The causes of the panic of 1893

Front matter

THE CAUSE AND EXTENT OF THE RECENT INDUS- TRIAL PROGRESS OF GERMANY. By Earl D. Howard.

THE CAUSES OF THE PANIC OF 1893. By William J. Lauck.

WHAT METHOD OF EDUCATION IS BEST SUITED FOR MEN ENTERING UPON TRADE AND COMMERCE. By Harlow Stafford Person, Ph.D.

Preface

This series of books owes its existence to the generosity of Messrs. Hart, Schaffner & Marx of Chicago, who have shown a special interest in trying to draw the attention of American youth to the study of economic and commercial subjects, and to encourage the best thinking of the country to investigate the problems which vitally affect the business world of to-day. For this purpose they have delegated to the undersigned Committee the task of selecting topics, making all announcements, and awarding prizes annually for those who wish to compete.

In the year ending June 1, 1905, the following topics were assigned: —

1. The cause and extent of the recent industrial progress

of Germany.

2. To what is the recent growth of American competition

in the markets of Europe to be attributed ?

3. The influence of industrial combinations upon the con-

dition of the American laborer.

4. The economic advantages and disadvantages of present

colonial possessions to the mother country.

6. What forms of education should be advised for the ele-

vation of wage-earners from a lower to a higher industrial status in the United States ?

viii PREFACE

7. What method of education is best suited for men entering upon trade and commerce ?

The present volume was awarded the first prize.

Professor J. Laurence Laughlin,

Columbia University.

Professor Henry C. Adams, University of Michigan.

Horace White, Esq., New York City.

Introduction

Plan and Scope of the Investigation xiii

Chapter I Business And Tkade Conditions In The United States, 1884-1890

First Indications of a Revival in Trade and Industry after the General Depression in Europe and America. — The Building of New Railroads, 1886-1890. — Revival in Industry and Agriculture. — The Expansion of Interior Trade and the Growth in the Consuming Power of the Country. — Increase in Importations resulting in a Trade Balance against the United States. — Unusual Amount of American Securities issued during the Years 1886-1890. — Acceptance of American Securities by Foreign Creditors in Payment of Trade Balances. — Growth of a Surplus Revenue. — The Extension of the Protective System. — The Adoption of a Policy of Increased Government Expenditures 1

Chapter II The Silver Movement In The United States

The Fall in the Value of Silver after 1872. — The Act of 1878. — Operation of the Act of 1878. — Net Result of the Act of 1878. — Causes of the Act of 1890. — Provisions of the Act of 1890. — Significance of the Act of 1890. — Summary of the Financial Situation in the United States in the Autumn of 1890 16

Chapter III

GROWTH OF SPECULATION IN GREAT BRITAIN AND BRIT- ISH GAMBLING IN ARGENTINA

Depression in British Trade and Industry, 1884-1886. — The Return of Confidence and the Rapid Extension of Investments, 1887-

CONTENTS

1890. — Outgrowth of Speculation. — The Joint-Stock Company Mania. — The Combination of Breweries and the Organization of Trust and Debenture Companies. — Chilean Nitrate Companies and Australian Land Mortgage and Financial Flotations. — South African Gold-Mining and Diamond Ventures. — The Turn of the Speculative Movement toward Argentina. — The Boom in Argentine Land Values. — Absorption of Cedulas, or Land Mortgage Bonds, by European Investors. — Excessive Issue of Argentine Public Loans. — The Suspension of Specie Payments and the Evil Effects of a Depreciated and Inconvertible Paper Currency. — Total Argentine Liabilities abroad in 1890. — British Capital Commitments in Argentina. — Total Capital Commitments in Great Britain during the Period 1887-1890. — The Expansion of Credit Transactions and the Precarious Financial Situation in Great Britain in 1890 35

