The New York Stock Exchange in the Crisis of 1914 (WWI Centenary Series)

Henry George Noble

• Publisher: Last Post Press
• Year: 2016
• ISBN:
  9781473367432
• Topic: History
• Subtopic: World War I
• Index: History

This early work by Henry George Noble was originally published in 1915 and we are now republishing it as part of our WWI Centenary Series. 'The New York Stock Exchange in the Crisis of 1914' is as essay on the economic effects of the onset of World War One. The work details the period of suspension of the stock exchange and its reopening and elucidates the lessons to be learned from the crisis. This book is part of the World War One Centenary series; creating, collating and reprinting new and old works of poetry, fiction, autobiography and analysis. The series forms a commemorative tribute to mark the passing of one of the world's bloodiest wars, offering new perspectives on this tragic yet fascinating period of human history. Each publication also includes brand new introductory essays and a timeline to help the reader place the work in its historical context.

CHAPTER I

THE CLOSING OF THE EXCHANGE

The Stock Exchange is in the second century of its existence and in that long period of time (long relatively to the number of years during which Stock Exchanges have been known to the world) it has been forced to close its doors only twice. The first occasion was the great panic of 1873, the after effect of civil war when trading was suspended for ten days; the second came with the outbreak of the world War in the close of July, 1914. These two remarkable events differ profoundly in the gravity of the circumstances which brought them about. In 1873, although the financial disturbance was one of the greatest the United States has ever experienced, the trouble was mainly local and did not seriously involve the entire world. The Exchange was not closed in anticipation of a catastrophe but was obliged to shut down after the crash had taken place, in order to enable Wall Street to gather up its shattered fragments. The measure of this crisis was the ten days during which trading was suspended.

Far different from these were the circumstances surrounding July 31st, 1914. On that eventful date a financial earthquake of a violence absolutely without precedent shook every great center of the civilized world, closing their markets one by one until New York, the last of all, finally suspended in order to forestall what would have surely been a ruinous collapse. The four and a half months during which this suspension continued stand to the ten days closing of 1873 in a proportion which fitly illustrates the relative gravity of the two historic upheavals.

In the light of these facts we are justified in asserting that the events of 1914 are the most momentous that have so far constituted the life and history of the New York Stock Exchange, and consequently that some record of, and commentary upon, these facts may be of value to the present members of that body and of interest and profit to its future members.

It is in the nature of panics to be unforeseen, but the statement may be truly made that some of them can be more unforeseen than others. The panic of 1907 was preceded by anxious forebodings in the minds of many well informed people, whereas the Venezuela panic in 1895, being due to the sudden act of an individual, came out of a clear sky. To the latter class distinctively belongs the great convulsion of 1914. While the standing armies of Europe were a constant reminder of possible war, and the frequent diplomatic tension between the Great Powers cast repeated war shadows over the financial markets, the American public, at least, was entirely unprepared for a world conflagration. Up to the final moment of the launching of ultimata between the European governments no one thought it possible that all our boasted bonds of civilization were to burst over night and plunge us back into mediæval barbarism. Wall Street was therefore taken unaware, and so terrific was the rapidity with which the world passed, in the period of about a week, from the confidence of long enduring peace to the frightful realization of strife, that no time was given for men to collect their thoughts and decide how to meet the on-rushing disaster.

Added to the paralyzing effect of this unheard of speed of action, there came the disconcerting thought that the conditions produced were absolutely without precedent. Experience, the chart on which we rely to guide ourselves through troubled waters, did not exist. No world war had ever been fought under the complex conditions of modern industry and finance, and no one could, for the moment, form any reliable idea of what would happen or of what immediate action should be taken. These circumstances should be kept clearly in mind by all who wish to form a clear conception of this great emergency, and to estimate fairly the conduct of the financial community in its efforts to save the day.

The conditions on the Stock Exchange, when the storm burst, were in some respects very helpful. Speculation for several years had been at a low ebb, so that values were not inflated nor commitments extended. Had such a war broken out in 1906, with the level of prices then existing, one recoils at the thought of what might have happened. Furthermore, the unsettled business outlook due to new and untried legislation had fostered a heavy short interest in the market, thereby furnishing the best safeguard against a sudden and disastrous drop. This short interest was a leading factor in producing the extraordinary resistance of prices in New York which caused so much favorable comment during the few days before the closing. It were well if ill-informed people who deprecate short selling would note this fact.

