Silber when washington shut down wall street; the great financial crisis of 1914 and the origins of americas monetary supremacy (2007)

When Washington Shut Down Wall Street When Washington Shut Down Wall Street THE GREAT FINANCIAL CRISIS OF 1914 AND THE ORIGINS OF AMERICA’S MONETARY SUPREMACY William L Silber PRINCETON UNIVERSITY PRESS PRINCETON AND OXFORD Copyright © 2007 by Princeton University Press Requests for permission to reproduce material from this work should be sent to Permissions, Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, Market Place, Woodstock, Oxfordshire OX20 1SY All Rights Reserved Library of Congress Cataloging-in-Publication Data Silber, William L When Washington shut down Wall Street : the great financial crisis of 1914 and the origins of America’s monetary supremacy / William L Silber p cm Includes bibliographical references ISBN-13: 978-0-691-12747-7 ((hardcover) : alk paper) ISBN-10: 0-691-12747-6 ((hardcover) : alk paper) Currency crises—United States—Case studies Currency question World War, 1914–1918—Finance McAdoo, William Gibbs, 1863–1941 Gold standard I Title HG3903.S54 2007 332.0973’09041—dc22 British Library Cataloging-in-Publication Data is available This book has been composed in Sabon Printed on acid-free paper ∞ pup.princeton.edu Printed in the United States of America 10 2006013076 Talia Leora Danielle Arianna Rebecca For and Lillian With Love Joseph Joshua Jacob Jack Evan It is impossible to be sure that a decision in August 1914 to suspend gold payments, even with the purpose of subsequently resuming them, would not have given to at least our immediately subsequent financial history a very different turn from that which it actually took Alexander Noyes, The War Period of American Finance, 1926 Contents Acknowledgments INTRODUCTION The Legacy of 1914 CHAPTER ONE The Opening Salvo CHAPTER TWO The European Gold Rush CHAPTER THREE The Nightmare of 1907 CHAPTER FOUR Unlocking Emergency Currency CHAPTER FIVE Sterling Steals the Spotlight CHAPTER SIX New Street Defies McAdoo CHAPTER SEVEN Rescue CHAPTER EIGHT End Game CHAPTER NINE Birth of a Financial Superpower EPILOGUE Blueprint for Crisis Control xi 26 42 66 86 104 116 131 151 173 Notes 177 References 201 Index 207 Acknowledgments HISTORICAL RESEARCH requires the help of dedicated individuals who pay attention to the details I would like to thank my research assistants Yang Lu, Steven M Pawliczek, and Josh Sullivan for helping to collect data and archival material They cheerfully accommodated my numerous requests to revisit the same documents Bruce Kirby of the Library of Congress, Nancy Paley of JP Morgan Chase, and Steven Wheeler of the New York Stock Exchange went out of their way to provide source material This project could not have been completed without their enthusiastic assistance I imposed the task of reading my work in progress on a number of colleagues and friends Adam Brandenberger, Allan Meltzer, Anna Schwartz, Thomas Sargent, Joachim Voth, Paul Wachtel, and Eugene White read the manuscript and o ered thoughtful comments I especially appreciated the memos they wrote that bristled Steve Cecchetti, author of an excellent new textbook on money and banking, read the book in one sitting I bene ted from his enthusiasm and perceptive suggestions I in icted the rst draft of every chapter on Dick Sylla He took time away from his work on Alexander Hamilton to give me encouragement, advice, and lessons in grammar and history Niall Ferguson read the manuscript as though it were his own He explained what I really said in the eyes of a professional historian I thank him for being a role model My friend, David Weisbrot, a distinguished biologist, commented with his usual intellectual curiosity I will miss his input in the future Kenneth Garbade read and reread every single sentence and forced me to purge the fuzzy logic from every argument He imposed a standard of rigor that, after more than thirty years of friendship, I recognize as a sign of a ection I have received far more than I have given during our lifetime collaboration The conversational style of this book bene ted from years of training by the master of exposition, my late coauthor, friend, and mentor, Larry Ritter The prose would have been clearer had he been able to comment Peter Dougherty, the Director of Princeton University Press, and my editor, picked up some of the slack And so did my wife, Lillian She read all of the chapters and cleansed the manuscript of every misplaced metaphor she could nd (I slipped in a few after her nal review) The errors that remain reflect a stubborn streak that I try to suppress only moderately When Washington Shut Down Wall Street References Andrew, A Piatt 1907 “The Treasury and the Banks under Secretary Shaw.” Quarterly Journal of Economics, August ——— 1908a “Hoarding in the Panic of 1907.” Quarterly Journal of Economics, February ——— 1908b “Substitutes for Cash in the Panic of 1908.” Quarterly Journal of Economics, August ——— 1908c “The 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in International Finance, Department of Economics, Princeton University, Princeton, N.J Taylor, John B 2002 “A Half Century of