Chapter IV Industrial And Financial Conditions In France And Germany, 1884-1890

Trade and Industrial Depression in France, 1884-1887. — Return of Prosperous Conditions in 1887, and the Organization of the Copper Syndicate. — Failure of the Copper Syndicate and the Societe des Metaux. — Suspension of the Comptoir d'Escompte. — Absence of Speculation in France, 1889-1890. — The Spread of Speculation from Great Britain to Germany. — German Capital Commitments in Argentina. — The Joint-Stock Company Mania. — The Threatened Danger of a Panic averted by the Reichsbank. — Financial Situation in March, 1890 55

Chapter V

The Financial Breakdown in Argentina. — The Resultant Liquidation in Great Britain. — The Baring Failure. — Measures adopted by the Bank of England. — Decline in Value of all Descriptions of Securities. — Forced and Voluntary Liquidation in Great Britain. — The Effects of Conditions in Great Britain upon German Money and Stock Markets. — The Financial and Industrial Situation in France during the Fall of 1890. — The Return to the United States of American Securities held in Great Britain, and the Consequent Exports of Gold from the United States. —

CONTENTS xi

The Low Level of Bank Reserves in the United States. — Severe Stringency in the New York Money Market and the Issue of Clearing-House Certificates. — Decline in Stock Values. — Business Failures in the United States during 1890. — Continued Return of American Securities by Great Britain during the Year 1891 and Exports of Gold from the United States 63

Chapter VI

RECOVERY FROM THE PANIC OF 1890 AND FINANCIAL CONDITIONS IN THE UNITED STATES, 1891-1893

The Extraordinary Grain Crop of 1891 in the United States. — Heavy Exports of Grain from the United States in the Face of a European Harvest Shortage. — Imports of Gold and Recovery' from the Previous Financial Depression. — Appropriations of the Fifty-First Congress. — Increase in Circulation of the Country through Government Extravagance and Issue of Treasury Notes. — Increase in Legal-Tender Holdings of New York Banks. — Legal-Tender Notes used in the Payment of New York Clearing- House Balances. — Increased Percentage of Legal-Tender Notes used in the Payment of Customs Duties. — The Payment of Government Balances at the New York Clearing-House in Greenbacks and Treasury Notes. — Withdrawal of Foreign Capital and Exports of Gold from the Country. — Presentment of Greenbacks and Treasury Notes at the Treasury for Redemption. — Decline of the Treasury Gold Reserve below the Statutory Minimum, and the General Distrust over the Currency Situation 79

Chapter VII

The Collapse on the New York Stock Market. — Depression of Stock Values. — Run of Depositors upon Interior Banks. — Withdrawal of Banking Deposits from Eastern Reserve Centres. — The Resultant Deficiency in New York Bank Reserves. — The Stringency in the Money Market. — Development of a Money Famine. — Issue of Clearing-House Certificates. — Mercantile and Industrial Failures. — Bank Suspensions and Failures. — Repeal of the Silver Purchase Clause of the Sherman Law and the Return of Confidence 97 xii CONTENTS

Chapter VIII

The Crisis of 1893 cannot be ascribed to a Continued Operation of the Forces which caused the Panic of 1890 in the United States. — Financial and Industrial Conditions in Great Britain, Germany, and France during the Period 1891-1893 showed a Healthy Development. — Hence the Crisis of 1893 in the United States did not arise from any Difficulties abroad. — The Crisis of 1893 was local in its Occurrence and Cause. — It was not due to an Extension of Mercantile and Industrial Credits or to a Scarcity of Money in the United States. — It was a Monetary Crisis caused by Widespread Apprehension as to the Fixity of the Gold Standard of Payments 110

CHARTS

I. Percentages of Different Kinds of Money used in paying Customs Duties at New York, 1890-1897 87

II. Net Gold in the Treasury of the United States, 1884-1894 . . 93

INTRODUCTION

In approaching the problem of the causes of the crisis of 1893, it is necessary to adopt a somewhat unusual mode of procedure, owing to the fact that in November, 1890, three years previous to the crisis of 1893, a severe financial panic was felt in Great Britain, Germany, and the United States.

