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The Industrial Boom

THE " INDUSTRIAL BOOM" Our narrative is now about to enter upon a very remarkable chapter in American finance. It is a chapter which, so far as regards its general ten dencies, may possibly be said merely to have repeated history; but which, when judged by the dramatic change in the country's financial condition, and by the portentous character of the phenomena of the day, stands quite by itself. What we have to consider, in our review of the five or six years which followed 1896, is such reversal of its position by the United States that, instead of the crippled industrial and financial state of 1894, with the country's principal industries declining, its great corporations drifting into bank ruptcy, and its Government forced to borrow on usurious terms from Europe to maintain the public credit, there was presented, in the short space of half a dozen years, a community whose prosperity had become the wonder of the outside world; whose productive industries had developed such strength that the "Amer ican invasion" was discussed abroad as threatening ruin to our European competitors; whose corporations, when properly capitalized and managed, had grown so profitable that the strongest financial interests of the world were struggling to buy possession of them; whose banking-houses subscribed in important sums to new English and German Government loans, not to mention the public bond issues—Sioo,000,000 in all, within seven months—of Cuba, Japan, and Mexico. The startling ups and downs of fortune which have occurred in other communities are familiar. The story of alternating "booms" and panics is largely the story of modern industrial progress. It is, however, the fact of a complete revolution in this country's position, not only as regards its own enterprises, but in its re lation to other industrial States, which challenges atten tion, and it is this which we shall now examine.

Two underlying phenomena of the day, of the first importance to finance, require notice before resuming the narrative of consecutive events. Their scope of influence was world-wide; they should, on the face of things, have operated as effectively in shaping Euro pean finance as in shaping our own. Yet the salient fact of the period is the expansion of American indus trial activity out of all proportion to that in other coun tries, and it will be a part of our program to discover why. These two phenomena were the inimense in crease in the world's gold production, and the world wide rise in prices of commodities. A moderately rapid increase in annual gold output had been in progress during the half-dozen years before 1896. The gold product of 1896 itself was greater by so per cent. than that of 1892, and was very nearly double that of 1884. But the annual increase after 1896 was far more rapid. In 1893, the world's total output was $157,494,800; in 1896, in 1899, $306,724,1oo. In 1898 alone, the increase in annual product over 1897 (whose own output broke all preced ing records) was more than $5o,000,000 this marked an increase greater than had been scored in any previous year but one of the world's history—that exception being the $67,000,000 increase of 1852, when the miner's pick was dislodging the richest surface deposits of Australia and Now there can be no doubt that this increase had its effect on the financial movement of the period; how much effect, is a controverted question. Professor Cairnes showed fifty years ago, when the new gold was pouring in from Australia and California, that prices of commodities, the world over, were affected because, primarily, the new mining communities gave large orders for goods to the older manufacturing States, thus creating a new demand, which paid its price not in other merchandise, but in It is difficult to trace this process in the gold production of to-day; for the world's great gold-fields are now owned, as a rule, not by scattered individuals, but by joint-stock cor porations with large capital. One thing is certain, that the banking and credit institutions of the world were able, through the increased gold production, to accumulate larger reserves of gold. Since those re serves limit the credits granted by the banks to the financial market, it follows that greater and more con fident activity of credit should have been possible. M. Paul Leroy-Beaulieu pointed out in 1904 that more than one-half of the gold then held in the reserves of the world's great banks and of the United States Treasury had been accumulated since But, even if we were to concede the whole claim of the quantitative money school, we should still have to confront the question why the United States should have been the main beneficiary. Increase in gold production since 1890 has been largest of all at the Transvaal mines, which England owns; yet it is England, of all important industrial States, which has shown least signs of an industrial "boom." All statisticians agree that low-water mark was reached in commodity prices in midsummer, 1897. There had been a pretty continuous decline since 1891; the figures of Dun's Review, adopted by our Govern ment's Bureau of Statistics, give a unit of 72.455 for July, 1897, as against 96.092 in the middle of 1891 and 74.317 in the middle of 1896. The London Econ omist, using another unit, gives 2259 for the middle of 1890, 1947 for 1896, and 1885 for July, 1897, which is the low figure of the record. By the year 19oo, the Dun's Review unit had risen from 72.445 to 95.295, and the Economist index number from 1885 to 2211. These figures are the embodiment, in the form of dry statistics, of a good deal that happened during the interval. Summed up, they show a recovery in staple prices, between the low level of 1897 and the high level of igloo, ranging, according to method of striking averages, from 17 to 31 per cent.

