Western Real Estate Booms, and After

THE West is now so vast in population and wealth, as well as in extent, that whatever economic condition affects it profoundly must be of immense consequence to the whole country. Here is the chief market for the consumption of manufactured articles, here is produced in great measure the food for the nation, and here are invested a large part of the people’s savings.

Most men now feel confident that after seven or eight years of industrial depression, which deepened in 1893 into financial storm and darkness, a season of prosperity is beginning. While I shall not undertake to present an explanation of every phenomenon of this long period of gloom, nor to enumerate all its causes, I shall briefly review antecedent conditions in the West, in an effort to arrive at some clear conclusions at least regarding large economic and financial influences.

During the years from 1880 to 1887 or 1890, the date of the climax varying in different sections, there developed in Minnesota, the Dakotas, Nebraska, Kansas, Texas, in all the states and territories further west, and in some parts of Iowa, Wisconsin, and Missouri, a fever of speculation in real estate which affected the whole population, destroyed all true sense of value, created an enormous volume of fictitious wealth, infected with its poison all the veins and arteries of business, and swelled the cities to abnormal proportions. The East invested vast sums in Western property and securities; every hamlet contained people whose savings were thus hazarded ; every Western concern had its clients, sometimes by the thousands, scattered throughout the cities, towns, and rural districts of the East. The rapid development of the resources of the West lent plausibility to every reckless prophecy of higher prices ; the continued inundation of Eastern money seeking chances of speculation falsified the predictions of the foreboding. When the culmination was reached there was no explosion, — the region affected was too widely extended for that; as the " boom ” collapsed by degrees in Kansas City or Omaha, the professional gamblers in city lots quietly slipped away to Galveston or to Los Angeles, and there organized another riot of high values. As the price of property became stationary, and then began to fall, at first very slowly, then more rapidly, the truth gradually dawned on the people, who were reluctant to believe it, that all their wealth had an appearance of unreality; and this conviction deepened as the volume of debt contracted in “ flush ” times pressed with deadly weight upon every community, flattening industries, breaking banks, and ruining individuals by thousands.

The ties connecting the two sections were too numerous and intimate for the distress so universal in the West not to be felt soon in the East. Distrust of all Western enterprises eventually permeated the East, and reacted injuriously upon those Western institutions which least deserved criticism. Then the great load of debt, apparently insupportable, suggested in some sections of the West the idea of repudiation, or at least of repayment in whatever form of money was cheapest; and the East became panicstricken through fear that the integrity of the nation’s money might be successfully assailed. So the disturbance, which was at first local, spread and deepened until it involved the finances of the whole country. It was checked when the election of 1896 showed that the people were honest at heart, and meant to hear their burdens with unflinching courage; but no marked relief could reasonably be expected until, by settlement, liquidation, limitation, or payment, the incubus of debt which lay upon the West should be lifted or adjusted.

All this seems so clear in the retrospect that it is difficult to see why it was not better apprehended in the first years of this decade. Yet many well-informed men, just before the panic of 1893, believed that we were entering on a period of great prosperity. Those who, at the end of 1892 and the beginning of 1893, believed that a crisis was at hand, did not at all agree as to the cause that would produce it. Some were confident that the advent of a Democratic administration, with its threat of a change in the tariff laws, would upset the business of the country, throw labor out of employment, increase the volume of imports, send a flood of gold out of the country, reduce the gold in the treasury below the danger-line, and bring on a panic. Others contended that the continued purchase of vast quantities of silver by the government, in the futile effort artificially to sustain its price, issuing in payment treasury notes which could be used to draw gold from the treasury, was fast destroying the confidence of the financial public in the ability of the government to maintain the parity of gold and silver. This opinion was expressed by President Cleveland, when, at the height of the disturbance in 1893, he convened Congress in extra session for the purpose of repealing the silver purchase clause of the so-called Sherman act. “ Our unfortunate financial plight,” he said, is not the result of untoward events nor of conditions related to our natural resources, nor is it traceable to any of the afflictions which frequently check national growth and prosperity. ... I believe these things are principally chargeable to congressional legislation touching the purchase and coinage of silver by the general government.”

“ Our interests are not moribund,” said the Financial Chronicle of New York, on August 5,1893 ; “ they are not in a state of insolvency or approaching insolvency. Nothing of that kind explains the idle spindles, the noiseless machinery, the stilled workshops, — animation is suspended, that is all; awaiting what? Is it liquidation or anything of that character? By no means — just waiting, ready to start up at any moment on the repeal by Congress of a little piece of injudicious legislation.”

After some delay the little piece of legislation was repealed, but the wheels did not start up; the machinery remained almost as noiseless as before, during three years of anxious waiting, while values of both real and personal property continned to shrink ; banks, business houses, and individuals by thousands gradually sank into insolvency, and the pressure of hard times was felt in every corner of the land. And now, when the crisis is past, observers are not wanting who, while they give due heed to the influences of tariff changes, to the government’s purchase of silver, and to the disturbing influences of both, believe that the people had grievously and persistently sinned in other ways against the laws of economic health.

