businessmenshutdown重启

26FinancialHistory~Winter2007www.
financialhistory.
orgWhenWashingtonSHUTDOWNWallStreet:TheGreatFinancialCrisisof1914andtheOriginsofAmerica'sMonetarySupremacyByWilliamL.
SilberWhenWashingtonShutDownWallStreet(PrincetonUniversityPress,2007)unfoldslikeamysterystory.
ItdescribeshowTreasurySecretaryWilliamG.
McAdooturnedthenancialcrisisthreateningAmericaattheoutbreakoftheFirstWorldWarintoamonetarytriumph.
Italsoprovidesablueprintforcrisiscontrolthatmeritsattentiontoday.
ThisexcerptsummarizesMcAdoo'sbattleforAmericannancialcredibilityduringfourmonthsin1914,fromtheendofJulythroughthemiddleofNovember,andexplainshowthisbriefperiodchangedthecourseofU.
S.
monetaryhistory.
TheBackgroundTheGreatWarthreatenedtheUnitedStateswithfinancialdisaster.
EuropeansbegantoliquidatetheirWallStreetinvestmentsduringthelastweekofJuly1914andtransfergoldtoEuropetopayforthewar.
Foreigninvestorsownedmorethan20percentofAmericanrailroadsecurities,thelargestcategoryofsecuritiestradedontheNewYorkStockExchange.
1Underthegoldstandard,theycoulddemandthepreciousmetalinexchangefortheproceedsoftheirstocksales.
Thebiggestgoldoutowinagenerationimper-iledAmerica'sabilitytorepayitsdebtsabroad.
FearthattheUnitedStateswouldabandonthegoldstandardpushedthevalueofthedollartounprecedenteddepthsonworldmarkets.
TheEuropeanassaultonAmericannancebroughtdangerandopportunity.
In1914theUnitedStateswasadebtornationwithahistoryoffinancialcrises.
FailuretomeetitsforeignobligationscouldsinkAmericandreamsofworldmonetaryleader-ship.
Ifitpassedthetest,however,theUnitedStatescouldjumptotheheadoftheclass.
LessthanthreeweeksaftertheoutbreakoftheEuropeanconflict,WoodrowWilsonreviewedaroadmapforAmerica'smarchtoworldfinancialsupremacy.
HenryLeeHigginson,aninvest-mentbankerinBoston,wrotetothepresidenton27www.
financialhistory.
orgFinancialHistory~Winter2007August20,1914,that"Englandhasbeentheexchangeplaceoftheworld,becauseoflivinguptoeveryengagement,andbecausethepowergrewwiththebusiness.
Todaywecantakethisplaceifwechoose;butcourage,willingnesstopartwithwhatwedon'tneedatonce,realcharacter,andthelivinguptoallourdebtspromptlywillgiveusthispower;andnothingelsewill.
Irepeatthatitisourchancetotakefirstplace.
"2WilsonsentHigginson'slettertoTreasurySecretaryWilliamG.
McAdoowiththefollowingcoveringmessage:"Hereisaletterwhichisnodoubtworthyourreadingwhetheryouthinkthesuggestionsarepracticableornot.
"3McAdoohad,infact,launchedaplantodefendAmericannancialhonorbeforehereceivedHigginson'sletterfromWilson.
TheCrisisIn1914,mostdevelopedcountries–includingAustria,Belgium,Britain,France,Germany,Italy,Japan,andSpain–couldrelyoncentralbankstoghttheirnancialbattles.
4EvenCzarNicholasIIhadtheImperialBankofRussia.
TheUnitedStates,withoutacentralbanksince1836,afterAndrewJacksonscuttledtheSecondBankoftheUnitedStates,resembledahead-lessfinancialgiant.
TheFederalReserveSystem,authorizedbyCon-gressonDecember23,1913,remainedonthedrawingboard.
Itcouldhavebeenaclassicpowervacuum,espe-ciallywithPresidentWoodrowWilsondistractedbyhiswife'sfatalillness.
McAdooseizedtheopportunitytoconfrontthepanic.
HetriedtogettheFederalReserveSystemupandrun-ningtocombatthedanger.
BenjaminStrong,governor-electofthepowerfulFederalReserveBankofNewYorkandaleadinggureduringtheforma-tiveyearsofthecentralbank,wantedtoprotectthenewcurrencysystemfromthecrisis.
HeblockedMcAdoo'spushforanearlyopeningoftheFed-eralReserveBanks.
