The Great Panic

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I have long been a fan of the Panic of 1893, which is the usual name for the great depression of the 1890s. When I say “great” I mean it is comparable by all available measures (business losses, unemployment, political turmoil) to the Great Depression of the 1930s — with two exceptions. First, the depression of the 1930s lasted for more than ten years, ending only with the start of the Second World War in Europe; the depression of the 1890s lasted less than half as long. Second, in the 1930s the federal government intervened massively to try to end the depression, whereas the government of the 1890s did as little as it could.

These two exceptions are closely related. In 1893 and after, President Grover Cleveland had the political and above all the intellectual courage to allow prices to sink until recovery could begin. He devoted his best efforts to stabilizing the dollar, so that sound money and real prices could beget confidence, and confidence could beget reinvestment. This happened. But in 1929 and after, Presidents Herbert Hoover and Franklin Roosevelt were guided by the economic ignorance and sheer quackery of their times (and ours); they intervened to keep prices up and bail out bad investments — using money, of course, extorted from the people who had made good investments. Roosevelt’s subsidies extended to the destructive political ideas of his time; he encouraged political action to fulfill the borderline-crazy terms of his first inaugural address, in which he announced:

The money changers have fled from their high seats in the temple of our civilization. We may now restore that temple to the ancient truths. The measure of the restoration lies in the extent to which we apply social values more noble than mere monetary profit.

The result was not only chronic political turmoil but a failure of reinvestment caused by a chronic absence of confidence in the nation’s economic and political prospects. Money, as R.W. Bradford used to say, wants to be invested, but it didn’t during the 1930s, when for a series of years there was actually “negative investment” in the economy.

In 1929 and after, Presidents Herbert Hoover and Franklin Roosevelt were guided by the economic ignorance and sheer quackery of their times (and ours).

So you see one reason why I am a fan of the depression of the 1890s — it provides clear and persuasive economic, political, and, if you will, spiritual lessons. But another reason is that the economic and political controversies of the 1890s are a lot of fun. Communism is dull stuff, no matter where it appears, and in the 1930s it manifested itself in remarkably dull, stupid, pompous, and oppressive forms. Compared with that, the nostrums of the 1890s are bright, delusive rays of sunshine. You just have to smile at Jacob Coxey’s plan to save the country by a complicated scheme for the federal government to print tons of paper money and use it to give free loans to local governments so they could create jobs in public building programs — a plan he implemented in the first of the great marches on Washington, the march of Coxey’s Army. The march culminated in Coxey’s arrest at the Capitol, for walking on the grass.

And who wouldn’t have fun trying to follow the logical permutations of the Free Silver idea, the notion that the American economy would be perfected if the federal government would simply produce unlimited quantities of silver dollars (and paper instruments representing them), priced at 16 silver dollars for one gold dollar, when the market price of a gold dollar was much higher than 16 silver dollars? This was a recipe for outrageous inflation, yet in 1896 it captured the Democratic Party and could have led to the election of the Democratic candidate, William Jennings Bryan, he of the stirring Cross of Gold speech:

You shall not press down upon the brow of labor this crown of thorns. You shall not crucify mankind upon a cross of gold.

It’s a good speech, and some of the books and pamphlets written in favor of Free Silver are immensely clever complications of an argument that is clearly wrong but has a way of starting to look right if you don’t take a step backward and remind yourself of what it’s really about.

Compared with the remarkably dull, stupid, pompous, and oppressive forms of communism that manifested in the 1930s, the nostrums of the 1890s are bright, delusive rays of sunshine.

Now comes Bruce Ramsey, author of the book I am reviewing and — all cards on the table — senior editor of Liberty and a good friend of mine. Bruce is a tireless researcher of the events, theories, and movements of the 1890s. He knows their importance. He knows they reveal important truths about the ways in which economies function, and in which people function within them. And he knows they’re fun. The only problem is that the vast majority of Americans have simply forgotten about the depression of the 1890s. They forgot about it almost as soon as it was over. (I have an essay about this in Edward Younkins’ Capitalism and Commerce in Imaginative Literature [Lexington Books, 2015].) In the popular imagination, the decade of desperation was soon transformed into the Gay Nineties.

There aren’t a lot of good treatments of national politics and economics in the 1890s. Allan Nevins’ biography of Cleveland (1932) remains the best. And there are few decent treatments of the effects of the depression on individual men and women, in their local communities. That’s the vital part of the story that practically nobody knows. And that’s what Ramsey gives us in his brilliant new book about the state of Washington during the Panic.

In writing such a book, Ramsey faced one of the hardest challenges a writer of history can encounter. A straight-line narrative of national political and economic events would capture only part of the picture. So would an exclusive concern with one particular locality, such as Bruce’s home state, Washington. So would concentration on certain personalities, as in the cheap, tangential approach to history that one sees in the Ken Burns films. What Bruce needed to present was the full tapestry of local people and local events, rippling in the strong winds of national affairs; he needed to capture not only the big patterns but the individual figures in the tapestry, and he needed to show those ripples of history too. But he was equal to the challenge.