When specific prices are examined, it will be found that this general advance, especially in the period which we are reviewing, was most notable in products of the earth. Breadstuffs as a whole, for instance, rose in this country 40 per cent. between the middle of 1897 and the middle of the average price of cotton in 1900 was 32 per cent. above the average in in iron, average was higher by 65 per In agriculture particularly, the world's normal consump tion was apparently increasing faster than production. Our yearly cotton exports increased scarcely half as rapidly in the decade after 1896 as in the decade before it. At one time, the permanent disappearance of the United States as a wheat exporter was seriously dis Whatever is to be assigned as the dominant cause for the persistent rise in prices, the result must clearly have been beneficial, most of all to agricultural countries, such as the United States still is, and least of all to countries which import and consume the pro ducts of other States.

We shall presently see exactly how these phenomena operated in this country. Keeping in mind that the real turn in the movement of prices came in the middle of 1897, it will first be well to observe what were the finan cial, social, and political conditions which existed just before it. Industrial markets were in a state of pro found discouragement; the collapse of the premature "trade boom" of 1895 had left the country's business, at the opening of 1896, seemingly worse off than at the end of 1894. In particular, agricultural markets were in the grip of renewed depression. Wheat was in the fifties; cotton in 1895, at 5-a- cents a pound on the New York market, sold at the lowest price in nearly half a century. The South and West were calling for free-silver coinage, and, as they reasoned, their demand had been balked by President Cleveland's maintenance of the gold standard through the Treasury's contract with a Wall Street banking syndicate. Under these conditions, the Presidential campaign of 1896 ap proached. The Democratic party was obviously split in two, and the Populist party now made its bid for alliance on the coinage issue with the Democrats. The outcome was an excited and tumultuous Demo cratic convention at Chicago, where a young Nebraskan Congressman, thirty-six years old and previously un known in national politics, delivered a speech of florid and impassioned eloquence which so exactly voiced the high-pitched resentments and aspirations of the delegates that he was chosen for their candidate, almost by acclamation. As a matter of course, the platform demanded " free and unlimited coinage of both silver and gold at the present legal ratio of 16 to 1, without waiting for the aid or consent of any other nation," and it opposed " the policy and practice of surrendering to the holders of the obligations of the United States the option, reserved bylaw to the Government, of redeeming such obligations in either silver coin or gold coin." 1 A month before the selection of Mr. Bryan as the Democratic candidate, the Republican party nominated Mr. McKinley; and here the logic of events moved more potently than the purposes of men. McKinley's legislative record was that of a silver advocate. On November 5, 1877, his vote was cast in Congress for the Bland Bill "to authorize the free coinage of the standard silver dollar, " and in the following February he voted to pass the amended free-coinage bill over the veto of a Republican President. He had voted with his party for the Silver-Purchase Act of 189o. But he had also been in 1890 the head of the Congressional committee which drafted the bill imposing the highest protective duties in our history, and he was avowedly made the party's candidate in 1896 on the theory that return to high protection, after the lower tariff of 1894, would be the campaign issue. The tariff, however, was not destined to cut any appreciable figure in contest. Mr. McKinley's campaign began with speeches on protection; but it soon appeared that, on the tariff issue alone, the Republican party could not win. A great body of Democratic voters stood aloof from either party. They would not indorse the Bryan free-coinage candidacy, but were halting between the alternatives of supporting an independent Gold Demo cratic ticket, nominated by bolting Democrats, or voting for McKinley in the face of his tariff record, which was to most of them thoroughly objectionable. Ordinary common sense dictated the policy to be pur sued under such circumstances. Mr. McKinley, in his successive speeches to visiting delegations at Canton, said less and less about the tariff, and more and more about the currency, until on July 3oth he took ground flatly for the gold standard.