ThereversalsetthestageforMcAdoo'simprovisa-tionalskills.
Failuretorespondpromptlywouldhavespelleddisaster.
Thesaleofdollarsforpoundsster-lingintheforeignexchangemarket,andthejumpintheexchangeratetofourcentsabovethegoldexportpointonJuly27,1914,provokedrecordgoldshipmentstoEurope.
Thefailureofthepriceofsterlingtodeclineinresponsetothegoldexportssignaledanunprecedentedproblem.
OnJuly30,McAdoorushedtonsofgoldtoTreasuryofcesaroundthecountrytotrumpetAmerica'scommitmenttoredeemdollarsinthepreciousmetal.
5Thefollowingday,July31,1914,McAdooshuttheNewYorkStockExchangeforanunprecedentedfourmonthstohamperBritishsalesofAmericansecurities.
TheBritishcouldnotdrainAmericangoldwithoutthedollarproceedsfromsalesofU.
S.
stocksandbonds.
OnAugust3heoodedthecountrywithpapercurrencytopreventarepetitionofthebankrunsthathadembarrassedAmericaonlyafewyearsearlier,duringthePanicof1907.
6Banksavoidedsuspendingtheirobligationsin1914byofferingdepositorstheemergencycurrencydispensedunderMcAdoo'sorders.
7WilliamMcAdooknew,however,thatthesenger-in-the-dikemeasurescouldnotremaininplaceforever.
Shuttingthestockexchangeimmobi-lizedthecapitalmarketandunlimitedsuppliesofemergencycurrencytemptedinflation.
McAdoorecog-nizedthatheneededanexitstrategytoreplacethesepowerfulweaponsbeforetheydisruptedtheeconomy.
HeunderstoodthatthegolddraincouldbereversedbypromotingAmericanexportsofagriculturalgoodstooffsetEuropeansalesofU.
S.
securities.
OnAugust14,1914,McAdoometwithbusinessmenattheTreasurytoarrangefor"sufcientshipstomoveourgrainandcottoncropstoEuropeanmarkets.
"8TheconferencecreatedtheBureauofWarRiskInsurancewhichsupportedthedollar'sredemptionintheforeignexchangemarket.
McAdooalsosub-sidizedarescueofNewYorkCityfromthebrinkofbankruptcy.
America'slargestcityhadtorepaymaturingdebtsinLondondenominatedinBritishpounds.
McAdoo'sassistanceintroducedthe'TooBigtoFail'doc-trineinAmericannance.
9WallStreetafterthesuspensionoftradingontheNewYorkStockExchange,July31,1914.
Bettmann/CORBIS28FinancialHistory~Winter2007www.
financialhistory.
orgAs1914drewtoaclose,theoodofemergencycurrencyrecededandtheNewYorkStockExchangereopened.
McAdoohadtamedthecrisiswithoutinictingcollateraldamage.
TheBattleforFinancialSupremacyBritainruledworldnancein1914.
Twocharacteristics–thepoundsterlingasinternationalmoneyandLondonasglobalmoneylender–qualiedBritainfortheworldnancialcrown.
Thepoundservedasthecurrencyofchoiceforinternationaltransactions,justasthedollardoestoday,andborrowersthroughouttheworldvisitedLondon,ratherthanWallStreet,toraisecapital.
ThewarwouldforceLondon,atleasttemporarily,tostopsupplyingcapitalabroadbut,accordingtoBritishecono-mistJohnMaynardKeynes,itcouldcontinueaskingofinternationalnancebyinsuringthatsterlingremainedasgoodasgold.
BritainsignaleditsintentioninAugust1914tocontinueastheworld'snancialsuperpowerbyfollowingKeynes'advice.
TreasurySecretaryMcAdoorecog-nizedAmerica'sopportunitytoshinebyremainingtruetogold,justliketheworld'smonetarysuperpower.
Asuspensionofthegoldstandardin1914wouldhavebeenasetbacktoAmericandreamsofinternationalnancialleadership.
ThePanicof1907hadalreadydamagedU.
S.
credibility.
Apanicin1914wouldhavebeenthesecondactinanAmericannancialtragedy.
AlexanderNoyes,thecon-temporarybusinesseditorofTheNewYorkTimes,highlightedthedramawhenhesaid:10"Itisnottoomuchtosaythatasamatterofnancialhistory,theUnitedStatesstoodduringthosetwoorthreeweeksofAugustatthepartingoftheways.
"Suspendingthegoldstandardwouldhaverelegatedthedollartosecondclassstatus.
