WRITING, as we are obliged to write, while the panic in New York is still going on, it is impossible as well as useless to attempt to predict the result; but there are certain considerations connected with it which will be just as important and worthy of attention whether it temporarily destroys the credit of a few stock-brokers’ firms, an isolated bank, and a trust company or two, or whether it ends in a general crash, involving the business community.
The immediate cause of the panic lies on the surface, and the public knew when the Stock Exchange closed on September 20th as much about it as they will ever know. A large number of firms had made advances to railroads, which the roads could not pay ; this caused a depression in stocks, and the failure of one or two firms; the depression of stocks caused a general feeling of insecurity, a run on a well-known trust company, the failure of the trust company, a wild excitement, the closing of the Exchange, and in short a panic.
But why did not the panic occur at some other time ? The period of the war and the period immediately succeeding the war were periods of great speculation and inflation. The currency was of entirely uncertain value, vast fortunes had been made by means of government contracts, and the probability of a crash was a constant subject of thought among all those interested in business. For the last two years, on the contrary, gold has been in the neighborhood of 112, with slight fluctuations; the business of the country has been conducted on a system of short credits, — a system which on land has very much the same effect as reefing sails has at sea ; and the general prosperity of the United States, if we take as a test either the profits of railroads or immigration, has been very great. Yet for more than a week — how much longer it may last we do not know—the business men of the principal city in the United States trembled with anxiety to know from hour to hour whether the whole financial fabric was not going to tumble about their ears at any moment. It is very well after the event to say that the standing of the Union Trust Company, and of the Canada Southern road, and of the house of Jay Cooke & Co., and of Henry Clews, were all unsound ; but the fact remains that a month before they failed, nobody said that their unsoundness was a matter of public importance, and the discovery after a panic has set in that there is a panic is not of itself very valuable.
It is a fact, well known to every one in England and America, that there is a periodicity in panics which entitles the public to expect a crash every few years ; and as there has been none in this country since 1857, it would have been safe enough to say that one was due, or rather overdue. On the other hand, it may be said that panics are produced by expansion; and since, so far as the general business of the country has been concerned, there has been no expansion, there was no reason to expect a panic at all. The mere suspension of a number of stock and bond brokers, of dealers in money, shows nothing more than that those particular dealers in money have failed. Why should this affect the entire community ?
A panic is not understood when it is traced to its immediate causes. We must go farther back to know why a general alarm has seized upon a whole community. Every one knows that it only needs a run on the banks at any time to produce a panic, because the banks live on the presumption that there will be no run on them. If a general distrust seizes upon a city for any cause, we must know what is the cause of the general distrust if we wish to arrive at any safe conclusion as to the real nature of the trouble. In order to get at the bottom of the panic, we must get at the bottom of the distrust which caused it.
The distrust which caused the panic has been on the steady increase for some years; it has in fact increased pari passu with the revival of commerce and general prosperity. We can all remember that the immediate result of the victory of the North was an almost childish exultation over the reunion effected by it. We were all brothers once more, — those who were left alive,— and we would all advance hand in hand, shoulder to shoulder, to that goal of general prosperity which Christian good-will and confidence were sure to bring. There intervened, to be sure, the unfortunate Johnsonian period ; but we can hardly consider the war to have ended, in a moral sense, before the election of General Grant; and in his exhortation that strife should cease and peace reign again, peace meant naturally enough to most of us a lucrative peace. If any one will turn to the files of the newspapers of that time, he will find them filled with editorials of the most optimistic kind, dwelling on the immense resources of the country, the indomitable energy of the people, and that spirit of confidence which is bred of success and a belief in a collective social strength of purpose, principle, and aim. Even foreigners who came to the country at the end of the war were infested by this spirit; and so skilled an observer as M. Laugel published a book in which he described the average American in such roseate tints that it was almost difficult to believe him in earnest. We may say as much as we please about the absurdities of American journalism, but it is nevertheless unquestionably true that there is no country in the world in which the press so thoroughly reflects the tides of feeling and opinion which sweep through society ; and we have no hesitation, looking back at the time of which we are now speaking, in saying that the buoyant, hopeful feeling which then found its expression in the press was the real feeling of the country.
If any one will compare dispassionately a file of some newspaper of that time with a few numbers of the same newspaper now, — we do not care what newspaper it is, — he will be struck with the fact that within a few years the spirit of the community has completely changed. Where he found before rosy pictures of the future, he now finds a very dark picture of the present. Most of the news he discovers to be news of fraud, defalcation, and political treachery ; most of the editorial opinion to be accusations of more fraud, defalcation, and political treachery. He learns, it is true, as we have just said, that the country is in a very prosperous condition, that railroads never earned more freight, that the cotton crop was hardly ever so large, and that even the condition of the farmers at the West is still so much better than that of some other agricultural populations that the chieftain of one great body of producers has recently come to America to see whether it will not be a wise act to transport them all from their own country to this. Even American shipping, which was a short time since declining, and had but yesterday almost disappeared, has begun to revive. It must not be forgotten, too, that taxes have been decreased, and the national debt steadily reduced. What is the meaning, then, of all the doubt, distrust, accusations, investigations, and exposures which fill the air ? Why is it that we cannot open our morning newspaper without some new revelations of such astounding character that even hardened men of the world stand aghast at them ?
