Four major crises occurred in the USA in 1825, 1873, 1907 and 1929 ending with the Great Crash in 1929. The first three passed off quickly and were followed by healthy recoveries. The one in 1929 led to the Great Depression and only ended with the onset of WWII.
Two contradictory factors can be seen in driving the markets to crisis: On one side, healthy economic growth and rising aspirations in society generated a real boom. On the other side, the desire to get rich by speculation rather than production led to spiraling stock prices leading to panic. These two factors are ever present, but usually the negative speculative urge is kept within limits, so that it does not destroy market confidence. In these four instances it spilled over in excess and resulted in panic. In the last instance it led to severe depression.
The objective is to examine the circumstances and events leading up to each of the four panics to identify the factors responsible for the financial booms which turned into bubbles and eventually led to panics. The factors responsible will include:
- Real growth of the economy and GDP during the period prior to each panic and the factors that stimulated that growth.
- Expansion of the money supply that encouraged the rise in stock prices – either as a result of real economic growth and higher productivity or because of the expansion of banking or developments in money (e.g. paper currency) or because of speculative policies by the banks.
- Changing social attitudes toward production, wealth, consumption, social status, speculation and getting rich quick, etc.
- Underlying these factors, the growth of American society was driven by freedom, economic opportunity, education and rising social aspirations.
- Examination of the period before each panic to observe
- Graphs and charts showing growth in GDP, money supply, inflation and stock prices
- Factors responsible for each of these trends
- Small, significant events that occurred shortly before the panic that explain why the boom suddenly turned into a bust.
- Web-based articles on these subjects and relevant books on this subject
Financial Crisis In America
The term panic refers to the worst moments of a financial crisis. What follows is frequently a recession (a period of reduced economic activity) or a depression (a more serious and prolonged period of low economic activity, marked especially by rising unemployment).
Those most disastrous have usually followed general injudicious speculation in lands or inflated securities. The crisis of 1816-1819 in the United States, it is claimed was due to the speculation and disorder following the War of 1812. The next occurred in 1825. A very memorable panic was that of 1837.
The few years preceding had been marked by extraordinary speculation, carried on with an unsound banking system. Jackson's "specie circular" caused many banks to suspend, and credit was generally impaired throughout the country. Governmental aid was invoked by many financial institutions, but without avail, as Van Buren, who had succeeded to the Presidency, insisted upon individuals righting their own affairs. In 1857 another period of inflation was followed by another panic. Again in 1873 there was a severe monetary crisis. Just 20 years later occurred the last panic from which the country has suffered.
In the U.S., the setback caused significant job loss; a major slowdown in capital investment, commerce, land development, the formation of unions, and the rate of immigration. The effects of the "revulsion," as it was referred to at the time, lasted a full eighteen months and reverberated until the onset of the Civil War.
The Panic of 1873
The panic of 1873 began another period of depression, which had its effect in keeping down the city's growth. The country's seeming economic well-being is shattered by a major financial crash.
The economy is in fact over-expanded, particularly in railroad construction, and the weak link turns out to be the banking house of Jay Cooke and Company, which helped the U.S. Government finance the Civil War and also underwrote the construction of the Northern Pacific Railroad. Jay Cooke and Company, a large and respected banking house declares itself bankrupt, and announces its failure on September 8, 1873.. (The bank's collapse precipitates the "Panic of 1873" and the ensuing three yea depression during which more than 10,000 businesses fail.
The basic economic problems are overproduction, a declining market and deflation. Investors in Europe, where a depression is already underway, begin to call in American loans. The New York Stock Exchange closes its doors for 10 days; other businesses fail; and railroad construction is curtailed, with some railroads defaulting on their bonds. The unemployed begin to move about the country seeking jobs, and bread lines appear in the cities. The hard times drove numbers of laboring people and those in humble circumstances to the West and other portions of the country, to seek the rewards which the stagnation of business in the great commercial centre denied them.
The announcements of The Times in the morning prepared the public in a certain degree for the trouble which was to ensue, and many parties were enabled to go in the market early in the morning and protect themselves from loss. While many did this, and so saved themselves from ruin, there were others, and by far the majority, who thought that the trouble was solely brought about by machinations of the bears, and that there would only be a small sized panic, which would result in a sudden rebound in prices. Those who took this view of the situation held on to their investments as long as possible, and, so soon as their margins gave out, were compelled to go under. Of course, there were many who, by superior strength, were enabled to hold on to their purchases, and so escaped being sold out, at least for the time.
Parties who were frightened the night before by the marked decline in prices became sanguine and predicted an altogether better date of the market. This continued, however, but for a short time. The first intimation which came into the Stock Exchange of any change in the program was contained in a brief notice, which said authoritatively that Jay Cooke & Co. had suspended payment. To say that the street became excited would only give a feeble view of the expressions of feeling. The brokers stood perfectly thunderstruck for a moment, and then there was a general run to notify the different houses in Wall Street of the failure.
The brokers surged out of the Exchange, tumbling pell-mell over each other in the general confusion, and reached their respective offices in race-horse time. The members of firms who were surprised by this announcement had no time to deliberate. The bear clique was already selling the market down in the Exchange, and prices were declining frightfully.
The news of the panic spread in every direction down-town, and hundreds of people who had been carrying stocks in expectation of a rise, rushed into the offices of their brokers and left orders that their holdings should be immediately sold out. In this way prices fell off so the wall. Men went about the street with blanched faces, and requested piteously of their brokers that their stocks should not be sold out as more margin would be obtained in the morning; but self-preservation seemed to be the first law of nature with every one, so the accounts of the customers were closed out, and the losses became a fixed fact.
Some of the men who were ruined swore, some of them wept, some went out of the street without saying a word; others talked of the trouble in a jovial way, and went about trying to borrow money from friends to get on the short tack with."
Fifth Annual Message - During the term of Ulysses S. Grant while in office as President March 4, 1869 to March 4, 1877. Executive Mansion, December 1, 1873.
Volume: VII Page 235 (extract) "In the midst of great national prosperity a financial crisis has occurred that has brought low fortunes of gigantic proportions; political partisanship has almost ceased to exist, especially in the agricultural regions; and finally, the capture upon the high seas of a vessel bearing our flag has for a time threatened the most serious consequences, and has agitated the public mind from one end of the country to the other.
Volume: VII Page: 243-245 (extract) "The revenues have materially fallen off for the first five months of the present fiscal year from what they were expected to produce, owing to the general panic now prevailing, which commenced about the middle of September last. The full effect of this disaster, if it should not prove a "blessing in disguise," is yet to be demonstrated. In either event it is your duty to heed the lesson and to provide by wise and well-considered legislation, as far as it lies in your power, against its recurrence, and to take advantage of all benefits that may have accrued.
My own judgment is that, however much individuals may have suffered, one long step has been taken toward specie payments; that we can never have permanent prosperity until a specie basis is reached; and that a specie basis can not be reached and maintained until our exports, exclusive of gold, pay for our imports, interest due abroad, and other specie obligations, or so nearly so as to leave an appreciable accumulation of the precious metals in the country from the products of our mines. The development of the mines of precious metals during the past year and the prospective development of them for years to come are gratifying in their results. Could but one-half of the gold extracted from the mines be retained at home, our advance toward specie payments would be rapid.
To increase our exports sufficient currency is required to keep all the industries of the country employed. Without this national as well as individual bankruptcy must ensue. Undue inflation, on the other hand, while it might give temporary relief, would only lead to inflation of prices, the impossibility of competing in our own markets for the products of home skill and labor, and repeated renewals of present experiences. Elasticity to our circulating medium, therefore, and just enough of it to transact the legitimate business of the country and to keep all industries employed, is what is most to be desired. The exact medium is specie, the recognized medium of exchange the world over. That obtained, we shall have a currency of an exact degree of elasticity. If there be too much of it for the legitimate purposes of trade and commerce; it will flow out of the country. If too little, the reverse will result.
The experience of the present panic has proven that the currency of the country, based, as it is, upon the credit of the country, is the best that has ever been devised. Usually in times of such trials currency has become worthless, or so much depreciated in value as to inflate the values of all the necessaries of life as compared with the currency. Everyone holding it has been anxious to dispose of it on any terms. Now we witness the reverse. Holders of currency hoard it as they did gold in former experiences of a like nature.
The Panic of 1873 was a severe nationwide economic depression in the United States that lasted until 1877. It was precipitated by the bankruptcy of the Philadelphia banking firm Jay Cooke and Company on September 18, 1873 along with the meltdown on May 9, 1873, of the Vienna Stock Exchange in Austria. It was one of a series of economic crises in the 19th and early 20th centuries.
In 1873, the American economy entered a crisis. This followed a period of post Civil War economic expansion that arose from the Northern railroad boom.
At the end of the Civil War, there was a boom in railroad construction, with 35,000 miles (56,000 km) of new track laid across the country between 1866 and 1873. The railroad industry, at the time the nation's largest employer outside of agriculture, involved large amounts of money and risk. A large infusion of cash from speculators caused abnormal growth in the industry.
In September 1873, Jay Cooke and Company, a major component of the country’s banking establishment, found itself unable to market several million dollars in Northern Pacific Railroad bonds.
