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 COI^GESTED PRICES. 
 
 By M. L. SCUDDER, Jr. 
 
 
 ^ o/^ WA'-v/^- 
 
 CHICAGO: 
 
 JANSEN, McCLURG & COMPANY. 
 1883. 
 

 Copyright 
 By JANSEN, McCLURG & CO., 
 
 1S83. 
 
COT^TGESTED PRICES. 
 
 By the title " Congested Prices," I intend to describe 
 prices made in certain unhealthy conditions of trade. 
 There are times in the existence of our best organized 
 commercial systems when the streams of exchanges, 
 usually flowing quietly and evenly, become clogged by 
 mad rushes. At such times, like the agitated blood in 
 the human body under abnormal conditions, the excited 
 efforts to effect transfers of property become too strong 
 for the customary channels. There is a heaping up, a 
 congestion of prices at weak pointy, and, unless speedy 
 relief is affqrded, the prostration or destruction of the 
 commercial system follows. 
 
 As the knowledge of the cause and cure of disease is 
 the proper direction in which to seek the preservation 
 of health, so the study of the nature of commercial crises 
 is the best method of preserving a sound condition of 
 trade. For this reason the investigation of prices in a 
 state of congestion leads to the prevention of panics, 
 and cultivates that intelligent and sober state of mind 
 whicn confines business ventures within prudent limits. 
 
 It maybe noted in the outset that the subject of prices 
 is largely within the bounds of mental science. The 
 desire for possession, the comparison of desires, the fear 
 
6 Congested Prices. 
 
 of deprivation, the far-reaching effort to apprehend by 
 analogy the desires of others — all these mental phe- 
 nomena are manifested in the making of prices, and, 
 political economists to the contrary notwithstanding, 
 are better worth investigating than the amount of laboi 
 expended in production or the extent of the wage-fund. 
 
 Prices are values expressed in money terms ; but there 
 is also, I think, a more restricted meaning to tlie term 
 in common commercial use which is not noted in the 
 dictionaries. Price, I think, implies that a transaction 
 has actually been effected ; at least this is true in markets 
 where transactions are effected by offerings and bids. A 
 merchant may mark the prices on his goods at which he 
 hopes to make sales, but a dealer in grain, provisions or 
 stocks would hardly make use of the term in the same 
 way in regard to his commodities. He might possibly 
 speak of it as the "seller's price," but the word price 
 alone would mean for him only the money value of a 
 commodity as determined by an actual transaction. 
 This distinction is important. There are in common 
 use the terms "bidding price" and "asking price," but 
 neither is regarded as the real price established by an 
 actual exchange. 
 
 With this meaning clearly understooa, the term "con- 
 jested prices" becomes more significant, and the impor- 
 tance of mental conditions is more definitely brought 
 out. The opinions of men, their desires, their needs, 
 are the elements to be studied. How comes it that for 
 long periods, by diligent comparison of their multiform 
 
The Problem of Panics. 
 
 wants and wishes, having succeeded in accomplishing 
 by exchange a very satisfactory state of existence, men 
 all at once unite in desiring one thing intently, and 
 direct all their efforts, without consideration or judg- 
 ment, to attaining it ? This is the problem of panics. 
 On September 23, 1873, spring wheat sold in Chicago 
 at T.o4)4 per bushel; on September 24 it sold at 89 
 cents per bushel. Why was this sudden change in its 
 value ? Political economists assure us that value is de- 
 termined by cost of production. Yet we are quite sure 
 there was no great change in the cost of production of 
 wheat within these twenty-four hours. The reason for 
 the decline is to be found in the opinions and desires 
 of men, and the laws of the opinions and desires of men 
 are the chief laws of prices. 
 
 It must be conceded that this subject hardly admits 
 of logical treatment. The data are so widely scattered, 
 so numerous and so minute, that their classification in 
 anything like a connected theory is impossible. One 
 in treating this subject conscientiously can only pick up 
 an interesting fact here and another there, point out the 
 peculiarities of each and cast them away again. If these 
 observations seem to teach any valuable lesson, it must 
 come from a previous mental agreement between listener 
 and speaker, for there is no well placed solid foundation 
 amongst these facts upon which a reasoner can build so 
 as to command the agreement of all mankind. 
 
 From the ungraspable nature of this subject, it is at 
 once the easiest and the most difficult to treat. The 
 
8 Congested Prices. 
 
 easiest, if one is willing to dogmatize or to prophesy, 
 for in this uncertain field a dogmatic assertion or a 
 ^jrophecy may possibly prove correct ; but the most 
 difficult, if one sincerely and by sound method strives 
 to reach a positive conclusion. The effort to compass 
 and comprehend the infinite number of facts is as yet 
 too great for the mind. We cannot get a satisfactory 
 hold on the particulars which will warrant us in work- 
 ing up surely to the general law. 
 
 In the mechanism of prices, stock and grain ex- 
 changes have prominent places. They are organizations 
 for the chief purpose of determining and recording 
 prices. They are developments from the demands of 
 trade, but not the less is the ingenuity remarkable 
 which has constructed them and fitted them with well 
 established customs and carefully drawn rules, so that 
 prices with uniform conditions are made momentarily, 
 hourly, daily, for the guidance of all the trading world. 
 The advantage of prices made on these exchanges is 
 their mathematical certainty. Compared with outside 
 trading they are as the demonstrations of Euclid to 
 practical surveying. They have a certain quality of 
 abstractness, which makes one inclined to call them 
 " pure prices." 
 
 These exchanges are undoubtedly the developments 
 of the fairs of the middle ages. But they have totally 
 changed their characters. The merchants and farmers 
 who attended the fairs of Stourbridge or Winchester 
 brought their goods and produce, made their exchanges 
 
Grain and Prodvce Exchanges. 9 
 
 and took away their purchases. But a very small per- 
 centage of those who buy or sell on the exchanges of 
 the great commercial centers desire to possess the prop- 
 erty which they purchase, or are in possession of the 
 property which they sell. The fixing of the price is 
 the main object of nearly all transactions on these ex- 
 changes. For every transaction there must be a pur- 
 chaser and a seller, and the price once fixed is made 
 the basis of a contract. To the fixing of this price 
 each party to the contract brings his widest information 
 and his best judgment. One of the two parties must 
 be in error in his judgment, as to the supply of, or the 
 demand for, the commodity concerning which they con- 
 tract. In the course of time it is apparent on which 
 side the error of judgment has been made. But it 
 rarely happens that either party waits for the other to 
 complete his contract. The loser takes his loss when 
 he pleases by making another contract for the purchase 
 or sale of the same commodity with another party, and 
 the winner takes his profit in the same way. It is cus- 
 tomary to set off one contract against another. Thus 
 there are always a large number of contracts always in 
 existence between the members of every exchange, and 
 these contracts are almost always for a very much larger 
 quantity of commodity traded in than is in existence 
 within easy reach of the contracting parties. 
 
 This is roughly the method by which these great 
 exchanges are conducted. It is not strictly accurate as 
 to the details, for every commodity is subject to pecu- 
 liar conditions, and it is a recognized principle of all 
 
10 Congested Prices. 
 
 exchanges that delivery and pa3-ment, according to the 
 terms of the contract, must be rigidly enforced if either 
 party desires it. If it were not for this principle the 
 prices made on the various exchanges would be without 
 value to commerce ; with this principle they become the 
 guide of all transactions within the civilized world. 
 
 I wish here to bring out prominently this point, that 
 these exchanges and boards of trade are mainly 
 occupied in determining prices. It is a sort of 
 division of labor. The members of these exchanges 
 are not greatly employed in handling or using the 
 commodities whose prices they develop. Their busi- 
 ness is to determine the prices, and in the economy of 
 employments it falls to others to possess and enjoy the 
 property. 
 
 It is not to be understood that the members of any 
 of the prominent exchanges determine prices solely 
 according to their own desires. Every such exchange 
 is the center of general attention ; many thousands ot 
 interested men are listening, to the click of the tele- 
 graph instruments which report its doings, and every 
 quotation made is the result of innumerable and wide- 
 spread influences, as far beyond the control of a board 
 of brokers as are the clouds or the seasons. 
 
 It is hardly worth while to discuss here the morality 
 of speculation in the various exchanges. That is a 
 subject very much misunderstood, and neither the 
 opinions of learned judges nor the statutes of Illinois 
 have served to make it plainer ; but, whether it is right 
 
Economy of Exchanges. 11 
 
 or wrong, it is certainly the height of folly for an 
 excitable or inexperienced person, with a small^ margin, 
 thus to attempt to take a hand in fixing the price of an 
 imi)ortant commodity. 
 
