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The Speculative Mania of

THE SPECULATIVE MANIA OF 1901 The situation in which the American community found itself, in 1901, was one which arises at intervals in all prosperous modern states; but its char acteristics were emphasized, on this occasion, by the unusual incidents of the period. Such a situation has invariably, on all previous occasions, resulted, first in readiness of people at large to embark in all sorts of enterprises the wealth whose extent they have suddenly come to realize, and next in a rush into speculation.

This is a very old story, familiar to every business man and student of economics. It describes the financial movement between 1899 and 1901, but it describes it no more accurately than it does Germany's " industrial boom" of 1897 or England's " Kaffir craze" of 1894 or the "railway mania" of 1844 or the great American land speculation of 1836, or, for that matter, a score of incidents in the financial history of every modern state. The tracing of this chapter of causes and consequences is, however, specially in teresting in the case of our recent financial history, because the magnitude of the forces behind the great speculation of 1901 was quite unparalleled.

I showed, in the preceding chapter, to what extent the prosperity of the United States, and its rapid accu mulation of new capital, had progressed. We saw how this capital, gathering confidence and pressing on all investment markets, had not only raised prices of our own securities to unexpected heights, and bought back from Europe the bulk of American investments in foreigners' hands, but had overflowed into such quarters as British consols and German Treasury bonds. But after all this, a huge credit fund was still left unin vested on home and foreign markets. At such times, people always wonder what is to be the outcome, and the outcome is always the same. The public has the money, and is eager to invest it; the banking com munity provides new securities as a field for such investment. These new securities may be good or bad, sound or fraudulent. They may be new enterprises or old enterprises recapitalized. They range in char acter all the way from worthless zinc and copper mines, or "syndicates" promising 25 per cent. on money left in their hands to use as they see fit, to issues of refunding bonds by a Government in high credit. All of these applicants appeared on the scene in 1899 and 1900. But the great banking houses, with their hand on the public pulse, concluded that this was mere trifling with the resources at command. The reservoir of American capital seemed inexhaustible; it filled up on one side faster than it could be drained into these various enterprises on the other. It was then that the scheme of recapitalizing American industry was conceived.

Industrial trusts were not new in American financial history; we have seen, in a preceding chapter, how far the movement of consolidation had progressed between 1887 and But the movement had languished after the second of those years; hard times, low profits, and distrustfulness on the part of invest ment capital prevented further progress between 1893 and 1897; financial embarrassment of some of the trusts already in existence threw doubt on other propo sitions of the sort.' But the prosperous trade, abundant capital, and overflowing confidence which prevailed in 1899 had created a new situation. The promoter —a name which now grew suddenly familiar on all American markets—asked the owners of a dozen or more competing plants, in a given industry, to name a selling price. Naturally, as their own retirement from business was involved, the price the owners fixed was high. A banking syndicate would be formed, however, to provide the money requisite for the pur chase, and for a handsome payment to the middleman. Thus acquired, the manufacturing plants would be combined and incorporated under the name American Milling Company or United States Spinning Company or International Weaving Company, and the stock would be offered to the public.

