Fifty years in Wall Street
congratulated on having so successfully put on the brakes in time to
prevent a collapse that would have involved and disturbed the nation
from the Atlantic to the Pacific.
The year 1901 was the most remarkable in the financial history of the
United States, and Wall Street was a theater of action whose
performances astonished not only the entire country, but the world.
Their like had never been seen before, not even during the great war
between North and South. It would take volumes to fully describe and
give retrospective clearness to the leading events of that extraordinary
period which made the Stock Exchange continually the scene of wild
excitement, daring manipulation, and unexampled inflation.
To say that Wall Street astonished the natives and made conservative
business men stand aghast is no exaggeration. There were six influential
factors actively at work in that year, namely, the consolidation of
railroad and industrial companies at enormously inflated prices,
including the disastrous Northern Pacific skyrocket “corner,” the
restless sea of reckless stock speculation that swept the American
people into its vortex, with all its razzle-dazzle extravagance, the
transformation of this country from a heavy lender in Europe to a heavy
and urgent borrower, the partial failure of the corn crop, the decline
in prices for nearly all the staples except grain and iron, and the
collapse in earnings and dividends of many new industrial combinations.
These included The Amalgamated Copper Company, and the panicky decline
in its stock, which impoverished or ruined many thousands of investors,
it being first run up to 130 and then rapidly down to 60 by the
manipulators, who sold out and then sold “short,” and who are said to
have made more than fifty millions by the up and down movement.
Subsequently even this low price was cut nearly in two, as the decline
did not stop until 32½ was reached.
A mere recital of events as they occurred would be an eloquent serial
story to those familiar with the alphabet of Wall Street; and there is
no more interesting or exciting serial story than the stock ticker
tells, from day to day, to those interested in the stock market, or one
that often excites more joy or sorrow, or carries with it more weal or
woe, prosperity or ruin. But the ticker, like Tennyson’s brook, will go
on forever during business hours, for we shall never be without a stock
market and speculation.
The transactions of the New York Stock Exchange in 1901 were so
tremendous in volume as to excite wonder. But they only represented the
speculative spirit, the intoxication of the time. The sales in the first
half of the year aggregated 175,800,600 shares of stocks and
$637,100,800 of bonds at par value, an increase of 109,906,300 shares
and $346,900,700 in bonds over the same six months in 1900.
As prices soared the volume of speculation increased, and on January 7th
the day’s total sales amounted to 2,116,500 shares, and then went on
increasing till they reached 3,271,000 on April 30th. Then came the
Northern Pacific bombshell, the panic of May 9th, when stocks came down
even faster than Captain Scott’s coon, and the actual sales were still
larger, but owing to the intense excitement, demoralization, and
confusion that prevailed, it was impossible to keep track of them all,
and the ticker registered only 3,073,300 shares.
This sudden catastrophe convulsed the stock market in a way that alarmed
money lenders, destroyed confidence, and caused a general rush to sell
stocks which brought them down with a crash, involving many thousands in
ruinous losses. The revulsion of feeling, the change in the sentiment of
the Street was as startling as a violent earthquake, and the
consequences were fraught with grave disaster. Up to the very eve of
this great convulsion in the stock market the dance of speculation had
been fast and furious, among both “the big men” and the little, and its
unlooked-for occurrence reminded one of Byron’s lines on the Brussels
ball, given on the eve of the battle of Waterloo, when the sound of
cannon unexpectedly boomed above the music:
“On with the dance! Let joy be unconfined;
No sleep till morn when Youth and Pleasure meet
To chase the glowing hours with flying feet.
The lamps shone o’er fair women and brave men;
A thousand hearts beat happily; and when
Music arose with its voluptuous swell,
Soft eyes looked love to eyes that spake again,
And all went merry as a marriage bell;
But hush! hark! a deep sound strikes like a rising knell,
Arm! arm! it is—it is—the cannon’s opening roar!”
Fortunately, in the midst of the Northern Pacific panic, the financial
belligerents combined to stop it. Their competitive buying for control
of the stock had caused the “corner.” But the extraordinarily high
prices to which it was bid up by those short of it were reached after
the competitive buying had ceased for the want of sellers. The
contestants saw the wisdom of coming to terms to restore confidence and
check the havoc that was being wrought on the Stock Exchange, where
prices had fallen from fifteen to fifty per cent. that day, while
Northern Pacific common stock had sold up to $1,000 a share. So J. P.
Morgan & Co., the bankers of the Hill-Burlington-Great Northern party,
and Kuhn, Loeb & Co., the bankers of the Harriman-Union Pacific party,
met in haste, and came to an agreement as to the Northern Pacific stock
they had bought, the formal announcement of which caused a violent
recovery of prices the next day, but not before the sweep of the besom
of destruction had caused several Stock Exchange failures to be
announced. The recovery was followed by a relapse of equal violence
under a fresh rush to sell, which carried stocks nearly as low as in the
panic, and then by a fresh recovery, a usual feature in a crisis where
credit has been severely shaken and many have been crippled.
