The Financial Effect
THE correct historical perspective is manifestly impossible save
as we regard the past. Man is not all brain mechanism. The heart
has a voice in our affairs, and none is so glacial of soul as to
be entirely unaffected by personal bias. With the lapse of time
the inessential is eliminated, and we are able to see the event
as it was and not as contemporary observation believed it to have
been. Did we really know the present we could foretell the future.
The consideration of these facts appears
curiously pertinent as this time. We have seen four years of astounding
prosperity. Ahead of us, we are told, there is nothing but increasing
abundance. We have grown rich, but we shall grow richer. The stupendous
expansion in our commercial and industrial operations will continue.
In Wall Street, as indeed in other
places, sentiment governs the action of the majority, and therefore
is recognized as a potent influence by the unsentimental minority.
Credit, the vital spirit of the body commercial, is sentiment. A
man’s credit is good because other men believe him honest. Confidence,
that makes men extend their enterprises, is, when analyzed, sentiment.
It was sentiment that shook business men’s souls in 1896. It is
sentiment that makes them now look hopefully upon the future. It
may therefore be assumed that, while conditions change, sentiment
remains always at work, and that as it has largely governed men’s
actions in the past, so must it do now and in the years to come.
Keen observers of the course of the
stock-market believe that the upward swing of the financial pendulum
has almost culminated. Not that we are to take a sudden downward
plunge, but that we have been standing upon the very summit of the
period of prosperity, and that, following a law as inexorable as
any other natural law, we must presently begin to walk down hill.
The arguments used are of general application, and not based upon
special occurrences affecting this or the other group of securities.
In the first place, there is the extent of the swing. The average
price of twenty active stocks has risen from about $42 a share in
August, 1896, to $118 in May and in June of this year. It now is
about $109 per share. Our prosperity has been enormous, but has
the stock-market failed to keep pace with it?
The country, however, was never so
prosperous, and the most conservative minds in manufacturing and
in Wall Street see in the death of President McKinley no serious
menace to commercial and financial growth and stability. That stocks
cannot continue always to advance we all know, but the leading minds
agree to-day that there is no reason, even remotely discernible,
why there should be permanent declines large enough to be called
The minds of the majority have rebelled
with striking unanimity as compared with previous booms. The country
is rich as never before. The boom of 1880-1881 is not to be mentioned
in the same breath with the present. We did not then have this or
the other factor in our favor. Hence the absurdity of the comparison.
As a matter of fact, it must be admitted that our knowledge of values
is greater than twenty years ago, and that we are better organized,
more compact, financially.
The most conservative periodical,
appealing to the “solid” bankers and investors, the one paper that
might be expected not to encourage over-optimism at the wrong time—The
Commercial and Financial Chronicle—published its usual weekly
editorial leader on July 2, 1881. It was written on the day before
President Garfield was shot, and was as follows:
While the general financial outlook
is eminently satisfactory and promising, there are certain conditions
which, when severed from all others, can be made to wear as
squally a look as the most desperate croaker could wish. For
instance, our banks last week in their returns gave their aggregate
loans at 345,000,000, against 285,000,000 in 1880, and 253,000,000
in 1879. Then again, so far as these loans are based on Stock
Exchange values, it is quite true that a return to the selling
rates of 1879 would wipe out the entire increase in loans; and
furthermore it is likely that more than three-quarters of the
bank loans are based on just such securities. Hence the argument
is that this is all a vast fiction, making a panic inevitable
which will wipe out the fiction as the baseless values of 1873
were wiped out.
The obvious difficulty with such
reasoning as the above is that former years furnish no analogy
for us now, mainly because the commercial situation is so incomparably
strong and idle capital the world over is so singularly
abundant. To-day we publish the government figures for May,
and they show a merchandise balance in our favor of $8,616,000,
against $789,000 last year, while for the last two months the
favorable balance aggregates $20,000,000 against an adverse
balance of $3,000,000 for the same months of 1880. Then again
was there ever a period during which money ruled continuously
so low? When government bonds paid only 3 per cent. 
and the best railroad bonds not to exceed 4? And then, finally,
is there any comparison in railroad earnings at present with
1879, and how can there be any comparison of values?
These suggestions, and others
which might be added, clearly lead us to the conclusion that
whoever is waiting for a panic in which to make his investments
is not likely to be gratified this summer. Of course stocks
may decline. Certain conditions may depress certain stocks,
but they are only special and temporary influences, not general
or permanent, and are supplemented in part by other conditions
of traffic and travel more favorable than a year ago.
Then came the assassination of Garfield.
Superficial students of the market said that Guiteau’s bullet caused
the culmination of that bull market. But there were many who knew
better then, as we all know better now. The dramatic element in
the President’s murder appealed to men’s minds, and made it serve
as a sort of chronological milestone. On the Saturday following
the tragedy, the Chronicle published another editorial on
the situation. It said:
At first the impression prevailed
that the shot had been fatal. The market consequently took a
plunge downward, but the incipient panic was soon arrested by
the receipt of the further intelligence that the President was
living, although dangerously wounded. After this first shock
there was time for reflection and operators became more cautious:
but still a disposition was manifested to sell. The market was
panicky until just before the close, when it was turned upward
by more favorable news regarding the President. .
. . On Monday, July 4, the Stock Exchange was closed.
. . . By Tuesday the condition of the President
was improved. The London market had not been materially influenced
on Monday, and there was a decided recovery there the next morning.
These facts served to allay the excitement here. Influenced
by the cheering news from Washington, the reaction became more
rapid, and by Thursday morning the market had entirely recovered.
This experience of the Street
goes far to show that prices have a more stable foundation than
many claimed. It has often been said of late that the market
only needed a sudden shock to send it tumbling downward. Had
this been the situation the decline on Saturday could not have
been arrested, but the market would have closed in a wild panic.
. . . . The market dropped, of course,
but the decline was slight compared with that which has often
resulted from failures or other events of a singular character,
while the recovery was rapid. The situation at the moment of
writing is hopeful. There are reasonable assurances of the President’s
recovery; but now, even if there should be an unfavorable turn,
it is believed that the shock of his death would produce only
a temporary effect upon the market.
The foregoing reads very much like
the editorial utterances of financial experts to-day. The analogy
is complete. The first thought in many minds on Saturday on reading
the news from Buffalo was that the bull market of 1898-1901 was
definitely over. Stocks declined sharply, but strong interests came
to the rescue, and a rally followed. The fear-stricken of Friday
night became the courageous of the week following. Strong interests,
we are told, own the great bulk of the securities. In 1881 it was
also a fact that Mr. Vanderbilt, Mr. Gould, and their associates
held vast quantities of stocks.
The country is richer to-day. But
human nature and human fallibility remain unchanged. The best informed,
however, see no serious danger anywhere in the immediate future.