CHAPTER LXXVIII.THE FINANCIAL SITUATION.[6]

6.An address delivered by Henry Clews at the Fifteenth Annual Convention of the Kentucky Bankers’ Association in the Auditorium, Seelbach Hotel, Louisville, Kentucky, September 18, 1907.

Mr. President, Members of the Kentucky Bankers’ Association:

As all know, we have recently passed through a crisis of distrust in Wall Street—distrust of corporate credit, and railway and other corporate stocks. This was reflected in what I may call a slow panic, a heavy and prolonged decline on the Stock Exchange under a continuous flood of liquidation by both investors and speculators.

This crisis had been brewing for a long time, and we had a violent intimation of the dangerous and disturbing elements in the financial situation last spring, culminating in the collapse of the stock market in March. But it was not until a United States Court at Chicago inflicted a fine of $29,240,000 on the Standard Oil Company, of Indiana, that investors, and the large capitalists of Wall Street, including Standard Oilers, took alarm. Then the trouble became acute.

The Wall Street speculative multi-millionaires in particular felt the shoe pinch very sharply. They had been trying hard to engineer a bull movement in stocks, for they were very heavily loaded with them. They had, however, met with indifferent success, for the outside public was out of the market and refused to come in. This huge and unprecedented fine, these leaders of the bull movement saw, was adisconcerting and staggering blow at the property of corporations, and consequently at the stocks of corporations. It amounted, if enforced, to confiscation, and they, as large speculators, like the rich and moderately rich investing class, reasoned that if the Standard Oil Company of Indiana could be fined and have its property confiscated in this way, other corporations would be liable to the same fate. They also saw that small investors and people generally would think and argue as they themselves did, and that their consequent distrust would lead to a heavy decline in prices under heavy liquidation, through fear or necessity.

So they reversed their tactics. In other words, they decided to run, and, being a little lame, they started early. Instead of continuing their bull movement in stocks, they at once withdrew their support from the market and began to liquidate themselves, for self-protection. The rank and file of the bulls, seeing that stocks were going down with a rush from this and other sources, were quick to do likewise, as if they thought the devil would take the hindmost, while the bears helped the market’s descent by an unopposed and vigorous hammering. The bull leaders had abandoned it to its fate, and the banking interests were not willing to stand in the gap.

The best and highest-priced stocks suffered the heaviest decline, and for a fortnight there was an outpouring of stocks and a downpouring of prices that finally carried nearly all of these below the lowest of March. Wall Street trembled in its boots.

ANTHONY N. BRADY.

The decline was accelerated by the unusual scarcity of money on time, and the advancing rates for it, which undermined confidence in the future of the money market, and in the ability of many corporations in urgent need of money to borrow on their collaterals, or obtain discounts. Fears on this score had very recently been justified by the failure of a large iron and construction company in New York City, and when it was followed by a receivership for the Pope Manufacturing Company, the rush to sell stocks, and thefresh break in prices, added to the previous demoralization. The bears held high carnival, for their harvest was abundant enough to realize their dreams of avarice.

It was feared that this failure might prove the beginning of a long line of similar failures, and there were many gloomy forebodings as to what would come next, either in the way of failures or State or Federal action against railway or industrial corporations, which would, by damaging their credit, lower the value of their stocks, and possibly imperil future dividends. We too often fear the things we think instead of the things that are.

Through all this turmoil and disorder the want of money by many large corporations and the difficulty of borrowing it was always an uppermost topic. It touched their weakest spot, and showed the insufficiency of their working capital. They had large assets in plant and materials, but comparatively little cash to carry on their large and increasing business. This made them dependent on the banks; and when the decline in stocks and bonds caused distrust that led to a curtailment or refusal of credits by the banks, they had nothing to fall back upon of their own. They were between the Devil and the deep sea.

This want of a sufficiency of liquid assets is a common shortcoming among our corporations, both large and small, and therefore a great element of weakness, especially in periods of distrust, and should be remedied as far as possible in the future. It is better to do less business on a safe basis than could be done by extensive borrowing, with the hazard of failure in some unlooked-for crisis or time of depression. The greed of gain should be tempered by the wise admonition to make haste slowly. But unfortunately most people are in a hurry, and want to make short cuts to success.

The August crisis, like all panics, was brought about and aggravated more by fears of impending trouble and false rumors than by actual occurrences. Sentiment often sways as much as facts, and the public had become extremely sensitiveto unfavorable news and constructions regarding the situation, and comparatively blind and deaf to its favorable features. All this was ammunition for the bears on the Stock Exchange, and they made the most of it by steadily and relentlessly hammering stocks down, so increasing the depression caused by the liquidation of both speculators and investors, and the loss of confidence in values. But, like Oliver Twist, the bears still asked for more.

