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England to the United States in these operations was stated by
the Governor of the Bank of England to be ;^i, 134,000.

Specie was heaped up beyond all precedent in the banking
history of New York ; with the diminished wants of business,
deposit liabilities were increased by the receipts of specie and not
as before the crisis by the increase of loans, and the circulation of
the banks was sensibly lessened. The Clearing-house returns
show that the weekly exchanges of the banks had fallen by the
1st of November to $57,600,000, an amount scarcely equal to one-
third of the weekly exchanges in the latter part of the summer.
In the other banking centres the course of things was the same
as in New York, and even such country banks as were disposed
to maintain their business on an unsound basis, found themselves

banks. From that time to the end of the year changes in loans, from week to week,
were insignificant in amount, clearly reflecting the condition of general business depres-
sion, which continued for many months after the acute panic of October.



THE CRISIS OF 1857 287

compelled, by the terms on which their circulation was redeemed
in the cities, to restrict their issues and strengthen their position
preparatory to a return to specie payment. Specie continued,
however, for some weeks after the suspension to be sold at a small
premium, sometimes ranging as high as three per cent, when
required in quantities for the payment of duties on imports or in
preparing for foreign voyages, until the banks found themselves
strong enough to supply the specie wanted for such purposes,
in advance of formal resumption ; whereupon the premium on
specie disappeared. But with some restriction in the terms on
which the notes of country banks were received on deposit in the
cities, general business was carried on with the same paper currency
as before the suspension, and with the same system of deposits
and checks, and it was only in the comparatively infrequent case
of a desire to exchange bank-notes for specie for some particular
transaction that the change to an inconvertible currency was
observed. In preserving this condition of affairs during the time
in which the city banks were strengthening themselves for
resumption, important relief was obtained from the regular semi-
monthly receipts of buUion from California, from the small amount
of gold required for the payment of duties on the diminished
imports, and for a time from the state of exchanges with Europe.

From this statement of the success with which the credit of an
inconvertible bank currency was kept up during the two months of
suspension must be excepted a large number of banks in the
interior and particularly in the West. Early in the crisis the
decline of the securities on which the circulation of some of
the Western states was based had brought their banks into diffi-
culty and discredit. Others were weakened or carried down by
the failures of individuals or of railroad corporations. There was,
therefore, throughout the crisis a rapid forced contraction even of
such part of the Western currency as was not withdrawn in con-
sequence of the insolvency of the issuing banks, and this increased
the difficulty of making collections in the country and added to the
general embarrassment of exchanges. After the suspension the
process of contraction still went on ; bank-notes in circulation in
other states were returned to the state where they were issued,
and in the Eastern cities a heavy discount upon Western bank
paper drove it home. The process of calling in this paper was



288 ESSAYS

painful, but it was also salutary. It withdrew a part of the circu-
lation which had little real strength and much of which ought never
to have been issued, and, leaving only such part of the currency as
was comparatively sound, it enabled the West to follow the East,
though somewhat tardily, in the resumption of specie payment.

At the beginning of December, 1857, the banks of New York
found that their stock of gold had risen to $26,058,000, or nearly one-
third of their liabilities, and was increasing from week to week,
while the demand for money was small and the news from every
quarter indicated the restoration of quiet. They accordingly voted
to resume specie payments on the 14th, in which step they were
at once followed by the banks of Boston and of a large part of New
England, together with those of the state of New York. The
banks of Providence resumed on the 13th of January, those of
Philadelphia and Baltimore on the 3d and 5th of February, the
Virginia banks on the ist of May, and the resumption was general
by midsummer. The returns published by the Treasury Depart-
ment show that at the beginning of 1858 the banks of the United
States had diminished their loans by $100,000,000; their deposits
had fallen off $44,000,000 ; their circulation nearly $60,000,000 ;
while their specie had gained about $16,000,000; of which nearly
the whole was by the banks of New York City. The diminution
in the circulation of bank-notes, caused chiefly by the diminished
requirements of business, was nearly thirty per cent, taking the
country as a whole, while in the manufacturing centres it was
even greater. Thus the country banks of Massachusetts, issuing a
circulation used by an active industrial population and sent in
the course of business into distant states where it was received
with favor, found their notes reduced from above $16,000,000 to
$9,600,000. This state of things, sometimes called a plethora of
capital, but in fact mere stagnation, continued for the most part
until midsummer. The loans of the banks were slowly increased
after January i, but there was no general revival of business to
counteract the tendency of capital to accumulate in the financial
centres. Nor did it seek an outlet by the exportation of specie
beyond the receipts from the mines, for there was no demand for
money abroad, and there was no disposition, and indeed little
ability, on the part of consumers, to renew importations of foreign
goods on any large scale. The fiscal year closing with June, 1858,



