figures of wheat production and prices, see Appendix B, p. 345. INDICATIONS OP PROSPERITY OR DEPRESSION 171 exchange of products. The increased demand causes an increase in the equipment for production. After a time further capital is not available for these purposes. The sources from which it can be obtained are more and more becoming exhausted, and prices have so risen as to make the expense of further construction almost prohibitory. By this time the equipment for the production of iron and kindred articles has come to exceed the require- ments of consumption, and a necessary fall in prices results, partly due to increased production and partly to the decreased demand; but the equipment is in existence, and, influenced by a variety of mo- tives, the manufacturer continues production after demand has diminished and prices have gone down. He hopes that prices will recover, or that he may hold the field to the exclusion of competitors, or he is actuated by a natural reluctance to shut down his plant. Statistics of consumption are much less re- liable than those pertaining to production. It is more difficult to make an enumeration of the vari- ous quantities retained by foundry-men and by other consumers than to enumerate the production at furnaces and mills. Naturally, consumption slack- ens before production, and in this fact is found one of the reasons for a fall in prices. At the end of a depression, consumption increases more rapidly than production. This furnishes a basis for a rise in price. It is hardly necessary to state that fluctuations in prices are far greater than in pro- duction and consumption. In the following chap- ter flgures relating to prices and production of iron 172 CRISES AND DEPRESSIONS and steel will be given more in detail, to show their bearing upon tbe approach of depressions. By an examination of statistics of iron and steel in past years, it is easy to discover a correspondence be- tween conditions of the trade and conditions of prosperity or depression. The production of pig- iron, which may be regarded as the best barometer of the iron and steel trades, reached a maximum in the United States, Great Britain, Germany, Bel- gium, Austria-Hungary, Russia, and Sweden in the years 1872 and 1873;* again in the years 1882, 1883, and 1884; and again in the years 1889 and 1890. In all of these countries there was a diminished product after 1873, so that the large output of that time was not equalled until 1879 in the United States, 1880 in Great Britain and Germany, 1881 in Austria-Hungary, and 1882 in Belgium. In all these countries there was a steady and continuing increase in 1880 and 1881. The minimum production in the intervening years occurred in the United States and Germany in 1876, in Great Britain in 1874 and 1879, in France and Austria-Hungary in 1877, and in Belgium in 1879. ToUowing the maximum of 1882, 1883, and 1884, the minimum for that decade was reached in the United States in 1885; in Great Britain, Ger- many, and Belgium in 1886, and in Austria in 1887. Following the maximum of 1890, there were four years of diminished production, but be- * The production was greatest in 1873 in Great Britain, Belgium, and Russia; in the other countries in 1873. The total production in all countries was greatest in 1873. INDICATIONS OF PROSPERITY OR DEPRESSION 173 ginning with 1895, when the world's production equalled that of 1890, there has been a steady increase.* The following diagram shows the world's production of pig-iron by years: S s i g 40 35 !«, 15 ..10 / y / / / \ \ / 1 / / ^ ^ / / / 1 / / ^ / •^ V >. /' The world's production of pig-iron. Railway Tonnage and Eaenings Railway tonnage shows from year to year a steadier and more rapid increase than production * Iron and Steel and Allied Industries in all Countries, by James M. Swank, "Washington, 1897, pp. 13, 14, 70, 75, 78, and 88. See especially statistics of the world's production, p. 14. The figures giving the production of pig-iron tend to show that in the United States the depression following 1873 com- menced and came to a close earlier than in most European countries, while the contrary is true of the depression of the last decade. For statistics concerning the production and con- sumption of pig-iron, see Appendix B, p. 340. 174 CRISES AKD DEPRESSIONS and consumption. Along with increase of popu- lation and a greater increase in the value of the average annual consumption of each individual, there is a still greater increase in the average weight of that which each individual consumes and in the average distance of the localities from which commodities are obtained. The growth of transportation is shown by the constant extension of railway and steamship lines and by facilities for handling increased tonnage without proportionate increase of expense. Ifot only do tonnage and earnings respond to changing degrees of activity in trade, but invest- ments in railways make up so large a share of the invested capital of a country that an increase or decrease in earnings has an important effect upon the conditions of the time. A comparison of the different kinds of traffic in the United States and the United Kingdom affords interesting information of the different conditions in the two countries, attributable especially to differences in the density of population, comparative amount of freight car- ried by land and water and the greater degree in which freight in the United States consists of raw material. A larger proportion of earnings in the United Kingdom is from passenger traffic, which in the United States afforded 22.16 per cent of total earnings in 1899, but in the United King- dom over 40 per cent. In the past twenty years earnings from passenger traffic have increased more rapidly in the United Kingdom, while in the United States the increase is greater from freight INDICATIONS OF PROSPERITY OR DEPRESSION 175 traffic. Statistics of ton mileage in tlie United Kingdom are not available, though it is probable that there, as well as in the United States, the ton mileage, or average number of miles each ton of freight is carried, has increased somewhat more rapidly than the number of tons carried. In the United States much more than in the United King- dom there has been an almost uniform decrease in the cost and charges for carrying freight. The charges in the United States are about 60 per cent of those in vogue twenty years ago. The figures show the progress in transportation and its impor- tance as a factor in modern business development. The years in which railway receipts show a fall- ing off from previous years in the United Kingdom are 1858, 1878, 1879, 1884, 1885, 1886, and 1893. The decrease in 1893 is largest, that in 1879 comes next. The year 1879 is the only year in which there is a decrease in the number of passengers car- ried. Statistics of the number of tons of freight carried are available only since 1870. These show a falling off, as compared with the previous year, in 1874, 1878, 1884, 1885, 1886, 1892, and 1893.* In the United States, statistics of railway receipts are available from 1871; those of tonnage and the number of passengers carried, from 1882. f * See Statistical Abstract for the ITnited Kingdom, 1858- 1872, p. 131. Same, for 1868-1882, pp. 138, 139. Same, for 1883-1897, pp. 210, 211. See also Whitaker's Almanac for 1901, p. 732. t See Statistical Abstract of the United States for 1900, pp. 877-379. 176 CRISES AND DBPBESSIONS The only years in which a decrease in the quantity of freight carried is apparent are 1884 and 1894. The niunber of passengers carried decreased in 1883, 1894, 1895, and 1897. Decreases in gross earnings occurred in 1874, 1875, 1876, 1877, 1884, 1885, and 1894.* The volume of railway traffic fre- quently shows features apparently exceptional, viz. : the falling off in tonnage is delayed for a consider- able time after the depression begins, while an in- crease precedes the recovery in business. In addi- tion to the influence due to the greater increase in transportation than in production, there are other reasons for these apparent exceptions. First, for delay in the decrease in volume; production at the mill or on the farm goes before transportation. The farmer plants his crops and the manufacturer makes provision for the output of his wares before he knows that he must dispose of them at a dimin- ished price, perhaps at a loss. He must, neverthe- less, send them to market. The accumulation of produce or merchandise, which is the result of over-production, is carried away after the full shock of the disturbance has been felt. Second, in the season preceding a revival, although the general range of prices is still low, a very large product is sent to market to be sold. Railroads obtain the benefit in tonnage and earnings. As illustrations, it may be stated that railway tonnage in the United Kingdom was less in the year 1878 than in 1879, * Although 1884 shows a slight decrease in freight carried, the ton mileage (or tonnage multiplied by the number of miles carried) is greater. INDICATIONS OF PROSPERITY OR DEPRESSION 177 wMch was less prosperous, and greater in 1891 and 1892 than in 1890, a more prosperous year. It was greater in the United States in the crisis year 1893 than in 1892, and in 1885 commenced to show a large increase, though prior to a general improve- ment of business.* Bankeuptcies In this country the greatest number of bank- ruptcies and insolvencies, as well as the maximum liabilities, occurred in the years 1857, 1861, 1873, 1878, 1884, 1893, and 1896. In number and amount, 1893 was the most notable year. A finan- cial crisis occurred in that year, as well as in 1857, 1873, and 1884. The record of 1861 is ex- plained by the embarrassments incident to the be- ginning of the civil war. The other two years of maximum failures, 1878 and 1896, when considered with the years named in which crises occurred, il- lustrate an important principle, viz., that if the crisis is relatively the more important event, the maximum of failures occurs in that year, and is fol- lowed by a series of years in which bankruptcies are relatively small, as after 1857; while, if the de- pression is relatively the more important event, failures will continue large for a series of years after its beginning, and reach another very large amount in one of the severest years of the depres- * Attention has already been called to the influence of rail- way construction in determining the degree of activity. Chap- ter rV, pp. 83 et seq.^ 12 Millions of Dollars ,^ „ ^ i_^ k^ 1.^ 2^ »0 to 2A 09 CO CO 1857 8 9 1860 1 2 3 4 5 6 7 8 9 1870 1 2 8 4 5 6 7 8 9 1880 1 2 8 4 5 6 7 8 9 1890 1 2 8 4 5 6 7 8 9 1900 -^ \ — — / — _ . 1 — " { V ■^ ^^ ^ ^ \ \ 7 •v ^ ■ — . ■ , — -■ ■^ — ^ / c 1 • ^ ^ s s^ N — — . "^ . ——^ / ■~ — , ,--■ ^ -^ J -^* ^ *** — =— \ "-^ , ' ^ ^ ,- — ' ■"■^ ,^ INDICATIONS OF PROSPERITY OR DEPRESSION 179 sion, as in 1878 after 1873 and 1896 after 1893. The length of the interval between the crisis and the later maximum of failures is significant also as an indication of the continuance and severity of the depression. To illustrate, after the crisis of 1873, a maximum of liabilities was reached in 1878; after that of 1893 it was reached in the year 1896, inter- vals of five and three years respectively, and indi- cating a greater degree of severity in the earlier depression.* The diagram on the opposite page shows the volume of bankruptcies in the United States from 1857 to 1900. Social Statistics In this connection much reference has been made to social statistics, such as those of pauperism, dealiis, births, and marriages. As food supplies become more available, and communities by law, and private individuals by inde- pendent benevolence, take greater pains to provide for the unfortunate, constant changes must occur in the number of those seeking relief. There have also been frequent changes in the policy and man- ner of affording assistance, notably in the extent to which indoor and outdoor relief are rendered. These changes minimize the value of statistics re- lating to pauperism. There is an increase of deaths and a decrease of births when severe and prolonged distress exists, such as arises from war, famine, or pestilence; but otherwise the information afforded * For statistics of bankruptcies or business failures, see Ap- pendix B, p. 344, amounts as given by R. G. Dun & Co. 180 CRISES AND DEPRESSIONS by these statistics is of doubtful value, as indicating prosperous or adverse conditions. As regards mar- riages, the tendency towards increase or decrease in many communities is much more in accord with commercial and industrial prosperity or the oppo- site condition. The value of social statistics in this connection has been the subject of much contro- versy. It may be briefly stated that figures regard- ing pauperism,' births, and deaths are reliable indi- cations only in periods of unusual prosperity or destitution. Statistics of marriages, particularly in countries where prudential considerations have weight, are much more valuable, but the upward and downward movement does not appear in all countries. It is a noticeable fact that statistics of the number of marriages in Paris are much more significant of changing conditions than those for the rural portions of France.* Othee Statistics Statistics which show an almost uninterrupted increase are those of letters and papers handled by the post-office and deposits in savings-banks. With the increase in intelligence, improved methods of communication, and occasional reductions in the rates of postage, the number of letters sent shows an almost unbroken increase. There is a still greater increase in the number of newspapers and periodicals handled. The increases, however, are notably unequal in different years and reflect in a * For statistics of marriages, see Appendix B, p. 346. INDICATIONS OP PROSPERITY OR DEPRESSION 181 measure conditions of prosperity. Savings-bank deposits show reduction only ia years of unusual distress. This fact gives much plausibility to the argument that changes in prices constitute the fun- damental fact in crises and depressions. It is argued that an increase of deposits in savings-banks, which are largely supported by wage-earners, shows their condition to be as good or even better in times of depression than in flush times, when prices are high. The lower prices for some of the necessities of life, which prevail in times of depression, no doubt have an effect in maintaining the annual increase in sav- ings-bank deposits; but it would be incorrect to assign these lower prices as the sole cause. There is a more potent reason, namely, in times of depres- sion deposits in savings-banks are very much in- creased by the lodgment there of funds which in a time of more active enterprise would be invested in other ways. All these statistics throw light upon the indus- trial and commercial conditions of the time to which they belong. By considering them at any time by groups, and making comparison with the years be- fore and after, we may judge of the comparative dulness or prosperity of the period under examina- tion. If, in addition, we are able to weigh the effect of changes in production such as those which manifest themselves in abundance or scarcity of agricultural products, also exceptional occurrences such as disturbances of a political character, our conclusions will be most nearly correct. It is especially desirable not to rely upon one 1S2 CRISES AND DEPRESSIONS group of statistics alone. For example, strikes or lockouts often increase the percentage of the unem- ployed, and thus destroy the value of statistics of employment as an indicator. But isolated occur- rences, though wide-spread in their effects, can hardly change all the indications enumerated. The tables given in Appendix B include information upon the above indications. It is by no means claimed that the figures are as comprehensive as those given in works of a distinctively statistical character. It is only intended to select a few of the most striking. It is to be regretted that in many significant lines our data are so meagre; enough ap- pears, however, to show decided tendencies, among which are the following: 1. To alternate periods of prosperity and dul- ness. 2. In more recent times these alternate periods are longer. 3. The upward and downward movements are more uniform and continue longer in countries of long-established industrial and commercial develop- ment, like France and England. 4. The variation between the highest and lowest point of activity is greater and the alternate upward and downward movement is more inter- rupted in growing countries, like the United States, where undeveloped fields are being opened. In brief, where the opportunities for enterprise and the resulting progress are greater, there the shock is more severe. 5. Before the commencement of recent de- INDICATIONS OF PROSPERITY OR DEPRESSION 183 pressions, whether ushered in by a crisis or not, there is a large decrease in prices, a less decrease in activity, and a still less decrease in production. In fact, production often holds its own until the commencement of the depression. The lowest prices and activity, as well as diminished production, appear after the depression has begun. In former years the activity often continued until the begin- ning of the depression, so that the crisis seemed like a sudden breakdown in the midst of the greatest prosperity. 6. The maximum of employment somewhat precedes the date of the highest prices, and fre- quently precedes the maximum of production. 7. In a debtor or developing country the maximum proportion of exports to imports occurs at a considerably earlier date than the maximum of activity, and indicates that the greatest amount of business activity is contemporaneous with the maximum of consumption rather than with the maximum of production. CHAPTEK VI INBICATIONS OF THE APPEOACH OF A CEISIS OE DEPEESSION A SUDDEN convulsion, such as a notable failure, may precipitate a crisis and cause liquidation and the slackening of enterprise. As there is no rule by which to determine when these convulsions will occur, no one can foretell the exact date of a crisis. The convulsion is a signal for the outbreak rather than a cause. Consequences of a serious and lasting nature will not follow unless business is already upon an unstable foundation. The notable failure, or other disturbance, must concur with this instability. A crisis follows because the existing condition of affairs is clearly revealed and confi- dence is destroyed. Crises occur or depressions begin without the concurrence of all the usual warnings, but there are certain indications, some of which precede at one time and some at another. These indications may be considered under three divisions: 1. Those pertaining to banks and banking, including rates of interest, the supply of money, and the condition of credit. 2. Those pertaining to foreign trade or ex- 184 INDICATIONS OF A CRISIS OR DEPRESSION 185 change, including the export and import of mer- chandise and specie, 3. Those derived from prices and general con- ditions of business. These will be considered in order. Banks and Banking Among the statistics pertaining to banks and banking most relied upon in this connection are those which show loans outstanding, deposits, bills or paper currency in circulation — ^whether issued by banks or by a government performing the func- tions of a bank — specie reserves and rates of in- terest. Independently considered, none of these can furnish an accurate forecast of future conditions. Attention should be given to comparative figures showing the relation between two or more of these items. Increase of Loans. — An increase in the volume of loans and discounts may be an indication of a healthy increase of business; but warning is given when there is a sudden expansion, or an expan- sion attended by scarcity of specie, by diminishing prices, or by sustained increase in the rate of dis- count. Deposits. — ^An exaggerated importance has been ascribed to the indication afforded by an increase or decrease of deposits. In the usual course of events there is a slight decrease preceding a crisis, followed by a much more pronounced decrease im- mediately after the crisis has commenced. 186 CKISBS AND DEPRESSIONS Certain writers have called attention to the fact that crises have occurred without any warning in the way of a decrease in the amount of deposits, and have referred to such as exceptional.* Refer- ence has been made to the work of M. Clement Juglar as justifying the opinion that a decrease of deposits is a forerunner of crisis. In the transla- tion of part of his work, heretofore referred to, the translator adds in the introduction: " The increase or diminution of deposits of course reflects a confident and successful, or a panicky and impoverishing, state of general busi- ness." f But M. Juglar himself expressly combats this idea. In the article on crises ia M. Block's Dic- tionnaire General de la Politique, after showing that on one or two occasions the minimum of de- posits was not reached until after a crisis, he states : " We insist upon these variations because some authors of considerable authority have asserted that crises were most frequently produced by a with- drawal of current accounts at the banks which caused a rapid decrease of metallic reserve. The facts prove the contrary." In a primitive stage of banking, deposits in any country maintain a general proportion to the amount of money. Prior to a crisis metallic money * See an article on the panic of 1893 in the Quarterly Jour- nal of Economics, vol. viii, p. 117, by the late A. C. Stevens. t A Brief History of Panics in the United States, trans- lated, with an introduction, by D. W. Thom, p. 18. INDICATIONS OP A CRISIS OR DEPRESSION 187 diminishes, often because of foreign demands. Paper money diminishes, partly from hoarding caused by distrust and partly from increased de- mand within the country itseK. These influences diminish the amoimt of money deposited with banks, and the decrease is greatest where the great- est proportion of payments is made by actual trans- fer of money from hand to hand. Not only is there less money in the country, but more of it is withheld from the banks in the possession of indi- viduals. Besides, there are fluctuations in the amount so withheld which are rather seasonal than determined by the condition of business. After pay-day in large industrial communities, and when the crops are being harvested, unusual amounts are withheld from the banks. But in the modern development of banking the actual money deposited is much less important in determining the amount of deposits, because so large a share of them represents credits obtained by loans, etc. These credits are transferred upon orders executed by depositors, and furnish a substi- tute for currency. In proportion as payments and settlements are made by checks, drafts, and bills of exchange, deposits maintain an increased propor- tion to the amount of currency in circulation. This class of deposits increases prior to a crisis rather than diminishes, because loans increase. In the reports of the national banks, there is a striking correspondence from year to year in the volume of deposits and that of loans and discounts. Deposits show more frequent fluctuations, but rise 188 CRISES AND DEPRESSIONS and fall in general accord witli loans and discounts. This correspondence is easily explained. Another distinction should be noted. Some deposits are the result of completed transactions, and are based upon the proceeds of sales made, amounts realized from investments, etc. Others merely represent loans or discounts, the proceeds of which are en- tered to the credit of the borrower. Before every crisis there is an unusual proportion of deposits ■which are based upon loans. If in bank statements there could be separate columns for these two kinds of deposits, the information afforded by their in- crease or decrease would be much more valuable.* Paper Currency issued or in. Circulation. — Undue importance has been ascribed to the statis- tics pertaining to this item. The importance as an indication of the amount of paper currency out- standing depends upon the system of issue. The amount naturally would afford an indication similar to that afforded by the volume of loans and dis- counts, because currency would be issued to keep pace with increasing demands. There are several systems, each of which illus- trates a different idea concerning the proper regu- lation of paper money. First. Irredeemable paper currency, that sys- tem under which paper money is issued by a bank, * The diagram giving national bank statistics in the Report of the Comptroller of the Currency for 1897, gives in a form convenient for reference and comparison the deposits, loans, etc., from 1863 to 1897. The Bank of England in time of crisis gains a large increase in deposits from banks and bankers. INDICATIONS OF A CBISIS OR DEPRESSION 189 or more frequently by a government, -witliout obligation for redemption in gold, and -usually endowed witli legal tender quality. These issues have been in vogue in almost all countries. In this country they were tried in the period preced- ing the Revolution by most of the colonies, by authority of the Continental Congress in the Revo- lutionary War, and by the Federal Government and the Confederacy in the Civil War. They are still outstanding in Italy and some of the South American states. In all these states there may be said to be an intention to redeem in specie at some future time. The quantity increases or de- creases in accordance with the exigencies of the occasion. There is, of course, a decrease when steps are taken to accomplish redemption. An increase or decrease must necessarily cause disturbance or derangement. Speculation and undue inflation will follow an increase. A lowering of prices and dis- tress for the debtor will result from a decrease. In case of decrease, that hardship will result which must attend extrication from a serious and unnat- ural situation. Second. A system based upon the so-called Currency Theory, imder which paper money can be issued only against an equal amount of gold de- posited (save as to a fixed amount secured by gov- ernment stock or other exceptional security, as is the case with the Bank of England). The quan- tity increases or decreases in accordance with the supply of gold. In the time preceding a crisis the quantity outstanding will naturally diminish. 190 CRISES AND DEPRESSIONS There -will be a drain of gold, and as gold is tlie basis for the issuance of paper currency, there will be less of the latter. Third. A system based upon the so-called Bank- ing Theory, such as that of the Bank of France, under which there is no exact relation between the quantity of bills or currency emitted and the amount of specie on hand, but bills are payable in specie on demand. Presumably, the quantity will increase prior to a crisis to meet increased demands for loans, but this increase, as well as an increase in the amount of loans outstanding, is usually checked by raising the rate of discount. The fluc- tuations in recent years in the amount of bills issued by the Bank of Prance, as well as in the amount issued by the Bank of England under the second plan mentioned, have been so slight in com- parison with earlier years, and have been influenced by such a variety of causes, as to afford little light concerning the approach of crises. But it is plain that, if under this third plan the amount of bills outstanding in excess of specie available for their redemption increases to an unusual figure, a dis- tinctly unfavourable indication is afforded. This was the plan in vogue in the United States prior to the Civil War. Nearly all the time the propor- tion of specie to paper currency outstanding was very small. No feature of our banking system was more dangerous. Fourth. A system similar to that illustrated by one form of currency in the United States, that of Government bills, or greenbacks as they are called, INDICATIONS OF A CRISIS OR DEPRESSION 191 issued to a fixed amount and retained at that fig- ure.* The quantity of such bills issued is invari- able. The quantity in circulation, until the very eve of a crisis, will not materially change, then there will be a very perceptible decrease for ob- vious reasons. It requires no reminder to recognise that, under any system, when a crisis has once commenced, or is threatened, there will be a considerable quantity of money withdrawn from circulation and hoarded. This disposition to withdraw money from circula- tion affords one of the strongest arguments for elasticity in the currency, and emphasizes the most serious defect in our present system. Bates of Interest. — Wherever the law allows a rate of interest proportionate to the risk and to con- ditions existing at the time, it will rise preceding a crisis or panic, and often continue at a high and increasing figure for a considerable time. This hap- pens for the same reason that the volume of loans increases in proportion to specie, namely, the ex- istence of a strain upon credit and of a dispar- ity between actual resources and those which the exigencies of borrowers demand. This increase in rate usually gives its warning for a considerable time. Where usury laws prevent variable rates the difficulty in obtaining loans at all will be a noticeable feature. Relation between Specie and Loans. — The most correct indication of the approach of crises was * The amount of Government notes outstanding since the Act of May 3, 1878, has been $346,681,016. 192 CRISES AND DEPRESSIONS formerly afforded by the relation between available specie and the volume of loans and discounts out- standing. Of the same nature, though less con- clusive, is the relation between bank reserves and loans and discounts. A continuous decrease of specie attended by an increase in outstanding discounts is always a danger signal. The gap between the two may widen for months, and even for years, and may fluctuate from time to time, but a sudden change of large proportions, or a steady decrease of the percentage of specie is an unfailing indication of danger. The reason for this is not hard to dis- cover. The quantity of metallic money in a coun- try shows what part of its capital is available as money for the payment of its obligations to foreign countries, the final test of availability. For this last- named purpose, credit money cannot be used, but only money having intrinsic value — money of the Mercantile Republic, as it is called by Adam Smith. A decrease may show merely a falling off in the resources of a country, and if met by propor- tionate curtailment of investments there will be no crisis. The quantity of specie may be low because of the drain to meet the expenses of war or to pro- vide a food supply from abroad in time of scarcity. But when, in the absence of such explanation, there is a decrease of specie concurrent with an increase of discounts or loans, it is manifest that industrial and commercial ventures have not diminished in proportion to the decrease in actual resources, and that business is upon an unstable foundation. The INDICATIONS OF A CRISIS OR DEPRESSION 193 statistics of banks in 1825, 183Y, 1847, and 185Y show that in these so-called crisis years, loans and discounts reached a maximum, and that specie in banks reached a minimum; also that there was a steady progress towards such maximum and mini- mum for a considerable period preceding. In later years the same general tendency is apparent in crisis years, though less pronounced and with a less uniform upward and downward movement. The statistics of the Bank of England for the years mentioned afford the best illustration of the rule. They show the real nature of a crisis so strikingly that they are given at considerable length. 1. Before and after the Crisis of December, 1825. — The figures available for loans and dis- counts are the averages for quarters; those for specie reserve for specific dates: * Percentage of specie to loans and Specie. Iioans and discounts.t discounts. (In thousands of pounds.) Nov. 36, 1824. . 11,448 Last quar. at 1824, 2,248 609 Feb. 26,1825.. 8,857 First " 1825, 2,460 359 May 26, " . . 6,456 Second " " 3,973 163 Aug. 26, " .. 3,683 Third « " 5,486 67 Nov. 26, « .. 3,012 Fourth « " 7,839 38 Deo. 31, " . . 1,260 (Crisis) 16 Feb. 26,1836.. 2,309 First quar. of 1836, 9,586 Second " " 5,037 24 May 26, " . . 4,383 87 Aug. 26, " .. 6,645 Third " " 2,950 225 Nov. 26, " .. 8,998 Fourth « " 2,164 415 * See Rep. from Committee on Bank of England Charter, 1831. Apps. 6 and 88, for Bullion ; App. 66, for Loans and Discounts. t This item, styled " bills discounted " in statements, does not include public securities or long-time loans. 13 194 CRISES AND DEPRESSIONS 2. Before and after the Crisis of 18S7 : * Specie. Loans and Per cent, of specie to discounts. loans and discounts. (In thou sands of pounds.) July 3, 1833. . . . 11,391 990 1150 July 1, 1834. . . . 8,885 2,337 380 July 7, 1835. 6,536 3,387 192 July 5, 1886. . . . 6,714 3,497 191 Sept. 6, " . . . . 5,161 4,527 114 Nov. 1, " . . . . 4,700 6,700 70 Deo. 6, " . 3,908 9,691 40 Jan. 3, 1837. . . . 4,221 11,398" 37 Feb. 7, " . . . . 3,831 llg Crisis 33 Mar. 7, " . ... 4,118 36 April 4, " . May 2, « . 4,380 11,664 37 . . . 4,427 10,401 42 June 6, " . . . . 5,133 7,737 66 Sept. 5, " . . . . 6,862 4,990 137 3. Before and after Crises of April and Octo- ler, 18Jt7:-f Specie. Loans and Per ct. of specie to discounts. loans and discounts. (In thou sands of pounds.) Dec. 28, 1844 9,755 3,029 323 June 28, 1845 . . . 10,271 4,274 240 Dec. 27, " . . . 7,469 9,499 78 Feb. 28, 1846 . . . 7,754 13,137 59 June 27, " . . . 10,406 9,975 104 Oct. 10, " . . . 8,809 6,571 134 Jan. 9, 1847 . . . 7,471 7,490 99 Mar. 13, " . . . 6,217 9,978 63 April 3, " 4,391 St^} crisis 39 April 17, " . . . 3,087 28 July 17, " . . . 4,754 9,089 52 Aug. 14, " . . . 4,680 9,369 49 Oct. 2, " 3,852 SfCrisis 37 Oct. 23, " . . . 1,994 15 Dec. 24, " . . . 8,413 8,541 98 Mar. 25, 1848 . . . 11,713 4,780 245 * Report from the Select Committee on Banks of Issue, 1840, Appendix 12. f Report from the Select Committee on the Bank Acts, 1856-'57 (printed February 25, 1857), Appendices 12 and 13. INDICATIONS OP A CRISIS OR DEPRESSION 195 The amount of specie given in this and the fol- lowing table is made up of the total of notes in reserve, against which specie is on deposit in the issuing department, and specie in the banking de- partment. This change is appropriate after the Bank Act of 1844. 4. Before and after the Crisis of 1857:* Specie. Loans and discounts. Percentage of specie to loans and discounts. (In thou sands of pounds.) June 28, 1856 . . . 8,033 4,236 189 Sept. 27, " . . . 6,019 6,520 92 Oct. 25, " 3,639 9,011 40 Dec. 27, " . . . 6,048 6,393 94 Jan. 31, 1857 . . . 5,441 8,263 65 April 25, " . . . 4,241 8,500 49 June 27, " . . . 6,710 7,985 84 Oct. 17, " ... 3,816 9,661 39 Oct. 31, " 2,834 11,105 25 Nov. 4, •• . . . 2,705 11,439 23 Nov. 11, « 1,462 13,233 Crisis 11 Nov. 18, " . . . 1,552 16,003 9 Dec. 30, " 6,614 15,158 43 These tables show that in the time between the last quarter of 1824 and December, 1825, the proportion of specie to loans and discounts fell from 509 per cent to 16 per cent; between July 2, 1833, and Tebruary Y, 1837, from 1,150 per cent to 33 per cent; between December 28, 1844, and October 23, 1847, from 322 per cent to 15 per cent; between June 28, 1856, and November 18, 1857, from 189 per cent to 9 per cent. * Continuation of the preceding Report; from the Select Committee for 1856-'57, in a Return to an Order of the House of Commons, dated May 8, 1873. 196 CRISES AND DEPRESSIONS These statistics show a decided change after 1825 and 1837. Beginning in 1847, fluctuations at different seasons of the year assume much greater importance, and the warning given by an unusual pressure one year before the oncoming of the crisis is plainly apparent. In 1866, the varying proportion between specie on the one hand and loans and discounts on the other was much less noticeable than in previous years of crisis. The prominent failures at that time brought disaster without the usual warnings. Since 1866, the disturbances in the United King- dom have lacked some of the events which in prior years immediately preceded them. While the embarrassment of great firms has aggravated the difficulty, the depressions of the last three decades have occurred in response to disturbing changes affecting the whole field of commerce and industry. Financial difficulties have been minimized. The diminished prominence of financial difficulties and of the disproportion between loans and specie is due to a multitude of causes, many of which have been potent in other countries as well. Among them are the following; 1. The growth of international financial rela- tions, quicker communication, and the recognition of a general interest, resulting in the more ready importation of gold from abroad and in a great increase in transactions between banks and financial institutions of different countries. 2. The adoption of substitutes for money for payment of obligations and in adjusting settlements INDICATIONS OP A CRISIS OR DEPRESSION 197 both at home and abroad, diminislimg the strain on the monetary supply, metallic or paper. 3. The great increase of bank deposits, and the dependence upon them in a larger measure for loanable funds. 4. The larger capital invested in the banking business, as shown by the growth of joint-stock banks and other financial institutions which supply demands for loans formerly made upon the Bank of England alone. 