This want of confidence was mainly due to exaggerated apprehensions of the effect upon railway and industrial corporations and their stocks of the Government investigations and prosecutions, and the hasty action of the States against the railways in cutting down their rates. Much of this State legislation is too restrictive, and will probably be modified, or rescinded, after a trial.

It was argued that there was no telling where and when the so-called crusade against the railways and the Trusts would stop, or what the final result would be. The bears and the alarmists were equally loud and excited in pointing to the twenty-nine-million fine as a sign of what, in varying degrees and amounts, might happen to other corporations, and bring ruin to many of them. Thus a merely unsettling influence was magnified into a formidable element of national disaster. As prophets of disaster, the bears outdid each other, regardless of their friends, the bulls.

The threats and aggressive attitude of some of the Government’s law officers alarmed many as much as their allegations against the corporations they prosecuted did, and they feared that irreparable harm to those corporations, and their business, would be done before their cases were finally decided on appeal, and that their stocks and bonds would suffer accordingly, with, it might be, interest and dividends suspended. Thus they borrowed a large amount of trouble.

With these feelings uppermost in the public mind, or at least influencing investors, it was not surprising that such a fever of distrust prevailed on every stock exchange in the United States, and that sympathetically and temporarily itsomewhat affected the London Stock Exchange and every bourse on the European Continent. The situation had begun to look almost hopeless before reason began to take the place of hysteria among most investors and speculators. Then the indiscriminate slaughter of stocks prompted investment buying, and the great scare, after two weeks of storm and stress, gradually passed into history, while prices, with occasional setbacks, responded to the change of sentiment by slow but general recovery. But whether this will be followed by a relapse or not remains to be seen.

The apprehension excited among investors and speculators in stocks by that $29,240,000 fine against the Standard Oil Company of Indiana did an immense amount of harm through the enormous losses to which it led. In combination with the prosecution of the Southern Railway by Southern States, involving the conflict between North Carolina and Alabama and the United States Courts, that extravagant fine, so suggestive ofopera bouffe, was the immediate cause of the heavy liquidation that produced this August crisis and turned the New York stock market into a storm center. Although there was no probability or even possibility of this fine ever being collected from a million-dollar corporation, even if affirmed on appeal, public sentiment was about as much disturbed as if it were ultimately collectible. By creating, although without sufficient reason, fear of confiscation, it led to those enormous sales and sacrifices of stocks by investors, as well as by speculators, and the virtual panic that lasted those two long and memorable weeks.

The innocent thus suffered with the guilty, and the evil effect of such a fine was clearly demonstrated by a very severe and disastrous object lesson. The true remedy for rebating and other wilful violations of law is not to be found in the infliction of heavy penalties on the guilty corporations, but on the responsible and guilty officers of those corporations, and not alone by fine but by imprisonment. Heavy fines inflicted on corporations fall finally on their stockholders, through a corresponding loss of dividend-paying power, andthe lowering of market prices for their stocks. The proper remedy is punishment behind iron bars.

As the stockholders are in no way responsible for delinquencies in management, it is unjust to make them suffer the consequences of these. It should, therefore, be the future policy of both the Federal Government and the States to punish corporations for illegal practices by criminal proceedings against those in their employ who are found to be responsible for them. Thus punishments will be confined to the guilty, and confidence will be restored among investors, for such prosecutions would in no way tend to depreciate the value of the stocks and bonds of the corporations concerned, but on the contrary they would tend to enhance their value by promoting honest management. This is a pivotal point to be kept constantly in view. Backsliders would be the only sufferers.

The collapse in Wall Street stocks was, however, not so much due to the trust prosecutions, the Southern States Railway legislation, the twenty-nine-million fine, and the avowed policy of President Roosevelt’s administration, as to the general condition of monetary affairs, and the condition of the stock market itself, although the causes enumerated started the August collapse. The outside public had for a long time been holding aloof from the stock market, owing both to the railway and industrial prosecutions, and hostile State legislation, and the great activity in trade, and in land, mining, and other speculation calling for a great deal of money. Speculation outside of Wall Street was never more rampant.

At the same time stocks were very largely concentrated in the hands of a few men of great wealth, who were anxious to sell them at improving prices, and they could only do this by making a market for them. They had in this endeavor a hard row to hoe, as the farmers say, for money was scarce and dear on time, not only here but all over the world, with the European market, like our own, overloaded with securities for sale, and, worse than all, with no demand for themfrom investors. They were in a tight place, rich as they were.