The great financial and manufacturing companies of the East study the markets, concern themselves actively in legislation, foresee political changes, and watch anxiously the financial barometer; they are nervously sensitive to every fluctuation, and constantly apprehensive of storms. To them, a panic is a short, sharp convulsion that manifests itself in business failures, bank suspensions, and shrinkage in stocks and bonds. To the people of the West, on the other hand, the panic of 1893 was merely an episode in a long and complicated series of events beginning eight years or more before. It meant not merely bank failures, the shutting down of mills and factories, the passing of dividends ; it meant primarily an enormous and universal depreciation in the value of real estate, and the vanishing of fortunes based on real estate values; while the suspension of banks, the collapse of mortgage loan companies, the failure of " bonused ” corporate enterprises, were secondary results. Such disasters as these strike first the inhabitants of the West, who have borrowed money to develop their vast resources, and afterward the people of the East, who have loaned their money and cannot recover it. The gravest cause of the long depression, therefore, had its origin in the West. Here was bred the unwholesome condition which made it possible that the apprehension of a seven per cent reduction of the tariff and an unwise policy regarding silver should conjure up in the minds of the financial public a vision of impending ruin. The country was ripe for panic.

In any new country, when population is spreading rapidly over fresh territories, speculation in land is sure to become extravagant. The most striking feature of the panic of 1837 was the mania for the purchase of wild lands in the West. At no other time in our history, probably, has speculation gone so far beyond the bounds of reason : people seemed to believe that the advance in prices would never cease. The wildest speculation of all was in real estate. Paper cities sprang up in the wilderness, and lands in the inaccessible West were bought and sold at high prices decades in advance of any possible needs of the people. Everybody bad speculated, and all who had bought lands or town lots had suddenly become rich. The country was at the zenith of apparent prosperity when the crash came. Then this imaginary wealth vanished more quickly than it grew. The distress of the people was as real as their fortunes had been unsubstantial. Naturally, they did not believe that the calamity was in any degree the result of their own folly. The banks, the manufacturers, the party out of power, and most of the great orators denounced Jackson as having deliberately caused the ruin of the country. The city of New York turned out in an immense mass meeting, and with one voice vehemently charged the whole trouble to Jackson’s attack upon the National Bank and his specie circular. A committee of fifty was appointed, who waited upon the President and presented their petition, in which, after depicting witli the greatest earnestness the magnitude of the calamity that had befallen the city and the country, they declared that these evils flowed, not from any excessive development of mercantile enterprise, but " from the unwise system which aimed to substitute a metallic for a paper currency.” The President refused to rescind the circular, but was finally compelled to call a special session of Congress. In his message he gave a vivid picture of the excessive speculations and enormous indebtedness in which all classes had become involved, and he attributed the present condition to “ overaction in all the departments of business,” — an opinion in which every student of the period must concur. This was what had brought the country to a state of unsoundness, in which any act of the government, wise or unwise, which called the people’s attention sharply to their own condition, would bring the inevitable day of liquidation and produce crash.

There are few more curious parallels than that between the condition of things at the beginning of Van Buren’s administration in 1837 and of Cleveland’s in 1893. The chief difference was that in 1893 the banking system was sound, and the only feature of the national currency which had any element of unsoundness was the effort of the government to keep an immense and constantly increasingvolume of silver at a parity with gold; while in 1837 the currency consisted almost wholly of bank paper in all degrees of depreciation, and constantly swelling in volume to meet the demands of an insatiable thirst for speculation. This difference is, of course, of the highest importance ; and to it is due the fact that the panic of 1893 came some years after the crest of the wave of speculation, which reached its maximum in 1887 and the years immediately following. The reaction, instead of being instantaneous and explosive, came on by degrees. If prosperity has now come, it is because the reaction has fully spent its force.

How general and excessive throughout the West this speculation was during the ten years preceding the crisis of 1893 is shown by the following illustrations. The city of Milwaukee has been regarded as a comparatively conservative town, though full of enterprise and animated by the true Western spirit. As compared with Duluth, Kansas City, Seattle, and Wichita, for example, it is regarded as quite sober. After a few years of active but moderate speculation, when the excitement had begun to subside in many cities, it broke out afresh in Milwaukee. The record of sales and mortgages for three successive years was as follows: —

Sales. Mortgages.
1889 $10,203,335 $8,254,225
1890 16,491,302 12,327,717
1891 19,790,751 19,921,431

The Chamber of Commerce regarded this state of things with much satisfaction. In its report for 1892 it says : —

“ One of the best indications of the growth and prosperity of Milwaukee is furnished by the continued activity and enhanced value of real estate, not only within the limits of the city, but in all the territory surrounding it for miles beyond. The people who expected that the great ‘ boom ’ of 1890 would be followed by reaction made a greater mistake than those who supposed that values had reached the top for many years to come, in 1889. On the contrary, that was only the beginning of the upward movement. Desirable inside property has advanced steadily from year to year, with a better demand and greater confidence in values than has ever before been known in the history of Milwaukee, while outlying and suburban property has risen from fifty to one hundred per cent annually for the last three years.”