 It is true, however, that this kind of speculation per- 
 forms an important office for trade and commerce, — a 
 part in the machinery of the world's business which 
 cannot be abolished, any more than the railroads can 
 be done away with because the locomotive occasionally 
 slaughters a careless citizen. 
 
 Very few ])ersons were ruined financially by specu- 
 lation in wheat before the days of trading in futures, of 
 negotiable warehouse receipts, and of the labor-saving 
 machinery of the board of trade. When it was neces- 
 sary to pay in full out of one's capital for every 
 bushel of grain bought, to provide a place to store it, 
 and to go to all the trouble of receiving and keeping 
 it, taking a flyer in wheat was no easy matter, and 
 persons of inadequate means did not often engage in 
 that amusement. Now it is the improvement of the 
 machinery — the greater momentum of which it is ca- 
 pable — which makes it tempting, and which also makes 
 it dangerous. The old-fashioned carpenter's saw rarely 
 maimed or injured the boys and careless working-men 
 who handled it, but the modern buzz-saw, which now 
 does nearly all the work of the older instrument with 
 twenty times the speed and economy, cuts off fingers 
 and thumbs, and otherwise frequently lacerates heedless 
 persons who meddle with it. It is as much more 
 dangerous as it is more efficient. Yet no one thinks of 
 
12 Couvcsieii Prices . 
 
 denouncing the buzz-saw for the lost fingers and 
 thumbs, or advocating its destruction. The machinery 
 of the Board of Trade is only a big commercial buzz- 
 saw. By its means more exchanges are made in a day 
 than fifty years ago could be made in a year, yet it will 
 sometimes amputate a bank account or lacerate a 
 fortune before a careless speculator knows he is hurt. 
 But we should not, therefore, condemn the Board of 
 Trade. 
 
 It is best to explam that nearly all dealings on the New 
 York Stock Exchange are invariably settled by delivery 
 and payment, and that sales there for future delivery 
 are insignificant in amount. In almost all transactions 
 the stocks or securities bought are delivered and paid 
 for on the following day. There are there no regular 
 settling days, when accounts are adjusted against each 
 other, as on the Stock Exchange in London or on the 
 Paris Bourse, or in all the grain and cotton exchanges. 
 The New York stock brokers are enabled, by means of 
 the large amount of banking and other loanable funds 
 which their business has attracted to Wall street, to bor- 
 row money on the stocks and securities, in which they 
 deal, to make their payments in full every day. To 
 this fact, I think, is to be attributed a part of the great 
 influence which the New York Stock Exchange exer- 
 cises in the commercial affairs of the country. It not 
 only determines the prices of the chief of those invest- 
 ments in which the fix'-d capital of the country is en- 
 gaged, but it also exhibits the rate at which the loanable 
 
The New York Stock Exchange. 13 
 
 funds of the country are to a great extent employed. 
 This is no insignificant influence. In the study of 
 prices it is very important, and it gives to the quotations 
 and operations of the New York Stock Exchange a 
 paramount and commanding position in the financial 
 affairs of this land. It is the fashion with many editors 
 and demagogues to denounce the stock "gambling of 
 Wall street," and they doubtless lead many ignorant 
 persons to believe that the Stock Exchange is a disrep- 
 utable and harmful spot, that the world would be better 
 without it. I think that a careful examination of its 
 office and influence, its methods and character, will 
 prove it to be a highly beneficial and well managed 
 institution. 
 
 The reports of the Comptroller of the Currency show 
 that forty per cent of the loans of the national banks 
 of New York city are demand loans on stock collateral, 
 and presumably for Stock Exchange business. It is esti- 
 mated, by the same authority, that about forty-six per 
 cent of the business of the banks in the clearing-house in 
 New York city is for transactions on the Stock Exchange, 
 and the clearings of these banks are seventy-six per cent 
 of those of the whole country. 
 
 It is easy to see, from these figures, that no other 
 single organization exercises an influence equal to that 
 of the New York Stock Exchange upon the financial 
 affairs of the United states. Indeed no line of trade 
 or manufactures, nor any combination of them that is 
 likely to be made, can equal its influence. 
 
14 Congested Prices. 
 
 I have endeavored to make plain these few points 
 concerning the use, character and importance of ex- 
 changes, because it is now chiefly in the quotations 
 made on these exchanges that we must study prices. 
 The great agricultural products are now bought and 
 sold exclusively on exchange quotations, and no one is 
 more benefited by this machinery than the farmer. He 
 is able to know, with considerable precision, what his 
 product is worth at the time he offers it for sale. The 
 value of that knowledge to him can hardly be over- 
 estimated. He would otherwise be at the mercy of 
 middlemen and speculators. 
 
 The efficiency of these exchanges has developed rap- 
 idly in recent years, under the influence of rapid trans- 
 portation and the development of the telegraph 
 system. There is nothing in civilization more wonder- 
 ful than the machinery by which prices are made and 
 reported to every part of the world. 
 
 It is by the study of the prices made by the great 
 exchanges that we can today best learn the workings of 
 the laws of trade. We have, as it were, in a microcosm, 
 the opinion of all interested persons as to the money 
 value of the chief articles of commerce at each particu- 
 lar moment of each business day. 
 
 It is probable, too, that the modern improvements 
 have considerably modified the fluctuations in prices. 
 
 In the development through the ages of the influence 
 of prices upon human affairs certain cities stand out as 
 focal points from which that influence has radiated — 
 
The First Traders. 15 
 
 Sidon, Tyre and Carthage, Athens and Corinth, Venice 
 and Genoa, then Amsterdam, and now London, to be 
 followed by New York, perhaps, before the world is a 
 hundred years older. There are a thousand cities on 
 the globe more prosperous than ancient Sidon ever was, 
 but there are none which have been of greater benefit to 
 man. The Phoenician galleys, coasting the shores of 
 the Mediterranean, were first to show that the wants of 
 mankind can be better satisfied by agreement than by 
 force. It was a new principle that bargaining may 
 create power; that exchanges in which each party gains 
 are surer to secure riches than robbery. We know very 
 little of the life at Sidon. Very likely the Sidonians 
 began business as pirates, but found trading more 
 profitable. They are entitled to credit for the dis- 
 covery. The fact that they were known as Sidonians 
 rather than the subjects of any king speaks well for 
 them. It indicates some idea of equality in citizenship, 
 a well-defined notion of individual right of property, 
 and a government by common consent. Tyre and 
 Carthage preserved this characteristic, and indeed 
 through the centuries, from that time, cities of commer- 
 cial importance have been greater than their rulers. 
 Unlimited kingship has invariably destroyed commercial 
 prosperity. It is essential to commercial prosperity 
 that buyer and seller can meet on terms of commer- 
 cial equality; that they can be free to consult their 
 own interests only, and to trade or not to trade, as 
 seems best to them. It is only under such circumstances 
 that fair prices can be made ; and this is the reason why 
 
16 Congested Prices. 
 
 the great commercial cities of the world have been free 
 cities. Whether the desire for a fair bargain preceded 
 the desire for civil freedom, no one can tell, but the 
 ideas could not have been far apart. And we may 
 conclude that the Sidonian merchants, shrouded for us 
 in anti-Homeric gloom, carrying out their purple robes, 
 and bringing back Eyptian corn and Spanish iron, wine 
 from Cyprus and gold from Lydia, were the first 
 practical advocates of liberty, as they were the first 
 instructors of mankind in the art of acquiring riches by 
 voluntary exchange. 
 
 Fair prices can only be made where buyer and seller 
 meet on terms of perfect commercial equality. There 
 must be equal freedom to trade or not to trade for all 
 parties to transactions. We can imagine a highwayman 
 taking a thousand dollars from his victim and leaving 
 his old hat in exchange, but we would hardly say that 
 the price of the hat was a thousand dollars. The 
 exchanges of property among savage tribes are often of 
 this unfair character; so also is much of the commerce 
 under despotic governments. The trading in the 
 bazaars of Central Asia at the present time is largely of 
 this nature. The leader of a tribe of Turcomans can 
 secure much more favorable bargains than he who has 
 no armed horsemen at his command, for there is a 
 probability that the chief will take by force what he 
 wants if the price does not suit him. 
 