This condition of affairs was reflected in the gradual and persistent decline of British Consols, that had always been rated as the best and safest securities in the world, to 81, the lowest price at which they had sold since 1848—the year of the Smith O’Brien uprising in Ireland, when they touched 80. The depression in the other European stock markets was almost equally great, particularly in Berlin. We could, therefore, look for no market for our stocks, or our vast accumulations of new railway and other bonds, in Europe. The foreign markets were closed to us, and wanted nothing American but our gold. Our speculative capitalists loaded down with these unsalable securities were severely handicapped. From being giants, they had become cripples. Their wealth was tied up instead of being in the liquid form of poorer men who had their money in savings banks, withdrawable at any time. One New York City institution, the Bowery Savings Bank, held and still holds over a hundred million dollars of deposits.

Here was wealth in a liquid form that our large Wall Street capitalists, like most of the large corporations, sadly lacked, and they well might have envied their poorer brethren who owned these deposits. In proportion to their means, the poorer men were better off than the rich.

The fact is that our rich men undertook too much, both in the forming of syndicates to underwrite new bond issues and in attempting to control the stock market under adverse circumstances. They overestimated themselves very largely, or, in slang parlance, bit off more than they could chew, and when the shoe pinched most severely in March, and again in August last, they had to sell stocks at a heavy sacrifice to pay off the loans that were called in by the banks, or to meet the calls for more margin. For once they were really hard up.

This over-extension of Wall Street capitalists, with their efforts to unduly inflate prices, had its counterpart elsewhere,for such over-trading was by no means confined to them, but extended to, and was conspicuously shown by, railway and industrial corporations in their efforts to keep up with the increasing demands upon them consequent on the country’s great prosperity and natural growth. This over-extension was in the form of excessive expenditures and vast issues of bonds, stocks, and short-time notes. These far exceeded in aggregate amount the capacity of our own investors to absorb them. Hence, hundreds of millions of these are still being carried by the banking syndicates that underwrote them, and of course they at present show a very heavy aggregate loss. This kind of medicine is much disliked even by multi-millionaires.

Stimulated by the country’s enormous prosperity during the last few years, we have gone ahead too fast in all kinds of new and costly construction work and improvements. We have, in fact, gone ahead regardless of expense; and railway and manufacturing corporations have stretched their credit, in too many instances, almost to the breaking point. Meanwhile the railways have been overtaxed with traffic and the manufactories overrun with orders for their product, and they still are so notwithstanding all the much discussed and confidently predicted falling off in trade.

Through over-taxing their capacity, their working capital, and their credit to keep up with it, the national prosperity has proved a two-edged sword to many corporations as well as individual firms, and the greed for excessive profits among them led to much of the corporate dishonesty, illegal acts and methods, and wholesale graft in high places which we have seen exposed. These excesses and irregularities are now being corrected.

No wonder that their exposure, from time to time, gave blow after blow to public confidence, and kept investors from buying stocks, and turned their attention and speculative enterprise in other directions, and into other channels. These exposures and violations of law naturally aroused severe public criticism and indignation, and called for investigationby the Federal Government. In this President Roosevelt took the lead for the purpose of correcting the mal-administration, the abuse of power, and the illegal practices that had been exposed.

It was far from his intention to disturb public confidence among the stockholders of the railway and other corporations that, through their officers, had been guilty of illegal and fraudulent acts, particularly rebating. His object was by extirpating abuses to secure honest and lawful methods of management, and so protect and benefit investors in bonds and stocks, and secure justice and equality for shippers of produce and merchandise of all kinds, with the same rates for all, small and great, rich and poor, without special privileges to any, great corporations being compelled to respect the law as well as small ones. The righting and correction of wrongs practised in violation of the Inter-State and anti-trust laws of Congress would have had no disturbing effect upon investors, and the public mind, if properly viewed; and it requires a stretch of imagination to hold Mr. Roosevelt even indirectly responsible for the twenty-nine-million fine, the immediate cause of the disturbance in Wall Street that followed it.

Under the general monetary and other conditions then existing, that fine proved to be the last straw that broke the camel’s back, and, as is too often the case, the innocent stockholders were made to suffer with the guilty in the collapse of the stock market. The judge who frightened investors with visions of confiscation by inflicting that preposterous fine, must bear the responsibility of starting that downfall, not President Roosevelt.

August, 1907, was one of the most remarkable months in the history of Wall Street. After opening in profound gloom, with the stock market crumbling rapidly away under the rush of investors and speculators to sell, regardless of price, and with the bears and alarmists busily at work predicting widespread disaster, few expected during the twelve exciting and perilous days of the crisis that the month would close withthe stock market gradually recovering, confidence somewhat restored, and many of both the bulls and the bears as unreasonably eager to buy as they before had been to sell, while the sentiment of the Street had changed from extreme depression and despondency to a cheerful and hopeful optimism. Incidentally the bulls were hanging the hides of some of the bears on the fence.