The vast majority of Americans have simply forgotten about the depression of the 1890s. They forgot about it almost as soon as it was over.

Bruce Ramsey is a quick but colorful narrator. He provides the pungent detail and the suggestive episode and then moves briskly onward to the next significant picture, whether it’s the portrait of an interesting man or woman, an array of statistics, a sketch of political developments nationwide, or a tale of something that’s too ridiculous to be true, but is. Did you know that in 1893 the Populist governor of Kansas tried to use the state militia to oust the Republicans (who happened to be in a majority) from the House of Representatives in Topeka? (If Dorothy wanted adventure, she could have stayed right in Kansas.) This absurd drama — one of many in Ramsey’s book — offers some perspective on the absurd politics of the present era. To say that Ramsey’s political narrative is entertaining is itself absurd; it’s an absurd understatement.

Here are thousands of stories, small in the number of words that Ramsey, a thrifty narrator, allots to each, but large in drama and implication. We see people who are found talking gibberish in darkened hotel rooms because their bank deposits of $256 had been lost to the panic. We see government officials who steal money, and lose it, and then escape to Argentina, or to a place off the coast of Washington called Tatoosh Island, thence to change identities and be discovered working as mowers in Idaho. We learn of a government official who is acquitted by a jury that doesn’t believe that bribery is against the law. We listen to a contractor for the Northern Pacific railway who says he “had put white men at work at $2 and gradually raised their wages to $2.50, although there was no time when [he] could not have employed Chinamen at 80 cents” (p. 51). We meet mayors who work in shingle mills because their cities can’t pay them a salary, and unionists who resort to riot and terror to keep their salaries from being cut.

The sheer number of stories that Ramsey tells is remarkable; still more remarkable is his unfailing ability to integrate them into larger contexts of meaning. Here’s one of the general patterns he sees. Businesses and banks that made it through this great depression often did so because they backed each other up. Seattle, where the spirit of cooperation was strong, suffered many fewer losses than such competing communities as Tacoma and Spokane. Seattle’s bankers went so far as to refuse deposits from people who had withdrawn them in panic from other banks. This was individual action, but it was mutually supportive. It was a kind of spontaneous order, and it often saved the day.

We see people who are found talking gibberish in darkened hotel rooms because their bank deposits of $256 had been lost to the panic.

Here’s another pattern. Led by President Cleveland, the federal government disclaimed responsibility for helping individuals — whether bankers or street sweepers — get out of their financial jam. Most public opinion seems to have backed him up. Newspapers in the Pacific Northwest counseled their readers to take responsibility for themselves — and above all not to hurt business by fleeing to some place with a marginally better economy. Their message was “stay here and keep pitching.” A Baptist potentate cautioned against giving money to the poor indiscriminately; this was “a selfish act, done to make the giver feel good” (83). Some local governments acted in what they regarded as the spirit of community and provided employment on public works projects, and some of them went broke doing it. But charity ordinarily began at home. As Ramsey observes, very perceptively, “In a world with little free public food, people tend to be generous with their private food” (93).

A darker side of community spirit was the almost universal feeling that if anyone was going to be without a job, it shouldn’t be someone white. Everywhere Asians were fired from jobs or prevented from getting any, and mobs formed to destroy Chinatowns throughout the region. It was only a temporary rescue when the wife of a local missionary faced down a mob that came for the Chinese people of La Grande, Oregon: “She appeared with a Winchester and announced that the first man to enter the house would be shot” (79). Most of the Chinese left town anyway; and although 14 rioters were arrested, none was convicted. Oregon’s Progressive governor haughtily rejected President Cleveland’s request that he protect the rights of the Chinese.

A darker side of community spirit was the almost universal feeling that if anyone was going to be without a job, it shouldn’t be someone white.

Much of Ramsey’s book is devoted to racism and progressivism during the depression. It’s quite a story, and again, it’s a gift of perspective: then as now, the predominant individualism of America was too much of a burden for many Americans to bear.

Obviously, the implications of Ramsey’s stories go far beyond the Pacific Northwest. The stories of that region cannot be explained without reference to the bigger stories of the nation’s money policy, its “reform” and “progressive” movements, and its national elections. Ramsey devotes lively chapters to all these things. If you don’t know the 1890s, this is the book for you, wherever you live. If you do know the 1890s, you know a lot about America, and this book will help you learn even more.

The Panic of 1893 is beautifully illustrated, with fine contemporary pictures, and backed by years of patient research. It is a distinguished and compelling book.


Editor's Note: Review of "The Panic of 1893: The Untold Story of Washington State’s First Depression," by Bruce Ramsey. Caxton, 2018, 324 pages.



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Good as Gold

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James Grant is the best-spoken and most accomplished hard-money man in Wall Street. Plenty of people can inveigh against the Fed; the publisher of Grant’s Interest Rate Observer can put it in the context of today’s financial markets and also in the context of history.

