Strained credit and wild financial speculation lead to panic in an era of bold industrial expansion at the dawn of the American Century, in the days before the Fed.
On March 13th, the New York stock market plunged, a financial crisis that led to four years of recession. The year was 1907. Easy credit, wild financial speculation, and constriction of money supply were the culprits.
The next morning, the Brooklyn Daily Eagle described the frenzy on the trading floor, “Brokers rushed here and there in an effort to unload, and thousands of shares were dumped on the market in less time than the telling of it takes.”
Such a description of selling on the floor of the New York Stock Exchange would fit any financial panic experienced in this country, and there had been several since the founding of the Republic. Though each had similar symptoms of money supply constriction, each was also the part of the fabric of their unique eras. In 1907, a boom in industry and investment was upon the United States, at the dawn of what some would call the American Century. Credit flowed to the point of leaving lenders vulnerable.
The economic crisis began as a result of drain on the money supply. The Russo-Japanese War of 1905, and the funds required for rebuilding of San Francisco following the devastating earthquake and fire of the previous year were factors. There were also several railroad expansions that required increased capital. The banking system had over-extended itself, and while speculation made the stock market soar to new heights, credit was severely strained and some banks and trust companies failed. When long-term bonds could not be sold, the constricting money supply plunged New York Stock Exchange prices into a sudden collapse March 13th.
Recovering somewhat in April, wild fluctuations continued over many months, through the remainder of that year, as world markets fell and banks failed. Remedy came from varied sources. Help for the US came from London, as the S.S. Lusitania, launched by Britain’s Cunard Line that year, carried specie from the Bank of England to relieve the American financial crisis in the US.
Financier J. P. Morgan personally worked to end the crisis after a run on New York’s Knickerbocker Trust. Morgan obtained pledges of millions of dollars from New York bank presidents and financiers to loan the City of New York to keep the city from having to default on some short-term bonds.
In an unusual move, Morgan also locked up a group of uncooperative New York trust company presidents overnight in the library of his home on East 36th Street until 5 o’clock in the morning of November 4th, until they gave their support to raise funds.
The Brooklyn Daily Eagle also noted on March 14th, the day after the initial crash, “For the past 24 hours the White House and the Treasury Department have been bombarded by frantic telegraph, telephone, and mail appeals for the government to do something to check the tumbling of stocks in Wall Street and avert a threatening panic.” At the time there was no Federal Reserve Board either to keep excesses in check or to lend direction in the economy.
President Theodore Roosevelt, despite his trust-busting fame, permitted United States Steel to acquire Tennessee Iron & Coal and despite questions as to the legality under the 1890 Sherman Anti-Trust Act. The President’s action is reported as saving the Wall Street brokerage firm of Moore & Schley from collapse. Faith in the economy was gradually restored as constriction in the money supply eased.
By the end of that tumultuous year of 1907, Wall Street’s Dow Jones Industrial Average closed at 58.75, down from 94.35 at the beginning of the year, losing nearly half its value.
- Brooklyn Daily Eagle, March 14, 1907
- Kindleberger, Charles P. “Manias, Panics, and Crashes – A History of Financial Crises” NY: John Wiley & Sons, Inc., 1996.
- Sobel, Robert. “Panic on Wall Street” (NY: EP Dutton), 1988.
- “1907: Commerce.” The People’s Chronology. Ed. Jason M. Everett. Gale Group,