Sterlingwouldhaveremainedtheundisputedmoneyofchoiceforinternationalnance.
McAdoomaintainedAmerica'scom-mitmenttothegoldstandardwhileeveryothercountryoftheworld,saveforBritain,abandoneditbecauseofthewar.
HowimportantwasthegoldstandardattheoutbreakoftheGreatWarKeynessaidthatLondon'sposi-tionastheworld'sleadingnancialcenterwouldsurelybejeopardizedifBritainsuspendedgoldpayments.
HeadvisedtheBritishgovernmentthat"weshouldnotrepudiateourexternalobligationstopaygolduntilitisphysicallyimpossibleforustofulllthem.
"11Keynesknewthatcapitalmarketsforgiveacountrythatsus-pendsspeciepaymentsduringwartimeaslongasitresumesitsobligationaftertheemergencyhaspassed.
12Butafinancialsuperpowermustmeetahigherstandard.
13McAdoo'sboosttothedollar'scredibilityhelpedAmericachallengeBritainasthenancialcapitaloftheworld.
November11,1914,thedaythedollar'sdiscountdisappearedonworldmarkets,andfouryearstothedaybeforetheArmistice,markstheturningpointinAmerica'sbattleforinternationalnancialleadership.
InJanuary1915theNewYorkcapitalmarketreplacedLondonasmoneylendertotheworld.
Argentina,Canada,andChina,traditionalBritishclients,visitedWallStreettoraisecap-ital.
14Itwouldtakemorethandecadetocompletethetransferofnancialpower,butatectonicshiftinmonetarysupremacyhadbegun.
15TheManbehindtheVictory:WilliamG.
McAdooWilliamGibbsMcAdoowasborninMarietta,Georgia,in1863.
HemovedtoKnoxville,Tennesseein1877,whenhisfatherbecameaProfessorofHistoryandEnglishattheUniversityofTen-nessee.
McAdooenteredtheUniversityofTennesseein1879andjoinedtheCrowdgathersoutsidetheofcesofTheNew-YorkTribuneafterthesuspensionoftradingontheNewYorkStockExchange.
Bettmann/CORBIS29FinancialHistory~Winter2007www.
financialhistory.
orgdebatingsociety.
TheupperclassmensaddledMcAdoo,afreshmanwith"achiponhisshoulder,"withdefendingtheunpopularsideofeveryissue.
16Heenjoyedthelimelightandknewthathewantedtobealawyer.
HisheartsettledonstudyingattheUniversityofVirginiainCharlottesville,thebestlawprograminthecountryfromwhereMcAdoosat.
Thatwasbeforehediscusseditwithhisfather,WilliamG.
McAdooSr.
DuringtheChristmasholidaysin1881youngWillMcAdooworkedintheUnitedStatesCircuitCourtatKnoxville.
Hewasthenofferedaper-manentjobasdeputyclerkintheU.
S.
CircuitCourtatChattanooga.
Hisfatherurgedhimtotakethejob"tolearnlawfromactualcontactwiththecourts.
"17InMay1882McAdooleftKnoxvilleforChattanooga,oneyearshyofhiscollegedegree.
HenevergottoCharlottesville.
McAdoowasadmittedtothebarinChattanoogabutdidnotpracticelawforverylong.
Hisfather'sadvicetostudylawbyapprenticeshipimprintedapragmaticgenedeepinsidehisbrain.
Italteredhislife.
WilliamMcAdooabandonedhisfledglinglegalcareerforthebusinessworld.
Toovercomehisabbreviatedacademictraining,McAdoomasteredthedetailsofeveryprospectiveven-ture.
Atage30,beforelaunchingaplantoelectrifytheKnoxvilleStreetRailroad,helearnedhowtocalculateelectricpowerandhowdynamosaresetup.
DespiteMcAdoo'spreparation,theventurefailedandwipedouthislifesavings.
18Tenyearslater,beforeheunder-tooktobuildarailroadlineundertheHudsonRiver,heinvestigatedanabandonedtunneldressedinrubberhipboots,yellowoilskins,andcarry-inganoillantern.
ThistimeMcAdoo'sgroundworksucceeded.
AspresidentoftheHudsonandManhattanRailroadCompany,heinauguratedpassengerrailservicebetweenManhattanandNewJerseyin1908.
19AfterMcAdoobecameWoodrowWilson'sTreasurySecre-taryin1913,hispracticalbenthelpedtoavertthemonetarycrisisthatbeganwiththeoutbreakofwarinthesummerof1914.