During the week preceding July 31st, therefore, in the face of a practical suspension of dealings in the other world markets, the New York market stood its ground wonderfully. The decline in prices, though it became violent on July 30th, showed no evidence of collapse. There was a continuous market everywhere up to the last moment, and call money was obtainable at reasonable prices. Here was a perplexing problem when the closing of foreign Bourses raised the question of how long we should strive to keep our own Exchange open.

To close the recognized public market for securities, the market which is organized and safeguarded and depended upon as a standard of values, is an undertaking of great responsibility in any community. To take this step in New York, which is one of the four preeminent financial centers of the world, involved a responsibility of a magnitude difficult adequately to estimate. Upon the continuity of this market rest the vast money loans secured by the pledge of listed securities; numberless individuals depend upon it in times of crisis to enable them to raise money rapidly by realizing on security investments and thus safeguarding other property that may be unsaleable; the possessor of ready money looks to it as the quickest and safest field in which to obtain an interest return on his funds; and the business world as a whole depends upon it as a barometer of general conditions.

Add to this the fact that speculative commitments by individuals from all over the world, which have been based upon the expectation of an uninterrupted market, are left in hopeless and critical suspense if this market is suddenly removed, and it becomes apparent that to close the Exchange is manifestly to inflict far-reaching hardship upon vast numbers of people. It is also sure to be productive of much injustice. In bad times sound and solvent firms are anxious to enforce all their contracts promptly so as to protect themselves against those that are overextended; an obligatory suspension of business compels these solvent firms, in many cases, to help carry the risks of the insecure ones and deprives the provident man of the safety to which he is entitled.

When such facts as these are duly weighed by the agencies having the authority to close the stock market, it becomes clear that duty dictates a policy of hands off as long as a continuous market persists and purchasers continue to buy as the decline proceeds. This was well illustrated in the acute panic of 1907 when an enormous open market never ceased to furnish the means by which needy sellers constantly liquidated, and the possessors of savings made most profitable investments. To have closed the Exchange during that crisis—assuming it to have been possible—would have been an unmixed evil. The violent decline in prices was the natural and only remedy for a long period of over-speculation, and it would have been worse had it been artificially postponed.

Considerations of this general character, up to July 30th, caused the authorities of the New York Stock Exchange to take no action, although the other world markets had all virtually suspended dealings. On July 30th, the evidences of approaching panic showed themselves. An enormous business was done accompanied by very violent declines in prices, and, although money was still obtainable throughout the day, at the close of business profound uneasiness prevailed.

* * * * *

On the afternoon of July 30th, the officers of the Stock Exchange met in consultation with a number of prominent bankers and bank presidents, and the question of closing the Exchange was anxiously discussed. While the news from abroad was most critical, and the day’s decline in prices was alarming, it was also true that no collapse had taken place and no money panic had yet appeared. The bankers’ opinion was unanimous that while closing was a step that might become necessary at any time, it was not clear that it would be wise to take it that afternoon, and it was agreed to await the events of the following day. Meanwhile, several members of the Governing Committee of the Exchange had become convinced that closing was inevitable and, in opposition to the opinion of the bankers, urged that immediate steps be taken to bring it about. It may seem strange to people outside of Wall Street that the night before the Exchange closed such apparent indecision and difference of opinion existed. It was, however, a perfectly natural outcome of an unprecedented situation. The crisis had developed so suddenly, and the conditions were so utterly without historic parallel, that the best informed men found themselves at a loss for guidance.

During the evening of July 30th the conviction that closing was imperative spread with great speed among the large brokerage firms. Up to a late hour of the night the President of the Exchange was the recipient of many messages and telegrams from houses not only in New York, but all over the country, urging immediate action. The paralysis of the world’s Stock Exchanges had meanwhile become general. The Bourses at Montreal, Toronto and Madrid had closed on July 28th; those at Vienna, Budapest, Brussels, Antwerp, Berlin, and Rome on July 29th; St. Petersburg and all South American countries on July 30th, and on this same day the Paris Bourse was likewise forced to suspend dealings, first on the Coulisse and then on the Bourse itself. On Friday morning, July 31st, the London Stock Exchange officially closed, so that the resumption of business on that morning would have made New York the only market in which a world panic could vent itself.