www.treas.gov/press/releases/docs/fried.pdf, November Changes in Monetary Policy.” Available at Temin, Peter 1989 Lessons from the Great Depression: Lionel Robbins Lectures for 1989 Cambridge, Mass.: MIT Press U.S Department of Commerce, Bureau of the Census 1975 Historical Statistics of the United States Washington D.C.: Government Printing Office U.S Treasury 1914, 1915 Annual Report Washington, D.C.: Government Printing Office Van Antwerp, William C 1913 The Stock Exchange from Within Garden City, N.Y.: Doubleday, Page Warburg, Paul M 1930 The Federal Reserve System: Its Origins and Growth Vol and New York: Macmillan Wilkins, Mira 2004 The History of Foreign Investment in the United States, 1914–1945 Cambridge, Mass.: Harvard University Press Willis, H Parker 1915 “American Finance and the European War.” Journal of Political Economy, February ——— 1923 The Federal Reserve System: Legislation, Organization and Operation New York: Ronald Press Withers, Hartley 1915 War and Lombard Street London: John Murray Young, Ralph A 1930 Handbook on American Underwriting of Foreign Securities Washington, D.C.: Government Printing Office Index Addis, Sir Charles, 165, 167, 177n.16 agricultural goods: contraband, classification as, 100, 141; cotton, removal from contraband list of, 145–46; exports of, reversing gold outflows by promoting, 4–5, 87, 90, 101–2, 141, 145–47; insurance policies for shipping, 141 (see also Bureau of War Risk Insurance) Aldrich, Abby, 59 Aldrich, Nelson W., 22, 58–62, 134 Aldrich Plan, 134, 136 Aldrich-Vreeland Act, 4n, 57–65, 70–76, 78–81, 83–85, 133–34 See also emergency currency Allen, Benjamin, 44 American obligations abroad See securities, American corporate and municipal American Stock Exchange, 105 Andrew, A Piatt, 51, 58–59, 180n.124, 182–83n.202–10, 183n.222, 183n.234, 184n.251–52, 184n.256–57, 184n.259–60, 184n.262–63, 192n.512 Argentina, 2, 158 Austria, 9–11, 33 Bagehot, Walter, 74n, 166, 167n, 170–71, 177n.8, 198n.707, 198n.709, 199n.725–27 Baltimore Stock Exchange, 106 Bankers Trust Company, 135 Banking Act of 1933, 182n.171 Banking Act of 1935, 119 banking system: calling in loans, disadvantages of, 45n; corporate and municipal securities held in Europe (see securities, American corporate and municipal); currency, issuance of, 46; emergency currency, use of to support (see emergency currency); financial crisis of 1914, emergency meeting with McAdoo to discuss, 42, 66–67, 69–71; financial crisis of 1914, preparations for and the British experience, 67–69; financial crisis of 1914, small private banks and, 68; gold and, 14–15, 26; gold exports, discussion of responses to the problem of, 95–98; gold reserves in New York banks in August 1914, 104n; information regarding money owed Europe, compilation of, 120–21; legal reserve deficiency among New York City banks, issue of, 123–24; the New York City bailout, 123–25; Ottawa as a port of receipt for gold, implications of and response to, 98–103; the Panic of 1907 (see Panic of 1907); reserve deficiency, implications of, 96n; stock exchange call loans, 47 See also currency Bank of England, 125n; the gold standard suspended during the Napoleonic Wars, 89; outflow of gold, ability to limit, 17; price of gold in sterling, 28; run on, 68–69, 80 Bank of France, 166 Bank of London, 153 Barney, Charles T., 44–45 Barron, Clarence W., 163–64 Beal, Thomas P., 121 Berlin, Treaty of, 9n bills of exchange, 36n, 93n Blackett, Basil, 196n.628 Black Friday, 26–27 Black Hand, the, 9n, 41n black markets, behavior and function of, 110–11 Bordo, Michael, 69n, 154n, 158n, 177n.7, 179n.56–58, 188n.390, 198n.708 Bosnia, 9, 11 Boughton, James M., 163n Bradbury, Sir John, 165, 170, 198n.698 Breen, Edward F., 110 Bristow, Joseph, 24 Britain: American securities, desire to sell, 4; Americans trapped in during the currency crisis, 68–69; Committee on Currency and Foreign Exchanges after the War (Cunliffe Committee), 164; currency crisis in, 68–69, 80; gold standard, final departure from, 170; gold standard, maintenance of, 2–3, 89–90, 178n.54; gold standard, postwar suspension and restoration of, 164–65, 167, 169–70; Hong Kong dollar, toleration of black market in, 111; international financial leadership of (see international financial leadership); the pound as the world’s safest currency in 1914, 35; refinancing of American obligations, response to, 128; the sterling exchange rate, 31–37, 86, 91–95, 100–2, 122, 140, 145–49, 155–57, 161; world finance, challenge of America for dominance of, 1–2, 5–6; as world financial leader, 2–3, 89–90, 151–52 Broesamle, John J., 71n, 179n.85 Brooklyn Bank, 49 Brooklyn Edison Co., 52 Brown, James, 42n, 104n, 184n.275, 185n.278, 196n.628–29 Brown, William A., 198n.703 Brunner, Karl, 162n, 198n.686 Bryan, William Jennings, 88–89, 169, 188n.387 Bureau of War Risk Insurance: activities of, 141–42, 146–47; creation of, 5, 102, 141 Burns, Arthur, 6, 173–74 call loans, 47n Canada: indebtedness of, 157–58; Ottawa as reception point for gold exports, 96, 98–99; Wall Street for raising capital, turn to, Carosso, Vincent P., 189n.419, 197n.652 central banks: the Bank of England (see Bank of England); the Federal Reserve System (see Federal Reserve System); ubiquity