 It is not absolutely certain that this element of in- 
 timidation is absent from all the transactions of civilized 
 
Fair Prices. 17 
 
 life. One party to a transaction may so threaten the 
 other as to force his acceptance of unsatisfactory terms. 
 Such transactions are void in law, but sometimes the 
 law cannot be successfully applied. In such cases no 
 fair price is made. 
 
 I think also that something of this unfairness is con- 
 sidered to exist, when sales or purchases are made under 
 compulsion of law or of rules of trade. For example, 
 prices made in judicial sales are not regarded as strictly 
 fair, nor are those made to enforce defaulted contracts 
 under the regulations of boards of trade. The persons 
 for whose account such transactions are made may have 
 no right to object, but as they have no voluntary part 
 in fixing the prices, such prices are not regarded as 
 fairly quotable in establishing actual value. 
 
 There is a certain analogy between the weather and 
 prices. To be sure the phenomena of the weather are 
 natural, while the phenomena of prices are the crea- 
 tions of man ; but these phenomena are equally beyond 
 man's intelligent control as yet, and perhaps equally 
 influence his welfare. 
 
 It is interesting to trace the growth of the fabric of 
 prices from the earliest rude exchanges of property to 
 the present intricate network of financial relations, 
 which pervades civilization like an atmosphere, sustain- 
 ing all commercial life, and making possible the enlight- 
 ened comfort and happiness of the race. It is hardly 
 possible to gain an adequate conception of the change 
 in the condition of man through the development of 
 2 
 
18 Con8:ested Prices. 
 
 the system of prices. We m^y compare Abraham in 
 the first recorded monetary transaction, buying the 
 field of Ephron for four hundred shekels of silver 
 "current money of the merchants," with his latest 
 descendants, the Rothschilds, bringing the enterprises 
 of nations- and of kings to the tribunal of the money 
 market. The prices of corn and mutton were matters of 
 small concern to the men of Abraham's day. They 
 made their own arrangements for food independent of 
 their neighbors' wants. They planted their fields and 
 tended their flocks and defended them, and, according 
 to their success in these pursuits, did they and their 
 children have much or little to eat. But now, in Roths- 
 child's time, each minute want of Jew and Gentile is 
 conceived of on a money scale. It is attainable or 
 impossible according to its price. Almost every action 
 of a very large part of mankind is controlled by con- 
 siderations of price. 
 
 In Abraham's time, and for many hundred years 
 afterward, rulers and warriors and priests, governments 
 and armies and religions were entirely independent of 
 prices, but the meshes gradually tightened round them, 
 and now there is no potentate or statesman or pope who 
 dares to disregard the market. There is no govern- 
 ment foolish enough to move against the current of 
 prices, no army can make headway against it, and re- 
 ligions are contented to go along with it. 
 
 There is a'rcertain analogy, as I have said, between 
 the weather and prices. Somewhat the same qualities, 
 
The Weather and Prices. 19 
 
 of mind and disposition, which make the weather-wise 
 man also make the market-wise man. Much watching 
 of the clouds and much experience of storms create 
 the instinct which forewarns changes- Much buying 
 and selling, long observance of demand and production, 
 one or two practical trials of a panic, produce a sense 
 of commercial fluctuation. 
 
 The price prophet, like the weather prophet, rarely is 
 able to give satisfactory reasons for his opinions, yet he 
 is equally confident of his own infallibility. The price 
 prophet, like the weather prophet, if successful, has a 
 following of blind and wondering disciples. 
 
 The attempt to discover a science of prices is also 
 like the attempt to formulate a science of the weather 
 in a condition of uncertainty. Each science is sought 
 in a series of averages, and each has progressed only so 
 far as to offer to the curious observer long tables of 
 figures and mathematical charts of differences, from 
 which he can draw only vague conclusions. If there is 
 to be a science of prices it must be developed, like 
 meteorology, through the classification of the records 
 of innumerable observations. 
 
 It may be interesting to note in this connection the 
 singular superstitions and the absurd theories which, to 
 a considerable extent, influence the actions of men 
 with reference to prices, and which resemble nothing 
 so closely as the old wife superstitions and maxims of 
 sailors and farmers concerning weather. Many specula- 
 tors are governed in their operations by the conviction 
 
20 Consresied Prices. 
 
 that prices decline on Friday more often than on any 
 other day of the week. I know a man who prefers to 
 buy stocks on Tuesday. Many pious people pray for 
 higher prices of property which they wish to sell. I 
 have heard of a grain speculator, who requested the 
 prayers of his minister to enable him to sell at a profit- 
 able advance, and who vowed to give a considerable 
 sum to a religious charity if Providence favored his 
 petition. There is a very general feeling among busi- 
 ness men that their individual luck controls prices. 
 Some say, " If I buy, prices will be sure to decline ; if I 
 sell, they will be sure to advance." This is like the 
 common notion of an individual that his carrying an 
 umbrella will prevent rain, or his leaving his umbrella 
 at home will bring on a shower. 
 
 Hardly any trader is free from some sort of fetichism 
 in his dealing. Good or bad luck is believed to be 
 associated with various inanimate objects. As storms 
 are supposed by sailors to follow a certain ship, so mis- 
 fortune is thought to dwell in certain shops. I have 
 heard of an operator on the Board of Trade grinding 
 to pieces under his feet the lead pencil which has 
 recorded losing transactions. 
 
 Another similarity between the market and the 
 weather is the tendency which we have to personify 
 them. We know that each atmospheric change is pro- 
 duced by many causes, and also that each fluctuation of 
 prices depends on numerous special reasons. Yet we 
 disregard and seemingly forget these facts in thinking 
 
Cycles. 21 
 
 or speaking of them. We conceive of them as we 
 would of an army moving under one leadership. We 
 say of the weather, it rains or it is warm, as we say of 
 the market, it rises or it is strong. Changes of prices 
 are the results of the comparisons of innumerable opin- 
 ions, but we see only the aggregate and forget the indi- 
 viduals which make it. 
 
 We talk of the irresistible laws of trade, of prices or 
 of credit, and yet we believe in man's free agency. 
 We surely believe that each transaction in trade is an 
 act of voluntary judgment, and yet we treat these trans- 
 actions in the aggregate as if they were predestined 
 and unavoidable. 
 
 Tracing the analogy between the weather and prices, 
 it will be observed that men show a tendency to arrange 
 the phenomena of each in cycles, and by noting the 
 succession of events in the past to predict the same 
 successions in the future. There is something in the 
 idea of a cycle which is peculiarly attractive to 
 the mind. It is more satisfactory to describe life 
 by a graceful, well rounded curve, than by a line 
 which is jagged and incomplete. This is shown in 
 all fields of inquiry. We search history for curves of 
 conduct, and, when we find them, make them con- 
 spicuous, and we will generally allow ourselves to patch 
 up our favorite curves in their faulty parts at the expense 
 of fidelity to facts. It is our disposition to believe in 
 heroes, who did no wrong, and in villains who showed no 
 good qualities, and to expect that history will repeat itself. 
 
22 Congested Prices. 
 
 So the weather prophet, anxious to satisfy the human 
 craving for a curve, arranges meteorological events in 
 cycles, and endeavors to show, because cold and heat, 
 rain and snow, frost and drought, have occurred in a cer- 
 tain order in the past, that this same order constitutes a 
 natural law, and will be followed in the future. I am not 
 intimately acquainted with the methods of the eminent 
 weather prophets. Indeed they and "their little sys- 
 tems have their days and cease to be" so rapidly, that 
 one hardly has time to give his unreserved adherence to 
 any of them before the failure of some unlucky prophecy 
 consigns the prophet and his system to oblivion. But 
 I have observed that the cycle theory is accepted by 
 all, as if it were a scientific fact, and the only difficulty 
 is supposed to be in describing the cycle correctly. 
 
 These remarks apply only to the long-range weather 
 prophets, who endeavor to map out the weather of a 
 season in advance, and not to the painstaking signal- 
 service observers, whose best hope is to be correct, 
 twice out of three times, in locating a storm after it has 
 begun. 
 
 There is no oureau of government for the observation 
 and foretelling of prices. But there are conscious and 
 unconscious price prophets throughout the country in 
 great numbers, and I think that the belief in the cycle 
 theory of prices is almost universal. 
 
 It will not do to treat this theory with disrespect. It 
 has been favorably considered by the most eminent 
 English writers on this subject. It is the opinion of 
 Tooke and Newmarch, of Bagehot and Giffen, that 
 
Price Cycles. 23 
 
 there are such cycles. But none of these writers 
 attempt to give the law by which such cycles may be 
 foretold, or do more than point out, with great shrewd- 
 ness and accuracy, some of the facts which have attended 
 the rising and falling of prices in the past. I think 
 that the use of the term cycle by these authorities 
 is misleading. It is properly to be applied to the 
 recurrence of a certain order of events at a certain 
 period. The element of time is essential to the idea of 
 a cycle, and if the same events recur even in the same 
 order, but at varying times, there is no cycle shown. 
 