Cooke's firm, like many others, was invested heavily in the railroads. President Ulysses S. Grant's monetary policy of contracting the money supply made matters worse. While businesses were expanding, the money they needed to finance it was becoming more scarce. Cooke and other entrepreneurs had planned to build a second transcontinental railroad, called the Northern Pacific Railway. Cooke's firm provided the financing. But on September 18, the firm realized it had become overextended and declared bankruptcy.
Years of unregulated speculative credit had created vast overexpansion of the nation’s railroad network. The failure of the Jay Cooke bank set off a chain reaction of bank failures and temporarily closed the stock market. Factories began to lay off workers as the nation slipped into depression.
The New York Stock Exchange closed for 10 days. Of the country's 364 railroads, 89 went bankrupt. A total of 18,000 businesses failed between 1873 and 1875. Unemployment reached 14% by 1876, during a time which became known as the Long Depression.
By 1877, wage cuts and poor working conditions caused workers to strike, preventing the trains from moving. President Rutherford B. Hayes sent in federal troops in an attempt to stop the strikes. Fights between strikers and troops killed more than 100 and left many more injured. The tension between workers and the leaders of banking and manufacturing lingered on well after the depression lifted in the spring of 1879, the end of the crisis coinciding with the beginning of the great wave of immigration into the United States which lasted until the early 1920s.
Capital continued to concentrate within the factory system despite job losses and a constant number of establishments. Labor unrest stemmed from the growing inequality between the worker and capitalist classes. In the Midwest, violent strikes ended in defeat for laborers. The North, which still possessed the greatest concentration of the nation’s factories and railroads, witnessed profound divisions between classes as tensions between labor and capital rose. In small northern industrial centers, local officials and businessmen were often sympathetic to the interests of workers. They too resented the outside corporations that controlled local business. However, barriers between classes began to grow in the large northern urban centers. Workers’ rights and labor movements were seen as subordinate to the need to defend property and the economic status quo.
The growing number of paupers was seen as a result of overgenerous relief and moral weakness and laziness among the poor. Vagrants were often rounded up and put to work in ways that were reminiscent of the old Black Codes in the South. The urban middle and upper classes of the northern urban centers saw labor leaders as enemies of society. The depression created a self-conscious capitalist class that had now been cut loose from the egalitarian views of the lower class workers. They wished to preserve fiscal conservatism and allow the depression to discipline the labor forces that now threatened their interests. In the South, the effects of depression were even more severe. The depression dealt a terrible blow to the hopes of an emerging factory system in the South. Yeomen, once again, were forced to fall back on cotton production for money. As cotton prices fell, farmers found that they were unable to pay back merchants for the costs of their crops. The trend towards sharecropping accelerated. For southern blacks, sharecropping and tenancy provided a degree of autonomy, however, it also prevented them from regulating working conditions.
Poor economic conditions caused voters to turn against the GOP. In 1874, the Democrats assumed control of the House. Public opinion during the period made it difficult for the Grant Administration to develop a coherent Southern policy. The North began to steer away from Reconstruction. As Southern states fell to the Democrats, blacks found that they could no longer pursue activist policies of reform. In the face of unchecked and overt racism, as well as the growing conservatism of the Republican Party, black politicians often found themselves forced to abandon earlier hopes for social change. Retrenchment was a common response of southern states to state debts during the depression. As funds were cut from state governments, education often suffered, despite being an integral part of blacks’ hopes for social reform. The black population soon became split between black businessmen who embraced the capitalist ideas of conservatism and poor blacks who still desired more radical reform. In order to prevent the alienation of white voters, the Republican Party shifted towards more conservative policies and the immediate interests and progress of southern blacks failed to develop.
As class divisions intensified and economic conservatism grew in the North, political power began to shift. In the face of this, a feasible and coherent policy of Reconstruction seemed more and more distant. Poor economic conditions destroyed the young factory system of the South. Southern farmer’s tendencies towards sharecropping increased. The failure to develop a southern factory system of wage labor, as well as plummeting prices where such labor did exist, prevented the spread of an independent black class. Blacks lost any hope of reform as southern states fell to the Redeemers. The depression helped bring the chance of Reconstruction to an end. A new distinct capitalist class arose and prospered in the face of labor unrest.
Panic of 1907
The Panic of 1907, also known as the 1907 Bankers' Panic, was a financial crisis in the United States. The stock market fell nearly 50% from its peak in 1906, the economy was in recession, and there were numerous runs on banks and trust companies. Its primary cause was a retraction of loans by some banks that began in New York and soon spread across the nation, leading to the closings of banks and businesses. The severity of the downturn was such that it eventually pressured the United States Congress to accept the proposal by a group of bankers to pass the Glass-Owen Bill, essentially a blueprint of the Nelson W. Aldrich plan that had been defeated in Congress earlier. This bill allowed a group of bankers to create, buy the shares, and own the Federal Reserve System in 1913. The 1907 panic was the fourth panic in 34 years.
One of the contributing factors of the Panic involved F. Augustus Heinze and his bank, Knickerbocker Trust Company. Heinze copied the speculation tactics of Charles W. Morse, who had obtained control of the Bank of North America and other banks to float consolidations and other schemes. In 1906, Heinze sold his shares in Montana copper mines for $12 million. He then moved to New York, bought Knickerbocker Trust and became a director in a national financial chain. Banking industry leaders, threatened by the developing trusts, staged a financial attack on Heinze's Knickerbocker Trust. Their motive was to sway public and congressional opinion against trusts.
In March 1907, over-expansion and poor speculation led to a stock market crash. Money became extremely tight. A second crash occurred in October 1907. This time, the crash was directly precipitated by Heinze's brothers, who had used money borrowed from Knickerbocker Trust in a failed attempt to corner United Copper. In the wake of the crash, Heinze was forced to resign as bank president. On October 21, the National Bank of Commerce ceased to honor checks of Knickerbocker Trust, causing a run on the Knickerbocker Trust. By the end of October 22, the National Bank of North America had failed and runs were sparked on nearly every trust in New York.
To bring relief to the situation, United States Secretary of the Treasury George B. Cortelyou earmarked $35 million of Federal money to quell the storm. Complete ruin of the national economy was averted when J.P. Morgan stepped in to meet the crisis. Morgan organized a team of bank and trust executives. The team redirected money between banks, secured further international lines of credit, and bought plummeting stocks of healthy corporations. Within a few weeks the panic passed, with only minimal effects on the country.
By February 1908, confidence in the economy was restored.
In May, Congress passed the Aldrich-Vreeland Act which established the National Monetary Commission to investigate the panic and to propose legislation to regulate banking. In 1913, the commission recommended the adoption of the Federal Reserve Act, which mandated the creation of a central banking system to dampen the effects of future panics. It was enacted the day before Christmas Eve the same year.
Early in 1907, Jacob Schiff of Kuhn, Loeb and Co., in a speech to the New York Chamber of Commerce, warned that "unless we have a Central Bank with adequate control of credit resources, this country is going to undergo the most severe and far reaching money panic in its history."
Moen, Jon and Ellis Tallman. "Lessons from the Panic of 1907." Federal Reserve Bank of Atlanta Economic Review 75 (May/June 1990): pp. 2-13.
Carosso, Vincent P. The Morgans: Private International Bankers, 1854-1913. Harvard University Press, 1987.
Friedman, Milton, and Anna 1. Schwartz. A Monetary History of the United States: 1867-1960 Princeton University Press, 1963.
Moen, Jon, and Ellis W. Tallman. "The Bank Panic of 1907: The Role of the Trust Companies." Journal of Economic History 52 (September 1992): pp. 611-630.
Moen, Jon. "Panic of 1907". EH.Net Encyclopedia, edited by Robert Whaples. August 15, 2001. Online Version
Sprague, Oliver M. W. "The American Crisis of 1907." The Economic Journal 18 (September 1908): pp. 353-72.
Source: The Panic of 1907 by Jon Moen, University of Mississippi
The Panic of 1907 was the last and most severe of the bank panics that plagued the National Banking Era of the United States. Severe panics also happened in 1873, 1884, 1890, and 1893, although numerous other smaller financial crises cropped up from time to time. Bank panics were characterized by the widespread appearance of bank runs, attempts by depositors to simultaneously withdraw their deposits from the banking system. Because banks did not (and still do not) keep a 100% reserve against deposits, it paid to be near the front of the line of depositors demanding their money when a panic blew up. What sets 1907 apart from earlier panics was that the crisis focused on the trusts companies in New York City. The National Banking Era lasted from 1863 to 1914, when Congress, in part to eliminate these recurring panics, created the Federal Reserve System.
What Caused the Panic?
Why would a panic happen? One answer that is really not of much help is that all depositors suddenly became so concerned about the solvency or liquidity of their bank that they decided they would rather hold cash than deposits (Diamond and Dybvig 1983; Jacklin and Bhattacharya 1988). (Solvency refers to the relationship between assets and liabilities; an insolvent bank has liabilities greater than its assets. Liquidity refers to the ease with which assets can be converted to cash without loss of value; liquid assets are close to cash or have a market in which they can be easily and quickly sold.) Whatever the deeper psychological reasons might be, it is not hard to identify some immediate shocks to depositor confidence that sparked the Panic of 1907. Such a shock occurred on October 16, 1907, when F. Augustus Heinze's scheme to corner the stock of United Copper Company failed. Although United Copper was only a moderately important firm, the collapse of Heinze's scheme, exposed an intricate network of interlocking directorates across banks, brokerage houses, and trust companies in New York City. Contemporary observers like O.M.W. Sprague (1910) believed that the discovery of the close associations between bankers and stockbrokers seriously raised the anxiety of already nervous depositors.
