No king, on being crowned, was ever prouder or happier than I, when I first stepped on the floor of the New York Stock Exchange as a newly elected member. The pride that I felt at that time has grown and increased every year since that day, so long ago, as I have seen the Exchange grow in influence and moral power. There is no body of men in the world superior to the members of our Exchange in honor, integrity and truthfulness. Every transaction on the floor is done on word of mouth. Sales involving millions of dollars are consummated without a scrap of writing, and it is a rare occurrence that even a dispute arises over a transaction, and even then, unless a witness can be found to the transaction, the matter is settled usually by each party assuming one-half the loss, as both the buyer and the seller know that the other is just as square and honest as he is, and that the dispute is over a misunderstanding and not a misrepresentation. Many people are wont to worry over the nervous strain under which their friends in the Stock Exchange are laboring in busy times. Their worry is unnecessary, as the busy time on the “Street” is the happy time. Many people pretend to be shocked at the want of dignity which prompts the members to skylark and act like boys. Don’t be shocked. This is the recreation which offsets the strain and keeps the members young. One of the most impressive scenes that can be witnessed is viewed from the gallery on the morning of a very busy day. At five minutes to 10 the members are seen quietly gathering in little groups around the different “posts,” chatting and smiling—at 10 o’clock exactly a gong sounds which announces that business can begin. Every man on the floor commences to yell and paw the air, and one who did not understand would think that he was watching the working room of bedlam. But if he watches closely he will see that order reigns in seeming chaos. Automatic signals on the walls, quickly moving pages and telephone clerks in the booths at the side of the Exchange room, all work in harmony, and the great machinery “moves in a mysterious way its wonders to perform.” Almost everything in the country, yes in the world, has its influence in this great market. The grains of wheat, the kernels of corn, the bolls of cotton, the chinch bug and the boll weevil: each has a vote. The miner deep in the bowels of the earth and the crew on a swiftly moving railroad train, the track walker and the laborer are all exercising indirectly an influence. All the great railroads and industrial corporations come to Wall Street in their time of need, and if their object is worthy they do not leave with their wants unsupplied. Wall Street proper, as represented through the New York Stock Exchange, is the barometer of the country. Every man, woman or child who has a dollar invested or deposited in a savings bank is interested in the good or bad times which prevail in the Street. In times of great disaster or need, the members of the Exchange are the leaders in contributing to the relief of the afflicted. There is a lot of good in Wall Street that outsiders know nothing of; if you are one of them, find out the truth. Be sure to hear witnesses on both sides. Honor and truthfulness are the cornerstones on which the whole fabric of business in Wall Street is built, and confidence is the keystone of the arch that covers all transactions. The fact that a weak spot is occasionally uncovered proves the strength of the general structure. There is no place in the world where the measure of confidence between employer and employee is so large and where loyally to each other is so marked. In whatever business a young man intends to embark, a year or two in Wall Street is a good training, as he will learn much that will benefit him in after life. He would realize the necessity of close attention to work and the true application of the principles of the Golden Rule. In these times of reckless denunciation of Wall Street a general application of this rule by those who attack by innuendo and without a scintilla of truth would help to restore confidence and give evidence of fair-mindedness on their part. Men in high places prefer charges and the very wording of their complaint proves that they are beyond the depth of their knowledge. Wall Street will survive all attacks, and the refutation of these attacks by well-meaning but mistaken men will in the long ran redound to its lasting good. This is a time of trial by fire in both business and private life, and those who have nothing to fear will come out of it unscathed, and the New York Stock Exchange will be in the front rank of those declared guiltless and worthy.
Possibly there are a few abuses undiscovered on the Stock Exchange that should be remedied. Nevertheless, I affirm without fear of contradiction that there is no business institution in the United States where standards are as high or where the integrity of its members is equal to that prevailing on the Stock Exchange. Therefore, let the people and our Legislatures come to their senses, and awake to the fact that in striking at the financial district they are hurting themselves quite as much as those whom they seek to destroy, and that the evil transactions are small in comparison with the good. Let them understand that in fomenting discontent of this sort they are intensifying the general depression, adding to the number of unemployed, driving capital into hiding and generally interfering with that recovery in commerce and industry which is now so earnestly desired. The present antipathy to Wall Street savors largely of public hysteria, bogyphobia and political dementia. Apparently, it is a disease which must run its course; if so, the best cure will be a period of reflection in which to cultivate calmer and more rational views.