 It cannot be denied that the course of prices can be 
 approximately represented by curved lines. But the 
 fascinating idea, that it can be represented by a regu- 
 lar recurring curve, that is by a cyclical cury^, is quite 
 another matter. 
 
 I think, however, that this idea quite generally pre- 
 vails among men who are in the habit of reasoning upon 
 the course of prices, and vague beliefs are common that 
 certain years, at set intervals from past financial crises, 
 will witness future panics and general liquidations. 
 
 The most consistent attempt, which I have met with, 
 to mark these years down definitely in the calendar is 
 the work of an Ohio farmer named Benner. He pub- 
 lished a small book in 1876 called " Benner's Prophe- 
 cies," which passed through several editions, and is still 
 read with attention and belief. It is a most curious 
 volume, not only on account of the definiteness with 
 which some of the prophecies have thus far been ful- 
 filled, but also as an illustration of the kind of rea- 
 
24 Congested Prices. 
 
 soning upon which general prophecies concerning prices 
 and weather depend. Farmer Benner was a positive 
 man. His prophecies must have been compiled in 
 1874 and 1875. -t^^^ most positive declarations are con- 
 cerning prices of pig-iron and hogs, and concerning 
 the next period of general commercial and financial 
 disaster. As to prices of pig-iron from 1875 ^o 1882, 
 his prophecies have been in a measure fulfilled. He said 
 that pig-iron would sell lowest in 1877, would begin 
 advancing in 1878, and that its price would culminate 
 in 1881, and that it would then decline again, reaching 
 its lowest point once more in 1888. These predictions 
 so tar have been justified by events, and judging from 
 them alone we are disposed to give farmer Benner great 
 glory. But when we examine his forecastings as to the 
 prices of hogs we do not find \\\\\\ so fortunate. Ac- 
 cording to his cycles in the hog trade, prices were to 
 be highest in 1875, would decline in 1876, and reach 
 lowest figures in 1877; would rise during 1878 and 
 1879 ^"d would culminate in 1880. They would de- 
 cline again in 1881 and reach the lowest point in 1883, 
 etc. The facts are that hogs sold as high in 1876 as 
 in 1875, were lower in 1877, but not so low as in 1878 
 and 1879. They sold as a rule higher in 1881 than in 
 iSSo, and v/ere higher still in 1S82. Not one of Ben- 
 ner' s prophecies concerning the prices of hogs has been 
 fulfilled. But it is much more remarkable that anyone 
 should correctly foretell the course of prices of pig- 
 iron than that anyone should fail to foretell the prices 
 of hogs. For this reason I have tried to discover upon 
 
Benner s Prophecies. 25 
 
 what principle farmer Benner proceeded in reaching his 
 conclusions. But, like all other prophets, he can only 
 inadequately explain his system; but as far as he explains 
 it, it is arithmetical, and consists simply in ascertaining 
 the general course of the price of any important com- 
 modity in the past and predicting the same fluctuations 
 for the same length of time in the future. For example, 
 concerning the periods of commercial prosperity in this 
 country, he finds that there were panics followed by gen- 
 eral liquidations in 1819, 1837, 1857 and 1873. ^^ 
 assumes that the interval from 1819 to 1873, fifty-four 
 years, constitutes a cyclical period, and that within this 
 period are three snialler cycles of eighteen, twenty and 
 sixteen years respectively, corresponding to the intervals 
 between the several panics. He assumes that a new 
 cyclical period of fifty-four years began after 1873, ^'^^ 
 that the first small cycle of eighteen years will end in 
 1891, for which year, accordingly, he predicts a great 
 financial revulsion. This is the only substantial basis 
 on which these prophecies rest, and this is sufficiently 
 inconclusive ; and yet I think that this reasoning fairly 
 represents the popular theory of high and low prices. 
 Farmer Benner is plainly not entirely satisfied with the 
 logical character of his system, for he continually 
 breaks the thread of his argument with sententious ad- 
 vice to his fellow men and with proverbs of his own coin- 
 ing, and these are only another illustration that the same 
 mental qualities characterize the weather prophet and 
 the price prophet. And, as if to complete the analogy, 
 farmer Benner concludes his treatise by claiming that 
 
26 Congested Prices. 
 
 "the cause producing the periodicity and length of 
 these cycles may be found in our solar system," and 
 then goes on to treat vaguely of meteorological cycles 
 and planetary equinoxes, with very much the same air 
 of mystical wisdom with which Tice and Vennor and 
 Wiggins and others discourse of the causes and perio- 
 dicity of storms. 
 
 It seems hardly necessary to produce evidence in op- 
 position to the cycle theory of prices after this example 
 of its last analysis. But there is, I believe, a general 
 belief in it. The expression, "a panic is not due yet," 
 is often heard, and the larger part of the public rest in 
 the conviction that a commercial revulsion, like an 
 eclipse of the sun, can be calculated and foretold if only 
 the proper persons are awake to their duty. 
 
 After witnessing the panic of September, 1873, from 
 the gallery of the Stock Exchange in New York, the 
 editor of the Nation comforted his readers with the 
 assurance that panics occur in England once in ten 
 years, and in this country once in twenty years, and 
 concludes with these words: " If this theory be correct, 
 our next great panic will be due , about 1877. Let us 
 hope, however, that the present slight attack may inspire 
 enough prudence and good sense to ward it off." This 
 is the astronomer so distracted by his calculation, that 
 he doesn't know a total eclipse, even when the umbra 
 covers him. 
 
 A careful account of all the great revulsions in prices, 
 
special Panics. 27 
 
 I think, will show that no one has been a repetition of 
 others. Each has had its peculiar characteristics and 
 causes. 
 
 But this opens the field for history into which I can- 
 not enter. The stories of the great panics have been 
 fully and accurately told by many able writers. A read- 
 ing of then\ will show that great panics are as dissimilar 
 as great battles. We can acquire from them no more 
 reason for concluding that we will experience a financial 
 panic once in ten or twenty years than from the facts of 
 military history that we shall pass through a great war 
 once in so often. 
 
 In this country the panic of 1837 was precipitated by 
 wild speculation in land, and that of 1857 by unsound 
 banking. In England the panic of 1846 was brought 
 about by unwarranted expenditure in railroad building ; 
 that of 1866 by too great confidence in limited liability 
 companies. 
 
 The panic of 1873 was caused by over speculation in 
 all commercial countries. Robert Giffen, the present 
 President of the London Statistical Society, looking at 
 it from an English standpoint, called it a "foreign- 
 loans panic." From an American standpoint, it was a 
 general-loan panic. The American people generally 
 had borrowed money and bought property. Real estate, 
 not only in the west, but in the cities and towns of the 
 east, was largely mortgaged. Railroads were mortgages 
 to a greater extent probably, in proportion to their cost, 
 than any other kind of property. Manufacturing com- 
 panies carried heavy bonded debts and heavy lines of 
 
28 Congested Prices. 
 
 discount. Merchants had all the paper out which the 
 banks and their friends would take. 
 
 Former panics in this country had been greatly influ- 
 enced by distrust of the currency. There was nothing 
 of this in 1873. Men hoarded greenbacks and national 
 bank notes with absolute confidence in their value. 
 
 Former panics have been created to some extent by 
 special disasters, such as deficient harvests or wars or 
 political commotions. There were none of these in 
 1873. Crops were abundant, and the world was at 
 peace. 
 
 It was simply a realization on the part of a great 
 number of men that they had borrowed more than they 
 could readily pay, or that they had lent more than they 
 could readily collect. The business of the country was 
 done on a too narrow margin of capital. The suspen- 
 sion of the house of Jay Cooke & Co., the closing of 
 the New York Stock Exchange, the suspensions which 
 followed, the devices of the banks to resist the fiist rush 
 of excited depositors — these were but the striking inci- 
 dents which were not especially characteristic of the 
 course of events. But the gradual liquidations which 
 followed, with gradually declining prices through several 
 years, are peculiar and noteworthy. This decline was 
 resisted by strenuous arguments, and by mutual assur- 
 ances of confidence. But those who sold their proper- 
 ties at once and settled their accounts, were the most 
 fortunate. These were few. Nearly all masked their 
 eagerness to sell behind declarations that the decline in 
 prices was but a temporary reaction, that prices would 
 
The Panic of 1873. 29 
 
 soon improve, and that properties were cheap. And 
 thus the long and weary struggle went on, between 
 growing interest accounts and maturing loans on one 
 side, and slirinking assets and decreasing incomes on 
 the other, until it ended for many in bankruptcy, dis- 
 grace and poverty. Lenders suffered as greatly as bor- 
 rowers. Indeed, it was impossible to classify the people 
 in this way, for the majority of business meri were both 
 borrowers and lenders. Lenders were compelled to take 
 collateral and securities which they did not want and 
 could not use, and which they in their turn sacrificed at 
 the first opportunity. 
 
