LASTLY.
A gross abuse of our credit system and the consequent inflation of all values, stimulated by loose banking and promoting methods, proved the climax in a series of events which culminated in the sharpest though not the severest panic the present generation has experienced. The main cause of the panic was that of general overdoing. Credit was over-extended; speculation was reckless and ill-advised; expansion of every sort was being carried to excess by over-confidence, until finally the country’s floating capital was practically exhausted through being turned too rapidly from liquid to fixed forms. We have only to glance at the demands upon new capital during the last year or two to realize this fact.
Some idea of the congested state of the stock market may be obtained from the fact that during the last five years the total amount of new securities authorized was $6,800,000,000; the eleven months of 1907 alone accounting for $2,000,000,000 of this total.
During the latter period our railroads authorized $1,400,000,000 securities, of which they were able to issue only one-half, owing to money market conditions. Of industrial securities less than $500,000,000 were authorized, but nearly $400,000,000 of these appear to have been issued.
These figures take no account of the issues of municipal securities, and those of many other business concerns of a minor character, but they are quite sufficient to indicate the extraordinary demands upon the money market during the last two years, demands which in connection with huge speculative borrowings imposed an unbearable strain upon the banks and precipitated the March, August and October collapses in the stock market. Other influences have undoubtedly been at work to cause the breakdown, but no single factor compares in importance with that of the excessive issues of new securities and obligations during the past two years which the country was utterly unable to assimilate.
In discussing the cause of the recent panicky contraction and disturbance in the business and financial world, nothing, however, could be further from the truth than to charge it all to the great corporation exposures and prosecutions.
As I have said, there were many other things that contributed to bring about last year’s depression and disturbance, and to cast over the bright sky of business prosperity the heavy clouds of distrust, reaction and panic.
The recent clouds in the financial sky can remotely be attributed in a large measure to the effect of the tremendous railroad, industrial and commercial development of the last ten years, which brought about capital requirements in excess of the ability of the country to supply them.
Naturally and necessarily, this resulted in precautionary steps being taken by bankers and others to limit demands that capital could not supply.
This conservatism and consequent contraction of the overwhelming volume of business will, it is believed, prove the strongest force in averting further trouble and disaster.