At the same time that Wall Street is being riddled with hot shot, the railways are being harassed by State legislation, involving low rates, and projects are on foot that in effect would prevent their development to meet the wants of the people. All this is oppressive and inimical to the national welfare, and I advocate as a remedy removing the interstate railways from the control of the States, and placing them entirely under the control of the United States Government. This Congress can and should do promptly.
Another great difficulty the railways and other large employers of labor now have to contend with is the refusal or unwillingness of the Labor Unions to consent to a reduction of wages to meet reduced earnings. A lowering of wages has become absolutely necessary, for they are still at the high figures to which they were pushed during the long period of prosperity. They are at a boom level that railway and manufacturing corporations cannot afford to pay in these altered times. The Labor Unions should recognize this at once, and reduce their wage scales, and not wait until they are forced to yield. Moreover, they should see that with reduced wages a larger number of men could be profitably employed than is possible with wages as they are, and in this way the ranks of the unemployed would be reduced. This of itself would be of great benefit to both the working men and their employers, as well as to the country at large. It is a time when common sense should be brought into play in the adjustment of means to ends in wages as well as other matters, for the more it is the quicker will be recovery from the effects of the panic, and the less will be the suffering from industrial depression by labor as well as capital. This in the concrete means that it would result in there being fewer workmen in actual want, and fewer corporations going to the wall. It is one of the great remedies that the situation now calls for.
A general reduction of wages would to almost a certainty cause some mills that have closed to reopen, and cause others that are running on part time to run on full time. The advent of Spring will of course tend to stimulate recovery, so we shall have the help of Nature to repair damages. With Nature as an ally, we ought to rapidly overcome all obstacles in the way of complete recuperation.
Readjustment of existing conditions is the order of the day, and where there’s a will there’s a way, as we all know. The general reduction that has taken place in the price of commodities, and to some extent in rents, furnishes a very good reason of itself why wages should be reduced from the high points to which they climbed to meet high prices. As it is, the inequality between wages and prices is very conspicuous, and equality should be restored as quickly as possible. Equality is another name for justice. It is also the touchstone of taxation. Workmen should not forget that even half a loaf is better than no bread, and that by accepting reduced wages they are paving the way to better times for themselves as well as for the country. Then, too, they owe a duty to society at large. No one should be governed by the narrow, selfish policy of living for himself alone. This is a world in which we must give and take, and labor and capital have mutual interests.
The decline in commodity prices, that were before excessive, has been salutary and of vast benefit in bringing the necessaries of life within easier reach of the wage-earning masses, and in preventing many industries from going from bad to worse, through cheapening their supplies of raw material. The people generally, as consumers, benefit by this reduction in the cost of production, and in turn it tends to increase consumption and quicken trade and manufacturing enterprise. All these influences, too, toad to strengthen confidence in the situation and hope for the future. But the over-trading, extravagance and excessive speculation that primarily led to the panic should be carefully guarded against in the future.
The very severe and extensive liquidation that we have witnessed, not only in Wall Street but all over the country, has made the financial situation sounder and therefore safer than it has been for several years, for it must be confessed that many of our speculative captains of industry and finance passed far beyond the bounds of conservatism in their operations, and invited the crisis we experienced by their reckless assumption of inordinate risks and liabilities.
It was a fitting retribution when some of them were engulfed by it. Especially culpable and dangerous to the public were those speculative capitalists who sought and gained control of chains of important national banks, and then used their resources to extend their own hazardous speculative schemes. These men were really the immediate cause of the crisis, and they are now deservedly paying the penalty for it. But this is a small consideration in comparison with the enormous amount of havoc they created. One good thing, however, has come out of so much evil, and that is improvement in our banking condition, by the exposure and eradication of this unsound banking that prevailed in New York, and to some extent elsewhere.
We shall, in this generation at least, have no more such speculators stepping into control of large New York banks and using them pretty much as if they, their assets and deposits, were their own property. Those responsible for this unsound banking were public enemies, and we are still feeling the effects of their reckless and illegal proceedings. The fact that several of them are now under indictment for their offences is a reminder that the way of the transgressor is hard. Their elimination from the banking world removed a source of great danger, which might, if allowed to continue longer, have resulted in a far worse state of things than they actually created before their career was brought to a close.