When the fall in prices was greatest, new low records were reached for many of even the best stocks, not only for the year but for several or many years, as in the case of New York Central, which sold at 99½, or lower than at any time since 1898. In those twelve eventful days investors might well shudder, for market values shrunk about three thousand millions of dollars, if we include all the stocks dealt in on the New York Stock Exchange measured by their lowest prices and total capitalization. But, of course, the actual losses sustained were comparatively small. Wall Street as soon forgets its sorrows as its joys, and looks ahead.

When at their lowest prices—and I give them as specimen bricks—Amalgamated Copper stock had depreciated 43 millions, Union Pacific 51 millions, Northern Pacific 36 millions, Great Northern 34 millions, New York Central 25 millions, Pennsylvania 28 millions, and Southern Pacific 21 millions, while in the Curb market Standard Oil stock suffered a shrinkage of 80 millions, and American Tobacco stock of 32 millions. That much of oil seemed to have been cast upon the waters, and that much of tobacco to have gone up in smoke.

The partial recovery in the stock market and the gradual return of confidence were coincident with and in the face of a rising market for cotton. There was an advance in middling cotton to 13½ cents a pound, the highest price on record for thirty-two years. Yet there was no dearth in the supply of cotton, and no sign of a “corner,” or the possibility of one, and we carried over into the new crop year, which began on the 1st of September, a visible supply of 1,200,000 bales of American cotton, making a world’ssupply of 2,300,000 bales, or nearly 540,000 more than at the same time last year. These statistics may be dry, like a certain brand of champagne, but they tell their story in a nutshell.

I dwell on cotton because cotton is still king in the South, although less powerful in its sway than before the war, owing to the South’s development of its other resources and its more diversified financial and commercial interests. It is fortunate in not having all its eggs in one basket.

The recuperative power shown by Wall Street, after the crisis, was typical of that of the whole country. Speculative sentiment quickly passes from one extreme to the other. We are a great and progressive people and soon recover from disasters however formidable. We had a conspicuous illustration of this in the San Francisco catastrophe, to say nothing of the civil war. But a period of stability and comparative quiet would now be salutary. The recovery in the stock market, notwithstanding the severity of the recent strain, was mainly due to the sober second thought of the people, in conjunction with the announcement of the plan of the Secretary of the Treasury to ease the money market by making deposits weekly in the National banks of the large cities till the middle of October. This allayed anxiety as to the money market and it will, or may, have the desired effect in a large degree till the crop moving season is over, by preventing the undue locking up of money in the Sub-Treasuries at a time when it is most imperatively needed for business uses. The better feeling resulted, early in September, in the 40 millions of New York City 4½ per cent. bonds being bid for five times over, although at premiums averaging only a trifle more than 2 per cent.

The very severe decline in copper and the copper stocks, this month, has, however, caused some renewed and widespread disturbance, and the reduction of dividends by the Calumet and Hecla and Quincy copper companies will doubtless be followed by a general reduction of copper dividends. This is at present the worst feature of the general situation,as it indicates a largely reduced trade demand for copper, and foreshadows a curtailment of copper mining.

The Treasury plan is only a makeshift, however. The true remedy for this currency evil lies in the abolition of the independent Treasury and Sub-Treasury system, and the substitution in its place of now existing National bank depositaries. Congress should abolish it accordingly, and it probably will if the banks unite in demanding it, and so keep the currency in the banks, and in active circulation. The present antiquated system has been outgrown by the country, and is a reproach to our national intelligence as a great commercial people.

Simultaneously with the improvement in conditions here, and partly because of it, for example is contagious, there was a decided turn for the better in both sentiment and prices on the London Stock Exchange and the Berlin Bourse. Apprehensions which had been felt there of the trouble here extending, so as to more or less seriously involve Europe, subsided when it was seen that we had regained our composure, and were going ahead as usual. The situation had indeed changed so much that it really looked as if nothing very disastrous had happened, despite the hysteria and the crash that followed the spectacular fine of that Napoleon of the bench, Judge Kenesaw Mountain Landis, a long name—or some of it—that will be remembered, especially by the Standard Oil Company, long after the fine has been set aside, or O.K.’d, by the United States Supreme Court. But it would be rash to assume that the trouble is all over. There are still many weak structures and disturbing causes that menace the situation. There is future danger in a too sudden recovery of confidence, and in under-estimating the danger we have passed through.