5. The establishment of the custom of increas- ing the rate of discount at a time when gold reserves begin to diminish. A very important factor may be added, namely, the greater skill and prudence exercised by bankers as a result of experience. Financiers note with extreme apprehension ex- ports of specie. So great is this apprehension that a symptom of the disease is often mistaken for the disease itself. When there is a drain of specie, usually accompanied by an increase in loans, bank directors hastily convene and raise the rate of dis- count. This measure, more than any other, has tended, in more developed countries, to prevent the occurrence of severe crises in recent years, and is largely responsible for the fact that the depres- sion feature has become relatively more prominent. The statistics of the earlier crises of 1825, 1837, 1847, and 1857 show the course of events unre- strained by the preventives which experience and prudence have suggested. While the proportion of specie reserve was 198 CRISES AND DEPRESSIONS smaller, the same general change in the proportion between specie and loans appears in the statistics of banks of the United States prior to the crises of 1837 and 1857. It is not so easy to trace the prog- ress of the movement, because comprehensive sta- tistics are available only by years. The following table is given by way of illustration: Banks of the United States. Crises of 1837 and 1857 * Specie. Loans and discounts. Percentage of specie to loans. 1885 1836 1837 1838 1854 1855 1856 1857 1858 (In thousands 43,937 40,019 37,915 35,184 59,410 53,944 59,314 58,300 74,412 of dollars.) 365,163 457,506 525,115 485,631 557,397 576,144 634,183 684,456 583,165 12.0 8.7 7.2 7.3 10.6 9.3 9.3 8.5 12.7 An examination of the returns of the Bank of France shows the same decrease of specie and in- crease of loans prior to a crisis, as in the figures given pertaining to the Bank of England; also that the conditions in the relation between specie and loans in earlier years still continue in a much greater degree in the former institution.f The * See for 1835 to 1838, House Executive Document No. Ill, Twenty-sixth Congress, Second Session, p. 1455; for 1854 to 1858, see House Executive Document No. 20, Thirty-eighth Congress, First Session, p. 325. f For a collection of statistics of the Bank of France, see M. Clement Juglar's work. Crises Commerciales, tables after INDICATIONS OP A CRISIS OR DEPRESSION 199 Bank of France furnishes a larger share of the discounts in the country in which it is located. One reason for the continuance of the earlier con- ditions in the relation between discounts and spe- cie is the greater demand for money because of the more limited use of credit and of substitutes for currency. Relation hetween Available Cash and Loans and Discounts. — Similar in significance to the relation between specie and loans and discounts is that be- tween available cash held by the banks and loans and discounts. Wherever the redemption of cur- rency in specie is not obligatory upon banks, the proportion of available cash has much the same sig- nificance as that ascribed to the proportion of specie in the preceding pai-agraphs. In the United States the national banks do not redeem their bills in gold; hence, since their organization an important indication of the approach of crises is found in the decreasing proportion of available cash to loans, although the importance of this indication is dimin- ished by the anxiety of the banks at all times to loan out their available funds and the consequent tendency to maintain only a small surplus above the required reserve. The objection may be made that both of these items — loans and discounts and available cash, as well as specie — are assets of p. 899, also pp. 246, 409, 411, 415, 418, 433, 438, and 483; also, for the period from 1875 to 1885, the diagram at the end of the book. See also p. 880 of the Statistical Abstract for Foreign Countries, 1885 to 1895-'96, prepared by the British Board of Trade. 200 CRISES AND DEPRESSIONS banks, and that a more correct guide could be ob- tained from the figures showing the relation be- tween their assets and liabilities. But the specie, or cash, held by banking institutions, furnishes a test of resources, both of banks and their patrons, which are immediately available. Loans and dis- counts furnish the best indication of transactions and enterprises which rest upon credit. Safety depends upon a proper proportion between re- sources immediately available and those which de- pend upon credit. An increase in loans and dis- counts accompanied by a decrease in available cash is very significant. Bank Reserves. — The proportion of bank re- serves to liabilities is an important indication. These show the percentage of available assets of banks to liabilities payable on demand. Reserves relate more to the banks and show their condition, while the two former indications relate more to the situation of their customers. In time of stringency, or when the approach of a crisis is threatened, this reserve shrinks below the normal percentage. Its significance with the national banks of the United States is diminished by arbitrary regulations provid- ing for the maintenance of a specific minimum at all times. But it is an item universally considered with a view to determining the outlook. The state of the reserve not only shows the condition of the banks, but also tends to show that of the general business community, because it indicates the extent of de- mands for credit both to meet payments for obli- gations already incurred and for prospective opera- INDICATIONS OF A CRISIS OR DEPRESSION 201 tions. A decreasing reserve is always watched with apprehension.* Indications Pektaining to Fobeign Trade ok Exchange, Exports and Imports of Mer- chandise AND Specie These indications may be considered under three divisions: first, relation between exports and imports of merchandise; second, relation between exports and imports of gold; third, rate of foreign exchange. Exyorts and Imports of Merchandise. — As stated in the preceding chapter, a mere excess of imports is not an unfavourable indication. Its sig- nificance depends upon the situation of a country. There is a material difference in the rules applica- ble in a creditor country or one of matured develop- ment, as compared with debtor countries or those which are in a stage of rapid development. There are two indications which threaten a crisis. A large and long-continued excess of imports over exports in a debtor country is an indication of danger. The same is true in any country when there is a continued increase of imports beyond the * Mr. R. H. Inglis-Palgrave, in his work on Bank Rate in England, France, and Germany from 1844 to 1878, has col- lected statistics of the reserve of the Bank of England during the years 1844 to 1878, inclusive. See his table on p. 6 and following pages, especial attention being called to columns 13, 14, 18, and 19. The tabular statement given is especially valu- able, because it not only gives the amount of reserves, but also the percentages, taking 1844 as a basis. It shows the decrease of the reserve in 1847, 1855 to 1857, 1866, and 1871 to 1874. 202 CRISES AND DEPRESSIONS usual proportion to exports, or a large and sudden increase in the proportion of imports. In either case there is an exhaustion of resources caused by- extravagance or by the expenditure of undue amounts in providing for future development. In considering the indications of crises afforded by a steady increase of imports out of proportion to exports, no better illustration can be found. than that furnished by the foreign trade of Austria, or Austria-Hungary, prior to the crisis of May, 1873. Beginning in 1860, the exports of Austria for ten years showed a considerable excess over imports, the percentage of excess reaching its largest pro- portion in 1866; then a decrease in the proportion Exports and Imports of Austria-Hungary in the Years Specified* Exports. Imports.- Percentage of exports to imports. 1866 (Millions 339 407 439 438 395 467 388 433 449 550 595 of gulden.) 318 394 387 419 431 540 613 583 568 549 534 150 9 1867 138.4 1868 110.8 1869 104 5 1870 91 6 1871 86.5 1873 63 2 1878 (Crisis in May).. 1874 73.5 79 1875 100 1 1876 111 4 * The amount of special imports and exports, articles of domestic production or consumption, are given as affording the most accurate barometer of conditions. The figures are taken from the Statistical Abstracts for the Principal and Other Foreign Countries, compiled by the British Board of Trade. INDICATIONS OF A CRISIS OR DEPRESSION 203 of exports commenced. In 18Y0 a veritable boom began, and for the first time in many years imports exceeded exports, a condition whiob continued imtU the crash of May, 1873. The figures on page 202, giving exports and im- ports, and the percentage of exports to imports, from 1866 to 1876 inclusive, before and after the crisis of May, 1873, is particularly significant in the showing made of the uniform increase in the proportion of imports until the occurrence of the crisis. In 1874, it will be observed, the imports still exceeded exports, though by a considerably smaller percentage. In 1875 the two were very nearly equal, with exports slightly in excess. Beginning in 1876, and in every year since, with the exception of 1898, exports have exceeded imports, as was the case prior to 1870. In the United States, for some years preceding each of the crises of 1837, 1857, and 1873, there had been a large and unusual excess of imports over exports. As already pointed out, this excess was principally due to the enormous amounts ex- pended in construction looking to the development of the country. After 1873 the indications afforded by changes in the relation between exports and imports are not so significant as regards the approach of crises. Prior to the depression of 1882-84 there had been for six years, from 1876 to 1881 inclusive, a large excess of exports, averaging from 1877 to 1881 inclusive over $200,000,000 per annum. This 204 CRISES AND DEPRESSIONS balance, partly from deficient harvests in 1881 and partly from increase of importations, suddenly dropped to a little less than $26,000,000 in 1882,* a year in which construction was conducted on an enormous scale. In this instance we have an illus- tration of the indication afforded by a sudden in- crease in the proportion of imports. In 1883 and 1884 there was an excess of exports, but much less than in the years preceding 1882. Prior to the crisis of 1893 there was again a sudden change in the relation between exports and imports. For the period of eight years preceding, the excess of ex- ports had been much less than in the similar period prior to 1884. For three years, to June 30, 1887, there was an excess of exports; for 1888 and 1889, of imports. For the three years ending June 30, 1892, there was an excess of exports, which was not large in 1890 and 1891, but amounted approxi- mately to $200,000,000 in 1892. The amount paid to foreign countries during the decade prior to 1893, for interest on investments held abroad, transporta- tion, expenses of tourists, etc., has been estimated at $200,000,000 per annum. If this amount is accepted as correct, these expenses more than equalled the computed balance of exports in every one of the twelve years after 1881, except 1892, in which exports were large, by reason of de- ficient harvests in Europe and abundant crops at home. In 1893 there was an excess of imports. It thus appears that the threat of a crisis is not to be found in an adverse balance of trade at any par- * The fiscal years ending June 30th. INDICATIONS OF A CRISIS OR DEPRESSION 205 ticular time, but in a marked and unusual change, as when the proportion of exports to imports is greatly decreased in a single year, as in 1882 and 1893, or the continuance of an abnormal excess in the proportion of imports, as in the case of the three previous crises. A second class of indications of crises is de- rived from more minute analysis of trade statistics. Chief among these is an increase in the importa- tion of articles for vfhich there is a competing domestic supply, which in ordinary times has satis- fied the demand. To illustrate, let us suppose that certain articles are manufactured in two coun- tries under such circumstances that neither ordi- narily calls upon the other for a supply. One country begins to import these articles from the other. This may indicate that the importing coun- try is increasing more rapidly in wealth, or that the exporting country is gaining superior advantages, but presumably it shows overaction in the import- ing country. Less significance is attributable to in- creased importations of food and primary necessi- ties, such as frequently occur in European coun- tries, and occurred in the United States in 1837. These increased importations are traceable to natural causes. But, as stated, if there continues to be an importation of articles, the supply of which is not determined by natural causes, and for which there is competing production, it is an indication of overaction. In new and developing countries more than elsewhere prices rise in a time of active enterprise, and there is a great increase of demand 206 CRISES AND DEPBESSIONS for commodities from foreign countries which, are usually supplied at home. In analyzing import statistics much attention has been given to increase in the importation of luxuries. This increase may indicate danger. It is often associated with a season of extravagance in other directions. The importation of ornaments is said to have attracted the attention of the Eoman Senate to such an extent that severe prohibitions were adopted. Foreign writers have frequently spoken of the great increase in the importation of articles of luxury at different times in the United States. This increase cannot, however, be accepted as unfavourable, if proportionate to increasing wealth. Export or Import of Gold. — The export of gold does not necessarily indicate the approach of a crisis, but important deductions may be made from the statistics of its export and import. Every country will, under normal conditions, have a certain share of the gold or primary money supply of the world. The different countries have been compared to reservoirs of water, of various sizes, connected by pipes. All the reservoirs will maintain the same level. The share of each coun- try is determined primarily by its wealth. There is a tendency for metallic money, which is a form of wealth, to maintain in every country a fixed pro- portion to other forms of wealth. But the share of each is affected by the volume of its trade and other incidental circumstances, among which are established methods of transacting business, the INDICATIONS OP A CRISIS OR DEPRESSION 207 habits of its people and, notably, its currency system. The currency system affects the gold supply. Paper money displaces gold, and causes it to be sent elsewhere in a less or greater proportion, ac- cording as it is absolutely based upon a deposit of gold, is redeemable in gold on presentation, or is not redeemable at all. Methods of transacting business influence the supply. Where balances are largely settled at clearing-houses, and checks are generally employed, less currency and less gold are required. In this particular the contrast between England and France is yery marked. The latter country makes less use of clearing-houses and checks, and accord- ingly requires a larger supply of gold and silver, the latter metal being extensively used. The habits of the people exercise an important influence. After the Franco-Prussian "War it was found that the French peasant proprietors had hoarded large sums of gold. In the great emer- gency created, these amounts were brought out and assisted in the payment of the indemnity. Fre- quently, when native grandees in India die, it ap- pears that they have been accumulating a great stock of gold, much of it in the form of ornaments, which for years has been kept out of circulation. All this hoarding tends to increase the demand on the gold which is in circulation as money. The peasant or grandee who hoards causes so much of the world's capital to be idle. The benefit accruing in time of crisis or emergency to countries in which 208 CRISES AKD DEPRESSIONS quantities of gold are withheld from general circu- lation, is obtained at the cost of diminished activity and volume of business under ordinary conditions. M. Paul Leroy-Beaulieu quotes figures to show that Trance, in 1885, had a circulation of metallic money amounting to 215 francs per capita; Eng- land and the United States had, respectively, 86 and 68 francs per capita.* Of course, if the quan- tity of coin in circulation had been based upon per capita wealth at that time, England would have shown the largest quantity per capita, Eranee next, and the United States the least. There is then a normal share of gold which be- longs to each country. If any one has more than its share, it will export. It is easy to recognise that from a gold-producing country, such as Australia, South Africa, or Alaska, the greater part of the gold mined will be exported. Likewise, if gold is held in any country in such quantity that it can be invested elsewhere more advantageously, either in loans or in purchases, or can be sent abroad in pay- ment of debts, it will be exported. If it is invested in loans abroad, it is an indication of surplus capi- tal, and makes a favourable showing. If invested in purchases at low prices, it shows ability to draw upon other countries for an increasing share of ob- jects of utility. If the purchases show that home prices are higher than foreign, and a supply of things usually obtained at home must be obtained from abroad, the export of gold is a sign of danger. Thus, an important question in determining the sig- * Traite d'ijoonomie Politique, vol. iv, pp. 190-191. INDICATIONS OF A CRISIS OR DEPRESSION 209 nificance of shipments of gold, is the nature of the purchases or investments to be made with it. The specie exports and imports of this country have furnished distinct indications prior to each period of disturbance, but their significance cannot be understood without an examination not only of our general situation, but also of the particular situation at different times. The Oeneral Situation. — This country, now and for the last fifty years, would naturally ex- port gold. In the nine years from 1891 to 1899 inclusive, the total value of the gold production of the world, according to the best estimates, was $1,846,232,200.* Of this amount the United States produced $434,207,000.f Thus, its produc- tion for this period of nine years was 23.5 per cent of that of the whole world; in 1891 and 1896 it exceeded one-fourth of the whole. To this must be added a considerable quantity mined in the British possessions and counted in the statistics of gold production for those localities, but mined by citizens of the United States and brought to this country. It is needless to say that so large a per- * See the Report of George E. Roberts, Director of the United States Mint, for 1900, p. 105, for production by years. f Ibid., p. 104. An unofficial report of the Director esti- mates the production in the United States for 1900 at $79,333,- 281, that of the whole world at $355,000,000 to $358,000,000. According to this estimate, in that year the United States pro- duced more than thirty per cent of the whole. The disturb- ances in South Africa greatly diminished the supply. The gold product of the Transvaal in 1900 is estimated at $8,800,- 000. 14 210 CRISES AND DEPRESSIONS centage, amounting to nearly one-fourth of the gold mined, is more than the normal share of the United States for metallic money or other uses, and natu- rally we should export gold just as we do wheat or cotton. Situation at Different Times. — The history of the movement of the precious metals in the United States, if considered with a view to indications, must include information as to the particular situa- tion in successive periods. There may be said to have been five distinct periods: 1. The Non-producing Era, extending from the Foundation of the Mint in 1792, to and includ- ing 1847, the Year preceding the Beginning of Oold-mining in California. — During this period the total value of gold mined in the United States did not exceed $25,000,000; the production of silver did not exceed the comparatively insignificant sum of $400,000.* During these fiJty-six years the United States was naturally an importer of the precious metals.f Although the movement of the two metals was much affected by changes in laws pertaining to cur- rency and banking, the general tendency was to- wards excess of imports. From 1825 to 1847 * Report of the Director of the Mint for 1900, p. 208. f As regards the relation of gold to silver in the currency, this era was divided into two periods: the iirst from 1792 to 1834, in which the ratio df silver to gold in the coinage was 15 to 1, which overvalued silver, and excluded gold from gen- eral circulation ; the second, after 1834, in which there was a ratio of 16 to 1, which overvalued gold, and excluded silver from general circulation. INDICATIONS OP A CRISIS OR DEPRESSION 211 inclusive, there was a balance of imports of gold amounting to very nearly $40,000,000, and from 1821 to 1847, a balance of imports of silver slightly in excess of that amount, making a total balance of imports of gold and silver of approxi- mately $80,000,000.* An apparent exception to general tendencies in crises and the time preceding them is to be noted in the year 1837 and the three years preceding. As there was a crisis in 1837, and feverish activity for some years preceding, we should expect to find an excess of exports of specie; but, on the contrary, there was an excess of imports of gold and silver in each year, amounting in the aggregate to $36,105,256 in these four years. The following causes contributed to this exceptional condition: First. Borrowing on a large scale from Europe, which required the transfer of specie to this coun- try. The Bank of the United States alone bor- rowed $20,000,000. Second. Increased productiveness of mines, es- pecially gold mines in Russia and silver mines in Mexico, which afforded larger supplies of gold and silver to all commercial nations. Third. Increased purchases of our cotton and other products at increased prices until 1837. * See Report of the Director of the Mint for 1900, pp. 246- 247. Figures showing the movement of gold are given from 1825 ; those pertaining to silver from 1821. Prior to 1821 im- ports and exports of specie were not reported separately from merchandise. Of the balance of gold in this period, $20,000,000 were imported in 1847 212 CRISES AND DEPRESSIONS Fourth. The issuance of the specie circular by President Jackson, requiring payment for public lands in specie. Fifth. The prohibition by many of the States of the circulation of bank-notes for small sums, making necessary larger supplies of metallic money for change. The exceptional movement of specie in 1837 and the years prior to the crisis of that year is re- ferred to because it shows the danger of relying upon one kind of statistics, and also because it goes to confirm the statement made elsewhere that an abundance of capital or money rather than a scarcity may be a cause of crises and depres- sions. 2. The Period from the Development of Gold- mining, after the Discovery of Gold in California in 1848, until the Issuance of Paper Money in 1862. — This was a period in which gold was ex- ported every year in large quantities, with the exception of the years ending June 30, 1849 and 1861, in which latter year were marketed the large crops of 1860. In these years, the total product of our mines was over $700,000,000. The aggregate excess of exports of gold during this period was more than $400,000,000. The surplus of the do- mestic product, amounting to over $300,000,000, was retained. The latter sum may be regarded as the share of the United States in the increased gold supply of the world. 3. The Period of Exportation because of the Suspension of Specie Payments. — This period in- INDICATIONS OF A CRISIS OR DEPRESSION 213 eluded fifteen years, from 1862 to the summer of 1877. During these years gold was, except for the payment of customs duties and interest upon part of the public debt, mere merchandise, and was accordingly exported in large amounts, reaching an aggregate of more than $630,000,000. The do- mestic production continued, but the export was practically of the whole quantity mined. Although resumption was not accomplished until January 1, 1879, this period practically came to a close in 1877, when preparation for resumption caused gold imports to begin. 4. The Period of Eleven Years beginning July 1, 1877. — As already stated, the preparation for resumption caused exports of gold to cease and imports to begin about June 30, 1877. This period continued until June 30, 1888, and may be consid- ered one of normal conditions, during which there was no disturbance either from redundant or irre- deemable paper money, as in the prior period, or from depreciated silver, as in the succeeding. Ex- cept in 1884 and 1886, there was an excess of imports during these years amounting to approxi- mately $220,000,000, and the gold mined in this country was retained at home. The very large excess of importation in 1880 and 1881, amounting in the latter year to $97,466,127 (the largest bal- ance in any year until 1898), fell off to $1,789,174 in 1882, from which there was a rise to $6,133,261 in 1883, but a balance of $18,250,640 was exported in 1884. In this sudden change in 1882 in the proportion between exports and imports of gold, 214 CRISES AND DEPRESSIONS there was a significant indication of the approach of the crisis of that time.* 5. The Period of Silver Inflation and Uncer- tainty as to the Standard from June 30, 1888, to and including the Fiscal Year 1896. — Prior to 1888 for ten years, silver bullion of a value not less than $2,000,000 per month had been coined into silver dollars under the Bland Act of Feb- ruary, 1878; but the effect seems not to have been especially felt, largely because of the contempo- raneous withdrawal of national bank-notes from circulation, in which there was a reduction of $106,000,000 between 1882 and 1888, and a con- sequent void in the supply of currency. About the year 1888 this increase of silver dollars resulted in a redundant currency, and the fear of a departure from a gold basis caused numerous securities to be sent to the United States for disposal, which had theretofore been held abroad. This was accom- panied by serious apprehensions at home. The Act of June, 1890, providing for the purchase of 4,500,000 ounces of silver per month and the issuance of currency certificates therefor, greatly increased the volume of currency and the distrust of the permanence of the gold standard, a dis- trust which was promoted by popular agitation for the free coinage of silver, and was not re- moved by the repeal of this act in the autumn of 1893. The balance of exports of gold during this period amounted to $320,000,000. Exports were * Fiscal years ending June 30th are referred to in this para- graph. INDICATIONS OF A CRISIS OR DEPRESSION 215 especially large during the year ending June 30, 1896. In July, 1896, imports of gold again com- menced, and, with some fluctuations (especially in the four months of the following year, from April 1st to August 1st), continued until the end of 1900. They were especially large in the year 1898. The large excess of imports in the last few years, how- ever, would not have occurred without the com- bined influences of unequalled prosperity and a movement for the restoration of that share of gold which we had lost. In reviewing these periods, it appears that the exportation of gold for 1851 and for succeeding years, was due to the large quantity mined in this country. Incidentally, this large production stimu- lated speculation, as well as legitimate enterprise, and was a factor in causing the panic of 1857. The large exportations after June 30, 1862, were due to the abandonment of a specie basis. These exportations, which continued until June 30, 187Y, were made the more necessary by the large expenses of the war, and by extravagant expendi- ture and the great developnient of the country in the years succeeding the T^ar. The importations from June 30, 18Y7, filled the void created by the absence of gold from the currency. In the four years after the beginning of this period these impor- tations were increased by unusually large exports of merchandise. The exportation of gold begin- ning in 1888 was due to the increase of silver money under the Bland Act, and later, by the 216 CRISES AND DEPRESSIONS Act of June, 1890, both of which caused distrust regarding the monetary standard. There was a redundancy of instruments circulating as money, and consequently a tendency to send abroad that kind of money which had a better quality else- where, but no better quality here. The large excess of importation in the fiscal years 1861, 1880, 1881, and 1898 may be regarded as most significant in indicating a prosperous con- dition. Each of these years witnessed a deficient food supply in Europe. The year 1898 also showed the effect of a greatly increasing foreign demand for goods manufactured in the United States. Circumstances under which Excess of Exports of Gold indicates the Approach of a Crisis. — ^First, when gold is required for purchases from abroad which are made at high and rising prices. This indicates overaction and concurs with unusual in- crease in the prices of domestic supplies. Espe- cially is this true, if in a time of rising prices gold is exported for commodities usually supplied by domestic production. Such a condition cannot long continue without a reaction and ensuing depression. The indications which are significant in connection with the imports of merchandise apply to the ex- port of gold. On the other hand, the export of gold for purchases when prices are low is not an unfavourable condition. It indicates purchases upon advantageous terms. Second, when the export of gold is attended by a scarcity of money and a marked increase in the rate of discount, it is a decidedly unfavourable indi- INDICATIONS OF A CRISIS OR DEPRESSION 217 cation. This is of the same kind with those indications noticed in the conditions of banks. A steady increase in the rate of discount, or a decrease in the supply of loanable funds attended by a marked decrease in the supply of gold, is a sure pre- cursor of crisis. The only question is how long this condition can continue without a crash. Third, an unusual balance of exports of gold, not explained by surplus production, continued for a considerable time, or a sudden withdrawal of large amounts, is one of the most unfavourable indications. It is to be noted that there is an ex- ceptional sensitiveness in financial centres on the subject of gold exports, and sometimes an export entirely normal is interpreted as showing instability and destroys confidence when there is no reason for distrust. It should be added that, when for a succession of years gold is withdrawn from circulation by reason of the substitution of inconvertible paper as money, the conditions which exist are sure to vary from normal lines. Credit will rest upon a false basis, and the inevitable tendency will be towards an increase in the quantity of paper money outstand- ing and a dangerous expansion of credit. In many respects the phenomena of a balance of gold exports are similar to those arising from a balance of merchandise imports. The two are ex- pected to appear contemporaneously; but in essential particulars they differ. Some differences depend upon the question of gold production. In countries like Australia and a portion of South Africa, where 218 CRISES AND DEPRESSIONS gold-mining is a leading industry, gold exports are naturally classed witli merchandise exports, and an export is a favourable indication. In non-producing countries like England and France, wkere the use for money is the prevailing demand, import is a favourable indication. There is another difference in a noticeable tendency towards contemporaneous decline in gold reserves in all the great financial centres. That which is lost in one country is not gained in another. This decline is explained by the withdrawal of considerable amounts to be hoarded or retained in circulation outside of banks, and to some extent by the transfer of gold to coun- tries outside of the most advanced industrial and commercial circle. The influences which cause gold to be hoarded or retained in circulation out- side of banks are not unlike those which affect the circulation of paper money. International credits or payments frequently cause an excess of imports of gold in a country to coincide with an excess of imports of merchandise. Again, a large demand for money, manifesting itself in high rates of in- terest, may cause gold to be retained in a country contemporaneously with an unusual balance of imports. Bate of Exchange. — The rate of exchange with foreign nations is, in many respects, a more signifi- cant indication than the export or import of gold or of merchandise. It may be said to be freer from exceptional influences. A high or rising rate of exchange indicates an increase of indebtedness worthy of careful attention and an analysis of INDICATIONS OF A CRISIS OR DEPRESSION 219 causes. It is obvious that an increase in the rate of exchange will tend to check importations and in- crease exports. When the rate has reached a cer- tain point, gold will be exported to settle adverse balances. While, generally speaking, the export of gold is attended by a high rate of exchange, of which it may be said to be the consequence, at times this is not so. The export of gold contemporaneously with a low rate of exchange indicates the sending away of a surplus for favourable purchases or invest- ments abroad. Likewise, the concurrence of a low rate of exchange with an excess of imports of mer- chandise indicates a credit balance, which enables the importing country to make large purchases from other countries. The question of the significance of balances on merchandise account and on shipments of gold, as well as that of rates of exchange, is largely one of comparative prices. If, by reason of exceptional advantages in production, staple articles are made or produced at a lower figure in one country than in others, or if, by reason of depression, consumption is diminished, so that slackened demand lowers prices, exports will increase, and naturally there will be imports of gold and lower rates of exchange. This export movement will continue until home prices rise to a point at which exportation is no longer profitable. The point worthy of most careful study in these price fluctuations is the cause of the rise or fall. If there is a rise, does it indicate excessive activity? 220 CRISES AND DEPRESSIONS Is the change from circulating to fixed capital ex- cessive? Is the rise in the prices of imports out of proportion to the rise in the prices of those ex- ports which are usually sent in exchange for them? Upon the analysis and correct answer to these ques- tions, rather than upon more general indications, will depend the success of the observer in forecast- ing the approach of a crisis or depression. As regards universality, or the contempora- neous appearance of indications in all commercial communities, there is a decided difference between those enumerated under this division and those afforded by banking statistics. Rates of interest, scarcity of money, and increase of loans are more nearly contemporaneous in all countries. All countries feel the effect of scarcity of money in any one. Unfavourable balances of trade do not appear in all countries at the same time, and thus they show more correctly the imequal degree of pros- perity in different localities. Financial conditions respond more promptly to the changing movement of affairs than those which are commercial and industrial. At a later time, unfavourable conditions in commerce and industry manifest themselves and extend their influence everywhere. Prices and General Business Conditions The condition of business is most healthy when its operations are characterized by enlightened con- servatism. Steady, not sudden, increase in trade is the basis of enduring prosperity. A pronounced INDICATIONS OF A CRISIS OR DEPRESSION 221 variation from tlie usual trend of events is always disturbing in its effect, even though in response to increased activity, and when it may seem to promise the best of results. The business man does not fear, but rather welcomes innovation. On the other hand, modern business finds one of its greatest dangers in innovation. It is rare that material change in production or trade can occur without bringing with it substantial loss. It is probable that these changes will not be met by such careful adjustment as the situation demands. In rapid progress in industrial and commercial affairs, or in the development of new fields of production, lies one of the most serious dangers of depression. It is necessary to make a careful survey of con- ditions, not alone in one country, but in all. Every famine or other calamity which entails loss upon part must have its effect upon the whole of the great aggregate. The prevalence of an undue de- gree of speculation or of extravagant expansion, even in the production of staple articles, is one of the surest signs of approaching collapse. One of the most significant indications of danger is an increase in the number of business failures, or in the aggregate of liabilities. The significance of the indications to be derived from bankruptcies depends very largely upon an analysis of the circumstances of the different cases. An increase of failures not directly traceable to unskil- ful or fraudulent management, or insufficient capi- tal, furnishes reasons for caution. It indicates excessive and unwholesome competition. Before 222 CRISES AND DEPRESSIONS almost every crisis there is a progressive increase in tlie number of failures and the amount of liabili- ties. At such times, one leading feature is the epi- demic of speculation. As speculation bears a greater or less proportion to the volume of busi- ness, the danger of crisis is greater or less; and in making investments, that enterprise is safest which avoids speculation, adheres to safe and conservative methods, and does not attempt operations without the necessary capital and the ability to maintain them. As stated by Mr. Bagehot: " Part of every mania is caused by the impossi- bility to get people to confine themselves to the amount of business for which their capital is suffi- cient, and in which they can engage safely." * One other tendency peculiarly noticeable in the United States is the disposition to engage in occu- pations for which there has been no preparation. There is a prevalent contempt for expert knowl- edge, largely due to the ingenuity and ready adapt- ability of the people for new work and the numer- ous instances in which men have achieved con- spicuous success in ventures for which they had little or no preparation. If a general average were taken, however, it would appear that of those who have made essay in untried fields the number who have failed has been far greater than the num- ber who have succeeded, and the failures have been more striking than the successes. In the competi- tion which now prevails in every branch of life, it is * Collected Works, published by the Travelers' Insurance Company, vol. iv, p. 567. INDICATIONS OP A CRISIS OR DEPRESSION 223 not reasonable to expect success in vocations in which there must be competition with those who have had thorough training and preparation for the work. Though it may seem remote from this subject, it may be remarked that in the period preceding every crisis, there is a notable absence of scrutiny in the examination of the skill and trustworthiness of those to whom capital is intrusted for manage- ment. In the buoyant spirit of the time, a desire for increase of activity causes the investor to be less critical, and thus to aid in the creation of unprofit- able enterprises and opportunities for fraud. Prices of Commodities. — In the season of ac- tivity which precedes a crisis prices rise. This rise begins after the worst point in the previous depres- sion has been reached. Attention has already been called to the fact that the rise in prices is unequal in different commodities.