A salutary effect of the panic is the check it has given to extravagance and waste in living expenses, and the practical lesson in economy that it has taught very many, for economy is wealth. To reduce expenses after business reverses is the best way to recuperate, and a little adversity is not without its uses among us, for we are beyond question the most extravagant people in the world. This extravagance in living has been the prime cause of much of the “graft” evil that has lowered the tone of our business and political life, to say nothing of abuses of power, embezzlements, corporation-looting, and other forms of dishonesty.
President Roosevelt in his war against illegal and dishonest corporate practices has certainly worked for the good of the country and to raise the standard of business morality; and the life insurance, railway and other corporate scandals that we are all familiar with have shown how much reform and purification were needed even in high places. Let us never forget, as the Bible tells us, that “Righteousness exalteth a nation” however great may be its material prosperity.
That there is a very large amount of money lying idle and available for investment in first-class bonds was conspicuously shown by the result of the sale by the City of New York on February 14th of fifty millions of four and a half per cent bonds, when three hundred millions were bid for, at an average price of about 104¾. This oversubscription of six times the amount offered came from people who would not have touched any but gilt-edge securities.
Of course, the present cheapness of money accounts for much of this large New York subscription, as apart from investors, banks and bankers are seeking safe employment for their surplus, in securities that can be promptly marketed on the Stock Exchange whenever necessary. The latter is an indispensable condition with them, particularly now in view of the national banks being enormously indebted to the Government in the shape of Treasury deposits, and also in view of the future needs of the Government calling for their return. This is already giving a hardening tendency to time money.
Although trade is largely prostrated through inactivity, it is safe to say, notwithstanding what is bad in the situation, that fundamental conditions are generally sound, and therefore recovery while gradual will be the easier for it. Meanwhile with inactivity forced upon us, let us be masterly in our inactivity, and make a virtue of necessity. There is much in knowing when to stop and when to go ahead; when to ’bout ship and when to take in sail, and double reef the mainsail and the topsails, or heave to, and when to sail under bare poles or a full spread of canvas. Skillful navigation is necessary to success.
With regard to bank reserves, it is especially important during this period of depression that they should be kept exceptionally strong and as much as possible, within reasonable limits, above the required percentage. Twenty-five per cent of reserve against deposits in the central reserve cities, and especially in New York, is not always sufficient, as we have seen, from time to time, to enable the banks there to weather a storm.
The Bank of England maintains an average reserve of nearly twenty-five per cent larger than that; and it is guarded from suspension in times of panic by a suspension of the bank act by the Government, which allows it to issue its notes ad libitum without any compulsory reserve. Here are two elements of safety. The stronger in reserve the banks keep themselves, the more confidence in them and in the situation will be strengthened, and the stronger confidence becomes, the more enterprise can build upon it. So the banks by their conservatism should do all they can to encourage confidence as the prime requisite in recuperation.
The New York banks, holding as they do largely the reserves of other banks throughout the country, should hold a reserve nearer to that of the Bank of England, which is also the depository of the reserve of other banks, but in a much larger proportion. If the New York banks had held thirty per cent reserve last October, when the Knickerbocker Trust Company failed, there might have been no necessity for issuing Clearing House certificates, and in that case there would have been no hoarding of money and little or no panic. But the banks are naturally desirous of making money by keeping their loans and discounts at high figures, so they are apt to look upon reserves above the legal limit as money wasted. The legal limit, however, is too low in the central reserve cities. My remedy is to raise it. It ought, in my opinion, to be at least thirty per cent instead of twenty-five per cent, and apart from any legal requirement, the New York Clearing House should adopt a rule requiring the banks in the Association to keep a reserve of thirty per cent. The banks would lose a little in profits by this change, but they would gain in safety, and reduce our liability to panics. Their experience during the crisis, when for ten weeks, until the end of December, currency loaned at a premium ranging from two per cent to five per cent, should make them anxious to avoid another such ordeal, and an ounce of prevention is better than a pound of cure.