As it turned out and as the bankers had expected, the public was in exactly the mood to respond to the invitation. The shares were readily absorbed; other combinations followed. Still, the investment fund showed no symptom of exhaustion. Presently the more venturesome spirits among promoters began to combine these already large industrial combinations into a single company, and to sell the stock of that, at inflated valuations, to the public. This would have been a step too far, but for the fact that profits of manufacture, notably in the steel and iron trade, went on increasing faster than promoters could turn their expectations into stock. One conspicuous expert in this business, who rose from the sphere of travelling salesman of a wire-making firm to the leadership of a great combina tion in the steel trade, was asked on the witness-stand, in March, 1902, to describe the history of his amalga mations. They began, he said, by the combination of seven wire factories in Illinois into one corporation, which was called the Consolidated Steel and Wire Company. Two months later this company was bought up, along with seven more mills,by the American Steel and Wire Company of Illinois, which issued $24,000,000 stock. This was in 1898. Early in 1899 he organized the American Steel and Wire Company of New Jersey, which paid $33,600,000 for the Illinois Company's $24,000,00o stock, added eleven other wire plants, and issued its own stock in the comfortable sum of $9o,00o,000. The witness was asked what had become of $26,000,00o stock whose destination was not accounted for, and said he did not One might possibly imagine that this wholesale "watering" of capital would at least have led the investing public to bid a low price for the inflated stock; but it did not. Of the $9o,o0o,000 stock thus issued in the above described "watering" process, $4o,000,000 was pre ferred as to dividend. It started out on the Stock Exchange at $94 per share, rose in two months to $106, and sold at $112 a year or two afterwards. The $5o,000,000 common stock, all of which was virtually given away as a bonus in the "deal," started at $45 per share, and in two months actually rose to This was a fairly typical case. How far this move ment of incorporation went may be judged from the following figures. In the first three months of 1899 new industrial companies, with a total capitalization of no less than $1,586,000,000, were incorporated in this During the full year 1899 the total rose to $3,593,000,000, of which respectable sum $2,354,000,000 was the common stock, which, by frank confession of promoters then and afterward, was simply " water." 4 We have already seen, however, how seriously the investing public took even these common shares. They did, in fact, show particular favor to them, for the reason that the relatively lower price of common shares roused the bargain-counter instinct. Furthermore, in the immense industrial expansion of the period, these very common stocks, representing the inflated capitalization of concerns which in not a few cases had been bankrupt four or five years before, were very generally receiving dividends. 1 For it was not only true that individuals, in the flush of material prosperity, were buying necessities and luxuries with increased freedom. Even in this direc tion there was a general tendency' which approached extravagance. But a still more powerful demand came from the industries themselves. Iron, for instance, which had sold for $15.45 per ton in the autumn of 1894, brought $29.50 at the close of 1899; that is to say, its price had nearly doubled, and such a market necessarily brought about construction of new plants and enlargement of those already in the field. Iron, for such construction, was bought from existing mills. The same stimulus ran through every other trade. An extremely large demand for new material came from railways, which had to carry the produce of the farmers to the coast. Naturally, after four years of rigid cutting of expenses under receivers in bankruptcy, the companies were in no condition to handle easily this enormous trade in 1897, and, as their profits and credit went on rising, after the readjustment of their financial status, their task was physical reconstruction of the properties. What they spent on this, as compared with three or four years before, may be judged from the new railway securities which were sold in the investment markets to procure the money. In 1898 they put out $67,000,00o worth of stock and bonds, mostly for such purposes; in 1899, $1o7,00o,000; in 19oo, $199,000,000; in and, in 1902, It must not be supposed that this series of amazing capital flotations—to use a barbarism of the English market—was placed without occasional friction, inter ruption, or inconvenience. The Spanish War arrested the movement in 1898. It was checked again, in the autumn of 1899, by the Transvaal War and the down fall of Germany's industrial speculation. I have shown how important a part was played in the rise of our manufacture and export of steel and copper by this European boom. Now the demand from that quarter was suddenly cut off. Instead of inquiring urgently for our manufactured goods, to fill a demand which its own mills could not meet, Europe experienced so sudden a collapse in its home demand that its own manufacturing plants began to compete with one another for what was left of the business, and to cut prices in the competition. Our markets naturally felt the shock. Early in .1900 export orders decreased, and there began a great decline in the price of iron.

This last phenomenon, a familiar sign' of trade reaction, came into view on the eve of another Presi dential contest, when Mr. Bryan forced a reluctant Democratic convention to declare for the second time for free-silver coinage: We reiterate the demand [the platform announced] for an American financial system made by the American people for themselves, which shall restore and maintain a bimetallic price level, and as part of such a system the immediate restoration of the free and unlimited coinage of silver and gold at the present legal ratio.