But the election was not won, and it probably could not have been won, by any speech of the candidate. A vigorous and effective "campaign of education," with unprecedented quantities of campaign literature on economic questions, distributed and eagerly read by the voting constituency, had perhaps most to do with the result; the naturally larger resources of the sound money party for organizing and conducting the can vass played their part. But Nature herself eventually took a hand. A few months before the November vote was to be cast, the attention both of voters and of markets converged on something new. In August, wheat touched the extraordinarily low price of 53 cents a bushel on the Chicago market,—a figure nearly unremunerative to all but the most favorably situated farmers. Two months later came news of partial failure of the crop in India, whose harvest turned out smaller by nearly zo per cent. than in the preceding year. That country, which had sent 56,000,000 bushels to the outside world in the crop year 1891, was actu ally forced to import wheat in This hap pened when the consuming world had been using wheat, at the low prevailing prices, with the greatest freedom, and when, accordingly, supplies of wheat on the world's great markets had fallen to the lowest level since the famine year 1891. In September, 1896, the so-called "world's visible supply" was 126,00o,00o bushels, against 152,000,000 a year before, and 19o, 000,000 two years back.

The news of the crop failure in India, coming on such a situation, forced Liverpool to advance its bid for American wheat. As against the August price of 53 cents per bushel, wheat rose at Chicago to 70 cents in September, to 74 in October, and to 94 in election week. The moral effect of this movement was very great. What it meant, politically, was shown by the quick assertion of Mr. Bryan's party managers, that the " money power" was putting up wheat, over election day, to delude the agricultural voter. This explana tion of the rise, in view of the facts which I have cited, was at least superfluous. The point which it 1 Liverpool Corn Trade Year Book for 1896, pp. 57, 58, and 6o.

tacitly recognized, however, was that the Western voter had been told that, under the gold standard and with the silver-coinage laws repealed, wheat could not rise again; and here, with the gold standard still in operation; was wheat at the highest price in nearly half a dozen years. The political result of this rise in wheat, nota bly in the doubtful Western States, was undoubtedly important. It largely accounted for McKinley's heavy majorities in farming States of the Middle West, such as Ohio, Michigan, and Minnesota, which in 1892 gave to the Democrats and Populists, combined, a plurality of 21,000, whereas in 1896 the Republican party's vote in the same three States ran 148,000 votes ahead of its two antagonists.

The election of 1896 settled the question of a gold standard. McKinley's large majority of 95 in the Electoral College, and his popular plurality of 602,555 in the country as a whole, where even the "landslide" of 1892 gave Cleveland only 380,961 plurality, set the seal of the voters effectively on the verdict. The Stock Exchange had witnessed a demoralizing mid summer break in prices, and had recovered only cau tiously on the eve of election—when, indeed, gold went actually to a premium of II per cent., when New York bankers invested their surplus resources largely in drafts on London, when call money touched 125 per cent. in Wall Street, when a $10,000,000 syndicate of bankers was organized for co-operation in a possible crisis, and when a long line of private individuals stood outside the United States Sub-treasury's redemption window to exchange their legal tenders for gold coin. This state of affairs ended abruptly November 4th, when election results were known. Money rates fell in a week to 4 per cent.; within a day, gold coin was presented at the same Sub-treasury windows for con version into legal tenders. 2 This was the first re sponse of the financial markets.