Meanwhile, because of what the Government has done to correct abuses in the management of the railways and the trusts, their stockholders will find that it has added to the security of their holdings of railway and other stocks, at the same time that it will prevent the acquisition of large fortunes,in dishonest ways, at their expense. The business situation will also be the safer and sounder and more conservative for it, and its general betterment will compensate for the suffering involved in the ordeal we have passed through. Often out of evil there cometh good.

All concerned in the ownership and management of corporations should willingly conform to the Federal laws now in force, and, if any of these should prove onerous, unjust, or defective, Congress can be called upon to amend them. They might as well make a virtue of necessity. The same course should be pursued with regard to railway rates, fixed by the respective States, until these, and their justice or injustice, have been passed upon by the Supreme Court of the United States. Through this compliance with law the popular craze against the railways and the Trusts will gradually subside, while the misconceptions and exaggerated views concerning Mr. Roosevelt’s policy and its influence will die out in the clearer light of a better understanding.

Of one thing we may be sure, and that is that President Roosevelt will always stand firm in his policy of enforcing the laws against wrongdoing by corporations. We heard this from Secretary Taft in his strong endorsement of that policy, and we heard it re-affirmed in the President’s Provincetown speech. But the penalties should always be inflicted on the individual officers responsible for violations of law, and these, to be effectual, should involve imprisonment, not fines against them or the corporations. That remedy is the only certain cure for the disease, if it again appears. By uniting in support of the President’s policy, which simply means the enforcement of the Inter-State Commerce law and the Sherman Anti-Trust law, as amended, those in control of railways and industrial corporations will increase the value of their stocks, and raise their credit both at home and abroad, while inspiring the other officers, and the rank and file of their employees, with a higher sense of honor, and responsibility to the public, than was compatible with the old rebating and graft-seeking trickery.

A large part of Wall Street was in such a nervous state during the crisis that it jumped at shadows, and trembled at a touch. It shuddered when Attorney General Bonaparte facetiously said that there was a fine covey of game among the large capitalists in control of corporations, and that he would be a poor marksman who would not bring some of the birds down.

It found fresh cause for alarm in the fight between the Southern Railway and the Southern States, and when the railway had its license canceled by Alabama it had a fresh attack of “nerves,” and, later, saw an ominous event in the surrender of the railway to the State, to recover its license. It feared the anti-corporation storm would wreck and devastate the business of the country. But after a storm there cometh a calm, and the nation, as a whole, is unscathed.

In considering the situation we must never fail to bear in mind that although investors, and holders of stocks and bonds, and many of the weaklings of the business world, have been made to suffer severely by the stern and uncompromising course of the Federal Government and some of the States—and that confidence was so undermined as to cause a temporary halt in enterprise—good results will follow. This ordeal has been at least a purifying one, and while the East has exaggerated its disturbing influence, the West and South have been comparatively indifferent to it. Those sections were never more prosperous and progressive than they are now. This arises from the fact that the East, being richer than the West, and having much more invested capital, especially in stocks and bonds, is correspondingly more interested in the market for these than the West, and more disturbed by great depression in Wall Street, and the causes producing it. The East is, therefore, much more likely to borrow trouble than the West or the South, especially when it cannot borrow money.

This borrowing of trouble took the usual form of fearing from day to day that worse consequences of the crisis awaited us than we had yet experienced, and it was increased amongbusiness men and corporations when they found their banks would no longer accept as collaterals for loans and discounts many of the securities they held for investment, and upon which they had been previously able to borrow in proportion to their market price. They found, too, they were generally unable even to borrow, on time, what they wanted, on the best of collaterals.

They were therefore cramped for money, and this restricted or embarrassed them in their business, and in a few instances caused their failure. Here we recognize the close connection that exists between trade and finance. The severe depression on the Stock Exchange so far impaired the market value of stocks and bonds as to make the banks and other money lenders everywhere distrustful of credits, the result being this inability to borrow, or at least to borrow all that was necessary. So it was not surprising that those with insufficient working capital were badly cramped, and had to curtail their business and make sacrifices, or go to the wall.

The curtailment from this cause among mercantile and manufacturing firms has been very extensive. It was better than going to the wall, however, and the after-effect upon the business situation has been salutary and wholesome. It has acted like a safety valve in checking over-trading, over-capitalizing, over-borrowing, over-stocking, and overdoing generally. It has slackened the pace at which too many scantily equipped concerns were going on the road to ruin. So it has made the business situation stronger and safer for the sound and solvent; and the elimination of a mushroom growth of irresponsible credit-seekers should be welcomed by the banks.