Such a breakdown in the financial world as that of 1890, followed by a more violent collapse during 1893, suggests a possible connection between these two events. In order, therefore, to clear the ground thoroughly before entering into a direct examination of the causes of the crisis of 1893, it is first necessary to dispose of the preliminary question as to the effect, if any, of the panic of 1890 upon the crisis of 1893. To do this properly requires the solution of a problem involving two elements: first, to discover the causes of the panic of 1890; and, second, to ascertain whether these causes were still in operation, even in a modified form, after 1890, and consequently whether they were in any way responsible for the crisis of 1893.

The working-out of the first process in this problem — the inquiry into the causes of the panic of 1890 — obviously necessitates an examination of the financial and industrial movements, both at home and abroad, which were developing during the years immediately preceding 1890, and which finally came to a head in the panic of that year.

Chapter I Business And Trade Conditions In The United

First Indications of a Revival in Trade and Industry after the General Depression in Europe and America. — The Building of New Railroads, 1886-1890. — Revival in Industry and Agriculture. — The Expansion of Interior Trade and the Growth in the Consuming Power of the Country. — Increase in Importations resulting in a Trade Balance against the United States. — Unusual Amount of American Securities issued during the Years 1886-1890. — Acceptance of American Securities by Foreign Creditors in Payment of Trade Balances. — Growth of a Surplus Revenue. — The Extension of the Protective System. — The Adoption of a Policy of Increased Government Expenditures.

During the year 1882 there was a disastrous financial panic in France. Two years later the United States experienced a similar calamity. 1 Out of the general depression following these two events, however, there soon developed a reactionary movement which, year by year, up to 1890, grew stronger and more extensive in its influence. In taking up the first step, therefore, in the preliminary problem of the connection between the panic of 1890 and the crisis of 1893, and going backward to trace out the causes of the panic of 1890, the starting-point is found to be in the United States, where this tendency toward a revival in trade and industry first made its appearance.

Amid the widespread stagnation which followed the crisis of 1884 in the United States, there was one exceptional feature which stood out prominently and which

1 The Commercial and Financial Chronicle, Financial Review of made itself clearly evident in the fact that confidence in the value of railroad property was never lost. 1 But owing to the waging of rate wars between competing railroad lines during the two years 1884-85, and the diminution in the volume of traffic because of the depression in interior trade after the crisis of 1884, dividends on railroad stocks were reduced and in many cases passed. Consequently there was a hesitancy on the part of investors in entering into railroad undertakings of more than ordinary magnitude. 2 By the close of the year 1885,

1 This fact appears from an examination of the quotations of some of the representative railroad stocks on the New York market before and after the crisis of 1884. (The fractional parts of the quotations are omitted.)

Stocks.

Juno

December

December

Low

High

Low

94 14

High

Low

83 16

High

Low

High

Atch., Top. and

S. Fe

Chesapeake and

Ohio

Chicago, Burl, and

Quincy

Chicago, Mil. and

St. Paul

N. Y. Cent, and

Hud. River . . .

Northern Pacific .

110 18

92 18

106 30

Compiled from The Commercial and Financial Chronicle, Financial Review of 1886, pp. 77-79.

2 The year 1884 was marked by a demoralizing rate war, which continued through the early half of 1885, and included within its influence the trunk lines and the roads west of Chicago. It was also especially strong in the East, where the New York Central and Hudson River Railroad deliberately attempted to drive the Lake Shore out of business. As might be expected, there was a great reduction in the net earnings of the railroads on account of these conditions, and as a result capital refused to embark in railroad enterprise. During the three years 1885 to 1887 only 13,649 miles of new railroad were built, in comparison with a construction of 28,127 miles during the preceding period of three years.