THE CRISIS OF 1857 289

showed a falling off in imports of foreign merchandise of
1^85,000,000, nearly half of which was in the imports of manu-
factures of cotton, wool, silk, flax, and iron, besides which the
reexportation of foreign goods increased by nearly $6,000,000.
On the other hand, domestic exports suffered a decline of only
about $27,000,000, chiefly caused by the reduced demand for
breadstuffs, while the cotton crop, notwithstanding the shock
which the manufacturers suffered from the revulsion, maintained
its price so well in consequence of the moderate supply for the
two cotton years ending with August, 1858, that the value of the
export did not fall off. The result of this general state of trade
was that the net exportation of specie from the United States for
the year ending with June, 1858, was only $33,000,000, being
considerably less than the product of the mines.

The land speculation which has already been adverted to as a
characteristic of the period preceding the crisis was for the time
crushed by the revulsion. The receipts by the government for
sales of public lands, which had already suffered from the chill
experienced in advance of the crisis, fell off somewhat in the fiscal
year 1858 and still more in 1859. How great the diminution in
such transactions was in some parts of the West is evident from
the fact recorded by the Commissioner of Statistics for Ohio, that
the mortgages of real estate given in that state, amounting in
1857 to $38,000,000, fell off to $25,000,000 in 1858. And the
number of emigrants arriving in the United States, which is an
important factor in the demand for land, especially in the newer
states, fell from 251,000 in the year ending with June, 1857, to
123,000 in the year ending with June, 1858. Railroad enterprises
also suffered a severe check from the revulsion ; the owners of
many railroad securities found that their capital had been invested
in advance of the real wants of the country, and as a natural result
the number of miles built in the next three years, 1858, 1859, and
i860, fell considerably below that of the number built in the two
years 1856 and 1857.

The heaviest pressure from the revulsion was felt, however, by
the laboring classes. The destruction of credit stopped at once a
large part of the machinery of productive industry. Even had the
stocks of goods generally been small, it would have been necessary
for many manufacturers to stop for the time, owing to the difficulty



290



ESSAYS



both of making sales and of procuring the capital with which to go
on. But stocks were large in most branches of trade, the high prices
of the year before the crisis having stimulated production into great
activity, and it was therefore a considerable time before the old
supply of goods was so far sold as to make it necessary to resume
operations for the supply of the current wants of the country.
During this period, in which the country was on the whole simply
consuming the accumulated products of its previous industry, thou-
sands of workmen were unemployed and thousands of families
were reduced to extreme privation. Many corporations and indi-
vidual manufacturers attempted to carry on their works and to keep
their operatives in at least partial employment, but not a few found
that even on these terms it was impossible to continue to pile up
goods for which there was no sale except at a sacrifice, and were
finally obliged Hke the others to suspend their operations until
better times. *