One unpleasant part of the aftermath of the panic in New York was the failure in one week, at the end of January, notwithstanding that they held five millions of loan certificates, of four banks belonging to the Clearing House, because of runs on their deposits, and the refusal of the Clearing House to give them further assistance. Whether or not any of these will be able to resume is still undetermined. Yet, in sharp contrast with the excitement and alarm that prevailed for weeks after the Knickerbocker Trust Company failed, the public regarded these failures with apathy, and the recovery in the stock market which was then in progress, chiefly under the covering of short contracts, was not even checked by it, so much had sentiment changed in the interval. These failures had been practically discounted, large as they were, by what had gone before, including the decline in stocks. Yet collectively they had more than twenty-one thousand depositors. These may eventually be paid in full, but it is very uncertain when that will be, for the law is a slow coach, especially when a permanent receivership is fastened upon a bank, largely owing to the long wait usually necessary for the conversion of slow assets into cash. Moreover, the expenses of liquidation eat up a large part of the assets under the system of fees for receivers and their counsel, which have always been much too large for the work done, and consequently they involve injustice to the creditors. Laws should therefore be passed substituting for fees fixed rates of compensation, per diem, for both of these, that is salaries; and meanwhile the courts should, under the existing laws, reduce their fees to reasonable amounts, and so correct this evil of extravagance in the cost of liquidation, which in some instances has been so excessive as to practically amount to robbery of the victims. This is a needed remedy that should be urged upon State legislatures.
Two of these failed banks are expected to resume within six months, while the other two will be wound up, and probably pay depositors forty per cent or fifty per cent of their claims within about that length of time.
Very fortunately, however, the crisis of 1907 was much less prolific of bank failures than that of either 1873 or 1893. In 1893 no fewer than one hundred and fifty-eight banks suspended, and of these sixty-five went into permanent receiverships, while eighty-six resumed within the year, and seven later. But few of these banks had a capital of half a million or more, their average capitalization being only $169,000. The banks generally in the fourteen years interval had gained immensely in strength as well as in number, and their power of resistance to the effects of the crisis, when it came, had been correspondingly increased.
While the profits of trade and manufacturing have been dwindling, prophets as to the future of business and prices have increased enormously, and they were never more numerous or more divided in opinion than they are now. Some of them point to the fact that with the single exception of steel, in the hands of the United States Steel Corporation, prices have declined, and they argue that unless demand increases they will, like stocks and wages, naturally go lower, and that the Steel Corporation will be forced, by the reductions already being made by the independent steel makers as well as by the heavy decline in iron, to follow suit. These also look for somewhat prolonged depression. But many other prophets are sanguine that we are already seeing the worst of it, and that commodity prices are about as low as they are likely to go. The true prophets are probably the conservatives who steer between these conflicting opinions and avoid both extremes. But whatever may come, on the ebbing or rising tide, of our business life, we should, as Longfellow says, “Learn to labor and to wait, with a heart for any fate,” and at the same time hold ourselves always ready to make the best of our opportunities as they arise, and, as America is pre-eminently rich in opportunities, we shall not find them waiting long. In any event, the wants of eighty-four millions of our people must be supplied, and we are the most progressive nation in the world. I therefore ask—Who’s afraid?
I am quite of the opinion that the time has arrived for calamity howling to cease; there is now no occasion for undue anxiety. Caution, however, may be necessary, especially in commercial operations. The worst of the financial depression has been seen, and the long-distance view is certainly more encouraging than at any time during the last six months. Business men have now no reason to feel otherwise than confident. I firmly believe that recuperation will be quicker after the recent panic than was experienced after any of the previous great panics since the one of 1857.
Now is the time for the timid to develop bravery, for the strong to aid the weak, for the ignorant to be willing to learn from the wise. Let us all work together for the common good, and the upward tide will bear us all along towards better times and lasting prosperity. Panics come in cycles and it will be years before another one can strike us. Let the worker give his best services to his employer. Let the employer grant justice and fair pay to the worker and to all, and the nightmares and storms of the past year will be forgotten or remembered only as a lesson taught by experience, which will serve to teach us not to overdo in the future but to temper enterprise with conservatism.
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CHAPTER LXXXV.
AMERICAN SOCIAL CONDITIONS.[11]
Footnote 11:
An address by Henry Clews, LL.D., to the students of Yale University, New Haven, Conn., November 1, 1907.
_Mr. Chairman and Students of Yale University_:
As you gentlemen of good old Yale are studying American social conditions, I am glad to have the opportunity of addressing you, and I congratulate you on the prestige you will derive from graduating at so great and famous a university. You are now on the threshold of American citizenship and have good reason to be proud of the prospect before you, with its unlimited possibilities.