During the National Banking Era the New York money market faced seasonal variations in interest rates and liquidity resulting from the transportation of crops from the interior of the United States to New York and then to Europe. The outflow of capital necessary to finance crop shipments from the Midwest to the East Coast in September or October usually left the New York City money market squeezed for cash. As a result, short-term interest rates in New York City were prone to spike upward in autumn. Seasonal increases in economic activity were not matched by an increase in the money supply because existing domestic monetary structures tended to make the money supply "inelastic." Usually gold would flow into the United States from Europe in response to the high seasonal interest rates, increasing the monetary base of the United States and easing the liquidity squeeze somewhat.
Under more normal financial conditions, the discovery of a scheme like Heinze's might not have sparked a panic, but conditions were not normal in the Fall of 1907. The economy had been slowing, the stock market had been in decline since early 1907, and the supply of credit had been contracting causing rising interest rates. Tight credit markets in Europe, particularly in England where the Bank of England had been raising its bank rate since December 1906, have been implicated in setting an especially precarious financial stage in 1907. Therefore, the normal seasonal inflows of foreign gold were not happening in 1907 as European interest rates rose. Because there was no central bank or reliable lender of last resort during the National Banking Era, there was no reliable way to expand the money supply in the United States.
The Panic at the Trust Companies
By October 21, nothing resembling a systemic panic, however, had yet stricken the New York banking system. Depositors at Mercantile Bank withdrew funds but redeposited them in other New York City banks. Many accounts of the Panic of 1907 cite Monday, October 21, as the beginning of the crisis among the trust companies and the true onset of the panic. Late that Monday afternoon the National Bank of Commerce announced that it would stop clearing checks for the Knickerbocker Trust Company, the third largest trust in New York City.
Although the national banking system offered no legal mechanism to increase the supply of currency quickly, loan certificates provided an informal (if unlawful) way to free up a sizable amount of cash. In normal business banks used currency as reserve assets and as the medium to clear accounts with each other.
Following the first issue of clearinghouse loan certificates on October 26 during the 1907 Panic, loans initially increased by about $11 million. During the next three weeks more than $110 million in certificates were issued in New York City. Over the entire course of the Panic, nearly $500 million in currency substitutes circulated throughout the country as a "principal means of payment," according to Andrew (1910, 515). Sprague has criticized the clearinghouse for delaying the use of loan certificates until after the panic was well under way. He believed that issuing certificates as soon as the crisis struck the trusts would have calmed the market by allowing banks to accommodate their depositors more quickly. Aid would have gone directly to troubled banks and trusts, and the cumbersome device of money pools could have been avoided. Fewer loans would have been called in, thus reducing the tension at the stock exchange (Sprague 1910, 257-58).
Much of this article is based on a review article from the Federal Reserve Bank of Atlanta, although I have updated some of our economic interpretations of the panic, particularly on matters related to liquidity and solvency. The complete reference to the review article is:
Moen, Jon and Ellis Tallman. "Lessons from the Panic of 1907." Federal Reserve Bank of Atlanta Economic Review 75 (May/June 1990): 2-13.
Other important references cited or used are:
Andrew, A. Piatt. "Substitutes for Cash in the Panic of 1907."
Quarterly Journal of Economics 23, (August 1908): 497-516.
Barnett, George E. State Banks and Trust Companies since the Passage of the National Bank Act. Washington, D.C.: U.S. Government Printing Office, 1911.
Calomiris, Charles and Gary Gorton. "The Origins of Bank Panics: Models, Facts, and Bank Regulations."
In Financial Markets and Financial Crises, edited by R. Glenn Hubbard. Chicago: University of Chicago Press, 1991.
The Commercial and Financial Chronicle. Various issues from November 7, 1907 through January 8, 1908.
Friedman, Milton, and Anna 1. Schwartz. A Monetary History of the United States: 1867-1960. Princeton, N.J.: Princeton University Press, 1963.
Moen, Jon, and Ellis W. Tallman. "The Bank Panic of 1907: The Role of the Trust Companies." Journal of Economic History 52 (September 1992): 611-630.
Sprague, Oliver M.W. "The American Crisis of 1907." The Economic Journal 18 (September 1908): 353-72.
Moen, Jon. "Panic of 1907". EH.Net Encyclopedia, edited by Robert Whaples. August 15, 2001. URL
The Panic of 1907: Out of Aces by Chris Mayer
The Daily Reckoning, London, England
Chris Mayer explores the causes of The Panic of 1907 and traces it largely to the financial failure of one man: Frederick Heinze, a copper magnate and bank and trust owner and president. Then he briefly discusses its relevance to the events of today.
The tech bubble on Wall Street in the late '90s was silly and embarrassing. It really didn't matter. In fact, it was entertaining…and educational. People who should have lost money did. And they probably would have lost a lot more, but the feds stepped in and started throwing cash around. And now the whole country - economically and politically - has bubbled up.
From Washington, D.C. comes news that the real estate bubble is still taking air. Prices in the region rose 24% last year - six times as fast as GDP, eight times the rate of CPI inflation, 10 times a much as stocks. When you're making that kind of money, why save? And why not enjoy it?
Over the last five years, houses have beaten stocks almost everywhere in America. In hot markets - major cities on both coasts - the gains in houses have been spectacular. Many buyers never set foot on the property, says the Washington Times report. They buy before the place is built…and flip it before the carpet is laid down. In 1929, yields fell to 3.1%. Never have they been lower than 2.6% - until recently. Now, dividend yields are below 2%. Never have stocks been more expensive, in other words, then they have been for the last five to seven years. Investors have made no money in that time. Instead, they've been worn out with mini-rallies and mini-retreats…back and forth, burning up energy…paying commission and taxes. Sooner or later, they'll get tired of it and stocks will go down. Then, they'll sink to the point where they yield 6%…7%…maybe even 10%.
The Panic of 1907: Making a Play For More
In the early 1900s, most banks were prohibited from taking on trust accounts (wills, estates, etc.) by their charters. Trust companies were specifically set up to deal with this business. Though initially, trusts were regarded as safe-haven investments, they eventually became highly speculative - they were like the hedge funds of their day. And like the hedge funds of today, trusts became heavily invested in the stock market using extreme leverage, or borrowed money. They didn't keep much in the way of reserves and were susceptible to sudden adverse changes in stock prices.
Also, trust company directors were often involved in banks, and the banks, though they could not do trust business, could own trusts. As a result, there was this web of connected relationships between some of the large speculators and the banks. So when, on Oct. 16, 1907, the price of United Copper closed at $15 - down 76% from its high only two days earlier - the headlines the next day were grim. "Copper Breaks Heinze," blared the Boston Post. Heinze was heavily invested in United Copper. If Heinze were only a copper speculator, history may be been quite different. But Heinze owned a bank and was associated with a number of other banks.
The Panic of 1907: Things Get Even Worse
No one came to Knickerbocker's aid - not even the great J.P. Morgan, who would assist other troubled banks during the crisis. Some historians believe that this was part of a deliberate campaign by the banks to destroy the credibility of the trusts. The banks felt threatened by the growth of the trusts, and reasoned that if the Knickerbocker failed, the public would lose faith in the trusts and the banks would gain. "The financial fires that were intended to ruin Heinze and the trust companies quickly roared out of control, and the Panic of 1907 became a nondiscriminatory economic catastrophe for the entire nation." The spark for the Panic of 1907 may have been a personal vendetta gone awry. As Glasscock observes, "F. Augustus Heinze was to the Panic of 1907 as the Archduke Franz Ferdinand was to the World War."
Even so, the Panic of 1907 was like many of the crises that went before it and would happen after it. It was inevitable, because highly leveraged and overextended lenders and speculators lead to eventual ruin. The Panic of 1907 was not the worst financial crisis in American finance, but it was critically important because the forces in favor of creating a national bank - the Federal Reserve Bank - would gain strength, and the tide of public opinion increasingly supported the idea. As a lender of last resort, the Federal Reserve Bank would bail out failed banks and thereby stem future panics. The Federal Reserve Bank was established in 1913.
Panic of 1825
The Panic of 1825 was a stock market crash that started in the Bank of England arising in part out of speculation investments in Latin America including in the fabled imaginary country of Poyais. The crisis was felt most acutely in England where it precipitated the closing of six London banks including Henry Thornton's bank and sixty country banks in England, but was also manifest in the markets of Europe, Latin America, and the United States. An infusion of gold reserves from Banque de France would save the Bank of England from complete collapse.
A stock market crash is a sudden dramatic decline of stock prices across a significant cross-section of a stock market. Crashes are driven by panic as much as by underlying economic factors. They often follow speculative stock market bubbles.
Panic of 1929
Panics, Depressions, Economic Crisis prior to 1930
It is now commonly used to describe the state of fear bordering on frenzy, from whatever the cause induced. In history great commercial crisis are spoken of as "Panics" The United States has passed through several notable ones.