How many persons were thus thrown out of employment at the
beginning of the cold weather it is impossible to say ; but they
must have been numbered by hundreds of thousands. As early as
the 1st of October it was reported that all the cotton and woollen
mills near Philadelphia had stopped, and that the Rhode Island
mills were either closed or working on short time. And from that
time on the papers of the day were full of the reports of closing in
the cotton and woollen manufactures, the iron trade, the manufac-
ture of boots and shoes, and of clothing. No branch of industry
seemed to escape unscathed. The real extent of the calamity may
be better realized from a few significant facts. It was said by
a leading cotton manufacturer that "in January (1858), there
were 502,cxdo spindles stopped in Rhode Island and 216,000 run-
ning, and these represented pretty fairly the condition of the mills
in other states." To stop 500,000 spindles implied the idleness of
more than 15,000 men and women, and of the spindles then existing
in the Northern states Rhode Island had a little less than one-fifth.
The iron interest of Pennsylvania was notably slow in reviving,
and its product in 1858 was estimated at only one-half that of the
previous year, while it would appear that from October, 1857, until
the following spring, the large majority of the iron works were idle.
The great New England manufacture of boots and shoes, which
then employed 80,000 operatives, began to slacken its operations



THE CRISIS OF 1857 291

as early as September, 1857, and remained inactive until the
next spring.

For the country in general the actual recovery from the revul-
sion appears to have begun in the latter part of the winter of
1857-1858. In several branches of production, demand began to
spring up from the actual exhaustion of stocks by consump-
tion, and capital then seeking employment at low rates, manu-
facturing began, in some cases cautiously and on a small scale,
in others, as in the cotton manufacture, boldly and even pre-
maturely. By midsummer there was tolerably active employment
in most important branches, except in the production of iron, which
was slow in its recovery from the depression of railroad enterprise
and from the moderate demands made upon it by the other indus-
tries on which it is dependent. The resumption of operations on
their former scale, however, was everywhere retarded by the efforts
made to effect a general shortening of the terms of credit. This
change, which was essential for the soundness of trade, checked
buyers for a time and bore with especial severity upon the West.
That region had suffered from the revulsion more severely than
the rest of the country, owing to the collapse of its real estate and
railroad speculations, and the breaking down of the prices of its
leading staples at a moment when its purchases had for some
time been on a liberal scale. Entering upon the new year of
resumption under these difficulties, it had received a further blow,
for the crops of the year 1858 were at best moderate, while the
continued abundance of crops in Europe diminished our exports of
breadstuffs and lowered prices, so that the West, in settling her
indebtedness in that year, neither had so much to sell nor could
sell it at so high rate's as in the previous years. The South, on the
other hand, was in far better condition to accept shorter credits.
The favorable cotton crop of the fall of 1857 has already been
noticed as one of the circumstances which strengthened that
section at the critical moment. The crop for 1859 was still larger
and prices firmer, so that there was an increase of 1^30,000,000 in
the value of the cotton exported. Moreover, the sugar plantations,
which had yielded only a quarter of a crop in 1856, had given a
fair product in 1857, and in 1858 the largest but one that had ever
been known. If we except Virginia, which in 1858 had a short
crop of tobacco, the South was, in general, in a good condition for



292 ESSAYS

the establishment of a healthier condition of trade, and had no
serious obstacle to overcome except its own lavish and improvi-
dent habits.

The course of recovery throughout the country can be traced
tolerably well in returns from the banks. Bank loans, from their
low point at the beginning of 1858, increased steadily through the
year, though they did not reach their former heights, taking the
country as a whole, until late in 1859. ^^ New York and Massa-
chusetts, however, there was a more rapid expansion, and as early
as August, 1858, the loans in these two states had passed the high-
est point reached before the crisis in 1857. The circulation of
the banks, however, did not again reach the point which it touched
in that year. This was due in a measure to the smaller require-
ments of the country in a period of moderate business activity,
and in part to the adoption of more stringent systems of redemp-
tion, which compelled the interior banks of some states to meet
their notes with a promptness to which they were not used and
thus restricted their circulation. And it is to be noticed that the
severe lessons of the revulsion led to some special efforts toward
placing the banking system on a broader basis. The New York
Clearing-house adopted a rule requiring the banks belonging to
it to keep in hand coin amounting to twenty per cent of their liabili-
ties ; and the legislature of Massachusetts passed an act requiring
the banks of the state to keep a minimum of fifteen per cent of their
liabilities in specie. A majority of the banks of the city of New
York also declared in favor of abandoning the practice of paying
interest on deposits, but as this virtuous restriction did not take
the form of a positive rule binding upon all, it had no permanent
influence. On the whole, however, it is probable that the condition
of the banking system of the country after the revulsion, many as
were its defects, was considerably better than it had been before.

