When Washington Shut Down Wall Street

When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy

William L. Silber
Copyright Date: 2007
Edition: STU - Student edition
Pages: 240
https://www.jstor.org/stable/j.ctt6wpzqt
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    When Washington Shut Down Wall Street
    Book Description:

    When Washington Shut Down Wall Streetunfolds like a mystery story. It traces Treasury Secretary William Gibbs McAdoo's triumph over a monetary crisis at the outbreak of World War I that threatened the United States with financial disaster. The biggest gold outflow in a generation imperiled America's ability to repay its debts abroad. Fear that the United States would abandon the gold standard sent the dollar plummeting on world markets. Without a central bank in the summer of 1914, the United States resembled a headless financial giant.

    William McAdoo stepped in with courageous action, we read in Silber's gripping account. He shut the New York Stock Exchange for more than four months to prevent Europeans from selling their American securities and demanding gold in return. He smothered the country with emergency currency to prevent a replay of the bank runs that swept America in 1907. And he launched the United States as a world monetary power by honoring America's commitment to the gold standard. His actions provide a blueprint for crisis control that merits attention today. McAdoo's recipe emphasizes an exit strategy that allows policymakers to throttle a crisis while minimizing collateral damage.

    When Washington Shut Down Wall Streetrecreates the drama of America's battle for financial credibility. McAdoo's accomplishments place him alongside Paul Volcker and Alan Greenspan as great American financial leaders. McAdoo, in fact, nursed the Federal Reserve into existence as the 1914 crisis waned and served as the first chairman of the Federal Reserve Board.

    eISBN: 978-1-4008-5166-9
    Subjects: Finance, Business, Economics

Table of Contents

  1. Front Matter
    (pp. i-viii)
  2. Table of Contents
    (pp. ix-x)
  3. Acknowledgments
    (pp. xi-xiv)
  4. INTRODUCTION The Legacy of 1914
    (pp. 1-7)

    The Great War threatened the United States with financial disaster. During the last week of July 1914, Europeans began to liquidate their Wall Street investments and transfer gold to Europe to pay for the war. Foreign investors owned more than 20 percent of American railroad securities, the largest category of securities traded on the New York Stock Exchange.¹ Under the gold standard, they could demand the precious metal in exchange for the proceeds of their stock sales. The biggest gold outflow in a generation imperiled America’s ability to repay its debts abroad. Fear that the United States would abandon the...

  5. CHAPTER ONE The Opening Salvo
    (pp. 8-25)

    Late Thursday afternoon on July 30, 1914, two days after Austria declared war on Serbia, America’s banking elite marched into the headquarters of the Morgan bank at 23 Wall Street. Following a chaotic decline of 6 percent in stock prices during the day, J. P. Morgan Jr. had summoned A. Barton Hepburn, chairman of the Chase National Bank; Francis L. Hine, president of the First National Bank; and Benjamin Strong Jr., president of the Bankers Trust Company and future governor of the Federal Reserve Bank of New York.²¹ J. P. Morgan Sr. had called a similar meeting on October 24,...

  6. CHAPTER TWO The European Gold Rush
    (pp. 26-41)

    More than fifty ships lined New York harbor during the week of July 27, 1914, destined for ports like Marseilles, Naples, Hamburg, Rotterdam, Havana, and Rio de Janeiro.¹⁰⁴ The local press focused on three departures: the German shipKronprinzessin Cecilieleaving for Bremen on July 28; the Cunard linerCarmaniascheduled to depart for Liverpool on July 29; and the French steamshipLa Savoieheaded for Le Havre, also departing on July 29. These were not the largest or fastest ships in the merchant fleets of Germany, Britain, and France, but they carried record shattering cargo.

    TheWall Street Journal...

  7. CHAPTER THREE The Nightmare of 1907
    (pp. 42-65)

    President Wilson sent Treasury Secretary McAdoo to New York City for an emergency meeting with leading bankers on Sunday, August 2, 1914.¹⁶⁴ McAdoo left Washington’s Union Station Sunday afternoon and arrived in Manhattan at eight o’clock that evening. He was met at Penn Station by Francis L. Hine, president of the First National Bank and chairman of the New York Clearing House.¹⁶⁵ Max May arrived on the same train as McAdoo, having spent Saturday in Washington conferring with the treasury secretary about the foreign exchange crisis.¹⁶⁶ May and McAdoo parted ways without commenting to the press about their discussions. Hine...