of, Chamberlain, Sir Austen, 165, 170, 198n.698 Chandler, Lester V., 14n, 194n.559, 194n.563–64, 194n.566–71, 194n.573–75, 194n.580–81, 195n.582–83, 195n.609–10 Chase National Bank: convertibility and the gold standard, implications of, 95; deposit totals for June 10, 1907, 182n.177; emergency currency, amount requested, 81; emergency currency, problem of qualifying to receive, 71; Hepburn at, 66–67; national bank notes, use of to meet depositor withdrawals, 99; Panic of 1907, importation of gold during, 55 Chernow, Ron, 177n.26, 182n.189, 198n.691 Chicago Clearing House, 185n.285 Chile, 157–58, 161 China, 2, 160 Chinn, Menzie, 163n Chrysler Corporation, 124 Chrystal, K Alec, 151n, 162n, 196n.644 Chubb, Percy, 34 Clearing House loan certificates, 50–51, 67 Coinage Act of 1873, 53n Comex, 27 Committee on Government Operations, 27n Conant, Charles A., 88–90, 177n.4, 188–89n.399, 198n.706 Congress, U.S.: currency, control of issuing, 53–54; emergency currency, amendment of the law authorizing (the AldrichVreeland Act), 65, 71–74; emergency currency, legislation authorizing (the Aldrich-Vreeland Act), 58–64; Federal Reserve Board, action on nominations for, 18–19, 21–24, 133 Conklin, William G., 50 Consolidated Stock Exchange, 12n Constitution, U.S., authorization to issue and regulate money, 53 Continental and Commercial National Bank, 81 Continental Illinois bank, 124 Cortelyou, George, 183n.233; meeting with bankers on Oct 22, 47; Morgan, consultation with, 43; Panic of 1907, failure to defeat, 74, 183n.233; production of money to meet the crisis, impossibility of, 52–53; Treasury deposits into New York banks ordered by, 49, 55 Cortelyou, James T., 38 Crap, George S., 107 crisis control/management, McAdoo’s formula for, 6, 174–75 Cunliffe, Lord, 164 currency: American system of, 14–15; bank issues of, 46; in circulation at the outbreak of World War I, 82; the crisis of Aug 1914, meeting the, 79–81; durability of an accepted, 162; emergency under the Aldrich-Vreeland Act (see emergency currency); the Federal Reserve System (see Federal Reserve System); fiat, 53–54; foreign exchange market (see foreign exchange market); the gold standard and, 14–15, 87–88 (see also gold standard, the); issuance of in the U.S., history of, 53–55; legal tender, items included in, 178n.51; money supply, growth rate from July–Dec., 1914, 83; new series of Federal Reserve notes introduced in 2003, 82n; problems regarding in the Panic of 1907, 50–57; safety of, dollar and pound compared regarding, 35; silver and bimetallism, promotion of, 88; special drawing rights (SDRs), 162–63 Currency Act of 1900, 53n, 57 See also Gold Standard Act of 1900 Davison, Henry: the Aldrich Plan, design of, 134; Bankers Trust, conception of, 135; central bank, support for, 136; financial crisis of 1914, emergency meeting of bankers with McAdoo to discuss, 42, 68; meeting of the banking elite on July 30, attendance at, 8; the New York City bailout, 124, 127, 192n.514, 193n.525; in the Panic of 1907, 135; on Schiff ’s plan to count emergency currency as bank reserves, 98; Strong, persuasion of, 138; Strong’s tenure at Bankers Trust, responsibility for, 143 Dawes, Charles D., 61n debt, American corporate and municipal securities held in Europe See securities, American corporate and municipal Delano, Frederic A., 24–25, 119 demand sterling bills of exchange, 36n dollars: credibility of, payment of debts and, 97 (see also securities, American corporate and municipal); exchange rates for (see foreign exchange market); insufficiency as international payment, 95; international currency, not accepted as before World War I, 153–54; as international medium of exchange, 158, 160–61; international preference of gold or sterling to, 101; metamorphosis of to an international currency, 156–58; sterling, the fight for supremacy with, 158, 160–66 See also currency Donald, James M., 180n.115 Eagle, Joe, 21 Edwards, Elisha Jay “Holland,” 160 Eichengreen, Barry J., 154n, 158n, 177n.17 Eldridge, Watson, 75 Ely, George W., 107 emergency currency: effectiveness of use in 1914, 84–85; legislation authorizing, 58–65, 71; legislative amendment required for use of in 1914, 71–74; the New York City bailout and, 123; outstanding in 1914 and 1915, 81–84; payment of debts held in Europe and, 97; proposed use of in 1913, 76–79; redemption of, 99; use of in 1914, 4–5, 70, 74–76, 80–81 See also Aldrich-Vreeland Act Europe: Britain (see Britain); export of gold to, 26, 29–32, 90; the foreign exchange crisis and, 32–37; low interest rates for American short-term securities in, 117–18; threat to American financial system posed by, 1, 11–12, 14–16; U.S railroad securities, ownership of, 10 exchange rates See foreign exchange market Fay, Sidney, 41n Federal Deposit Insurance Corporation, 44, 182n.171 Federal Reserve Act of 1913, 18, 65, 71, 118, 132, 136–38, 192n.490 Federal Reserve Banks: Federal Reserve System, place in the, 18; gold reserve requirements of, 194n.574; opening day for, 149–50; opening of, the battle over, 139–45; opposition to rapid establishment of, 4, 131–35, 137–38; Strong’s continued concerns regarding, 148; Warburg’s convincing of Strong to accept position as governor of New York’s, 136–38, 