I venture the prediction that when these conditions again prevail, as they must in a great and vigorous country like ours, the Stock Exchange will still be found sounding its warnings, but it will not do to hope that those who learned the bitter lesson of 1907 will profit by that experience, because the condition of mental disturbance which is a part of every panic cannot be regulated by the will, nor kept within bounds by the statute law. The one lesson we have learned from the predicament of the railroads in 1907 is that there is a tendency toward disturbance in large accessions either of business or of capital. “At intervals,” says Walter Bagehot, “the blind capital of a country is particularly large and craving; it seeks for some one to devour it, and there is ‘plethora’; it finds some one, and there is ‘speculation’; it is devoured, and there is ‘panic.’”[75]
Summarized briefly, I have attempted to show in the foregoing pages that the Stock Exchange for many months prior to the panic had been steadily liquidating and contracting, and had served notice on the country at large that the time had come to put a stop to the prevalent over-expansion. It has been demonstrated that instead of heeding these warnings the general business of the country, as evidenced by the increases in loans and commercial discounts and by an over-speculation in real estate and in public and private extravagances, continued to expand up to the very eve of the panic, and was stopped then and there only by sheer lack of capital. Nothing can be of greater importance in any consideration of the 1907 crisis than that its overshadowing cause was the attempt to do too much business on too little capital, and compared with this all other aspects of that situation are of minor importance.
I have shown that an antiquated currency system played a conspicuous part in the crisis, through contributory negligence on the part of our law-makers. The part played by the President has been cited as a third, though somewhat negligible, factor in sowing the seed of distrust, and also the trying position in which the great common carriers of the country found themselves after the seeds of distrust had been sown. These were the four causes of the panic of 1907.[76]
How well the Stock Exchange did its work in that great emergency is a matter of record. It did not close its doors; there were no failures; no relaxation of the protection afforded the public; no departure from the high standard of morality which is ever its goal. In one week, ending October 25th, 5,166,560 shares passed through its hands, representing, with the transactions in bonds, a par valuation exceeding $483,000,000.
Now, in the very nature of things, a financial panic is the inability of many debtors to meet their obligations, plus the fear that many others may be in the same plight. At such a time men hasten to sell for cash that for which there is the readiest market. Thus they sell securities because securities are immediately convertible; thus they turn to the Stock Exchange, because that is what Stock Exchanges are for. Hence it follows that in a crisis such as that of 1907 the ruinous decline manifests itself more sharply, and is felt more keenly, on the Stock Exchange than on the Cotton Exchange or the Produce Exchange. Men turn to it for first aid to the injured, and the greater the casualty list, the more marked is the disturbance of values. That this is not well understood by the public often unfortunately leads to suggestions of improper methods where none exist.
Finally, where do we stand? Orthodox economists like Wells talk of over-production as a cause of panics; currency experts bewail a lack of circulating media; theorists of the school of Jevons are driven to seek in sun-spots the potent force of all our harvests; Levi and Mill dwell upon the periodicity of panics and would fix their appearance by schedules of time; politicians and thinkers-in-embryo point the finger at Wall Street, and yet, with all that has been written, thirteen great crises at home and abroad within the last century show that we have not begun to get at these disturbances. Drought has been a cause of mischief, yet we have learned to irrigate and to conserve; epidemics have smitten us, yet we have mastered sanitation; floods have ruined whole territories, yet we have built dikes and levees. But every now and then, when business seems to be at its best, when merchants are dividing large profits, and when labor is best rewarded, a panic occurs and the whole structure collapses.
To say that Wall Street or Lombard Street or any group of men anywhere can bring such conditions to pass is to deny all the facts of experience. Depressions may come from any of a hundred causes, but panics originate in the mind; they are manias. Walter Bagehot gave up trying to prescribe for them because he realized that sudden frenzy is not an ailment to be foreseen and prevented. “But one thing is certain,” he said, “that at particular times a great many stupid people have a great deal of stupid money;” to which he adds, “our scheme is not to allow any man to have a hundred pounds who cannot prove to the Lord Chancellor that he knows what to do with a hundred pounds.” When thousands of people ignore all the warnings of experience, as they always will do; when with a blind misdirection of energy they sink borrowed capital in quagmires at fancy prices, as they always have done; and when, shorn of their all, they are simultaneously seized with a mania to denounce others for the consequences of their own folly, as they always must do, one cannot avoid the thought that perhaps Bagehot’s humorous solution is the best that has been devised.[77]
CHAPTER VII
A BRIEF HISTORY OF LEGISLATIVE ATTEMPTS TO RESTRAIN OR SUPPRESS SPECULATION
In the Middle Ages the notion prevailed that there was a just and equitable price for everything, and that any person who tried to obtain more than this price was a sinner. Trade for gain was anathema; the man who bought the principal commodities of that time, such as corn or herrings, with a view to selling them at a profit, was guilty of “craft and sublety”—as the old English statutes read—that infallibly cost him his goods and brought him to the pillory. Thus in the year 1311 one Thomas Lespicer of Portsmouth was caught red-handed in London with six pots of Nantes lampreys stored in a fishmonger’s cellar in the hope of a rising market. The law required that when he arrived in London from Portsmouth with his lampreys he should proceed to the open market under the wall of St. Margaret’s Church in Bridge Street, and stand there four days selling at current prices to any one who cared to buy. His failure to do so, and his wickedness in attempting to “bull” the lamprey market by hiding them in the fishmonger’s cellar, resulted in the arrest of himself and the fishmonger, and their trial and punishment at the hands of the Mayor and Alderman.