The outcome of this agreement between the two sides was the formation of
the Northern Securities Company, practically as arranged for by J. P.
Morgan & Co. and Kuhn, Loeb & Co., Mr. Morgan naming the directors by
mutual consent. Into this repository, or holding company, the Hill and
Harriman companies—that is, both sides to the controversy—put their
Northern Pacific stock, as well as Great Northern stock, and the
Northern Securities Company later issued its own stock to them in
exchange for it.
But when, in 1904, the Northern Securities Company was held by the
United States Supreme Court to be a violation of the anti-trust law, and
it became necessary to distribute its assets, a new controversy arose.
Its directors proposed to make an equal, or _pro rata_, distribution of
the Northern Pacific and Great Northern stocks deposited with it,
whereas President E. H. Harriman, for the Union Pacific, which deposited
the lion’s share of the Northern Pacific, namely, $78,000,000, wanted
all its stock back again; in other words, to eat his cake and have it,
too. As this, if assented to, would have given the Union Pacific control
of the Northern Pacific, President Hill, for the Great Northern
Burlington system, naturally objected, and we all know of the litigation
that followed, and in view of the glorious uncertainty of the law, it
would have been rash to have predicted its final outcome.
On the Stock Exchange, April was the most active month of 1901, the
sales aggregating 41,689,200, a daily average of 1,812,600. On April
24th no less than 652,900 shares of Union Pacific were sold. These
specimen bricks furnish a practical commentary on the rampant
speculation then in progress.
The new incorporations of the year represented an amazing amount of
capital, the total being far in excess of any previous year, even that
of 1899, when many of the large trust combinations were formed. The
largest and probably the most heavily watered combination launched was
the United States Steel Corporation, with its $508,478,000 of common
stock, $510,277,300 of preferred stock, and $304,000,000 of bonds. The
mania for organizing new companies and making combinations of old ones
on largely inflated capital spread to every State in the Union, and the
promoters of industrial enterprises, in particular, seemed to be trying
to surpass each other in piling Pelion on Ossa in excessive
capitalization. Their obvious purpose in most instances was to sell the
stock to the public, and the poor public took the bait and suffered
accordingly, for much of the stock in a great many of the new schemes
became almost entirely worthless, both as collateral and in the stock
market, and the rest experienced very heavy depreciation, and,
figuratively speaking, like the shaky corporations it represented, went
limping along with an uncertain gait and a ragged and down-at-the-heel
appearance suggestive of reduced circumstances and hard times.
In every State there was a flood, if not a deluge, of new companies. In
New Jersey, 2,346 were formed in 1901, with a capitalization of
$4,773,702,000, against 2,181 in 1900, with a capitalization of
$1,350,208,400; and in New York, Ohio, and Texas the incorporation mills
were proportionately active in grinding out new companies with
fictitiously large capital stocks.
Commercial and manufacturing corporations were practically unknown, that
is, in any substantial form, in the United States till about 1850, and
then they followed the development of the railways. In 1848 the first
general corporation act, known as the Manufacturing Act, had been passed
in this State, and companies began to be organized under it; but the law
limited their capital and imposed other restrictions, whereas companies
may now be incorporated for a thousand years with an unlimited amount of
capital. The contrast between 1850 and this era of trusts marks the
great and rapid progress of the country in the interval in population,
commerce, manufacturing industry, banking, railway building, and general
material prosperity.
The growth of trust companies has been the natural outcome of our
industrial and economic development, and the freedom allowed by our laws
in monetary affairs. In England, France, and other European countries
the laws restrict corporation rights and privileges so rigidly that such
companies would find it impossible to do business there as they do here.
Hence trust companies have practically no existence except in this
country. How immensely they have prospered of recent years the banks
know to their cost. In 1882 the gross deposits of all such companies in
the United States were $144,841,000. In 1892 they were $411,659,000; but
after the new industrial combination era began, in 1897, they shot up
with amazing celerity, and new companies sprang up like mushrooms in all
our large cities, and here and there in small towns.
Being competitors of the banks they shared their business, and so
prevented or limited their natural growth, and forced many of the bank
consolidations that have since taken place. At the end of June, 1902,
their deposits had mounted up to $1,525,887,000. Here was an increase of
$1,114,228 in ten years to about half of the total individual national
bank deposits of the country, for these on July 16, 1902, were
$3,098,875,772. Moreover, in the city of New York the trust company
deposits exceed, or did exceed, the individual deposits of the national
banks, those of the latter on September 15, 1902, aggregating
$603,565,374, while on June 30, 1902, the deposits of the trust
companies, as shown by their semi-annual reports to the State
Superintendent of Banking, were $760,776,124. This comparison is a very
suggestive revelation of where the money goes and how the trust
companies prosper at the expense of the banks.