142–43 Federal Reserve Board: American obligations abroad, enlistment in the problem of, 119; American obligations abroad, the Gold Pool as a response to, 119–22, 125–26, 129; appointments to, battles over, 18–19, 21–25, 131; housing of in the Treasury building, 118–19; McAdoo’s influence and political independence of, 18–20; meeting of October 10, 142–43; successes and failures of leaders of, 173–74 Federal Reserve System: America’s challenge for international financial leadership, advancement of, 168; British departure from the gold standard, actions following, 171; challenges of launching, 18; congressional preference for as a crisis management tool, 73–74; on the drawing board at the outbreak of the war, 2; easy money upon establishment of, Wilson’s expectation regarding, 76; Great Depression, action during, 74; inflation of the 1970s and, 6; legislation creating, 16 (see also Federal Reserve Act of 1913); need for to combat financial crises, 16–17; opposition to quick launching of, 17, 25, 131 (see also Federal Reserve Banks) Ferderer, J Peter, 199n.715 Ferguson, Niall, 167n, 178n.32 First National Bank, 81, 182n.177 Fish, Stuyvesant, 192n.483–85 Fisher, Irving, 113 Flandreau, Marc, 154n, 158n, 167n foreign exchange market: bills of exchange, 36n, 93n; a “cable transfer,” 32n; crisis in, 32–37, 100–3; crisis in, understanding the, 91–95; gold exports and arbitrage in, 29–32, 100–1; the Gold Pool, reaction to, 121–22; meeting to discuss crisis in, 86, 92, 99–100, 102; mint parity exchange rates, 28; the New York City bailout, impact of, 124–26; Ottawa as a vehicle for, 98–101; short-term debt held in Europe and (see securities, American corporate and municipal); the sterling exchange rate, 31–37, 86, 91–95, 100–2, 122, 140, 145–49, 155–57, 161; suspension of business on, 79–80, 85; through dealers, 28 Forgan, James B., 121, 129, 193n.536 Fowler, Charles, 61–62 Frankel, Jeffrey, 163n Franklyn Savings Bank, 50 Franz Ferdinand (Archduke of Austria), 9–11, 41 Franz Joseph (Emperor of Austria-Hungary), 33 Fredrick, Leopold, 163 Friedberg, Robert, 184n.261 Friedman, Milton, 88n, 178n.53, 180n.109, 182n.171, 182n.203, 183n.214–21, 183n.224, 187n.348, 187n.351–52, 187n.354, 187n.361, 199n.724; bank demand deposits at the end of July, 1914, 178n.52; on Burns and the 1970s inflation, 6, 174; Federal Reserve, gold reserve requirements of, 194n.574; increase in U.S interest rates following Britain’s departure from the gold standard, reasons for, 171; legal tender, items included in, 178n.51; money stock, decline in from August 1931 to January 1932, 199n.731; national bank notes, acceptance of, 54n; New York Stock Exchange, closing of, 14n; on the Panic of 1907, 52, 56n, 57, 82, 183n.228, 185n.280, 187n.353 Garden, John E., 180n.115 Geddes, Donald G., 105 George V (King of England), 69 Girard National Bank, 81 Glass, Carter, 179n.78, 180n.93, 194n.555–56; on the Aldrich Plan, 134; on the Aldrich-Vreeland Act, 63; Aldrich-Vreeland Act, amendment of, 72–74; Federal Reserve, fight for legislation to establish, 22–23, 136; McAdoo’s proposal to control the central bank, opposition to, 20 Glynn, Martin H., 68n gold: American obligations abroad and (see securities, American corporate and municipal); determination of the price of, 26–28; export of to Canada, 96, 98–99; exports of the week of July 27, 1914, 26–29, 33–37; the Gold Pool, 119–22, 125–26, 129; importation of during the Panic of 1907, 55–57; net imports of from 1900 to 1914, 38–39; outflow of during 1914, 39–41, 85; outflows limited by shutting the New York Stock Exchange, 114–15; protection of by American bankers, 95–98; reserve fund and excess compared to paper liabilities, 88n; reserves of the Federal Reserve Banks, concerns regarding, 133–34, 137–38; Russian accumulation of, 40–41; shipping insurance costs, increases in, 34; Treasury response to diminishing supply of, 38, 90; troy ounce as unit for quotes of, 28n gold arbitrage, 29–36 gold export point, 31 gold import point, 31 Goldman Sachs, 31 gold standard, the: abandonment of by countries other than Britain and the U.S., 2, 89; American commitment to, fears regarding, 1, 89; American maintenance of, 5, 7, 33–34, 87–90, 168–69; Britain, postwar suspension and restoration of by, 164–65, 167, 169–70; British history of maintaining, 178n.54; British maintenance of, 2–3, 89–90; British permanent departure from, 170; central bank to protect, need for, 16–17; commitment to, reinforcement in 1900 of, 87–88; financial function of, 15; foreign exchange crisis as threat to, 87; the Great Depression and, 170–72; origin of in the U.S., 53; Panic of 1907, impact during the, 56–57; price of gold and exchange rates, establishment of, 27–28; reestablishment of after the Civil War, 27; wartime suspensions of, 15, 69, 89; wartime threat to, 14–16 Gold Standard Act of 1900, 53n, 57, 87–88 golf clubs, cost of, 30 Goodhart, Charles A., 57, 183n.224, 183n.229 Gould, Jay, 26–27 Great Depression: the Federal Reserve and, 74; the gold standard and, 170–72 Great War, the See World War I greenbacks, 54 Greenspan, Alan, 18, 173 Grey, Sir Edward, 146 Groesbeck, Ernest, 105 Guaranty Trust Company, 28–29, 31–32, 32n, 180n.120 Hamlin, Charles S., 