Fifty years in Wall Street

The gold in the United States Treasury, owned by the Government, increased under the tariff on imports from $193,072,614, early in 1905, to $291,258,135, near the end, and the total amount held by it, including that held against outstanding gold certificates, increased to $816,354,352, the largest in the Government’s history, and also the largest held by any government or institution in the world. The next largest sum ever held elsewhere was $591,600,000, by the Bank of Russia, in 1898. Yet on January 31, 1895, the total amount of gold held by Uncle Sam—that is, by the Treasury—was only $97,353,776, and on February 12th this had dwindled to $41,340,181, owing to the run on the Treasury through fear that the Government might be forced to suspend gold payments. But President Cleveland’s prompt action in selling bonds for gold—to the Morgan-Belmont syndicate—averted this possibility. Before glancing at more recent events, it is well to refresh our memories by looking back at the most conspicuous features of the stirring period in Wall Street’s history, extending from the beginning of 1901 to 1906. In 1901 we had a year of extraordinary developments, including new company organizations and old company amalgamations, wild and reckless speculation by the outside public, heavy borrowing of European money to carry on this speculation, the failure of the corn crop, and, except for corn, a heavy fall in the prices of our products. In 1902 Wall Street was flooded with new bond and stock flotation schemes, all clamoring for bank loans, although the activity of trade called for all the loanable capital available. Coincidently, there was wild and reckless speculation in stocks by newly made industrial millionaires with large bank resources and enormous loans at their command. The outside public, however, were not tempted by the bait they offered. Hence, the banks had an excessive burden of loans, all the greater because of the determination, at any risk, of the speculative capitalists to carry out their flotation schemes so as to control great industrial, railway, and other corporations. Meanwhile, there was an immense increase in our foreign imports and a decrease in our agricultural exports, and a great rise in raw materials and the cost of labor. But, fortunately, the year gave us a good corn crop and other satisfactory harvests. Then came 1903 with its train of disasters. Investors took alarm at the masses of new securities thrown upon the market, and withdrew from it. The securities consequently became unsalable, and prices declined rapidly. This forced liquidation in bonds and stocks of all kinds, particularly the better kinds, to save the poorer from sacrifice by the syndicates, corporations, firms, and persons who were over-extended and unable to respond to the calling in of loans by the banks and other money lenders. Wall Street was full of “undigested securities,” on which it was impossible to borrow any longer. So multitudes of holders had to sell them for what they would bring. Then came a heavy decline in iron and steel, among other things, an equally heavy reduction of the profits of industrial corporations, with many corresponding reductions in dividends, and a very sharp contraction in our before greatly expanded foreign imports owing to the hard times. We had a rich man’s panic, and plenty of poor rich men. But, again, we had abundant grain crops, although the cotton crop was very short, which resulted in our shipping more cotton to Europe in the autumn than ever before, while its price was abnormally high. In 1904 we saw one effect of the depression of 1903 in the abnormally large surplus reserves of the New York banks, when money on call for about eight months loaned largely as low as one per cent. Only four times before had these reserves been exceeded. Then came the largest gold exports ever made by us. In June the stock market began to recover under spirited speculation for a rise, together with much buying by investors. But reckless professional speculators carried prices so high that the market collapsed in December. During the year there had been a slow yet general revival of trade, in the face of extremely high prices for cotton, resulting from a short crop and a bull movement, which paralyzed the cotton manufacture, and caused many mills to close both here and in England. But happily this was followed by the most bountiful cotton crop we ever had, owing to the high price of the staple having stimulated cotton planting all over the South. A heavy fall in the price of cotton resulted, in which the bull leader failed. But the grain crops met with disaster, and were the smallest since 1900, which resulted in the highest prices since 1898, and the smallest exports to Europe since 1872. The presidential campaign in the meantime passed without creating a ripple in the tide of Wall Street. In 1895, simultaneously with much discussion of the world’s increasing gold product, we saw both here and in the Old World, especially in the latter part of the year, unexampled monetary stringency with very high rates for money. The surplus reserve of the New York banks was wiped out twice, that is, they twice fell below the dead line of the required twenty-five per cent. reserve on their deposits, while the Bank of England’s condition was the lowest since 1890, and the Bank of Germany’s the lowest since 1897. Yet we had a very active and excited bull speculation in stocks, just as Germany had, despite the high rates for money, and its abnormal scarcity consequent on its vast employment in trade and speculative enterprises outside of Wall Street. That the world’s increased gold product largely stimulated speculation for a rise, both by adding to the amount of gold in circulation and the amount of paper money issued by the banks against it, is certain. Its effect