History of the United States Volume Vi Part 16

For a number of years some of the European countries condemned American packing-house products. Abuses in the processes of preparing preserved meats were brought vividly before Americans by Upton Sinclair in his novel "The Jungle." The Department of Agriculture took up the problem and a special investigation was ordered by President Roosevelt. The report showed the need for more rigid inspection, and the agitation throughout the country forced the House of Representatives, 1906, somewhat reluctantly, to adopt the President's recommendation for a thorough inspection, by government agents, of all processes and methods used in the meat packing-houses.

[Ill.u.s.tration]

U. S. Government inspection of a packing-house.

Inspector's a.s.sistant attaching a "Retained" tag to carca.s.s marked by inspector on the heading bench. Carca.s.ses so marked are left intact until they reach the retaining-room.

[Ill.u.s.tration]

Earthquake at San Francisco, April 18, 1906.

Upheaval of sidewalk at Eighteenth and Capp Streets.

Early in the morning of April 18, 1906, San Francisco was visited by one of the most dreadful disasters of modern times. An earthquake shock destroyed many of the important buildings in the business part of the city. Other cities and towns along the coast and in the Santa Clara Valley suffered greatly and a number of the buildings of Leland Stanford University, thirty miles south of San Francisco, were demolished. Ninety per cent of the loss in San Francisco was due to the conflagration which raged for two days. Fires broke out owing to the crossing of electric wires. The water-mains were old and poorly laid and the force of the earthquake had burst them. Firemen and soldiers fought the advance of the flames by destroying buildings with dynamite. Not until an area three miles in length and two miles in breadth, including all the business and the thickly settled residential sections, had been burned over was the advance of the flames stopped. The estimated loss of life was 1,000, and property valued at $300,000,000 was destroyed. Among the irreparable losses were several libraries, the collections of the California Academy of Sciences, and many works of art. The noted Bancroft Library with its collection of ma.n.u.scripts was saved.

[Ill.u.s.tration: Several city blocks afire.]

Burning of San Francisco following the earthquake.

[Ill.u.s.tration: Burned out hulks of several building.]

Showing destruction of buildings after the earthquake and fire in San Francisco.

A quarter of a million people were rendered homeless and were without food and the means of earning a livelihood. The sympathy of the world was aroused and offers of relief came from all quarters. Two million five hundred thousand dollars was voted by Congress, and the total relief fund amounted to $20,000,000. There was little suffering for lack of food and water, owing to the co-operation of representatives of the Red Cross a.s.sociation, a citizens' committee, and the United States army in distributing supplies.

[Ill.u.s.tration: Tent city.]

Refugees in Golden Gate Park, San Francisco.

One hundred thousand persons were sheltered in tents in Golden Gate Park. The courage and hopefulness of the people did not desert them, and the rebuilding of the city was immediately begun. At the end of a year one-half of the burned area had been rebuilt. The old frame and low brick structures were replaced by modern buildings of steel and re-enforced concrete, for this type had survived the earthquake shock.

After two years, a new San Francisco, more beautiful and more substantial, had risen on the site of the old.

[Ill.u.s.tration]

Copyright by Underwood & Underwood, N.Y.

The Jamestown Exposition--Manufactures and Liberal Arts Building from the Auditorium.

On April 26, 1907, the Jamestown Exposition was opened. It was in commemoration of the first English settlement in America. The southern sh.o.r.e of Hampton Roads, forty miles southeast of old Jamestown, was selected as the site for the buildings. The historic idea was uppermost in the exposition. The colonial type of construction was dominant and good taste and moderation were notable in the arrangement of the grounds and exhibits. Industrial and commercial progress were emphasized. The United States had a special exhibit to ill.u.s.trate the work of the different departments. In the harbor, one of the finest in the world, was the greatest international naval display ever witnessed. Every variety of war-vessel in existence was on exhibition besides commercial and pa.s.senger boats from the great ports of the world.

CHAPTER X

THE FINANCIAL PANIC OF 1907

[1907]

Popular opinion ascribed three reasons for the panic of 1907. The first of these was the att.i.tude of the President toward certain great corporations. It is true that his attacks bared some of the most deeply rooted evils which have always been at the bottom of our panics--dishonesty in the administration of great aggregations of capital. Great were the lamentations and doleful the predictions of what would happen should the President not change his policy of enforcing the laws. The railway opponents of the President were sure the panic came from the Hepburn Bill, which was pa.s.sed early in 1906. If this had been dangerous to the welfare of the railroads it is reasonable to a.s.sume that foreign capital would have been withdrawn from American railways and that American capitalists interested in railroads would have attempted to avert financial ruin by disposing of their holdings.

Neither situation developed, for the European investors increased their holdings and American capitalists continued to plan still greater investments in railways.

The second general explanation was found in the unsound and reckless banking in New York City. The dangers arising from trust companies had been known for several years. It came to be believed that the deposits in these trust companies were being misused by the bank officers for the promotion of various speculating schemes. The disclosures which came with the investigation of the insurance companies fixed these beliefs more firmly in the minds of the people, and the first break in confidence precipitated runs on the New York banks.

The third explanation was that the panic was due to the defects in our American currency system.

These were the popular explanations, but there were deep-seated causes which had worked to bring about the existing conditions. The crisis was world-wide and was felt most in the countries where there was a gold standard. In 1890 the world's supply of gold available for monetary use was hardly $4,000,000,000; in 1907 it was more than $7,000,000,000.