It would be interesting to know how many of the holders of the twenty million dollars of mortgages given in Milwaukee in 1891 have received their money, and whether they still have an abiding faith that outlying lots can always go on advancing at the rate of fifty or one hundred per cent a year.

The cities of Minneapolis and St. Paul were no less abundantly blessed, although there the speculative movement reached its culmination as early as 1887, since which time the holders of city lots have been suffering the pangs of gradual and irresistible depreciation. If Milwaukee was happy with twenty millions a year, the Minneapolis speculators with fiftynine millions were jubilant. During the decade beginning with 1884 the yearly sales were: —

No. Amount
1884 8,382 $21,070,000
1885 8,560 24,788,000
1886 14,250 38,319,000
1887 16,700 58,915,000
1888 11,400 42,100,000
1889 10,087 33,039,000
1890 9,194 32,145,000
1891 7.397 28,733,000
1892 7,075 28,538,000
1893 6,272 22,544,000

As in Milwaukee, nearly all of the property thus purchased was heavily mortgaged, and the wealth of thousands of citizens consisted either in such mortgages or in the property so encumbered, — wealth which, in the succeeding years, gradually evaporated. As the population of Minneapolis in 1887 was about 160,000, there was one purchase for every ten of her inhabitants, including babies, during the year. After the lapse of ten years, the prices of 1887 seem like the golden visions of a vanished dream.

St. Paul closely paralleled this record. Her sales reached fourteen millions in 1885, twenty-seven millions in 1886, and fifty-eight millions in 1887 ; and this excess was followed by exhaustion so intense that scarcely a sign of recovery is yet visible. Another century will dawn before vacant real estate, not required for business, will have a definite value.

Omaha had the same experience. Her citizens speculated in city property with even greater recklessness. Between 1885 and 1888 sales increased more than seven hundred per cent : —

1885 $4,426,143

1886 15,178,448

1887 31,148,425

In Seattle the assessed valuation rose by leaps from $1,626,275 in 1880 to $26,431,455 in 1890, while the sales of real estate from 1887 to 1890 increased from three millions to twenty-three millions. It would be easy to trace the evidences of this passion for gambling throughout the western three quarters of the continent in all the cities and large towns from Lake Superior to Texas, from Galveston to San Diego, thence to Tacoma and Seattle, and back to Duluth ; accompanied everywhere by boundless individual indebtedness incurred in buying land, and in some sections by city, county, and township debts created in aid of railroads, water-works, electric lights, and all sorts of public improvements. The mania for land was curiously illustrated by the rush of settlers and speculators upon the opening of new lands in Oklahoma. An immense multitude left homes in a dozen states, and flocked thither by rail, in wagons, on horseback, and on foot, camped out for weeks and months along the borders of the promised land, suffered all kinds of privations, and raced madly across the line when the gun was fired ; only to find that there were ten competitors for every quarter section, and that the land, when they got it, was far inferior to that which they had left behind. The unsuccessful ones eked out a miserable existence as long as they could in the mushroom towns, and finally drifted forlornly away. Many Western towns deliberately intoxicated themselves in imitation of their neighbors. Prices were forced up by means of brass-band auctions and artificial excitement. Raw villages on the prairies indulged in rosy dreams of greatness, and gaslights twinkled where the coyotes should have been left undisturbed. Every city and town in the regions chiefly affected by the great “ boom ” contained families impoverished by the collapse. It bad its root in the true spirit of gambling, and has borne its legitimate fruit.

In the train of the real estate craze came a great number of loan and investment companies. Many of them were conducted by honest men, who lent the money of Eastern clients in immense quantities, their estimate of value being, of course, affected by the prevailing exaggeration; many more institutions were organized to burst, and, after flourishing a few years in the hot atmosphere of speculation, fulfilled their destiny, and spread ruin among thousands of innocent victims. No large Western town has been exempt from these two classes of concerns, and their collapse justly aroused in the East a deep feeling of distrust and insecurity, and led to a condemnation of Western investments and Western business methods, in which good and bad were confounded. Honest Western business men even yet complain of this suspicion ; but in a measure they have deserved it, because in the “ flush” times, without investigation, they permitted their names to be used as directors and figureheads of companies organized on the worst principles and run by the most corrupt men, and thus allowed themselves to be used as decoys for the undoing of thousands.