Hardly was this demand submitted, however, when it was seen how futile a political expedient it was. The gold standard was already embodied in law, as it had not been in 1896, and the victory of 1896, by the party proposing such enactment, had been followed by unprecedented conspicuous in the agricultural communities where, four years before, the demand for free-silver coinage had been intensified by the pressure of adversity. Among Mr. Bryan's campaign supporters, the argument began to be heard that "the silver question is settled." Bryan himself, as he set forth on his personal canvass of the country in the autumn of zoo, was constrained by visible demonstrations of opinion to abandon, after his first few speeches, the discussion of bimetallism, and to revert to denunciation of " imperialism," as exemplified in the purchase and occupation of the Philippine Islands by the United States.

This new issue had the effect of drawing to his sup port some eminent public men who had no sympathy with his currency theories, but who felt very deeply the perils to which our Government was committing itself in the colonial A convention of the Anti-Imperialist League, meeting at Indianapolis on August 16th, declared that, "without regard to their views on minor questions of domestic politics," they proposed to "withhold their votes from Mr. McKinley in order to stamp with their disapproval what he has done," and they advised "direct support of Mr. Bryan as the means of crushing imperialism." The Populist Party, in a convention held May loth at Sioux Falls, South Dakota, had already nominated Bryan on the basis of a demand "for the reopening of the mints of the United States for the free and unlimited coinage of silver," and the Silver Republican party, convening in Kansas City, July 6th, gave the same endorsement on the same grounds.

All this was futile. The Populists themselves could not hold their party in line. On the day when the fusion wing of their organization nominated Bryan at Sioux Falls, the Anti-Fusionists or "middle-of-the road Populists" met at Cincinnati, declared for "a scientific and absolute paper money, based upon the entire wealth and population of the nation, not re deemable in any specific commodity, but made a full legal tender for all debts," and selected independent candidates. A faction of the Anti-Imperialist party broke away from the Indianapolis nominations, and made at New York, on September 5th, an attempt to name another candidate than either Bryan or Mc Kinley. The Gold Democracy, which had fought an independent battle in 1896, adopted at Indianapolis, July 25, 1900, a series of resolutions urging voters "not to be deceived by the plea that the money question has been finally settled," declaring it "dangerous to elevate to executive power any one hostile to the main tenance" of the gold standard act, and advising against a vote for Mr. Bryan. From this singular clashing of political ideas, stood forth the one salient fact that the voters were satisfied with the existing status and with the new gold standard law, and wanted no more experi ments. The vote of November left no further doubt upon the subject. McKinley's majority in the electoral college rose from the 95 votes of 1896 to 137 in 1900; his plurality on the popular poll increased from 602,555 to 864,688. Bryan, who had carried 22 states in 1896, carried only 17 in 1900.

That industry and finance should have halted, under the double influence of the collapse of the foreign market for our exports and the vicissitudes of the presidential campaign, was entirely natural. But the country's real prosperity, its accumulation of fresh cap ital, had not been arrested even momentarily. News of the Waterloo of the free-silver coinage party found its immediate reflection on the Stock Exchange; it was the political side of things which served to fire the imagination, already brought to a pitch of no little excitement by the spectacle of the country's enormous economic power. From this mixture of causes followed very rapidly what may be described as the explosion of speculation at the beginning of 1901,—a period which will possibly have as conspicuous a place in the curious reminiscences of finance as the South Sea Bubble of 172o and the railway craze of 1844. Its underlying causes were, indeed, identical with the causes of those older episodes; the principal phenomena of each were the immense amount of new stock issued, the eagerness of the public to buy it, and the rapidity with which people who bought found the value of their holdings rising. The situation of 1901 was one which turned men's heads. The country seemed to have reached a pinnacle of prosperity from which nothing could dislodge it. The profits of our incorporated enterprises seemed to have no assignable limit. Amer ican capital pressed upon every avenue of investment. The most reckless and foolish speculation was apt to achieve success. Looking at the matter philosoph ically, there need be no wonder that the word went forth, in financial circles previously noted for con servatism, that old precedents of finance were obsolete, that it was no longer necessary to judge the present and future by the past.