Surely it is a privilege that you all value, and can hardly overvalue, that of becoming American citizens, and thus forming a part of this free and glorious Republic, where the gates of opportunity are thrown wide open to you, and the golden harvest of success stands ready to be reaped by the worthy and deserving, who are able and willing to do good work, and work hard in their chosen calling. I may reasonably predict that some of you will become leaders of thought, trade, science, literature or art, and that will be your ample reward. I base my prediction on the fact that you are not here because you are compelled to be, but because you have a thirst for knowledge, for information, or suggestions that may be of use to you in this connection, and are willing and anxious to work hard to attain what you desire. The first requisite to attain success in any form is this willingness to study and work for what you want, so, being equipped with this necessary quality at the start, you are prepared to make headway in the battle of life.
The pessimist is abroad in this fair land of ours, in these days, preaching the gospel of discontent, and a favorite text is that the young man has now no show, or little chance to get on in life. Do not be misled or discouraged by such a false doctrine. There never was a time when brains were at a greater premium than at present, nor courage, education, industry, and energy more requisite or in greater demand. The harder you have to struggle to complete your education, the better fitted you will be for that battle of life, for in your youth you will have attained victory over the obstacles which lie in the path of success. Disappointments may embarrass you, but you must conquer them, instead of allowing them to conquer you. Every victory, thus won, will be an incentive to further efforts and achievements, and will provide a stepping stone to success.
Right here, let me impress upon you that the foundation stones of real success in life are industry, honesty, and truthfulness. These are jewels which every man can possess, if he cares to. Do not be honest because it pays, or as a matter of policy. Be honest because you are conscientious, and it is right to be honest and a reproach to be dishonest. A man who is honest and truthful in all things is the highest type of manhood, and commands respect in every walk of life.
While you are still young, I advise you to have an ideal. Make up your mind what you are best suited for, and strive with all that is in you to perfect yourself for the work of such a position or profession. While it is the almost universal desire to become rich, remember that there are other things in life more to be desired than great wealth. Whether amassed in Wall Street or elsewhere. Few of the great authors, scientists, professors, or inventors have been wealthy men, yet they were great public benefactors, and their names will live in the pages of history long after the very rich men of the world have been forgotten.
Learn well the history of your country. Study the science of Federal, State, and Municipal government. Study also finance and banking. Whether you go into Wall Street or not, it will be useful to you. Before you leave Yale, try to inform yourselves on all the subjects that will make you useful citizens, as well as competent, practical workers. School yourselves to be polite and courteous under trying circumstances. Politeness is one of the strongest allies one can have in his dealings with his fellow-men. It is not only so in my field of activity—Wall Street—but everywhere.
Read only good books. Libraries are now so plentiful that—even if you have not one of your own—good books are within the reach of all, and here at Yale you, of course, have an embarrassment of riches from the Greek and Latin classics to modern literature.
While you are improving your minds, take good care of your bodies. You are not yet too old for me to give you points. Exercise all you can in the open air. Cleanliness of body, and neatness of dress, even if you are not millionaires and your clothes are threadbare, will often be taken as a guarantee of good character. Be thrifty and economical, even if you cannot equal Russell Sage, and never get into debt, if you can help it.
Strive to learn to do some one thing, in the line of your studies, better than anyone else can do it, and you will have a specialty to recommend you to a chosen career. Whatever you attempt to do, do it with your whole soul—as Mr. Roosevelt, our strenuous and gifted President, says: “Buck hard and hit the center of the line.”
I have been much impressed with the manual training schools, which have recently been established in New York City. I wish that manual training could be added to the course in every school and college. Mr. Booker Washington has ably presented the plan in his Tuskegee Institution, where every man to get an education must learn a trade, and every man who learns a trade gets an education. It is a substantial personal asset for rich or poor.
Because you live in a city, do not think that the country is less attractive, and has no chance to grow like a town. The State of Texas alone could give to every man, woman, and child in the United States a full-sized building lot 20 × 100, and then, allowing for public highways, have over one-third of the area of the State left for the production of food supplies. The West, the Southwest, and the South, are yearning for newcomers. Horace Greeley used to say: “Go West, young man!” The emigrants from foreign shores will some day realize that there is a welcome ready for them outside of cities. Colonies will be formed and men of intelligence will be needed to rule and advise the newcomers; and those of you who can speak a foreign language will be well fitted for such a position. But you may aspire to the United States Senate, or to become Wall Street millionaires.