Massive collapse of the economy that normally follows a period of prosperity. A depression is usually accompanied by a financial panic or a crash of the stock market as investors lose confidence and refuse to buy stocks or make loans. A staggering level of unemployment is the most immediate and debilitating result. Not all crashes reach the level of national depression, however. If the down turn in the economy is short lived and relatively mild, it is called a "recession." Three major depressions, so defined because of the depth and duration of the collapse have occurred in American history: 1837, 1893, and 1929. Some historians add to the list the downturns in 1857, 1873, and 1907. There is a lot of dispute among economic historians and economists as to the causes of economic depressions.
A term employed by economic writers somewhat loosely to designate either the acute phase or the whole course of the disturbances in economic life which have characterized the last century, and which have recurred with such frequency as to make them appear inevitable results of the modern industrial order. The phenomena involved are so complex that they must be described rather than defined.
The salient fact in the economic history of recent times is the alternation of prosperity and depression, of good times and bad. A period of prosperity with expanding business, great activity in production and commerce, is brought suddenly to a close, generally by the failure of a prominent banking house, bringing with it the fall of other financial and mercantile concerns.
Business is paralyzed, creditors demand the payment of claims, and debtors find it next to impossible to secure the means of payment. Panic rules, and for a time the whole mercantile structure threatens to collapse. From such a shock business recovers but slowly, its activity is reduced to the lowest ebb, and some time elapses before the restoration of confidence takes place.
This period of depression is much more prolonged than the acuter phase which precedes it. After a time business revives and begins to expand. Prices rise and activity becomes greater. A wave of prosperity again appears which seems to carry everything before it until it, in turn, is checked suddenly, and a new "crisis" is at hand. Lord Overstone, in an oft-quoted passage, describes these successive phases as follows: "State of quiescence, improvement, growing confidence, prosperity, excitement, overtrading, convulsions, pressure, stagnation, distress ending again in quiescence."
In the absence of any general term to designate this related sequence of phenomena, the term crisis has frequently been used to embrace them all. Strictly speaking, it should doubtless be confined to the acute stage when the collapse which has been slowly preparing actually takes place. In like manner, the term panic applies to the same movement, but expresses it more subjectively, emphasizing how men feel and act rather than the conditions which give birth to those feelings and actions. But as we cannot well break the sequence and discuss in isolated fashion one of its members, it will not be deemed inappropriate to discuss in this article crises, their antecedents, and their consequences.
Crises are designated as financial, commercial, and Industrial. These qualifying phrases mark the places in the economic organism where the disturbance is felt. In a purely financial crisis the stock market is the storm-centre, the disturbance affecting but slightly commercial or productive enterprises. A commercial crisis is of wider area, and embraces the trading classes, while an industrial crisis extends its baneful influence to producers in all lines of agriculture, manufactures, and the like. These expressions do not designate so much different classes of crises as crises of different degrees of intensity, inasmuch as an industrial disturbance will market, though a financial panic does not necessarily imply the others.
While crisis and depression are usually associated, this is not always the case. Panic and crises may occur, and after a brief interval affairs may prosper as before. This is particularly true of the purely financial crises, which are not deep-rooted enough to affect wider areas. The crisis in its larger sense, however, is invariably followed by hard times. On the other hand, depression may occur without a panic. It is hardly correct to say that it is ushered in without a crisis, for the phenomena of such a period can usually be observed even if they lack the spectacular elements which so frequently accompany them. It should be observed, moreover, that crises may be local or general, and while they have many points in common, it is particularly the latter with which we have to deal.
General crises affecting the economic situation of an entire country, and extending themselves to other countries which have trade relations with the former, are peculiarly a mark of the modern organization of business. A century ago bad harvest or other calamities might cause local distress, or speculation such as was exhibited in the days of the South Sea Bubble and the Mississippi Scheme might cause a panic, but such occurrences did not show the pertinacity and wide-reaching effects which characterize the modern industrial disturbances. That such crises are inevitable consequences of modern methods of doing business and inseparable from the economic activities of our times, seems to be well established by their frequent recurrence and by their greater severity in the most advanced nations.
Crises more or less pronounced occurred in the United States in 1814, 1818-1819, 1837, 1857, 1873, 1884, and 1893. The periodicity of these occurrences is marked, and certain writers have gone so far as to establish a normal interval of ten or twelve years between crises. The facts as far as we know them do not warrant us in fixing any absolute rule, though the history of these crises reveals many common features. Certain crises, notably that of 1873, were felt quite generally. The Actual crash did not occur in the same month, or even in the same year, in all the countries involved, but it is a frequent occurrence that local circumstances may hasten or postpone an event for which the general conditions are preparing.
The concrete manifestations of a crisis can best be studied in an historical instance, and none is better adapted for this purpose than the crisis of 1873 in the United States. With the close of the Civil War an extraordinary activity in all lines of enterprise was manifested. The public lands had been thrown open to settlement, and large tracts had been granted to the Pacific railroads. This, together with the return of the army to the pursuits of peace, and an enormous increase in immigration was the condition for an era of speculative development in the Western States. The impulse which had been given to manufactures, not only by the highly protective duties which marked the war tariffs, but also by the depreciation of the currency, which acted as a check upon foreign competition, caused a similar activity in the manufacturing States of the East.
Business prospered; prices and profits were high. The census of 1870 showed in every branch of industry a great advance over that of 1860, and the greater part of this advance was in the latter half of the decade. Nowhere was this confidence in the future shown more than in railroad building and in the iron industry. In 1867 there were 2249 miles of railway constructed; in 1869, 4615 ; in 1871,7379. A like expansion of railways had marked the approach of the panic of 1857. In like manner, the outlay for constructing railways rose from $271,310,000 in 1864-68 to $841,260,000 in 1869-73.
The consumption of pig-iron, which had been 1,416,000 tons in 1868, rose to 2,810,000 tons in 1873. High prices ruled. The maximum prices in the period following 1860 were, it is true, attained in 1866, but if they fell in the years 1867 and 1868 it was only to rise again to a point nearly equal to that of 1866 in 1871 and 1872. The activity in the commercial centers is reflected in the rise of clearings in the New York Clearing House from twenty-eight billions of dollars in 1868 to thirty-five billions in 1873. The foreign trade of the United States showed a like activity, the aggregate of exports and imports rising from $609,000,000 in the fiscal year 1868 to $1,164,000,000 in 1873.
But even more significant of the expansion of activity in the United States was the fact of increased importations from abroad. In 1870 the imports exceeded the exports by $43,000,000, built in 1872 this excess had become $182,000,000, and in 1873 $119,000,000.The crisis of 1873 is usually dated from the failure of Jay Cooke & Co., September 18. The Stock Exchange of New York was closed on the 20th and was not reopened until the end of the month. Clearing House loan certificates were issued in large quantities. There had been certain premonitory symptoms of the approaching collapse.
Railroad-building reached its highest point in 1871, pig-iron its highest price in September 1872. The crisis lasted a few months only, the last Clearing House loan certificates being redeemed January 14, 1874. But there followed a long period of depression, which reached its lowest point three years later. The activities which had marked the previous era were not entirely stopped, enterprises begun had to be finished to save what was already invested, the daily needs of the people must be met, but all enterprise was timid and cautious.
The buoyancy of the previous years was gone, and new enterprises were not undertaken. Railroad construction fell off, and in 1875 reached a minimum of 1711 miles, while in the period 1874-78 the outlay for construction was only $357,000,000. Prices fell until 1879, to rise thereafter until 1882. The consumption of pig-iron declined until it reached 1,900,000 tons in 1876. Clearings in New York City fell off from $35,000,000,000 in 1873 to $23,000,000,000 in 1874, and reached their lowest point since 1863 at $22,000,000,000 in 1876. In foreign trade the excess of imports disappeared in 1874.
As the year 1873 marks the outbreak of the crisis, so the year 1876 serves to mark the lowest point in the subsequent depression. The whole story of the crisis, its antecedents and results, is succinctly told in the statistics of business failures, as reported by R.G. Dun & Co., as follows:
Year: 1873 Number: 5,183 Liabilities: 228,499,900
Every crisis, panic, and depression is marked by analogous characteristics. Whatever data are appropriate to show expanding conditions and an inflated condition of business at any particular time and place will exhibit a similar showing. In the United States, particularly since 1840, railroad construction has been a favorite index of conditions, but before the crisis of 1837 similar activity was shown in canal construction. Before the panic of 1825, in England, there were large investments in manufacturing establishments, while the panic of 1893 was preceded by reckless investments in foreign countries.
A period of depression cuts down the existing stock of goods, and the retrenchment of production, coupled with the constant increase of population, creates a void in the market. To fill this there is a renewed activity; as prices begin to rise, existing plants find it difficult to meet the demand. Plants are remodeled and extended. Preparation for future production on a large scale takes place. Large investments of fixed, capital are made in buildings, machinery and the like, and those branches of industry which chiefly serve the purposes of construction, such as the iron industry, make extraordinary advances. Mills and railroads are built to supply an anticipated demand. This is usually overdone, and the facilities of production increase more rapidly than the effective demand for products. Credit is unduly expanded, and it is natural that the money markets feel the first shock when the inevitable readjustment takes place.
While the phenomena of a crisis and its attendant consequences are generally recognized, the widest variety of opinion exists as to the causes of such economic disturbances. Writers are prone to lay stress upon local or temporary conditions, and to generalize from them. In truth, the phenomena of a crisis are so complex, and the conditions which may aggravate it so numerous, that it is not surprising to see the latter considered as primary causes. Thus, speculation, the currency, the tariff, bad harvests, have all been made responsible for crises. These are frequently concomitant forces impelling a crisis, but crises are so numerous that there must be some deeper underlying cause.