We believe that there is one simple answer to this question. The distrust we feel to be in the air has been caused by fraud, by corruption, by the most shameless breaches of trust, and by open dishonesty. We do not care to discuss the question whether we are more or less honest than other people. The day for patriotic international comparison of virtues has long gone by. No one cares whether we are more or less honest than Englishmen, Frenchmen, or Germans. The question is, whether we are honest when tried by the standards generally accepted among civilized men; and we have no hesitation in saying that we are not. There is no use in beating about the bush for excuses ; we may as well admit that, as a rule, persons who are placed in positions of trust and profit in which they have large powers confided to them are not trusted in the exercise of them, and with good reason. It is not for nothing that the directors of railroads, as a class, are accused of making use of the control of the stock to swell their own fortunes ; it is not for nothing that people begin to laugh when a trust company is mentioned as a safe place of deposit, any more than it is for nothing that when Congress voted itself an increase of salary, the act was denounced as a theft, and a howl of execration went up from one end of the country to the other.
When a large body of the public has lost its confidence, not only in politicians, but in railroad men, brokers, and in the management of institutions of trust, public credit is no longer in a sound condition. Each person looks with suspicion at each other, and the moment, for any reason, the ordinary course of business is interrupted, it may be by the most accidental and temporary immediate cause (as in this by the failure of a firm of railroad-men long known to have been, in the slang of the street, “ weak ”), alarm seizes on everybody; people who have money in banks draw it out, and people who receive money are afraid to put it in ; a general feeling of apprehension sets in, and, in short, we find ourselves in a panic.
To resume what we have said, the true cause of panic in New York is to be found in the well-founded suspicion of dishonesty in many kinds of business which is the natural and legitimate result of the thousand exposures of all kinds of rascality which has been the daily mental food of the American people for the past few years. Instead of believing in one another, we distrust one another, and it is but one step from distrust to panic. There are some people who believe that this state of feeling can be relieved by repeated assurances that there is no cause for it ; and it is amusing to find that almost all the houses which went down in the first excitement of the panic of September closed their doors, according to their own account, not because of insolvency or inability to pay their debts, but for the reason that their large surplus of securities Could not be sold, or because of some temporary difficulty in obtaining what are known as banking facilities. These announcements had no effect whatever in allaying the trouble, any more than had the earnest exhortations of the press to the public not to be agitated or imagine that there was any real cause of alarm; these exhortations being accompanied by the most startling announcement of facts of a character not at all calculated to allay apprehension. The panic was in reality a healthy indication of the unwillingness of the public to be deceived any longer as to the real condition of the financial affairs of a small number of speculative houses.
To many persons it may seem absurd that we should speak of a panic as a healthy indication ; and indeed if the public remained for any length of time in a wild and excited state, rushing about to draw their money and hiding it away in stockings, and frightening each other, we should have a different opinion of the subject ; it would then be evident that distrust had really so thoroughly supplanted credit that for the time being the financial system was broken down. This would imply a much more disastrous and barbarous condition of society than we are willing to believe exists ; and the immediate action of the banks of New York in forming a combination for mutual support shows that the crisis had at that time, at any rate, produced no such effect on the public imagination. A panic which goes no farther than to secure a general collapse of houses which have been engaged in over-speculation, and which then results in a suspension of business for consultation and defence against the general enemy, is panic of rather a commendable kind.
This panic will tend to make several things in politics clearer than they have been. Never before have the intimate relations between Wall Street and the Treasury been made so manifest. Secretary Richardson and Secretary Boutwell have both, it is true, intervened in times of commercial difficulty ; but their interference before has always been spoken of as a matter of exceptional necessity. On this occasion, however, the administration has itself come to New York, and the President and Secretary have held an audience on the situation at the Fifth Avenue Hotel, and it has been admitted on all hands, that unless the government did something the entire business of New York, if not the whole country, must come to a stand-still. There is indeed no half-way between interference and non-interference ; the Treasury must be managed in its own interests, or in everybody’s interest. The reserve of $ 44,000,000, which is legally no part of the currency of the country, has been treated for two years as if it were legal currency, and might be issued at any time ; and no doubt a belief was created in the minds of a large number of persons that it would be thrown on the market whenever it was needed. Certainly the brokers closely connected with the government had reason to believe that it would be used for their assistance. But when the President came to the Fifth Avenue Hotel, he suddenly discovered that it was illegal to issue this reserve, and announced that the law could not be violated, except in the very last emergency. The result of all this vacillation is that the government is in possession of $44,000,000 of which no living man knows the exact character. The Senate committee, who have reported on the subject, say that it is retired currency, and so much waste paper ; it was the opinion of the late Secretary of the Treasury that the sum was so many million dollars legal tender in the payment of debts, with which the government might do what it pleased ; it is the opinion of the present Secretary and of the President that the $44,000,000 partakes of two opposite and directly contradictory characters ; that so long as money is easy and Wall Street feels confident, it is waste paper ; that so long as it is possible to keep it back, it is illegal to issue it ; but that the moment the emergency becomes overpowering, presto the waste paper becomes good legal money, and is currency again. We sincerely trust that this absurd state of affairs may come to an end this winter. If Congress has any sense of what the financial condition of the country demands, it will forever set at rest the doubt about this sum by a plain enactment; there is really no doubt about it, even at present, but the behavior of the President and his Secretaries has given many people good reason to think that some doubt exists.