It is a popular impression, with perhaps the ma jority of people, that industrial revival was immediate and continuous after the election of November, 1896, and to this belief have been partly traceable some singular Stock Exchange phenomena at subsequent elections. The belief is erroneous. That the defeat of the free-coinage demonstration, at what was ap parently the psychological moment promising best for its success, was an event of great importance in the country's economic history, there can to-day be little doubt. The outcome of the election certainly con tributed to the later return of full financial confidence and industrial activity. But confidence and industrial activity were by no means an immediate sequel. The rise in stocks, which had begun before election, lasted barely forty-eight hours after November 4th; then heavy realizing sales began, and in the sequel, financial depression prevailed again until far into 1897.3 During November, fully 70o manufacturing establishments resumed work or added to their workir g force. This was taken as reflecting reassurance in the business community over the election verdict on the currency. But the rush of activity ceased, in a month or two, as suddenly as it had begun. I Instead cf immediate and continuous revival, the first half cf 1897 was a period of financial uncertainty and de pression. The first half of 1896 had been regarded as hard times; yet the checks drawn on all the coun try's banks in the similar period of 1897 showed de crease of $57o,000,00o, or 21 per In the second quarter of 1897, liabilities involved in commercial failures throughout the country were $3,000,000 greater than in 1896.3 In July, 1896, there had been in blast in this country 191 iron foundries, with a weekly output of 180,50o tons, and with 815,000 tons piled up in their yards. This was then called a very unfavorable showing; yet in July, 1897, the number of furnaces in blast had further decreased 46, to 145, weekly output had fallen 16,000 tons, to 164,000, and the idle stock of iron had risen nearly 200,000 tons, to The victorious party in the election of 1896 had won, as we have seen, on the issue of the currency, and it was destined in due time to embody the people's verdict in the statutes. But the Republican platform of June, 1896, had also declared for raising the import duties, and denounced the Wilson Tariff as "injurious to the public credit and destructive to business enter prise." That the campaign issue had been changed in the course of the contest did not change the purposes of party leaders. Revision of the tariff was at all events the first work of the newly-elected Congress. The Dingley Tariff Law, enacted on July 23, 1897, not only restored the scale of duties lowered by the Wilson Bill of 1894, but in many important industries fixed higher import tariffs even than the McKinley Law of 189o. The average rate of duties collected in the fiscal year 1893, under the McKinley Act, was per cent. In the two fiscal years 1895 and 1896, when the Wilson Bill's schedules had full scope, the average rate was, respectively, 411 and 4o. In 1898, under the Dingley Act, the percentage rose to 491, and it averaged 52 in height not paralleled, even in Civil War times. 2 In so far as the Dingley Tariff was designed to correct the deficit in the Government's finances—a matter of importance—it was not an effective measure. When imports are shut out by a higher tax rate, the tax is less productive. The deficit continued; cus toms revenue itself, during the twelve months after the law's enactment, was smaller than in either year under the Wilson But it has long since ceased to be the fashion to ascribe the subsequent "boom" in American prosperity to the Dingley Tariff. One reason is that the similar increase in duties by the Mc Kinley Tariff of 1890 was followed, not by prosperity, but by disaster. The other is that our later industrial recovery found expression chiefly in an enormous export trade. If higher import duties had any influence on that, they must have checked it, because raw materials used in exported manufactures were now taxed more heavily, and because, all other things being equal, restriction of imports through such taxes normally curtails the movement of exports sent in exchange for them. All such considerations were soon dismissed from the public mind of 1897, by a turn of events which repeated, on a larger scale and in an equally extraor dinary way, the story of 1879.

We have seen that, although the Indian wheat crop failure of 1896 made a great hole in the world's sup plies and caused an immediate rise in the price of wheat, nevertheless Europe itself raised in that year a crop of good proportions. What happened in 1897 was, first, that a scorching drought in France cut down the season's wheat yield in that country 93,000,000 bushels from 1896; next, that a wet harvest reduced the Russian crop nearly 8o,000,000 bushels; and, finally, that a season of storms flooded so disastrously the Danube Valley that Austria and the Balkan States gathered less wheat by 127,000,000 bushels than in the preceding year. The whole European crop fell short of 1896 by 350,000,000 bushels,—a loss of no less than 3o per Had the American harvest of x897 re mained at the figures of the year before, a great dis aster would have befallen Europe. This country's fortune had, however, stood it in good stead. The high price of wheat in the autumn of 1896 had encouraged farmers, the country over, to plant more wheat in the ensuing spring. This increase amounted to nearly five million acres. Weather conditions in the United States were favorable throughout the season. The resultant crop ran 103,000,000 bushels ahead of 1896, and was, with one exception, larger than any pre viously harvested.

Under the circumstances, it was sold at extraordi narily good prices. By August "dollar wheat" was touched again on the Chicago Board of Trade, for the time since 1891; and the price was maintained throughout the ensuing season. At this price, con suming Europe, with its supplies already depleted by the Indian failure of the year before, bought our wheat in quantities quite unprecedented. During the twelve months after the harvest of 1896 the United States exported, in grain and flour, 83,00o,00o bushels of wheat. In the same period, after the 1897 harvest, the export was 150,000,000. The value of the season's exported grain increased no less than $122,00o,00o. One result of this notable trade incident was the im port, during the same twelve months, of $12o,00o,00o gold, the first natural movement of the kind in this direction since the autumn of 1891. Directly, this inflow of gold, which was lodged with the Treasury in exchange for notes, caused a rise in the Government's gold reserve from the $44,500,000 of February, 1896, and the $137,000,000 at the end of 1897, to the hand some figure of $245,000,000 in the middle of 1898.