It has already been noted that panics are most severe in the most advanced and most rapidly developing countries. They are apparently an incident of a changing economic organization. Stationary nations do not feel them. A change in the economic organization of a nation is not the result of plan, but the resultant of individual initiation in trade and industry. The adoption of new machinery, of new motive power, and new means of communication displaces the old, and renders some portions of capital useless. This waste of capital, and its absorption in enterprises not immediately remunerative, disturbs the normal relations of capital to employment and causes crises.
We come, in short, to the conclusion that crises are caused by a lack of coincidence in the laws of growth, of production, and consumption. Changes in the former are rapid, those of the latter slow and gradual. Production is always prone to advance more rapidly than consumption. This proposition seems at variance with accepted theories of political economy, but in reality it harmonizes with them. The struggle for existence which lies at the root of economic life is a contest between Nature's limitations and potential consumption, which is unlimited. But concrete consumption and potential consumption are two different things.
Indeed, we seem to be drawing near the familiar proposition that crises are caused by overproduction. This proposition has been vigorously opposed by those who have taken it in an absolute sense, and have revolted at the idea that production could ever outstrip man's needs, as implying man's incapacity for further development. But if we understand overproduction as a false distribution of products over a series of years in comparison with man's actual consumption, and a false choice of objects of production in comparison with man's potential consumption, we need not revolt at the statement that overproduction---along certain lines---is the cause of crises. Such a statement of the causes of crises seems to lack the precision which characterizes the attribution of crises to definite phenomena, but it must be remembered that the more complex the phenomena to be accounted for, the more general must, of necessity, be the cause to which they are ascribed.
Wall Street Crash of 1929
The Wall Street Crash of 1929, also known as the Crash of ’29, was one of the most devastating stock market crashes in American history—probably the very worst, taking into consideration the full scope and longevity of its fallout. Two catchphrases, “Black Thursday” and “Black Tuesday,” evoke this collapse of stock values. Both are authentic, for the crash was no one-day affair. The initial crash occurred on Black Thursday (October 24, 1929), but it was the catastrophic downturn of Black Tuesday (October 29, 1929) five days later that precipitated widespread panic and the onset of unprecedented and long-lasting consequences for the United States. The collapse continued for a month. Economists and historians disagree as to what role the crash played in subsequent economic, social, and political events. Some consider it to be the beginning of the Great Depression, but most believe it was just one symptom.
It occasioned the institution of landmark financial reforms and new trading regulations.
At the time of the crash, New York City had grown to be a major financial capital and metropolis. The New York Stock Exchange (NYSE) was the largest stock market in the world. The roaring twenties was a time of prosperity and excess in the city, and, despite warnings of speculation, many believed that the market could sustain high price levels. Irving Fisher proclaimed shortly before the crash, "Stock prices have reached what looks like a permanently high plateau." The euphoria and financial gains of that great bull market were shattered on October 24, 1929, Black Thursday, when share prices on the NYSE collapsed. Stock prices fell on that day and they continued to fall, at an unprecedented rate, for a full month.
In days leading up to Black Thursday the market was unstable. Periods of panic selling and high volumes of trading were interspersed with brief periods of rising prices and recovery. After the crash the Dow Jones Industrial Average (DJIA) recovered early in 1930, only to reverse again, reaching a low point of the great bear market in 1932. The market did not return to pre-1929 levels until late 1954, and was lower at its July 8, 1932 level than it had been since the 1800s.“
Anyone who bought stocks in mid-1929 and held onto them saw most of his adult life pass by before getting back to even.
The trading floor of the New York Stock Exchange just after the crash of 1929.
After an amazing five-year run that saw the Dow Jones Industrial Average (DJIA) increase in value fivefold, prices peaked at 381.17 on September 3, 1929. The market then fell sharply for a month, losing 17% of its value on the initial leg down. Prices then recovered more than half of the losses over the next week, only to turn back down immediately afterwards. The decline then accelerated into the so-called "Black Thursday", October 24, 1929. A record number of 12.9 million shares were traded on that day.
At 1 p.m. on Friday, October 25, several leading Wall Street bankers met to find a solution to the panic and chaos on the trading floor. The meeting included Thomas W. Lamont, acting head of Morgan Bank; Albert Wiggin, head of the Chase National Bank; and Charles E. Mitchell, president of the National City Bank. They chose Richard Whitney, vice president of the Exchange, to act on their behalf. With the bankers' financial resources behind him, Whitney placed a bid to purchase a large block of shares in U.S. Steel at a price well above the current market. As amazed traders watched, Whitney then placed similar bids on other "blue chip" stocks. This tactic was similar to a tactic that ended the Panic of 1907, and succeeded in halting the slide that day. In this case, however, the respite was only temporary.
Over the weekend, the events were dramatized by the newspapers across the United States. On Monday, October 28, more investors decided to get out of the market, and the slide continued with a record 13% loss in the Dow for the day. The next day, "Black Tuesday", October 29, 1929, and 16.4 million shares were traded, a number that broke the record set five days earlier and that was not exceeded until 1969. Author Richard M. Salsman wrote that on October 29—amid rumors that U.S. President Herbert Hoover would not veto the pending Smoot-Hawley Tariff bill—stock prices crashed even further." William C. Durant joined with members of the Rockefeller family and other financial giants to buy large quantities of stocks in order to demonstrate to the public their confidence in the market, but their efforts failed to stop the slide. The DJIA lost another 12% that day. The ticker did not stop running until about 7:45 that evening. The market lost $14 billion in value that day, bringing the loss for the week to $30 billion, ten times more than the annual budget of the federal government, far more than the U.S. had spent in all of World War I.
An interim bottom occurred on November 13, with the Dow closing at 198.6 that day. The market recovered for several months from that point, with the Dow reaching a secondary peak at 294.0 in April 1930. The market embarked on a steady slide in April 1931 that did not end until 1932 when the Dow closed at 41.22 on July 8, concluding a shattering 89% decline from the peak. This was the lowest the stock market had been since the 19th century.
Salesman observed that "As late as April 1942, U.S. stock prices were still 75% below their 1929 peak and would not revisit that level until November 1954—almost a quarter of a century later."
Source: Economic fundamentals
Dow Jones Industrial, 1928-1930
The crash followed a speculative boom that had taken hold in the late 1920s, which had led millions of Americans to invest heavily in the stock market, a significant number even borrowing money to buy more stock. By August 1929, brokers were routinely lending small investors more than 2/3 of the face value of the stocks they were buying. Over $8.5 billion was out on loan, more than the entire amount of currency circulating in the U.S. The rising share prices encouraged more people to invest; people hoped the share prices would rise further. Speculation thus fueled further rises and created an economic bubble. The average P/E (price to earnings) ratio of S&P Composite stocks was 32.6 in September 1929, clearly above historical norms.
On October 24, 1929 (with the Dow just past its September 3 peak of 381.17), the market finally turned down, and panic selling started. 12,894,650 shares were traded in a single day as people desperately tried to mitigate the situation. This mass sale was considered a major contributing factor to the Great Depression. Economists and historians, however, frequently differ in their views of the crash's significance in this respect. Some hold that political over-reactions to the crash, such as the passage of the Smoot-Hawley Tariff Act through the U.S. Congress, caused more harm than the crash itself.
Official investigation of the Crash
In 1931, the Pecora Commission was established by the U.S. Senate to study the causes of the crash. The U.S. Congress passed the Glass-Steagall Act in 1933, which mandated a separation between commercial banks, which take deposits and extend loans, and investment banks, which underwrite, issue, and distribute stocks, bonds, and other securities.
After the experience of the 1929 crash, stock markets around the world instituted measures to temporarily suspend trading in the event of rapid declines, claiming that they would prevent such panic sales. The one-day crash of Black Monday, October 19, 1987, however, was even more severe than the crash of 1929, when the Dow Jones Industrial Average fell a full 22.6%. (The markets quickly recovered, posting the largest one-day increase since 1932 only two days later.)
Impact and academic debate
The Wall Street Crash had a major impact on the U.S. and world economy, and it has been the source of intense academic debate—historical, economic and political—from its aftermath until the present day. The crash marked the beginning of widespread and long-lasting consequences for the United States. The main question is: Did the crash cause the depression, or did it merely coincide with the bursting of a credit-inspired economic bubble? The decline in stock prices caused bankruptcies and severe macroeconomic difficulties including business closures, firing of workers and other economic repression measures. The resultant rise of mass unemployment and the depression is seen as a direct result of the crash, though it is by no means the sole event that contributed to the depression; it is usually seen as having the greatest impact on the events that followed. Therefore the Wall Street Crash is widely regarded as signaling the downward economic slide that initiated the Great Depression.
Many academics see the Wall Street Crash of 1929 as part of an historical process that was a part of the new theories of Boom and bust. According to economists such as Joseph Schumpeter and Nikolai Kondratieff the crash was merely a historical event in the continuing process known as Economic cycles. The impact of the crash was merely to increase the speed at which the cycle proceeded to its next level. According to the economist Milton Friedman, in the immediate aftermath of the crash, the Federal Reserve did not sufficiently expand the money supply and so turned the recession into a depression.