* Iron and steel in their various forms, as well as other commodities re- quired for construction, and those which supply new demands of consumption, show the most strik- ing increases. During a depression prices of these commodities fall first and most notably. The prices of other commodities do not fall so much or so early. In the preceding season of expansion they do not rise so much, and, in their rise, as well as in their fall, they show, for the most part, only a remote effect of the activity or inactivity of the time. Lumber and coal command greatly increased * Chapter III, pp. 53-54. 224 CRISES AND DEPRESSIONS prices in the activity preceding a crisis, but the increase is by no means so large as is the case with iron and steel. It is much easier to open a new coal mine, or enlarge the output from those in ex- istence, than to provide the plant for increased pro- duction of iron and steel. An increased supply of lumber also is more readily obtained. In Chapter III, attention has already been called to the tendency of prices of iron and steel to reach and pass their maximum some time before the crisis occurs, though if the crisis be precipitated by an unexpected failure, the interval will be short or the high prices may continue until the very out- break of the crisis.* Prices of Iron and Steel in the United States: Prices Prior to and Succeeding the Crisis of 1873. — In the United States, prior to the crisis of Septem- ber 18, 1873, a low price level appeared in almost all grades of iron and steel in January, 1871. This was followed by a rapid and almost unbroken rise, culminating in the months of October and Novem- ber, 1872. A maximum price of rolled bar iron, $118.72 at Philadelphia, was reached in October, 1872. The price fell, with slight fluctuations, to $80.64 in September, 1873, the month of the crisis. Standard sections of iron rails, prices quoted at the mills, fell from a maximum of $88.75 in No- vember, 1872, to $75 in September, 1873. Steel rails showed less decline prior to the crisis, reaching a maximum of $122.50 in March, 1873, and falling to $118 in September. Out nails fell * See Chapter III, pp. 55-56. INDICATIONS OF A CRISIS OR DEPRESSION 225 from $6 per keg of 100 pounds in October and November of 1872 to $4.75 in September, 1873. Anthracite foundry pig-iron fell from $53.87^ in September, 1872, to $42.50 in September, 1873.* Reasons for the slower decline in price of steel rails, applicable also in the case of iron rails, can be found in the smaller number of mills for their manufacture, and the consequently increased oppor- tunity for combination; also in the more general custom of manufacturing in compliance with orders. In the depression which followed the crisis of 1873, prices of a majority of the varieties of iron and steel fell to a minimum in the latter part of the year 1878, though steel rails and stand- ard sections of iron rails fell to a minimum in the closing months of 1877. The month of November, 1878, may, however, be selected as the turning- point. At that date, No. 1 anthracite foundry pig- iron had fallen to $16.50 per gross ton, less than one-third the price of September, 1872. Prices Prior to and Succeeding the Crisis of 188i. — ^In the expansion which followed 1878, prices reached their maximum in the months of January, February, and March, 1880, but the highest figures were maintained only for a very short time. Anthracite foundry pig-iron, which had fallen to $16.50 in November, 1878, rose to $41 in February, 1880; rolled bar iron to $85.12 in the same month; steel rails to $85; cut nails to * The prices given are taken from the Statistical Abstracts of the American Iron and Steel Association, by James M. Swank. 15 226 CRISES AND DEPRESSIONS $5.25, in the months of February and March. After the month of March, 1880, there was a sharp decHne, though interrupted by numerous fluctua- tions. A steady decline commenced after the clos- ing months of the year 1882, and continued until another minimum was reached in the summer of 1886. The crisis of May, 1884, occurred in the midst of this downward movement, and seems to have exerted but little influence upon the iron mar- ket. Anthracite foundry pig-iron fell to $17.75 in the months of June, July, and August of 1885, and then began to rise. Rolled bar iron fell to $40.30 in May of the same year, and then was quoted at $40.32 for the remaining months of the year. Steel rails fell to $26 in the month of April. Prices Prior to and Succeeding the Crisis of May, 1893. — After the minimum point in 1885 there was an upward movement continuing until the earlier months of 1887, the months of Feb- ruary and March of that year showing maximum prices in most varieties of iron and steel; this maxi- mum was succeeded by a fall in prices, which for most varieties reached a minimum in May and June, 1889. This minimum was followed for a short time by rising prices, which reached a maxi- mum in January, 1890. In the two decades after the maximum prices of 1880 the trend of prices differed from that in the preceding decade. Fluc- tuations were much more frequent. For nearly eighteen years the general tendency was downward, though interrupted by brief revivals in prices in the years 1882, 1886, 1887, 1890, and 1895. The rise INDICATIONS OF A CRISIS OK DEPRESSION 227 in price whicli occurred in 188Y and other years proved to be greater than the increased demand would sustain. The general statement may be made that during this long period from 1880 to 1897, in fact, until 1898 — for there was only a slight rise in that year, and the average prices of several forms were less than in 1897 — the demand did not keep pace with the increasing supply, and improvements in production were constantly exert- ing their influence. The increase in price in the United States in 1887 was greater than in other countries. The reasons for the difference may be foimd in the exceptional demands in the year 1887, in which year occurred the most extensive railway building and the greatest consumption of steel rails. There was an exceptional deficiency in the home supply. There was also a rcAdval of general ac- tivity in this country, the effect of which was conspicuous. It should be further noted that the crisis of this decade was much less severe than that of 1873, and the downward movement succeed- ing it, though long continued, manifested a less decline in prices. After the high prices of 1890 there was a fall, which continued until the month of July, 1897. This fall was more uniform than those after 1880 and 1887. It was interrupted only by a temporary revival beginning after April, 1895, and continuing until the latter part of that year. The figures on page 228, giving representative forms of iron and steel, show the extent of the fall. 228 CRISES AND DEPRESSIONS g ^. a _ M m Is §1 il Us ft 5« III III .a . IK ifi sis * S • . • Jan., 1890. 27.50 19.90 17.90 18.00 23.60 35.25 2.20 May, 1893. 17.50 14.85 13.00 12.25 13.51 29.00 1.75 21.69 July, 1897. 11.50 11.75 10.19 8.36 9.39 18.00 1.25 14.00 Beginning in July, 1897, prices showed an upward tendency, but increases were slight until the beginning of 1899; then there was a very rapid rise until the end of the year. In the examination of these price movements several marked tendencies appear: 1. The interval between the date of maximum prices and the succeeding crises is longer in later years. This interval continued for a few months prior to the crises of 1825 and 183Y, nearly a year prior to that of 1873, and several years prior to the crises of 1884 and 1893. This longer interval may be explained by the greater ability to carry accumu- lated stocks in expectation of a rise, the larger influence of speculation, and the absorption, when- ever prices decline, of large quantities by the wider markets now existing. These influences explain another tendency, viz. : 2. In later years fluctuations are more fre- quent. In the period after the downward price movement has commenced, the market price breaks INDICATIONS OF A CRISIS OR DEPRESSION 229 and then is restored again. It is evident that abundant capital for construction is waiting for investment, and, even in case of a slight decline, purchases are large and tend to bring prices to the former level. 3. Since 1873 the maximum price reached in each cycle tends to be less than that in the pre- ceding cycle. This is due to invention, to the lower cost of manufacturing upon a large scale, and im- provements in transportation. This tendency to lower prices is a part of the progress of the time and an essential feature in each depression. 4. The upward movement of prices continues for a much shorter time than the downward move- ment. The upward movement preceding the maxi- mum of October and November, 1872, continued for one year and nine months. The succeeding downward movement lasted until !N"ovember, 1878, or six years and one month. Then an upward movement continued until February, 1880, or one year and three months; the succeeding downward movement lasted approximately five and one-half years, to the summer of 1885, to be followed by a rising movement, interrupted in the United States in 1888 and 1889, of four and one-half years, or until January, 1890. It is to be noticed, however, that the rise in most grades of iron and steel for a year after the summer of 1885 was very slight After January, 1890, the downward movement con- tinued for seven and one-half years to July, 1897, when prices for a year were almost stationary, to be followed by rising prices, which continued until 230 CRISES AND DEPRESSIONS the end of 1899, or less than one year and a half. The average prices by years from 1870 to 1900 are given in Appendix B, and the rise and fall of anthracite pig for the same years and of Bessemer pig from 1886 to 1900 are shown by the following diagram: g s 50 45 40 35 3- «ao 15 10 5 9 1 \ \ I 1 / \ \ 1 \ \ \ / 1 N s ^ ^ \ V, 1 s. <^ >, j= y. s ^x s, ? ~ \ ~. Average prices of anthracite and Bessemer pig-iron. Solid line, anthracite. Dotted line, Bessemer. 5. The rapid rise which precedes a maximum price rarely continues for more than a year. If we take anthracite and Bessemer pig-iron as the best standard, it will be noticed that prior to the maximum price of anthracite, September, 1872, when the price of $53.87-^ was reached, prices rose from $37 in January of that year, showing a rapid rise for eight months; prior to the maximum of $41 INDICATIONS OF A CRISIS OR DEPRESSION 231 in February, 1880, prices rose rapidly from $20.75 in August, 1879, or for six months; prior to the maximum of $19.90 in January, 1890, there was a rise from $17 in May, 1889, or for eight months; prior to the maximum of $25 for Bessemer pig-iron in December, 1899, there was a rapid rise from $11 in January of the same year, or for eleven months. In many respects the rise in 1899 was the most re- markable of all, because it had been considered by iron manufacturers in the preceding years that the equipment for production was sufficient to promptly meet any increase of demand, and yet the rapid rise in that year was unprecedented. The great in- crease in the price of iron and steel in that year, with the steady increase in production after 1894, proves the more general use of these products for a greater variety of purposes and over an enlarged area. Prices of Securities; Stoch Quotations. — The indications derived from the prices of securities cannot be understood without a brief review of the nature and distinctive features of this species of property. Securities may be divided into two classes: First, those which promise a fixed return in the way of income, and of which the principal sum is pay- able at a definite time, such as Government, State, municipal, and railway bonds, and mortgage notes. Second, those the return or income from which de- pends upon the profits derived from the enterprises which they represent, such as railway and indus- trial stocks. The income upon these is not fixed, 232 CRISES AND DEPRESSIONS but is contingent upon the success of the operations in which the companies are engaged. Two general factors primarily determine the price of securities: 1. Their income, or the return which they promise to pay. 2. Certainty of payment, or the degree of as- surance of obtaining the income promised. The prices of securities, particularly those of the second class, are affected by so great a variety of circumstances that it is exceptionally difficult to derive any general principles from the history of their rise and fall, but certain tendencies are plain. 1. Prior to an improvement in conditions they rise earlier than the majority of commodities, and prior to a crisis or depression they fall earlier. In the case of stocks the rise and fall is greater than the average rise and fall of commodities. 2. The rise in the price of speculative and non- dividend paying stocks prior to improving condi- tions occurs later than that of other securities. Before a depression these fall earlier and experience a greater loss in price than those which are re- garded as safe investments. 3. Not only are the general changes in prices of stocks greater, but the temporary fluctuations are much greater than in the prices of commodities. 4. All stocks, or securities of the second class, are very much more influenced than other securities or commodities by speculation and by conditions peculiar to them, such as the general interest in stock quotations, their ready sale at the Stock Ex- INDICATIONS OF A CRISIS OR DEPRESSION 233 change, and the partiality of investors for this spe- cies of property. As regards the first tendency. The earlier rise of securities, prior to an improvement of condi- tions, is primarily due to the fact that securities are more keenly affected by the condition of the money market than any other species of property. After the severest stage of a depression, money accumu- lates in banks and financial centres, and awaits in- vestment. Profitable investments in industrial en- terprises are scarce. There is a disposition to look to undertakings already tried rather than to new ones. This money, which is often redundant in quantity, is available for the purchase of securities. In the same connection there is another influence causing the rise in prices to be greater than in those of com- modities, as well as earlier. In time of abundant supply of money, rates of interest go down. A security which promises a certain return not only feels the effect of more abundant money, but also that of lower rates of interest. To illustrate, at a time when the rat& of interest is 6 per cent, a stock which promises to pay that amount annually as a dividend is naturally worth 100 per cent, but if rates of interest fall to 4 per cent, this stock would naturally rise to 150. Prices of commodities, for the most part, respond only to the influence of greater supplies of money and greater demands, while securities are influenced not only by the greater demand for them and the greater supply of money, but also by changing rates of interest. When the depression comes to an end, and quickened 234 CRISES AND DEPRESSIONS activity begins, this influence of lower rates of interest is partially neutralized by increasing de- mands for money, but, as stocks gain the benefits of increasing prosperity, the rise in their price is usually well maintained. In addition to other influ- ences which promote an earlier rise or fall, there must be mentioned the more careful study and atten- tion to the financial situation which is given by dealers in the stock-markets and in great financial centres. They often forecast the grounds for a rise or fall in prices before the general public is awake to the situation. Prior to a depression, the earlier fall, especially of the second class of securities, is caused by condi- tions opposite to those which prevail in a time of im- proving conditions. At such a time money is less plentiful, rates of interest go up. The prevalent scarcity of available funds is intensified by the with- drawal of investments in stocks for the maintenance of existing industrial or commercial enterprises. In like manner prices fall and money is withdrawn for the sake of retaining merchandise or other prop- erty held on speculation, and thus the quantity of money for investment in stocks is still further de- creased. Just as a fall in rates of interest causes a disproportionate rise in stocks, so now the higher rates of interest cause a disproportionate decline. In the examination of the prices of stocks, as of all prices, there are three periods to be considered: first, the end of the depression, when money is redundant and business is slack; second, the time of healthy activity; third, the season of excessive INDICATIONS OP A CRISIS OR DEPRESSION 235 and unhealthy activity. All these conditions exert a peculiar influence upon the stock-market. Second, the fall in the prices of speculative and non-dividend-paying stocks is greater. The influence of the money-market is more severely felt by these securities in the time preceding a depression. The increased demand for money to be invested in other enterprises, and the scarcity of money, which causes the fall of all securities, has especial influence upon those which do not promise an assured return. In- vestments in the stock-market are made from the surplus funds of the people. They are for the most part made by those who possess a considerable sur- plus. "When this surplus diminishes, the first ten- dency is to dispose of property which has no reliable value or which does not promise an income. Under the influence of these factors speculative stocks are first disposed of. A time will come when specula- tion and manipulation are ineffectual to sustain their prices. It needs little further argument to show why stocks of this class are the last to rise. The income from all has diminished, and the element of caution dominates the investing public. Investors are slow to purchase securities of doubtful value. Third, temporary fluctuations in the prices of stocks are greater than in those of commodities, be- cause the prices of stocks are affected not merely by the aggregate quantity of money available for in- vestment in the country, but also by the varying quantity available for transactions in stocks. This quantity changes not only from month to month, but from day to day. An unfavourable bank state' 236 CEISES AND DEPRESSIONS ment immediately affects the stock-market. It is also affected by the unequal payments disbursed by the ISTational Treasury and by withdrawals from financial centres for the handling of crops. Con- sequently, two successiye weeks, or the same week, may show great changes in the price of stocks. Of course we must recognise the very potent effect of speculation in the stock-market at all times, and it is prbbable that a greater portion of the money used for transactions in stocks is borrowed than is the ease with any other species of business transactions. Fourth, the price of stocks is very much influ- enced by conditions peculiar to themselves, most of which tend to raise the price. They are readily sold, and, by reason of the issuance of shares, they are easily divisible. These facts make it possible to real- ize upon the whole or a part of the investment at any time. Their prices are quoted each day in the daily papers and carefully watched. Their very fluctua- tions make them the favourite investment of many moneyed men. The existence of a very large ele- ment whose business is that of dealing in stocks, and whose profits are realized from commissions on transactions, or from speculation, affects their prices and causes greater fluctuations. The general effect of these extensive dealings is towards higher rather than lower prices. Other influences peculiar to stocks tend to increase fluctuations. The weekly reports as to traffic receipts and the frequent bulle- tins as to the condition of wheat, corn, or other com- modities which form a large share of the traffic of railways have this tendency. A " corner," or any INDICATIONS OF A CRISIS OR DEPRESSION 237 event which creates a sudden demand for money, causes the sacrifice of many stocks and depresses their price. The weakness thus created communi- cates itself to the whole list. A notable rise or fall in one stock has its effect upon the whole market. Prices are also influenced by other incidental fac- tors, such as the desire of one railway corporation to obtain possession of another for the purpose of increasing its own value. The tendency towards an earlier response to changing conditions in the price of stocks may be illustrated by numerous instances. Prior to the crises of April and October, 1847, in the United Eangdom, prices of stocks reached a maximum in July and August, 1845. In the year 1857 industry and commerce in the United States continued with their usual vigour to the very eve of the crisis in August, but the stock-market in the summer months of the preceding year gave warning of that which was to occur.* The high prices of De- cember, 1856, were not equalled at any time dur- ing 1857, and after January, 1857, the fall was very marked. IN'ew York Central, which had been quoted at 94J as a maximum in December, 1856, fell to 90| in February, 1857, and to 84f in the following June; the lowest price of the year was 53 * In a previous chapter it has been stated that there is often an indication of a crisis one or two years before its actual occur- rence, and often at the same season of the year. The crisis of 1857 occurred in the month of August. A year previous (in 1856) there was an unusual fall in the prices of stocks, and lower prices continued until near the close of the latter year. 238 CRISES AND DEPRESSIONS in the montli of August. To illustrate the greater fall of stocks in which there is a larger element of speculative value, New York & Erie, which was quoted at 62f in December, 1856, fell to 9^ in October, 1857. Illinois Central, one of the best sustained in price of the railway stocks at that time, fell from 122 in December, 1856, to 75i in Oc- tober, 1857. Thus it appears that the two more reliable stocks lost less than half in their price, while the more speculative fell to less than one- sixth. It has been stated that the year 1879 was one of the least prosperous in the United Kingdom. All indications point to this year as the least prosperous of that decade, yet in a majority of the leading railway stocks the price was higher in 1879 than in 1878, indicating that this species of property rises in price earlier than the average of commodities. The rise from 1878 to 1879 is particularly noticeable in the better class of railway stocks. Prior to the crisis of 1873 in the United States, of seventeen stocks, fourteen were higher in 1872 than in 1873, while three were quoted at higher prices in 1873. Eleven showed a higher price in 1871 than in 1872. The same was true in the years prior to the crisis of 1884. Of thirteen of the most prominent stocks sold on the New York Stock Exchange, two reached a maxi- mum price in 1880, seven in 1881, and four in 1882. Previous to the crisis of May, 1893, stocks be- gan to fall early in 1892. Of seventeen of the most active, five reached a maximum price in January; three in February; four in March; two, Lake Shore INDICATIONS OF A CRISIS OR DEPRESSION 239 and Michigan Central, in April. Some of those of most stable values reached a maximum later — Chicago & Northwestern, preferred, in May (-while Chicago & Northwestern, common, reached its maxi- mum in March), Chicago & Alton in July, and New York, New Haven & Hartford in January, 1893, the latter stocks illustrating the later fall of those which yield the more reliable dividends. There are still other factors which cause alter- nate rise and fall in prices, which are especially effec- tive in influencing prices on the Stock Exchange. As a general rtde, fluctuations increase with the mag- nitude of transactions and the strength of opposing interests to be benefited by a rise or fall. Forma- tion of a cotton or oil exchange is usually contem- poraneous with larger transactions, and thereafter fluctuations assume a prominence, day by day, which formerly appeared only at much longer intervals. The tendency to fluctuation has been greatly in- creased by added opportunities for information, not only by the gathering of more ample statistics, but by the prompt transmission of news by telegraph and cable. Formerly, information as to a staple crop reached the localities at which it was required only at rare intervals. We may instance the cot- ton crop, information concerning which, in the early part of the last century, reached Lancashire only by sailing-vessels and at irregular dates. Now, day by day, the condition of the crop is telegraphed to the great centres where it is required, and considered with care. Fluctuations, because of the magnitude of transactions, are most noticeable in stock quota- 240 CRISES AND DEPRESSIONS tions. In a table in Appendix B, there is given by- months the number of times in which selected stocks reached maximum and minimum prices in each year for thirty-three years.* It would be expected that the maximum prices would occur most frequently in the months when bank reserves are highest, but such is not the case. Maximum and minimum prices occur most frequently in the months of Janu- ary and December, when transactions are largest; least frequently in July and August, when transac- tions are smallest. It thus appears that large trans- actions are a very strong factor in creating both maximum and minimum prices. The following statement simimarizes the results derived from this table, and shows distinctly the effect of large trans- actions in increasing or depressing prices: Number of Number of maximum pnoes. minimum prices. 61 89 42 25 82 35 26 37 28 25 40 26 13 27 14 22 40 22 36 31 47 36 66 60 January. . . February.. March . . . . April May June July August . . . September, October. . . November , December , * See Appendix B, pp. 338-339. In cases where the same maximum price was reached in two or more months in the same year, it is included twice or more. To illustrate : If the same maximum price was reached in the months of January and December it is counted for both months. INDICATIONS OF A CRISIS OR DEPRESSION 241 There is an indication of the approach of a crisis when there is a continuous and steady fall in prices in the stock-market. A less reliable indication is afforded when there are continuous fluctuations at- tended by a downward tendency. The former is a sure precursor of less prosperous conditions, and the only question is how long the fall will continue be- fore a decided change occurs. Oftentimes liquida- tion or realization of profits may cause the sale of unusual quantities of stocks, and depress prices in the market. But this is not necessarily a sign of danger. Prices may have been quoted at a figure beyond that which conditions justify, and the fall in prices which results is merely responsive to that fact. The first class of securities responds to changing conditions in a much less degree; violent fluctua- tions are absent, and the factors which determine their price have more permanent effects. Government securities are always a favourite investment. In this country their prices are influ- enced by their use as the basis for the issuance of currency by the national banks and by the require- ment that certain quantities shall be held by them, and by regulations which require their use as se- curity for numerous obligations, both to the na- tional and to the state governments. They show little fluctuation during the changing conditions of business from year to year. A slight decline can, however, be expected a considerable time before a crisis. Not only are they affected by scarcity of money, but also by the prevalent desire for larger interest on investments. 16 242 CRISES AND DEPRESSIONS It may be added that after a crisis and during a depression the prices of government securities are the first to rise, and thereafter are well maintained. Minimum prices frequently do not reach as low a point as in the preceding prosperous years, and maxi- mum prices are frequently higher than ever before. In the case of many securities, the partiality of investors exerts a considerable influence upon the price. There is a preference for those mortgages and municipal bonds which are near to the great financial centres from which investments are. made. The census returns of 1890 show that rates of in- terest on mortgages are higher almost in proportion to the distance from older and more settled portions of the country. The average rate of interest on real estate mortgages in force on January 1, 1890, in Massachusetts was 5.44 per cent; in New York, 5.49; in Ohio, 6.56; in Iowa, 7.63; in Kansas, 8.68; in Montana, 10.61, This partiality is closely asso- ciated with the degree of assurance of safety, but is in a measure distinct from it. Conditions in Other Counteies One of the most significant indications of the approach of a crisis in one country is the existence of a crisis in another, or such disturbance there as materially diminishes its purchasing power. Even such calamities as war or deficient foed supply, which confer a temporary advantage upon other countries, must produce, in the long run, percepti- ble eflfects upon the aggregate wealth, and, conse- quently, upon the prosperity of all. CHAPTEE Vn pbeventrves and eemedies Pbeventives Peeventives may be viewed from three stand- points — ^namely, those of I. Established laws; governmental control by legislation and administration. n. The management of banks. III. Individual action. Established Laws; Goveenmentax Conteol by Legislation and Administeation In the United States substantial benefit would result from radical changes in the functions per- formed by the Federal Treasury — namely, by ceas- ing to act as a bank of issue and also as a bank of deposit. Issuance or Maintenance of Paper Money. — That the United States Government has not here- tofore ceased to issue or maintain paper money in circulation, and to perform, as it now does, the func- tions of a bank of issue, is explained by a reluct- ance to change from established methods and by the assurance of safety which belongs to notes of 243 244 CRISES AND DEPRESSIONS the Government. A further explanation is found in political predilections, and in a prejudice against banks, which is prompted by a fear of their obtain- ing undue control over the financial affairs of the country. It is not necessary to discuss the question whether the issuance of the greenbacks was essen- tial to the maintenance of the Government during the trying period of the Civil War. The problem with which we have to do pertains to the present. Nearly every civilized nation has made the experi- ment of issuing paper money, either with the promise of redemption in gold on presentation, or with the promise that it shall rest on the so-called faith of the government; but most of them have abandoned these issues of paper currency, and sub- stituted some other method, retaining to themselves only the coining of metallic money. As has already been noticed, there are crises and panics which do not indicate unsoundness in the con- dition of industry or commerce. They may arise from derangement in the circulating medium, either from excess or from insufficient supply. Other dis- turbances, more serious and permanent, are indus- trial or commercial in their nature, but are greatly aggravated by the same conditions which cause the former. Crises and panics are indirectly caused by excessive issues of currency, which stimulate over- action and afford the opportunity for waste and ex- travagance. They are sometimes due to deficiency of currency, and are always rendered more serious by its scarcity. This scarcity does not always coincide with a deficiency of capital. Any rational PREVENTIVES AND REMEDIES 245 system for the issuance of paper money should pro- vide for changing demands and changing conditions of business. It should furnish means for contrac- tion when money is redundant, and means for reasonable expansion when money is scarce. This quality is often described by the term " elasticity of the currency." The demand for money is not a fixed and invariable one; it varies with prices, with different degrees of confidence in enterprises, with activity of business. It changes with the seasons of the year, with the harvesting and marketing of crops. It requires little refiection to discover that Gov- ernment currency cannot meet these changing re- quirements. Mr. Tooke points out the difference between paper money issued by banks and that issued by the Government, when he states that the banks issue currency in response to demands, and thus supply the wants of trade, while Government paper is not issued in response to calls from those engaged in trade or industry, but by reason of the necessities of the Government. The latter creates demand rather than supplies it. It is like giving to the customer the right himself to create money whenever he needs it.* If the Government controls the issue of paper money, the amount must either be fixed and invari- able, or it must vary either in pursuance of legisla- tive authority or under the control of the executive department. If fixed and invariable in quantity, it will not properly do its work. There will be a sur- * History of Prices, vol. iv, pp. 176-177. 246 CRISES AND DEPRESSIONS feit of currency available for loans at seasons when loans are not in demand, and a corresponding scar- city on occasions when a larger supply is required. If the quantity can be changed only by legislative authority, action will be tardy, and the time for doing something will pass without provision for the situation. If left to the executive department, it is granting an undue degree of power to this branch, and is subject to abuse and to changes with dif- ferent administrations, according to their differ- ent ideas of finance. Whether managed by the legislative or executive department, those in con- trol, however able or incorruptible they may be, are not in that immediate touch with the varied business interests of the country which is essential to the most judicious action. It is clear that the system is best which works automatically as far as possible, and eliminates in the greatest degree the manage- ment of the currency from the field of political discussion. When a government makes provision for the redemption of its paper money in specie, another objection arises in the necessity for the maintenance of a metallic reserve sufficient to meet the calls of all who present their notes. The metallic reserve is watched in all business communities with the closest attention. It is regarded as a barometer of the stability of credit and the soundness of business conditions. When the quantity of metallic money diminishes, banking institutions having the respon- sibility of redeeming currency in coin, take imme- diate steps to check the outflow by raising the rate PREVENTIVES AND REMEDIES 247 of discount. No such metliod of controlling the gold supply is available to the Treasury Department of the United States. It has no control over rates of discount. Without any means of protection it must meet the demands of those who present its notes, although those who bring them may find it more to their profit to bring discredit upon the Treasury than to sustain it. It is clearly not with- out reason that other nations have abandoned this perilous experiment. Their ability to expand and contract the supply of money, and thus meet the exigencies of the time, their more effective regula- tions for control of the metallic supply, are potent reasons why, in late years, England and France have been freer from sudden crises than our own country. Without seeking to suggest a system, to take the place of the one now in use, a brief mention of two conflicting theories, advocated with a great deal of earnestness, is appropriate. First, the " Currency Theory," to the effect that money should not be issued by banks except as against actual deposits of gold for which the paper currency is a substitute. This is the theory which prevailed in the adoption of the Act of 1844 for the government of the issues of the Bank of Eng- land. Second, the " Banking Theory," to the effect that money may be issued in excess of gold on de- posit, provided it is redeemable in gold on presenta- tion. It is argued on behalf of the first theory that an issue of money not based upon deposits of gold tends 248 CRISES AND DEPRESSIONS to stimulate gold exports, raise prices, and increase speculation. It is argued on behaK of the other theory that prices do not depend upon the quantity of paper money in circulation, provided the issues are redeemable in gold; that the quantity in circula- tion will be regulated by the demands of trade, and an increase will follow rather than precede rising prices and speculative demands. Both of these conflicting theories contemplate the issue of cur- rency by banks, and it is unnecessary to say that our present system does not have the advantages of either. It does not furnish the check upon gold exports afforded by the former or the elasticity fur- nished by the latter. A further objectionable feature of the main- tenance by a government of a specie reserve for the redemption of paper money is the undue influence exerted under such a system upon the business of the country by changing conditions in revenue and expenditure. In the absence of such a system, a de- ficiency in the receipts of the government would have only limited influence upon the general course of business affairs; but if the National Treasury must maintain a gold reserve to redeem bills pre- sented, a decrease in specie causes wide-spread demoralization. The decrease caused by an excess of expenditures is immediately felt in the decrease of the gold reserve, and thus an occurrence which should be followed only by slight effects, greatly disturbs the money-market and the general pros- perity of the whole country. This dangerous fea- ture has been in a measure removed by the enact- PREVENTIVES AND REMEDIES 249 inent of the so-called Financial Bill of 1900, wliich provides that the gold reserve for the redemption of notes sliall constitute a separate department of the Treasury ; but the undue influence which arises from fluctuations in the quantity of gold in the Treasury still remains. The advantages of the issuance of paper cur- rency by banking institutions are not difficult to dis- cern. They are in immediate contact with com- mercial and industrial operations, and must have a full understanding of their various needs and con- ditions from time to time. In case their issues are redundant, their reserves in gold can be utilized for the redemption of notes, thus restricting the circu- lation. In times of stringency they can increase their issues, and thus tide over or essentially diminish the dangers impending.