Wall Street is the great monetary clearing house of the country whose ramifications are co-extensive with the nation itself. It does not create values, but it reflects everything affecting securities and commodities, and represents all material interests. It is an unfailing barometer of values and the times. So those who say a heavy fall, or a panic, in stocks only affects Wall Street speculators shoot very wide of themark. Wall Street radiates its influence over the whole country, and to a large and growing extent over the whole world, and it, or I should say New York, is destined, within no very long time, to become the financial center of the world. The recent severe financial disturbance in Wall Street, resulting in a reduction in the value of securities aggregating over $3,000,000, has proven one important thing, and that is that Wall Street and the industrial interests of the country have finally largely separated, and that a panic in Wall Street, while depressing, need not necessarily cause one at the same time in mercantile circles.

No doubt some of the Trusts and railway companies, accustomed to driving with a too free hand, and without much regard for the law, considered they were being handled very harshly by the law officers of the Government when they were brought up with a round turn and heavily fined for rebating. But, as they had violated the law wilfully, they had only themselves to blame, and they well knew that the way of the transgressor is hard—when convicted. There was some reason, however, in the complaint of some of the railways that in many of the States they had been made the targets of an aggressive popular policy towards corporations, that is, the policy of enforcing rigorously laws which might in some cases, such as the passenger and commodity rate laws by the States, finally be declared unconstitutional by the Supreme Court of the United States.

Our large railway and industrial corporations were primarily responsible for the disturbance and loss of confidence in the monetary situation through their recklessly extravagant issues of bonds, stocks, and short-term notes. For a long time they seemed to be doing their best to kill, in this way, the goose that laid the golden egg, and they finally succeeded in exhausting both their own borrowing power and the ability of the banks to lend, or of investors, at home or abroad, to purchase their issues. This tremendous output of new securities had to be checked, for it not only glutted the market, and overloaded underwriting syndicates, but depreciated valuesand created distrust among investors. It was piling Pelion on Ossa with a vengeance.

The collapse of last March in the stock market, and the more prolonged one of August, were obviously outbreaks of the same malady, the latter intensified by that twenty-nine-million fine. The distrust that caused these explosions had been brewing for years, and had its origin in the wholesale issues that over-taxed the money market and the lending capacity of the country and also squeezed Europe like an orange for all the money it had to lend.

It was righteous retribution that overtook some, at least, of the wrongdoers among the larger corporations. Their chickens had come home to roost through their own unrestricted and extravagant exploitations and illegal and dishonest practices.

The wholesome remedy of their discontinuance, combined with proper curtailment and conservatism, has been forced upon them by the necessities of the situation; and the enforcement of the new laws has no doubt put a stop to at least the most flagrant of the corporate abuses before prevalent. But the too sudden application of the brake at a critical turn in the road may at any time work havoc; and it is doubtful whether rigorous prosecutions for violations of law in years gone by are not productive of more harm than good. They are always unsettling, and unsettlement involves a corresponding weakening of confidence.

But future offences should be prosecuted with the utmost rigor of the law, and the railway companies and industrial corporations now fully understand this; and not one of them would be likely to run the risk of again violating the law, especially with imprisonment for offenders as the penalty. We must, however, always be careful not to make the remedy worse than the disease. In other words, the interests of the country at large are of more importance than the punishment of corporate wrongdoers for long past offences. Some allowance must be made for the heat of competition in the strenuous years we have passed through, and the former generaltendency to moral laxity of men controlling and representing corporations, when acting in their corporate capacity, a laxity they would probably not have been guilty of in their own personal affairs. This would, of course, indicate their want of a proper sense of responsibility and honor. But that failing is not uncommon. Now their eyes have been opened to the danger of being without it.

The apparent indifference of some of the principal prosecuting officers of the Government to investment interests, in the published interviews with them, was, however, complained of as of itself disturbing and disconcerting to investors. It may have indicated a supposition that only capitalists, speculators, and those of large means were affected by the decline in stocks and bonds. The erroneousness of this impression is shown by the stock transfer books of every large railway and industrial corporation, in which the small holders of small means are very numerous, running up to several or many thousands in each corporation, and reaching a very large aggregate of shares. The small investors thus suffer by depreciation with the large ones, and even the people of small means with only savings bank deposits are, as we can all see, menaced through their dividends by the depreciation of the securities held for investment by the savings banks. Their depositors may learn a lesson in finance from this.

Those of the State of New York report for the half year ending on June 30, 1907, a new high aggregate for deposits and resources, the deposits being $1,394,296,034 and the resources $1,490,760,675. Yet their surplus, calculated on the market value of their holdings of stocks and bonds, had fallen from $108,671,735 on June 30, 1906, to $95,743,206. Here we have a shrinkage through the decline in prices of nearly thirteen millions or twelve per cent. of their surplus, in one year, although the savings banks are by law restricted in their investments to the most stable of first-class securities. If we go back to their reports of January 1, 1901, we find their surplus was $118,294,674, showing that the market forbonds has meanwhile been on a declining scale. Thus the savings banks and Wall Street are shown to be related.