Hard times cannot be regarded as evils, if they arrest evil tendencies. The only means by which a wayward community can be turned bark into the right path is the severe lashing of its individuals when they go wrong. Many of the most valuable results of hard times are reaped whether or not the people understand their causes and correctly interpret their lessons. The shifting of population during the last fifteen years is a good illustration of this principle.

The years preceding the panic of 1893 saw a most remarkable migration toward the cities, — streams of people drawn thither by the extraordinary opportunities to make money in real estate, and by the fictitious prosperity which such easily acquired wealth diffused among all the inhabitants. During this period of enormous increase in the size of the large cities, the villages and rural districts lost their population relatively so fast that thousands of townships were less populous in 1890 than in 1880. Industries as well as persons migrated. The village shops and factories disappeared. Land companies offered big bonuses in land and money to induce mills and shops to remove from small towns. The smaller towns were thus plundered of their institutions, and also of their skilled workers. Industries flourish best where they have grown up, and endure bodily transplanting hardly better than full-grown trees. Accordingly, every large Western town can show a long list of such “assisted emigrants,” stranded high and dry like driftwood after a freshet, —great buildings silent and deserted, with hundreds of idle employees walking the streets. The wrecks among manufacturing concerns in the West have come, in a very large proportion, from among those which joined the general movement in the eighties and removed from smaller places. The railroads actively assisted the movement. In their eager competition for the business of the large towns, they deliberately sacrificed the interests of non-competing points. They practically levied upon the local towns the expense of incessant rate wars, so that no industry could survive in a place having but one railroad, and a removal to a city enjoying cheap rates was a necessity. The phenomenal growth of the large cities was thus due, in great part, to unjustifiable discriminations in their favor. But cities and towns must depend for existence upon the adjacent territories, and when their growth is out of proportion to that of the region tributary, depression follows hard upon the heels of prosperity. A state is not prosperous when only its large cities are thriving; its real welfare may be most substantial when the cities are stagnant from too rapid growth. Hunger drives the redundant population of the cities back to the country, and their labor finds once more a productive field. Hence it is that, though the census of 1890 showed an unparalleled rush to the cities, and an absolute diminution of numbers in a majority of rural townships and small villages in many states, this movement was in a great measure arrested by the hard times culminating in the panic of 1893. Thus the nation automatically corrects its unequal development. The people once more turn to the upbuilding of their own industries; the stream of humanity that pours from a hundred rills into the great centres of population is stopped, — at least for a time, — the evils of overgrown cities are to a degree cured, and the just balance between city and country is reëstablished.

The hard times have taught the people of the West a truth they had wellnigh forgotten, —that the slow accumulations of legitimate industry are a more solid foundation for wealth than the gains from gambling in any form. Men who have doubled their investment in a single year in a real estate venture find savings in ordinary business very tedious ; their neighbors catch the contagion of their success ; the old ways of making money are too slow ; the community becomes accustomed to the display of sudden wealth ; though everybody is in debt, no one thinks of payment ; extravagance in personal expenditure and official salaries, prodigality in the use of public funds, become the rule; sound banking and mercantile principles are disregarded; stock jobbing corporations are hatched in swarms; there is a letting down of moral principle in all the affairs of business, a toleration of bad men in places of trust, a general envious admiration of success, however won. It was the consciousness that the foundations of credit were false and hollow which made it possible for the threat of tariff changes to send a thrill of fear through the community ; it was the consciousness of insolvency throughout wide reaches of Western territory which conjured up the spectre of free silver repudiation ; it was the demoralization caused by unsound business methods which inspired the attack upon the creditor classes in Kansas and other Western states, and which in turn is still, in some districts, shutting the door in the face of returning prosperity. The people of the West are being led, through a long experience of suffering, back to a basis of happiness, surer, more enduring, because founded in truth and honesty. They are learning that fictitious wealth is no wealth at all, and that solid progress is not heralded with a brass band.

It hardly need be said that the people of the Western states are not different from, certainly not inferior to, those of other communities, in their appreciation of the virtue of honesty, whether personal or political ; and their intelligence and patriotism are no more open to doubt. If they departed from the path that leads to true prosperity, it was in obedience to impulses which nearly always affect human nature in the same way. Keen enterprise and unbounded opportunity, if unchecked by the recollections of bitter experience and a conservatism born of established custom and tradition, will carry most men into excess, whether in England, America, Argentina, Australia, or South Africa. The consciousness, in new countries, that the present is the golden opportunity for men who are rich in nerve, but poor in purse, impels them to take all chances. When a community runs headlong into riotous speculation, it requires the castigation of hard times to bring it back, and keep it thereafter within the lines wherein alone lies permanent safety. This experience the West has had in abundant measure ; and with a spirit chastened, but not subdued by affliction, its people are now resuming the task of developing its mighty resources.

Henry J. Fletcher.