 There was nothing especially calculated to give warn- 
 ing of approaching disaster in the course of events just 
 before the panic of 1873. The daily record of financial 
 matters during the summer of 1873 ^^^-^is like the story 
 of greatest confidence and security. In August the 
 stock market was dull, with good prices for leading 
 stocks. Money was easy, and the banks held reserves 
 largely in excess of the legal requirement. Early in 
 September Mr. Jay Gould was credited with an attempt 
 to run a corner in gold. This failed, and he became a 
 bear on stocks, especially on Western Union Telegraph 
 stock. The reported earnings of the railroads were 
 greatly in excess of those of the previous year, and yet 
 the newspapers accused the directors of the Milwaukee 
 & St. Paul railroad of depressing their stock in order 
 to buy it. (A strangely familiar item.) 
 
 Money began to rise in price early in September, and 
 
30 Congested Prices. 
 
 the reserve decreased. The week before the panic the 
 reserve fell below legal requirement, and money on call 
 on stock collateral commanded a premium above the 
 legal rate. Sixty-day commercial paper was discounted 
 at from nine to twelve per cent per annum. September 
 8, the New York Warehouse & Security Co. was re- 
 ported in trouble. This company had made consider- 
 able advances on bonds of n*ew railroads. September 
 12, the firm of Kenyon, Cox & Co., in which Daniel 
 Drew was a general partner, failed to meet its engage- 
 ments, owing to endorsements of railroad paper, par- 
 ticularly the paper of the Canada Southern. September 
 15, Jay Cooke &: Co. closed their doors, and the absolute 
 tranquillity and confidence of less than thirty days 
 previous was succeeded by the wildest agitation. 
 
 An account of the scene in Wall street on the days 
 following the suspension of Jay Cooke & Co. and be- 
 fore the Stock Exchange closed its doors, describes 
 "the brute terror with which great crowds of men 
 rushed to and fro, trying to get rid of their property, 
 almost begging people to take it from them at any 
 price," and says, "No dog was ever so much alarmed 
 by the clatter of the saucepan (at his heels) as hundreds 
 seemed to be by the possession of really valuable and 
 dividend-paying securities, and no horse was ever more 
 reckless in extricating himself from the debris of a 
 broken carriage than these swarms of acute and shrewd 
 traders in divesting themselves of their possessions. 
 Hundreds must really, to judge by their conduct, have 
 been so confused by terror and anxiety as to be unable 
 
ll'hat Produced the Fafiic ? 31 
 
 to decide whether they desired to have or not have, to 
 be poor or rich." 
 
 The interesting question to the calm observer, at this 
 distance of time, is as to the cause which could produce 
 such wild terror in men not different m any particular 
 respect from ourselves. Was it the sudden realization 
 that they had borrowed more than they could readily 
 pay, which drove them crazy ? How was this change 
 in feeling brought about? During the previous sum- 
 mer there were numerous prophecies of impending 
 financial trouble. But this goes for nothing. There 
 are always plenty of such prophecies. No storm ever 
 sweeps the sky but some grumbler has foretold it, and 
 there is no day so bright, but it is marked for a cataclysm 
 in some calendar. There are always innumerable 
 signs of the times, which one notices afterward, and 
 there would be a panic every month in every year, if the 
 foretelling disaster could produce it. But no one of 
 the forebodings, which I have ;net with, has attempted 
 to show the special condition in which men's minds are 
 suddenly converted from a state of perfect confidence 
 to a state of absolute fear. It is not credible that 
 men generally were so ignorant of their financial con- 
 ditions in August, that an examination of their affairs 
 in September could throw them into despair. Yet it is 
 necessary to imagine such a situation, in order to 
 account for the effect produced. If we can suppose 
 that the clerks of the majority of the bankers of Wall 
 street had robbed their employers of half their capital 
 
32 Conzesfed Prices. 
 
 and absconded together, or if there had been a com- 
 mon falsification of accounts, we might find a sufficient 
 reason for a general collapse of credit. But no such 
 treason or deception was charged or believed. 
 
 Could the panic have been averted if Jay Cooke &: Co. 
 had secured a loan sufficient to have met their current 
 obligations? Could the business of the country have 
 been brought by wise management to a sound basis 
 without a general liquidation ? Conjecture only can 
 answer. 
 
 It is firmly implanted in our minds, because we have 
 passed through the experience, that some such process of 
 fright and sacrifice, of distrust and realization, is neces- 
 sary occasionally to produce a sound state of credit. 
 But the proposition will hardly bear examination. Blind 
 fear and unreasoning distrust should characterize only 
 the ignorant and inexperienced. Well trained men of 
 affairs should never give way to such passions. It is 
 only by supposing that the business world is a mob of 
 ill-taught and ill-informed novices, that we can imagine 
 them liable to such affections. It is known that raw 
 levies and undrilled crowds can be panic-stricken by 
 vague danger, but disciplined and skillful soldiers can- 
 not be stampeded by uncertainties or sudden alarms. 
 And, by this analogy, it may be asserted that when the 
 business of the country is controlled by men of sound 
 courage and good training, financial jjanics will be 
 impossible. It is not Utopian to look for a time when 
 financial catastrophe will be averted by organization — 
 when threatened congestion of prices will be prevented 
 
Panics do not Repeat Themselves. 33 
 
 by scientific treatment. There are many philanthropists 
 and statesmen who expect the time when wars will be 
 avoided by international arbitration — 
 
 " When the common sense of most shall hold a fretful realm in awe. 
 And the kindly earth shall slumber lapt in universal law ; " 
 
 then the same common sense, which restrains angry 
 passions, will check sudden fear; and when masses of 
 men possess the self-control to submit their disputes to 
 the decision of disinterested tribunals, they can no 
 longer be stampeded in blind terror by any unexpected 
 event, whether financial or physical. 
 
 I have said that no panic is a repetition of any other, 
 and I think that an examination of the history of financial 
 affairs will show that the special causes which have led 
 up to each panic have been removed in the time follow- 
 ing. Each panic has had its lesson, which has been 
 practically learned. 
 
 The English people have not speculated wildly in rail- 
 way shares since the time of Hudson, nor committed 
 their funds blindly to limited liability companies since 
 the failure of Overend, Gurney & Co., nor invested indis- 
 criminately in the stocks of foreign states since the days 
 of the Foreign .Loans Committee. 
 
 In this country there has been no speculation in land 
 as rabid as that immediately preceding 1837. We have 
 thoroughly reformed our banking system, so that the 
 " wild-cat scare of 1857" can never visit us again. I 
 think also that we have learned wisdom from 1873, ^"<i 
 afe exercising great caution in the matter of loans. Mer- 
 3 
 
34 Cons'ested Prices. 
 
 chants and manufacturers generally are careful about 
 increasing their liabilities beyond a fair proportion to 
 their capital. And bankers are cautious in giving accom- 
 modations. There is but little disposition to borrow 
 money on mortgage, or to buy real estate on partial pay- 
 ments. And although the amount of railroad bonds has 
 greatly increased, and is increasing daily, yet, except on 
 roads completed and in successful operation, these are 
 scarcely salable at any price, and are not accepted as col- 
 lateral. Before 1873 ^'^ the manufacturers of and deal- 
 ers in railroad iron and equipment were burdened with 
 bonds on partially constructed roads, on which they 
 had made advances of goods or material. Now the 
 rolling-mill companies and the car builders of the 
 country have little or none of this species of property 
 in their hands. 
 
 Business men have been taught by trial. They will 
 not put themselves in positions which they have found 
 may be so unpleasant. If panic comes again, it must 
 find some new avenue of approach. It will not come 
 at any appointed time, like an eclipse. We cannot make 
 engagements for its appearance. Neither will it come 
 in familiar form, so that we may know it when it ap- 
 proaches; nor by its old paths, so that we may guard 
 against and resist it. 
 