What1914TeachesaboutLeadershipMcAdoosucceededinAugust1914becausehedidnothesitatetobludgeonthecrisiswithasledgehammer.
Hewieldedpowerfulweapons—suspend-ingstocktradingforfourmonthsandoodingthecountrywithemergencycurrency—thatcouldhaveinjuredAmerica.
Hisexitplan—stimulatingagriculturalexportswiththeBureauofWarRiskInsurance—avoidedlastingdamagetotheeconomy.
McAdoocouldapplymassiveforcebecausehehadimplementedaplantorestorenormalfunctions.
Failuretoincludeastrategyforwithdrawaleitherpromotestoothlessemergencyweapons,likeaplacebototreataseriousdisease,orimposesunnecessarycosts.
McAdoobroughtmorethanablue-printandsledgehammertothecrisis.
WalterLippmann,thepoliticalcom-mentatorandnationallysyndicatedcolumnist,describedMcAdooassomeonewhois"swifttonoteandswifttomove.
Hepickshiscoursequickly,movesfastuponitandwithgreataudacity.
.
.
Instinctivelyhepreferstheboldandthedecisivetothepru-dentandthetepidcourse…"20Noteveryonehasthecouragetoact,evenwhentheyknowwhattodo.
Leadershipmatters.
The1970swit-nessedthegreatestpeacetimeinationintheUnitedStates.
TheFederalReserveSystemhadbeeninoperationformorethanhalfacenturywhenina-tionspiraledoutofcontrol.
ArthurBurns,aformerColumbiaUniversityeconomistandpresidentoftheNationalBureauofEconomicResearch,satatthehelmoftheFederalReserveSystemfornearlytheentiredecade.
HehadbeenappointedChairmanoftheFederalReserveBoardbyPresidentRichardNixonin1970.
EconomistsknewhowtostemtheinationthatthreatenedtodestroyAmericaneconomicstability.
AccordingtoMiltonFriedman,theproblemwasnotlackofknowledgebut,rather,lackofleadership.
21Hesaid:"Theexplanationfor[theGreatInation]isfundamentallypolitical,noteconomic…IbelievethatArthurBurnsdeservesalotoftheblame,andhedeservestheblamebecauseheknewbetter.
"22TheAmericannancialsystemcouldhavesurvivedthesummerof1914evenifMcAdoohaddonenothing.
ThegolddrainwouldhavedisappearedasthewarforcedBritaintoAmerica'sdoorstepforprovisions.
Buttheclarityofhindsightignorescontingenciesthatfailedtomaterialize.
AlexanderNoyes,inhisretrospectiveadecadelater,said:23"ItshouldnotbeforgottenthatthenancialoutlookfortheUnitedStatesseemeddesperate,eventoagreatpartofthebankingcommunity,atthetimewhenmaintenanceofgoldpay-mentswasagreedon…[I]tisimpossibletobesurethatadecisioninAugust1914,tosuspendgoldpayments,evenwiththepurposeofsubsequentlyresumingthem,wouldnothavegiventoatleastourimmediatelysubsequentPortraitofU.
S.
SecretaryoftheTreasuryWilliamMcAdoo.
Bettmann/CORBIScontinuedonpage3434FinancialHistory~Winter2007www.
financialhistory.
orgDr.
RobertL.
ClarkisProfessorofEconomicsandProfessorofManage-ment,Innovation,andEntrepreneurshipatNorthCarolinaStateUniversity.
Hehaswrittennumerousarticlesandbooksonthedevelopmentofemployer-pro-videdpensionplansandsocialsecurityintheUnitedStatesandalsoinJapan.
Dr.
LeeCraigisAlumniDistinguishedProfessorofEconomicsatNorthCar-olinaStateUniversity.
HewritesonU.
S.
economicandbusinesshistory.
Notes1.
Todaytheterm"pension"generallyreferstocashpaymentsreceivedaftertheterminationofone'sworkingyears,typi-callyintheformofanannuity.
Histori-cally,amuchwiderrangeofretireeben-ets,survivor'sannuities,anddisabilitybenetswerealsoreferredtoaspensions.
However,disabilitywasoftenliberallydenedandincludedsuperannuationortheinabilitytoperformregulardutiesduetoinrmitiesassociatedwitholdage.
2.
RobertClark,LeeCraig,andJackWil-son,(AHistoryofPublicSectorPen-sions,Philadelphia,UniversityofPenn-sylvaniaPress,2003)providealivelyaccountoftheinterestinghistoryofthesepensions,howtheywerefunded,andthemanyproblemsofmanagingpensionfundsinthenineteencentury.