however, the railroad companies had found it both practical and necessary to divide the traffic and maintain rates. 1 A tolerably certain status in railroad profits was thus assured. During the following summer, when there were indications of good crops in the face of an active foreign demand, and of an improvement in general business and especially in railroad traffic, confidence in railroad enterprise was fully restored and capital once more entered freely into railroad construction. 2

In gathering together their forces for a new start in railroad undertakings, the efforts of capitalists were at first directed toward the reorganization of some of the old companies. The main current of enterprise, however, soon turned toward the exploitation of regions in the South, the Southwest, and the Northwest, and the construction of new mileage in these sections was actively pushed forward. The lines of the Atchison, Topeka and Sante Fe, the Missouri Pacific, the Chicago and Rock Island, and the roads leading from Chicago to the North and Northwest, were rapidly extended by companies possessing strong credit and capable of carrying their projects to completion with economy and dispatch. The total construction of new lines during the five years beginning with 1886 and ending with 1890 was over 39,000 miles or an increase of more than 30 per cent., and of this total, 19,044 miles, or almost one half, was built in the states and territories of the Northwest and Southwest. 3

The significance of this extraordinary extension of railroad mileage in its bearing upon general industrial conditions becomes evident at a glance. Taking the country as a whole, a very moderate estimate of the cost

1 During the latter half of 1885 the West Shore Railroad was absorbed by its rival the New York Central, and a pool was organized by the trunk lines and other companies to distribute the traffic and maintain rates.

2 The Commercial and Financial Chronicle, Financial Review of 1886 p. 1.

3 The total railroad construction during this period, and the distriof railroad construction, including stations, terminals, tunnels, and rolling-stock equipment, could not have been less than $20,000 per mile. The building of 39,000 miles of railroad, therefore, during the period 1886-90 called for an investment, in one way or another, of over $780,- 000,000, and the demand for commodities of all kinds flowing from this enormous outlay of capital soon made itself felt in all lines of production.

The iron and steel industry, which is usually considered to be a barometer of general industrial conditions, advancing step by step with the progress in railroad construction, passed through a period of unprecedented bution of the mileage among the different states and territories may be readily seen in the following table, compiled from Poor's Manual of Railroads:

RAILROAD CONSTRUCTION IN THE UNITED STATES, 1886-1890.

States and Territories.

New England Group . . .

Middle Group

Central North Group — O., Mich., Ind., 111., Wis

43 338

1,288

2,245

2,481

513 8,128

1,784

5,351

3,209

1,202

1,025

1,574

92 451

1,183

South Atlantic Group — Va.,W.Va.,N. C.,S. C, Ga., Fla

1,190

752 928 829 645

Total United States . . .

12,982

7,028

5,695

5,670 prosperity during the years 1886-90. * An expansion in iron ore and coal mining quickly followed. 2 From these industries so directly connected with the iron and steel trade, the revivifying movement spread outward and included within its influence all branches of manufacturing and extractive enterprise. 3 At the same time a revival in agriculture was clearly in evidence. The remarkable activity in railroad construction during the period 1886-90, as already seen, was mainly turned toward the sparsely settled regions of the South, Southwest, and Northwest. The railroad companies entering these districts were in possession of immense tracts of land, and in order to exploit the country and develop traffic, these holdings, together with large areas of government territory, were thrown open on generous terms to settlers. 4

1 The rapid increase in the production of iron and steel is shown in the following table compiled from the Annual Reports of the American Steel and Iron Association:

Iron Fur-

Production of

Production

Production of

Year.

naces in

Pig Iron.

of Bessemer

Bessemer

Blast.

All kinds.

Steel Ingots.

Steel Rails.

Number.

Net tons.

Net tons.

Net tons.

