Loyola University Chicago Loyola eCommons Master's Theses Theses and Dissertations 1938 A Comparative Study of the Banking Crises in the Panic of 1907 and the Depression of 1929-1933 Esther H. Calvert Loyola University Chicago Follow this and additional works at: https://ecommons.luc.edu/luc_theses Part of the History Commons Recommended Citation Calvert, Esther H., "A Comparative Study of the Banking Crises in the Panic of 1907 and the Depression of 1929-1933" (1938). Master's Theses. 3457. https://ecommons.luc.edu/luc_theses/3457 This Thesis is brought to you for free and open access by the Theses and Dissertations at Loyola eCommons. It has been accepted for inclusion in Master's Theses by an authorized administrator of Loyola eCommons. For more information, please contact [email protected]. This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License. Copyright © 1938 Esther H. Calvert A COMPARATIVE STUDY OF THE BANKING CRISES IN THE PANIC OP 1907 AND THE DEPRESSION OF 1929-33 BY ESTHER H. CALVERT A THESIS SUBMITTED IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF MASTER OF ARTS IN LOYOLA UNIVERSITY FEBRUARY 1938 ' c " (' ~ ' :' " ' ~ ' / / ' VITA The author, Esther H. Calvert, was graduated from the Englewood High School, and from the Chicago Normal College. She received her P.H.B. Degree in the field or Education at the Un1vera1ty of Chicago, and did graduate work in the field ot History at Loyola University for a Master or Arts Degree. Her teaching experience, which began 1n 1917, in the employ or the Chicago Board ot Education, haa been largely confined to the eighth grade level. PREFACE It is the purpose or this research to determine the contri­ buting factors in the banking crises of 1907 and 1929-33. The latter crisis shows that precautions taken after the catastrophe of 1907 were not auff1c1ent to avert one which proved even more serious. Thia study, however, is limited to those elements which were responsible for the widespread breakdown of the banking system. D1s~u~aions or each of these crises and the legislation which followed, occupied page after page of the country's newspapers for days, weeks, and months. All worthwhile periodical• carried views of the nation's outstanding commentators. The Congressioml Record bore testimony of the debates which preceded all legisla­ tion. Numerous other sources, both primacy and secondary, make possible the weighing of evidence, which alone makes research of value. Thia material may be•found in the Chicago Public Library, the Newberry Library, the Crerar Library, and in the library of the First National Bank of Chicago. G.ratitude !s hereby expressed to Reverend Joseph Roubik, S.J., and Dr. Paul Klniery for the interest shown by them in my work; and in particular to Mr. John A. Zvetina for the many helpful suggestions and constructive criticisms necessary to the writing of this thesis. Esther H. Calvert . Chicago, February 1938 CONTENTS Page Chapter I. HISTORY OF BANKING PRIOR TO 1907 •••••••••• 1 The First United Statee Bank--Seoond United States Bank•-Prea1dent Jackson•a opposition•• Pet Banka--The National Banking Syatem--Use of bank deposits for industrial expansion. Chapter II• THE BANKING CRISIS IN THE .PANIC OF 190'1 • • • Cauee--Erfect upon the nation as a whole--Need tor remedial legislation. Chapter III. THE POSTAL SAVINGS SYSTEM••••••••••••••••• Opposition of the banking groupa--Argumenta ot thoae favoring the bill--Preaident Taft approves the bill, June 25, 1910--Excerpts ot the bill--The bill in operation. Chapter IV. THE FEDERAL RESERVE ACT ••••••••••••••••••• The work of Aldrich--or Glasa--Att1tude of the Democrata--or the Repub11cana--Of' Presi• dent Wilson--Currency Bill approved-·Ita pur­ pose. Chapter V. THE DEPRESSION OF 1929 •••••••••••••••••••• The Stock Market craah of October 1929-­ Events leading to the crash--Effect upon the nat1on--Reconstruction Finance Corporation-­ Glass-Steagall Act, pro and con--Approved b1 Prea1dent Hoover. Chapter VI. INSTABILITY OF BANKING•••••••••••••••••••• Signs or weakening--Fear.f'ul depositors-­ Bank rune and collapsea--Emergenc1 Banking Laws and President F. D. Roosevelt--Banking Act of 1933. Chapter VII. 1907•08 VERSUS 1929-33 •••••••••••••••••••• Comparative study of the causes, effects, res·ults, similarities and d1sa1m1lar1t1es. BIBLIOGRAPHICAL ESSAY •••••••••..••.••••••••••••••••••••••• INTRODUCTION' Many reasons have been advanced regarding the Nation's financial collapse in the year 1907. The· theory or panic cycle• promulgated by some is given little credence. Comparative atu~ hoaever, or the tangible reasons, through the use ot contempor­ aneous materials, replace abstract ideas with concrete tacts. From these facts we hope to arrive at the real solution or our problem. Because the banking problem 1s so very pertinent to our ·subject, the entire first chapter la given over to that field, only to the extent which will serve to make meaningful the related matter. The panic of 1907 is dealt with in a more de­ tailed manner, tor too much emphaa~s cannot be laid upon the \-.,..,,(} /,' I , ) ..,, fact that !t was not a chance happening nor the result or care- fully laid plans, but the outcome or a faulty banking system. The reforms which follow are merely the answer to a direct tieed / . to safeguard the rinances of the pe~~le and nation. \\ .