The climax of this great speculation came from a peculiar cause, which, I think, we shall understand in the light of what we have already considered, but which the investing public of that day did not understand at all. It became evident, at the close of Iwo, that something more than buying by investors was at work in the Stock Exchanges. On one stock after another, a buying movement would converge which seemed to be utterly indifferent to prices, and which was accom panied by trading of quite unexampled volume. It was presently evident that what was going on was the purchase, at extravagant prices, of a controlling interest in the shares of railway and industrial companies. The public inferred, from what it saw, that these purchases were being made on their own account by men of boundless wealth, who were merely investing their private capital. Such a supposition naturally drew the investing public into the whirl of speculation: first, in order to make its own investments before prices should go beyond its reach; second, in the hope of selling out at the much higher prices which the rich men's purchases were expected to bring about.

But the public was wholly mistaken as to the nature of the movement. What actually was happening was this. People connected with one corporation would borrow large sums of money, and use that money to buy up shares of another subsidiary or competing corporation. They were buying, however, not for themselves, but for the company with which they were identified; and their purpose was, as soon as the property had been obtained, to hand it over, issue new stock or bonds of their own corporation, sell such securities to the public, and use the proceeds to reimburse them selves, with a handsome bonus. There was the famous case, for instance, of the Chicago, Burlington & Quincy Railway. This company's stock, amounting to $1 xo,000,000, sold at the end of woo for $144 per share, which was considered by most people rather high. People identified with the Northern Pacific Railway bought up the stock at a seemingly reckless rate, pushed up its price above $180, and then an nounced that a bond would be issued by the Northern Pacific and Great Northern Companies to pay $zoo a share for the whole of the Burlington stock. These bonds were later sold on the open market, the result, of course, being that the supply of securities on the market was increased by some $5o,000,000.

The same process occurred in half a dozen other railways, the usual expedient being the issue of what was now called a "collateral trust bond." Stock of another company—sometimes all of it, sometimes a bare majority—was bought for a corporation. That corporation thereupon issued bonds for the cost of purchase; but those bonds, instead of being, like other mortgage issues, a lien on the franchise and road-bed of the issuing company, were merely secured by pledge of the stock which had been bought. When it was found that the public readily bought these bonds, the device was followed by another, not altogether new, but never before applied on such a scale. A company would be chartered for no definite purpose except to hold the shares of other companies. Having bought up these shares or acquired them through exchange, it issued its own stock to foot the bill. The public bought this stock, as it had bought the collateral trust bonds, and there seemed no limit to the scope of the operation. It was then that Mr. Morgan, during March, 1901, formed his "billion-dollar steel trust." The idea of such a combination had been thrown out, in a tentative way, by the promoters of 1899, and had been discussed as the dream of excited brains. During 19oo, however, as we have seen, the price of iron and steel had fallen, and the status of the numerous over capitalized steel-making corporations which had come into the field began to be tested. Some of them had to cut their dividends, and on top of this, the most powerful steel-manufacturer in the field, Mr. Andrew Carnegie, announced his purpose of building new competitive mills and starting production of kinds of material which the new trusts of 1899 had thus far mainly monopolized. Consternation followed among the financial magnates who had been building up the enormously capitalized steel trade combinations, and who had other plans in view, whose success was bound up with resumption of the "boom" on the Stock Exchange. Mr. J. P. Morgan, the acknowledged leader of the Wall Street consolidation movement, then opened negotiations with Carnegie.