195n.596–600, 196n.627, 199n.720–21; Congressional approval of nomination to serve on the Federal Reserve Board, 23; disclosure regarding appointment of Strong, 142–43; erroneous listing as first chairman on the Federal Reserve Board’s website, 18n; Federal Reserve Banks, position regarding establishment of, 132; Federal Reserve Board, photo of the first, 25; housing of the Federal Reserve Board in the Treasury building, 119; nomination to serve on the Federal Reserve Board, 19; suspension of gold payments, report of discussion of, 169 Hanover National Bank, 66 Harding, William P G., 19, 23, 25, 119, 143, 192n.491–92 Harlem Savings Bank, 49 Harriman, Edward H., 61n Hausmann, Ricardo, 154n, 158n Hay, John, 153 Hayes, Everis Anson, 72 Heller, H Robert, 163n Hepburn, A Barton, 189n.413; central bank, support for, 185n.282; emergency currency, amount requested, 81; emergency currency, changed position regarding, 66–67; emergency currency, problem for Chase National to use, 71; financial crisis of 1914, emergency meeting of bankers with McAdoo to discuss, 42, 66–67; gold withdrawals, prevention of, 96; meeting of the banking elite on July 30, attendance at, 8; Panic of 1907, meeting during the, 47; on pressures for legislation following the Panic of 1907, 62; rich-man’s panic, labeling of the stock market decline of March 14, 1907 as, 11n Heyburn, Weldon Brinton, 52 Higginson, Henry Lee, 1, 154–55, 177n.2, 197n.658–60 Hikosaka, H., 168–69n Hine, Francis L., 8, 42 Hitchcock, Gilbert, 21–23 Hong Kong and Shanghai Banking Corporation, 153 House, Edward M., 19, 22, 179n.73 Hovey, Carl, 153, 197n.650 Hudson & Manhattan Railroad Company, 3, 13, 20, 23, 70 Hulbert, Mary Allen, 19, 179n.74 Hunt, Nelson Bunker, 27 Imperial Bank of Russia, Independent Treasury Act of 1840, 55n international financial leadership: American aspirations regarding, 90; American challenge to Britain for, 1–2, 5–6; American efforts prior to World War I, failure of, 152–54; American transformation into, 154–57, 167–72; of Britain, 2–3, 89–90, 151–52, 166–67; dollar and sterling: the fight for supremacy, 158, 160–66; the gold standard in 1914 and, 5–6; international moneylender, claim of U.S as, 157–58; sterling as the international currency, 151–52 International Monetary Fund, 162 Isard, Peter, 163n Jackson, Andrew, 2, 16, 82n Jones, Edward, 19, 21–22, 24 Jovanovitch, M Ljuba, 41n Kemmerer, Edwin, 77, 79, 186n.330 Keynes, John Maynard, 177n.16, 181n.129, 188n.392–93, 188n.395–96, 199n.710–11, 199n.713, 199n.722; on the closing of the Paris stock exchange, 14n, 191n.464; dismissal of New York as a money center, 160; full restoration of the gold standard, warnings regarding a too hasty, 5–6, 167, 169–70; on the importance of the gold standard, 2–3, 89–90, 151, 167; maintenance of specie payments, advice regarding, 33 Kindleberger, Charles P., 151n, 177n.17 Kings County Light & Power Co., 52 Knickerbocker Trust Company, 43–49, 135, 182n.177 Knoxville Street Railroad, 3, 20 Kronprinzessin Cecilie, 26, 35–36, 94n Kroos, Herman, 55n Krugman, Paul, 162, 196n.644–45, 198n.687 Kuhn, Loeb & Company, 67–68, 97, 124–27, 129, 152–53, 193n.515 Kydland, Finn, 188n.390 La Follette, Robert, 61, 63 Lake Shore & Michigan Southern Railway, 128 Lamont, Thomas W., 117, 192n.487, 192n.508, 192n.514, 193n.525, 194n.553, 194n.562, 194n.565 Lansing, Robert, 146 Laughlin, J Laurence, 60, 64, 83n, 89, 183n.240, 184n.255, 184n.267–69, 188n.386 Lazard Frères, 31, 33–34, 55 Legal Tender Act of 1862, 54 Lewis, Cleona, 177n.1, 178n.32, 190n.435, 191n.474, 198n.677 Lindbergh, Charles A., 73 Lindert, Peter, 181n.143, 188n.394, 196–97n.646–47 Lindsey, David E., 199n.732 Lippmann, Walter, 6, 20–21, 174, 179n.81, 199n.737–38 Lloyd George, David, 69n Lockheed Corporation, 124 Loree, L F., 190n.435 MacVeagh, Franklin, 64–65 May, Max, 101n, 154n, 180n.114; dollars, positive signs in the foreign exchange market regarding, 156–57; foreign exchange crisis, conferral with McAdoo regarding, 42, 92–95; gold arbitrage by, 28–36; international gold movement, description of, 16–17; Ottawa and the business of, 98–99, 101–2 McAdoo, William G., Sr., McAdoo, William Gibbs: Aldrich-Vreeland Act, amendment of, 65, 71–74; American obligations abroad, actions regarding the problem of, 118–19, 129; autobiography of, 177n.9–12, 178n.42–43, 178n.45–46, 179n.75, 179n.77, 179n.79–80, 179n.91, 180n.94–95, 181n.164, 185n.281, 185n.295–96, 185n.300–1, 188n.371, 188n.373, 193n.546, 194n.548, 194n.550, 195n.587, 195n.608, 195n.617, 196n.619, 196n.631; biographical sketch of, 3; Bureau of War Risk Insurance and agricultural exports, promotion of, 146–47; crisis management, road map for, 174–75; Ellen Wilson, impact on the president of the death of, 86; emergency currency in 1913, actions regarding, 76–79; emergency currency in 1914, actions regarding, 70–76, 80, 83–84; engagement and proffered resignation of, 19–20; entrepreneurship of, 4; Federal Reserve Banks, battle over opening of, 131–35, 137–45; Federal Reserve Board, battle over appointments to, 21–24, 131, 133; Federal Reserve Board, chairmanship of, 18, 25; Federal Reserve Board, desire for control of, 18–20; Federal Reserve Board, taking of office by, 24–25; Federal Reserve