CHAPTER XXIV.

THE CRISIS OF 1893.

The Reverberation of the Baring Crash over Europe, America, and Australia-Distrust of American Silver Legislation-The Failure of the Brussels Conference, the Suspension of Free Coinage in India, and the Coming of the Panic-The Shrinkage of Values -Repeal of the Sherman Law and the Bond Contract of 1895 -Land Speculation and Bad Banking in Australia.

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HE financial crisis of 1893 was in a large measure an afterclap of the Baring failure in 1890. Many millions of British money had been invested in American and Australian securities and the discredit which fell upon Argentine and other South American investments with the failure of the Barings resulted in an irresistible movement to unload such securities and transfer European capital to home investments. Such a tendency would in itself have seriously crippled the great enterprises carried on in the United States, South America, and Australia on foreign capital, even if those countries had not been in any way at fault. Results proved that, while credit rested upon no such rotten basis in the United States and Australia as in Argentina, there had been much sinking of circulating capital in unproductive enterprises and a tendency towards unwise economic policies which had fettered the industries of those countries. and driven gold from its legitimate place in their monetary circulation. Circumstances which might have impaired American and Australian credit under any conditions were emphasized by the general distrust aroused by the Baring failure and it required only the rude test of the withdrawal of foreign support to confirm the suspicions of foreign inves

tors and bring to a head the real evils of the economic situation.

The first shock was felt in Australia, whose people had been congratulating themselves upon their rapidly accumulating wealth and their swelling bank credits, based in reality upon inflated valuations of real estate and of agricultural products. The shock was soon communicated to the United States and its reverberations affected the stock markets of Berlin and Vienna, checked the efforts of Austria-Hungary to establish the gold standard, and drove Austrian securities homeward from Germany as the result of the scramble for ready cash in the Berlin market. Italy was affected by the prevailing distrust, and the evils generated by corruption among her bankers and public men were intensified by the return of Italian securities and the steady outflow of gold and even of subsidiary silver coins under the pressure of a depreciated paper currency. The Crédit Mobilier Italien, with a capital of 75,000,000 lires ($14,500,000), was forced to suspend by the difficulty of calling up advances, with deposits of 50,425,000 lires and advances of 89,109,000 lires.' France saw her importations shrink from 4,767,867,000 francs ($920,000,000) in 1891 to 3,936,720,000 francs ($760,000,000) in 1893. Even Turkey suffered from the fall in the prices of the products of agriculture, which constitute the larger part of her exportations. Opium within the space of a few years fell twenty-four per cent., wool fifteen per cent., and raisins eight per cent."

The crisis in the United States attracted the most attention, because of the magnitude of their commercial interests and of the investments of foreign capital in their railways, breweries, cattle ranges and public securities. Foreign investments in the United States would have required large payments to Europe prior to 1893 if American enterprises had not proved up to that time so attractive that the interest upon them was constantly reinvested. The result, according to the acute observation of M. Arthur Raffalovich, was 1 Revue des Banques, Jan., 1894, XIII., 15. Revue des Banques, Aug., 1894, XIII., 166.

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that "the true indebtedness of the United States abroad had been completely hidden by the influx of foreign capital. What the nation had to pay in interest on railway and municipal obligations and industrial investments had never been felt as a charge upon commerce, in consequence of the compensation which resulted from the uninterrupted entry of capital placed by Europe." The withdrawal of this capital, even the mere suspension of the process of reinvesting it,-meant heavy payments in gold or merchandise to Europe, without compensation in returning gold or goods. The annual payments required to Europe, outside those compensated by American exports, were estimated by Mr. Heidlebach, a New York banker, at $350,000,000, and the principal of the debt upon which interest was due was computed at not less than two billions of dollars.' The withdrawal of a large portion of this productive loan was the price which the United States were called upon to pay for political manœuvres which aroused the fear that they would abandon the gold standard and make silver the basis of their monetary system.'

'Le Marché Financier en 1893-1894, 255.

These figures were largely mere estimates until a careful computation was made in the Journal of Commerce and Commercial Bulletin, July 8, 1895, based upon inquiries among brokers, steamship agents, and others possessing actual knowledge. This investigation made the total annual indebtedness to Europe, exclusive of merchandise movements in either direction, $175,475,000 and the credits on the other side $29,750,000, leaving a net indebtedness by the United States of $145,725,000. The leading debtor item was $90,000,000 on investment account, which would represent a capital of at least $2,500,000,000. The creditor items included $14,000,000 brought by immigrants, $14,850,000 for outlays of foreign vessels in American ports, and $1,900,000 for outward earnings of American vessels. These figures take no account of the portion of the annual debt which may be settled by new securities.

"This tendency to the withdrawal of foreign capital was observed to some extent after the passage of the Bland bill and the Senate resolution offered by Senator Matthews of Ohio, that the obligations of the United States were legally payable in silver. Vide London Economist, September 28, 1878; Leroy-Beaulieu, II., 229. The tendency only became marked, however, after the passage of the law of 1890.

A combination of influences worked together to induce an unhealthy condition of industry and finance and to bring about the collapse of 1893. The passage of the Sherman silver law of 1890 was not the absolutely unique cause of the crash of three years later, but it contributed powerfully to that result, indirectly as well as directly. The withdrawal of gold from the United States Treasury pursued an almost uninterrupted course from the moment of the enactment of the Sherman silver law until the outbreak of the panic. The following table, brought down for convenience to a more recent date, will show the progress of this depletion of the gold reserve:

Gold exports began in large volume the month the Sherman law was approved and reached a total in the fiscal year 1891 of $86,362,654; in 1892 of $50,195,327; and in 1893. of $108,680,844. There were imports during the months in which the American crops were marketed, but the three years contributed an excess of exports of $68,130,087 in 1891, $495,873 in 1892, and $87,506,463 in 1893. The theory of Gresham's law, that the departure of gold denotes the presence of a poorer currency behind the gold, expelling it from the country, was verified by the manner in which the

gold went out as the new Treasury notes were pumped into the circulation at the rate of $4,500,000 per month. The Treasury notes issued undes the Sherman law up to June 30, 1893, were $147,190,227; the net gold exports from the United States from June 30, 1890, to June 30, 1893, were $156,132,423; and the reduction of the aggregate gold in the Treasury during the same period was $133,156,991. Other causes than the mere addition of the notes to the circulating medium doubtless contributed to the expulsion of gold, but the coincidence of these three items,—the loss of gold by the Treasury, its export from the United States, and the issues of notes,—is at least striking.

From the moment that the Sherman law was enacted, the Treasury of the United States was under the necessity of constant expedients to keep its gold and replenish it when it was lost. The government availed itself of every opportunity to obtain gold in exchanges when there was a demand for small notes by offering greater conveniences to those who tendered gold in exchange for paper than to those who tendered other forms of currency. Appeals to the generosity and patriotism of the national banks, which still held a considerable reserve of gold, were frequently made during the autumn of 1892 and the early months of 1893. New appeals of this sort were made under the administration of President Cleveland and the gold reserve was increased from $90,722,958 on June 10, 1893, to $97,286,677 on July 10th, by the efforts of a banking combination in New York, and by leading bankers of Boston, Baltimore, Chicago, and Philadelphia.

These devices were unavailing to permanently arrest the combined effects of the infusion of paper into the currency and the period of speculation and large imports of foreign merchandise which had set in. Funds were raised for working alleged tin-mines in South Dakota; vast tracts of land were purchased in Florida to be unloaded as sugar lands upon foreign investors under the guarantee of the government bounty upon sugar; and new towns sprang up all over the South, dowered in the imagination of their projectors