4,529,869

1,701,762

1,074,607

6,365,328

2,541,493

1,763,667

7,187,206

3,288,357

2,354,132

7,268,507

2,812,500

1,552,631

8,516,079

3,281,829

1,691,264

10,307,028

4,131,535

2,091,978

2 Annual Report of the American Steel and Iron Association, 1889, pp. 17, 24.

Profits during the years 1886-87 were very large. The price of No. 1 pig iron reached $21.50 per ton in 1887, and steel rails sold as high as $40 per ton in March of the same year. Throughout the subsequent period, 1888-90, prices were such as to insure good profits.

3 The Commercial and Financial Chronicle, Financial Reviews 1886-1890.

Statistical Abstract of the United States, 1894, p. 352.

4 The combined land sales of the Union, Central, Northern, and Kansas Pacific railroads, together with the Atchison, Topeka and Santa Fe, amounted during the years 1886-87 to 2,696,821 acres.

The enormous acreage of government lands made available for agri-

This policy on the part of the railroads and the Federal Government was followed by the influx of a large and industrious population into the newly opened districts, and under its management the soil was quickly brought under cultivation and made to contribute in large measure to the agricultural resources of the country. 1 The effect was clearly visible during the years 1886-90. The entire period was marked by good crops, profitable prices for agricultural products, and by a healthy and prosperous growth among the agricultural as well as the manufacturing interests.

This unusual activity in manufacturing and agricultural operations was quickly reflected in a rapid expansion of trade and business. Confidence was fully restored and no difficulty was experienced in securing loans and discounts. The banks throughout the country steadily extended their credit operations. 2 The movement of freight on the

culture and other purposes, and the close connection between the exploitation of the country and the building of railroads is shown in the following table:

TOTAL DISPOSALS OF PUBLIC LANDS, BOTH FOR CASH AND UNDER THE HOMESTEAD AND TIMBER CULTURE LAWS, 1885-88.

States and

Total for period.

Territories

Northwest .

Southwest .

Southern. . .

8,808,172

3,827,499

2,386,532

979,360

7,414,256

7,231,625

2,543,225

986,501

27,249,605

23,190,786

11,026,374

6,163,991

Total . . .

16,001,563

18,175,607

17,281,965

16,201,621

67,660,756

During the two years 1889-90 there was a decline in railroad construction, and the mileage built was more evenly distributed over the country than in previous years. The Commercial and Financial Chronicle, vol. xlvii (December 1, 1888), pp. 652-53.

1 Abstract of the Twelfth Census, 1900, p. 32. The Commercial and Financial Chronicle, Review of 1890, p. 3.

A large percentage of the new settlers were immigrants from Northern Europe. Statistical Abstract of the United States, 1895, pp. 355-56.

2 There was never any severe and continued stringency in the money market during the period 1886-88, when railroads and other industries railroads during 1886 was largely in excess of any previous year, and with this before unparalleled record as a starting-point, the aggregate tonnage carried, together with the gross receipts from traffic operations, constantly increased during the subsequent four years. 1 A similar

called for a large amount of funds, and not until the latter half of 1890 was there any such difficulty in getting call loans in New York as to interfere with the operations of the Stock Exchange. Throughout this period, however, the banks, as a result of the commercial and industrial activity, were greatly increasing their loans and discounts. This fact appears in the following statement of the loans and deposits of national banks, taken from the Reports of the Comptroller of the Currency :

LOANS AND NET DEPOSITS OF NATIONAL BANKS, WITH RATIOS OF LOANS TO CAPITAL, SURPLUS, AND NET DEPOSITS, AND OF CASH TO NET DEPOSITS, FROM 1885 TO 1890.

New York City.

Total United States.

Loans Millions

Ratios of Loans to Capital, Surplus, and Net Deposits.

Per cent.

Cash

to Net

Depos-

sits.

Per cent.

Loans Millions

Ratios of

Loans to Capital, Surplus, and Net

Deposits.

Per cent.

Cash to

Net Deposits.

Per cent.

