A Brief History of Panics | Page 2

panic is always a financial panic, as a falling
away of the metallic reserve indicates its breaking out; and I have only
translated that portion dealing with the United States, deeming the rest
unnecessary, for this amply illustrates and proves the theorem in hand.
To this sketch of the financial history of the United States up to 1889,
when M. Juglar published his second edition, I have added a brief
account to date, including the panic of 1890, the table headed "National
Banks of the United States," and some additions to the other tables
scattered through this book.
From the prefaces to the French editions of 1860 and of 1889, and other
introductory matter, I have condensed his theory as follows:
A Crisis or Panic may be defined as a stoppage of the rise of prices:
that is to say, the period when new buyers are not to be found. It is
always accompanied by a reactionary movement in prices.
A panic may be broadly stated as due to overtrading, which causes
general business to need more than the available capital, thus producing
general lack of credit. Its precipitating causes are broadly anything
leading to overtrading:
In the United States they may be classed as follows:
I. PANICS OF CIRCULATION, as in 1857, when the steadily
increased circulation, which had almost doubled in nine years, had
rendered it very easy to grant excessive discounts and loans, which had
thus over-stimulated business, so that the above relapse occurred; or,
we may imagine the converse case, leading to a quicker and even
greater disaster: a sudden and proportionate shrinkage of circulation,
which, of course, would have fatally cut down loans and discounts, and
so precipitated general ruin.
2. A PANIC OF CREDIT
, as in 1866, when the failure of Overend, Gurney, & Co. rendered the
whole business world over cautious, and led to a universal shrinkage of
credit. [I take the liberty of adding that it seems evident to me that such
a danger must soon confront us in the United States, unless our Silver
Law is changed, because of a finally inevitable distrust of the

government's ability to keep 67-cent silver dollars on an equality with
100-cent gold dollars.]
3. PANICS OF CAPITAL, as in 1847, when capital was so locked up
in internal improvements as to prove largely useless.
4. GENERAL TARIFF CHANGES. To the three causes given above
the translator adds a fourth and most important one: Any change in our
tariff laws general enough to rise to the dignity of a new tariff has with
one exception in our history precipitated a panic. This exception is the
tariff of 1846, which was for revenue only, and introduced after long
notice and upon a graduated scale. This had put the nation at large in
such good condition that when the apparently inevitable Decennial
Panic occurred in 1848 recovery from it was very speedy.
The reason for this general effect of new tariffs is obvious. Usual prices
and confidence are so disturbed that buyers either hold off, keeping
their money available, or else draw unusually large amounts so as to
buy stock before adverse tariff changes, thus tightening money in both
ways by interfering with its accustomed circulation. This tendency
towards contraction spreads and induces further withdrawal of deposits,
thus requiring the banks to reduce their loans; and so runs on and on to
increasing discomfort and uneasiness until panic is speedily produced.
The practical coincidence and significance of our tariff changes and
panics is shown by an extract below from an article written by the
translator in October-November, 1890, predicting the recent panic
which was hastened somewhat by the Baring collapse. [Footnote:
_Inter-relations of Tariffs, Panics, and the Condition of Agriculture, as
Developed in the History of the United States of America_.
This brief sketch of our economic history in the United States seeks to
show that Protective Tariffs have always impoverished a majority of
our people, the Agriculturists; that agriculture has thus been made a
most unprofitable vocation throughout the States, and that this
unsoundness at the very foundation of the business of the American
people has often forced our finances into such makeshift conditions,
that under any unusual financial strain a panic, with all its wretched
accompaniments, has resulted.
To consider this properly, we must note the well known fact that in this
land, those who live by agriculture directly, are more than one half of
our population. Their votes can cause to be made such laws as they see

fit, hence, one would expect the enactment of laws to raise the price of
farm products, and to lower the price of all that the farmer has to buy.
But the farmers vote as the manufacturers and other active classes of
the minority of our voters may influence;