Andrew Carnegie was a different proposition from the small manufacturers who had been bought out in the consolidations of 1899. He had, it is true, himself proposed, as early as 1889, to sell out to an English syndicate, and as late as 1899 had considered a pro position of American promoters to pay $25o,00o,000 for the steel property of himself and his associates; but the negotiations came to Between 1889 and 1897, moreover, the net annual profits of the Car negie properties rose from $3,54o,00o to $7,000,000, and from the latter figure they had risen by 19oo to no less than Of the 16o,000 shares of stock in the company, Carnegie himself owned 86,382; of the $16o,000,000 bonds, he personally held $88, He was the key to the steel trade problem and he knew it. Mr. Morgan obtained conditional

assent from the eight other most powerful steel trade combinations to be merged into one huge "holding company," through exchange of stock; Mr. Carnegie laid down, as his individual terms, the purchase of .Carnegie Company stock at $15oo per share, paid in 5 per cent. bonds secured by the stocks of all the amal gamated corporations, and the exchange of Carnegie Company bonds at par for the same This meant the payment of $217,720,000 to Carnegie him self. The extraordinary price was granted; his part ners were bought out on somewhat less favorable terms 5; and to buy up his company and its competitors, the United States Steel Corporation was organized in February, 1901, with a capital stock of $1,018,000,000 and bonds of $3o1,000,000. The other combinations in the trade, whose individual capitalizations ranged from the $33,000,000 of the Steel Hoop company to the $99,00o,000 of the Federal Steel, received the new shares on a basis running from equal exchange to 125 per cent. of their old outstanding capital, 1 and the "deal" was closed.

It remained to see how the new stock could be floated; for although in form the operation was nothing but sub stitution of new securities for old, in fact it was some thing very different. Displacement of capital on an enormous scale was certain to result. The beneficiaries of this remarkable operation could be counted on to turn a part of their new stock into cash, and a very substantial portion of the Steel Corporation's stock was to be used for procuring working capital. 2 The promoters took no chances which they could avoid. A bankers' syndicate was formed to guarantee, up to $2oo,00o,00o, the successful floating of the stock; it actually put up $25,000,000 Brokers, large and small, were engaged to urge the new stock upon in vestors throughout the United States. On the Stock Exchange, a celebrated manipulator of speculative values was employed, when the shares were listed, to create a semblance of great investment activity, and to sustain the price. The project met with remarkable success. Starting on the curb at a price of 38 for "Steel common" and 821 for the 7 per cent. "Steel preferred," the Stock Exchange price advanced in a month to 55 and mil respectively. Half a million of the shares were dealt in during the first two days of their appear ance on the Stock Exchange; the next week's record was a million. The greater part of this was doubt less merely "matching of orders" by the syndicate's agent, through the medium of other brokers; but the public did not know this. It caught the specu lative fever; even in thrifty Western towns and New England country villages, the gossip of an evening was apt to concern itself with "Steel." So success ful was the operation that, a year or two later, the $25,o0o,00o "underwriting syndicate" received back in cash its whole subscription, plus 200 per cent. in dividends.

The outburst of speculation during April, 1901, was something rarely paralleled in the history of specu lative manias. Not only did the younger men who had sold out to the Steel Corporation, now made into many times millionaires almost overnight and bewildered by their extraordinary fortune, toss into stock market ventures the money which they saw no other way of using, but old and experienced capitalists lost their heads, asserted publicly that the old traditions of Financial Chronicle, May 2, 1903, p 977.