It need hardly be pointed out that this position made possible the success of the Gold-Standard Act in 1900, as it certainly would not have been possible in 1896. The Act of 1900 not only required establishment of a fund of 1450,000,00o gold to insure redemption of the notes of the Government, but, by the facilities which it opened for the establishment of new national banks, it created a new demand for cash, to be held in their reserves. Since increase of Government paper money, other than certificates against deposited gold or silver, had been stopped by repeal of the er Purchase Law in 1893, it followed that this new demand for reserve money must be met from imported gold. In short, nature helped out the later statute of currency reform, as it did the Specie Resumption of 1879. In both cases it was a European famine and a bumper crop at home which lifted us happily over the rough places of the road.

We have seen how the export of our wheat to famine stricken Europe piled up our export trade and reversed our situation on the international market. The wheat was the primary influence; but scarcely less important was the revival in general trade', shown by the increase in bank exchanges, which amounted during the first half of 1898 to 3o per cent. over 1897. It was natural that this increase should have been greatest in the grain growing West, to which accrued the first benefits of the successful harvest; and it was natural that, as domestic trade expanded, and with it the demand for money, capital should be drawn from abroad to keep the busy wheels in motion. Now, however, a more novel and dramatic episode of the American trade revival came in sight.

It was not until the close of 1897 that people began to hear, by way of Europe, of "the American invasion." This matter came to the front, as a topic of discussion, in a remarkable speech delivered at Vienna, that Decem ber, by the Austrian Minister of Foreign Affairs, Count Goluchowski. It was asserted in this speech that "the destructive competition with trans-oceanic countries re quires prompt and thorough counteracting measures, if the vital interests of the European people are not to be gravely compromised." " European nations," the Austrian statesman concluded, "must close their ranks and fight, shoulder to shoulder, in order suc cessfully to defend their existence." Directed as it obviously was at the States, what did this singular diatribe mean? Certainly, neither Austria nor Europe at large could have been protesting against the "American invasion" of Europe's grain market; for that, in 1897, was Europe's only alternative to famine. It did not require long to dis cover that Count Goluchowski had his eye on our ex port of manufactures. The volume of these exports was practically stationary in the eight years between 1882 and 189o, and it increased very slowly after that. In the hard after 1894, however, when there seemed little hope in a domestic market, our manu facturers began to look abroad. As we have seen in noticing the iron trade figures, even as late as 1897, great stocks of unsold goods had piled up after every effort to stimulate home production. But we have learned also that, while our own markets were pass ing through that period of despondency, Europe's were reviving rapidly by 1897, their recovery had assumed the dimensions of a "boom." I have shown what was our own manufacturers' position. Prices were low, wages were low, material was abundant, the struggle for profits had sharpened the eye for improvements and economies. The one thing needed was an expanding market. At home there was none as yet; but here, in foreign States, had suddenly arisen a demand for manufactured goods so urgent that at the moment English and German manufacturers could hardly fill it. Our people would scarcely have shown themselves possessed of Yankee shrewdness, had they neglected the opportunity; and they did not neglect it. They were, in fact, in a pe culiarly favorable situation to take advantage of it. The raw material lay almost at the doors of the factories.

Skilled laborers, chafing after their four-year period of partial idleness, could be had at once and in quite sufficient number, and orders from home consumers were so light that scarcely half the producing capacity of well-equipped mills was being used for the domestic trade. Our manufacturers took foreign orders for prompt delivery which the English and German mills were simply unable to accept. We sold our goods, not only in the so-called neutral markets, but in the markets of Continental Europe.' The result was that, between 1893 and 1899, our export of manufactures actually doubled. They were $158,00o,00o in the one year, and $339,000,000 in the other; and they increased a hundred millions more in the fiscal year 19oo.

It is plain enough, from the facts which I have re called, that there was nothing mysterious about this American invasion, and certainly nothing harmful. If we had so flooded Europe with cheap iron and steel that its own manufacturers lost their market, their case might have been different. But nothing of that sort happened. During the five years between 1894 and the stopping of Europe's industrial boom in 1899, by the Boer War and the German bank panic,—years in which we were enlarging our output and export of manufactured steel,—Great Britain's annual steel production rose from 3,210,000 tons to 5,000,000, Germany's from 3,641,000 to 6,300,00o. Under all the circumstances, not only did the volume of our grain and cotton and manufactured exports increase, but their average value rose. It is easy to see why, under such conditions, our total export trade, crossing the billion-dollar mark in the fiscal year 1897, should have risen to $1,200,000,000 in 1898, to nearly $1,400,000, 000 in 1900, and to not quite $1,500,00o,00o in 1901. Stimulated by this great outside demand, our trade activity and our industrial profits rose to extraordinary figures.