In this August crisis there was far too much hysteria shown where calm judgment was called for, and this hysteria made the situation dangerous, although there was nothing dangerous in the actual condition of the country, apart from the distrust of credits and the scarcity of money on time, resulting from the immense activity of general business here and the monetary stringency abroad. A moderate slowing down of business is consequently the best remedy for this excess, and the one that will in the most direct and natural way generally restore ease to the money market. Meanwhile, the banks should assist within proper limits, when called upon, corporations and firms of proved earning capacity and known to be sound, and discriminate against those that have only an insecure or speculative foundation. This would accord with the teaching of the Bible, “To him that hath shall be given and from him that hath not shall be taken away even that which he hath.”

The popular feeling against very rich men, who have acquired their wealth through the trusts and railways, is not a prejudice against property, but against the supposed ways and means by which their large fortunes were acquired. The impression is, with many, that those means were dishonest, and that their rapacious grasping for riches involved corruption in corporate management, and, in general, a feathering of their own nests at the expense of the people, or at best other people. To see them flaunting what they consider their ill-gotten gains exasperates men, and spreads discontent and unrest among the millions. Envy and malice are easily cultivated.

It is an inequality of wealth that they resent because they believe it to have been created by rebating, stock watering, inside speculation, and tricks and devices by which other people’s money was got unjustly, and by various illegal and fraudulent practices and abuse of corporate power. The exposures made from time to time tended to confirm thepeople in this impression and prejudice, and President Roosevelt was only responding to their call when he urged the prosecution of the corporations known to have been among the most flagrant violators of the anti-rebate law.

These violators were not the corporations, which we all know have no souls, but their officers; yet the officers have gone thus far unwhipped of justice, much to the disgust of the masses of the people. But in future this defect should be remedied, and rich and poor among the individual violators of the law should be prosecuted criminally, and upon conviction sent to jail like any other criminal. I can understand how many men, who as private individuals would have avoided criminal or wrongful acts, had no scruples about violating laws in their corporate capacity. This, however, is an indefensible plea. They showed a moral laxity which has been exposed and branded as a crime, and instead of it let us hope they have now a sense of corporate responsibility and honesty, as a result of these Government prosecutions, and the knowledge that in future such violations of law can hardly be repeated with impunity. They will certainly find that honesty is the best policy.

The cry against Mr. Roosevelt has been so indiscriminate that it would often be amusing but for its serious aspect. If a corporation, firm, or individual fails in business nowadays, Mr. Roosevelt is blamed. If a man makes a bad investment in anything, or if his creditors press him for payment, or his creditors are slow to pay or go into bankruptcy, he blames Mr. Roosevelt, while the vast host of large and small investors in stocks and bonds all over the country are almost of one mind in blaming Mr. Roosevelt for the depreciation in the market value of their stocks and bonds.

I should not be surprised if very soon even the ladies who have lost at the fashionable game of bridge will blame Mr. Roosevelt for their losses. Everyone, nowadays, dumps his misfortunes upon Roosevelt, and attributes the cause to him. I recently heard of a man who had been doing a thriving business on Long Island shore catching eels and selling themin the New York market. Lately the eels have stopped going into his pots to be caught, so he is now going about howling against Roosevelt for ruining his business. That is no more ridiculous than many other things for which he is blamed, without having had anything to do with them. In thus complaining they overlook the long train of causes and events that led up to this year’s disturbances in Wall Street.

The public must have a scapegoat in times of excitement and discontent, and many of our wealthy people thoughtlessly held the President responsible for the disturbances and unsettlement we have witnessed, and their own losses and disappointments, because he had taken the initiative in calling upon the law officers of the Government to prosecute the railway and industrial corporations known to have violated the law. They seemed unaware that he did this to stop those illegal practices which had made enormous fortunes for the favored few, and enabled them to crush or impoverish their competitors and impose upon the people. He was the people’s champion.

He did not advise these prosecutions without good cause, for in every instance where a case was tried on its merits the Government secured a conviction. Fines of large, but not enormous, amounts were levied accordingly against many of our principal railway companies, including the New York Central, and against large industrial corporations, including the Sugar Trust, for rebating and accepting rebates. But as the punishment was always by fining the corporations, and never by the imprisonment of the officers, who were the actual violators of the law, the masses of the people complained that while they themselves would have been sent to jail if guilty of criminal offences, these high and mighty railway and Trust officials were not, and that by fining the corporations only the innocent stockholders were made to suffer instead of the individual wrongdoers. Their complaint was just.