Notwithstanding the tending to a gradual return of activity
and confidence, however, the year 1858 was a hard period of
straitened enterprise and small returns. Prices were low, demand
was sluggish, and a cold caution had followed the fever of specu-
lation. The aspect of affairs brightened as the year went on, but
even in 1859 it could not be said that the effects of the revul-
sion had ceased to be felt. Some of its traces were indeed indeli-
ble. The ruin of great mercantile houses, the blighted hopes



THE CRISIS OF 1857 293

and fortunes of individuals, mark the year 1857 ^s one of the most
memorable in the annals of commerce. But in a country like the
United States, which is still in the fresh vigor of its youth, its
natural growth gives it a seeming elasticity which enables it to
surmount all disasters quickly and soon repairs all losses and even
disguises the consequences of the most serious errors. Three
years had not passed, therefore, before the pursuit of wealth was
as eager and confident and the prosperity of the country appar-
ently as great as ever. The lessons learned in the bitter months
of 1857 were passing out of mind, and the country was once more
well advanced in that inevitable cycle, " quiescence, — next, im-
provement, — growing confidence, — prosperity, — excitement, —
overtrading, — convulsion, — pressure, — stagnation, — distress, —
ending again in quiescence." ^

1 Lord Overstone's Tracts, p. 31,



THE CRISIS OF 1860^

The financial condition of the United States in the earlier part
of the year i860, although not disquieting, was far from satisfac-
tory. The recovery from the disasters of 1857 had been consider-
able, but had not been so uniformly distributed as to restore ease
and a sound state of business in all sections. The South had had
the benefit of large exports of cotton for five years in succession, with
prices which were sufficiently well sustained by the increase in the
cotton manufacture in all parts of the world to raise the worth of
the crops in money beyond all precedent. Thus the cotton crop of
1855- 1856, the largest which had then been made, was a little more
than 3,600,000 bales, of which the nearly 3,000,000 bales exported
were valued at $128,000,000; but the crop sent to market in the
winter of 1 859-1 860 was 4,670,000 bales and the export value was
$192,000,000, while the purchases for consumption in the United
States were also larger than ever before. The export value of the
tobacco crop also, although variable, had for four years been much
above any previous figures, although there had been a moderate
decline in price from the beginning of 1858, and of course a con-
siderable reduction from the inflated prices of the summer of 1857.
Sugar had also become once more an important, though an unsteady,
product, the value of which was now upon a much higher level
than before. During the years succeeding the great revulsion of
1857 then, the South had been prosperous, and its prosperity was
the more marked because it had fewer losses to be repaired than
the other sections. True to its traditional habits, however, the
South had availed itself of its opportunity to buy freely, and to this
end had used not only its large means, but also its ample credit.

The West in the meantime had recovered only by slow degrees
and painfully from the depression caused by the revulsion. Its
crops had been moderate, the foreign demand for its great staples

^ See note, p. 266, above.
294



THE CRISIS OF i860 295

had fallen off, and prices had been low. In the years succeeding
1856, England, the most important single customer for those
products, had continued to be a large buyer, but had drawn a
smaller proportion of her supplies from the United States than
formerly, in consequence of the renewal of her trade with the
Baltic and Black seas and her large purchases from Germany and
France. Thus our exports of breadstuffs, which for each of the
fiscal years 1856 and 1857 had been more than $50,000,000, had
fallen to $32,500,000 in 1858 and $22,800,000 for the fiscal year
i860. The foreign demand for provisions had been sustained better,
but still prices had been moderate and had not been sufficient to
restore to the West its full measure of prosperity in any year.