Grant is also a historian. He wrote a biography of John Adams, and another of financier Bernard Baruch, and several other histories, including my favorite among his works, The Trouble with Prosperity: The Loss of Fear, the Rise of Speculation and the Risk to American Savings (1996). His new book, “Mr. Speaker! Mr. Speaker!” should be of particular interest to readers of Liberty.

That’s not because of any deep interest I have in his nominal subject, Thomas B. Reed (1839–1902). Reed was a moderately interesting figure. He was fat, he ate fish balls for breakfast, and he spoke French. He was a congressman from Maine, first elected in the centennial year, 1876. He was a man of his time, a Republican stalwart who supported the tariff and gold and opposed foreign wars. Though he was for woman suffrage, he was no progressive, at least in the sense that today’s progressives are. He had no desire to teach other people how to live. “Pure in his personal conduct,” Grant writes, “he had no interest in instructing the impure.”

During the 1890s, Reed was speaker of the House. His claim to fame is how he changed the House rules to give himself, and the majority, much more power to get things done. Whether that was good or bad depends on your point of view.

Parts of the book are about Reed’s parliamentary maneuverings and also about his wit. These parts are well-written, but I was not much interested in them. The greater part of the book, however, is about the financial events and national political battles from 1870 or so to 1899, which I found very interesting.

Now gold is the money of the distant past. In the 1870s, Grant observes, “Gold was the money of the future."

Grant covers several such things, from the collapse of the Freedmen’s Bank to the stolen election of 1876. He has a particular interest in the currency. One story he tells is of Lincoln’s printing of greenbacks during the Civil War, and the struggle afterward over restoring the link to gold. In the ideology of the day, restoration was necessary. It was part of honorable dealing. But people dragged their feet about doing it, because a national debt had been piled up during the war, and what was the need to repay investors in gold if they had bought bonds with greenbacks? And besides, there was a boom on, and shrinking the money supply would spoil it.

The boom went bust in 1873. For the rest of the decade the country was arguing about the commitment to return to gold. The way in which this argument was conducted was much different from the way it would be today. Now gold is the money of the distant past. In the 1870s, Grant observes, “Gold was the money of the future”:

“A 21st century student of monetary affairs may stare in wonder at the nature of the monetary debate in mid 1870s America. A business depression was in progress. From the south, west and parts of the east arose a demand for a cheaper and more abundant currency. Yet such appeals were met with, and finally subdued by, a countervailing demand for a constant, objective and honest standard of value.”

“Resumption day” was Jan. 1, 1879. There followed “a mighty boom.” In the 1880s, prices fell 4.2% and wages rose.

This was the era of laissez-faire. “The government delivered the mails, maintained the federal courts, battled the Indians, examined the nationally chartered banks, fielded the army, floated the navy and coined the currency.” The big social program was Civil War pensions — for the Union side, not the Confederates. By the standards of the day, the Democrats were the small-government party and the Republicans were the big-government party, but policy differences were at the margin only.

The federal government was funded by the tariff, which the Republicans, and Reed, thought was good for American labor. The Democrats quoted the free-trade arguments of Frédéric Bastiat. “The Republicans,” Grant writes, “having no ready answer for Bastiat’s arguments, were reduced to pointing out that he was, indeed, French.”

The ideological atmosphere started changing in the 1890s. The Panic of 1893 brought on a severe depression, and another political battle over the currency. This time the supporters of gold battled it out with the supporters of silver, with bimetallists arguing for both at once.

Grant provides the best explanation of the gold-versus-silver battle I have read, especially the futility of having two metallic standards at the same time. Here he is not so proud of Thomas Reed, who was by then speaker: “One senses, reading him, that he was not quite sure what the gold standard was all about.” Reed’s position “lacked clarity, or, one might even say, courage. [President Grover] Cleveland had one unshakable conviction, which was gold. Reed had many convictions, only one of which — no free silver — was strictly nonnegotiable.”

Reed’s final battle was over war with Spain. He was against it. The new president, William McKinley, seemed to be against it, but lacked the courage really to oppose it. Ex-President Cleveland was against it, as was William Jennings Bryan, the presidential candidate whom McKinley had beaten in 1896. But the Congress was for it, and even with his self-enhanced power as speaker, Reed couldn’t block the war resolution of 1898. It passed the House 310 to 6.

A year later, Reed resigned. He wrote to a friend, “You have little idea what a swarming back to savagery has taken place in this land of liberty.” Publicly he said nothing. Three years later he was dead.

And so Grant ends his book. It is a fine book. I recommend it. Don’t be put off by any lack of interest you may have in Thomas B. Reed. I wasn’t much interested in him, either. You don’t have to be.

Grant covers several such things, from the collapse of the Freedmen


Editor's Note: Review of "'Mr. Speaker! Mr. Speaker!' The Life and Times of Thomas B. Reed, the Man Who Broke the Filibuster," by James Grant. Simon & Schuster, 2011, 448 pages.



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