The Governing Committee of the Exchange were called to meet at nine o’clock (the earliest hour at which they could all be reached, for it was summer and many were out of town) and at that hour they assembled in the Secretary’s office ready to consider what action should be taken. In addition to the Committee many members of prominent firms appeared in the room to report that orders to sell stocks at ruinous prices were pouring in upon them from all over the world and that security holders throughout the country were in a state of panic. It would be hopeless to try to describe the nervous tension and excitement of the group of perhaps fifty men who consulted together under the oppressive consciousness that within forty-five minutes (it was then a quarter past nine) an unheard of disaster might overtake them. It was determined that the Governing Committee should go into session at once as there was so little time to spare. Just as they started for their official meeting room a telephone message was received from a prominent banking house stating that the bankers and bank presidents were holding a consultation and suggesting that the Exchange authorities await the conclusion of their deliberations.

There is an employee of the Exchange whose duty it is to ring a gong upon the floor of the big board room at ten o’clock in the morning. Until that gong has rung the market is not open and contracts are not recognized. This employee was instructed not to ring the gong until he had received personal orders to do so from the President; a permanent telephone connection was established with the office in which the bankers were conferring, and amid a horrible suspense the outcome of their conference was awaited. For twenty minutes this strain continued. It was a quarter before ten and only fifteen minutes remained in which to act. Meanwhile the brokers were fast assembling upon the board room floor, orders were piling in upon them to sell at panic prices, ten o’clock was approaching, and although all felt that the opening should not be permitted no one had a word from the Governing Committee as to what was going to be done.

* * * * *

At a quarter of ten, no word having come from the bankers, the receiver of the telephone which had been connected with their meeting place was hung up, and the Governing Committee were called in session to take action. As they took their seats two messages reached them. One was brought by a prominent member of their body who had gone to the office of the President of the bank Clearing House and had been told by him, after consulting with some of his fellow officers, “We concur; under no circumstances is it our suggestion, but if the Exchange desires to close, we concur.” The other was sent, through a member of the Exchange, from one of the leading bank Presidents who stated that closing would be a grave mistake and that he was opposed to it.

The roll was called and thirty-six out of the forty-two members answered to their names. The Chair having announced the purpose of the meeting, Mr. Ernest Groesbeck moved that the Exchange be closed until further notice. This motion was carried, not unanimously but by a large majority. Mr. Groesbeck then moved that the delivery of securities be suspended until further notice, and, this being carried unanimously, made a third motion that a special Committee consisting of four members of the Governing Committee and the President be appointed to consider all questions relating to the suspension of deliveries and report to the Governing Committee at the earliest possible moment. The third motion, like the second was carried unanimously and the Committee adjourned. It was then four minutes of ten. On the instant that the first motion closing the Exchange was passed, word was sent to the ticker operators to publish the news on the tape. In this way the seething crowd of anxious brokers on the floor got word of the decision before ten o’clock struck. Immediately upon the adjournment of the Committee Mr. George W. Ely the Secretary of the Exchange ascended the Chairman’s desk in the board room and made the formal announcement, which was greeted with cheers of approbation. The President promptly appointed Messrs. H. K. Pomroy, Ernest Groesbeck, Donald G. Geddes, and Samuel F. Streit to constitute, with himself, the Committee of Five, and the long suspense and anxiety of four months and a half began.

These events, which were crowded into a few feverish hours, and which seemed to those who participated in them more like a nightmare than like a reality, present some aspects that are especially worthy of detailed description. It is noticeable that the vote to close the Exchange was not unanimous. This shows the immense complexity of a situation, which, even at the last moment, left some two or three conscientious men undecided. It is a fact of profound importance, and one that never should be forgotten by stock b...

Table of contents

• THE NEW YORK STOCK EXCHANGE IN THE CRISIS OF 1914
• Introduction to the World War One Centenary Series
• A Timeline of the Major Events of World War One in Europe
• INTRODUCTION
• CHAPTER I
• CHAPTER II
• CHAPTER III