The manufacturing and commercial sections of the country had
been more fortunate in their recovery. The great abundance of
capital seeking employment after the revulsion led to some pre-
mature efforts, and the haste with which the banks expanded their
loans conduced to the same result. Business strengthened, how-
ever, by degrees, and the demand for labor became active ; and
although dealers experienced difficulty in procuring settlements
among their Western customers, a fairly profitable trade had
sprung up as early as 1859. Manufacturing became brisk, and in
many branches was extended by the introduction of new capital
and additional machinery. In some branches indeed there was a
considerable over-production, caused by the abundance of capital
and undue confidence in the increase of demand, and followed by
a reaction in prices.

The foreign trade of the country during these years is highly
significant. The fiscal year ending with June, 1858, was of course
wholly abnormal in this respect, since it covered the period of the
revulsion and of the severest depression. In this year the imports
of merchandise fell off by $85,000,000 and the reexports increased
by $6,000,000, so that the foreign merchandise introduced for con-
sumption was diminished by $91,000,000. On the other hand, the
revulsion having been general, the same causes, which in the
United States checked the desire to buy, operated also to check
purchases from us by foreign nations, although in a less degree,
owing to the indispensable character of our great staple export.
The export of merchandise from the United States declined, there-
fore, in this year, but only to the extent of $27,000,000, and thus



296 ESSAYS

the imports and exports of nierchandise were for once nearly equal,
while the balance of specie exported was reduced to $33,000,000.
This was in short a year of enforced economy in which the people
of the United States bought as little and sold as much as possible ;
and that a commercial nation whose tonnage earned heavy freights
had in the balance of the year to pay more than it received was,
unquestionably, due to the debt which remained to be settled from
the year 1857 and to the interest, estimated at not less than
^20,000,000, payable on state and corporation bonds owned in
Europe. The year 1859 showed a great increase of confidence,
the net imports of foreign merchandise increasing by ^74,000,000
and falling only $17,000,000 short of the point reached in the
fiscal year 1857. If indeed the imports for the whole of the fiscal
year ending with June, 1859, ^^^ shown the same increase as was
shown by the last half-year, the aggregate of 1857 would have
been far exceeded. This heavy increase of imports in the last half
of the year was no doubt based on the knowledge that the cotton
crop of the year was larger than ever and on the state of ex-
change caused by the enormous exports of this product. On
the whole, the fiscal year closed with an apparent excess of exports
over imports of only $18,000,000, the exportation of bullion having
once more become equal to our product. In the year 1858, indeed,
the discredit or disappearance of so large a part of the bank
currency no doubt created some domestic demand for specie
beyond what was used ; but this did not extend so far as to re-
quire the retention of much, if of any, of our product for the next
two years. Of the latter half of the calendar year 1859, making
the first half of the fiscal year ending with June, i860, it is enough
to say at present that it was marked by a still further increase in
imports and by the gradually increasing certainty that the United
States had in hand the largest crop of cotton ever raised on its soil.
During the years 1858 and 1859, the banking interest had
been extended in every section, and in some with little regard to
its safety. In the Western states particularly, in spite of the
banks swept out of existence in 1857, the bank capital at the
beginning of i860 showed a nominal increase of more than
twenty per cent. Numbers of banks had been established in
several states on systems bearing a general resemblance to the
free banking system of New York. But the New York system,



THE CRISIS OF i860 297

which had given great satisfaction, secured the note-holder from
loss by limiting the securities on which the notes were issued
to certain classes of sound stocks ; whereas in the Northwest
and in Missouri a wide range was permitted and the issues were
in fact based to a great extent upon stocks which as the event
proved were of unstable value. The circulation issued in this
manner was also excessive, even as compared with the standard
of the United States, and the arrangements for its redemption



Online LibraryCharles Franklin DunbarEconomic essays → online text (page 31 of 40)