finance no longer held and that a new order of things must now be reckoned with, and joined the dance. The "outside public," meantime, seemed to lose all restraint. A stream of excited customers, of every description, brought their money down to Wall Street, and spent their days in offices near the Stock Exchange. Two or three years before, it was called a good day's business when 400,000 shares- of stock changed hands on the Exchange. In April, 1901, the daily record,rose to a million shares, to two million, and finally, on April 3oth, to three million and a quarter. Estimating the average price of stocks at that period at $6o per share, —an inside figure,—it will be seen that the 3,200,000 shares of April 3oth meant that from some quarter $192,000,000 worth of stocks were bought. The mere posting of this enormous business compelled commis sion houses to keep their office forces working into the small hours of the night. Execution of the orders on the floor of the Stock Exchange, under the prevalent conditions of excitement, so manifestly threatened physical break-down of the brokers that the governing committee took the quite unprecedented step of declar ing an extra Stock Exchange holiday to give the mem bership a rest. 1 The newspapers were full of stories of hotel waiters, clerks in business offices, even door keepers and dressmakers, who had won considerable fortunes in their speculations. The effect on the public mind may be imagined.

While this was going on, promoters were busy with projects as daring, in their way, as the steel amalga mation. The phrase, "thinking in hundred millions," which had its origin in that period, fairly describes the state of things. Bankers in high standing asked and received commissions as high as five million dollars for managing some of these operations, and still the original proprietors who sold out to the combinations received prices of which they had never dreamed. The bankers who had successfully carried through the steel amalgamation entered new fields of experi ment. Starting with two transatlantic steamship lines which were owned by American investors, they under took to merge into one huge holding company all the competing foreign lines. The German companies, after some tentative negotiation, withdrew, and hasty counter-propositions by the British Government caused the Cunard Line to break off When, however, control of such old English enterprises as the White Star and Leyland lines was secured, partly for cash and partly through the $112,000,000 stock and $5o,00o,000 bonds of the International Mercantile Marine, an angry outcry arose in England. London itself shared in the notion, which the American press and public adopted on the spot, that we were using our boundless resources of capital to snatch away Great Britain's supremacy of the seas. Neither could foresee the time, not very distant even then, when the English interests which had sold out for cash to the Wall Street promoters would buy back control of the whole unwieldy combination for one third or one-fourth of the price paid originally by the Americans. Yet even in the face of the popular clamor in England during 1901, the chairman, at the ensuing annual meeting of the Leyland Com pany, flatly told the shareholders that the offer made was so extravagant that no management had a right to refuse it. "The vendors," wrote a high authority in the British shipping trade, "made an exceptionally good bargain, which it is probable the purchasers will soon find out." Both at home and abroad, cool-headed criticism of this nature, on the American amalgamations, was occasionally heard, and in fact, a process of this sort was merely riding for a fall—if for no other reason, then for the reason that, in the prodigious inflation of values which prevailed, the resources of capital and credit must eventually be exhausted. This had been the unvarying teaching of that economic law and ex perience which the great promoters of 1901 were re pudiating. But their contempt of the warnings of the past was itself a familiar symptom of a great speculative mania. It usually happens, in such episodes, that the reckoning comes from an unexpected cause; also that it comes at the moment when the public and the speculators have reached the conclusion that it can never come. Both turned an absolutely deaf ear in 1901 to financial warnings, and to the aspirations of the financiers themselves there seemed to be no limit. It was the very next move of the Wall Street promoters, however, which brought about the crash.