The first task of this era of returning prosperity was the task of financial reconstruction. We saw, in reviewing the events of 1894, in what state of wreck the panic of 1893 had left the country's railway finances. Not only was 61 per cent. of the outstanding shares of American railways receiving no dividend whatever, but one-fourth of that stock represented roads in the hands of bankruptcy As late as the middle of 1895, receivers were operating 169 railways, with 37,855 miles of track—more than one-fifth of the country's total railway mileage, and represented on the markets by no less than $2,400,00o,00o stocks and bonds. 2 In the hard times of 1894, no rehabilitation of these wrecked corporations was possible; the achievement called for abundant confidence and abundant capital; and it was only with the returning signs of promise in the next three years that substantial progress was made. In December, 1895, the Erie was taken out of receivers' hands; in the same month, the Atchison, Topeka & Santa Fe emerged from bankruptcy; in September, 1896, the Philadelphia & Reading was placed on its feet. Foreclosure was in each case fol lowed by purchase of the properties in behalf of former shareholders, who, as a condition to their participation in the new company, were assessed pro rata to raise the needed cash resources, the bondholders submitting to lower interest rates, usually receiving stock in the new corporation as a solace. That this was by no means as simple an achievement as might be imagined, may be shown by two sample reorganizations, highly interesting in retrospect because of the longer financial sequel. The Union Pacific was sold in foreclosure during November, 1897. It was bought in by a new Union Pacific Company, for whose stock old share holders had exchanged their $6o,868,000 former holdings share for share, paying also a $15 per share cash assessment. There was no way of compelling a former shareholder to pay this sum; he might throw away his stock, which had sold on the Exchange, the preceding summer, at 4 cents on the dollar. Therefore a banking syndicate was organized to guarantee the cash assess ment; they committed themselves for $15,000,000. What happened to the bondholders may be judged from the fact that the company's old first mortgage 6 per cent. bonds were exchanged for xoo per cent. in new first mortgage 4's, plus 5o per cent. in new preferred stock.' This was the company whose officers, ten years later, were using its accumulated resources, to the extent of $131,00o,00o, to buy control of half a dozen other railways.

Northern Pacific was similarly sold in July, 1896; the $49,000,000 old common stock paid a 15 per cent. cash assessment and the $35,00o,00o old preferred, io per cent. The underwriting syndicate guaranteed $5,000,000; through scaling down interest or exchang ing old bonds for new stock, annual fixed charges were reduced The old stock sold on the New York Stock Exchange in May, 1896, at 25 cents per $1oo share; it was the stock delivered in exchange for this, plus the $15 cash assessment, which sold for $i000 per share in the famous "corner" of May, 7901. Natu rally, this process of rehabilitation grew more general as return of prosperity became assured. In 1893, rail ways with $1,781,00o,00o stock and bonds were placed in receivers' hands; in1896, railways with $1,150,377,000 were sold under for each process, these were totals exceeding by nearly a billion dollars those of any other year on But as against the 169 insolvent railroads of 1895, with 37,856 miles of track and $2,439,000,000 capital liabilities, existing receiver ships in the middle of 1898 covered only 94 roads, with a mileage of 12,745 and a capital of $661,5oo,000, and in 19oo only 52 roads, with mileage of 4178 and capi tal of By 1900, net earnings of all American railways had increased fifty per cent. over 1895, and actual dividends paid out were nearly doubled.