* An examination of the discussion of the Legal Tender Act by Congress in 1862, makes it manifest that it was the intention to issue greenbacks only as a temporary measure. President Lincoln, in his Message of December 1, 1862, seems to have taken the view that United States notes were of doubt- ful expediency, and to have regarded the issuance of paper money as the proper function of banks. He says: " Fluctuations in the volume of currency are always injurious, and to reduce these fluctuations to the lowest possible point will always be a lead- * This contemplfttes that the national banks, or other insti. tutions issuing paper curronoy, will redeem their bills in gold, a requirement essential under any well-devised system. 250 CRISES AND DEPRESSIONS ing purpose in wise legislation. Convertibility — prompt and certain convertibility — into coin is gen- erally acknowledged to be the best and stirest safe- guard against them; and it is extremely doubtful whether a circulation of United States notes, pay- able in coin, and sufficiently large for the wants of the people, can be permanently, usefuUy, and safely maintained. " Is there, then, any other mode in which the necessary provisions for the public wants can be made and the great advantages of a safe and imif orm currency secured? " I know of none which promises so certain re- sults, and is at the same time so unobjectionable, as the organization of banking associations imder a general Act of Congress well guarded in its provisions. To such associations the Government might furnish circulating notes on the security of United States bonds deposited in the Treasury. These notes, prepared under the supervision of proper officers, being uniform in appearance and security and convertible always into coin, would at once protect labour against the evils of a vicious currency and facilitate commerce by cheap and safe exchanges." * In considering the subject of necessary elasticity of the currency, the great fluctuations in deposits of money with banking institutions must be taken into account. Accepted theories as to the issuance of paper currency are largely based upon the idea that, * Messages and Papers of the Presidents, voL vi, pp. 129- 130. PREVENTIVES AND REMEDIES 251 except as money is shipped out of the country to settle balances with other countries, a proportion of existing currency, whether gold or paper, approxi- mately the same from month to month and year to year, finds its way to banks or other financial institu- tions, and is available for loans and the ordinary uses of trade. According to this idea, the same pro- portion of the currency will at all times be available in the banks for purposes of lending and for other uses of currency. This theory fails to take into ac- count two important facts: first, the admitted fact that larger quantities of money are withheld from banks at different seasons of the same year and under frequently recurring differences in conditions, oc- curring when business is entirely sound; second, the existence in time of panic of a disposition to with- hold money from deposit for the purpose of hoard- ing. Comptroller Knox, in his Report for 1873, gives some striking figures, showing the extent of this disposition to hoard. The total amount of out- standing national bank currency, legal tender notes, and fractional currency on October 13, 1873, was $756,315,135. The total amount held by the Treasury and by banks on that day was $116,496,- 997, leaving unaccounted for $639,818,138. On the same day the national banks of New York city held of legal tenders only $6,517,250, as against $32,278,530 thirty-one days previous, on the 12th of September.* It is evident that the usual theories do not take into account a fluctuation of * Report of the Comptroller of the Currency for 1873, p. xxxi. 252 CRISES AND DEPRESSIONS this nature; yet any system whicli does not provide for sucli a situation is defective. Makeshifts have been resorted to, such as the issuance of Cleariag- House certificates; but these afford only partial and temporary relief, and are quite unsatisfactory. While it may be conceded that an additional amount of paper money in time of crisis cannot restore wasted resources or prevent the depression which is sure to follow, it is nevertheless true that the prompt issuance of a further supply of currency — provided always that it is a sound currency — would greatly simplify the situation, relieve embarrassed firms from failure, and prevent the demoralization which is so serious a feature in time of panic. The effect of the workings of our currency system in promoting crises in the past has been pain- fully apparent. The quantity of money has been increased when the demands of trade required no increase. In times of stringency there has been a decrease, on account of the different kinds of money employed, under the working of the inexorable law, that when different kinds of money are in use, there is a tendency to send the better quality abroad or withdraw it from circulation. Some reforms have been accomplished. Under present laws such inflation is impossible as that which occurred in the days of greenback inflation, or under the laws of 1878 and 1890 for the coinage or purchase of silver, and the quantity of money has increased with increasing wealth and adapted itself more nearly to existing needs. But with lower prices, and that suspension of new enterprises which PREVENTIVES AND REMEDIES 253 mark a time of diminislied activity, the quantity of currency might prove more than sufficient for legiti- mate demands, and the disturbances of the time would be aggravated by the motley nature of our money. It is certain that until our currency system is such that the quantity can be increased or dimin- ished, in turn, in accordance with the demands of trade and industry, the threat of crises will not be removed, and the difficulty will be greater when the crisis comes. Such adjustment is impossible under the present system. The only provision for elas- ticity at present is in the circulation of the national banks. The recent law makes partial provision for increase in their circulation, but the equally impor- tant object, a decrease, can only be accomplished tardily; so tardily as not to respond to the demands of the time. The Function of the Treasury as a Bank of Deposit: The Subtreasury System. — It is equally clear that the tendency to crises would be dimin- ished by the abolition or material modification of the Subtreasury system. The reasons for the pas- sage of a law providing for the deposit of Gov- ernment funds in the Treasury or at Subtreasur- ies were plain enough. A complete separation of banks from the state was advocated. The Gov- ernment deposits had been left with banking insti- tutions which had failed, so that public moneys were lost; the making of prompt disbursements was rendered impossible, and the financial standing of the Government was brought into disrepute. Coupled with the organization of an independent 254: CRISES AND DEPRESSIONS treasury was a regulation at the time that receipts and disbursements should be made in specie. The first law providing for a Subtreasury was passed in 1840; in the following year it was re- pealed, but it was re-enacted in substantially the same form in 1846. The unfavorable prognostica- tions of its opponents were not fulfilled during the time of the operation of the first law, and during the early years of the operation of the second law the results foretold did not ensue. It must be borne in mind, however, that half a century ago the amounts collected as revenue were not only very much less than now, but bore a smaller proportion to the population of the country. The strongest objection to the present system is the very irregu- lar course of the collections and disbursements of the Treasury, which produces violent fluctuations in the amount of money in circulation, greatly in- creasing the pressure in times of stringency, and at other times giving an unwholesome stimulus to speculation. In some respects the effects of the Subtreasury system are similar to those which arise from the lack of proper elasticity in our currency. Each tends to prevent harmony between the supply of money and the demand for it. But they differ in this, the system of issuing paper prevents harmony, by reason of its inflexibility and utter failure to increase or decrease when desirable. The Sub- treasury system brings the same result by promot- ing very considerable fluctuations in the quantity of the currency. PREVENTIVES AND REMEDIES 255 Unfortunately these fluctuations are likely to occur in directions entirely opposite to the require- ments of trade. Under the Subtreasury system there is a necessity for an aggregate amount of cur- rency much in excess of that which would otherwise be required. In the Treasury statistics of the amoimt of money per capita in the country, this fact is recognised by giving separate statements of that which is in the Treasury and that which is in cir- culation. In times of pressure, the Treasury has sought to relieve the situation by purchases of bonds or similar expedients for increasing the money in circulation. But these purchases have not resulted in that benefit which would result from loans made by banks in the ordinary course of business. The amounts paid out by the Treasury for bonds are likely to go to those who have no urgent need, and who may withhold from circulation the currency so obtained. When loaned by banks, amounts go to those who are in need, and who employ the money received for the payment of debts and for the usual transactions of trade. Authority now exists under the law to deposit with banks money received from internal revenue taxes, but this does not extend to customs duties. A result similar to that caused by the establish- ment of the Subtreasury system has been noticed in numerous States of the Union which have regula- tions for the annual or semi-annual collection of taxes, under which it is provided that the amounts received shall be retained in suitable vaults by the respective treasurers until disbursed for State or 256 CRISES AND DEPRESSIONS municipal expenses. Strict penalties are provided for violations of the rule. The result in every case has been very marked. At the season of the year when taxes are collected, a large proportion of the currency in use in the community is withdrawn from circulation, and serious embarrassment is caused. In some States, laws have been passed pro- viding for the loan or deposit of taxes collected, reasonable interest and adequate security being re- quired. The objection to the adoption of this plan by the Federal Government is based upon the greater magnitude of the problem, but this does not seem to be an insuperable obstacle. Favouritism could be prevented by competitive bidding and safety assured by sufficient bonds and suitable penal- ties. An amount could be retained in the Treasury sufficient to meet the probable demands for a speci- fied time and the balance divided among those who could comply with the requirements relating to in- terest and security. The deposits now made in banks a^e in the direction of this plan. Either the Subtreasury system ought to be abolished entirely, or some plan adopted to prevent the violent fluctua- tions in available money caused by a fiscal regula- tion which locks up, perhaps at the very time when most needed, a large and varying share of the sup- ply.* The organization of a national bank to act as the fiscal agent of the Government has been advo- cated as a solution of the difficulty. But, after re- * For figures showing the unequal amounts withheld from circulation in the Treasury, see Appendix B, p. 344. PREVENTIVES AND REMEDIES 257 peated agitation, the proposition to adopt this solu- tion may be regarded as settled adversely. It is manifest that the disposition of the people is against it. Certainty as to Specie Payments and the Stand- ard of Value. — There can be no more effectual pre- ventive of crises than the establishment of our cur- rency upon an absolutely sure basis and the mainte- nance of the paper money in circulation upon an equality, not merely with specie, but with that kind of specie which is accepted as the standard by the leading nations of the world. In crises a source of danger has been more prominent in this country than elsewhere — namely, the failure to redeem paper currency in specie, or the uncertainty of its redemption. An additional source of danger has at times manifested itself in a threatened change in the intrinsic value of the monetary unit. In the crises of 1814, 1818, 1837, and 1873, besides the loss of capital and the derangement of industrial conditions, there was an aggravating feature which assumed an importance almost equal to the other calamities of the time — namely, the suspension or absence of specie payments and uncertainty regarding the time of redemption. In 1893, there was the active dread of a departure from a gold to a silver standard. Much has been written upon the evils of irre- deemable paper currency. That it promotes specu- lation and waste, substitutes gambling and uncer- tainty for careful calculation and honesty, and falls most heavily on those who are least able to bear its weight, no one can deny. To eliminate from our 17 258 CRISES AND DEPRESSIONS currency all uncertainty concerning what a doUai? means, and what at all times it shall mean, will do much to prevent crises in the future, and will also accomplish much in mitigating their effects when we are compelled to face them. The Avoidance of Frequent Changes and Con- stant Agitation in regard to our Financial and Economic Policies. — No country in the world has suffered more than ours in this particular; not only is there frequent change in vital matters of economic and fiscal policy, but there is almost constant agita- tion. Other nations have passed through seasons of discussion, in which great differences'of opinion have developed; but none has witnessed the same fre- quency of changes in the adopted rules concerning tariff, revenue, and questions of currency and bank- ing. It is fortunate that the wounds created by fre- quent and violent changes have caused the growth of a conservative element willing to acquiesce cor- dially in policies not altogether approved, provided peace is the result. It is clearly for the benefit of this, or of any country, to continue in the same gen- eral lines of economic and fiscal policy, making changes gradually and only after sufficient warning, so that industry and commerce may forecast the future with a greater degree of accuracy and engage in enterprise with more certainty, and consequently a better assurance of success. More Comprehensive and Accurate Statistical Information. — A study of past disturbances leads to the conviction that no severe depression has occurred which was not preceded by loud warnings. These PREVENTIVES AND REMEDIES 259 •warnings ought not to pass unheeded, and in order to recognise them promptly, it is necessary that accu- rate statistics be furnished. Much improvement has been accomplished in the last. few years, though it is to be regretted that so much of our statistical information is fragmentary or inaccurate. Official and private publications furnish much valuable information. They include voluminous figures of deposits and loans of banks, movement of specie, exports and imports, railway earnings, wholesale prices, and the condition and probable yield of crops. A vital defect in many of them is the omis- sion to give, for purposes of comparison, similar figures for previous months and years. Another defect is the absence of uniformity in the methods and classifications employed. These comparative statistics would afford a means of determining the trend of events, and give warning when prices are unnaturally high or any branch of business is over- done. It is also noteworthy that we do not suffi- ciently consider statistics relating to the course of affairs in foreign countries, the influence of which upon our own condition is of the utmost importance, by reason of the enlargement of our trade and the closer international relations of modern commerce. Other statistics, which are inadequate or lacking and which would be of great value, are those per- taining to the employment of labour, capital in- vested in new enterprises, amounts expended in new construction, volume of production in the various kinds of manufactures, and statistics of state banks and savings institutions similar to those pertaining 260 CRISES AND DEPRESSIONS to national banks. After making due allowance for tlie insufficiency of statistics, it must be said that the failure to pay sufficient attention to those already available is equally to be regretted. The Relation of the State to Corporations. — The suggestions under this head apply more to State governments than to the National Govern- ment. In no other country is there the same de- gree of indulgence in granting corporate rights, or the same carelessness in supervising the transactions of those who obtain them. The interest of the State in keeping them within proper limits and securing shareholders and creditors against fraud is not sufficiently guarded. Banks have been known to continue in business for years after their rotten- ness would have been exposed by even a cursory examination. This closer supervision is especially required for quasi-public corporations. Franchises involving the enjoyment of rights in public prop- erty have been granted without any recognition of the probable growth of municipalities or the un- usual profits which are certain to accrue to their owners. One field for improvement is in guard- ing the relation between corporations and their shareholders or patrons by more careful super- vision. Another is in the relation between corpo- rations and the public. This can be secured by a more careful safeguarding of the rights of the pub- lic. In the relation of shareholders and depositors to corporations under present regulations, crises are promoted by the facilities for speculation afforded to managers and by opportunities for dishonest and PREVENTIVES AND REMEDIES 261 irresponsible management. The absence of pub- licity in the transactions of many great corpora- tions, which control important lines of business, conceals their actual condition, and renders it impos- sible to obtain accurate information. This some- times destroys confidence in meritorious enterprises; on the other hand, it may cause undue confidence in undertakings which should not be prosecuted. The great failures of corporations which destroy public confidence and precipitate crises could, many of them, be prevented by an efficient system of public supervision. The Management of Banks Banks and bankers have a great responsibility in shaping the course of commerce and industry. It is for them to watch the tendencies of the time with a careful eye, and restrict accommodations when enterprise reaches the danger point. For their own preservation, as well as that of the busi- ness community, it is essential that restraints be interposed to prevent a reckless spirit of specula- tion and extravagance. Bankers are not in the habit of hesitating to inquire about the use to which money is to be placed. It is especially important when discounts are expanding that careful inquiries should be made, and a policy of conservatism adopted. 1. Rules as to Lending. — Among general rules to be observed when there is danger of a crisis, none can be stated which would be more helpful than those suggested by Mr. Bagehot: 262 CRISES AND DEPRESSIONS "Tirst. That loans should only be made at a very high rate of interest. " This will operate as a heavy fine on unreason- able timidity, and will prevent the greatest number of applications by persons who do not require it. The rate should be raised early in the panic, so that the fine may be paid early; that no one may borrow out of idle precaution without paying well for it; that the banking reserve may be protected as far as possible." " Secondly. That at this rate, these advances should be made on all good banking securities, and as largely as the public ask for them. " The reason is plain. The object is to stay alarm, and nothing, therefore, should be done to cause alarm. But the way to cause alarm is to refuse some one who has good security to offer." * He also says : " What is wanted, and what is necessary to stop a panic, is to diffuse the impression that, though money may be dear, still money is to be had."f This, of course, involves a reform which, though slow to come, is inevitable — namely, the abolition of usury laws. It is difficult to present any reason for the retention of these laws, which could not with equal force have been urged for those regulations of the middle ages, which were framed to determine the prices of grain or the length of shoes which the king's subjects were allowed to wear. * Walter Bagehot, Lombard Street. Edition of 1896, p. 199. t Ibid., pp. 66-67. PREVENTIVES AND REMEDIES 263 2. Effect of furnishing Capital by Discount. — One of the most serious promotives of crises in the United States is the fact that so large a share of the capital required in manufacturing establish- ments and in other enterprises is furnished by dis- counts obtained from banks instead of by permanent capital or by long-time loans or bonds. There is certainly an incongruity, to say the least, in provid- ing by short-time discounts for the necessary capital employed from year to year, much of which is ex- pended in buildings or permanent improvements. In proportion as these enterprises depend upon short-time credits rather than upon paid-up capital or permanent loans, are they in danger of failure in time of stress. Any community in -which enter- prises are maintained by an undue proportion of short-time credits must be in special danger of crisis ; investments will be unnaturally multiplied. 3. Reserves. — Numerous opinions have been expressed regarding reserves and deposits. It is clear that the established policy respecting reserves is greatly promotive of crises. Under the national banking law banks in central reserve cities, three in number, must maintain a reserve of lawful money amounting to 25 per cent of their deposits. Banks in other reserve cities, twenty-eight in number, nominally maintain the same reserve, but one-half may consist of funds on deposit with the reserve agents or banks in the central reserve cities. Other banks must maintain a reserve of 15 per cent, of which they are allowed to keep three-fifths, or 9 per cent of their deposits, with banks approved by 264 CRISES AND DEPRESSIONS the Comptroller of the Currency and located either in a central reserve or reserve city. A con- siderable share of the deposits of banks, notably in the central reserve cities, the great financial centres, is made up of this proportion of reserves deposited by the banks of outside cities. As inter- est is paid upon these deposits, the banks receiving them must both invest them and have the amount readily available to meet demands from the banks depositing. This necessity has caused an increased proportion of the money of banks in financial cen- tres to be lent upon " call loans." These call loans are secured, for the most part, by divers railway, industrial, and other stocks, most of which are held not as a permanent investment by the owners, but in expectation of a rise, or in the hope of dis- posing of them to permanent investors. Under ordinary conditions, payment of the loans can be promptly obtained from the borrowers. But in time of pressure or crisis, it is impossible to real- ize upon them promptly, so that the loans secured in this manner are not readily available for the maintenance of reserves or the meeting of outside demands. At such times it has been noticed that commercial credits form a much more satisfac- tory resource than call loans. It is unnecessary to state that these large amounts invested in call loans greatly promote speculation. They in- crease the volume of transactions and give an unnatural impetus to prices. It is a question whether it would not be better for those banks which have the responsibility for the maintenance PREVENTIVES AND REMEDIES 265 of reserves to do away entirely witli interest on deposits, or at least to pay a merely nominal rate of interest. The abolition of interest on reserves deposited was recommended by a committee of the New York Clearing-House after the crisis of Sep- tember, 1873. If interest is to be paid upon these reserves, lenders must be found to take them. If the demand for loans is slack, an increased effort is made to find borrowers. When this season of slack demand is followed by one of active demand, as in the changing conditions it surely will be, there will not be a sufficient supply of money. There are minimum and maximum demands for money in the same year and at short intervals. Call loans, under the present policy, cause the lending of the full sup- ply of loanable funds at the time of the minimum demand, and leave no additional supply for a time when demands are at the maximum. 4. Diminishing Proportion of Capital and Sur- plus to Loans. — An examination of the reports of national banks shows that the proportion of capital and surplus to the aggregate of loans and discounts has been diminishing from year to year. Banks de- pend for their loanable funds more upon deposits Tears. Capital and surplus, in- cludmg undi- vided profits. Loans and discounts. Percentage of capital and surplus to loans and discounts. 1865 (October) 1870 « 1880 " 1890 " 1900 (Septembers).. (In millions 464 563 634 961 1,019 of dollars.) 487 716 1041 1986 2687 95.2 78.6 59.9 48.3 37.9 266 CRISES AND DEPRESSIONS than formerly. The figures on page 265, derived from Reports of the Comptroller of the Currency, show the increased proportion of loans and discounts. In the meantime deposits have increased from $500,000,000 in 1865 to $2,508,000,000 in 1900, While it would seem that greater stability and safety would exist if a larger share of the funds loaned by banks were made up of capital and sur- plus, this growing disproportion is an outgrowth of an inevitable tendency. Charges for exchange and collections, which formerly made up a considerable share of the income of banking institutions, are now largely done away with. This is rather an effect of increased competition than otherwise ; but, whatever its origin, it requires an increase of profits in other directions. Deposits in banks have greatly in- creased, and it is anticipated that they will be more uniform, so that the proportion to loans will be more uniform than formerly. Thus, it is made pos- sible to carry a larger volume of loans upon the same capital. 5. Inspection of State Banks. — After what has already been said about closer supervision of cor- porations, it is hardly necessary to add that regula- tions for the examination of state banks similar to those in vogue for national banks would have a salu- tary effect. Many disastrous failures would be pre- vented, and much dishonest and incompetent bank- ing would be discovered in time to prevent calamity and the destruction of popular confidence, if all banks alike were subjected to rigid and frequent examination. PREVENTIVES AND REMEDIES 267 Individitai, Action Among rules enjoining prudence and careful calculation, Professor Jevons states a very practi- cal one : " In making investments it is foolish to do just ■what other people are doing, because there is almost sure to be too many people doing the same thing." * In the same connection is a rule, worthy of con- sideration — namely, to be careful about investing in undertakings from ■which an exceptional return has been realized. Profits in all enterprises tend to^wards equality. After making due allo^wance for the skill and trust^worthiness required, risk incurred, and regularity of employment, investments afford approximately the same profit. If there is an ex- ceptional return from any line of investment, it is almost certain that the business ■will be overdone. Divers suggestions have been made in the treat- ment of this subject upon the necessity for higher standards of honesty and better education. The benefits of superior honesty and education are ob- vious enough, but their attainment must be ■worked out on lines other than economic. Eememes The only sure remedy is that suggested by Lord Beaconsfield — " the alchemy of patience." The depression is a condition ■which must be recognised and met; any attempt to ignore it or to indulge in confidence ■when there is no ground for it * Primer of Political Economy, p. 121. 268 CRISES AND DEPRESSIONS will only involve further disaster. It is like the period of convalescence from a disease. A cure cannot be hastened except by the best of care and the intelligent co-operation of the patient. At the same time there is every ground for confidence in ultimate recovery. Too much confidence should not be placed in the action of government. Just as good laws and efficient administration are rather essentials of prosperity than creative of it, so also they are more potent in preventing depressions than in reme- dying them. So far as human agency is concerned, intelligent individual action must do the most. It should not be forgotten that the most salutary direction in which preventives can be exercised is in securing the greatest possible equality of activity from year to year, and steady rather than sudden increase in the volume of trade and production. Many propositions have been advanced for the construction of public works in time of depression. The danger in resorting to this method as a remedy is that people will fall into the fallacy of working for the sake of working, and will not appre- ciate the fact that work is valuable only in case it produces something of utility. There is the further danger that, as numerous labourers are withdrawn from their usual lines of employment to engage in public work, they will, when times have improved, be unable or unwilling to return to their former employments, and thus the productive power of a country will be crippled. It is true, however, that municipalities and states are greatly benefited by certain improvements which are of permanent PREVENTIVES AND REMEDIES 269 value and to which capital may be appropriately- applied, such as good roads, better sewers, paved streets, and similar public works. At a time when materials are low and labour is unemployed, these improvements can profitably be made, provided they are carefully considered with a view to their per- manent value, and not with the object of giving employment merely. When prices are low, shrewd investors prosecute enterprises of large magnitude and permanent value. The city of Chicago afforded a notable instance of this a few years after the crisis of 1873. Capi- talists having confidence in the future of the city undertook the erection of buildings upon a very large scale. Whole squares were covered with dwelling-houses and business blocks in progress of construction, and streets were made impassable by great masses of building material. This showed an intelligent comprehension of future requirements for buildings, and the conviction that prices would not go to a lower point. Education and experience must lead to a more intelligent direction of productive energy. Patient, well-directed effort must meet the problems pre- sented by changes from year to year. It is best not to depend upon the government of any country for relief, but upon the individual action of its citizens. There is much foundation for the saying of Jeremy Bentham: " Industry and commerce only ask of the state that which Diogenes asked of Alexander — ' Keep out of my sunshine.' " CHAPTEK Vin A BEIEF ACCOUNT OF CBISES AND DEPEESSIONS IN THE UNITED STATES It is not intended to give in this chapter a de- tailed history of crises and depressions in the United States, but only to point out some of the distinctive features of each with a view to obtaining a more thorough understanding of the general features of all. An examination of the history of the United States prior to the beginning of the nineteenth cen- tury, and for some time thereafter, reveals no crises similar to those of later years. In the earlier days the colonies were separated from each other, each having its own commercial and industrial organiza- tion and separate political life. Their trade was with the mother country, or countries, rather than with each other. Each exhibited the features which are to be found in the early development of a new country — abundance of land, high wages for labour and high rates of interest, plentiful supplies of timber and of raw material, and varied fields for enterprise. To these may be added the energy and the progressive spirit of the people, which have 270 ACCOUNT OF CRISES IN THE UNITED STATES 2Y1 never been surpassed. The benefits derived from these advantages were limited, however, by seclu- sion, and by political disturbances and the inse- curity of life and property. That progressive and complex development, characteristic of later days, was lacking. The Federal Constitution might never have been adopted except for the realization that a great future in commercial and industrial develop- ment was in store, which could be secured only by a more perfect union. After the formation of the Federal Government many of the former conditions continued; but with the steady growth of the coun- try, commerce increased rapidly and wealth began to accumulate. Attention has frequently been called to the greater relative importance of crises, as compared with depressions, in the earlier years of the last century. The more uniform movement, in which stagnation gradually gives place to quickened ac- tivity, which is followed later by substantial pros- perity and still later by feverish speculation and col- lapse, is more modern. This greater prominence of the crisis phase was even more noticeable in this country than elsewhere. l!Tot only was this phase more prominent, but the disturbances were caused in a larger degree by unwise fiscal regulations, or by unsound banking and vicious currency. To these influences must be added the disturbing effect of frequent changes in tariffs and a lack of permanency in the laws and regulations affecting commerce and industry. Numerous experiments were made, some of which were attended by very disastrous results. 272 CRISES AND DEPRESSIONS Mr. Albert S. BoUes, in speaking of the century subsequent to the meeting of the first Continental Congress in September, 1774, says: " The financial history of the United States dur- ing the subsequent period is thickly strewn with financial experiments amply rewarding investiga- tion. In surveying the field, many transactions evincing sound wisdom and rare integrity will ap- pear interwoven with other deeds, variously coloured by accident, dishonesty, or ignorance. If no other country can boast of making such progress during the first century of its existence as the United States, no other has committed so many and such serious mistakes. In the history of American finance, men have appeared on nearly every occa- sion comprehending the exigency, and whose advice, if followed, would have averted many a disaster. But measures springing from incapacity or dis- honesty often teach lessons not less impressive than measures displaying the highest wisdom. It will not prove a profitless task, therefore, to garner some of the fruits lying within the field of inquiry, whether they were ripened under the watchful eye of Morris, Hamilton, or Gallatin, or whether they were the product of less skilful and less honest husbandmen." * John Adams said in a letter to Thomas Jeffer- son, written August 25, 1787: " All the perplexities, confusions, and distresses in America arise, not from defects in their Constitu- tion or Confederation, not from a want of honour * Financial History of the United States, toI. i, p. 3. ACCOUNT OF CRISES IN THE UNITED STATES 273 or virtue, so much as from downright ignorance of the nature of coin, credit, and circulation." * The Cbisis of 1814 While earlier disturbances of serious magnitude occurred, by general consent this has been consid- ered the first in the United States which displayed I the general phenomena belonging to a crisis. It was precipitated by the capture of the city of Wash- ington by the British on the 24:th of August, 1814. The Philadelphia banks suspended specie payments August 31st; the banks of New York city, Septem- ber 1st. The distress which culminated in this year has often been ascribed to the waste of resources incident to the war, but a more critical examination discloses more potent causes. They were : 1. Erroneous policies in regard to foreign trade and in providing for the expenses of the war. For- eign trade was greatly diminished, almost destroyed, by the Embargo and Non-Intercourse Acts begin- ning in 1808. The shipping trade of the country, which had yielded a large annual income, was brought to a standstill, and our products were de- prived of their best markets. The fiscal year end- ing September 30, 1814, showed the smallest foreign trade in the history of our country. The total of imports was $12,819,831, and the total of exports $6,782,272, making an aggregate of $19,- 602,103, as against a total of over $42,000,000 in the fiscal year ending September 30, 1790, the small- * John Adams's Works, vol. viii, p. 447. 