 The only safe prophecies which we can make con- 
 cerning it are, that if it comes it will come when we are 
 not looking for it, and that it will be something differ- 
 ent from what we have anticipated. 
 
Almost a Panic. 35 
 
 The assassination of President Garfield very nearly 
 caused a panic, and did cause a very considerable 
 liquidation of accounts. Startling and horrible as was 
 the intelligence that the P'-esident of the United States 
 had been suddenly shot and probably mortally wounded, 
 there was nothing in the fact which should have dis- 
 turbed the business of the country. But the shock to 
 the sensibilities of men was so great that many ceased 
 to reason, and acted from blind terror. If the tragedy 
 had occurred on a day when all the exchanges were 
 open and business was in full course, in all probability 
 a severe panic would have occurred. But it was on 
 Saturday, the 2d of July. The Chicago Board of Trade 
 and other exchanges were not in session, and many 
 business men were away from their offices for the 
 coming holiday. The Stock Exchange in New York, 
 however, was open, and simultaneously, as it seemed, 
 with the flashing of the news over the land came the 
 orders to sell stocks. Prices fell rapidly, and transac- 
 tions became very large. It was nearly a panic, but a 
 few men, who had great personal interests at stake, met 
 together and gave orders to buy all of certain principal 
 stocks which were offered at certain prices. By this 
 means the panic was averted. The next day was 
 Sunday, and on Monday, the 4th, all business was sus- 
 pended in this country. But the Stock Exchange in 
 London was to be feared, and the same men who had 
 bought all stocks offered in New York on Saturday 
 bought, also, in London on Monday, so that American 
 securities were quoted steady in European markets, and 
 
36 Conzested Prices. 
 
 at the opening of the Stock Exchange in New York, on 
 Tuesday morning, there was no longer a pressure to sell, 
 and stocks advanced. 
 
 But although an actual panic was prevented, some of 
 the consequences of panic followed. The nerves of 
 the American business public seem to have been badly 
 shaken. General despondency took the place of san- 
 guine expectation. As the life of the President slowly 
 ebbed away, the vigor of great enterprises and the anima- 
 tion of trade seemed to depart. A gradual decline in 
 prices set in, which, perhaps, has not yet reached its 
 turning point ; and many a man can now see that the 
 bullet of Guiteau shattered his chance of fortune, and 
 not a few date from that crazy deed their financial ruin. 
 
 As most of the men now in business remember vivid- 
 ly the panic of 1873, ^^^ believe that it was made possi- 
 ble by an unwise expansion of credit, — that is, that 
 nearly everyone had borrowed more money than the 
 capital employed in his business would warrant, — so 
 most men expect to avert the consequences of the next 
 panic from themselves by caution in the matter of loans. 
 
 It may be admitted that a panic can hardly cause con- 
 tinuous and widespread disaster where there is no great 
 indebtedness; yet I think that a panic may occur and 
 a distressing decline in prices follow, even when there is 
 no unwise extension of credits. Debts were not greater 
 than they should be at the time of the assassination of 
 Garfield, yet we barely escaped a panic, and experienced 
 a very unpleasant fall in prices. 
 
Hopefulness. 37 
 
 It is well, therefore, to take notice that there are other 
 causes of panic than unwise borrowing and lending, and 
 to be on our guard against other dangers which may 
 menace our commercial prosperity. 
 
 There is danger of panic in any cause which may de- 
 press prices. Hopefulness naturally is a continuous 
 force, while despondency acts spasmodically. Hopeful- 
 ness is pleasant, and we encourage it to remain. Des- 
 pondency is unpleasant, and we admit it only when it 
 is forced upon us. The tendency to higher prices 
 is agreeable, but the tendency to lower prices is dis- 
 agreeable, and we yield to it reluctantly. If we could 
 divest ourselves of feeling, and look at prices only as 
 reasoning beings, we should accept a fall in prices when 
 the state of trade favored it, and there would be no 
 panics. Gradually by the development of knowledge 
 and training we may approach this condition. We 
 or our descendants may have the ability to balance 
 cause and effect dispassionately, and the wisdom and 
 self-sacrifice to accept lower prices contentedly. It is 
 true that the professional speculator cultivates this qual- 
 ity, and the short seller (of whom I have more to say 
 later) may be the germ from which the future masters 
 of commerce will develop. 
 
 There are now dimly descernible on our horizon sev- 
 eral scarecrows which, some time in the twilight when 
 we are off guard, may be metamorphosed into active 
 spooks and throw us into spasms of fright. 
 
 There is demagogism, — the efforts of many editors 
 
38 Congested Prices. 
 
 and politicians to create and arouse prejudice in the 
 people against the machinery of commerce. It is a 
 common thing to hear the men most prominent in or 
 ganizing industries and developing the wealth and 
 resources of the country, denounced as monopolists and 
 robbers, or to see in the columns of leading newspapers 
 those admirable devices for public benefit, the railroad 
 companies and the banks, styled swindling schemes or 
 frauds upon the rights of men. We have become so 
 used to this rant that it fails to make us indignant. 
 We know the editors and the politicians do not mean 
 what they say, and we fall into the belief that no one is 
 deluded by them. But none the less is this a real dan- 
 ger. This constant demagogic raving serves to keep 
 these absurd prejudices alive, and events may occur 
 which will cause them to flame up with disastrous vio- 
 lence. 
 
 The danger with which demagogism menaces us most 
 visibly just now is the silver dollar. The government 
 is adding two millions per month to its hoard of these 
 coins, which are useless in trade with the world. If we 
 have a season of depressed prices, and of complaints from 
 the people, will not this depreciated currency be forced 
 into circulation? If this comes suddenly it will create 
 a panic of capital anxious to escape out of the country 
 and take itself in the form of gold over the sea. If it 
 comes gradually it will have the same effect, only the 
 country will grow poorer more slowly. 
 
 The danger of demagogism against the banks and in 
 reference to legal tender paper money has probably 
 
Various Causes of Panic. 39 
 
 passed for the present, but no one can tell when it will 
 break out again. 
 
 Against railroad companies demagogues find a con- 
 stant exercise of their voices. But, by a sort of inertia, 
 the railroads seem to be able to ward off the damage 
 which all sorts of absurd laws threaten to inflict upon 
 them, until a general notion prevails that the railroads 
 can defy demagogues — and also the rest of the people. 
 Indeed the bills and enactments of legislatures, on this 
 subject, are generally regarded as nothing more than 
 invitations from the demagogues to the railroad men 
 to come and corrupt them. 
 
 There is little danger of a financial panic in this 
 country from the immediate actions of socialists, com- 
 munists, nihilists, or the liberators of Ireland by dyna- 
 mite. There is no mark in this country sufficiently 
 prominent to draw their sensation-seeking fire. The 
 peculiar glory which they covet can hardly be gained 
 by ruining our public buildings or slaughtering a score 
 of congressmen. But the destruction which they may 
 cause in Europe may react with disastrous effect upon 
 our trade and prosperity. 
 
 Whatever combination of circumstances tends to a 
 serious depression of prices may produce a panic, if not 
 well understood and wisely accepted. But the danger 
 of panic is much increased, if prices are artificially sus- 
 tained when they should naturally fall. 
 
 I think there are three ways in which there is danger 
 
40 Congested Prices. 
 
 that prices will be artificially sustained when they would 
 naturally decline, and by such artificial support the very 
 matter and form of panic may be provided : 
 
 First, the price of labor. It is sought by combina- 
 tions among the employed in every branch of trade and 
 manufactures to raise the compensation of labor to the 
 liighest possible point. These combinations, — trades 
 unions, brotherhoods or knights of labor — are very well 
 if managed with caution and sagacity. But the diffi- 
 culty just now is that workmen are inexperienced in 
 managing these combinations. They have a greatly 
 exaggerated idea of their importance and power. They 
 are determined to exact the last cent which employers 
 can be induced to pay, and to refuse to work and to 
 prevent others working, if they can't get it. As a con- 
 sequence, the largest part of the manufacturing of the 
 country is now carried on on a very light margin of 
 profit, if not at a positive loss. A slight fall in prices 
 would make manufacturing generally a losing under- 
 taking, unless a corresponding reduction in wages could 
 be effected. This, if we may judge from the present 
 temper of the combinations, would not be agreed to. 
 What is true of manufacturing is true of building and 
 mining and railroad operating, and of most of the forms 
 of production (except farming) in which labor is em- 
 ployed. 
 
