The Panic of 1893 marked a grave time in United States history. Journalist and historian Henry Adams wrote, "Men died like flied under the strain... Boston grew suddenly old, haggard, and thin" (Brands, 2010). So, what caused such a recession? And, how did John Pierpont Morgan save the day?
Cause The Panic of 1893 originated with debate over the gold standard. While the gold standard had been abandoned during the Civil War, it was enforced again in the 1870's. In 1878, with the passing of the Bland-Allison Act, however, the United States Treasury had to begin producing silver coinage at a sixteen to one silver to gold ratio. The Sherman Silver Act of 1890 required the government to purchase more silver for coinage (Gordon, 2010, p.66). This then diminished the actual value of silver, because when supply of anything increases, its value decreases. |  J.P. Morgan lends a helping hand to Uncle Sam (Gordon, 2010, p.67) |
The actual silver to gold ratio became twenty to one; however, given the Bland-Allison Act, the government still had to coin silver at a ratio of sixteen to one (ibid.). Hence, silver coins were worth much less than gold coins. People began hoarding the gold tender and using only the silver tender, leading to inflation. Investors, worried about the value of their money, began a run on the Treasury by demanding for their investment in gold. Upon learning of the dire situation in which the Treasury stood, J.P. Morgan rushed to Washington, D.C., and demanded to meet with President Cleveland. Not wanting to sully his reputation by cavorting with a Wall Street giant, Cleveland denied a meeting with Morgan at first. However, when Cleveland heard that the Treasury had only $9 million in gold, and that one investor had a $10 million draft which could be drawn at any moment, he relented. Traditionally, the Treasury kept $100 million in gold (Brands, 2010).
 J.P. Morgan leads politicians (including Theodore Roosevelt) like the Pied Piper (Brands, 2010). | J.P. Morgan's Effect Advisors to the Treasury had suggested that the government offer public bonds to raise the funds to bolster the Treasury. J.P. Morgan believed that this option would take too long. Therefore, he offered to grant the Treasury a $100 million bond. To do so, Morgan had to call upon an old Civil War statute which allowed the selling of bonds privately in times of dire need. Cleveland, realizing that to borrow so much money from Morgan would certainly end his career, only accepted $60 million (Brands, 2010). |
Despite his precautions, Cleveland still gave the impression that J.P. Morgan was greater than the United States Treasury. Democrats would cry that Cleveland "crucified mankind on a cross of gold" (ibid.). Of course, Morgan's actions also created a significant amount of distrust towards himself, as well. However, the United States required J.P. Morgan's bold move to replenish the supply of gold in the Treasury and stabilize the value of the dollar. Dire situations require direct and fearless measures, for, as Morgan stated,
"You cannot pick cherries with your back to the tree." -- J.P. Morgan (Timmons, 2002, p.124)
Did you know?
It was said that simply walking down Wall Street next to J.P. Morgan would make your career, proving that it is not what you know, but who you know (Gordon, 1989).