18 274 CRISES AND DEPEBSSIONS est aggregate in any preceding year. So great a falling off in foreign trade could not be without serious results. In meeting the expenses of the war too much reliance was placed upon the borrowing power and too little upon the taxing power. In anticipation of a conflict with Great Britain, Mr. Albert Gallatin, Secretary of the Treasury, previous to the com- mencement of the war, had recommended an in- crease of taxation. This recommendation was not heeded. The cost of maintaining the army and navy was defrayed by large Government loans, causing the sudden diversion of an unusual amount of capital from the ordinary channels of trade. When, after a policy of hesitancy and delay, duties were doubled in 1812, and internal revenue and direct taxes were imposed in 1813, it was found that the business of the country had so diminished that the collections of revenue were disappointing. There was so decided a change in the proportion be- tween the receipts and expenditures of the Govern- ment that it could not fail to exercise a destructive effect upon business. Prior to 1812, in every year, with the single exception of 1792, receipts had ex- ceeded expenditures.* From a situation in which the receipts were double the expenditures, there was an abrupt change to one in which the expenditures were double the receipts. At no time until the Civil War was there so disproportionate an excess of expenses over revenue as in the three years 1812, * American Almanac, 1880, pp. 64-69. Loans are not in- cluded in receipts nor interest in expenditures. ACCOUNT OF CRISES IN THE UNITED STATES 2Y5 1813, and 1814. In its effect upon the financial condition of the country this disproportion was much worse than in the Civil War, because there was less facility in obtaining loans. 2. The great increase in the number of banks, attended by an unhealthy augmentation in the quan- tity of circulation and in the amount of discounts. The charter of the old United States Bank had expired in the year 1811. State banks took its place. Many of them commenced business without adequate capital, and issued currency without suffi- cient security. If we look for any development in the period preceding 1814, marking, as is usually the case pre- ceding crises, an advancing step in material progress, there is little to be found. There was some growth of manufactures. By reason of the Embargo and Non-Intercourse Acts and the war, foreign com- merce, and consequently foreign supply, had been greatly curtailed. This gave a great stimulus to domestic manufactures. Their products were sold, however, under unusual conditions and at very high prices, so that the manufacturing development of this period cannot be called, a normal one. Crisis of 1818-19 Airo Events leading Theeeto This crisis may be said to have commenced at the end of October, 1818. The restriction caused by the embargo and by the war was succeeded by an unnatural expansion in trade. From less than $20,000,000 of foreign commerce in the year end- 276 CRISES AND DEPRESSIONS ing September 30, 1814, the amount increased to over $152,000,000 in that ending September 30, 1815, and over $194,000,000 in that ending Septem- ber 30, 1816. In each of these three years the value of imports was about twice that of exports. It would hardly be necessary to go outside of this very unusual change to ascertain the cause of the crisis; but there were aggravating features of a very serious nature. Paper money in 1815 in different localities and different months of the year was depreciated from 20 to 50 per cent, and, until the year 1817, in- creased in quantity. This increase, however, was so palpably unsound that a radical change in policy was made and the quantity was suddenly restricted. The bank circulation, which had reached $110,000,- 000 in 1815 and 1816, fell to $65,000,000 in 1819.* The new United States Bank, which was granted a charter by the Act of April 10, 1816, and com- menced operations later, at first issued a large quan- tity of bills, but afterward, in order to secure safety, made a vital change, and restricted its issues very rapidly. Thus, while bank issues at first promoted speculation and a rise in prices, at a later time their restriction caused a ruinous fall in prices. In no epoch of the century is it probable that the fall in prices of commodities and real estate was so marked as in 1818— '19. Labour also was without employment, except at starvation wages. Inci- dental to expansion of credits and speculative enter- * Albert BoUes, Financial History of the United States, vol. ii, p. 339. ACCOUNT OP CRISES IN THE UNITED STATES 277 prises tliere had been, of course, a great increase of luxury and waste. A committee of the Senate of the State of Pennsylvania in making a report in 1819, and tracing the difficulty to the expansion of banking in 1814 and subsequent years, said: " In consequence of this most destructive meas- ure, the inclination of a large part of the people — created by past prosperity — to live by speculation and not by labour has greatly increased, a spirit in all respects akin to gambling prevailed, and a fic- titious value was given to all kinds of property. Specie was driven from circulation as if by given con- sent, and all effort to restrict society to its natural conditions was treated with undisguised contempt." These two crises supplement each other, but are strikingly in contrast. There was a brief season of great activity between them, but no real or per- manent prosperity. The difference between them is sharply defined. In 1814 and prior thereto, there was an expansion of currency and a contrac- tion of commerce and industry. In 1818 and prior thereto, there was first an expansion, then a con- traction of currency, and an expansion of commerce and industry. At no time in our history were the destructive influences of radical changes in fiscal and economic policies more keenly felt than at the time of these two crises. They were contempora- neous with disturbances abroad. It would, how- ever, be incorrect to regard them as caused or gov- erned by movements prevailing in other commercial nations. While, no doubt, the distress was inten- sified by conditions in Europe, they were, neverthe- 278 CRISES AND DEPRESSIONS less, distinctively local and dependent upon causes existing in our own country. In 1815, with the close of the Napoleonic wars in Europe and the war with Great Britain, com- menced a new commercial and industrial era, which was world-wide in its influence. The preceding quarter of a century had been marked by almost constant war, involving the larger part of Europe, and for a much longer time there had been frequent contests among the nations. The succeeding period, with slight interruptions, was one of peace. A new and greater development commenced. For a few years, both in Europe and America, there was a time of waiting, necessary for recovery from the exhaustion of war. Steady improvement may be said to date from the year 1819. The Peeiod from 1819 to 1837 During this period there were frequent disturb- ances, but no crises of the same severity as those of the preceding or succeeding periods. In 1824 there was much activity in the formation of new enter- prises and in the re-establishment of banks which had failed. The crisis of December, 1825, in Europe, caused a reaction and diminished demand for our products, and consequently lower prices in 1826. There was a stringency in the money-market in the autumn of the years 1828 and 1831. But these were mere temporary interruptions in an onward movement, which were not different in kind from those which occurred between the close of the ACCOUNT OP CRISES IN THE UNITED STATES 279 war in 1865 and the crisis of September, 1873. This period, from 1819 to 1837, was the first which displayed in this country the distinctive features which preceded the crises of 1873 and 1893. It afforded an illustration of gradual growth, expan- sion, and collapse. The movement was particularly marked from 1831 to 1837, and most active from 1834 to 1837. The eighteen years preceding the crisis of 1837 may be described as an era of internal improve- ments. The construction of numerous canals was begun. Many of them far exceeded in cost any public or private enterprise undertaken, or even pro- jected, before this period.* Railway building was commenced in 1828. There was a constant move- ment to the westward resulting in the settlement of large tracts of land in Ohio and beyond, and causing a large increase in agricultural production. Other developments were the beginning of immigration of a magnitude sufficient to promote the more rapid development of the country, and the negotiation of foreign loans on a large scale. Withal, the most conspicuous feature of the period was the growth in transportation facilities. Development in trans- portation assumes an exceptional importance in a country having the large area and variety of re- * The Erie Canal was commenced on July 4, 1817, and opened for traffic November 4, 1825. While this great public work was the most useful of all our canals, its entire cost of con- struction, from 1817 to 1836, amounting to $7,143,789, was but a small fraction of the total expenditure for canals in Ohio, Pennsylvania, New Jersey, Illinois, and other States. 280 CRISES AND DEPRESSIONS sources, widely scattered, wliich belong to the United States. The influence of foreign loans is shown by the fact that while imports of merchandise exceeded ex- ports from 1831 to 183Y, inclusive, imports of spe- cie also, duriug all of this period, largely exceeded exports. In 1834 exports of coin and bullion amounted to $400,500, while imports of the same reached the total of $16,235,374. The Ceisis of 1837 Towards the close of this unequalled season of industrial and commercial growth, came the usual results, the excesses which cause waste and loss. Along with necessary railways and canals there was a multitude of enterprises in advance of the demand. There were others which were useless. Speculative operations attained a volume not known before. Numerous influences, flnancial and political, aggra- vated the difficulties. Among them was the refusal to extend the charter of the United States Bank, and its consequent withdrawal from business. This caused a radical change in the banking business of the country. The withdrawal of the public deposits and their lodgment with numerous State banks, familiarly known at the time as the " pet banks," increased opportunities for extending credit, and furnished the foundation for injudicious enterprises. The distribution of the surplus revenue among the States had the same effect. These events illustrate the danger which results whenever an tmexpected ACCOUNT OF CEISES IN THE UNITED STATES 281 or unusual amount of money is added to the circula- tion. Vicious banking and currency played a part almost as important as in 1814 and 1818.* The actual outbreak of the crisis may be located in the month of May, or the earlier months of 1837. The crisis of 1837, or panic, as it is more fre- quently called, has been referred to as a great calamity. Doubtless it brought keen distress to many individuals and witnessed the failure of many enterprises, but the preceding period marked the commencement, under entirely new conditions, of the industrial and commercial growth of the United States. There was not only a steady increase in population and foreign trade, but domestic com- merce and wealth nearly doubled in the eighteen years from 1819 to 1837. Canals costing $100,- 000,000 were commenced or finished. Abundant mineral and agricultural products of the country, which had been unavailable by reason of lack of transportation facilities, were made available for distribution throughout the country and for ship- ment abroad. A great increase in useful articles and supplies at home coincided with the growth of wealth and an increase of demands abroad. Many of the methods of transacting business had been crude, and showed the effects of the limitations which belonged to an earlier and less progressive period; but under the stimulus of the time, these * The crisis of 1837 was aggravated by the high price of wheat and other products which this country had exported in large quantities, but which at this time were imported by reason of deficient harvests. 282 CRISES AND DEPRESSIONS methods were changed and a new impetus was given to the material growth of the country. This period witnessed the beginning of great cities like Chicago, which before that day were not known. The great agricultural States of the Middle West assumed that importance which assured their future growth and prominence as great commonwealths. It would be expected that such rapid development would be attended by excess and loss. That increase of en- terprise which was normal and represented increas- ing wealth was attended by speculation everywhere. The transportation facilities which brought great areas of land nearer to the seaboard and to wider markets, led to the purchase, at speculative values, of other lands still more remote. Instances were not lacking in which lots in cities and farms were quoted, and even sold, at higher prices than have been realized for them from that day to this. Although the calamity was sharp, nevertheless the overaction and speculation were but incidents of our superabundant vitality and growth, such as are sure to attend rapid development. The Peeiod feom 1837 to 1857 A period of depression followed the crisis of 1837. Liquidation was necessary, and there were many failures. The buoyancy of the time was such that an early attempt at revival was made, but in 1839 there was again a reaction and a multitude of fail- ures. The great inflation of the currency and the effects of excessive enterprise were not yet remedied. ACCOUNT OF CRISES IN THE UNITED STATES 283 The situation was greatly aggravated by the suspen- sion of the United States Bank and other banks. Bank failures were even more numerous than in 1837. In the summer of 1843 the end of the de- pression may be said to have been reached. In 1848 there was again a maximum of discounts and a great falling off in specie, but there was no crisis to be compared with those of 1837 and 1857. The crises occurring in Europe in 1847 exercised little influ- ence here, for scanty food supplies there caused ex- portations to be very large. In this way any unfa- vourable effects were neutralized. The war with Mexico, from 1846 to 1848, had some effect in checking enterprise and that forward movement which would lead to a crisis. Its effect upon business was certainly slight. The discoveries of gold in 1848 and 1849 afforded new resources and a new field for investment, thus tending to pre- vent the depression which otherwise might have occurred. The Crimean War in 1854-'55 caused increased demand and prices for American prod- ucts. The years preceding 1857 make up a period of remarkable growth and prosperity marred by inter- mittent checks or disturbances, most of which can be termed financial. A great deal of capital was absorbed in the completion of canals commenced or projected prior to 1837; but in the latter part of the period, activity in the construction of railways suc- ceeded that in canals. Railway building, which in no year preceding 1849 had reached 800 miles, amounted to 8,642 miles in 1856. The increase of 284 CRISES Ain) DEPRESSIONS immigration and tlie growtli of population proceeded in mucli the same ratio as prior to 1837. Defective currency and unstable banking bad a less destructive effect than in the previous period, though still very noticeable. At all times the proportion of specie held by the banks to their loans and circulation was dangerously small, even v^hen the most conserva- tive management veas maintained. Ceisis of 1857 Industry and commerce were much less affected in 1857 than in 1837. The financial disturbance was comparatively more prominent, and the depres- sion of 1857 and succeeding years was less severe and less universal in its effects than the previous one. As distinguished from other crises, the outbreak in 1857 was more sudden. There had been fluctua- tions in prices, with a general downward tendency, but when the crisis came in August, 1857, it was a surprise to many of the most watchful financiers. The immediate signal for its occurrence was the failure of the Ohio Life Insurance and Trust Com- pany on the 24th of August, 1857. Special Featuees of Ceises and Depeessions is THE United States in 1857 and Peeceding Yeaes There were decided differences between the crises and depressions occurring in the United States in 1857 and prior thereto and those occur- ring contemporaneously in Europe. Disturbances ACCOUNT OP CRISES IN THE UNITED STATES 285 occurred more frequently. There was not tlie same steady upward movement in activity, followed by crises and a downward movement. It is obvious that there were vital differences in conditions. There were some reasons tending to make the dis- tress here less severe. First, there was a smaller quantity of capital available for investment in this country. In European countries the quantity was not only larger, but it was more mobile. In a time of rising prices and promising ventures this capital was made available to promote the upward movement. In the United States the smaller quantity of capital, show- ing its effect in greater rates of interest and greater increase in the rate of interest in times of expansion, tended to check extravagant enterprise, which other- wise might have reached unprecedented proportions. This limitation, as a check upon extravagant enter- prise and waste of resources, was especially notice- able in the earlier part of the century. Except in times of unusual excitement only the most obvious and favourable fields were exploited. Second, we were aided by the great growth of the country, which was stimulated by immigration and the development of great areas of territory, and aided by opportunities for profitable investment, such as those created by the discovery of gold in California. All these afforded increased demands for products, tended to prevent over-production in any line, and limited the effects of overaction. Third, while the banks promoted crises by their instability, yet the warnings given by their frequent 286 CRISES AND DEPRESSIONS failures diminished confidence and the danger from too great a volume of enterprise. The Peeiod feom 1857 to 1873 Attention has already been called to the very large number of failures in the year 1857. The depression which followed the crisis reached its worst point in 1859. There would have been a more pronounced revival in that year but for de- ficient crops. There was a decided improvement in 1860. Exceptional conditions commenced with the war in 1861, which prevented a movement in business uniform with that abroad, and gave a dis- tinctive character to the succeeding period. The great demands incident to the war and the general employment of labour caused by these demands and by the withdrawal of so large a body of men as sol- diers prevented the possibility of depression. The issuance of paper money, which soon depreciated in value, made the payment of debts easier, and tended to prevent bankruptcies. In 1865, with the end of the contest, there was that exhaustion which results from war. For some time the productive energy of the country was busy filling the void. In addition to these influ- ences, it must be said that this great contest, un- fortunate as it was, gave rise to a great and immedi- ate awakening, at least in the Northern States. There was a new birth as a nation. Manufactures, fostered by the adoption of a high protective tariff, had received a great stimulus from the unusual home ACCOUNT OF CRISES IN THE UNITED STATES 287 demand. Agricultural production was increasing rapidly/ The return of much more than a million of men to productive industry seemed to cause no embarrassment. All could find employment. With slight reactions in 1867 and 1869, the onward move- ment continued until 1873. Crisis of 1873 Just as, by a unique distinction. Sir Edward Coke's reports are styled " The Eeports," so the crisis of 1873 may be called " The Crisis." All the phenomena which belong to a crisis period ap- pear at this time more clearly than at any other. The general causes which lead to disturbances were so plain as to eliminate from attention those excep- tional features which are often mistaken for the true causes. There was an enormous absorption of circulating capital in fixed capital. Railways, as well as docks, buildings, and factories, had been con- structed on an unprecedented scale. All the equip- ment for future production was increasing at a more rapid pace than ever before. In these expenditures we have the effect of capital invested for objects not immediately remunerative. The opening up of wide areas of territory in the West for settlement by farmers, while greatly increasing agricultural production, rendered less valuable, in some cases almost useless, very large tracts near to the Atlan- tic seaboard. This illustrates the effect of sup- planting old fields and methods by new. Railroads preceded settlement, while in previous eras they had 288 CRISES AND DEPRESSIONS followed it. The effect of direct waste and loss was plainly visible. Waste and extravagance, greatly stimulated by an inflated currency, were seen on every hand. A different style of living had been adopted everywhere, whether based on increased income or not. Speculation greatly increased; for- eign loans were contracted extravagantly; conser- vatism in business calculation and economy in expenditure were disregarded. The progressive movement was greatly increased by the opening of the Suez Canal, as well as by the progress of inven- tion and the larger scale upon which operations were conducted everywhere. The crisis of 1873 did not come without loud warnings. In the two preceding years, at the autumn season, money was scarce and rates of in- terest were high. On the 2d of October, 1871, bank reserves in New York city exceeded require- ments by only $3,666,943. On the 3d of October, 1872, there was a deficiency in reserves of $1,131,- 436. On the 28th of February, 1873, a deficiency appeared again, and, although there was an increase of reserves in June, rates of interest were high and displayed abnormal fluctuations. There has been much interesting conjecture whether this crisis would have occurred had not Jay Cooke & Co. failed on the 18th day of September, 1873. This conspicuous failure was a mere inci- dent. The outbreak was the result of inevitable tendencies, and was sure to result from the combina- tion of the extravagant and progressive movements of the time. ACCOUNT OF CRISES IN THE UNITED STATES 289 The depression which followed 1873 was severe and unprecedented. It continued in most branches of business until the end of 1878, and in some lines until 1879; but, as after 1837, so after 1873, the people of the United States reached a higher plane of consumption and enjoyment than ever before attained. After 1879, a scale of living which would have amounted to extravagance and waste in 1873 was possible without exhausting the resources of the country. The great investments in railways and other enterprises began to make their effect felt. While many railways were placed in the hands of receivers, they were, nevertheless, an influential factor in the growth of the succeeding period. They were in advance of the demands of the time, but not in advance of the demands of the near fu- ture. They were constructed when prices were at the highest point, and the haste for added mileage caused them to be built at a cost so great as to render a satisfactory return upon the amount in- vested impossible; yet, they were useful in the de- velopment of the country and in making increased production available. The Peeiod feom 1879 to 1890, mcLtrDmo the Ceisis of 1884 There were indications of revival in the year 1877; in some branches of trade the improvement was marked in 1878, nevertheless, this year showed the maximum number and amount of failures after 1873. A substantial and increasing prosperity was 19 290 CRISES AND DEPRESSIONS manifest at the beginning of the year 1879. The opening up of new agricultural fields in the West and E^orthwest, which were well fui'nished with means of transportation, together with favourable years for crops, exerted a powerful influence at the close of this decade. Cotton production, which had languished during the Civil War and for ten years thereafter, showed a tardy increase, but in 1880 reached the same and even greater volume than it had shown in 1860, the maximum year of produc- tipn up to that time. These large products of the farm were contemporaneous with increasing de- mand and, for several years, diminished supply in Europe. There was accordingly another advancing movement beginning in the year 1879, healthy at first, but excessive later. The year 1881 was one of diminished agricul- tural production. The decrease was apparent in wheat, corn, and cotton alike. At the same time prices abroad were lower. There were troublous times at the beginning of 1882. Numerous failures occurred, and the volume of liabilities increased that year, and still more in 1883. In 1882 there was a crisis in France. But in the ^United States the impetus towards prosperity was so strong that the activity continued, but with material abatement in many lines. The year 1882 witnessed the maximum construction of railways up to that time, and the fiscal year ending June 30th, the largest immigra- tion. Many indications of prosperity continued throughout the year 1883. The crisis occurred in May, 1884, the date of ACCOUNT OP CRISES IN THE UNITED STATES 291 the failure of Grant & "Ward in ISTew York, with that of the Metropolitan National Bank and other institutions. The downward movement may be said to have reached its lowest point in 1886. After this there was a season of prosperity not marked throughout by the same rapid advance as after 1878-79, but which continued with some variations in acti-nty until 1890, and, with an interruption at that time, until 1893. A distinction between the decade beginning in 1881 and the previous one is to be noted in the mat- ter of railway construction. In the second decade, while the mileage of railway construction was great- er, it was largely made up of lines constructed in competition with existing lines, as illustrated by the West Shore, which paralleled the New York Central & Hudson River from New York to Buffalo, and the New York, Chicago & St. Louis, which paralleled the Lake Shore & Michigan Southern from Buffalo to Chicago. In this decade also, the great trunk lines were absorbing branch lines and increasing their mileage, and engaged in the construction of branches and connecting lines to all important ter- minal points. The railway construction of this dec- ade, though greater than that of the previous one, cannot be regarded as exerting the same influence in developing new territory, and it is doubtful whether it conferred so great a benefit upon the country as that between 1870 and 1880. 292 CRISES AND DBPEESSIONS The Period eeom 1890 to Date, including the Crisis of 1893 The depression in Europe commenced at the end of the year 1890. A survey of the situation afEords strong arguments that it was due in the United States at the same time. But while the onward movement was checked, the actual crisis was post- poned until 1893. For this there were several reasons: First. As in 1879 and the ensuing year, there was again a deficiency in the food supply of Eu- rope. The exportation of food was particularly noticeable in the fiscal year ending June 30, 1892. Second. It had become established that one feature before and at the outbreak of a crisis in the United States was the withdrawal of foreign loans. This withdrawal did not make its influence felt here until after 1890. The inflation in the currency, which was occasioned by the issue of silver certifi- cates, beginning in June, 1890, for a time relieved the money-market. It must be understood that two demands, of very different natures, cause a scarcity of money; one to satisfy home requirements, the other for remittances abroad. A depreciated cur- rency may satisfy the former, but not the latter which in the long run furnishes the test of the sufficiency of the supply. It is not to be denied that any artificial or unnatural increase of currency, as in the days of greenback inflation, tends to post- pone the coming of a crisis, but renders it more severe when it comes. ACCOUNT OP CRISES IN THE UNITED STATES 293 In 1893 more than in any preceding crisis the situation was aggravated by the withdrawal of for- eign investments. This withdrawal was greatly increased by the distrust of our currency. Foreign investors feared a change from a gold to a silver standard. The actual outbreak of the crisis was in May, 1893. It must be noticed that this crisis was increased in severity by a change in the political control of the country. The threat of radical change in the tariff laws caused wide-spread distrust, and tended to create uncertainty and destroy confidence. This situation illustrates the fact that in causing crises one of the most dangerous factors is a radical change in fiscal or economic policy. Even a threat of such radical change is a potent influence in the same direction. In many respects the crisis of 1893 was followed by distress more severe than that of 1873. There was a more rapid decrease of imports, particularly of articles of luxury. There was a larger number of bank failures; the decrease in deposits and the withdrawal of money from circulation was con- tinued for a longer time. But it cannot be com- pared with that of 1873 in its intensity or in its con- tinuance. In the year 1895 there was a slight revival. This, however, was dissipated in the fol- lowing year, and the uncertainty and excitement of the presidential election of 1896 interposed an abso- lute barrier to any immediate improvement. This presidential election again illustrates the danger which must ensue to business from radi- 294 CRISES AND DEPRESSIONS cal changes of fiscal policy. No nation can pass through a year of doubt as to the standard of value such as that which existed in the presidential elec- tion of 1896 without paralyzing business and in- dustry. The election of 1896 having been decided, there was a period of halting, after which the begin- nings of a revival plainly appeared in June and July, 1897. Then began a healthy increase. The year ending June 30, 1898, was one of trade statistics unparalleled in their favourable aspect. Exports exceeded imports by almost exactly 100 per cent; total foreign trade, barring a slight excess in 1892, was greateir than ever before. While 18Y0 to 1880 may be called a period of agricultural expansion, and 1880 to 1890 one of manufacturing expansion, that beginning in 1890 was characterized by an expansion of both agricul- tural and manufactured products. In this last dec- ade one of the distinctive features was a change from an excess of imports to an excess of exports of Cereal Production.* MAinjFACTnHKS.t Tears. Bushels per capita. Increase per cent over quantity for preceding decade. Years. Capital in- vested. In- crease per cent during decade. Net product. Increase per cent. 1839. . . . 1849.... 1859. . . . 1869.... 1879 36.06 37.40 39.41 35.98 53.78 56.19 40.93 43.84 11.97 94.45 30.44 1850-1860... 1860-1870... 1870-1880... 1880-1890... 89.38 67.80 64.10 120.78 84.11 63.31 40.01 106.59 1889. . . . * Census ol 1890, Statistics of Agriculture, p. 6. f Ibid. Report on Manufacturing Industries, part i, p. 4. ACCOUNT OP CRISES IN THE UNITED STATES 295 manufactures. This change occurred in the fiscal year ending June 30, 1898, in which, for the first time, exports of manufactured products exceeded imports. The figures on the opposite page, derived from the Census of 1890, illustrate the course of events up to 1890. From these statistics it appears that in the de- cade from 1870 to 1880 the quantity of cereal pro- duction, as compared with the net product of manu- factures, increased in the proportion of 94.45 to 40.01, or more than twice as much. On the con- trary, in the decade from 1880 to 1890, the net product of manufactures, as compared with the quantity of cereal production, increased in the pro- portion of 106.59 to 30.44, or three and a half times as much.* There was an even greater increase in the capital invested in manufactures, which, between 1880 and 1890, increased 120.78 per cent. It has already been stated that the year of greatest proportion of exports to imports has pre- ceded the most notable season of prosperity. After June 30, 1898, the proportion of exports to imports declined somewhat, but an even more prosperous period followed. While prices of iron and steel showed a rise in the summer of 1897, the great in- crease did not begin until the year 1899. * By reason of the different years selected in the Census Reports, it is impossible to make an exact comparison by years. The statistics of cereal production are taken as of 1879 and 1889, while those of manufactures are taken as of 1880 and 1890. It is assumed, however, that the comparison is substantially correct. 296 CRISES AND DEPRESSIONS The years following July 1, 1897, show signs of a larger degree of prosperity and expansion, at- tended by more distinct indications of the assump- tion of a higher place in the world's trade and pro- duction than have ever appeared in any country. There is a natural interest in conjectures upon the duration of this period. The Present Outlook Without attempting to forecast the probable date of the next crisis or depression, it will be inter- esting to give with some detail the indications which point respectively towards or away from such an event. While conditions at the time of the occur- rence of each of the latest crises have materially dif- fered from those of the preceding, differences in conditions at the beginning of the twentieth century are even greater. This renders prediction corre- spondingly more difficult. As a preliminary state- ment, it may be said that the possession of great wealth is not a reason why a crisis should not occur. On the contrary, the possession of great resources, or even of an abundance of available money, is one of the provoking causes of crises. This has been frequently pointed out in these pages. Among indications at the present time looking to the approach of a crisis or a depression may be named the following: 1. There has never been a time in any country when that speculative movement which is aroused by a period of prosperity and shows itself in the ACCOUNT OP CRISES IN THE UNITED STATES 297 floating of securities at many times the actual present value of the property they represent, was so noticeable as now. We have passed the time when the stock and bonds of industrial corporations are counted by thousands or millions; a billion is not an unknown figure. In this large capitalization there is a great difference between the nominal value of stocks and bonds and the actual value of the property they represent. It is a serious question whether the earning capacity of these corporations is such as to pay a return upon the inflated prices at which their securities have been taken by the investing public. The failure of one of them might at any time cause a crisis and impose a check even upon the most advantageous enterprises. 2. While speculative enterprises and the devel- opment of untried fields do not constitute so large a part of the prevailing activity as was the case prior to 1873 and 1882-'84, new undertakings have been inaugurated upon a colossal scale. In the absorp- tion of capital for increase of production or future profits, conditions are quite the same as have ex- isted before every previous depression. 3. If we consider the prices of iron and steel, which have furnished the best barometer in the past, we are in the fluctuating period. Prior to each of the recent depressions, iron has passed a maximum of price and then has fallen or fluctuated for a time before the occurrence of a crisis. This fluc- tuating period seems to have commenced at the end of the year 1899. It commenced about one year prior to the crisis of 1873, four years prior to 298 CRISES AND DEPRESSIONS the crisis of 1884, and three years prior to the crisis of 1893. It appears also that the consumption of pig-iron in the year 1900 fell off from that of 1899, though the production did not.* In the first six months of the year 1901, however, consumption exceeded production, while the latter was well main- tained. 