There is another thing in connection with this interference of the Treasury which demands investigation. Grave accusations have been brought against the Secretary of the Treasury for what is, to speak plainly, a falsification of the accounts of the department. No one suspects Mr. Richardson of dishonesty, but he has been trained in a school of politics which has never taught its pupils that respect for truth is the first political virtue, and it would be quite within the bounds of possibility that Mr. Richardson should think it a very praiseworthy action to represent the affairs of the Treasury as in a more prosperous condition than they actually are, by treating “called bonds” as gold, or some other simple device. He has denied in general terms the truth of the rumor, but he has not given any reason to believe that he will court investigation. It is one of the peculiarities of the present administration, that it resents all criticisms and inquiry into its proceedings, as if the election of its head by the people gave it a sort of political infallibility.
The crisis will have one good effect, if it turns people’s attention away, for the time being even, from the farmers’ movement. The depression in stocks and the total collapse of some of the houses which made their money out of handling bonds, ought to do something towards convincing the farmers that the iniquitous monopolists who invest their money in railroads do it at considerable risk, of which they cannot wholly relieve themselves even by allowing the directors to enrich themselves out of the earnings.
This panic has many features which distinguish it from any panic which has been much spoken of or written about of late. It is, we believe, the first great panic in the history of modern commerce in which the dread of a general crash has been made use of as a preventive of a general crash. In former panics dread has got the better of every other feeling ; in this case, the effect of the first suspensions was to warn everybody of what was coming, and to produce a general conviction that, unless matters were kept quiet, the result would be disastrous. If we can imagine the nature of panics to become so thoroughly understood by the business community as to make this always the case, it is probable that panics would lose some of their terror. In every commercial crisis, it is only a small part of the community that is really insolvent. The great mass of the people, even of a reckless and extravagant country, live within their income, and over-trading is always confined to one class, over-speculation in stocks to another. In the panic of this year, as we have said, the mercantile houses were known to be in a prosperous condition from the beginning. If in all future panics, before a purely animal terror has seized on every one, measures of precaution are taken, the trouble may certainly in some of them be confined within its proper limits, If those who owe more than they can pay should be forced to make settlements with their creditors on reasonable terms, while the rest of the country is enabled to transact its business as usual, smooth water might be reached at a comparatively early day. By precautionary measures, we do not mean measures to bolster up insolvent corporations or men, but measures to discover the real condition of affairs, to make the losses fall upon those who have really brought about the crisis, and to relieve perfectly solvent banks and individuals from pressure. Meantime it is useless to attempt to conceal the fact that the great danger for the country now is, not so much from over-speculation, as from fraudulent speculation. When we take into account the millions of fraudulent debt foisted upon the public by the Southern States, by such city governments as Tweed’s, and of doubtful debt by such a railroad as the Northern Pacific, the only wonder is that we were not all swamped by them long ago. Fortunately for our dishonest comfort, we have had Europe to swindle as well as our own fellow-citizens, and many millions of the money thus obtained— unquestionably the greater part — has been profitably though dishonestly invested in domestic enterprise.
The political article in the Atlantic for August has been subjected to some very curious criticism; it being apparently the opinion of a large number of persons that it was calculated to strengthen Butler’s chances, while the General himself frequently referred to it in his stump speeches as containing a statement that there were “ certain old families,’' in Massachusetts who “had a traditional right to control the politics of the State.” It is hardly necessary for us to say that the Atlantic never contained, and never will contain, any such fatuous statement as this, and we merely refer to it because it furnishes an amusing instance of the difficulty of political discussions to which General Butler is a party. If he had gone about the State saying that the Atlantic was in favor of an hereditary despotism, a standing army, and the introduction of crucifixion as a substitute for the gallows, he would hardly have been further from the actual facts ; but the actual facts are no part of his weapons. In the article to which we refer we endeavored to point out several things with regard to the change which has taken place in the condition of Massachusetts in the last generation, and to account by these historical facts for the strength of Butler. We also stated that he had the support of the administration, which was indignantly denied by Republican newspapers throughout the State. We believe the event has so thoroughly justified what we said, both as to the strength of General Butler and the means by which he might be defeated, that it is hardly worth while to reopen the discussion. As to the support afforded by the administration, it is hardly necessary to do more than point to the resolution passed by the nominating convention at Worcester on tins point, in which the administration, always referred to in the early stages of the conflict as perfectly neutral, was denounced for interference in State affairs, and called upon to remove the intermeddling officials. As it is perfectly well known from one end of the United States to the other that the administration interferes in every important State election, we may say, in conclusion, that the vacillation of opinion on this subject, in certain quarters in this State during the Butler campaign, was contemptibly absurd.