The Great Depression (also known in the U.K. as the Great Slump) was a dramatic, worldwide economic downturn beginning in some countries as early as 1928. The beginning of the Great Depression in the United States is associated with the stock market crash on October 29, 1929, known as Black Tuesday. The depression had devastating effects in both the industrialized countries and those which exported raw materials. International trade declined sharply, as did personal incomes, tax revenues, prices and profits. Cities all around the world were hit hard, especially those dependent on heavy industry. Construction was virtually halted in many countries. Farming and rural areas suffered as crop prices fell by 40 to 60 percent. Mining and logging areas had perhaps the most striking blow because the demand fell sharply and there were few employment alternatives.
The Great Depression ended at different times in different countries; for subsequent history see Home front during World War II. The majority of countries set up relief programs, and most underwent some sort of political upheaval, pushing them to the left or right. Liberal democracy was weakened and on the defensive, as dictators such as Adolf Hitler, Joseph Stalin and Benito Mussolini made major gains, which helped set the stage for World War II in 1939.
The Great Depression was not a sudden total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below of peak in September 1929. Together government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the prior year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.
In the spring of 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs. The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. By late in 1930, a steady decline set in which reached bottom by March 1933.
Causes of the Great Depression
Business cycles are thought to be a normal part of living in a world of inexact balances between supply and demand. What turns a usually mild and short recession or "ordinary" business cycle into a great depression is a subject of debate and concern. Scholars have not agreed on the exact causes and their relative importance. The search for causes is closely connected to the question of how to avoid a future depression, and so the political and policy viewpoints of scholars are mixed into the analysis of historic events eight decades ago. The even larger question is whether it was largely a failure on the part of free markets or largely a failure on the part of governments to prevent widespread bank failures and the resulting panics and reduction in the money supply. Those who believe in a large role for governments in the economy believe it was mostly a failure of the free markets and those who believe in free markets believe it was mostly a failure of government that exacerbated the problem.
Current theories may be broadly classified into three main points of view. First, there is orthodox classical economics: monetarist, Austrian Economics and neoclassical economic theory, all which focus on the macroeconomic effects of money supply and the supply of gold which backed many currencies before the Great Depression, including production and consumption.
Second, there are structural theories, most importantly Keynesian, but also including those of institutional economics, that point to under consumption and over investment (economic bubble), malfeasance by bankers and industrialists or incompetence by government officials. Another theory revolves around the surplus of products and the fact that many Americans were not purchasing but saving. The only consensus viewpoint is that there was a large scale lack of confidence. Unfortunately, once panic and deflation set in, many people believed they could make more money by keeping clear of the markets as prices got lower and lower and a given amount of money bought ever more goods.
Third, there is the Marxist critique of political economy. This emphasises contradictions within capital itself (which is viewed as a social relation involving the appropriation of surplus value) as giving rise to an inherently unbalanced dynamic of accumulation resulting in an overaccumulation of capital, culminating in periodic crises of devaluation of capital. The origin of crisis is thus located firmly in the sphere of production, though economic crisis can be aggravated by problems of disproportionality between spheres of production and the underconsumption of the masses.
Chart 1: USA GDP annual pattern and long-term trend, 1920-40, in billions of constant dollars
There were multiple causes for the first downturn in 1929, including the structural weaknesses and specific events that turned it into a major depression and the way in which the downturn spread from country to country. In terms of the 1929 small downturn, historians emphasise structural factors like massive bank failures and the stock market crash, while economists (such as Peter Temin and Barry Eichengreen) point to Britain's decision to return to the Gold Standard at pre-World War I parities (US$4.86:£1).
In the 1920s, in the U.S. the widespread use of purchases of businesses and factories on credit and the use of home mortgages and credit purchases of automobiles, furniture and even some stocks boosted spending but created consumer and commercial debt. People and businesses who were deeply in debt when a price deflation occurred or demand for their product decreased were often in serious trouble—even if they kept their jobs, they risked default. Many drastically cut current spending to keep up time payments, thus lowering demand for new products. Businesses began to fail as construction work and factory orders plunged.
Massive layoffs occurred, resulting in unemployment rates of over 25%. Banks which had financed a lot of this debt began to fail as debtors defaulted on debt and bank depositors became worried about their deposits and began massive withdrawals. Government guarantees and Federal Reserve banking regulations to prevent these types of panics were ineffective or not used. Bank failures led to the evaporation of billions of dollars in assets. Up to 40% of the available money supply normally used for purchases and bank payments was destroyed by all these bank failures.
Furthermore, the debt became heavier, because prices and incomes fell 20–50%, but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 banks failed. In all, 9,000 banks failed during the decade of the 30s. By 1933, depositors saw $140 billion of their deposits disappear due to uninsured bank failures.  Bank failures snowballed as desperate bankers tried calling in loans which the borrowers did not have time or money to repay. With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending.  Banks built up their capital reserves, which intensified deflationary pressures. The vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 great depression.
Trade Decline and the U.S. Smoot-Hawley Tariff Act
Many economists have argued that the sharp decline in international trade after 1930 helped to worsen the depression, especially for countries significantly dependent on foreign trade. Most historians and economists assign the American Smoot-Hawley Tariff Act of 1930 part of the blame for worsening the depression by seriously reducing international trade and causing retaliatory regulations in other countries. Foreign trade was a small part of overall economic activity in the United States and was concentrated in a few businesses like farming; it was a much larger factor in many other countries.  The average ad valorem rate of duties on dutiable imports for 1921–1925 was 25.9% but under the new tariff it jumped to 50% in 1931–1935.
In dollar terms, American exports declined from about $5.2 billion in 1929 to $1.7 billion in 1933; but prices also fell, so the physical volume of exports only fell in half. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber. According to this theory, the collapse of farm exports caused many American farmers to default on their loans leading to the bank runs on small rural banks that characterized the early years of the Great Depression.
U.S. Federal Reserve and money supply
Monetarists, including Milton Friedman and Benjamin Bernanke, argue that the Great Depression was caused by monetary contraction, which was the consequence of poor policy making by the American Federal Reserve System and continuous crisis in the banking system. By not acting, the Federal Reserve allowed the money supply to shrink by one-third from 1930 to 1931. Friedman argued  the downward turn in the economy starting with the stock market crash would have been just another recession. The problem was that some large, public bank failures, particularly the Bank of the United States, produced panic and widespread runs on local banks, and that the Federal Reserve sat idly by while banks fell. He claimed if the Fed had provided emergency lending to these key banks, or simply bought government bonds on the open market to provide liquidity and increase the quantity of money after the key banks fell, all the rest of the banks would not have fallen after the large ones did and the money supply would not have fallen to the extent and at the speed that it did. With significantly less money to go around, businessmen could not get new loans and could not even get their old loans renewed, forcing many to stop investing. This interpretation blames the Federal Reserve for inaction, especially the New York branch, which was owned and controlled by Wall Street bankers. The Federal Reserve, by design, is not controlled by the President or the U.S. Treasury; it is primarily controlled by member banks and the chairman of the Federal Reserve.
One reason why the Federal Reserve did not act to limit the decline of the money supply was regulation. At that time the amount of credit that the Federal Reserve could issue was limited due to laws which required partial gold backing of that credit. By the late 1920's the Federal Reserve had almost hit the limit of allowable credit that could be backed by the gold in its possession. This credit was in the form of Federal Reserve demand notes. Since a "promise of gold" is not as good as "gold in the hand", during the bank panics a portion of those demand notes were redeemed for Federal Reserve gold. Since the Federal Reserve had hit its limit on allowable credit, any reduction in gold in its vaults had to be accompanied by a greater reduction in credit. Several years into the Great Depression the private ownership of gold was declared illegal and reduced the pressure on Federal Reserve gold. Literature
The U.S. Depression has been the subject of much writing, as the country has sought to reevaluate an era that dumped financial as well as emotional catastrophe on its people. Perhaps the most note-worthy and famous novel written on the subject is The Grapes of Wrath, published in 1939 and written by John Steinbeck, who was awarded the Pulitzer Prize for the novel and the Nobel Prize for literature for this work. The novel, which was later made into a movie, focuses on a poor family of sharecroppers who are forced from their home as drought, economic hardship, and changes in the agricultural industry occur during the Great Depression. Steinbeck's Of Mice and Men is another important novel about a journey during the Great Depression.
The New Deal
Shortly after President Roosevelt was inaugurated in 1933, drought and erosion combined to cause the Dust Bowl, shifting hundreds of thousands of displaced persons off of their farms in the midwest. From his inauguration onward, Roosevelt argued a restructuring of the economy would be needed to prevent another or avoid prolonging the current depression. New Deal programs sought to stimulate demand and provide work and relief for the impoverished through increased government spending, by reforming the financial system, especially the banks and Wall Street. The Securities Act of 1933 comprehensively regulated the securities industry. This was followed by the Securities Exchange Act of 1934 which created the Securities and Exchange Commission. (Though amended, the key provisions of both Acts are still in force as of 2007). Federal insurance of bank deposits was provided by the FDIC (still operating as of 2007), and the Glass-Steagal Act (which remained in effect for 50 years). The institution of the National Recovery Administration remains a controversial act to this day. Although it only lasted until 1935, it made a number of sweeping changes to the American economy until it was declared unconstitutional by the Supreme Court. Instituting regulations which ended what was called "cut-throat competition," which kept forcing down prices for everyone (done by the NRA). Setting minimum prices and wages and competitive conditions in all industries (done by the NRA). Encouraging unions that would raise wages, to increase the purchasing power of the working class (done by the NRA). Cutting farm production so as to raise prices and make it possible to earn a living in farming (done by the AAA and successor farm programs). Forcing businesses to work with government to set price codes (done by the NRA). Creating the NRA board to set labor codes and standards (done by the NRA).