3.
Thedelayinprovidingsurvivorspen-sionscontinuedthroughoutthersthalfofthenineteenthcentury.
Itwas56yearsaftertheWarof1812,beforesur-vivorsofthatwarweregivenretire-mentpensions.
4.
Clark,Craig,andWilsonibidprovidedadetailedhistoryofthespreadofpen-sionsacrossstatesandlocalgovern-ments.
Theyshowtheuniquemethodsthatmanygovernmentsusedtonancetheirpensionplans.
5.
Incontrast,municipalworkersinAus-tria-Hungary,Belgium,France,Ger-many,theNetherlands,Spain,Sweden,andtheUnitedKingdomwerecoveredbyretirementplansby1910.
6.
Onlyonedidnothaveaplanforpoliceofcers,andonlyonedidnothaveaplanforreghters.
Severalofthosecitiesalsohadplansfortheirothermunicipalemployees,andsomecitiesmaintainedpensionplansfortheirpub-licschoolteachersseparatelyfromstateteachers'plans.
7.
Themovementtocreatepublicsectorpensionplansreectedtheemergenceofaprofessional(i.
e.
non-patronage)civilserviceandthegrowthofthewel-farestate.
ManyintheProgressiveMovementenvisioned"cradle-to-grave"programsastheprecursorofabettersociety.
Althoughtheultimategoalofthismovement,universalold-agepensions,wouldnotberealizeduntilthecreationofthesocialsecuritysystemduringtheGreatDepression,theinitialobjectivewastohavethegovernmentsupplyold-agesecuritytoitsownworkers.
8.
RobertClarkandAnnMcDermed,(TheChoiceofPensionPlansinaChangingRegulatoryEnvironment,Washington,DC:TheAEIPress,1990)documentthesechanges.
Otherfactorsinuencingthechangingnatureofpen-sionsincludeshiftsintheindustrialstructureoftheeconomy,amoremobileworkforce,andadeclineinfullcareerjobs.
AHistoryofEmployerPensionPlanscontinuedfrompage33nancialhistoryaverydifferentturnfromthatwhichitactuallytook.
"McAdoo'simprint–decisiveleader-shipcombinedwitharoadmapforcrisiscontrol–turnedapotentialnancialdisasterintoamonetarytriumph.
SourcesBagehot,Walter,LombardStreet:ADescriptionoftheMoneyMarket,J.
Wiley&Sons,NewYork,1873,1999.
Bordo,Michael,andHughRockoff,"TheGoldStandardasa'GoodHousekeepingSealofApproval,'"JournalofEconomicHistory,June1996.
Conant,CharlesA.
,HistoryofModernBanksofIssue,G.
P.
PutnamandSons,NewYork,FifthEdition,1915.
CollectedWritingsofJohnMaynardKeynes,VolumeXVI,Activities1914-1919,(editedbyElizabethJohnson),Macmillan,London,1971.
Lewis,Cleona,America'sStakeinInterna-tionalInvestments,TheBrookingsInstitution,Washington,DC,1938.
Lippmann,Walter,MenofDestiny,UniversityofWashingtonPress,Seattle,1927.
McAdoo,WilliamG.
,CrowdedYears,HoughtonMifinCompany,1931.
Noyes,AlexanderD.
,TheWarPeriodofAmericanFinance,G.
P.
Putnam'sSons,NewYork,1926.
PapersofWilliamG.
McAdoo,Unpublished,LibraryofCongress,Washington,DC.
PapersofWoodrowWilson,(editedbyArthurS.
Link),PrincetonUniversityPress,Princeton,NJ,1991.
Silber,WilliamL.
WhenWashingtonShutDownWallStreet:TheGreatFinancialCrisisof1914andtheOriginsofAmer-ica'sMonetarySupremacy,PrincetonUni-versityPress,Princeton,NJ,2007.
Taylor,JohnB.
"AHalfCenturyofChangesinMonetaryPolicy,"availableatwww.
treas.
gov/press/releases/docs/fried.
pdf,November8,2002.
Notes1.
C.
Lewis1938,p.
533,reportsanesti-mateof$4.
1billioninrailroadsecuritiesheldbyforeignersasofJune30,1914.
TheHistoricalStatisticsoftheUnitedFHWhenWashingtonShutDownWallStreetcontinuedfrompage29continuedonpage37