 This condition of affairs is aggravated by a large im- 
 migration of laborers from Europe. The natural effect 
 of this immigration would be to stimulate manufac- 
 turing by providing cheaper labor. Under the control 
 
Prices of Railroad Securities. 41 
 
 of the combinations, however, the rate of wages is sus- 
 tained, and manufacturing and other forms of produc- 
 tion are barely maintaining average activity. The result 
 of this state of affairs, especially if there is a fall in 
 prices of manufactured goods, may be a panic among 
 manufacturers — a general rush to withdraw capital from 
 such unprofitable investments. 
 
 Second, the prices of railroad stocks and bonds may 
 be artificially sustained, above their natural level, so per- 
 sistently, that a sudden and ruinous break may be caused 
 by the sheer force of financial gravity. On the first of 
 January, 1879, there were in operation in the United 
 States about 81,000 miles of railroads. It is estimated 
 that there are now in operation about 115,000 miles. 
 There has been an addition of 42 per cent to the rail- 
 road mileage in four years. This is an enormous in- 
 crease, and greater than the increase of the industries 
 of the country in any other direction. The cost' of 
 these railroads has been taken from the surplus profits 
 of the country, or from its floating capital. Have the 
 people of this country earned this money, over and 
 above their cost of living, as fast as the railroad builders 
 have spent it? It seems impossible that they could 
 have done so, and, if not, it has been taken from the 
 floating capital. That is, we probably have put more 
 into fixtures than we can afford to. We see sometimes 
 a too sanguine merchant building a store so large that 
 with his remaining capital he cannot fill it with goods, 
 or a manufacturer providing himself such an extensive 
 
42 Congested Prices. 
 
 plant that he cannot operate it to advantage. It may- 
 be that, as a people, we are in the same condition. If 
 this is our case, the prices of railroad stocks and bonds 
 should be such as, at least, not to encourage further 
 expenditure in that direction. 
 
 But the conditions under which the prices of the rail- 
 road stocks and bonds are made are peculiar. The 
 facility with which investments can be made in these 
 securities and the ease with which they can be realized 
 upon are so great, that they draw a large proportion of 
 the free capital of the country. The machinery of the 
 Stock Exchange is well devised and smoothly operated. 
 Any one who wishes to make an investment has a long 
 list of stocks and bonds to choose from. He has but to 
 say a word and the particular security he wants is bought. 
 He pays for it and it is delivered to him, or if he wishes 
 to pay only a part of the price, his broker, without any 
 trouble to his customer, borrows the balance of the pur- 
 chase price and the customer is at liberty to complete 
 the transaction at any time. The purchaser has no an- 
 noyance with details, as he would in buying a house or a 
 farm, a factory or a mine, or in lending on mortgage or 
 on commercial paper. And likewise, if one wishes to 
 sell any of the securities quoted on the New York Stock 
 Exchange, he only gives the order and his property is 
 sold. It is delivered and paid for without a word. 
 There is no other kind of property which can be sold 
 and transferred with half this readiness and regularity. 
 The quickness and precision with which this machinery 
 of exchange is worked attracts capital and encourages 
 
- Bears. 43 
 
 speculation. As a consequence, a considerable part of 
 the capital in railroads is invested with the expecta- 
 tion of deriving profit, not from the earnings of the 
 property, but from the rise in price of the stock. The 
 result is a large and powerful influence, constantly at 
 work, to maintain a rising scale in prices. This influ- 
 ence exerts itself in many ways with extraordinary 
 shrewdness and perseverance, — in the publication of 
 favorable rumors, in exaggerating earnings and conceal- 
 ing expenses, m the formation of pools to sustain prices, 
 and in a thousand devices which cannot be detected or 
 described. 
 
 The danger is that these methods may be pursued too 
 long and too successfully, and that some day they may 
 be discovered to be deceptions, and a rush to sell all 
 railroad investments may follow. 
 
 Fortunately there are bears. In the ingenious machi- 
 nery of the Stock Exchange it is arranged that stocks and 
 bonds may be borrowed readily, and so any one who 
 thinks any of this property is selling at a higher price 
 than it is worth, may borrow it and sell it. This is 
 " selling short," and the seller is generally able to bor- 
 row the stock, which he has sold, for an indefinite period. 
 Oi course he must finally buy the stock and make a re- 
 turn of that which he borrowed. But so quickly and 
 easily is this process performed by the brokers, that it is 
 usually no more trouble to sell stocks before buying to 
 make a profit on the decline, than it is to buy before 
 selling to make profit on the rise. Thus bears are pro- 
 vided, speculators who operate for a fall. 
 
44 Congested Prices. 
 
 And very useful members of the commercial commu 
 nity are these bears, although they are visited with 
 much abuse and little sympathy. They are few in 
 number compared with the bulls — the sanguine specu- 
 lators for a rise — and they have comparatively little 
 capital with which to back their ventures. They are 
 usually hard-headed men who care nothing for popu- 
 larity, but have a great regard for facts. They are in- 
 credulous as to rumors, suspicious as to official state- 
 ments, and accept affidavits with caution. They are 
 doomed to pass long periods in moodiness and neglect, 
 while the sanguine crowd is exulting in rising prices, 
 and when prices fall and they grimly take their gains, 
 they are looked upon by the majority as the prophets 
 and contrivers of all their woes. 
 
 The bears do much to prevent prices rising much 
 above their natural level in the stock market, but they 
 are at best only spasmodic operators, and have not the 
 same permanent interest in the prices of railroad prop- 
 erties that the bulls have. Having capital and num- 
 bers on their side, it is highly probable that the bulls will 
 succeed in forcing prices up to a dangerously high 
 point, from which they may come tumbHng down, when 
 we suddenly discover that we have put too much of our 
 floating capital into railroad building. 
 
 Third, corners are the means of creating artificially 
 high prices, and preparing the market for panic and 
 general collapse. 
 
 Causing high prices of breadstuffs by manipulation 
 
Corners. 45 
 
 has always been reckoned shameful, and has been an 
 offense against law in all countries, civilized and un- 
 civilized. Forestall ing, buying a commodity on its 
 way to market with a view to enhance its price, en- 
 grossing, buying all or nearly all of a commodity in 
 the market, regrating, buying corn or provision: with, 
 the view of selling at a higher price in the same or a 
 neighboring market, — all mild forms of cornering were 
 offenses at common law, and were punished by the pil- 
 lory, by loss of property or by imprisonment. The 
 Roman law also punished dealers for these practices, and 
 for other misdemeanors calculated to raise the price of 
 provisions. This is also a crime in Oriental lands. No 
 longer ago than April, 1881, the Prince-Governor of 
 Karman, in Persia, cut off the ears and plucked out 
 the beard of a baker, who succeeded in cornering the 
 grain market of Karman. 
 
 This is also nominally forbidden by the statutes of 
 Illinois ; but the laws of Illinois are less carefully 
 enforced than those of Persia. There is a successful 
 corner in some kind of grain or provisions nearly every 
 month in Illinois, and no one is ever punished there- 
 for, except the rash men who expect that the law will 
 be enforced. 
 
 The use of the word "corner" in this sense is an 
 American invention, and its sense seems to be misap- 
 prehended in England. Bagehot, while saying that it 
 is an American "cant word," defined it to mean a 
 "gang of persons who obtain possession of the whole 
 supply of any article, and will only sell at an excessive 
 
46 Congested Prices. 
 
 price." The chief dictionary in use in England says a 
 " corner" is " a clique or party formed to take posses- 
 sion, &c." This is not a correct definition. The 
 gang, clique or party engaged in cornering the market 
 for any commodity are not spoken of as the corner. 
 Mr. C. F. Adams, Jr., is nearer right in defining it as 
 " the result produced by a combination of persons who, 
 while secretly holding the whole or the greater part of 
 any stock or species of property, induce another com- 
 bination to agree to deliver them a large further 
 quantity at some future time." But it is not necessary 
 that there should be a combination of persons, or that 
 the managers of the corner should first secretly hold 
 the whole or a large part of any commodity, or that 
 the agreements to deliver a further quantity should be 
 induced by them. A corner, according to our under- 
 standing, is that condition of the market for any com- 
 modity, when one person or party holds all of the 
 commodity in that market and also holds contracts for 
 the delivery of a considerable quantity more. The 
 object of creating a corner is to compel those who have 
 contracted to deliver the commodity to pay an exor- 
 bitant price for it. 
 
