Added to the paralyzing effect of this unheard of speed of action, there came the disconcerting thought that the conditions produced were absolutely without precedent. Experience, the chart on which we rely to guide ourselves through troubled waters, did not exist. No world war had ever been fought under the complex conditions of modern industry and finance, and no one could, for the moment, form any reliable idea of what would happen or of what immediate action should be taken. These circumstances should be kept clearly in mind by all who wish to form a clear conception of this great emergency, and to estimate fairly the conduct of the financial community in its efforts to save the day.
The conditions on the Stock Exchange, when the storm burst, were in some respects very helpful. Speculation for several years had been at a low ebb, so that values were not inflated nor commitments extended. Had such a war broken out in 1906, with the level of prices then existing, one recoils at the thought of what might have happened. Furthermore, the unsettled business outlook due to new and untried legislation had fostered a heavy short interest in the market, thereby furnishing the best safeguard against a sudden and disastrous drop. This short interest was a leading factor in producing the extraordinary resistance of prices in New York which caused so much favorable comment during the few days before the closing. It were well if ill-informed people who deprecate short selling would note this fact.
During the week preceding July 31st, therefore, in the face of a practical suspension of dealings in the other world markets, the New York market stood its ground wonderfully. The decline in prices, though it became violent on July 30th, showed no evidence of collapse. There was a continuous market everywhere up to the last moment, and call money was obtainable at reasonable prices. Here was a perplexing problem when the closing of foreign Bourses raised the question of how long we should strive to keep our own Exchange open.
To close the recognized public market for securities, the market which is organized and safeguarded and depended upon as a standard of values, is an undertaking of great responsibility in any community. To take this step in New York, which is one of the four preeminent financial centers of the world, involved a responsibility of a magnitude difficult adequately to estimate. Upon the continuity of this market rest the vast money loans secured by the pledge of listed securities; numberless individuals depend upon it in times of crisis to enable them to raise money rapidly by realizing on security investments and thus safeguarding other property that may be unsaleable; the possessor of ready money looks to it as the quickest and safest field in which to obtain an interest return on his funds; and the business world as a whole depends upon it as a barometer of general conditions.
Add to this the fact that speculative commitments by individuals from all over the world, which have been based upon the expectation of an uninterrupted market, are left in hopeless and critical suspense if this market is suddenly removed, and it becomes apparent that to close the Exchange is manifestly to inflict far-reaching hardship upon vast numbers of people. It is also sure to be productive of much injustice. In bad times sound and solvent firms are anxious to enforce all their contracts promptly so as to protect themselves against those that are overextended; an obligatory suspension of business compels these solvent firms, in many cases, to help carry the risks of the insecure ones and deprives the provident man of the safety to which he is entitled.
When such facts as these are duly weighed by the agencies having the authority to close the stock market, it becomes clear that duty dictates a policy of hands off as long as a continuous market persists and purchasers continue to buy as the decline proceeds. This was well illustrated in the acute panic of 1907 when an enormous open market never ceased to furnish the means by which needy sellers constantly liquidated, and the possessors of savings made most profitable investments. To have closed the Exchange during that crisis—assuming it to have been possible—would have been an unmixed evil. The violent decline in prices was the natural and only remedy for a long period of over-speculation, and it would have been worse had it been artificially postponed.
Considerations of this general character, up to July 30th, caused the authorities of the New York Stock Exchange to take no action, although the other world markets had all virtually suspended dealings. On July 30th, the evidences of approaching panic showed themselves. An enormous business was done accompanied by very violent declines in prices, and, although money was still obtainable throughout the day, at the close of business profound uneasiness prevailed.
On the afternoon of July 30th, the officers of the Stock Exchange met in consultation with a number of prominent bankers and bank presidents, and the question of closing the Exchange was anxiously discussed. While the news from abroad was most critical, and the day's decline in prices was alarming, it was also true that no collapse had taken place and no money panic had yet appeared. The bankers' opinion was unanimous that while closing was a step that might become necessary at any time, it was not clear that it would be wise to take it that afternoon, and it was agreed to await the events of the following day. Meanwhile, several members of the Governing Committee of the Exchange had become convinced that closing was inevitable and, in opposition to the opinion of the bankers, urged that immediate steps be taken to bring it about. It may seem strange to people outside of Wall Street that the night before the Exchange closed such apparent indecision and difference of opinion existed. It was, however, a perfectly natural outcome of an unprecedented situation. The crisis had developed so suddenly, and the conditions were so utterly without historic parallel, that the best informed men found themselves at a loss for guidance.
During the evening of July 30th the conviction that closing was imperative spread with great speed among the large brokerage firms. Up to a late hour of the night the President of the Exchange was the recipient of many messages and telegrams from houses not only in New York, but all over the country, urging immediate action. The paralysis of the world's Stock Exchanges had meanwhile become general. The Bourses at Montreal, Toronto and Madrid had closed on July 28th; those at Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th; St. Petersburg and all South American countries on July 30th, and on this same day the Paris Bourse was likewise forced to suspend dealings, first on the Coulisse and then on the Bourse itself. On Friday morning, July 31st, the London Stock Exchange officially closed, so that the resumption of business on that morning would have made New York the only market in which a world panic could vent itself.