System, immediate need for, 16–17; financial crisis of 1914, emergency meeting with bankers to discuss, 42, 66, 69–71; financial crisis of 1914, strategy and actions regarding, 1–6; foreign exchange crisis, actions regarding, 86–87, 92–95, 102, 188n.373; gold, response to diminishing supply of, 38, 90; the gold standard, maintenance of, 14, 16, 89–90; Hudson and Manhattan Railroad Company, financing of, 13; Hudson and Manhattan Railroad Company, preparations for launching, 70; international financial leadership by the U.S., actions supporting, 152, 154–55, 166, 168, 172; letters, 177n.3, 179n.72, 179n.76, 189n.424, 192n.495, 192n.504, 192n.506–7, 192n.514, 193n.529, 194n.551–52, 194n.578; New York City bailout, support for, 123–24; New York Stock Exchange, closing of, 12–14, 17, 90, 104–5, 110–11; New York Stock Exchange, reopening of, 147–49; papers of, 180n.92; prejudice, intolerance for, 23; presidential nominee, consideration as, 6n; press releases, 193n.536; socially responsible entrepreneurship, commitment to, 20–21; Strong, disagreement with over gold, 125–26; telegrams, 193n.520; trading ban on stock, effectiveness of, 113–15; trading ban on stock, neglect of violations of, 111, 113; triumph of, reasons for, 174–75; value of silence, lesson in, 13; Wilson, entry into the inner circles of, 70 McCarthy, Joseph, 61 McCormick, E R., 106 McKinley, William, 88, 153 Meissner, Christopher M., 154n, 158n Meltzer, Allan H., 162n, 171n, 192n.493, 198n.686, 199n.728, 199n.735 Menger, Karl, 162n Mercantile National Bank, 45, 48 Mercantile Safe Deposit Company, 51 Miller, Adolph C., 19, 23, 25, 119 Mint, Bureau of the, 53 mint parity exchange rate, 28 Mitchell, John Purroy, 193n.516 Moggridge, Donald, 198n.697–700, 199n.712, 199n.723 Morgan, J P., Jr.: continued dominance of European money markets, anticipation of, 163, 169; financial crisis of 1914, emergency meeting of bankers with McAdoo to discuss, 42, 68; legacy inherited by, 116; letters, 188n.372, 192n.506–7, 193n.529; meeting of the banking elite on July 30, calling of, 8–9; the New York City bailout, 123–26, 128, 155, 192n.514; New York Stock Exchange, closing of, 12; strong Federal Reserve, support for, 16; Wilson’s avoidance of meeting with, 86 Morgan, J P., Sr.: death of, 8; Hudson & Manhattan Railroad Company, investment in, 13; La Follette’s list of financial figures, presence on, 61n; the Panic of 1907, actions during, 8–9, 43, 46–48, 116, 135 Morgan & Company, J P.: American securities sold in Europe by, 97; commercial relations with Europe, restoration of through French affiliate, 92; foreign bonds, sale of, 153, 158; loan to France, proposal for, 89; New York City bailout, 122, 124–27, 129; Panic of 1907, role in, 43, 46–48, 193n.515; as private bank outside regulation, 67–68 Morgan Grenfell, 97 Morgan Harjes & Company, 92, 97 Morse, Charles W., 44–45 Morton, Levi P., 61n Mott, Frank L., 190n.459 Munger, E T., 23 Municipal Assistance Corporation, 123 Murdock, Victor, 73 Mussa, Michael, 163n National Bank Act of 1863, 54 National Bank Act of 1864, 96n national bank notes, 54, 75, 99, 186n.324 See also emergency currency National Bank of Commerce, 46, 81 National Bank of North America, 45, 48 National Citizens Committee, 23 National City Bank: convertibility and the gold standard, implications of, 95; emergency currency, amount requested, 80; emergency currency, problem of eligibility for, 71; foreign exchange crisis, response to, 86–87, 92; as foreign exchange dealer, 31; as the largest bank in the U.S., 67; national bank notes, use of to meet depositor withdrawals, 99; New York City bailout bonds, subscription to, 127; Panic of 1907, importation of gold during, 55 national currency associations, 64–65, 70, 75 Neely, Christopher J., 199n.733 Nelson, Knute, 24, 60, 72 neutrality, American commitment to at the outbreak of World War I, 16, 89 Newman, Oliver P., 75 New Street, black market in securities on, 106–15, 191n.471 Newton, Sir Isaac, 15 New York Chamber of Commerce, 59 New York City: bailout of, impact on the foreign exchange market, 124–26; bailout of, Morgan plan for, 122–25; bailout of, procedures for, 126–29; debt of, size and sale of abroad, 116–18; debt repayment, difficulties regarding, 80, 102–3; rescue from brink of bankruptcy, New York Clearing House, 45–46, 48, 50, 67, 120–21, 189n.413 New York Curb Market, 105–7 New York Stock Exchange: closing of, 4, 79, 90, 104–5; Committee of Five, 105–10; emergency currency offered in 1913, impact of, 77–78; European sales threatening, 1, 11–12; McAdoo and the closing of, 12–14, 17, 104–5; Morgan and the closing of, 8–9, 11–12, 105; New Street prices vs July 30, 1914 prices on, 111–13; Noble in charge of, 104; Noble’s account of the closing of, 9; the Panic of 1907 and, 43–44; price fall the day after Pearl Harbor, 112; prices on, June and July of 1914, 10–12; reopening of, 5, 147–50; reopening of, premature speculation regarding, 128–29; trading activity behind-thescenes during the trading ban, 108–10, 113–15; trading activity on New Street during the trading ban, 106–15; trading ban, circumvention and monitoring of, 105–8; trading ban, effectiveness of, 113–15; trading ban, prices outside during the, 110–13 