62.3

71.7 70.9 69.2

72.4 71.0

21.1

1 The increase in the amount of freight carried and in the total gross earnings of the railroads of the country is shown in the following table, compiled from Poor's Manual of Railroads for 1891, pp. v and xiii:

TOTAL TONNAGE AND GROSS EARNINGS OF THE RAILROADS OF THE UNITED STATES, 1886-1890.

Freight Carried.

Tons.

Gross Earnings.

Dollars.

Increase over preceding year.

Year.

Freight

Carried.

Tons.

Gross

Earnings.

Dollars.

829,940,836

940,150,702

960,256,270

1,002,926,059

1,097,847,428

57,371,953 110,209,866 20,105,568 42,669,789 94,921,369 growth in the total bank clearings of the country was noticeable and was especially marked in the clearinghouses of the Southern, Western, and Pacific States. 1 The increasing volume of interior trade, which was thus clearly indicated, averaged well in profits and gave to labor steady and remunerative employment. This fact, together with the extraordinary industrial development and the increase in population, added greatly to the wealth and consuming power of the entire country, and led to a demand for commodities which soon overreached the domestic market and was only satisfied by heavy importations of all descriptions of goods.

The total annual value of imports of merchandise into the United States increased from $577,527,329 in the year 1885 to $789,310,409 in 1890. 2 This amazing growth was not confined to any special class of goods, but included commodities of every kind, ranging in variety from capital instruments to articles of luxury. 3 The demand for foreign products, which, as already seen, had reached extraordinary proportions because of the increased wealth and population of the country, was further stimulated by British producers who, after the year 1887,

1 The growth in the amount of bank clearings for the entire country as compared with the clearings outside of New York City was as follows (The Commercial and Financial Chronicle, Annual Review for 1891, p. 11):

BANK CLEARINGS IN THE UNITED STATES, 1885-1890. (000 omitted.)

Year.

Total all.

Outside New York,

2 Statistical Abstract of the United States, 1894, p. 73. 8 Ibid. pp. 228-229.

were aggressively seeking markets abroad and were willing to accept foreign securities in payment for their goods. 1 On the other hand, because of the growth in wealth and population of the United States, a larger percentage of domestic products was consumed at home. 2 The exportation of grain from India and Argentina was also beginning at this time to exert a strong influence in the world market, and, together with good yields from European harvests, lowered the price of cereals at Liverpool. The quantity of American agricultural products which were available for export was, therefore, lessened in value. 3 The result was that the advance in value of our exports, not only to Great Britain but to all other countries, failed to keep pace with the rapid increase in the value of our imports. During the year 1887 the excess of exports over imports of merchandise amounted, in round numbers, to only twenty-three million dollars, while the imports of gold exceeded exports by thirtythree million dollars, thus leaving a trade balance against the United States of about ten million dollars. In the following year imports of gold and merchandise exceeded exports by over sixty -three million dollars. 4 During the year 1889 imports of merchandise also were over two million dollars greater in value than exports. 5

During these same years the rapid industrial develop-

1 On account of these easy conditions of payment, British goods found a favorable market in this country, the annual purchases from the United Kingdom growing in value from $136,701,780 in 1885 to $186,488,956 in 1890. Statistical Abstract of the United States, 1894, p. 81.

2 In 1880 only 17 per cent, of the total value of our agricultural products were retained for domestic consumption; in 1889, over 27 per cent, were consumed at home. In 1880 our consumption of domestic merchandise, other than manufactures, was slightly more than 12 per cent, in value of our total production; in 1889 we consumed 19 per cent, of the total value of domestic merchandise produced. Statistical Abstract of the United States, 1894, p. 157.