· /< . ,._. (" ., ·' ;., /~ L< , \With the Stock Market crash .or October, 1929, subsequent 1nvest1gat1one and 1ncreae1ng bank failures, the average citizen •as again made aware of the unstable financial structure or the nation's banking institutions~] Once more was seen the need tor legislation which would tend to make more secure the savings of those whose earnings bad been placed in those institutions for safe keeping. This takes us to a discussion of the Glass­ steagall Bill, an amendment which modifies the Federal Reser'Ve Act, and which was passed during the Hoove~ administration; as ~ well as the Banking Act of 1933. A comparative study of the crises will briefly digest the foregoing material, oa.111ng atten­ tion, in particular, to underlying causes, similarities and dis­ similarities, and remedial measures. CHAPTER I. HISTORY OF BANKING PRIOR TO 1907 ------- The First United States Bank••Second United States Bank--Preaident Jackaon•e oppoe1t1on-­ Pet Banka--The National Banking Syatem--Uae of bank depoaite tor induatrial expansion. CHAPTER I. HISTORY OF BANKING PRIOR TO 1907 It was during the Presidency of Washington that Alexander Hamilton, Secretary of the Treasury, fostered the idea of a national bank as a means of improving the national credit of the new government. Such an institution he claimed would be instru­ mental in the sate keeping or public funds, transmission of public monies, collection of revenue, and in the making of loans~ In his "Report on a National Bank", which may be found in The Works of Alexander Hamilton, is the statement " ••• it is the mani­ fest design and scope or the Constitution, to vest in Congress all the powers requisite to the effectual administration of the finances of the United States ••• banks are the usual engine in .. 2 the administration of national finances • • • • Just as there bad been opposition to the adoption of the \Constitution because of its centralizing tendencies, there was oppoait1on to the bank. Its Republican opponents headed by Jefferson, maintained that the Constitution contained no prov1sicn 1• Great ·Debates in American Histoi:z, edltsed by Marion M. Miller tcurrent Literature Pub. Co., N. Y., 1913) Vol. 13. p~ 32 2• The Works ot Alexander Hamilton, Comprisifif His Most Im­ ~tant otHclal Reports, (Williams and w t!ng,.....-;-y-:; 1810) p. ig2. l. 2. empowering Congress to Create the bank. 3 With the success of the Federalists, however, the act 1noor- porating the First United States bank in accordance with the plan submitted by Hamilton, made possible the opening of a central bank at Philadelphia on December 12, 1791. Its charter was for a 4 period of twenty years. We will not concern ourselves with its operations, but will move on hurriedly to the year 1808 when the shareholders began to petition for the renewal of the charter which was to expire in 1811. Note only was this opposed by the adherents to the policy of strict construction of the Constitut1ai, but by the political enemies ot Gallatin, Secretary of the Treasury. He, in his report to the Senate, had stated that the Bank was "wisely and skillfully managed", and had urged that its charter be renewed.5 There was also an unfriendly attitude on the part of the many state banks which had been established since 1790, and which kept an eye to their own interests.a According to Roy Garia, Principles ,.2! Money, Credit ~ Banking, a motion to postpone action on rechartering the bank was passed 65 to 64, on January 24, 1811. On February 20, 1811 a similar bill was passed in the ~•Harold R. Bruce, American Parties !ru! Polit1ca,(Henry Holt and '-B~v!sNA.Y~6tiy~>Fina~§!al Hiatofl ot the United States, Long­ s,•ans, Green and Co. N• Y • 1 192 • p.- TOU. I !_bad.,p. 126, See a 1so Roy L. Garis, Princ1Elea or Money, Credit !!!_ Banking, Macmillan Co., N.Y., l93i, P• 3S. ~ 6 •Dewey, p. 126. 3. senate, against the bank, at which time the Vice-President voted 7 against it in order to break a tied vote of 17 to 17. Then came the War of 1812, and a disordered condition fol­ lowed making apparent the need of a banking institution which would exert a stabilizing influence upon the Government by 1upplying financial revenue to the Treasury Department, and by restoring a national currency or circulating medium. The Govern­ ment had been forced to depend upon state banks, and when these bad suspended specie payments, the Treasury operations were paralyted.8 It was at thia time that John c.