has not been seen in lowering rates of interest, but in lowering its own value, or purchasing power, by reason of its increased supply or, in other words, by raising the prices of stocks, commodities, labor, and whatever else money buys. So the increased supply of gold has only quickened the uses for it by fostering speculation, and the demand for speculation has outrun the increased supply of gold—that is, money—and correspondingly raised interest rates, as well as prices. In 1905 our national prosperity was crowned with abundant harvests, the corn crop having been the largest on record, and that of wheat the second largest. This gave a fresh impetus to trade and speculative enterprise, with increased railway and industrial earnings, and production, especially in iron and steel products, at a higher pitch than ever before. Dividends and reserves also increased in proportion. Russia’s disastrous war was waged without causing any national disturbance in Wall Street, and her largely reduced crop of wheat helped us to secure better prices for our own surplus wheat in Europe. So it is an ill wind that blows no one any good. In 1905, too, we witnessed the stormy upheaval in the Equitable Life Assurance Society, begun by the acrimonious duel between President Alexander and Vice President Hyde, which led to the general exposure of the waste, extravagance, graft, and corruption in life-insurance management, through the investigation of the New York Legislative Committee. The loss of new insurance business, caused by the popular distrust of the companies exposed, had its principal effect in Wall Street in their reduced power to buy bonds; and the prolonged stagnation in the bond market after they ceased to be large buyers was largely attributable to this cause. But the exposure was much needed and did great good in correcting abuses of power and turning the rascals out. Our exports of domestic merchandise kept pace with our tremendous industrial prosperity, and these more than doubled in the ten years ending with June, 1906. Raw cotton, provisions, and iron and steel manufactures were exported in the fiscal year 1906 to a value exceeding $300,000,000, iron and steel showing the largest increase, and seventeen articles, or classes of articles, had an export value of from ten to forty-two millions. While iron and steel have taken third place, raw cotton still holds the first, and provisions the second, and copper manufactures have advanced from the eleventh to the fourth place. But refined mineral oil, that was third, is now the eleventh, and flour has dropped from fourth to seventh, although showing an increase of seven millions, and wheat from seventh to thirteenth. On the other hand, our exports of agricultural implements were five times as great in 1906 as in 1896, which advanced them from the twenty-third to the fourteenth place in the list. Our cotton manufactures, too, advanced in value from twelfth to eighth, that is, from $16,750,000 to $53,000,000. There is, however, still room for a great increase in these, and the outlook favors a large and growing demand for them in China, the Philippines, and South America. We have become a great manufacturing and mining, as well as agricultural, nation, and a lower tariff on raw materials would swell our exports enormously. That will come in time; but at present politics stand in the way. In 1906 we saw a continuation of the same big bull speculation in stocks that, with varying fortunes, had been progressing since June, 1904, with Edward H. Harriman, president of the Union Pacific Railway system, and James J. Hill, president of the Great Northern Railway system, the most conspicuously dominant figures in the railway world, and, incidentally, in the world of Wall Street. Prices on the Stock Exchange, and the rates for money, both on call and time, were abnormally high, and still tending upward, till both frequently exceeded six per cent. in August, and, in some instances, jumped as high as thirty per cent. early in September, the excess above six, in the case of time loans, being represented by a commission. This, on the eve of the usual drain of money westward and southward, to move the crop, caused much anxiety for the future, as it was entirely without precedent in that month. But the Secretary of the Treasury, through bank deposits and gold imports, was relied upon to relieve the stringency when it became more acute later on, under the actual drain of money West and South. He did so by renewing his offer, made in April, to deposit gold with national banks when secured by bonds, to the amount of any gold they wanted to import, the deposits to be returned when the gold arrived. Thus they were saved loss of interest in transit, and gold was imported largely. The money market seemed to have no terrors for the great speculative capitalists in control of the stock market. Prices were still bid up boldly, and the Harriman and Hill stocks, in particular, were marked up to figures never before quoted, just as Reading and the other anthracite coal stocks had been long before and have been since. The chief sensation of the year 1906 in the stock market was produced by the Harriman announcement on Friday, August 17th, that the semi-annual dividend on Union Pacific had been raised to five per cent., or from a six-per-cent. per annum basis to ten per cent.; and that an initial dividend of two and a half per cent., or at the rate of five per cent. per annum, had been declared on Southern Pacific. These unexpectedly large dividends and the delay in making them known, after they had been acted upon by the directors on Wednesday, and finally on Thursday, greatly excited and disturbed Wall Street. They were dividends that staggered the bears and astonished the bulls, and caused an advance of sixteen per cent. in Union Pacific and five per cent. in Southern