These reforms (together with relief and recovery measures) are called by historians the First New Deal. It was centered around the use of an alphabet soup of agencies set up in 1933 and 1934, along with the use of previous agencies such as the Reconstruction Finance Corporation, to regulate and stimulate the economy. By 1935, the "Second New Deal" added Social Security, a national relief agency (the Works Progress Administration, WPA) and, through the National Labor Relations Board, a strong stimulus to the growth of labor unions. Unemployment fell by two-thirds in Roosevelt's first term (from 25% to 9%, 1933 to 1937), but then remained stubbornly high until 1942.
In 1929, federal expenditures constituted only 3% of the GDP. Between 1933 and 1939, they tripled, funded primarily by a growth in the national debt. The debt as proportion of GNP rose under Hoover from 20% to 40%. Roosevelt kept it at 40% until the war began, when it soared to 128%. After the Recession of 1937, conservatives were able to form a bipartisan conservative coalition to stop further expansion of the New Deal and, by 1943, had abolished all of the relief programs.
Recession of 1937
In 1937, the American economy took an unexpected nosedive, lasting through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. The Roosevelt administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the depression, and appointing Thurman Arnold to act; Arnold's effectiveness ended once World War II began and corporate energies had to be directed to winning the war.
On the other hand, according to economist Robert Higgs, when looking only at the supply of consumer goods, significant GDP growth resumed only in 1946 (Higgs does not estimate the value to consumers of collective, intangible goods like victory in war). To Keynesians, the war economy showed just how large the fiscal stimulus required to end the downturn of the Depression was, and it led, at the time, to fears that as soon as America demobilized, it would return to Depression conditions and industrial output would fall to its pre-war levels. The incorrect Keynesian prediction that a new depression would start after the war failed to take account of pent-up consumer demand as a result of the Depression and World War.
Gross Domestic Product (GDP)
The economic history of the United States has its roots in European settlements in the 16th, 17th, and 18th centuries. The American colonies progressed from marginally successful colonial economies to a small, independent farming economy, which in 1776 became the United States of America. In 230 years the United States grew to a huge, integrated, industrialized economy that makes up over a fifth of the world economy. The main causes were a large unified market, a supportive political-legal system, vast areas of highly productive farmlands, vast natural resources (especially timber, coal and oil), and an entrepreneurial spirit and commitment to investing in material and human capital. The economy has maintained high wages, attracting immigrants by the millions from all over the world.
A brief history of the debt
The United States has had public debt since its inception. Debts incurred during the American Revolutionary War and under the Articles of Confederation led to the first yearly reported value of $75,463,476.52 on January 1, 1791. Over the following 45 years, the debt grew and then contracted to zero on January 8, 1835 under President Andrew Jackson. On January 1, 1835, the national debt was only $33,733.05, but it quickly grew into the millions again.
The history of the United States national debt, relative to gross domestic product, since 1900.
The first dramatic growth spurt of the debt occurred because of the Civil War. The debt was just $65 million dollars in 1860, but passed $1 billion in 1863 and had reached $2.7 billion following the war. The debt slowly fluctuated for the rest of the century, finally growing steadily in the 1910s and early 1920s to roughly $22 billion as the country paid for involvement in World War I .
The buildup and involvement in World War II brought the debt up another order of magnitude from $51 billion in 1940 to $260 billion following the war. After this period, the debt's growth closely matched the rate of inflation until the 1980s, when it again began to skyrocket. Between 1980 and 1990, the debt more than tripled. By the end of 2005, the gross debt reached $7.9 trillion, about 8.7 times its 1980 level.
|U.S. Govt Debt
Alexander Hamilton taking a very broad view as the first secretary of the treasury. He succeeded in building a strong national credit based on a national debt held by rich people (who would then have an interest in keeping the government in healthy condition), and funded by tariffs on imported goods. Hamilton believed the United States should pursue economic growth through diversified shipping, manufacturing, and banking.
He proposed measures like protective tariff to pay the costs of government, along with a tax on whiskey that western farmers strongly resented. He sought and achieved Congressional authority to create the First Bank of the United States in 1791, which lasted until 1811.
Millions moved to the more fertile farmland of the Midwest. Government-created national roads and waterways, such as the Cumberland Pike (1818) and the Erie Canal (1825), helped new settlers migrate west and helped move western farm produce to market. The Whig Party supported Clay's American System, which proposed to build internal improvements (roads, canals, harbors) protects industry, and creates a strong national bank. The Whig legislation program was blocked by the Democrats, however.
Panics did not curtail rapid U.S. economic growth during the 19th century. Long term demographic growth, expansion into new farmlands, and creation of new factories continued. New inventions and capital investment led to the creation of new industries and economic growth. As transportation improved, new markets continuously opened. The steamboat made river traffic faster and cheaper, but development of railroads had an even greater effect, opening up vast stretches of new territory for development. Like canals and roads, railroads received large amounts of government assistance in their early building years in the form of land grants. But unlike other forms of transportation, railroads also attracted a good deal of domestic and European private investment.
Some people made fortunes overnight, but many people lost their savings. Nevertheless, a combination of vision and foreign investment, combined with the discovery of gold and a major commitment of America's public and private wealth, enabled the nation to develop a large-scale railroad system, establishing the base for the country's industrialization.
The Industrial Revolution began in Europe in the late 18th and early 19th centuries, and it quickly spread to the United States. By 1860, when Abraham Lincoln was elected president, 16 percent of the U.S. population lived in urban areas, and a third of the nation's income came from manufacturing. Urbanized industry was limited primarily to the Northeast; cotton cloth production was the leading industry, with the manufacture of shoes, woolen clothing, and machinery also expanding. Many new workers were immigrants. Between 1845 and 1855, some 300,000 European immigrants arrived annually. Most were poor and remained in eastern cities, often at ports of arrival.
In the 1870's, the United States became a leading Industrial power. Advances in technology drove American Industrialization. Industrialization caused the growth of American cities and the decline of the importance of Agriculture. Though Industrialization caused many long-term positives, it did cause problems in the short-term. Rich farmers who could afford new machinery grew even richer, while poorer farmers were forced to move into urban areas as they could not compete in the agricultural sector. Meanwhile, in factories, Laborers and companies often clashed over wages, sanitary conditions, working hours, benefits, and several other issues. Laborers organized themselves into unions to negotiate with companies. The companies, however, attempted to shut down labor unions. Some imposed 75 yellow dog contracts, under which an employer could dismiss a worker who participated in union activity.
In 1886, the American Federation of Labor was formed to fight for laborers in general. The AFL and the unions employed as many tactics as possible to force employers to accede to their demands. One tactic was the strike. Strikes sometimes escalated into riots, as was the case with the Haymarket Riot in 1886.
The companies sometimes retaliated against strikes by suing the unions. Congress had passed the Sherman Antitrust Act to prevent trusts, or corporations that held stock in several different companies, from obstructing the activities of competitors. Though the Sherman Act was intended to target trusts, the companies sued the union under it, claiming that unions obstructed interstate commerce. does this really work?
The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. An explosion of new discoveries and inventions took place, causing such profound changes that some termed the results a "Second Industrial Revolution." Oil was discovered in western Pennsylvania. The typewriter was developed. Refrigeration railroad cars came into use. The telephone, phonograph, and electric light were invented. And by the dawn of the 20th century, cars were replacing carriages.
Parallel to these achievements was the development of the nation's industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Large iron mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these two important raw materials could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.
Great Depression: 1929-1941
Missouri migrants living in a truck in California. Many displaced people moved to California to look for work during the Depression. John Steinbeck depicted the situation in The Grapes of Wrath
The Federal Reserve Board chose to stand by, leaving interest rates high and not shoring up banks, while Congress expanded government in an effort to alleviate the recession. There was a sharp drop in the money supply, which would amount to a one-third reduction by 1933. President Herbert Hoover passed a massive tax increase to boost sagging federal revenues, and signed the protectionist Smoot-Hawley Tariff, which incited retaliation by Canada, Britain, Germany and other trading partners. The U.S. economy plunged into depression. By 1932, the unemployment rate was 23.6%. Conditions were worse in heavy industry, lumbering, export agriculture (cotton, wheat, tobacco), and mining. Conditions were not quite as bad in white collar sectors and in light manufacturing.
Franklin Delano Roosevelt was elected President in 1932 without a specific program. He relied on a highly eclectic group of advisors who patched together many programs, known as the New Deal.