I have already noticed the operation whereby the Chicago, Burlington & Quincy Railway was bought up by the Northern Pacific and the Great Northern. Now the Burlington was more useful as a feeder and more dangerous as a competitor to the Union Pacific Railway than to either of these two buyers. The Union Pacific asked to participate in the Burlington purchase, but the request was refused. What the Union Pacific management then did was to start in to buy control of the Northern Pacific itself on the open market. The Northern Pacific management dis covered what was under way, and proceeded to strengthen its own holdings of the stock. In this fight for ownership of a $155,000,000 corporation, Mr. J. P. Morgan and Mr. E. H. Harriman were brought first into financial collision. Mr. Morgan, then at the pinnacle of his prestige, with the billion-dollar steel amalgamation just achieved, and wielding a personal authority and power which made his will the law with a good part of Wall Street's capitalists and institutions, represented the controlling interest in Northern Pacific. His adherents, among whom Mr. James J. Hill of the Great Northern was the most important, did not own a clear majority of the stock, but their financial resources, and the credit which they were able to command in this country and in Europe, were now utilized to make that control secure. Mr. Harri man, a younger man, with a genius both for railway management and for stock speculation, was in full control of the Union Pacific Railway Company, and was affiliated with a body of immensely wealthy capi talists known as the "Standard Oil group." Both Morgan and Harriman were men of determination and resource, but Harriman fought his battle more ag gressively. His task, in acquiring upwards of $77, 000,000 Northern Pacific stock, was in fact considerably greater than Morgan's, because he had no such sub stantial holdings to start with as the Morgan interest held. He surmounted this handicap by daring use of the Union Pacific's credit. The shareholders had voted the Union Pacific management borrowing powers which amounted almost to carte-blanche in the money market, and in those days of easy credit and accommodating banking syndicates, the powers had been so used as to accumulate a great reserve of cash. A subsidiary company, the Oregon Short Line, was equipped by the Union Pacific, in return for certificates of indebtedness, with funds to buy up $78,000,000 Northern Pacific and with these resources its brokers entered the excited Wall Street market.

The resultant situation was finance run mad. It was too much for Europe, whose banking houses had been lending freely to the great American promot ers, but which now began to take in sail. Paris bankers at once stopped further advances; the Bank of England called the London joint-stock banks together to warn them against New The contest for Northern Pacific, however, did not slacken. As the stock rose from rio to more than 200, inter national bankers sold heavily—borrowing stock for delivery, to be replaced by the real foreign shares on the way from London—and speculators for the decline sold still more largely, in expectation of a break on which they could buy in at lower prices to close out their contracts. But they misunderstood the situation. The rival bidders, as it happened, were bent, not on taking profits in the rise, but on obtaining and locking up the actual shares. On the 9th of May, it was sud denly discovered that deliveries of more Northern Pacific stock had been thus contracted for than could be bought or borrowed. The $155,000,000 stock was cornered. Its price went up in an hour from 160 to moo; for, naturally, enforcement of the contracts of sale meant ruin for the seller, and the scramble of cornered brokers to protect themselves was instan taneous. While this was happening to Northern Pacific stock, all other stocks broke violently, declines of 5o per cent. or more occurring in many of the sound est shares. It was admitted, afterward, that on the books of the lending banks, and on the basis of the day's low prices for collateral pledged against stock exchange loans, a good part of Wall Street was for a couple of hours technically insolvent.

The crisis itself passed over when the two rival bidders, their hands forced by the disastrous results which their quarrel had invoked, came together and agreed on conditions which would relieve the victims of the corner; but the spell was broken. The specu lating public had learned a lesson, and it was destined to learn still more as to the real nature of the "boom of ioox " before the episode was ended. Much of the public's infatuation had been based on the enormous and accumulating "foreign credit balance" of the country which had been estimated, a year before, at not less than $2oo,00o,000. By the middle of too' it was figured out by competent experts that not only had this great credit been entirely wiped out by the drafts of our banking houses, but that a floating debt to Europe, footing up nearly as much, had been created. Our bankers had, in fact, borrowed heavily in London, Paris, Berlin, Amsterdam, and even in the poorer Epropean markets, like These loans, as they matured, were called in by the lenders, and in the harvest months of 1901, when gold ought to have been flowing towards this country, the United States shipped $25,000,000 gold to Europe. One of the largest of the n2w trade combinations, the $155,00o,000 Amalga mated Copper Company, had been holding the market for that metal at an artificial price; in the autumn of 1901, it lost its market, copper fell from 16 cents a pound to 11, and the "holding company" had to out its annual dividend from 8 per cent. to 2. At the height of the April speculation, Wall Street had dis missed warnings of possible agricultural disaster with the reply that the country no longer depended on agricul ture. Nature's response was a summer of scorching drought in the corn-belt, similar to that of 1894, as a re sult of which, the corn crop of 1901 was cut down 28 per cent. from the year before, its yield being, except for 1894, very much the smallest in eleven years. Only the good fortune of a " bumper " wheat crop, in a year of par tial European shortage, saved our export trade of 1901.