4. That absence of equilibrium between dif- ferent kinds of production, which is a precursor of a depression, has manifested itself in certain branches, most notably in the manufacture of tex- tiles, in which there has been over-production, and as a result there has been a decrease of activity and profit in them. 5. There are not lacking distinct indications of diminished activity and purchasing power in other countries with which we have extended com- mercial relations and upon whose prosperity our own, in great measure, depends. The crisis of 1893 in this country occurred two and one half years after diminished activity in European coun- tries clearly indicated the beginning of depression there. Among the indications, on the other hand, that a depression is not impending, may be named the fol- lowing: * See a communication from Mr. James M. Swank in Tiie Bulletin of the American Iron and Steel Association for Febru- ary 23, 1901, p. 30. He estimates the consumption for 1899 at 13,799,442; for 1900 at 13,177,281, a decrease of 602,161 tons. After accounting for the increased exports of 1900, he estimates the diminished consumption for strictly home use at 900,000 tons. ACCOUNT OF CRISES IN THE UNITED STATES 299 1. Tliere is a vital distinction between indus- trial operations at this time and those in the periods preceding previous depressions. This distinction may be expressed in a word by saying that in pre- vious instances the greater part of the activity was in new construction; now it is in the extension or improvement of the old. Railway building in the construction of new roads has almost reached a standstill; yet, in volume, the sales of steel rails and railway material compare favourably with those of former years of activity. Prior to 1873 and 1884 thousand of miles of railroads were building. The most of these railways were through undeveloped territory, as illustrated prior to 1873, or in compe- tition with existing lines, as illustrated prior to 1884. !N^ow steel rails are being substituted for iron upon existing lines, or heavier steel rails for lighter. Pressed-steel cars are taking the place of those con- structed of wood; substantial embankments take the place of trestles. Upon railways, as well as upon highways, wooden bridges are giving way to those which are made of steel. Instead of construction preceding demand, demand precedes construction. New furnaces and rolling-mills are not now being constructed in such numbers as on former occasions, but those in existence are being remodeled or pro- vided with increased capacity. In mineral produc- tion, instead of investments in mines of doubtful profit or productive capacity, capital is employed in working those which have been found to yield abundant return. Much of the gold and silver min- ing, the profits of which formerly depended upon 300 CRISES AND DEPRESSIONS many contingencies, is conducted in pursuance of careful calculation. Before previous crises there was preparation for untried business or manufacturing, which was ac- companied by elements of uncertainty and experi- ment. Now capital is expended for the better transaction of existing business or for improved methods in manufacturing. It promises a more assured and, in most instances, a quicker return. It is plain that the latter condition has fewer dan- gerous features than the former. Many of the former enterprises were in unexplored fields; a larger share of those of the present are in fields which have been exploited and found to be profit- able.* 2. Our excellent financial condition. The money-market has experienced several extremely severe shocks, pronounced enough to cause a crisis in earlier years, and yet has recovered itself. In the autumn of 1899 the reserves were dangerously low in the banks of New York city, and the finan- cial situation seemed as threatening as before the crisis of 1873. Money on call rose to an unusual figure. In the speculations of the month of May, 1901, losses in the stock-market occurred surpass- ing any previously chronicled. Bankruptcies have * It will be noticed that the conditions referred to in this paragraph differ widely from those referred to at the beginning of the statement of unfavourable indications. The danger there referred to is the inflation in the price of securities, which represent capital. This paragraph refers to the smaller amount of waste and the more assured results in the use of capital. ACCOUNT OP CRISES IN THE UNITED STATES 301 occurred, and revelations of business mismanage- ment and dishonesty have been made, such as usu- ally interpose a check upon enterprise, without ap- parently disturbing the forward movement. Our additional command over the world's trade and our enlarged financial operations make it possi- ble in case of stringency to obtain remittances from abroad more easily. Large balances abroad furnish a valuable reserve upon which to draw in case of danger. The dangerous feature present in the time pre- ceding every crisis for half a century — viz., the withdrawal of foreign capital — is happily lacking, for the amount of indebtedness abroad has so greatly diminished as to be no longer a serious disturbing influence, and our reliance upon foreign capital for future development has ceased. 3. The monetary system of the country, while by no means perfect, is free both from the presence of irredeemable paper currency, such as was in cir- culation in 1873, and the silver inflation of 1893. 4. The very consolidation of great enterprises under the control of a more limited number of or- ganizations makes a decrease of production easier, and helps to diminish that ruinous competition and over-production which operate in every time of crisis. However objectionable this concentration of industry may be from many standpoints, such as diminishing general opportunities for enterprise, fostering monopoly, and throwing men out of em- ployment, it, nevertheless, has its favourable side as regards the probability of a crisis. 302 CRISES AND DEPRESSIONS 5. The sustained increase in railway earnings, the large profits of domestic transportation, and the unusual activity in ship-building, all seem to show an increase in production and the ready sale of products. They afford a distinctly favourable indication. 6. The indications pertaining to foreign trade are favourable; there is neither a marked decrease in the proportion of exports to imports from year to year, nor a sudden decrease, nor is there by any means a continued excess of imports over exports. It is true there is a slight decrease in some kinds of exports, but it does not compare with that which has been apparent prior to crises. The character- istic feature of the present situation is the mainte- nance for four years of an unprecedented propor- tion of exports. The following figures, with the percentages, give the relation of exports to imports, beginning in 1893: * Tears. Exports. Imports. Percentage of exports to imports. 1893 (In millions 847 893 807 883 1,050 1,331 1,337 1,394 1,487 of dollars.) 866 654 731 779 764 616 697 849 833 97.8 1894 136.3 1895 110.3 1896 113.3 1897 137.4 1898 199.8 1899 176 1900 164.1 1901 180.9 From this table it will appear that in the two years from June 30, 1898, to June 30, 1900, the * Statistical Abstract for 1900, p. 83, and Monthly Sum- mary of Commerce and Finance for June, 1901. ACCOUNT OP CRISES IN THE UNITED STATES 303 proportion of exports to imports declined each year as compared with the previous year. In the past year this decline has been interrupted ; but, in order to portray the whole situation fairly, it should be stated that a decrease in the proportion of exports of manufactures occurred, indicating that prices and consumption of this class of commodities were more sustained in this country than elsewhere. The in- crease in the proportion of exports in the year end- ing June 30, 1901, is for the most part explained by the increased export of the products of agriculture. A favourable indication is found in the more minute examination of the articles imported, which displays a large increase in imports of raw material for manufacturing during the last two years. The total value of exports and imports has increased in every year since 1895, and in later years the gain has been unprecedented. Nevertheless, the con- gratulatory opinions which are naturally derived from these remarkable figures cannot be entertained without a feeling of caution. A depression might begin within the borders of a country in which there is a record of surpassing prosperity in its foreign trade, because of overaction at home. And in caus- ing that overaction, a leading factor might be the very abundance of its wealth. To many the appre- hension of a crisis is based upon an idea that so great prosperity as the present is necessarily followed by dangerous reaction, and that the time is approach- ing when another crash is due. In the great mag- nitude and variety of present operations sudden events may occur, such as extensive labour strikes, 304: CRISES AND DEPRESSIONS failures of crops, disastrous failures at home or abroad, which might assume such importance as to change the tide and cause diminished activity. Though an opinion cannot be expressed with cer- tainty, it now seems probable than when a change occurs it will be more like that preceding 1884, when there was an abatement of activity not accom- panied by a severe crisis. The falling off in com- merce and industry will probably be gradual rather than sudden and sharp, as was the case in 1873 and 1893, and with much less abatement of activity. Inceease in the Peoduction of Gold In the present situation, no survey of probable conditions in the future is complete without consid- eration of the effect of the steadily increasing supply of gold, which began with* increased production in the year 1891. An increase in gold, or the metal commonly employed as a basis for currency, has two opposite effects in reference to depressions. It hastens them by furnishing a more ample stock of money and stimulating extravagant undertakings, but it postpones them in so far as it creates greater buoyancy in business and readier ability to meet obligations. The world's business for the first half of the last century increased with a rapidity such that additions to the metallic stock did not keep pace with it; that is, the increased demand for metallic money, occa- sioned by larger transactions and a wider extent of commercial operations, caused the purchasing power of metallic money to increase. A degree of hardship ACCOUNT OF CRISES IN THE UNITED STATES 305 was thus imposed upon debtors. Beginning with the great gold discoveries in 1848 and 1849 a re- newed impulse to activity was afforded. The an- nual production of gold, however, greatly dimin- ished after 1872, and did not attain its former proportions until 1891. The resulting tendency to lower prices was still further aggravated by the adoption in the leading commercial countries of the single gold standard instead of the bimetallic standard, which latter came to be regarded as im- practicable in any well-regulated monetary system. While this question is not free from doubt, it would seem that the greater production of gold will tend to postpone the approach of a depression and miti- gate its severity when it comes. This greater pro- duction tends to increase prices and to maintain the supply of money required for enlarged commercial and industrial operations. At the same time it con- curs with such rapid improvements in production and distribution that no oppressive or disturbing increase in prices is probable. In fact, cheapen- ing processes are so strongly at work that the gen- eral trend of prices of commodities. is likely to be downward rather than upward, notwithstanding the rapidly increasing stock of gold. 20 CHAPTEE IX STTMMAEY AND CONCLUSION In the preceding chapters, it has been pointed out that crises and periods of depression occur in countries where progressive forces are potent and there is rapid growth. Large accumulations of capital, which render increased enterpnsejpossible, often furmiElhe Basis fo7 them; but their existence is incideiit toXlpirit of enterprisgTnd! rapid growth rather thTn fo gfeaFwealthr The important feature in thcir'Cccurrence is the increasing proportion of expenditures in preparation for increased produc- tion, manifesting itself in the formation and prose- cution of new enterprises and the building on a large scale of railroads, ships, and factories, and the providing^ of other means to. meet increased de- mands. At times these expenditures for increased proSlretion attain an unusual proportion as com- pared with the ordinary expenditures for annual consumption or support. In proportion as expendi- tures_are-SQ-applied, the probability"of seasons of unequal_activitj_an^jrosperrty^is increased. The beginning of a period itrwhieh large amounts of capital are invested in these new enterprises is S06 SUMMARY AND CONCLUSION 307 marked by increased activity. Actuated by the profits which are obtained in such a period, expendi- tures of capital will not stop when provision for sufficient supply of present wants is made, but will continue until the demand is more than supplied. These influences must bring a time when enterprise is overdoneand supply exce'ffds'3einan3^~certainly in numer&us4in€6 of production. ' 'W'lreg:iiiis=»time is reacfiedTpn^Les fall, enterprise -slaefieBay-aadT" as a result of falling prices and diminished employment, a change-must- occur. For a time, the~Tehgth of" which will be determined by the extent of the over- equipment for production and the exhaustion of re- sources, prices will be low and supply will exceed demand; but at the end of this period there is an adjustment under which conditions are better than before, because there will be a larger quantity of the necessities, comforts, and luxuries of life. The same results are caused by that derangement which occurs in a progressive society in consequence of the substitution of new appliances and new methods for those formerly in use. This brings ruin to many, displaces labour, and requires time for ad^ justment to the new situation. By reason of the large profits realized in these seasons of exceptional activity a great deal of specu^ lation and fraud is sure to occur, and these intensify the disturbances of the time. These disturbances have occurred periodically. An examination of the rules which govern indus^ trial and commercial movements will, it is thought, show that this periodicity is not an accident or 308 CRISES AND DEPEESSIONS coincidence, but the result of certain forces, tlie influences of which are easily traced. Its explana- tion can be found in the condition already set forth — namely, that at^inifir-^rals— offline tTie demand for certaAmriEings_ssi^eeds-ihe--sXipply. Whenever this deSiaruTfor increased supplies arises, there is added to the productive energy theretofore ap- plied to meet existing veants, that additional activity which is necessary to supply the new wants. Thus, in different periods the degree of activity is unequal. The periodicity is more apparent, if that for which the greater demand is developed, is something for the increased production of which a considerable time is necessary. A number of influences promote irregularity in the development of these demands and in the movement for supplying them, such as inventions or the discovery of new fields for de- velopment, or unusual accumulations of capital for investment. The effect of these influences is not7~^ and cannot be, equal each year; but they attain that / magnitude or impetus which leads to overaction/ only at longer intervals. It may be conceded that limitations in human judgment and misdirected energy contribute in causing alternate periods of activity and depression; but, after counting, as we must, on these Jjmitations, it is difficiilt_to tell what^jmeans could be devised by which they could be avoided. The~'fempOTary- sh'OESs" designated as panics or crises are more fitful, more dependent upon varying moods and different phases of human nature. They are also more easily prevented and not so inevitable SUMMARY AND CONCLUSION 309 a part of the changing movement of affairs. There is a distinct tendency towards a less degree of severity in them, and they arise more from defects in the industrial or commercial organization and errors of calculation, which time and experience can remove. It would be too much to say that these periods of unequal activity are not calamities, but Nature • herself yields her treasures in unequal portions from year to year, and in an industrial organization, in which human motive plays so large a part, where competition is sharp, and absolute co-operation is impossible, these recurring seasons of prosperity and depression seem inevitable. Their disturbing effect can be greatly diminished by legislative recognition of economic laws and by wise regulations as to cur- rency; also by higher standards of education and consequently greater wisdom in the direction of in- dividual effort. Notwithstanding the exaggerated ideas of calamity which are expressed on the occasion of crises and depressions, there is no room for the pes- simist in our modern business life. As M. Clement Juglar says: " The regular development of the riches of nations does not take place without suffering or without resistance. During crises everything is arrested for a time; the social organization seems to be paralyzed ; but it is only a passing torpor, prelude of grander destinies." * * Des Crises Commerciales, title-page and p. 555, edition of 1889. 310 CRISES AND DBPKBSSIONS ) These periods have occurred and brought bank- ruptcy and ruin to many, have thrown multitudes out of employment, and caused the necessity for charity to aid those who are willing to work; but in every instance they have been followed by enlarged supplies of things which are useful and augmented opportunities for human enjoyment. We may be sure that such depressions as may hereafter occur will be but temporary checks in the great forward movement. Our aim should be to establish such a degree of steadiness in out business growth, and such standards of wisdom and honesty as will re- duce their effects to a minimum. APPENDIX A A Selection of Opinions as to the Causes of Crises and Depressions * Walter Bagehot " Much has been written on panics and manias, much more than with the most outstretched intellect we are able to follow or conceive; but one thing is certain, that at particular times a great many stupid people have a great deal of stupid money. Saving people have often only the faculty of sav- ing; they accumulate ably, and contemplate their accumulations with approbation, but what to do with them they do not know. Aristotle, who was not in trade, imagined that money is barren; and barren it is to quiet ladies, rural clergymen, and country misers. Several economists have plans for preventing improvident speculation. One would abolish Peel's Act and substitute one-pound notes; another would retain Peel's Act and make the call- ing for one-pound notes a capital crime; but our scheme is not to allow any man to have a hundred pounds who cannot prove to the satisfaction of the Lord Chancellor that he knows what to do with a hundred pounds. The want of this easy precaution allows the accumulation of wealth in the hands of * In the following opinions the exact language of the writer has not in all cases been followed. In order to secure brevity or to omit matter not immediately pertaining to causes, some of them have been epitomized, 311 312 CRISES AND DEPEESSIOKS rectors, authors, grandmothers, who have no knowl- edge of business, and no idea except that their money now produces nothing, and ought and must be forced immediately to produce something. ' I wish,' said one of this class, ' for the largest imme- diate income, and I am therefore naturally disposed to purchase an advowson.' At intervals, from causes which are not to the present purpose, the money from these people — the blind capital, as we call it, of the country — is particularly large and craving; it seeks for some one to devour it, and there is ' plethora ' ; it finds some one, and there is ' specu- lation '; it is devoured, and there is ' panic' " * David Macphekson Distress in 1793 " Of the wealth accumulated in nine peaceful years of successful commerce a very considerable proportion was invested in machinery and inland navigations, objects which, though generally very productive in due time, require a very heavy ad- vance of capital and depend for their productive- ness entirely upon the general prosperity of the trade of the country. At this time also the con- cerns of both merchants and manufacturers were much more widely extended and were much greater than at any former period, a natural effect of in- creasing prosperity, and sometimes a cause of en- suing calamity." f * Essay on Edward Gibbon. Collected Works, Travelers' Insurance Company's edition, vol. ii, p. 3. f Annals of Commerce, 1805, vol. iv, pp. 265-266. APPENDIX A 313 W. Stanley Jevons " The remote cause of these commercial tides has not been so well ascertained. It seems to lie in the varying proportion which the capital devoted to permanent and remote investment hears to that which is but temporarily invested soon to reproduce itself." * Horace White " The antecedents of the crisis of 1873 were identical with every other commercial crisis — namely, speculation, the act of buying with a view to selling at a higher price, and overtrading, or the act of buying and selling too much on a given capi- tal. Most commonly these two elements are ac- companied by two others — viz., the destruction or loss of previously accumulated capital, and the rapid conversion of circulating into fixed capital. Specu- lation and destruction of capital usually go together in preparing the way for a crisis." f BoNAMT Price 1. " What is it that makes a crisis? You will never understand unless you go to the root of that great word capital. The word capital consecrated to the great fact that the workman must have tools, living, shelter, and clothes while working. There is a division of labour and employments. There are the makers of goods and the traders who put the * Investigations in Cnrrency and Finance, pp. 37-28. t Fortnightly Review, vol, xxv, p. 819. 314 CRISES AND DEPRESSIONS goods where they are to be used. The latter in- cludes shipping, railways, and canals. The test of capital is that it reappears in the goods made — that it is reproduced. When it is reproduced, when the industrial people have produced as much as they have destroyed, prosperity exists. We make to destroy. " A nation grows rich by increase of capital, by applying their wealth, making machinery, and in- creasing the facilities for production. " !N'atio^_grow_poor by consuming more than they have made, by diminish&ig=4hese"^ngs which keep aKve-indllstry and cause goods to be made. " The^Yeason why ^BXjplendo"notn6uy from the shop-keepers things which they need or desire is not lack of money; it is the lack of some commodity which can be exchanged for money, and then used for the purchase." * 2. " What is the foundation of ill? There have not been bad harvests or innovations in legislation. The cause is simpler and deeper — overspending, overconsuming, destroying more wealth than is re- produced, and its necessary consequence, poverty; like a farmer who destroys not only his surplus produce, but his seed-corn and his supplies for the next year, even if expended upon drainage or some improvement ultimately useful. For an individual this is plain enough, but with a people the complica- tions are so many and so great, and the simple facts are obscured by such a multitude of intricacies, that * Lecture at Chicago, 111., November 9, 1874, Chicago Trib- ane, November 10, 1874. ; APPENDIX A 315 we dp not grasp the vital facts. But a nation ia only in aggregation of individuals." * 3^i " A vast outlay on new enterprises, involving a larre consumption of food and materials, wlietlier in thi^j way of pure waste or temporary unproduc- tiveness, ought always to suggest a feeling of danger. . . . This excess occurs ia seasons of prosperity." f John B. Claek " Before every commercial crisis there is a period during which there takes place very much production that does not cater to normal and per- manent wants, and that, therefore, cannot con- tinue. " Much production needs to be checked, and it is checked by the harsh operation of the crisis itself. The so-called ' boom ' has deranged business, and the ensuing depression is a time of painful readjust- ment and recuperation. It is a time of convales- cence from the disease that is rudely described as an excess of production, and that really is an excess of some kinds of production and a deficiency of other kinds." t Paul LBEOY-BEAtrLiEU " 1. The very great specialization of production, the division of labour, ... a division which is not alone personal but territorial." * Bankers' Magazine, New York, vol. xxxii, pp. 95-96. f North British Review, vol. liii, p. 467. I Introduction to the translation of Karl Bodbertus's work on Overproduction and Crises, 1898, p. 2. 316 CRISES AND DEPRESSIONS " 2. The habitual dependence of prodikction upon consumption, which former is most frequently conducted without orders, with a view to f^iture requirements rather than present, estimated) and conjectured rather than always exactly calculated, a course which permits uncertainty in the regu!|arity and non-interruption of the market. " 3. The active role of speculation and of a credit which stretches the economic springs some- times to the extreme, and at certain moments, in drawing from them the maximum effect, renders them more and more impressionable and fragile. Every perfect machine is more delicate than a crude machine. Every machine moving at a great pace and at the maximum of its speed runs the risk of derangement and of stopping suddenly at an ob- stacle which would barely slacken the course of a machine less complicated and operated with more prudence. " 4. Fundamental variations in money, wheth- er metallic or representative of forced circula- tion. " 5. Very profound modifications and very sud- den results accomplished in the principal branches of production, particularly following great techni- cal progress effected upon one point or another. The sudden and permanent increase, and in consid- erable proportions, of certain categories of products, of a nature such that the habitual proportions be- tween offer and demand are suddenly very much modified. " Of these five causes of crises, the first four APPENDIX A 317 concern particularly those which are called commer- cial, the fifth relates to general economic crises." * Leone Levi " 11 the predisposing cause of the different crises is considered, it will be seen that there has been a rash spirit of adventure created under the influence of successful operations and large accu- mulations of capital. The issuance of notes is usually subsequent to, and not antecedent to, the occurrence of the crisis. The main cause for the occurrence of crises is the sudden realization of an insufficiency of capital to meet present demands." f J. E. Thoeold Eogees 1. The cause exists in the function of ex- change, in the expectation of unreasonable profits, and in incorrect calculation.:): 2. " A commercial crisis is the consequence of a miscalculation as to the power of endurance which capital possesses in waiting for and thereby con- trolling the market." * EOBEET GlFFEN 1. " The explanation is the condition of prices for many years past. . . . Usually a great depres- sion succeeds a great period of inflation. ... A * Traite d'lfeeonomie Politique, vol. iv, pp. 407-408. See, for a fuller statement of his views. Chapter IV, supra, pp. 134-125. f Bankers' Magazine, London, vol. xxxviii, p. 316. j Princeton Review, vol. Iv, pp. 311 ei seq. * Ibid., p. 319. 318 CRISES AND DEPRESSIONS fall of prices, as already stated, is a usual feature In every depressed period, and accentuates and very largely creates the depression." * 2. " It Is clearly unnecessary to assign any other cause for the gloom of the last year or two. Given a fall of prices like what Is here described, arising from any external cause whatever, depression must ensue." f 3. " The question of low prices themselves, their origin and probable continuance, and the various consequences that may ensue, thus becomes In turn, in my opinion, the question of most Interest arising out of the present depression." :]: Martin Van Bueen " Our present condition is chiefly to be at- tributed to an overaction in all departments of business, an overaction deriving, perhaps. Its first impulse from antecedent causes, but stimulated to its destructive consequences by excessive issues of bank paper and by other facilities for the acquisition and enlargement of credit." * Prospective Review Crisis of 1847 "Two causes: First, the failure of crops; sec- ond, a sudden and extensive withdrawal of capital from the ordinary reproductive branches of in- * Contemporary Review, vol. xlvii, p. 806. t Ibid., p. 808. i Ibid., p. 809. * Message, Special Session, September 4, 1837, Messages and Papers of the Presidents, vol. iii, p. 325. APPENDIX A 319 dustry, to be embarked in undertakings immediately unproductive, althougb of greater or less ultimate utility. The inducement has been the expectation of extraordinary profits." * Bankees' Magazine, London Crisis ot 1857 " First, American system of granting too long credits; second, too rapid extension of our banking system, arising out of gold discoveries in California; third, undue development of our railway system; fourth, war in Europe, diverting European capital to the Black Sea; fifth, frauds and peculations which, by shattering confidence, have precipitated the contraction of credits." f Albert Gtallatin and Othees, eepeesentinq Banks oe New Yoek City Crisis of 1837 in the United States " The immediate causes which thus compelled the banks of the city of ]^ew York to suspend specie payments on the 10th of May last are well known. The simultaneous withdrawing of the large public deposits and of excessive foreign credits, combined with the great and unexpected fall in the price of the principal article of our exports, with an import of corn and breadstuffs such as had never before occurred, and with the consequent inability of the country, particularly of the Southwestern States, to * Vol. iv, p. 153. t Vol. XV, p. 388., 320 CRISES AND DEPRESSIONS make the usual and expected remittances, did at one and the same time fall principally and necessarily on the greatest commercial emporium of the Union." * Matthew Maeshall " A more complete and philosophical solution of the problem is found, it seems to me, in the consti- tution of human nature itself, which bears with im- patience the dulness of a monotonous level, and rapidly passes from one extreme to another. En- thusiasm and despondency are equally epidemic. When prices are rising and profits, even when only on paper, roll up rapidly, everybody is eager to buy. But when, after this eagerness has evaporated and suspicion succeeds to confidence, the current turns the other way, everybody desires to sell, prices fall, and, until the remembrance of the losses thus incurred is obliterated by time, nobody is willing to make fresh ventures." f N. C. Feedeeiksen " It is not the policy of the leading banks which provokes the crises. Issues of notes and other acts of the banks can aggravate or alleviate them. . . . They have taken place under all kinds of bank- ing policy. " 'Sot is it simply the character of the harvests. Good crops have helped to improve the times, and bad harvests have accelerated the eruptions. . . . * Report of December 15, 1837. See Bankers' Magazine, Kew York, vol. xiv, pp. 781-783. f Engineering Magazine, vol. v, p. 415. APPENDIX A 321 " It is not wortli while to dwell here upon the impossibility of general over-production. There is only a question of wrong production in certain branches. ... It is hardly correct to say that credit is the cause, although crises could not have their present form without it. , . . " The final cause of the movements is not even destruction and new formation of capital and credit, as Clement Juglar has it. . . . " There cannot be any other reason for the whole phenomenon of ups and downs than the ' particu- larity' of the human mind, the waves in human appreciation. Men move together, and many are too apt to act together, to follow in the same waves of mood. . . . But it is not only, as specially de- veloped by Mr. Mills, in the appreciation that gives or retrenches credit, that human mood appears so different and changing in periods. It is also in the appreciation which increases or decreases production and prices. All values are moved by demand and offer, and both depend, to a very great extent, on the human will." * James "Wilsoit 1. " We are now more than ever convinced, both by principle and by facts, that the fluctuating character of the cost of the first and imperative necessities of life is the chief cause of the whole derangement of the monetarial and commercial interests of this great country, which have been * Bankers' Magazine, London, vol. liii, pp. 195-197. 21 322 CRISES AND DEPRESSIONS attended with so much distress, disappointment, and ruin." * 2. " It is not to high prices or to low prices that we attribute the evils complained of, but to a con- stant and incessant changeableness, to periodical fluctuations, to a series of years of great cheapness, followed by years of very high prices." f James A. Lawson " The cause is to be attributed to a sudden check given to an extensive and long-continued trad- ing upon credit." X Bankers' Magazine, London " It is a question whether these periodically recurring difficulties are not the natural and inevi- table results of causes which no human power of penetration can foresee and no amount of sagacity prevent. ... In considering recent panics, we should examine whether there was not during and immediately preceding each of those years a large absorption of capital on objects either wholly unpro- ductive, as war or famine, or not immediately pro- ductive, as railways and other kindred specula- tions." * H. T. Easton " In times of prosperity credit is abused, and by this means the trader incurs liabilities which he is * Fluctuations of Currency, Commerce, and Manufactures, 1840, Introduction, p. iv. t Ibid., p. 17. X Bankers' Magazine, London, vol. viii, p. 417. * Vol. xviii, p. 5. APPENDIX A 323 unable to meet. This leads to a crisis, and then it is found that capital, not income, has been spent. Capital is sunk in all kinds of undertakings, and can- not be reproduced for many years. In the various crises some of the banks had lent money upon mills, railways, docks, mines, and machinery, instead of upon bills representing trade transactions." * Chaeles a. Conant " The salient feature of nearly every crisis has been the sinking of capital in unproductive enter- prises. These enterprises have usually been in new fields, whose limitations have not been accurately measured by investors, or even by capitalists of pre- sumed judgment and experience. The opening of such a field has been followed by a rush in that direction which has quickly exhausted all its possi- bilities, and resulted in overproduction and the loss of the capital invested. New discoveries and the opening of new continents have contributed greatly to these mistakes during the modern commercial age." f Henky C. Cakey 1. " The tendency towards crises is always in the direct ratio of the distance of consumers from pro- ducers." X 2. " We have had three periods of protection, closing in 181Y, 1834, and 1847, each and all of them leaving the country in a state of the highest pros- * Banks and Banking, 1896, p. 97. t History of Modern Banks of Issue, p. 461. J Financial Crises, their Causes and Effects, 1864, p. 5. 324 CRISES AND DEPRESSIONS perity. . . . We have had three periods of that system which looks to the destruction of domestic commerce, and is called free trade. . . . Each and all of them having led to crises such as you have so well described— to wit, in 1822, 1842, and 185Y. In each and every case they have left the country in a state of paralysis similar to that which now ex- ists." * 3. " The necessity for the contraction of debt exists throughout the world in the ratio of the adoption of the free-trade system. The greater the necessity for the contraction of debt, the greater is the liability to the recurrence of commercial crises." f Alexander Baking, Loed Ashbueton " But this is in fact only the return of an ex- actly similar calamity which we sujBfered under in 1825, and from the same immediate cause — the sud- den transition, then, through the mistaken opera- tions of the bank, but now through the operations of the law, from a period of great abundance by bank accommodation to another of severe dearth and restriction." jf. KoBEET Baxter " A provision should be made for such a con- tingency as a panic, so that, when hoarding inter- rupts the necessary flow of currency, a new stream * Financial Crises, their Causes and Effects, 1864, p. 8. t Ibid., p. 14. t The Financial and Commercial Crises Considered, p. 7. ^ APPENDIX A 325 may, under proper safeguard, be created, and the course of business sustained." * ChAKLES COQDELIIT " It is, then, not true that the source of disorder is to be found in the multiplicity of batiks. On the contrary, they act as a check to it. And, in fact, ■where have commercial crises always commenced? In London and in Paris, the localities of banks armed with exclusive privileges. These are their usual seats. There they incubated and thence ex- tended their ravages far and wide." f J. W. GiLBAET " Although it be true that each monetary crisis is in large part produced by a distinct proximate cause, yet the primary cause of each and all is inordinate speculation, begotten of the lust of gold. . . . Men live as they journey at a railroad pace. . . . Covetousness, a maddening desire to bound at once, say from competence to riches, hur- ries the flies into the meshes cunningly woven for them, and the weak become the victims." :j: Edwaed Evekett Crisis of 1857 "HI mistake not, the distress of the year 1857 was produced by an enemy more formidable than * Panic of 1866, with its Lessons on the Currency, p. 38. t Bankers' Magazine, London, vol. x, p. 221. X Principles and Practice of Banking, p. 295. 