Government spending increased from 8.0% of GNP under Hoover in 1932 to 10.2% of GNP in 1936. While Roosevelt balanced the "regular" budget the emergency budget was funded by debt, which increased from 33.6% of GNP in 1932 to 40.9% in 1936. [Historical Statistics (1976) series Y457, Y493, F32]
The extent to which the spending for relief and public works provided a sufficient stimulus to revive the U.S. economy, or whether it harmed the economy, is also debated. If one defines economic health entirely by the gross domestic product, the U.S. had gotten back on track by 1934, and made a full recovery by 1936, but as Roosevelt said, one third of the nation was ill fed, ill-housed and ill-clothed. See Chart 3. GNP was 34% higher in 1936 than 1932, and 58% higher in 1940 on the eve of war. The economy grew 58% from 1932 to 1940 in 8 years of peacetime, and then grew 56% from 1940 to 1945 in 5 years of wartime. However, the unemployment rate never went below 9% before the draft. During the war the economy operated under so many different conditions that comparison is impossible with peacetime, such as massive spending, price controls, bond campaigns, controls over raw materials, prohibitions on new housing and new automobiles, rationing, guaranteed cost-plus profits, subsidized wages, and the draft of 12 million soldiers.
As Broadus Mitchell summarized, "Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically." (Mitchell p 404) Economic indicators show the American economy reached nadir in summer 1932 to February 1933, then began a steady, sharp upward recovery that persisted until 1937. Thus the Federal Reserve Index of Industrial Production hit its low of 52.8 on July 1, 1932 and was practically unchanged at 54.3 on March 1, 1933; however by July 1, 1933, it reached 85.5 (with 1935-39 = 100, and for comparison 2005 = 1,342).
As Broadus Mitchell summarized, "Most indexes worsened until the summer of 1932, which may be called the low point of the depression economically and psychologically." (Mitchell p 404) Economic indicators show the American economy reached nadir in summer 1932 to February 1933, then began a steady, sharp upward recovery that persisted until 1937. Thus the Federal Reserve Index of Industrial Production hit its low of 52.8 on July 1, 1932 and was practically unchanged at 54.3 on March 1, 1933; however by July 1, 1933, it reached 85.5 (with 1935-39 = 100, and for comparison 2005 = 1,342).
US GDP 1920-40 chart (From Excel) by editor; based on data in Historical Statistics of the US: Millennial Edition (2006) series.
|Real Gross National Product (GNP)1||101.4||84.3||68.3||103.9||103.7||113.0|
|Consumer Price Index2||122.5||108.7||92.4||102.7||99.4||100.2|
|Index of Industrial Production2||109||75||69||112||89||126|
|Money Supply M2 ($ billions)||46.6||42.7||32.2||45.7||49.3||55.2|
|Exports ($ billions)||5.24||2.42||1.67||3.35||3.18||4.02|
|Unemployment (% of civilian work force)||3.1||16.1||25.2||13.8||16.5||13.9|
1 in 1929 dollars
2 1935-39 = 100
How the U.S. Economy Works
In every economic system, entrepreneurs and managers bring together natural resources, labor, and technology to produce and distribute goods and services. But the way these different elements are organized and used also reflects a nation's political ideals and its culture. The United States is often described as a "capitalist" economy, a term coined by 19th-century German economist and social theorist Karl Marx to describe a system in which a small group of people who control large amounts of money, or capital, make the most important economic decisions.
Basic Ingredients of the U.S. Economy
The first ingredient of a nation's economic system is its natural resources. The United States is rich in mineral resources and fertile farm soil, and it is blessed with a moderate climate. It also has extensive coastlines on both the Atlantic and Pacific Oceans, as well as on the Gulf of Mexico. Rivers flow from far within the continent, and the Great Lakes -- five large, inland lakes along the U.S. border with Canada -- provide additional shipping access. These extensive waterways have helped shape the country's economic growth over the years and helped bind America's 50 individual states together in a single economic unit.
The second ingredient is labor, which converts natural resources into goods. The number of available workers and, more importantly, their productivity help determine the health of an economy. Throughout its history, the United States has experienced steady growth in the labor force, and that, in turn, has helped fuel almost constant economic expansion. Until shortly after World War I, most workers were immigrants from Europe, their immediate descendants, or African-Americans whose ancestors were brought to the Americas as slaves. In the early years of the 20th century, large numbers of Asians immigrated to the United States, while many Latin American immigrants came in later years.
Although the United States has experienced some periods of high unemployment and other times when labor was in short supply, immigrants tended to come when jobs were plentiful. Often willing to work for somewhat lower wages than acculturated workers, they generally prospered, earning far more than they would have in their native lands. The nation prospered as well, so that the economy grew fast enough to absorb even more newcomers.
The quality of available labor -- how hard people are willing to work and how skilled they are -- is at least as important to a country's economic success as the number of workers. In the early days of the United States, frontier life required hard work, and what is known as the Protestant work ethic reinforced that trait. A strong emphasis on education, including technical and vocational training, also contributed to America's economic success, as did a willingness to experiment and to change.
The gross domestic product measures the total output of goods and services in a given year. In the United States it has been growing steadily, rising from more than $3.4 trillion in 1983 to around $8.5 trillion by 1998. But while these figures help measure the economy's health, they do not gauge every aspect of national well-being. GDP shows the market value of the goods and services an economy produces, but it does not weigh a nation's quality of life.
Government's Role in the Economy
While consumers and producers make most decisions that mold the economy, government activities have a powerful effect on the U.S. economy in at least four areas.
Stabilization and Growth. Perhaps most importantly, the federal government guides the overall pace of economic activity, attempting to maintain steady growth, high levels of employment, and price stability. By adjusting spending and tax rates (fiscal policy) or managing the money supply and controlling the use of credit (monetary policy), it can slow down or speed up the economy's rate of growth -- in the process, affecting the level of prices and employment.
For many years following the Great Depression of the 1930s, recessions -- periods of slow economic growth and high unemployment -- were viewed as the greatest of economic threats. When the danger of recession appeared most serious, government sought to strengthen the economy by spending heavily itself or cutting taxes so that consumers would spend more, and by fostering rapid growth in the money supply, which also encouraged more spending. In the 1970s, major price increases, particularly for energy, created a strong fear of inflation -- increases in the overall level of prices. As a result, government leaders came to concentrate more on controlling inflation than on combating recession by limiting spending, resisting tax cuts, and reining in growth in the money supply.
Ideas about the best tools for stabilizing the economy changed substantially between the 1960s and the 1990s. In the 1960s, government had great faith in fiscal policy -- manipulation of government revenues to influence the economy. Since spending and taxes are controlled by the president and the Congress, these elected officials played a leading role in directing the economy. A period of high inflation, high unemployment, and huge government deficits weakened confidence in fiscal policy as a tool for regulating the overall pace of economic activity. Instead, monetary policy -- controlling the nation's money supply through such devices as interest rates -- assumed growing prominence. Monetary policy is directed by the nation's central bank, known as the Federal Reserve Board, with considerable independence from the president and the Congress..
During most of the 20th century, investors could earn more by investing in stocks than in other types of financial investments -- provided they were willing to hold stocks for the long term.
In the short term, stock prices can be quite volatile, and impatient investors who sell during periods of market decline easily can suffer losses. Peter Lynch, a renowned former manager of one of America's largest stock mutual funds, noted in 1998, for instance, that U.S. stocks had lost value in 20 of the previous 72 years. According to Lynch, investors had to wait 15 years after the stock market crash of 1929 to see their holdings regain their lost value. But people who held their stock 20 years or more never lost money. In an analysis prepared for the U.S. Congress, the federal government's General Accounting Office said that in the worst 20-year period since 1926, stock prices increased 3 percent. In the best two decades, they rose 17 percent. By contrast, 20-year bond returns, a common investment alternative to stocks, ranged between 1 percent and 10 percent.
Economists conclude from analyses like these that small investors fare best if they can put their money into a diversified portfolio of stocks and hold them for the long term. But some investors are willing to take risks in hopes of realizing bigger gains in the short term. And they have devised a number of strategies for doing this.
The Securities and Exchange Commission (SEC), which was created in 1934, is the principal regulator of securities markets in the United States. Before 1929, individual states regulated securities activities. But the stock market crash of 1929, which triggered the Great Depression, showed that arrangement to be inadequate. The Securities Act of 1933 and the Securities Exchange Act of 1934 consequently gave the federal government a preeminent role in protecting small investors from fraud and making it easier for them to understand companies' financial reports.
Compare U.S. economic growth over the period 1900-2005 to a 2 percent per year trend. Notice how trivial business cycle fluctuations are in comparison to the 1929-39 Great Depression. We need new tools to study great depressions. A new book, edited by Tim Kehoe and Ed Prescott, provides these tools.
Economists call the relationship between growth and unemployment "Okun's law," which states that an extra percentage point of growth causes about a half percentage point drop in unemployment. Okun's law is generally taken to mean that, given the current rate of population growth, we need economic growth of at least 3 percent annually just to stop unemployment from rising.
Even if there were no population growth, we would need economic growth rate of over 2 percent to keep unemployment from rising. During the twentieth century, productivity (output per worker hour) increased by just over 2.3 percent per year, increasing almost ten-fold in the course of the century (Figure 12).
- The essentials of American History, Second Edition, – Alfred A. Knopf, New York.
- United States Since 1865, College Outline Series, – John A.Krout
- American Economic History – Harold Underwood Faulkner, Eighth Edition.
- History of A Free People – Bragdon H.W.
- American Epoch – A History of the United States Since the 1890’s by Arthur S. Link.
- A short history of the United States (1492 – 1938) by John Spencer Bassett, Ph. D., Third Edition.
- America – A History by Oscar Handlin, Harvard University.
- 1997 A History of the American People Weidenfeld & Nicolson ISBN 0-06-093034-9