The reaction from the excesses of 1901 continued during the two ensuing years; for although speculation again grew rampant in 1902, with resumption of pro moters' activities and stock-jobbing exploits, the signs of public abstention and over-strained credit were visible throughout the year. With the autumn, a severe money squeeze was the sequel to the activities of the speculators, and the year 1903 began with evi dence that the "underwriting syndicates," which had guaranteed the numerous Wall Street promotions of the two preceding years, were caught in a trap. Banks which had loaned them money began to force a settle ment. The stocks which they held had for some time been popularly known as "undigested securities," showing that the public understood the situation. A little later on it was James J. Hill, the author of the "Burlington deal," who suggested the term "indi gestible securities. The syndicates began by selling their reserve investments of older high-grade stocks and bonds, and the market broke under their sales. Some of these syndicates, fairly forced to the wall, next threw on the market the underwritten securities, to get what they could get for them.

They got very little, for along with this heavy selling came news most disquieting to investors. The hastily capitalized industrial corporations themselves began to raise signals of distress. For one thing, their or ganizers had calculated, in the careless and easy op timism of the day, that the amalgamated concerns could themselves, .when they needed working capital, procure it from the banks, as the individual manu facturers had done before. They were, however, wholly mistaken, having quite overlooked the fact that discount of one manufacturer's paper by a neigh boring bank, familiar with his character, history, and business methods, is a very different matter from dis counting the paper of a company formed through buying out ten such manufacturers. This new concern must ask for ten times as much on its individual note, and it must do so when its character remains to be determined, when its history has just begun, and when its methods are either unknown, or actually (as was the case with more than one new "industrial" in 1903) open to grave suspicion. But, even had these new concerns been most unexceptionable borrowers, the banks, with the European repayments and the syndicate loans upon their hands, were in no condition to oblige them. Some of the combinations, like the New England Cotton Yarn, which had been paying 7 per cent. divi dends, called a cash assessment from their shareholders. The great steel corporation stopped dividends on its common stock, which had been paid since the company was organized, and with the subsequent fall in prices of its shares, the market valuation of the stock, which had been $785,00o,000 in 1901, went actually in 1903 to $350,000,000.

Other smaller combinations followed its example. The Consolidated Lake Superior, a $100,000,000 iron trade combination, which had paid 7 per cent. divi dends on its stock, up to the preceding December, went suddenly into bankruptcy. The United States Shipbuilding Company, which sold its bonds on the assurance that foreign investors were buying both them and its $5o,00o,00o stock, was placed in the hands of receivers, with an exposure of humbug which was little less than farcical. Its promoters had never even approached great foreign bankers, but had been dealing with needy adventurers around the Bourse who had not the money to equip a mill. In the unsettlement of public confidence, there was even a run on financial institutions, and serious bank failures in two or three smaller cities.

Yet, with all this, two facts were manifest in the financial situation. First, the worst sufferers were not the general public—they had taken their medicine quickly in 19o1—but the infatuated millionaires; and second, the real elements of American prosperity con tinued. The episode of 1903 was rightly described in Wall Street as a "rich men's panic." Perhaps the surest test of the people's actual condition came in the presidential election of 1904, when signs of industrial recuperation were general. The party in power, with Mr. Roosevelt as its nominee, won the most sweeping victory in the history of American politics, its plurality on the popular vote being the extraordinary figure of 2,541,000, where McKinley's plurality of 86o,000 in 1900, had itself broken all preceding records. There were other reasons for this unprecedented vote, which we shall have occasion to examine later on; but it was none the less a testimony to the average, citizen's con tentment with financial and industrial conditions.

stock, public, company, steel and american