New York Stock Exchange Clearing House, 109–11, 113–15 New Zealand, 161 Nicholas II (Czar of Russia), Nixon, Richard, Noble, Henry G S., 14n, 177n.24, 177n.29, 190n.437–38, 190n.444–45, 190n.447, 190n.450, 190n.454–55, 190n.457, 196n.636–38; closing of the New York Stock Exchange, 8–9, 90n; monitoring of the trading ban, 17, 105–11, 113; New York Stock Exchange, career at leading to the presidency of, 104; stock exchanges, closing of, 191n.464 Norman, Montagu, 164–65, 169 Northwest National Bank, 81 Noyes, Alexander, 177n.15, 177n.20, 188n.378–79, 190n.427, 191n.475, 199n.714; August 1914, significance in financial history of, 5, 7, 168; British loans of 1900 and 1902, amounts of, 197n.649; gold reserves in New York banks, August 1914, 104n; run against gold, warning regarding, 87–88 Officer, Lawrence H., 178n.54, 179n.55, 180n.121, 181n.134, 188n.391, 198n.685 Oman, Gustave, 49–50 Orphanides, Athanasios, 199n.732 Ottawa, Canada, 96, 98–99 Owen, Robert, 71, 194n.547 Page, Walter, 19, 179n.76 Paige 36 automobile, price of, 32 Paish, Sir George, 95, 138n, 147, 151–52, 156–57, 189n.409, 190n.435, 196n.628, 196n.641–43, 197n.664 Panic of 1873, 17 Panic of 1907: the Aldrich-Vreeland Act as a legacy of, 58–65; bank runs during, lack of currency and, 4; cost and consequences of, 49–53; the currency problem, 50–57; delay as a critical mistake in, 175; fears regarding in 1914, 42–43; rich-man’s panic, labeling as a, 11n; suspension of convertibility of deposits as beginning of, 42–47; U.S credibility damaged by, 5, 35 Panizza, Ugo, 154n, 158n Pashitch, M., 41n Pemberton, Francis, 70 Perkins, George W., 43, 46, 48, 61n Philippines, the, 88–89 Pilat, Oliver J., 46 Pittsburgh Clearing House Committee, 52 Pomroy, H K., 105 Poole, William, 174 Prendergast, William A., 80, 102, 117–18, 123–24, 193n.515 Presidential Succession Act of 1947, 89n Princip, Gavrilo, 9, 41n Ralph, Joseph E., 64, 75 Rasche, Robert H., 199n.732 Redemption Agency, 99 Redish, Angela, 154n, 158n Remak, Joachim, 9n Resumption Act of 1875, 27 Richards, Eugene, 67–68 Ridgely, William, 52, 60, 77, 79 Rockefeller, John D., 61n Rockefeller, John D., Jr., 59 Rockefeller, Nelson Aldrich, 58 Rockoff, Hugh, 69n, 177n.7, 179n.56–58, 198n.708 Romer, Christina, 174n Romer, David H., 174n Roosa, Robert, 151n Roosevelt, Eleanor, Jr., 19 Roosevelt, Theodore, 52, 62 Root, Elihu, 88 Rothschild, N M., 89 Rue, L L., 121, 129, 193n.536 Russia: accumulation of gold by, 40–41; complicity in the murder of Archduke Franz Ferdinand, suggestions regarding, 41n; opposition to discriminatory practices of, 23 Saudi Arabia, 5, 167–68 Schenk, Catherine, 191n.461 Schiff, Jacob H.: corporate and municipal indebtedness, payment of, 97, 100, 102; La Follette’s list of financial figures, presence on, 61n; the New York City bailout, 124–26; Russian discriminatory practices, membership on subcommittee opposing, 23 Schmitt, Bernadotte E., 41n Schwartz, Anna J., 88n, 178n.53, 180n.109, 182n.171, 182n.203, 183n.214–21, 183n.224, 187n.348, 187n.351–52, 187n.354, 187n.361, 199n.724; bank demand deposits at the end of July, 1914, 178n.52; Federal Reserve, gold reserve requirements of, 194n.574; increase in U.S interest rates following Britain’s departure from the gold standard, reasons for, 171; legal tender, items included in, 178n.51; money stock, decline in from August 1931 to January 1932, 199n.731; national bank notes, acceptance of, 54n; New York Stock Exchange, closing of, 14n; on the Panic of 1907, 52, 56n, 57, 82, 183n.228, 185n.280, 187n.353 Second Bank of the United States, 2, 16 securities, American corporate and municipal: enlistment of the Federal Reserve Board to address the problem of, 119; gold, mobilization of in paying, 125–28; gold, the question of payment in, 95–98; the Gold Pool as a response to foreignheld, 119–22, 125–26, 129; New York City, sale of notes abroad, 117–18; New York City, short-term debt of, 80, 102–3; the New York City bailout, 123–28; payment of maturing held in Europe, issue of, 95 Serbia, 9–11, 33 Shaw, Leslie M., 58–60, 124, 183n.233 Shelton, Edward, 71 Siegel, Jeremy J., 182n.170, 191n.466–67 Silber, William L., 12n, 14n, 108n, 186n.338, 191n.473, 194n.558 silver, promotion of bimetal monetary standard including, 88 Simon, Matthew, 188n.382 Sisson, Thomas Upton, 83 Skinner, George, 48 Sobel, Robert, 56n, 190n.440 special drawing rights (SDRs), 162–63 Sprague, O M W., 11n, 177n.22, 177n.27, 179n.60, 179n.68, 182n.187, 183n.227, 183n.230, 187n.366, 188n.370, 196n.635, 197n.654; demand sterling as the most significant exchange rate, 36n; Federal Reserve Banks, the delayed opening of, 149–50; Knickerbocker Trust Company, circumstances surrounding failure of, 48; New York Stock Exchange, approval of the closing of, 14n; Panic of 1907, delay as a critical mistake in, 175; Panic of 1907, impact of gold inflow on, 57; sale of stock by foreign holders as basis for concern, 178n.48; on the use of emergency notes in 1914, 84–85, 187n.349 Spring-Rice, Sir Cecil, 146 Stebbins, Henry, 104 Stedman, Edmund C., 180n.112 Stephens, Mitchell, 190n.459 Stillman, James, 47, 61n stock exchange call loans, 47 stock exchanges: closing of international, 14n, 191n.464; New Street as black market