Along with this went a rapid rise in the average price of commodities in gold-standard countries. Bank deposits in the United States in 1907 were three times as great as they were in 1897. Amidst all this prosperity there were forces which were bound to bring a reaction and among the most important of these was the demand for capital for conversion into fixed forms. Ready capital was also lessened relatively by the great losses experienced as a result of the Spanish-American War, the Boer War, the j.a.panese-Russian War, the San Francisco earthquake, and the Baltimore fire. These losses, which amounted to $3,000,000,000, came at a time when the world was just entering upon a period of great industrial activity and needed all its capital. Much capital was absorbed in the construction of railroads, industrial plants, development of foreign industries, etc. These conditions brought about a tightening of money rates in Europe and American financial centres; consequently rates of interest went up. Commercial paper which brought three to three and one-half per cent in New York in 1897 brought seven per cent in 1907.

[Ill.u.s.tration: Line of people waiting in front of the bank.]

The panic of 1907. Run on the Knickerbocker Trust Company, 34th Street and Fifth Avenue.

Closely allied to this movement was the increase in the number of securities issued by industrial concerns. A few resourceful men, in order to do away with the evils of unrestricted compet.i.tion, devised a remedy in the form of mergers. Others of less capacity but greater daring saw opportunities for money-making, and a craze for mergers and for the incorporation of private enterprises swept over the country. By 1907 there were at least $38,500,000,000 worth of securities in existence. The natural result was speculation. When investors began to fear the soundness of the securities a collapse of credit was due.

The rapid development of trust companies had its effect. The cash reserves held by these companies were small; their investments were not always conservative and the depositors were often suspicious. This free expansion of business with little or no reference to cash reserve or capital gave rise to another cause for the panic, which was not a matter of money. It was a matter of what was in men's minds. There was a period of "muckraking" in which leaders financial and political were severely critcised. Whether or not this criticism was justified by the exposition of the frauds of the insurance companies and the questionable dealings of some other corporations need not be discussed. The criticism created an att.i.tude of mind throughout the nation, and the first weakening of a bank brought on the deluge.

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The panic of 1907. Uptown branch of the Knickerbocker Trust Company, 125th Street.

To the ordinary observer the panic of 1907 will date from October 22, when the Knickerbocker Trust Company of New York closed its doors.

Earlier in the month the Mercantile National Bank had gotten into difficulties and had appealed to the clearing-house committee for aid, which was given. Soon it was noted that the Knickerbocker Trust Company was in a precarious condition, and the directors, following the example of the other bank, appealed to the same committee. The investigation of the committee showed the company insolvent and aid was refused. When the facts became known, a run on the bank began and it was compelled to close its doors. The lack of confidence in other financial inst.i.tutions was soon shown by similar runs.

No bank could stand the strain unaided. Now the Federal Government stepped in and Secretary of the Treasury Cortelyou came in person to New York and deposited $40,000,000 of the surplus from the United States Treasury to be used for the aid of beleaguered inst.i.tutions. For more than a week the crowds of depositors sought their money. The lines were not broken at night until the police hit upon the plan of giving to each individual a ticket denoting his place in the line. The Trust Company of America alone paid $34,000,000 across its counters and still crowds thronged the streets. At length the enormous reserve of the Treasury was exhausted and it became necessary to delay and deliberately to make slow payments. Through loans made by other banks the Trust Company of America and the Lincoln Trust Company, which had endured the hardest sieges, were saved and now the panic entered its second stage.

[Ill.u.s.tration: Hundreds of people waiting in line.]

The panic of 1907. Run on the Colonial Trust Company.

Line of depositors in Ann Street waiting their turn.

The country was thoroughly aroused, and to avoid a nation-wide raid upon banking houses the bankers took radical steps. The first measure resorted to was the enforcement of the rule requiring savings-bank depositors, at the option of the inst.i.tution, to give sixty days' notice before withdrawing deposits. The second expedient was one which had been resorted to during former years of financial unsteadiness. "Emergency currency" was issued. This currency took various forms. (1) The clearing-house loan certificates issued in denominations ranging from $500 to $20,000, used for settling inter-bank balances; (2) clearing-house certificates in currency dimensions to be used by banks in paying their customers; (3) clearing-house checks which took the form of checks drawn upon particular banks and signed by the manager of the clearing-house; (4) cas.h.i.+er's checks (in opposition to the National Bank act) secured by approved collateral; (5) New York drafts which were cas.h.i.+er's checks drawn against actual balances in New York banks; (6) negotiable certificates of deposit, and (7) pay checks payable to bearer drawn by bank customers upon their banks in currency denominations.

These were guaranteed by the firm which issued them.

Other devices were used to aid the banks and to block the spread of the panic by limiting cash payments by the banks. The governors of Nevada, Oregon, and California declared legal holidays continuously for several weeks, thereby allowing the banks to remain closed. In some places the size of withdrawals was limited to $10 or $25 daily.

The panic was felt to a great degree on the New York Stock Exchange because the banks refused to make loans, but this stringency was relieved by a bankers' pool, headed by J. P. Morgan, which loaned $25,000,000 at the prevailing rate of interest. With the strengthening of the Stock Exchange another stage of the panic pa.s.sed.

[Ill.u.s.tration: Hundreds of people waiting in line.]

The panic of 1907. Run on the Lincoln Trust Company, Fifth Avenue entrance.

In spite of the use of the surplus of the Treasury the banks showed a loss of $50,000,000 in actual cash during the five weeks of the panic.

Now demands were made on foreign countries for gold. The Bank of England made no move to block the great withdrawals of gold except to raise the official discount to seven per cent. The flow of gold did much to stay the ebb of confidence.