3 A. D. Noyes, Thirty Years of American Finance, pp. 121-122.

4 Statistical Abstract of the United States, 1894, pp. 51, 73.

ment in the United States, as already pointed out, had called for the investment of an immense amount of capital. This capital was obtained by the flotation of an unusually large volume of securities. The railroad companies in carrying out their extensive construction projects during the five years 1886-90 increased their total indebtedness about two and one half billion dollars, and almost the whole of this extraordinary sum was funded in the shape of stocks and bonds. 1 The annual listing of new issues of bonds on the New York Stock Exchange, the greater part of which were offered by the railroads, was almost 100 per cent, greater in value in the year 1890 than in 1885. During the same time the annual listing of new stock issues increased in value over 900 per cent. The value of both the old and the new issues listed during these years was as follows: 2

LISTINGS ON THE NEW YORK STOCK EXCHANGE, 1885-1890.

BONDS.

STOCKS.

New Issues.

Total Old and New Issues.

New Issues.

Total Old and New Issues.

164,461,729

Commencing with the year 1887 there was also a strong movement toward the organization of industrial plants into joint-stock corporations. More than $500,000,000 in stocks and bonds were issued by these combinations during the four years 1 887-90. 3 In street-railway, gas, electric

1 Poor's Manual of Railroads, 1891, p. iv.

2 The Commercial and Financial Chronicle, Financial Review for 1891, p. 12.

3 Industrial Continuations in the United States. I5y Luther Conant, Jr. Publicat ions of the American Statistical 'Association, vol. vii (March, 1901) p. 12.

lighting, and Western land development companies, and similar fields of joint-stock enterprise, the promoter was equally active. , Unfortunately, no statistics are available by means of which an accurate estimate might be made of the total amount of securities issued in the United States during the period 1886-90, but from this activity in smaller undertakings, together with the flotations of the railroads and large industrial corporations, some conception may be had of the immense and unusual volume of stocks and bonds offered to home and foreign investors.

The amount of these securities purchased abroad is even more difficult to estimate than the total sum issued. From the course of international trade, as already pointed out, it was clear, however, that Americans were importing more goods than they could immediately pay for, and were settling their balances by turning over to their foreign creditors evidences of debt in the shape of stocks and bonds. The fact of a constantly decreasing surplus of merchandise exports over imports after the year 1886, which finally resulted in an excess of imports during the two years 1888-89, plainly indicated that millions of dollars in American securities, not only of the new issues but of the old listings of the stock exchanges, were being absorbed by the British and European markets. The net importation of over $33,000,000 in gold during the year 1887 in the face of a balance of more than $23,000,000 in merchandise exports in favor of the United States, also showed that in addition to the negotiation of heavy loans and the flotation of securities abroad, a large amount of our stocks and bonds were being quietly bought by foreign investors in the open market. As a matter of fact, conditions in Great Britain were especially favorable for the placing of new loans and companies. The improvement in trade and business there had inspired the country with confidence, and capital was obtainable on very easy terms. For this reason and also because the bulk of the increased

12 TIIE CAUSES OF THE PANIC OF 1893

imports into the United States during the years 1887-90 came from the United Kingdom, England became our greatest creditor. A large part of our new railroad issues were floated in that country, more than $100,000,000 in the slocks and bonds of American railroads being taken in the London market during the three years 1887-89. * British capital also freely entered into other American industrial undertakings and many enterprises of strictly British origin were incorporated to carry on operations in this country, including even joint-stock companies to acquire breweries in the United States and to exploit the newly opened districts of the West and South. The international trade situation, in short, throughout the entire period beginning with the year 1886, and ending with 1890, plainly indicated, (1) that this country was purchasing larger quantities of goods abroad, especially in Great Britain, than it could immediately pay for, and foreign creditors were accepting payment in American securities; (2) that large loans were being negotiated by American capitalists in British and Continental markets; and (S) that European and English investors were not drawing upon their interest accounts, but were investing their balances here as fast as they accrued.

During this period there was another movement in evidence, however, which in its final consequences was even more far-reaching than the growth in our indebtedness abroad. The large increase in our imports added greatly to the receipts of the Government from customs duties. At the same time the increased consumption of domestic products arising from our expansion in wealth and population was productive of larger revenues from internal taxes. 2 The exploitation of the Northwest and