326 CRISES AND DEPRESSIONS hostile armies; by a pestilence more deadly than fever or plague; by a visitation more destructive than the frosts of Spring or the blights of Summer. I believe that it was caused by a mountain load of Deht. The whole country, individuals and com- munities, trading houses, corporations, towns, cities, States, were labouring under a weight of debt be- neath which the ordinary business relations of the country were, at length, arrested, and the great instrument usually employed for carrying them on, Credit, broken down." * Alfked Kussell Wallace " Depression of trade may be succinctly defined as a wide-spread diminution in the demand for our chief manufactures, both at home and abroad." f M. Clement Juglae " Crises are stated to be a natural reaction which is produced after efforts for increased production, still further increased when it is already pushed to excess." :]: D. "W. Thom " Panics may be broadly stated as due to over- trade, which causes general business to need more than the available capital. This produces general lack of credit. There are, first, panics of circulation, * The Mount Vernon Papers, p. 167. t Bad Times, 1885, p. 13. i Article on Crises Commereiales in Block's Dictionnaire General de la Politique, vol. i, p. 588. APPENDIX A 327 as in 1857, when the steadily increasing circulation doubled in nine years. Or the converse case, a sud- den and proportionate shrinkage of circulation, which would cut down loans and discounts. Sec- ond, a panic of credit, as in 1866, rendering the business world overcautious. Third, a panic of capital, as in 1847, when capital was so locked up in internal improvements as to prove largely useless. Fourth, general tariff changes or changes in legisla- tion. " Good or bad condition of agriculture is a re- tarding or precipitating influence." * M. Maurice Block " The fact that we desire to bring to light, and from which we draw the principal consequences, is the rupture of the equilibrium between agriculture and industry." •)• Edwin Goadby "Every shifting is attended with a dislocation of labour, until a more stable condition is attained. A new invention of any magnitude, chemical or mechanical, involving a new industry, or the modi- fication of an old one, means unsettlement." if William Watt " The sum and substance of the depression of trade may be expressed by saying that the produc- * A Brief History of Panics, pp. 3-6. t Revue des Deux Mondes, mars-aTril, 1879, p. 452. i Prize Essay, 1885, p. 33. 328 CRISES AND DEPRESSIONS tion of great classes of commodities has outstripped the cash demand for tho^e commodities." * J. B. Howe " We may finish the summing up by adding that the principal loss, stated in the fewest possible words, consists in the blind misdirection of energy, enterprise, labour, and capital." f * Prize Essay, p. 69. t Political Economy and the Use of Money, 1878, p. 74. APPENDIX B STATISTICS Employment Statistics, United Kingdom. Percentage employed* 1855. 1856. 1857. 1858. 1859. 1860. Iron Founders 90.0 91.3 90.9 84.0 95.0 97.2 Amalgamated Engineers. . . 96.5 96.8 96.3 90.2 96.6 98.5 All Trade Unions maJcing Returns i Per cent as given Year. Percentage employed. Year. Percentage employed. in the Statistical Abstract, Labour Department. 1860 98.39 1881 96.55 1861 95.73 1883 98.08 1863 93.19 1883 97.77 ■ ■ ■ • 1863 94.36 1884 92.60 .... 1864 97.44 1885 91.03 1865 97.99 1886 90.45 .... 1866 96.90 1887 93.58 91.8 1867 92.66 1888 95.45 95.1 1868 91.49 1889 97.95 97.9 1869 93.58 1890 98.10 97.9 1870 95.68 1891 96.96 96.5 1871 98.19 1893 93.7 1872 98.94 1893 93.5 1873 98.74 1894 93.1 1874 98.34 1895 94.2 1875 97.51 1896 96.6 1876 96.44 1897 96.5 1877 95.56 1898 97.0 1878 93.69 1899 97.6 1879 87.50 1900 97.1 1880 94.07 * statistical Tables and Report on Trade Unions, Fifth K^ort, for 1891, published in 1893, p. 80. t Table III in article by George H. Wood, Journal of Royal Statistical Society for 1899, pp. 645-646; and figures as given 839 330 CRISES AND DEPRESSIONS Statistics, United States. Percentage employed in Massachusetts * 98.56 1890. 97.70 1891. 99.09 98.35 1893. 91.49 The following employment statistics for the States of New York, Pennsylvania,, Massachusetts, and Wisconsin give figures on different bases, show- ing increase or decrease in the number employed from year to year: New Yokk. 66 identical establishments. (From Beport of New York State Labor Bureau.) Pkhnstlvania. 354 identical establishments. (From Annual Beport of Secre- tary of Internal Affairs of Pennsylvania.) Year ending Persons employed. Percent- age of increase. Year. Persons employed. Percent- age of increase. May 31,1891.. " 31,1892.. " 31,1893.. " 31, 1894. . " 31,1895.. June 30, 1896.. " 30, 1897. . " 30, 1898. . " 80,1899.. 18,171 19,395 20,263 15,112 17,233 18,999 17,615 30,797 35,035 " 6.7 4.5 a 35.4 14.3 10.2 a 7.3 18.1 30.4 i893.. 1893.. 1894. . 1895.. 1896. . 1897. . 1898.. 1899.. 136,883 122,378 109,383 137,361 118,092 121,281 137,985 154,422 a'lO.67 010.55 16.44 a 7.38 3.70 13.69 11.99 a Decrease. The above figures were furnished by the Bureau of Labor, through Mr. Carroll D. Wright. by the Statistical Abstract of the Labour Department, Seventh Annual Abstract of Labour Statistics, 1901, p. 76. * Twenty-fourth Annual Report of Labor Statistics, for 1893, State of Massachusetts, issued March, 1894, pp. 128- 139. APPENDIX B 331 MASSAOBUSEnS. (Compiled from Ailnual Statistics of Manu- factures of Massachusetts.) Wisconsin. (Compiled from Biennial Re- ports of the Bureau of Labor and Industrial Sta- tistics of Wisconsin.) Years compared. Number of identi- cal estab- lish- ments. Increase in persons employed. Year. Estab- lish- ments report- mg. Persons em- ployed. 1888-1889.. 1889-1890. . 1890-1891.. 1891-1893.. 1893-1893.. 1893-1894. . 1894-1895.. 1895-1896. . 1896-1897. . 1897-1898. . 1898-1899. . 1,864 3,041 3,745 4,473 4,397 4,093 3,639 4,609 4,695 4,701 4,740 Number 1,771 7,113 4,966 13,515 a 13,034 a 17,470 33,861 a 9,044 8,334 ■ 5,891 33,936 Percent 0.89 3.70 1.73 4.53 o4.36 ffl6.33 9.03 a 2.94 3.73 1.80 10.60 1888.. 1889. . 1890. . 1891.. 1893.. 1893.. 1894. . 1895.. 1896.. 1897. . 1898.. 1898.. 1899.. 1,135 1,373 1,364 1,336 1,331 1,610 1,460 1,368 1,499 1,499 1,4«9 b 9y3 b 993 71,218 80,504 80,880 94,089 90,936 96,540 83,642 85,767 80,051 87,534 96,248 67,514 75,859 a Deciease. h Identical establishments. These figures also were furnished by the Bureau of Labor, through Mr. CarroU D. Wright. KoTE. — It will be noticed that the lack of uniformity ren- ders comparison dif&cult, but several things are clearly appar- ent, namely, the falling off in employment in 1893 and 1894, followed by a temporary rise in 1895, which was again lost in 1896 ; and, most notable of all, the great increase in the number employed in the years 1898 and 1899. Foreign Trade. — Total of exports and imports per capita for the United States, IJnited Eongdom, France, and Belgium from 1868 to 1900 inclusive, and for the German Empire from 1880 to 1900 inclusive, is given on the following page: 332 CRISES AND DEPRESSIONS Year. United States. Year ending June 30th. Great Britain and Ireland. France. Belgium. ^ Jer- any. dollars £ s. d. francs francs m arks 1868 16.63 17 1 3 159 307 1869 17.74 17 4 6 169 318 1870 30.83 17 10 10 153 317 1871 33.48 19 10 1 176 424 1873 34.35 31 6 303 450 1873 38.03 21 4 9 203 491 1874 36.57 30 11 10 198 451 1875 38.33 30 4 202 446 1876 31.93 19 1 11 205 471 1877 33.31 19 6 9 192 463 1878 33.51 18 3 6 198 472 1879 33.38 17 18 3 209 491 1880 38.94 30 4 10 237. 525 ] 37 1881 39.91 19 17 5 324 525 ] 31 1883 37.61 20 7 10 223 501 ] 38 1883 38.03 30 13 2 218 506 ] 42 1884 35.36 19 4 1 199 478 ] 40 1885 33.36 17 16 9 188 435 ] 34 1886 33.49 17 10 195 426 ] 35 1887 83.63 17 11 8 190 447 ] 31 1888 33.38 18 13 3 192 461 ] 35 1889 34.03 19 19 10 209 494 1 47 1890 35.85 19 19 7 311 513 ] 52 1891 37.04 19 14 317 541 ] L47 1893 28.11 18 15 6 199 469 ] 139 1893 25.71 17 14 10 185 468 1 L39 1894 23.36 17 11 10 180 454 ] L34 1895 22.13 17 19 3 184 478 ] 143 1896 23,10 18 14 1 187 500 1 L49 1897 25.44 18 14 3 199 531 1 155 1898 24.64 19 6 306 575 165 1899 25.42 20 1 8 223 623 175 1900 38.84 31 9 218 605 L85 (See diagram, opposite page 145.) APPENDIX B 333 Note. — ^It will be observed that of the countries for which statistics are given three reached a maximum of foreign trade in the year 1873. Prior to that year there had been a rapid increase ; afterward there was a marked decline. The year 1880 showed in all a very great increase over the preceding year, and foreign trade was maintained at high figures for the four years from 1880 to 1883, inclusive. In the ensuing decline a, mini- mum was reached in the years 1885 and 1886. In the following period the maximum was reached in Great Britain in 1889 and 1890; in Germany in 1890, in France and Belgium in 1891, and in the United States in 1893. In each of the European coun- tries the ensuing decline reached its lowest point in 1894, after which year there was a steady increase in all of them until and including 1899, when France and Belgium reached another maximum. It is evident that the last depression in the United States, and also permanent improvement, did not begin until later than in Europe. The figures for the United Kingdom are based upon the total of all exports and imports — gen- eral exports and imports, so called; those for the other countries upon the total of special exports and imports. By special exports are meant those of do- mestic production; by special imports, those retained for domestic consumption. The figures given for the first two countries are obtained from official computations; those for the last three were pre- pared by Mr. Gustavus A. "Weber, of the Bureau of Labor at Washington. While general trade and special trade show substantially the same re- sults, special trade is made the basis of the figures given, except those for the United Kingdom, in which the official computations used are based upon general trade. The figures for 1899 and 1900 in France and Belgium are subject to revision. 334 CRISES AND DBPEBSSIONS Ea^orts and Imports of the United States to and from the United Kingdom, France, and Germany, for the Calendar Years 1896, 1897, 1898, and 1899. A Comparison of their Home and Foreign Valua- tions (French and German valuations for 1898 and 1899 are unofficial) EXPOETS FROM THE UNITED STATES TO — Tlie United Kingdom. France. Germany. 1896 Foreign valuation 106,347,349£ 516,846,116 473,223,899 43,622,217 9.2* 313,747,000 fr. 60,553,171 53,343,571 7,809,600 13.5* 528,304,000 marlffl " " indollars Home valuation " Excess of foreign valuation (1 U (i 125,736,352 113,145,073 12,591,279 11.1* 1897 Foreign valuation 113,041,627£ 549,382,30r 482,695,024 66,687,283 13.8* 437,540,000 fr. 84,445,220 73,665,199 10,780,021 14.6* 652,108,000 marks " " indollars Home valuation " Excess of foreign valuation *( ti (t 155,201,704 136,277,886 18,923,818 13.8* 1898 Foreign valuation 126,062,155£ 612,662,073 538,758,027 73,904,046 13.7* 623,000,000 fr. 120,239,000 80,154,266 40,084,734 49.9* 876,100,000 marits 208,511,800 163,776,623 44,735,177 27.3* " *• in dollars Home valuation " Excess of foreign valuation U It it 1899 Foreign valuation 120,081,188£ 583,594,673 509,926,635 73,668,038 14.4* 400,000,000 fr. 77,200,000 70,107,127 7,092,873 10.1* 893,800,000marka 212,724,400 161.405,852 51,318,548 31.7* indoUars Home valuation " Excess of foreign valuation Totals for four years. Foreign valuation in dollars Home valuation " Excess of foreign valuation 2,262,485,169 2,004,603,585 257,881,584 12.8* 842,437,391 277,270,163 65,167,228 23.5* 702,174,256 574,605,434 127,668,822 22.2* APPENDIX B 335 Imports into the United States from — The United Kingdom. France. Qermany. 180G Foreign valuation " In dollars Home valuation " Excess of foreign valuation 32,035,784£ 155,093,910 134,440,228 21,253,082 15.8 it 234,716,000 fr. 43,369,996 66,094,641 883,260,000markB 91,213,500 98,749,108 12,824',646' ' 28.4 J< 242,102,000 fr. 40,787,260 00,730,081 10,998,305" 42.7 it 2io,ooo,ooo;;fr. 40,503,000 56,719,002 Excess of home valuation, . "'TvT 1807 Foreign valuation 87,983,917£ 184,368,830 159,002,280 25,350,560 15.9 !( 397,394,000 marks " " In dollars Home valuation " Excess of foreign valuation 94,579,772 98,002,278 Excess of home valuation. . 3,482.500 S.6!( 1898 Foreififn valuation 28,534,477£ 138,079,558 111,208,803 27,470,755 24.7 i< 34,975,472£ 100,080,793 142,327,207 27,063,680 19.4 !( 832,000,000 marks 70,860,200 77,070,471 in dollars Home valuation " Excess of foreign valuation Excess of home valuation. . 1809 Foreign valuation 15,216,002 37.6 ;« 330,000,000 fr. 46,648,000 70,404,008 839,371 1.0i< 377,600,000 marks 89,846,000 80,570,339 365,061 " " in dollars Home valuation " Excess of foreign valuation 0.3 ;( 24,860,908 64.5 i« 170,168,261 248,649,032 Totals for four years. Foreign valuation in dollars Home valuation " Excess of foreign valuation 048,713,097 540,978,624 101,734,573 18.0^ 362,488,472 359,070,250 Excess of home valuation. . 73,800,821 iX.Of 0,581,784 1.8X AOGRBOATES — ThREE COUNTRIES FOR FoUR YeARS Exports. Imports. Foreign valuation in dollars Home valuation " Excess of foreign valuation 3,307,096,810 2,860,479,182 460,617,034 16.7 !< 1,177,369,830 1,164.597,802 22,761,908 1.9% 336 CRISES AND DBPEESSIONS Statistics pertaining to Internal Revenue Taxes United States. UuiTKD Kingdom. n ■§.3 if If!! III! Li. S 1868 5.17 4.19 4.79 3.62 3.22 2.75 2.39 2.52 2.59 2.56 2.32 2.32 2.47 2.64 2.79 2.69 2.21 2.00 2.03 2.02 2.07 2.13 2.28 2.28 2.36 2.43 2.17 2.08 2.09 2.05 2.34 3.68 3.89 6,146 6,342 6,574 7,740 8,659 9,633 9,600 9,452 9,902 9,810 10,241 11,103 13,347 14,311 16,952 17,757 18,998 19,185 20,710 23,121 24,680 25,119 27,561 30,478 31,817 34,554 33,334 33,561 35,826 84.423 37,493 36,581 39,330 ""~ss -148 -""-92" + 2, 244" + 2,641 ■ + 2,4ii' + 2,442' + 2,917 + 2,737' -1,220 '+'2',265' -1,403 + 3,070 -912 + 2,749 £430,368,971 434,803,957 444,914,228 465,594,366 482,338,317 513,807,284 543,025,761 571,056,167 579,297,347 570,331,389 578,294,971 578,046,297 576,896,901 585,223,890 601,450.977 612,836,058 628,510,199 631,467.132 629,855,622 629,397,962 636,154,693 645,158.689 669,358,618 698,407.549 710,752,684 712,277,117 706,130,875 690,251,675 709,651,556 700,447,064 729,328,295 758,571,709 788,023,603 1869 1870. . . . 1871. . . . 1872 + 20,680,138 1873. . . . 1874. . . . 1875. . . . 1876 + 31,468,967 +29,218,477 + 28,030,406 1877. . . . 1878. . . . -8,965,958 1879. . . . 1880. . . . 1881.... -248,674 -1,149,396 1882. . . . 1883.... 1884. . . . 1885. . . . 1886. . . . 1887. . . . 1888. . . . -1,611,510 -457,660 1889. . . . 1890. . . . 1891.... 1892. . . . +24,199.924 + 29,048,936 1893.... 1894. . . . 1895. . . . 1896. . . . -6,146,242 -15,879,200 1897. . . . 1898.... 1899. . . . 1900. . . . -9,204,492 +28,881,231 + 29,248,414 + 29,451,894 * In the United States fiscal years ending June 30th, are in- tended. In the United £ingdom the assessment for the income tax is made for the year ending April 5th. Bank Clearances United States. New York Clearing-House. (In millions of dollars.) Ehsi^nd. London Bankers' Clearing-House. (Millions ot pounds.) Values (approx.) of shores sold on N. Y. Stock Exchange. (Millions of dollars.) 1854. . . . 5,750 1855. . . . 5,362 1856. . . . 6,906 1857. . . . 8,333 1858.... 4,756 1859. . . . 6,448 I860.... 7,231 1861.... 5,915 1862. . . . 6,871 1863. . . . 14,867 1864. . . . 24,097 1865. . . . 26,032 1866. . . . 28,717 1867. . . . 28,675 1868. . . . 28,484 1869. . . . 37,407 1870. . . . 27,804 1871. . . . 29,300 1872. . . . 33,844 1873. . . . 35,461 1874. . . . 22,855 1875. . . . 25,061 1876. . . . 21,597 1877. . . . 23,289 1878. . . . 22,508 1879. . . . 25,178 1880. . . . 37,182 1881.... 48,565 1882. . . . 46,552 1883. . . . 40,293 1884. . . . 34,092 1885. . . . 25,250 1886. . . . 33,374 1887. . . . 34,872 1888. . . . 30,868 1889. . . . 34,796 1890. . . . 37,660 1891.... 34,053 1892. . . . 36,279 1893. . . . 34,421 1894. . . . 24,230 1895. . . . 28,264 1896. . . . 29,350 1897. . . . 31,337 1898. . . . 39,853 1899. . . . 57,368 1900. . . . 51,964 Decre&sea er notable IncreaBU. -388 -3,577 + 1,692 -1,316 + 7,996 +9,230 -42 -191 + 8,923 -9,603 -12,606 ' -3,464 '"'-781 + 12,004 + 11.383 -2,013 -6,259 -6,201 -8,842 + 8,124 -4,009 -3,607 -1,858 -10,191 +8,516 + 17,515 -5.404 3,466 3,602 3,905 4,787 5,893 6,182 5,916 5,647 4,959 5,018 5,007 4,959 5,718 6,357 6,221 5,929 5,799 6,511 5,902 6,077 6,942 7,619 7,801 6,848 6,482 6,478 6,337 7,593 7,575 7,491 8,097 9,150 8,960 Decreue§ or noUbla IncresBU. +882 + 1,106 -266 -269 -11 -48 + 759 -136 -306 -130 -953 -366 -4 -141 + 1,256 -18 -84 + 606 + 1,053 -190 DecnasH or noUtile increaiei. 22 8,197 7,689 6,260 5,939 5,479 5,885 4,508 3,539 4,059 3,977 3,812 4,874 4,550 3,094 3,808 3,329 4,973 8,187 13,429 9.249 337 -508 -1,429 -321 -460 -1,377 -969 + 520 -82 -165 + 1,063 -324 -1,456 + 714 -479 + 1,644 + 3,314 +5,342 -4.180 338 CRISES AND DEPKESSIONS "£. •SIttJOl ISglSS?gSS^S§5lgI 0061 '^ : : : * ', « tH 6681 M -< « ^ ; ; • iH e« iH OJ 1-1 iH 1 8681 tH (M ; ; : : : '. -^ o> !68T tH ; ; . iH o ; : "* ^ 9681 T-l OJ iH ; iH ; : : : «o « *& 9681 : : l(Si- : i> 0681 "-1 : t- tH rH 1-1 6881 « T-l CO TH *' t- 1-1 : ; : 1-1 : ^ 9881 1-1 1-1 : ■ 6i8l 1-1 ', : o : 05 9i8I CO ■* « : t i-< !-• ' ! 1-t I 1 CQ 9i8I CO iH iH « i-H : 1-1 I ^^ TH S fi8T CO lo ; ; I I I CO f68T 05 t 1-1 iH OS 1-1 iH 1(5 8681 * I : ; 05 CO 1-1 1-1 g68T CO ; :;*.;« 1-1 1* 1681 ; en ■ CO ^ CO iH ; 068T T-H ; I I «0 CO 6881 « CO iH ; CO OS 888T tH tH 05 (S i88I tH « 1-1 1-t »88T -<1< 7-H ^ 00 S88I ^- : (JJ CO IS f88T : *> 1-1 iH OS ■* 1 8881 cj IS : ; IS ■* ■ ■* 1 g68I T-i T-i iM ©I 1-1 T-i ; •* 1-1 188T OS lO rl t ', ; •* 088X y-i 1-i ; Ks CO IS ; * 1-1 6i8T t- iH IN t I -^ IS : 8181 CO OS tM T-H T-l T-( tH [ 1-1 LLSl tH ; M CO <» ; '. ', '. 9i8T »-l I ' I ; * us 1-1 IS CO 9i8I CO 1-1 ; iH TH TH ; 1-1 CO : : fiSI T^" : : th IS 1-1 : tH ; ; 1-1 8i8I *,','. IS 00 iH SiSX ■* IS : lH 1-1 OS (S TiSI 1^ tH tH tH ■<* 1-1 OiSI T(H ; th 03 1-1 : CO 6981 ; 1-1 OS ■* : IS Panics in the money market and recovery from their efPect : being an inquiry into the prac- tical working of the monetary systems of America and Europe, past and present, and the phenomena of speculations, revulsions, and panics. New York, Amerman, 1873. 43 pp. 8°. Ebstein, G. Etude sur la crise financiere de 1883. Situation presente du marche frangais, ses ori- gines et ses consequences, I'epargne et la specula- tion; mesures a adopter. Paris, Librairie nou- velle, 1882. 50 pp. 8°. Ehrenberg, E, Das zeitalter der Fugger. Geld- kapital und creditverkehr im 16. jahrhundert. Jena, Fischer, 1896. 2 v. 8°. Evans, D. M. 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Monetary panics [correspondence]. A. Walker and H. Stansiield. Bankers' magazine {N.Y.),U: 497-509. The financial crisis of 1837. Bankers' magazine {N. Y.), U: 781-88. 1861. Panics, their causes and means of prevention [seven letters]. " Laneastria." Bankers' magazine (L.), 21:73-76, U8-50, 222-25, SJk2-Jf5, 406-10, 473-76, 643-46. Les crises financieres et I'organization du credit en France. G. Poujard'hieu. Revue des deux mondes, 2. per. S3: 686-708. 1864. La speculation et la taux de I'escompte ; aspect general de la derniere crise. P. Coq. Journal des economistes, 2. ser. 4^; 394-401. 1865. Les crises commerciales et mon^taires. E. de Laveleye. Revue des deux mondes, 2. per. 65:207-33,432-60. L'enquete sur le credit; I: La crise monetaire de 1863-64 et ses origines. V. Bonnet. Revue des deux mondes, 2. per. 60:391- 418. 1866. Panic of 1866. Bankers' magazine (L.), 26:637-41. Eecent financial panic. British quarterly re- view, 44: 125-40. BIBLIOGRAPHY 369 1866. English panics of the present century. Hunt's Merchants' magazine , 65 : 65—66. Comptes rendus compares de la Banque de France apr^s les crises de 1839, 1847, 1857, et 1864. C. Juglar. Journal des econo- mistes, 3. ser. 2: 60-72. La crise financiere de I'Angleterre. L. Wolow- ski. Revue des deux mondes, 2. per. 61^: 927-56; 65: 176-211. 1867. Des crises aetuelles de I'industrie. L. Eeybaud. Journal des economistes, 3. ser. 8:321-33. Comptes rendus compares de la Banque de France apres les crises de 1847, 1857, et 1864, ann^e 1866. C. Juglar. Journal des economistes, 3. ser. 6 : 252-68. 1868. On credit cycles and the origin of commercial panics. J. Mills. Manchester statistical so- ciety. Transactions . . . session 1867-68. pp. 5-JfO. 1870. Les dernieres crises financieres aux Etats-TJnis, et les valeurs americaines. T. Balch. Journal des economistes, 3. ser. 18: ■i-19-29. 1871. The causes of commercial crises and their reme- dies. The causes of financial panics and their remedies. Bankers' magazine(N.Y.), 26:357-70. Commercial crises. B. Price. North British review, 53 : ^50-78. La Banque de France et la crise monetaire. V. Bonnet. Revue des deux mondes, 2. per. 96:682-98. 1872. The bank charter act and the crisis of 1866. H. Chubb. Royal statistical society. Jour- nal. 35:171-95. 1873. The panic in the TJ. S. Bankers' magazine (L.), 33:917-19. The American crises. Bankers' magazine (L.), 33:993-96. 34 3Y0 CRISES AND DEPRESSIONS 1873. Panic in Wall Street. Harper's magazine, 48: 126-34. History of the crisis [1873]. K. Comwallis. LippincoWs magazine, 12: 681-90. The moral side of panics. E. L. GodHn. Nation, 17:238-39. Panics. B. L. Godkin. Nation, 17:206-7. The financial crisis. Penn monthly, 4:801-3. 1874. Bonamy Price on the causation of panics. Bankers' magazine {N. Y.), 29:361-68. Our late panic. International review, 1 : 1-16. Wall Street and the crisis. Old and new, 9:41-55. Commercial panics. J. C. Welden. Overland monthly, 12:147-56. 1875. Panics and cliques. Bankers' magazine {N.Y.), 29:689-95. Monetary panics and the Board of trade. Bankers' magazine (N. Y.), 30:1-3. What is the matter? Is anything the matter? B. B. Kimball. Galaxy, 19: 105-10. La crise financiere en Hongrie. J. E. Horn. Journal des economistes, 3. ser. 37 : 286-97. La crise financiere de 1814 et de 1815. G. Du Puynode. Journal des economistes, 3. ser. 40:173-96, 364-83. 1876. The financial crisis in America. H. White. Fortnightly review, 25:810-29. Crise commerciale et monetaire au Chili. J. G. Courcelle-Seneuil. Journal des econo- mistes, 3. ser. 44:293-95. The financial situation in England. E. L. God- kin. Nation, 22:344-45. 1877. Financial panics, their causes and results. Abridged from the Contemporary review. Bankers' magazine (N. Y.), 32:91-100. The cause of business depression as presented in the forthcoming report of the United BIBLIOGRAPHY 371 States silver commission. Bankers' maga- zine {N. Y.), 32:287-97. 1877. One per cent. B. Price. Contemporary review, 29:778-99. La liquidation de la crise de 1873 et la reprise des afEaires. C. Juglar. Journal des econo- mistes, 3. set. ^7:372-82. The responsibility of panics. E. L. Godkin. Nation, 25:223-24. The law of panics. E. L. Godkin. Nation, 25:251-52. Panics and sun spots. W. S. Jevons. Nature, 19:33-37,588-90. 1878. Our commercial crises. The Gilbart lecture on banking. L. Levi. Bankers' magazine (L.), 38: 30^-18. Bankers' magazine (N. Y.), 33:W-45, 118-26. The panics and our recuperative prospects. Bankers' magazine (N. Y.), 32:502-5. De crisis van 1873. N". G. Pierson. De econo- mist, pp. 837-63. Die arbeiter und die produktionskrisen. L. Brentano. Jahrbuch fur gesetzgebung, verwaltung und volkswirthschaft, 2:565- 632. 1879. La legge di periodicita delle crisi. Perturba- zioni eeonomiche e macchie solari. G. Boccardo. Archivio di statistica, Roma, 3:385-U2. Commercial depression and reciprocity. B. Price. Contemporary review, 35:269-88. Ueber die verhiitung der produktionskrisen durch staatl. fiirsorge. E. Nasse. Jahr- buch fur gesetzgebung, verwaltung und volkswirthschaft, 3:lJt5-89. On some effects of a crisis on the banking in- terest. J. B. Martin. Journal of the Statistical society, ^2: 663-708. 372 CRISES AND DEPRESSIONS 1879. Eationale of panics. F. B. Hawley. National quarterly review, 39:277-92. Depression of trade. T. Brassey. Nineteenth century, 5: 788-811. Causes of commercial depression. J. E. T. Eogers. Princeton review, 55: 211-S8. La crise economique. M. Block. Revue des deux mondes, 3. per. 32:483-59. 1881. Unless trouble comes. J. S. Bean. Bankers' magazine {N. Y.), 36:270-78. 1883. Financial crises in France. Bankers' magazine (L.), 42:157-65. 1883. The panic. Saturday review, 57: 645. 1884. The prevention of panics. D. Wilder. Bankers' magazine {N. Y.), 39:425-29. La crise de la speculation a New York. Les causes de la crise. Journal des economistes, 4. ser. 26:483-45. Panics and polities. H. White. Nation, 39:324-25. La circulation fiduciaire et la crise aetuelle. V. Bonnet. Revue des deux mondes, 3. per. 62:668-92. Banks and panics. Saturday review, 58: 84-85. 1885. Depression of trade and low prices. E. GifEen. Contemporary review, 47:800-22. La crise et la contraction monetaire. E. de Laveleye. Journal des economistes, 4- ser. 29:411-22. La crise flnancifere de 1830. G. Du Puynode. Journal des economistes, 4- ser. 32: 161-82. L'enquete anglaise sur la crise eommerciale et industrielle. A. Eaffalovich. Journal des economistes, 4- ser. 32: 340-43. 1886. Panic of 1835 and £1 note. Bankers' magazine (L.), 46:471-76. Panic of 1866. Bankers' magazine (L.), 46:1013-17. BIBLIOGRAPHY 373 1886. Des fetes comme remede a la crise commerciale. H. de Beaumont. Journal des economistes, 4. ser. SS: 251-60. La crise ^conomique; etude des causes et des remedes. J. G. Courcelle-Seneuil. Journal des economistes, i. ser. 35: 161-72. La baisse des prix et la crise commerciale dans le monde; causes alleguees, remedes pro- poses. P. Leroy-Beaulieu. Revue des deux mondes, 3. per. 75:383-^18. The depression of trade abroad. Spectator, 59:8U-Jf2. Causes of the depression of trade. Spectator, 59:1139-^0. 1887. Eoyal commission on the depression of trade. Bankers' magazine {L.), 4-7:106-8. The great depression of trade ; a study of eco- nomic causes. D. A. Wells. Contemporary review, 52:275-93, 381-400. Economic disturbances since 1873. D. A. Wells. Popular science monthly, 31:289-304, 433-51, 577-96. 1888. The progress of applied science and its effect upon trade. L. Playfair. Contemporary review, 53:358-71. The dislocation of industry. W. Smart. Corv- temporary review, 53: 686-702. Panics. Spectator, 61 : 1186. 1889. La crise economique en Italic. V. Pareto. Journal des economistes, 4- ser. 46:161- 80. 1890. Financial crises of the century. Bankers' magazine (L.), 50:201-7, 921-26, 1786- 93. The South American financial crisis. Bankers' magazine (L.), 50:1253-62. The Baring crisis. Bankers' magazine (L.), 50:1933-38. 374 CRISES AND DEPRESSIONS 1890. The crisis on the stock exchange : its causes and effects. G. B. Baker. Contemporary re- view, 58:680-92. 1891. The Bank act and the recent crisis. Bankers' magazine {L^, 51: 4-19-27. The panic of 1873. Bankers' magazine (N. Y.), 46:392-98. The crisis of 1890. Economic journal, 1:192-96. The Baring financial crisis. A. Crump. Eco- nomic journal, 1:388-94- De November-crisis. G. M. Boissevain. De economist, pp. 63-89. The sources of commercial panic. B. D. Mac- kenzie. Gentleman's magazine, new ser., 46:154-75. The late financial crisis. H. Clewes. North American review, 152: 103-13. 1892. The financial outlook in 1892. W. E. Law- son. Bankers' magazine {L.), 53:44- 57. Euns on banks, 1866 and 1892. Bankers' maga- zine (L.), 54:633-39. The depression of 1892. Bankers' magazine {L.), 54:779-88. 1893. Industrial depressions: their cause and cure. F. H. Cooke. American journal of poli- tics, 3:597-604. The financial problem and business situation discussed from a practical standpoint. G. C. Kelley. Arena, 9: 118-29. A whirlwind of disaster; its lessons. E. Wiman. Canadian magazine, 1:517-22. What causes depression of trade? L. Irwell. Chautauquan, 18:307-13. The crisis in the United States and the repeal of silver purchase. P. W. Taussig. Eco- nomic journal, 3: 738-45. BIBLIOGRAPHY 375 1893. The financial situation. M. Marshall. En- gineering magazine, 5:411-18. The present depression of trade; opinions of men of business. Fortnightly review, new ser., 53:297-315. The financial excitements and its causes. G. E. Gibson. Forum, 15:483-93. Phenomenal aspects of the financial situation. A. C. Stevens. Forum, 16:22-32. La crise et le protectionnisme en Australie. A. Eaffalovich. Journal des economistes, 5. ser. 15:87-91. The crisis of 1890. M. Wirth. Journal of political economy, 1:214-35. Panic of 1873. H. White. Nation, 57: 76-77. The genesis of a financial panic. J. T. D. Nation, 57:192. The present crisis. J. H. Eckels and S. Pen- noyer. North American review, 157: 129-U. Political causes of the business depression, W. E. Eussell. North American review, 157: 641-52. The lesson of our financial crisis. H. Lieb. Open court, 7:3767-68. Les principales causes des crises 6conomiques. A. A. Issaiev. Revue d'economie politique, 7: 654-92, 985-1011. 1894. Causes of the present business depression. H. C. Ager. American journal of politics, 4:233-49. The artificial panic in retrospect. W. Knapp. American journal of politics, 4: 656-66. The panic and the silver movement. A. B. and H. Parquhar. American journal of poli- tics, 5: 84-89. Commercial depression and business crises. American journal of politics, 5:449-60. 376 CRISES AND DBPEESSIONS 1894. The cause of financial panics. J. W. Bennet. Arena, 9:Jf9S-521. The panic of 1893 in the United States and its connection with the credit system in Eu- rope. D. M. Frederiksen. Bankers' maga- zine (L.), 57:49-60. Depression in 1847 and 1894 compared. Bankers' magazine {L.), 58:613-20. The banks and the panic of 1893 [review of A. D. Noyes' article in the Political science quarterly]. Bankers' magazine (N. Y.), 48:721-26. De geldmarkt in 1893. G. M. Boissevain. De economist^ pp. 106-26. Wage-earner's loss during the depression. S. W. Dike. Forum, 18:369-78. Facts touching a revival of business. Forum, 18:379-84. Panics and hard times. P. S. Hayden. Homi- letic review, 28:279-86. Die wirthschaftliche krisis des jahres 1893 in den Vereinigten Staaten von Nordamerika. E. von Halle. Jahrhuch fur gesetzgeiung, verwaltung und volkswirthschaft, 18: 1181- 1249. The banks and the panic of 1893. A. D. Noyes. Political science quarterly, 9 : 12-30. Analysis of the phenomena of the panic in the United States in 1893. A. C. Stevens. Quarterly journal of economics, 8: 117-48. Der "grosse borsenkrach" des jahres 1873. A. Schaffle. Zeitschrift fiir die gesammte staatswissenschaft, 50:1-94- 1895. The financial situation (economically consid- ered). Bankers' magazine (L.), 60:22-30. Depression corrected. JEdinhurgh review, 182: 1-26. Two per cent. Chambers's journal, 12: 821-24. BIBLIOGRAPHY 377 1895. The present depression : its causes, consequences and continuation. E. H. I. Palgrave. Na- tional review, 25: 105-18. Trade and industry. (The currency question — for laymen. II.) W. H. Houldsworth. National review, 25:213-19. 1896. The periodicity of commercial crises as exem- plified in the United States. E. V. Grabil. American magazine of civics, 8:366-75. English financial panics, their causes and treat- ment. Bankers' magazine (L.), 62:172- 87. 1897. Ueber das wesen der krisen in der volkswirth- schaft. G. Cohn. Nachrichten von der Konigl. gesellschaft der wissenschaften zu Oottingen. Philologisch - historische Masse, pp. 283-305. 1898. Panics and prices. G. Yard. Cornhill maga- zine, 77:757-68. 1899. Les banques allemandes en cas de crise ou de guerre. A. E. Sayous. Revue d'economie politique, 13:H2-65. INDEX Activity, prior to crises, 51-81; Indications of, 136-183; equal- ity of, desirable, 268. See Prosperity. Adams, John, quoted, 272, Adjustment to new conditions, difficulties and dangers of, 116. Agricultural depression, use and meaning of the term, 13. Agriculture, improvements in, slower than In manufactures, 74; effect of opening up new fields, 94, 287; influence of crops upon prosperity, 169; prices, 170; growth of, in the United States after 1865, 287 —from 1870 to 1880 and after 1890, 294. Archibald, E. D., referred to, 28. Argentine Republic, conditions in 1873 and 1890, 37; varying proportion of exports and Im- ports before and after 1890, 156-158; fluctuations in Im- ports of iron and railway ma- terial, 157, 158; exports and imports, 159. Atlilnson, Edward, quoted, 149. Austria-Hungary, crises of re- cent occurrence, 36; condi- tions in 1872-1873, 50; maxi- mum and minimum produc- tion of pig-iron, 172; exports and Imports, 1866 to 1876, 202. Bagehot, Walter, quoted, 44, 115, 222, 262, 311. Balance of trade, 146-153. Banlis, in time of crisis, 15, 57, 58; granting of credits by, 100, 102; indications afford- ed by statistics of, 185-201; changes In nature of modern deposits, 187; necessity for public supervision and inspec- tion, 260, 266; responsibilities of, 261; rules as to lending, 261; danger of furnishing capital by discount, 263; re- serves, 200, 263; diminishing proportion of capital and sur- plus to loans, national banks, 1865 to 1900, 265; exceptional difficulties from unsoundness in the United States, 271, 281, 284. Bank clearances, 165-167; years of maximum and minimum amounts, New York, 166, 337— London, 167,337; diagram, 168. Bank failures, 58. Bank reserves. Indications af- forded by amount of, 200; ef- fect of national banking law, 200; rules concerning reserve cities, 263; tendency of pres- ent regulations to cause strin- gency and promote crises, 264; course of, at New York before crisis of 1873, 288. Bank of England, months of maximum reserves, 34; In- creased deposits from banks in times of crisis, 188; sys- tem of issuance of notes, 189; 879 380 CRISES AND DEPRESSIONS relation between specie and loans, crises of 1825 to 1857, 193— reasons for less variation In recent years, 196; decrease of reserve, 201. Bank of France, system of Issu- ance of paper currency, 190; relation between specie and loans and comparison with the Bank of England, 198. Bank of the United States, first, 275; second, 276, 280, 283. Bankruptcies. See Failures. Baring, Alexander, quoted, 324. Bateman, Sir A. E., quoted, 149. Beaconsfleld, Lord, quoted, 267. Belgium, conditions as regards crises, 41; maximum and min- imum production of pig-Iron, 172. Bentham, Jeremy, quoted, 269. Bergfalk, P. B., quoted, 128. Bergmann, Eugeu von, referred to, 28. Bibliography, 347-377. Births, significant only In un- usual periods, 179. Black Fridays of 1745, 1866, and 1869, 18. Bland Act, effect of, 214, 215. Block, Maurice, quoted, 11, 327. BoUes, Albert S., quoted, 272, 276. Bradstreet'B, gtatlstlcg of busi- ness failures, 58, 59. Brazil, depression of 1S73, 37. Business and credit, 101; de- pendence upon prices, 104; conditions of, significant of the approach of crises, 220- 223. Calrnes, J. E., quoted, 4, 64. Call loans, nature and effect of, 264. Canal building, prominent fea- ture preceding several crises, 44, 279, 281, 283; as a form of absorption of capital, 81; In the United States, 279, 281, 283. Cannon, James G., referred to, 167. Capital, abundance of, as a cause of crises, 115, 212, 280, 296, 303, 307; absorption of, and future production, 81-84, 89-91, 283, 287, 297, 306; changes from circulating to fixed, 51; defined, 69, 71; re- lation to land, 70; to labour, 71; derangement of, 72-73; effect upon foreign trade, 89-91; comparative effect of loss and mere transfer, 107; uses of, 123; effect of de- rangement or loss postponed, 134. Capital created and Issued, 82, 342. Capital, share, of Joint-stock companies registered In the United Kingdom, 82, 342. Carey, Henry C, quoted, 323. Cash, relation between, and loans, 199. Causes of crises. See Crises, Causes of. Chicago, building operations In, after 1873, 269. Chubb, Hammond, quoted, 9. Clark, John B., quoted, 315. Clearances. See Bank Clear- ances. Clearlng-House certificates, 32, 252. See New Tork Clearlng- House and London. ClSment, Ambrolse, quoted, 80. Coal-mlning in Great Britain, 93. Collapse, term defined, 12. Commercial, term defined, 16. Commercial and Financial Chronicle, quoted, 167, 337. Commodities, requisites of ex- change, 77; tendency to sup- INDEX 381 ply excessive quantities of some kinds, 79; Indications afforded by production and prices, 169-193, 223-231. Conant, Charles A., quoted, 323. Confidence, lack of, alleged cause of crises, 98-100; influ- ence upon business, 99. Consumption, Increase of, \in various commodities, 121; rp- latlon to production, 78, 126. Cooke & Co., Jay, failure of, 32, 288. Coquelln, Charles, quoted, 3, 325. Corporations, lack of supervi- sion in the United States, 260; relations of shareholders to the public, 260; quasi-public, 260; publicity, 261; overcapi- talization, 296-297; consolida- tion of, 301. Cotton, Increase In consumption of, 122; production in the United States, 290, 345. Courbon, quoted, 12. Crash, term defined, 12. Credit, refused in time of crisis, 57; crises occur where most in use, 100; alleged cause of crises, 100-103; use and abuse of, 101; unwholesome stimu- lus from inconvertible paper, 217. Creditor countries, exports and imports of, 158-162. Crisis, definition, 7; distin- guished from panic, 8; from depression, 10; essential fea- tures, 14, 67; adjective finan- cial as used with, 16; usually, but not always followed by a depression, 18-21, 58; reasons for diminished severity in later years, 22; becoming rela- tively less prominent, 22, 271; may occur during a depres- sion, 23; duration, 32; season of the year, 34; preceding events, 49-56; phenomena of, 57; signal for beginning of, 57; conditions during, 57-59; investigation of causes when not followed by a depression unsatisfactory, 69, 308; na- ture of beginning of, 105; often traceable to an excep- tional abundance of money or capital, 110; as distinguished by Paul Leroy-Beaulieu, 124; severe because unexpected, 133; may not indicate un- soundness in the condition of industry or commerce, 244; general features most distinct in the crisis of 1873, 287. See also Crises and Depressions. Crises and depressions, causes of, 3, 26, 64 et seq.; caused by abundance of currency or capital, 110, 113, 115, 212, 280, 285, 296, 303, 308; alleged causes, 67, 98-103; conflicting opinions concerning, 136, 311; incidental to rapid growth rather than great wealth, 2, 13, 306; definitions, 6-17; gen- eral facts concerning and re- lation between them, 18-23; periodicity of, 24-31; countries in which they appear, 36; lo- cal or general, 38; degree of severity in different countries, 39-46; argument that they benefit u. majority, 46-48; phe- nomena of, 57; distinguishing features of, 58; severe be- cause unexpected, 133, 134; special features of, in the United States in 1857 and pre- ceding years, 284-286. See also Crisis; Depression. Crises, specific dates of notable: of 1814, 257, 273, 277; of 1818- '19, 257, 275; of 1825, 44, 55, 382 CRISES AND DEPRESSIONS 193, 278; of 1836-'37, a^_^, of 184T, 32, 55, 194; of 1857jjl, 32. 