  8. CHAPTER FOUR Unlocking Emergency Currency
    (pp. 66-85)

    The bankers worried as they waited for Treasury Secretary McAdoo in Manhattan’s Vanderbilt Hotel on Sunday night, August 2, 1914. They knew that the European war threatened America with a currency shortage. A day earlier theWashington Posthad set the tone: “The disappearance of $45,000,000 of gold from the United States within the past week is responsible for a feeling that a situation might arise in which the United States as a whole would find itself short of circulating media.”²⁷⁴ The bankers feared the development of bank runs like “those experienced in the fall of 1907”—only worse.²⁷⁵

    Recall...

  9. CHAPTER FIVE Sterling Steals the Spotlight
    (pp. 86-103)

    A personal tragedy soon magnified McAdoo’s public role. Ellen Axson Wilson, wife of the president and mother-in-law of the treasury secretary, died of Bright’s disease, a kidney ailment, on August 6, 1914. According to McAdoo, “For the President her death was a genuine disaster. She supplied a calm excellence of judgment which had contributed uniformly to his happiness and success in life. . . . Her knowledge of human nature was remarkable. The President had an enduring confidence in her estimates of men and their ideas. She proved to be one of the soundest and most influential advisers.”³⁷¹

    Wilson hid...

  10. CHAPTER SIX New Street Defies McAdoo
    (pp. 104-115)

    Henry Noble spent a lifetime at the New York Stock Exchange but never expected to preside over the longest trading suspension in exchange history. He began as a clerk on the exchange in 1880 and two years later purchased a seat from his grandfather, Henry Stebbins, who had been president of the New York Stock Exchange in the 1850s.⁴³⁴ He became a member of the exchange’s governing board in 1898 and served on almost all exchange committees before being elected to the post of president on May 11, 1914. Less than three months later, Henry Noble needed all of his...

  11. CHAPTER SEVEN Rescue
    (pp. 116-130)

    J. P. Morgan Jr. labored in the shadow of a giant. The Panic of 1907 had transformed his father, J. P. Morgan Sr., from controversial financier to public hero. Morgan Sr.’s obituary on April 1, 1913, read: “The pinnacle of his power was reached in the Panic of 1907 when he was more than 70 years old, and to some extent withdrawn from participation in active affairs. By general consent he was put at the head of the forces that were gathered together to save the country from disaster, and men like John D. Rockefeller and E. H. Harriman, to...

  12. CHAPTER EIGHT End Game
    (pp. 131-150)

    Treasury Secretary McAdoo’s finger-in-the-dike policies had plugged the holes threatening American finance. He aimed the Aldrich-Vreeland Act at the banking system’s currency drain. He shored up gold supplies at subtreasury offices around the country to defend the government’s promise to redeem paper currency. He shuttered the New York Stock Exchange to halt the hemorrhage of the precious metal to Europe. And he called in J. P. Morgan to protect America’s credit from foreign attack. But the danger had not passed. Six weeks after the crisis began the dollar price of sterling remained above $4.90, provoking gold exports.

    McAdoo needed a...

  13. CHAPTER NINE Birth of a Financial Superpower
    (pp. 151-172)

    According to John Maynard Keynes, Britain ruled world finance with the pound sterling. At the outbreak of the Great War, he said: “Foreign countries have been keeping a substantial part of their ultimate monetary reserves in London. . . . This is profitable and enormously enhances London’s position as a monetary center. . . . Its existence depends very directly on complete confidence in London’s unwavering readiness to meet the demands upon her. . . . The existence of this confidence in the past has been one of the most important differentiations between London and Paris or Berlin. . ....

  14. EPILOGUE Blueprint for Crisis Control
    (pp. 173-176)

    America benefited from decisive financial leadership during the last two decades of the twentieth century. Paul Volcker confronted a runaway inflation when he became chairman of the Federal Reserve Board on August 6, 1979. Two months later, in October 1979, he adopted a controversial plan to curb spiraling prices by controlling the nation’s money supply.⁷³² Volcker stuck to his principles of price stability and established the central bank’s credibility as a bulwark against inflation. The victory set the stage for a generation of economic prosperity. Alan Greenspan succeeded Paul Volcker on August 11, 1987. Two months later, on October 19,...

  15. Notes
    (pp. 177-200)
  16. References
    (pp. 201-206)
  17. Index
    (pp. 207-218)