I trace the causes of this year’s state of affairs as far back as the failure in London of Baring Bros. & Co., in 1890, for that unexpected event gave a shock to confidence, andcurtailed credits all over the world. Indeed, the long career and prestige of that celebrated and honorable house gave it a credit in both hemispheres that was second only to that of the Bank of England, and its collapse wiped out of existence the immense amount of credit and the banking facilities that it had enjoyed so long. This involved a corresponding international contraction of the medium of exchange, and tightened the purse strings of the world, and it continued to do so long after the failure had passed into history.

The Boer war involved, in another way, great and prolonged depression in England. It drained her of an immense amount of money, and drained her also of a vast number of men whose labor was needed at home. To raise the sinews of war, she had to issue from time to time large amounts of consols, and these, being in excess of the power of investors to absorb them, steadily declined, and now—years after the war—they are still heavy. It naturally surprised the world when last August they reached 81, the lowest point in their long decline, and John Bull was sorely puzzled to define the cause.

The Russian-Japanese war was another very costly and depressing factor, and adversely affected international money markets because it involved immense borrowing by both Russia and Japan, and their bonds are still helping to glut the European markets, and to some extent our own, as many of the Japanese bonds are held here. At the same time France is particularly unfortunate in being burdened with a vast amount of Russian securities, far more than ever before, which leaves her correspondingly powerless to make other investments, or extend assistance, when needed, to other countries.

Then came our Pacific coast disaster, the earthquake and fire at San Francisco, which involved enormous losses there, and struck Wall Street and its speculative capitalists a tremendous blow, for the latter were about as heavily loaded with stocks at that time as before the March crash, and these had a severe break in consequence. It also involved Englishand German as well as American fire insurance companies in heavy losses.

The effect of this train of disastrous events, both here and in Europe, has been more or less cumulative, and their influence was so great and far reaching that it is still being felt, especially by our rich and speculative Wall Street men, with little of their wealth in the liquid form they would prefer, notwithstanding their heavy liquidation. They are still tied up with large amounts of stocks and bonds, bought long ago at higher prices, and for which there is but a limited market. As the same condition of affairs exists in Europe, they may find some comfort in that fact, for we are told misery loves company. They certainly have plenty of it.

Fortunately the reports of the National and State banks all over the country show that they are in a sound and strong condition, the result of proper conservatism, and in protecting themselves they have protected their depositors and stockholders. So the banks have escaped being involved in serious losses through the crisis in the stock market, and are in a position, now that the depression, if not over, is at least no longer acute, to lend assistance in the recovery that sooner or later inevitably follows such a cyclone and excessive decline in prices as we have witnessed.

The banks, however, have in common with all other holders of stocks and bonds suffered loss by the depression in price of the securities owned by themselves, this being, as I have shown, particularly the case with the savings banks, and it may possibly, if not soon recovered, lead to a reduction of their dividends. If it should so eventuate, it would be an object lesson that would show the poor man that even his savings bank deposit was not beyond the depressing influence of a Wall Street crisis. But let us hope that there will be no such far-reaching result. The savings banks have, however, already deducted large amounts from the value of their holdings of securities on account of the past and present year’s depreciation. Few of their depositors understand this, and where ignorance is bliss ’tis folly to be wise.

We are fortunate in being Americans and having so great a country under our sovereignty, for its vast geographical extent, its diversified interests and resources, and wide differences in climate make one section to a certain extent independent of another. Thus the South, the West, and the Northwest looked with complacency upon the Wall Street crisis as something confined to the East. There was no falling off in bank clearings, no lessening of the activity in trade South or West. The industrial and agricultural resources of the country were unaffected, and the outlook for the crops and trade is reassuring in all directions. Yet last month many feared the country was going to the dogs.

The last Government report indicates a decrease in the estimated crop of wheat, but with the invisible left-over supplies, it will fall little, if any, short of last year’s crop, while the corn and other grain crops will largely exceed the demand for home consumption. The cotton crop, too, which the planters will soon begin to gather, promises to be almost equal to the last. Yet its price is much higher. The grain crops, by reason of damage to the crops in Europe and elsewhere, and higher prices, are likely to yield more when marketed here and abroad than in recent years. Our exports of cotton, too, in the last fiscal year were valued at more than half a billion of dollars, while our exports of manufactures aggregated 750 millions. Our coal, iron, copper, gold, silver, and other mineral products will be larger in 1907 than in 1906, and our total industrial income will show no diminution. Yet in August many felt as blue as indigo about the situation.

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