This expansion of financial and industrial activity had presently to endure some rather crucial tests. The United States declared war against Spain in April, 1898, and this for a month upset all financial markets. Our situation on international exchange, however, was so strong that the very first thing the country did, even before war had been declared, was to draw $6o,000,000 gold from Europe to protect its bank position. The war was quickly over. Admiral Dewey destroyed the Spanish fleet at Manila on the first of May; Cervera's fleet was annihilated July 3d, outside Santiago harbor; on July 26th, Spain asked for terms, and on August 12th, the protocol to the treaty of peace was signed. In several ways, the war served to demon strate the new financial resources of the country. A $2oo,000,000 3 per cent. war loan, offered at par to in vestors in July, elicited subscriptions for $1,5oo,000,000; it was taken by home subscribers, the separate allot ments numbering and it went to a premium of 6 per cent. within three months. In April, 1899, our Government paid Spain a $2o,00o,00o indemnity for the Philippines, and the $20,00o,000 export of gold, caused by the operation in exchange, did not prevent a con tinuous increase in the Treasury's own gold reserve. I Partly in connection with the war, wheat went to a price—$1.85 per bushel at Chicago, on May loth— never but once exceeded in the thirty preceding years. This was a corner, which broke down as corners usually do; but it was unlike many corners, in that it occurred when the American farmer still had plenty of wheat to sell, and when he received the benefit of the corner prices. Our wheat crop of 1897 was the second largest ever harvested in this country. The crop of 1898 exceeded all precedent, and that of i9o1 was Io per cent. larger still. In the fiscal year 1893 our imports exceeded exports by $18,7oo,000. In 1897 the excess of exports was $286,000,000. The next year it was $615,000,000.

This abnormal accumulation of foreign credits had some strange results. First, the pressure of domestic capital on our home investment markets raised prices to unexpected heights. As a result, foreign holders of our securities sold them back; and Europe was practically drained of American stocks and bonds. Then, for the first time in our history,we began to lend to Europe. President Kruger of the Transvaal Re public declared war on England in October, 1899.

Transvaal mines had in 1898 produced $75,000,000 than one-fourth of the whole world's out put of the year—and exactly that amount was received in London, from South Africa, during But with hostilities begun and the Transvaal frontier blockaded, production sank at once to insignificant proportions; then, when the Boer authorities placed an embargo on the mines, it ceased entirely. From April, 19oo, to April, 1901, inclusive, scarcely an ounce of gold was mined in the Transvaal, 3 and in the whole year 1900, England received only $1,800,000 gold from South Africa; less by $7,000,000 than the sum which it had to export to the banks of Cape Colony.4 As a consequence of this sudden curtailment of sup plies, coming with trade and speculation abnormally active throughout Europe, the great State banks began to bid for gold. The Bank of England's official dis count rate went in December, 1899, to 6 per cent., a height not reached since the panic of 1890; the Imperial Bank of Germany fixed 7 per cent., the highest rate in its history.5 In the face of this confusion of the markets, and of several defeats which foreshadowed a long campaign, England placed its war loans. Before the war was ended—and that was not until May 31, 19o2—England had issued $795,000,000 in new Government securities; the whole cost to England of this little conflict was no less than $1,o85,000,000 since the fighting lasted two years and nine months, almost exactly one million dollars per day. Inevitably, the collapse in foreign markets, at the end of 1899, disconcerted our own financial markets also; London's panicky recall of capital from New York sent the Wall Street call-money rate up to 186 per cent. on December 18th. Yet it was in this very situation that the American market came to Europe's relief. New York took $28,000,000 of the British Exchequer loan of August, ap plied for $15o,000,000 of the loan of May, 1901, and secured $ioo,000,000 it subscribed for $8o,000,000, or one-half of the loan of April, In two of these loans, American banking houses dealt directly with the British Exchequer, something wholly new in finan cial history. These were not all our foreign investments of the period. The German Government sold us $2o,00o,00o of its new bonds in 19oo, and we lent some $1o,000,000 more to Continental cities. Yet the "foreign balance" continued to accumulate. At the close of i9oo it was estimated by international bankers that this country still had a credit fund of at least $2oo,000,000 outstanding on Europe's money markets.

It was a very common query at that time, in financial circles, what was to be the outcome of this unprece dented situation. Some people predicted that it would mean investment of our overflowing capital, on a rapidly increasing scale, in foreign enterprises. It was then that the prophecy was heard that New York was des tined to displace London, if it had not already dis placed it, as the financial centre of the world. On the other hand, the Wall Street community, which took the speculator's view, predicted that the price of outstanding American securities, under this pressure for investment, would rise to unheard-of heights. Neither of these things happened exactly as was predicted, but what did happen was, as we shall presently see, quite as startling as either of them.

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