in securities during the trading ban, 106–15, 191n.471; New York (see New York Stock Exchange); war, reaction to, 112–13 Streit, Samuel F., 105 Strong, Benjamin, Jr., 184n.275, 185n.278, 189n.424, 193n.520, 193n.536, 196n.628–29; American foreign-held debt and the Gold Pool plan, 120–21, 125–26, 129, 155; banking situation, memo characterizing, 42n; Federal Reserve, opposition to quick opening of, 17, 126; Federal Reserve Act, opposition to, 136; Federal Reserve Bank of New York, acceptance of governorship of, 136–38; Federal Reserve Bank of New York, disclosure regarding appointment of, 142–43; Federal Reserve Banks, opposition to rapid opening of, 4, 131, 139, 144–45, 148–49; financial crisis of 1914, emergency meeting of bankers with McAdoo to discuss, 42, 68; gold, conflict with McAdoo regarding, 126; gold exports, concerns regarding, 129–30; gold outflows, memo regarding, 104n; gold reserves, Federal Reserve System need for excess, 194n.574; meeting of the banking elite on July 30, attendance at, 8; professional background of, 135 Studenski, Paul, 55n Sussman, Nathan, 154n, 158n Swoboda, Alexander, 162n, 196n.644 Taft, William Howard, 23 tax anticipation notes, 117 Taylor, John B., 177n.18–19, 199n.734 Temin, Peter, 170n, 177n.17 Tokyo Stock Exchange, 112 “Too Big to Fail” doctrine, 4, 124 Tottenville National Bank, 127 Trewitt, Judge, 13 Truman, Harry, 89n Trust Company of America, 47–49, 182n.177 Underhill, Beekman, 110 Underwood, Oscar W., 61 Union Pacific Railroad, 79n Untermyer, Samuel, 194n.547 U.S Trust Company, 71 Van Antwerp, William C., 191n.460 Vanderlip, Frank A., 42, 67, 71, 86–87, 185n.282 vehicle currency, 151n Volcker, Paul, 18, 173 Vreeland, Edward, 61–63 Wall Street See New York Stock Exchange Warburg, Paul M., 179n.87–89, 192n.495, 193n.545, 194n.551–54, 194n.578, 199n.716; the Aldrich Plan, design of, 134; confirmation of nomination to serve on the Federal Reserve Board, battle over, 21–25; Federal Reserve, opposition to quick opening of, 17; Federal Reserve Bank of New York, convincing of Strong to accept position as governor of, 136–38; Federal Reserve Banks, financial significance of, 168; Federal Reserve Banks, opposition to rapid establishment of, 131–35, 137–39, 142–44; gold holdings, importance of consolidating, 120; housing of the Federal Reserve Board in the Treasury building, 119; nomination to serve on the Federal Reserve Board, 19; on Strong, 135 Wells Fargo Express Company, 81 Westinghouse, George, 52 Wexler, Sol, 121 Wheeler, Steven, 190n.458 Whetmore, George, 59 Wiggin, Albert H., 184n.275, 185n.278, 193n.536, 196n.628–29; American foreign-held debt and the Gold Pool plan, 120–21, 126, 129, 155; banking situation, memo characterizing, 42n; gold outflows, memo regarding, 104n; on Strong, 135 Wilkins, Mira, 146n, 190n.435 Williams, John Skelton: bank violations of reserve requirements, ignoring of, 124; emergency currency, arrival of at the Treasury, 74; emergency currency, quick action regarding, 84–85; emergency currency, sufficiency of to meet depositor demands, 92; as ex-officio member of the Federal Reserve Board, 23; Federal Reserve Banks, position regarding establishment of, 132; Federal Reserve Board, photo of the first, 25; office in the Treasury building of, 118 Willis, H Parker, 194n.576–77, 199n.715 Wilson, Ellen Axson, 24–25, 86 Wilson, Woodrow, 6n; appointment of McAdoo as treasury secretary, 3; central bank for the United States, concerns regarding, 134; emergency currency, action to facilitate printing of, 75; Federal Reserve Board, nominations for, 18–24, 67, 132; Federal Reserve System, reason to move forward on, 144; financial crisis of 1914, emergency meeting of bankers with McAdoo to discuss, 70; gold and foreign exchange, dispatch of McAdoo to emergency meeting with bankers to discuss, 42; Higginson’s letter to, 1, 154–55, 197n.658–60; letters, 177n.2–3, 179n.72, 179n.74, 188n.372, 188n.387; McAdoo, beginning of association with, 70; McAdoo’s engagement and resignation, response to, 19–20; neutrality, commitment to at the outbreak of World War I, 89; tariff reductions and currency needs, problem of, 76; wife’s illness and death, distracted by, 2, 86 Withers, Hartley, 101n, 185n.293 Woodward, William, 66–67, 69 World War I: American neutrality at the outbreak of, 16, 89; declarations of war, 42, 111; European need for capital to fight, 5; events precipitating, 9–11, 33, 41n; financial repercussions of the Austrian Ultimatum, 15–16; financial threat posed by, 1; gold exports provoked by the Austrian Ultimatum, 26; New Street prices and events of, 112–13 Young, Ralph A., 197n.652, 198n.704 .. .When Washington Shut Down Wall Street When Washington Shut Down Wall Street THE GREAT FINANCIAL CRISIS OF 1914 AND THE ORIGINS OF AMERICA’S MONETARY SUPREMACY William L Silber PRINCETON... Data Silber, William L When Washington shut down Wall Street : the great financial crisis of 1914 and the origins of America’s monetary supremacy / William L Silber p cm Includes bibliographical... only moderately When Washington Shut Down Wall Street INTRODUCTION The Legacy of 1914 THE GREAT WAR threatened the United States with nancial disaster During the last week of July 1914, Europeans