Wall Street and the public also lost faith in all new ventures and new railway and industrial bond and stock issues, as well as in the good judgment and good faith of the promoters and corporations concerned. The revelations of fraud, chicanery, and excessive capitalization that have been made in the courts and elsewhere, have undeceived even the dullest and most credulous believers in the schemes and schemers that took the country by storm in the days of Wall Street’s wild and pyrotechnical speculation.
Out of evil there cometh good, and this great change from blind credulity and inordinate inflation to discriminating distrust and severe contraction has exerted a wholesome effect in paving the way to a sounder, safer, and generally better state of things both in and out of Wall Street. But meanwhile one bad sign is noteworthy. The large corporations, being unable to market new bond issues, are borrowing heavily from banking syndicates at five to six per cent. on notes running from one to three years. There is danger in this, and the way of the borrower on these terms may, like that of the transgressor, be hard. But the end may justify the means; and the nation is still growing as rapidly and as grandly as ever in our history from ocean to ocean.
There is nothing to provoke pessimism in the magnificent strides we are making in the march of progress; Wall Street is always sure to reflect this progress and our growth in material prosperity, as well as any periods of depression we may encounter, for it is the great barometer not only of the country and the times, but very largely of the world.
CHAPTER LXIX.
REVIEW OF THE PANIC YEAR, 1903.
The year 1903 passed into history with few pleasant memories. To a great number of individuals it was a year of disappointment and loss. To the very few it was a year of golden experience, demonstrating anew that real success only comes from rigid adherence to sound business principles and abstention from illegitimate speculation. Those who remained steadfast to well-established methods of finance and business weathered the storms of the year with little injury; while those who defied economic laws and ventured on the untried highways to success were, later, chiefly engaged in repairing battered fortunes and gathering together their scattered senses.
Nineteen hundred and three was chiefly conspicuous as marking the culmination and collapse of the great trust movement which began five or six years ago. The country had fairly gone combination mad, both capital and labor emulating each other in the furious race toward combination and monopoly. All consequences were blindly disregarded, only the advantages of combination receiving any serious attention, and no regard whatever was paid to the workings of these huge combinations. Whoever pointed out their inherent defects, their defiance of natural economic laws, their ineradicable opposition to human nature, their socialistic tendencies, their opposition to individuality, their inability to suppress competition—whoever was bold enough to oppose these tendencies on such grounds was swept aside with contempt and indifference. This phase of the movement, however, was by no means the end of the trust mania. It received an enormous stimulus from Wall Street, where the clever promoter quickly discovered in the increased profits and power of these combines something new to capitalize. These forced profits, together with the premiums paid to original owners for control of good will and for promoters’ commissions, were the basis of an enormous overcapitalization, the new concerns frequently being capitalized at several times their real value. Not less than $6,000,000,000 of these new creations was made within a few short years, forming the basis of a colossal speculation, backed by unequaled financial power and launched upon an unprecedented industrial boom. It is not the purpose of this brief review to cite instances of failure. Fortunately, the losses resulting from inability to unload on the public fell chiefly upon those best able to bear them, the panic being strictly financial and, fortunately, not commercial or industrial. For the original shareholders in these combinations who failed to sell, the losses were chiefly on paper; but they were sufficiently heavy to seriously cripple many rich men whose fortunes had been locked up in these enormously inflated new creations. Syndicate after syndicate was formed to finance these organizations; some made fabulous profits, but others were closed out with heavy losses, bringing the country to the verge of the greatest panic in history. Fortunately, the country’s general prosperity was only slightly impaired by the tremendous strain thus imposed on Wall Street. The storm was finally safely weathered because of the prudence of our bankers and the strength of our national resources, as well as the continued prosperity of the farmer, who once more proved himself the backbone of the nation. These experiences have effectually killed the trust mania, and its revival is exceedingly improbable. Big corporations, it is true, will remain, for the reason that they are the best known means of doing the world’s work; but the era of excessive capitalization of good will, promoters’ fees, monopoly profits, and the delusions of visionary economists is happily at an end. Whether the final days of reckoning for the trusts have been seen or not is a question that must be left until the ultimate test of business adversity is applied, which we sincerely hope is still far distant. At best, the future of the industrials is dubious. Along with, and as a natural sequence of, the trust movement came the labor movement. The power of combination once discovered was as badly misused by labor as by capital; even worse, for the demands of labor were pushed to such extremes of extortion and injustice as to throttle business and arouse popular indignation among those who still preserved some ideas of individual freedom.
Next to the trust movement the most potent influence in the business world was the simply phenomenal boom in the iron and steel trade. The world had never seen such rapid development before. This was based principally upon the enormous demands of American railroads, which have been practically reconstructed in order to meet the tremendous rush of traffic which the nation’s growth has imposed upon them. The big car and the big locomotive necessitated heavier rails, new bridges, and new terminal facilities; so that hundreds and hundreds of millions were thus expended, very largely out of current earnings, but in many cases, also, by the creation of new capital issues. It is probable that the heaviest portion of this work has been done, yet much remains to be completed, and railroads will be heavy buyers of steel to continue projected improvements. Another powerful stimulus to the iron trade was the use of the steel frame building for office purposes. This meant a revolution in office buildings, and the business centers of all our large cities are undergoing a process of reconstruction which is far from complete, and was brought to an abrupt halt by the extortionate demands of labor. In addition to these two great sources of demand the uses of iron and steel are steadily extending with the progress of invention, the cheapening of their cost, and the high price of lumber. The iron trade’s pace was too rapid to last, and the reaction came with unexpected severity in the latter half of 1903, precipitated, of course, by the financial reaction, which, along with the labor agitation, discouraged all new enterprise.