 The public has two standpoints from which it regards 
 corners, especially corners in grain or provisions, and 
 it depends on its temper at the time which view it 
 takes. 
 
 In times of adversity, when trade is dull and profits 
 are small and wages are low, and the closest economy 
 in means of living is necessary, then a corner in pro- 
 
The Profit of Corners. 47 
 
 visions is felt as a tax on each man's bread. Then it is 
 regarded as forestalling was regarded in the days of the 
 Henrys and the Edwards, as an offense against public 
 trade which must be suppressed and punished. Then 
 the public denounces corners, and the legislature makes 
 laws against them. But when matters are more pros- 
 perous, when wages are fair and everyone has enough to 
 eat, and there is little anxiety as to the future, then the 
 farmers rejoice in the high prices of wheat or corn or 
 pork or lard, although they have sold what they have 
 had, they have more coming on, and it is not easy to 
 make the prices seem exorbitant to them. Then the 
 spirit of speculation is abroad in the land, and there is 
 a sympathy with and a gratification at higher prices; 
 then there is scorn for the men who "sell what they 
 haven't got," and a satisfaction in making them pay 
 roundly for their temerity. Looking from this stand- 
 point the public approves corners, and the law, which 
 the legislature has placed on the statute-book against 
 them, is a dead letter. 
 
 It is, however, as they create artificial prices that I 
 wish especially to call attention to corners. It is the 
 general testimony of experts in cornering markets, that 
 with few exceptions corners are unprofitable to those 
 engaged in them. It is almost impossible to sell the 
 commodity after the corner is completed for enough to 
 cover first cost, and frequently the loss in marketing the 
 stock which has accumulated is greater than the amount 
 which has been squeezed from the shorts. A corner in 
 
48 Congested Prices. 
 
 any prominent article of commerce, such as grain or 
 cotton, deranges the course of trade and makes sub- 
 sequent prices irregular and uncertain. The effect of 
 the great corner in wheat in 1879 '^^'^ 1880 was the sus- 
 pension of exports of this product to Europe, the 
 reduction of ocean rates to nominal figures, the driving 
 of many vessels from New York to foreign ports and 
 the opening of the wheat export trade of Calcutta. 
 This was a permanent damage to the productive indus- 
 tries of this country. It happened that this corner was 
 thoroughly carried to its legitimate conclusion. It 
 was not a mere conspiracy to squeeze a few shorts. The 
 syndicate, who bought nearly all the wheat in the coun- 
 try, seemed to have believed that Europe must have it at 
 any price, and they looked for a large profit in selling it 
 for actual consumption. But they were greatly in 
 error. They found that the world could get on for 
 awhile without their wheat, and they were at last willing 
 to close out their speculation at a considerable loss. 
 
 The influence which this great corner exercised on 
 the wheat trade of the world, the lesser corners, which 
 are at times almost of monthly occurrence on the Chi- 
 cago Board of Trade, exercise also, only in a less marked 
 manner. They demoralized trade and create fictitious 
 prices. 
 
 Much has been said in the newspapers about the cor- 
 ner in spring wheat in July 1882. This corner was 
 successful, as corners go. The shorts were forced to 
 settle their contracts, after a prolonged and stubborn 
 contest, at prices greatly beyond what the property 
 
The Losers by Corners. 49 
 
 could be sold for, for actual consumption. And yet the 
 accounts of the corner, if they are settled, cannot show 
 any very satisfactory result. There were about 1 6,000,- 
 000 bushels of spring wheat bought by the clique at 
 prices not varying far from 1.25. Of this, 6,000,000 
 bushels were delivered, being all the No. 2 spring wheat 
 in the Chicago elevators, and on 10,000,000 bushels the 
 difference between 1.25 and 1.35 (the settling price fixed 
 by the committee) was paid, amounting to about §1,000,- 
 000. But the clique were obliged to sell the 6,000,000 
 bushels of wheat, which they had on hand, to consum- 
 ers. The greater part was exported. It could not 
 have been sold at prices equal to one dollar per bushel 
 in Chicago, and much of it undoubtedly went for less. 
 However, if we reckon the 6,000,000 bushels sold at 
 one dollar per bushel, there is a loss to the clique of 
 $1,500,000, which is partly paid by the §1,000,000 
 squeezed from the shorts, leaving as net cost to the 
 clique, for the pleasure and excitement of cornering the 
 market, §500,000. 
 
 If the clique and the shorts together lost §1,500,000, 
 who gained it ? Undoubtedly a large part of this sum 
 went to the producers of the wheat. The farmers or 
 their agents realized twenty-five cents per bushel more 
 for this 6,000,000 bushels, than they would if it had 
 been sold directly to the consumer, and had not been 
 cornered on the way. 
 
 And yet, in the long run, perhaps the farmers are 
 greatest losers from corners. For the artificial prices 
 created by corners give them extravagant ideas of the 
 
 4 
 
50 Congested Priees 
 
 value of their produce, lead them to look not to legiti- 
 mate demand but to manipulation of the market for 
 their profit, and tend to form for their calculations 
 unreal and unsafe bases. 
 
 It is not, perhaps, possible for a financial panic to be 
 directly caused by a corner, or a series of corners, in 
 grain or provisions, as matters are at present conducted 
 in our exchanges. But it is hardly possible to overlook 
 the danger in these periodically inflated prices. As long 
 as the speculators alone suffer, the public may be careless, 
 and the farmers may chuckle and approve. But some 
 day one of these corners will squeeze the consumers 
 perceptibly. Already it is asserted that the high price 
 at which American corn is held is stimulating production 
 in new fields. Some day we may find that, with a large 
 supply of breadstuff in the country, there is much suffer- 
 ing among the poorer people, and inability in Europe to 
 pay our prices. And then we may find that European 
 markets are filled with other grain, and that ours is not 
 wanted. If such a condition of our trade were rapidly 
 brought about, it would undoubtedly cause a most 
 destructive panic and fall in prices. 
 
 Bagehot has expressed the opinion that a rise in prices 
 is started by some large profit in some trade or line of 
 production. The people engaged in this line find that 
 they are accumulating a surplus, and have something 
 more to spend. This stimulates production in other 
 
Natu7-al Decline in Pi-ices. 51 
 
 trades, and gradually the whole commercial world is 
 filled with confidence and a belief in higher prices. 
 
 It seems to me that the downward movement is pro- 
 duced in a similar way by a great loss in any trade or 
 line of production. This loss should cause a curtail- 
 ment of expenditure, less activity in trade, a lessening 
 of confidence, and a belief in lower prices. 
 
 If this view is correct, it is the part of intelligence to 
 see the fact when it exists, and the part of wisdom to 
 accept the legitimate consequences cheerfully. We 
 cannot always be blessed with rising pnces. Sometimes 
 the tendency must be in the opposite direction. De- 
 clining prices are not necessarily caused by folly, 
 carelessness or wickedness. They cannot be prevented 
 by wisdom, diligence and righteousness. Declining 
 prices are not disgraceful, and may not even indicate a 
 general cessation of prosperity. Periods of declining 
 prices are marked by careful accounting, by closer 
 criticism of business methods, by diminished waste, by 
 the better adapting of means to ends. In such periods 
 invention is stimulated and good habits are strength- 
 ened. 
 
 But declining prices do not imply congested prices. 
 Seasons of declining prices must come, but panics may 
 be avoided. We are just now probably in a period of 
 declining prices. There has been a great fall in the 
 price of iron, and a great curtailment of profit in that 
 trade. It is inevitable, if the theory here described is 
 correct, that this loss should spread to other trades and 
 lines of production and result in a lessened demand for 
 
52 Cofigested Prices. 
 
 all commodities and a general fall in prices. If the 
 commercial world accepts this inevitable decline calmly 
 and intelligently, and judiciously provides for it, its 
 consequences may be strengthened credit, better organ- 
 ized machinery of trade, a broader and safer basis for 
 future production. But if it is resisted by the various 
 means I have indicated, it is possible that panic and all 
 the disastrous consequences may be imminent. If 
 demagogues endeavor to sustain prices by meddling 
 with the currency or attacking the railroads ; if the 
 combinations of laborers maintain artificial prices for 
 labor, or the combinations of capitalists artificial prices 
 for stocks and securities, or the combinations of specu- 
 lators artificial prices for grain, provisions and other 
 commodities, the whole falsehood will some day be 
 suddenly and generally recognized. Then prices will 
 come down with a run, in a state of violent and painful 
 congestion, and the consequences it will require years 
 to realize. 
 
 iVay 7, 1S83. 
 
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