55. 111. 114. 128, 166, 195 , 198,_203^^37^J84;_flf 1866, 30, ^TseTof 18737 22, 31, 32, 56, 111, 156, 166, 202, 203, 257, 287; of 1882-'84, 23, 119, 156, 166, 204, 290; of 1893, 30, 58, 111, 166, 204, 257, 293; at Stock Exchange, New York, May, 1901, 20, 300. Currency, Paper, abundance of, as a cause of crises, 110, 113, 115, 212, 280, 285, 296, 303, 307; varying demands for, 32, 34, 186, 245, 265; effect of In- flated Issues, 100, 103; effect of contraction, 109; depend- ence of prices upon, 111; de- posits a partial substitute for, 187; Indications afforded by amount of, 188-191; Irredeem- able, 188, 257; Currency The- ory, 189, 247; Banking The- ory, 190, 247; fixed quantity, 190; Issues In the United States, 190, 243; objections to Issuance by a government, 245-248; effect of improper regulation, 244; scarcity does not always coincide with defi- ciency of capital, 244; requi- sites of a well-regulated sys- tem, 245; objections to pres- ent system In the United States, 245, 251; advantage of Issue by banking Institutions, 249; President Lincoln on, 249; effect of fluctuations In deposits, 251; tendency of present system to promote crises, 252; reforms accom- plished, 252; exceptional in- juries In the United States from defects In, 271; home and foreign demands, distinc- tion between, 292. Cycle, use in reference to cri- ses, 24. Deaths, significant only In un- usual periods, 179. Debtor and developing coun- tries, course of exports and imports, 89, 154, 183. Definitions, Importance of, 4. Deposits, preceding crises, 185- 188; correspondence between deposits and loans of national banks of the United States, 187; different kinds of, 188; Increase of, 197, 266; fluctua- tions in money deposited. In 1873, 250. Depression, defined, 10; distinc- tion between, and panic or crisis, 10, 58, 60, 244; distinc- tion between depression and poverty, 12-14; agricultural, use of term, 13; may occur with or without a preceding crisis, 18, 21-23; becoming relatively more prominent, 22, 127; duration of, and of the successive stages, 32; approxi- mate dates of, 33; Does It benefit a majority? 46-48; events preceding, 49-56; con- ditions during, 48, 59-63; re- cent, distinctive quality and features of, 97, 127, 182; caused by abundance of mon- ey or capital rather than by scarcity, 113-115; occurs where machinery is most In use, 119-123; Indications of, 136. See also Crises and De- pressions. Dun, E. G., & Co.'s Review, quoted, 50; statistics of busi- ness failures, 178, 344. Easton, H. F., quoted, 322. Economic law, Prof. Calrnes on, 64. INDEX 383 Embargo and Non-interference Acts, effects of, 273, 275. Employment. See Labour, Em- ployment of. England, periodicity of crises in, 26, 31, 182; conditions as regards crises, 41-46; results from the abundance of dis- posable capital, 42; Increased consumption in, 121. See also United Kingdom. Equilibrium, defined, 77; lack of, a cause of crises, 73; effect of changes of fashion or taste, 78; more noticeable in time of rapid growth, 122; distin- guished from over-production, 126; proved by unequal fall In prices, 127; recently manifest- ed in some trades In the Uni- ted States, 298. Everett, Edward, quoted, 325- 326. Exchange, rates of, 218— influ- enced by prices, 219. Exchanges, eflfect of formation of, on prices, 239. Excise taxes. See Internal Revenue Taxes. Exports and imports of gold, general rules determining, 206; signiScance of exports, 208, 216; United States, gen- eral situation, 209-210— situa- tion at different times, 210- 216— non-producing era, 210- 212 — development of gold-min- ing, 212— period of suspension of specie payments, 212—1877 to 1888, 213— period of silver Inflation, 214 ; circumstances under which excess of ex- ports Indicates a crisis, 216; significance of exports as compared with Imports of merchandise, 217; as related to rates of exchange, 219; contemporaneous decline of supply in flnandai centres, 218; Influenced by prices, 219; in the United States, 1831 to 1837, 280. Exports and imports of mer- chandise, disproportionate In- crease of exports In a depres- sion, 89-91; Imports large prior to a depression, 89; Il- lustrated in the United States, 90; general relation between, 146-162; lack of uni- formity In valuations, 148; United States, valuation of home and foreign compared, 149-152, 334, 335; excess In value of imports in all coun- tries, 152; imports apparently more correct Indication of ac- tivity than exports, 153, 156, 183, 295; difference between debtor and creditor countries, 154; tendencies in new and developing countries, 154-158 — in creditor countries or those of matured development, 158- 162; maximum proportion of exports In a debtor or devel- oping country precedes maxi- mum of activity, 183; circum- stances under which Increase or excess of Imports Indicates a crisis, 201, 204; Inferences from examination of articles exported or imported, 205; luxuries, significance of im- ports of, 206; significance of imports as compared with gold exports, 217; influenced by prices, 219; relation be- tween. In the United States, 1893 to 1901, 302; per capita for divers countries, 1868 to 1900, 332. Extravagance, private or pub- lic, manifestations and effect of, 52, 72;-causes of crises and depressions, 74. 384 CRISES AND DEPRESSIONS Failures, business, signal for crises, 36, 184; numerous In times of crises and depres- sions, 57, 59; comparison of banking and others In tbe United States, 1893-'95, 58; In England In 1866, 59; years of maximum liabilities in the United States, 177; diagram, 178; table, 1857 to 1900, 344; significance of Increase, 221, 222. Falkner, Eonald P., statistics given by, 54. Fashion, effect of changes in, 78, 79. Financial, the term defined, 14. Financial BUI of 1900, 248. Flux, A. W., referred to, 34. Food, effect of scarcity, 75, 80, 169; significance of Increased importations, 205; Increase of exports of the United States caused by scarcity abroad, 216, 283. 292. Foreign countries, effect else- where of conditions in, 22, 38, 221, 242, 277, 278, 283, 298. Foreign trade, significance of, as indicative of prosperity or depressions, 144-162; years of maximum and minimum, in divers countries, 144; Indica- tions afforded by aggregate value of, 144-146; significance of value of, as compared with volume, 145; indications per- taining to approach of a cri- sis, 201-206; exports and im- ports per capita in divers countries, 1868 to 1900, 331- 333. Fesslck, W. G., prices given by, 55, 56. Fowler, Sir William, quoted, 117. France, periodicity of crises, 31, 182; conditions as regards crises, 39; uniformity of pro- duction and trade, 40; crisis of 1882, 23, 290; increased con- sumption, 121; valuation of exports and imports In trade with the U. S., 151, 334; des- tination of Increased exports in 1889, 161; hoarding of gold, 207; exports and imports per capita, 1868 to 1900, 332; mar- riage statistics, 1870 to 1896, 346; conditions in, compared with Germany after payment of war indemnity, 114. Francis, John, quoted, 45. Fraud, prevalence and effects of, 74, 97, 307. Frederlksen, W. C, quoted, 320. Fritz, Hermann, referred to, 28. Gallatin, Albert, quoted, or re- ferred to, 274, 319. George IV, quotation from speech to Parliament, 49. Germany, conditions In 1872- '73, 50; increased consump- tion, 121; valuation of exports and imports In trade with the United States, 152, 334; beer statistlts; 163; maximum and minimum production of pig- iron, 172; exports and imports per capita, 1880 to 1900, 332; production and consumption of pig-iron, 1868 to 1900, 340; marriage statistics, 1872 to 1896, 346; conditions in, com- pared with France after pay- ment of war indemnity, 114. Glffen, Robert, quoted, 19, 147, 317. Gllbart, J. W., quoted, 12, 325. Glasgow Bank, failure of, 24. Glut, explanation of term, 77. Goadby, Edwin, quoted, 327. INDEX 385 Gold, effect ot Increased or de- creased supply, 114; hoarding In France, prior to the war of 1870, 207; accumulated In the form of ornaments In In- dia, 207; contemporaneous de- cline of supply In financial centres, 218; probable Influ- ence upon prices, 305. See Exports and Imports of Gold. Government securities, course of prices of, 241. Governmental action. Impor- tance of, exaggerated, 65. Harris, C. A., quoted, 152. Herschel, Sir William, referred to, 28. Hobson, J. A., referred to, 70. Howe, J. B., quoted, 328. Hunter, W. W., referred to, 28. Immigration, In the TJnlted States, 279, 284. Imports. See Exports and Im- ports. Income taxes, significance of, 162; In TJnlted Kingdom, 162. Independent Treasury. See Subtreasury. India, alleged Influence of sun- spots, 26; accumulation of gold In the form of orna- ments, 207. Individual action, scope and In- fluence of, 65; maxims con- cerning, 267; main reliance for Improved conditions, 268. Industrial, term defined, 15. Inflation of currency. See Cur- rency. Inglls, Palgrave, K. H., quoted, 201. Interest, unequal disbursements of, 35; low rates during de- pressions, 113, 123; Indica- tions afforded by rates of, 191; effect of rates upon 25 prices of securities, 233, 234; different rates upon mort- gages In divers States, 242; should be raised when there Is danger of a crisis, 262; abo- lition of usury laws, 262; payment of, upon bank re- serves, 264, 265; tendency of high rates to check extrava- gant enterprises, 285. Internal revenue taxes, indica- tion of prosperity or depres- sion, 162; articles levied on, 163; in the United States and other countries, 163, 336; re- spond more promptly to changing conditions than du- ties on imports, 164. Invention and Improved meth- ods, results of, 91, 116; cause loss of capital, 92; illustra- tions of displacement of la- bour by machinery, 92; un- equal results In different lines of production, 74, 93. Iron and steel, exceptional ac- tivity and fluctuations In prices of, 53; course of prices before a crisis, 55; maximum prices earlier than date of crisis, 55, 170; course of pro- duction, consumption and prices, 170-172; Increased pro- duction of steel in United States, 122; years of maxi- mum and minimum produc- tion, 172; the world's produc- tion of pig-iron, 173; prices In the United States before and after crisis of 1873, 224— of 1884, 225-of 1893, 226; ex- ceptional tendencies after 1880, 226; exceptional condi- tions In the United States In 1887, 227; tendencies In price movements, 228-231— Interval between maximum prices and crises longer than formerly, 386 CRISES AND DEPRESSIONS 228; fluctuations more notice- able in recent cycles, 229; upward movement shorter than downward, 229; rapid rise continues for a short time only, 230; rise in 1899 significant of more general use, 231; prices of anthracite and Bessemer pig, 230; pres- ent course of, as compared with that preceding depres- sions, 297; production and consumption of pig-iron in the United States, United King- dom, and Germany, 1868 to 1900, 340; prices In the Uni- ted States, 1868 to 1900, 341. Jevons, W. S., quoted, 26, 65, 267, 313. Juglar, Clement, quoted, 2, 32, 186, 198, 309, 326. Knox, J. J., referred to, 251. Labour, employment of, 48, 52; conditions In 1879, 1885, and 1894, 61; defined, 69; maxi- mum and minimum, 137, 141; before a period of depression, 138; Insuflaclency of statistics, 138; comparatiTe value of sta- tistics, 142; figures compiled by George H. Wood, 138; employment in the United Kingdom, 139, 329; In the United States, 142, 276; In Pennsylvania, 142, 330; in Massachusetts, 143, 330; in New York, 330; in Wisconsin, 331; coarse of, relative to prices and production, 183. Land, defined, 69, 70. Langton, William, quoted or referred to, 34, 35. Lnveleye, Emlle de, quoted, 11. Laveleye, Georges de, quoted, 118. Lawson, James A., quoted, 322. Leroy-Beaulleu, Paul, quoted or referred to, 124, 208, 315. Levi, Leone, quoted, 25, 317. Lincoln, Abraham, quoted, 249- 250. Liquor traffic, effect of, 132. Loans, demand for, prior to crises, 52; significance of in- crease of, 185, 200; Increasing proportion to capital and sur- plus of national banks, 265; foreign. In the United States, 211, 280, 292, 293, 301. See Specie and Loans. Lockyer, Norman, quoted, 28. London, rates of Interest In cer- tain years, 113; Bankers' Clearing-House, 167, 168, 337. London Economist, quoted, 50. Loss, direct or indirect, a cause of crises, 72, 74, 76, 79; influ- ence of, recognised, 79; less serious in causing crises than formerly, 80. Luxuries, effect of importations of, 206. Macaulay, Thomas B., quoted^ 42-44. Machinery, labour-saving, Influ- ence of, 92, 116. Macpherson, David, quoted, 312. Manufactures, growth in, more rapid than In agriculture, 74; partial growth in, preceding 1814, 275; growth of, 1880 to 1890, and after 1890, 294, 295. Manufacturing communities, ef- fect of food scarcity, 76. Marriages, significance of sta- tistics of, 180; statistical table, 346. Marshall, Matthew, quoted, 320. Martineau, Harriet, quoted, 45. Massachusetts, statistics of em- ployment of labour In, 143, 144, 330, 331. INDEX 387 Mayo-Smith, Rlcbmond, quot- ed, 121. Military armaments, effect of, 132. Mill, John Stuart, quoted, 8, 71, 112. Mills, John, quoted or referred to, 20, 25, 26, 29, 33. Money, hoarded in time of cri- sis, 57; effect of scarcity of, 110. See Currency. Mortgages, different rates of in- terest upon, 242. Muhleman, M. L., quoted, 111. Mulhall, Michael G., quoted, 16. National bank-notes, effect of withdrawal from circulation, 1882 to 1888, 214. Natural forces, loss caused by, 75. Neumann-Spallart, quoted, 152. New and developing countries, 154-158, 183. Newcomb, Simon, quoted, 27. New York city, rates of inter- est at, in certain years, 113, 288. New York Clearing-House, 166, 337; recommendation of com- mittee of, 1873, 265. New York State, statistics of employment of labour In, 330. New York Stock Exchange. See Stock Exchange, New York. Nicholson, J. S., referred to, 29. Norway, relation of exports to Imports affected by Income from carrying trade, 147. Overactlon, tendency to, and results of, 96, 133, 282, 303, 307. Over-production, 115; to what ascribed, 117; Impossibility of general, 126. See Crises, al- leged causes of. Panic, defined, 6; distinguished from crisis, 8-10; reveals mis- application 01 capital, 20; in- vestigation of causes of, un- satisfactory, 69, 308; mone- tary, 110. Paper currency. See Currency. Pauperism, value of statistics, 180; changes In methods for relief of, 180. Pennsylvania, statistics of em- ployment In, 142, 330. Period of depression, applica- tion of term, 17. Periodicity of crises and de- pressions, 5; generally recog-. nised, 24; definite period with three seasons alleged, 25; ap- parently sustained by finan- cial history of England, 26; as- cribed to sun-spots, 26-29— to mental moods, 29; tendency to, 30, 182; more noticeable In developed countries, 31; alternate periods longer and less interrupted In recent years, 182; more Interrupted in rapidly developing coun- tries, 182; existence of, 307; reasons for, 308. Peru, depression in 1873, 37. Petty, Sir William, quoted, 24. Physical forces, loss caused by, 75. Post-oflSce, Increase In business of, 180. Poverty, distinguished from de- pression, 12, 133. Pressure, defined, 12. Preventives, viewed from the standpoint of governmental control, 243; in the United States, 243-256; certainty of specie payments, and the standard of value, 257; avoid- ance of changes In financial and economic policies, 258; more comprehensive and accu- 38S CRISES AND DEPRESSIONS rate statistical Information, 258-260; relation of the State to corporations, 260; manage- ment of banks, 261-266; in- spection of State banks, 266; indiTlduai action, 2G7, 269. Price, Bonamy, quoted, 133, 313. Prices, rise and fall as com- pared with wages, 47; whole- sale and retail compared, 47; increase prior to a crisis, 51; unequal rise and fall in, 52, 127, 223— prior to the crisis of 1873 in United King- dom, 53— in 1897-'99 in the United States, 54; highest oc- cur some months or years be- fore a crisis, 55; fluctuations, 55; afford unsatisfactory in- dications during a crisis, 57; rise of, disproportionate to de- ficiency of supply, 62; increase of, in time of extensive im- provements, 82; dependence of business upon the mainte- nance of level of, 104; non- effect of rise or fall on the quantity of articles of utility, 105; general tendency towards lower, 106, 305; influence of volume of money or paper cur- rency upon, 109, 111; con- currence of low prices with low rates of interest, 113; un- equal fall in depression shows lack of equilibrium, 127; high in time of war, 134; after a crisis large exports at low prices, 89, 155; results of higher prices of agricultural products, 169; Iron and steel, rise and fall of, as related to production and consumption, 170; course of, relative to pro- duction and employment, 183; influence of, on the export and import of merchandise and specie, and rates of ex- change, 219; significance of, as indicating crises, 223-231 commodities In general, 223 Iron and steel, 224-231, 297 lumber and coal, 223-224; se- curities, 231-242; influenced by the magnitude of transac- tions and interests involved, 239; fall of, in the United States, in 1818-'19, 276; prob- able effect of Increase of gold supply, 304. Proctor, Richard A., referred to, 28. Production, relation to trans- portation, 16; Increased equip- ment for, prior to depression, 62, 306; relation to employ- ment of labour, 63, 138; differ- ence between production for near-by and that for remote consumption, 88; increase in volume of, 115; eflCect of un- equal Increase in different branches, 115; of agricultural products, iron and steel. In- dications afforded by, 169- 173; course of, relative to em- ployment and prices, 183; ef- fect of changes in, 221; rela- tion to consumption, 78, 126. Proflts, tendency to equality in all lines of business, 267. Progress, industrial and com- mercial, 73, 81; danger in rapid changes resulting from modern, 73, 116, 221, 258, 293; effect as viewed from the standpoint of consumption, 94; improvements in sanitary conditions, 95. Property, residence, deprecia- tion In the value of, 94. Prosperity, 49, 54; indications of, 136. See Activity. Psychological causes, effect of, 3, 108; difficulty in classifying, INDEX 389 129-130; love of acquisition, fondDess for display and de- sire to lessen labour, 130-131; extent to which their opera- tion conforms to established tendencies, 131-132. Public works, construction in a depression, 268-269. Raflfalovich, A., quoted, 11. Railway building, activity In, prior to a crisis, 51; a form of absorptloQ of capital, 81-88; beginnings of, 279; increase after 1848, 283; exceptional, prior to 1873, 104, 287— results of, after 1873, 289; distin- guishing features of, in the decades beginning in 1871 and 1881, 291; diminished at pres- ent, 299. Railway employees, number of, in 1893 and 1894, 61. Railway tonnage and earnings, 173-177, 343; more rapid in- crease than production, 173; comparison of traflSc in the United States and United Kingdom, 174; years of de- crease, 175; exceptional, fea- tures of, 176; present earn- ings in the United States, 302; tonnage statistics, 343. Railways, magnitude and im- portance of investments in, 174. Recuperative forces, working of, 10, 61, 268. Remedies, 267-269. Reserves. See Bank Reserves. Roberts, George E., quoted, 209, 210, 211. Rogers, J. B. Thorold, quoted or referred to, 29, 71, 317. Russia, recent crises In, 36; maximum and minimum pro- duction of pig-iron, 172. Sanitation, improvements in, 94. Savings-banks, decrease of de- posits in years of unusual distress, 181; reasons for maintenance of deposits in depressed times, 181. Securities, prices of, 231-242; different classes of, 231-323; general factors determining price, 232; price tendencies, 232; reasons for earlier rise prior to improving conditions, and earlier fall before depres- sions, 233; greater fall in speculative or non-dlvldcnd- paying stocks, 235; greater fluctuations, 235-236; excep- tional influences affecting, 236, 239; illustrations of the foregoing derived from prices of stocks, 237, 338; indica- tions of approach of crisis af- forded by, 241; Government, course of prices of, 241. Seyd, Richard, referred to, 59. Share capital of joint-stock com- panies registered in the Uni- ted Kingdom, 82; statistics, 83, 342. Silver Purchase Act of 1890, ef- fect of, 214, 216. Smith, Adam, referred to or quoted, 70, 71, 72, 192. Smith, Walter E., quoted, 11. Social statistics, pauperism, births, deaths, marriages, sig- nificance of, ITO. Solidarity of interests, 220, 221. Specie and loans, relation be- tween, significance as regards approach of crises, 191-199; illustrated by Bank of Eng- land in crisis of 1825, 193— of 1837 and 1847, 194— of 1837, 195--changes In later years, 196; illustrated by banks of the United States in 1837 and 390 CRISES AND DEPRESSIONS 1857, 198— by Bank of France, 198. Specie; export of, measures to prevent, 197; significance of, 216-217, 219. See Gold, and Exports or Imports of Gold. Specie payments, necessity for certainty of, 257. Speculation, prior to a crisis, 52; effect in causing crises, 74, 97, 307; effect of large quantity of property, held for, 109; prevalence of, In time of war or unusual activ- ity, 134; dangers of, 221, 222; promoted by Irredeemable pa- per currency, 257— by regula- tions concerning bank re- serves, 264; prevalence of. In the United States In 1837 and 1873, 280, 288; present volume of, 296. Standard of value, necessity for certainty concerning, 258. Statistics, desirability of con- sidering different kinds of, 136, 181, 212; desirability of more comprehensive and ac- curate, 258-260. Steel. See Iron and Steel. Steel rails, prices of. In the United States, 1867 to 1898, 86; reasons for exceptional tendencies In price, 225; pres- ent demand and uses of, 299. Stevens, A. C, quoted, 186. Stock Exchange, first to feel financial stress, 15; excep- tional influences affecting prices at, 239. Stock Exchange, New York, crisis of May, 1901, 20, 300; closed September 20 to 30, 1873, 32; volume of transac- tions, 167, 337. Stocks, maximum and mini- mum prices contemporaneous with largest transactions, 240; months showing maxi- mum and minimum prices, 240, 338. See Securities. Subtreasury system, 253-256; objections to, 254; similar reg- ulations in States, 255; regu- lations adopted to keep money in circulation, 256; fig- ures showing influence of, upon amount of money in cir- culation, 344. Suez Canal, opening of, and contemporaneous development, 118, 128, 288. Sumner, W. G., quoted, 8. Sun-spots, alleged Influence of, upon harvests and prosperity, 26-29; views of Professor Jevons and others, 26-28. Supply and demand, exact har- mony impossible, 79; relation In times of activity and de- pression, 82, 307-309. Swank, James M., statistics by, 122, 173, 225, 298, 340. Sweden, maximum and mini- mum production of pig-iron, 172. Talne, H. A., referred to, 14. Thorn, De Courcey W., quoted, 51, 186, 326, 327. Tooke, Thomas, quoted or re- ferred to, 34, 55, 62, 112, ITO, 245. Trade unions, employment sta- tistics. United Kingdom in 1879, 62; 1855 to 1900, 139-141. 329. See Labour, Employment of. Transition period, depressions a feature of, 4; three shorter periods, 97, 307. Transportation, relation to pro- duction and more rapid in- crease, 16, 174; exceptional importance of, in the United States, 279. INDEX 391 Under-consumptlon. See Over- production. United Kingdom, railway build- ing, 82; capital created and issued, and share capital, 82; coal mining, 93; increased consumption, 121; statistics of employment of labour, 139, 329; foreign trade, 144; excess of imports, 147; comparative valuation of exports and im- ports, trade witlx the United States, 151, 334; increase of exports in 1873 and preceding years, 162; unequal Increase to different countries in 1873 and 1889, 161; income taxes, 162, 336; pig-iron, production and consumption, 172, 340; railway traffic and earnings, 174-177; exports and Imports per capita, 1868 to 1900, 332; railway tonnage, statistics of, 343; marriage statistics, 1870 to 1896, 346. See Eng- land. United States, railway building, 83-88, 104; exports and im- ports, 89, 155; increased con- sumption, 122; statistics of employment, 142; foreign trade, 89, 145, 155, 302; valua- tion of exports and imports, home and foreign compared, 149, 334; taxes on malt and distilled liquors, and tobacco, 163, 336; production and con- sumption of plg-lron, 172, 340; railway traffic and earnings, 174; failures, 177, 344; alter- nate periods of prosperity and depression, more Interrupted In, 182; Issuance of paper cur- rency, 189, 190; exports and Imports, prior to crises, 203; estimated annual amount paid for interest abroad, transpor- tation, etc., 204; gold produc- tion, exports and Imports of gold in various years, 209- 216, 280; prices of Iron and steel, 224-231, 341; reasons for the Issuance of paper money by the Government and objections thereto, 243- 248; prevailing opinion op- posed to national bank, 256; disadvantageous results from changes In financial and eco- nomic policies, 258; crises and depressions in, 270-296; early conditions, 270 ; improvement after adoption of Federal Constitution, 271— after 1815, 278— after Civil War, 286; crisis of 1814, 273— erroneous policies regarding foreign trade, and in providing for expenses of the war, 273— Embargo and Non-Intercourse Acts, 273, 275— foreign trade of 1814 as compared with earlier and later years, 273, 274, 275— taxation In 1812 and 1813, 274 — comparison of re- ceipts and expenditures prior to 1812, with later years, 274- 275— great Increase of banks after 1811, 275— manufactur- ing development prior to 1814, 275; crisis of 1818-'19, 275- 278— depreciation of paper money in 1815 and alternate contraction and expansion after 1817, 276; period from 1819 to 1837, 278-280; crisis of 1837, 280-282; period from 1837 to 1857, 282-284; crisis of 1857, 284; distinctive fea- tures of crises of 1857 and preceding years, 284-286; peri- od from 1857 to 1873, 286-287; crisis of 1873, 287-289; period from 1879 to 1890, 289-291— 1890 to date, 202-296; agri- culture and manufactures, S92 CRISES AND DEPRESSIONS growth compared, 294-295; present outlook, 296-304 ; financial condition, 300; dis- tinctions between present and previous industrial opera- tions, 299-300; exports and imports per capita, 1868 to 1900, 332; railway tonnage, 343; wlieat crop and prices, 345; cotton crop, 345. Usury laws, abolition of, 262. Van Buren, Martin, quoted, 318. Wage-earner, position In de- pressions, 2, 47, 48. Wages slowly affected by changing conditions, 2, 47; increase prior to a crisis, 52. Wallace, Alfred Russell, quoted, 38, 326. War, effect of loss by, 76, 80; results less serious because foreseen, 134; conditions dur- ing, 134; effects postponed, 134-135; situation in and after Civil War in the United States, 286. Waste, direct or indirect, a cause of crises, 72, 76; influ- ence of, 79; results postponed, 134; report upon. In Pennsyl- vania in 1814 to 1819, 277. Watt, William, quoted, 327- 328. Wealth, defined, 69; compara- tive effect of loss and trans- fer of, 107. Weber, G. A., statistics of for- eign trade by, 332, 333. Wells, David A., quoted, 29, 118, 119. Wheat, production and prices, 345. White, Horace, quoted, 313. Wilson, James, quoted, 321- 322. Wirth, Max, quoted, 12, 78-79. Wisconsin, statistics of employ- ment of labour In, 331. Wood, George H., employment statistics by, 138, 329. Wright, Carroll D., quoted or referred to, 10, 61, 65, 92, 330, 331. Young, C. A., quoted, 27. (1) THE END AN IMPORTANT FINANCIAL WORK. Clearing Houses. Their History, Methods, and Administration. By James G. Cannon, Vice-President of the Fourth National Bank of the City of New York. Illus- trated. Crown 8vo. Cloth, $2.50. This is the first book to give, in a single volume, a history of the Clearing Houses of the United States and a description of their methods. A knovrledge of the workings of these great organiza- tions is of obvious importance to bankers and those practically- interested in finance, and also to business men in general and to students of financial subjects. 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The author has no program of trust regulation to advocate, nor is it apparent that he considers any scheme of regulation necessary or even desirable. He confines himself to a discussion of financial meth- ods and principles as illustrated by the history of the ludustrial Trust, and avoids the main grounds of the controversy which the so-called " Trust Question " arouses. The book will be of service to the in- vestor, and to the student of finance who wishes to gain an insight into the nature of the trust as an institution without reference to its moral or ethical characteristics and functions. "A useful and timely work." — Chicago Inter-Ocean. "Of profitable interest to students of finance." — Boston Advertiser. "A masterly study of trusts from the investor's standpoint." — The Outlook. "Nothing more searching and brilliant has been written on the subject." — Seattle Times. "Interesting because it gives a complete resume of the whole ' trust ' subject. — Philadelphia Inquirer. 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Pratt has not contented himself with the authorship of the best book published on the mech- anism, personality, function, operations, and ramifications of the finan- cial Isis and Osiris of the western world, but has written it in a style which for clearness and interest is fascinating. He has drawn the veil from what to so many has been a mystery, so that one may easily see the wheels revolve, almost hear them click. . . . Those whose libraries or tastes include the works of such writers as Bryce, Jevons, Sumner, and White will surely discover a niche beside them for ' The Work of Wall Street.' " — Albert C. Stevens (former Editor Bradstreet' s) in Newark Evening News. " A book that can not be too highly recommended to those who desire to know what Wall Street is and how it does its work." — Wall Street Journal, " It is one of the best books on Wall Street that has ever been published." — Brooklyn Eagle. " A well-written and generally thorough digest of the operations of the financial district." — New York Sun. " It has no equal." — New York Press. " The most fascinating presentation possible of a subject of the utmost interest to business men and students of economics." — Chicago Kecord-Herald. " Clear, simple, direct, straightforward, impartial, and, above all, informing. . . . Mr. Pratt has done a real service in describing the things which the stock exchange accomplishes, and its usefulness to the nation at large." — Boston Herald. " The author knows the ins and outs of the New York stock market, and the book is veritably a mine of knowledge about matters very little understood by the public. . . . Particularly valuable are Mr. Pratt's explanations of the jargons of the street — of words and phrases which to most persons not actively engaged in the stock business are quite unintelligible." — Philadelphia Ledger. D. APPLETON AND COMPANY, NEW YORK. TWENTIETH CENTURY TEXT-BOOKS. COMMERCE AND INDUSTRY. Essentials of Business Law. By Francis M. Burdick, LL. D., Professor of Law in Columbia University. 1 2mo. Cloth, $ i . i o. This book is not written for lawyers, nor for pro- fessional students of law, but for high-school boys and girls. It shows how the rules of law governing the commonest business transactions have been developed, and it tells what they are to-day. Technical law terms are avoided, or so explained and illustrated as to be easily understood. It is not a child's book, and the author does not prattle to his readers. On the other hand, the principles of law are not set forth in the form and style known to the leather-bound law-book, but are simplified and expressed in clear, lucid, every- day speech. While a mastery of this book will not fit the stu- dent for examination for the bar, nor enable him to be his own lawyer, it will give an intelligent idea ot those legal principles and conceptions that are involved in ordinary business transactions. It will help him to know when he ought to consult a lawyer, instead oi going blindly into some business pitfall. He will learn the meaning of legal terms that are constantly thrust upon him in conversation and in the newspapers. He will learn how to make and use checks, bills of exchange, and promissory notes ; how to buy and sell property; what his rights are against hotel-keepers, common carriers, and various other persons. D. APPLETON AND COMPANY, NEW YORK. By DAVE) AMES WELLS, LL.D., D.CL. The Theory and Practice of Taxation. izmo. Cloth, $2.00. " As Mr. Wells was admittedly the best authority on this subject in the United States during his lifetime, no one who wishes to understand anything about taxation can afford to be ignorant of his views." — Brooklyn Eagle. "Dr. Wells's work will remain an invaluable summary of the subject, and a most useful guide in the consideration of the many questions which confront individuals, corporations, and the public." — Chicago Journal. " Strong in critical ability, and enjoying rare opportunities for obtaining material, his book is not only a lucid and illuminative account of existing tax methods, but is worthy of serious consideration as an index or guide to a better system." — New York Herald, Recent Economic Changes, And their Effect on the Production and Distribution of Wealth and the Well-being of Society. 1 2mo. Cloth, $2.00, " The book is the best contribution Mr. Wells has ever made to eco- nomical and statistical and social science, and one of the best that is to be found in any country or language. " — New York Evening Post. Things Not Generally Known. A Popular Handbook of Facts not readily accessible in Literature, History, and Science. Edited by David A. Wells. i2mo. Cloth, $1.75. The general idea of this work will be readily gathered from its title. It contains many little items of information, gathered from the broad fields of literature, history, and science, which are not contained in encyclopedias and ordinary handbooks, and which are not readily found when sought. In the departments of Physical and Natural Sciences, moreover, are contained many interesting results of modem research of too recent date to have found a place in ordinary scientific treatises. D. APPLETON AND COMPANY, NEW YORK. TWENTIETH CENTURY TEXT-BOOKS. COMMERCE AND INDUSTRY. A Commercial Geography. By Cyrus C. Adams, F.A.G.S., Editorial Staff of the New York Sun, formerly President Department of Geography, Brooklyn Institute. i2mo. 505 pages. Cloth, $1.30. A handbook for the student, the teacher, the scholar, and the business man. An extraordinary success in text-book making and text-book selling. Three large editions in two months after publication. Characteristic features: Prepared expressly for edu- cational purposes ; topics indicated in heavy type to facilitate study; tables compiled from the latest data; 120 maps, 40 diagrams, 16 full-page half-tone illustrations ; dry details not massed, but facts given in proper sequence ; text not choked with statistics, but placed in full at end of chapters ; prominence given to inventions and processes that facilitate production ; basal principles of the geogra- phy of commerce stated, connecting effect with cause. This text-book marks a new era in commercial educa- tion. Its signal success and the lavish praise it has brought from the leaders of the movement are sufficient testi- monies to its merit. Adopted bjr high schools, normal schools, business schools, commercial colleges everywhere. "The most scholarly as well as the most teachable book of the kind that I have seen."— ^r*A«> D. Arnold, Prineipal High School, Stough- ton, Mass. " We have adopted Adams's Commercial Geography, and it is giv- ing entire satisfaction."—^. Z. Brovm, Principal North Side High School, Denver, Col. " I am greatly pleased with it. It furnishes just the information that is often very difficult, if not impossible, for a teacher to obtain. It can not fail to meet with success."— i?. E. Spaulding, City Supenn- tendent of Schools, Passaic, N. J. D. APPLETON AND COMPANY, NEW YORK. EXPANSION OF THE REPUBLIC SERIES. In this series the purpose is to show what have been the great developing forces in the making of the United States as we now know them. Not only will territorial subjects be dealt with, but political, racial, and industrial. It is an important series, and the reception already accorded to it gives promise of real distinction for the entire set. Each volume ismo, Illustrated, $1.35 net. Postage, 13 cents additional. JfOtf^ READY. The History of the Louisiana Purchase. By James K. Hosmer, Ph. D., LL. D. Ohio and her Western Reserve. By Alfred Mathews. The History of Puerto Rico. By R. A. Van Middeldyk. With an Introduction, etc., by Prof. Martin G. Brumbaugh. IN PREPARATION. Steps in the Expansion of our Territory. By Oscar Phelps Austin, Chief of the Bureau of Statistics, Treasury Department. Rocky Mountain Exploration. By Reuben Gold Thwaites, Superintendent of the State His- torical Society of Wisconsin. The Conquest of the Southwest. By Cyrus Townsend Brady, Author of "Paul Jones,'" in the Great Commanders Series. The Purchase of Alaska. By Oscar Phelps Austin, Chief of the Bureau of Statistics, Treasury Department. PROPOSED VOLUMES. The Settlement of the Pacific Coast. The Founding of Chicago and the Development of the Middle West. John Brown and the Troubles in Kansas. NEW EDITIONS, UNIFORM WITH THIS SERIES, NOW IN PREPARATION. Each volume zamo. Cloth, $1.50. By James R. Gilmore. The Rear-Guard of the Revolution. John Sevier, the Commonwealth Builder. The Advance-Guard of Western Civilization. D. APPLETON and company, new YORK.