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The Hot Money Movement and the Private Exchange Pool Proposal of 1896*

Published online by Cambridge University Press:  03 February 2011

Matthew Simon
Matthew Simon
Affiliation:
Pace College
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Extract

A Widespread belief exists that those disequilibrating international capital flows known as “hot money movements” and the associated measures instituted to regulate transactions in foreign exchange were peculiar to the post-1914 era and especially to the epoch of the “Great Depression” that commenced after 1929. It is felt that the “relative” stability of world economic and political conditions associated with the operation of the pre-1914 gold standard precluded “hot money” transfers and obviated the need to control the foreign exchange market.1 The experience of the United States during the depression of the 1890's vitiates the accuracy of this sweeping generalization. To be sure, these phenomena were largely unrecognized before the depression of the 1930's, but they nevertheless existed. The purpose of this article is to examine one such pre-1930 hot money movement, the one that occurred during the American presidential election campaign of 1896. The nomination of William Jennings Bryan as the Democratic candidate on a free silver platform at Chicago in July 1896 gave impetus to a major disequilibrating outflow of short-term funds. This condition, in turn, led to an interesting effort to control the foreign exchange market.

Type
Articles
Information
The Journal of Economic History , Volume 20 , Issue 1 , March 1960 , pp. 31 - 50
Copyright
Copyright © The Economic History Association 1960

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References

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11 Commercial and Financial Chronicle, LXIII (July 4, 1896), 2–3,Google Scholar 16 and July 11, 1896, 48–49, 65; Bankers Magazine of New York, LII (Aug. 1896), 24Google Scholar; Bradstreets, XXIV (July 4, 1896), 419.Google Scholar

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28 Ibid., July 15, 1896; The New York Tribune, July 16, 1896.

29 The New York. Journal, July 27, 1896.

30 For date on the movements of the price of sight bills, which exhibited parallel trends, see Financial Review, 1897, p. 45; for additional statistics on sterling exchange rates, see Andrews, A. Piatt, Statistics of the United States, 1867–1909 (Washington, D.C.: United States Government Printing Office, 1911), p. 195Google Scholar; and New York State Chamber of Commerce, Annual Report, 1896–1897, pp. 236–37.Google Scholar

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32 Financial Review, 1897, p. 8Google Scholar; The New York Evening Post, July 20, 1896; The New York Tribune, July 16, 18, and 22, 1896. Some of this gold was obtained to satisfy the requirements of Russia.

33 The Commercial Yearbook, II (1897), 295.Google Scholar Total net exports of gold for July, 1896 from the United States was $10,263,450, a sum significantly higher than the outflow for the comparable period in each of the succeeding four years. See U.S. Department of Commerce and Labor, Bureau of Statistics,“Monthly Summary of Commerce and Finance” (Washington, D.C.: Government Printing Office, 1911), pp. 1069–70.Google Scholar

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38 The New York Tribune, July 22, 1896.

39 Morgan's statement to the press on July 20, 1896 indicated his confidence in the government's ability to sell bonds. See The New York. Journal, July 21, 1896; The New York. World, July 21, 1896; The New York. Evening Post, July 21, 1896. On July 16, 1896, Secretary of the Treasury John Carlisle had written to President Cleveland that he had sent Assistant Secretary Curtis to New York to warn the financiers of “the great importance of preventing a condition that would necessitate a bond issue or even cause an agitation of that subject.” See Curtis Manuscripts, VII; and James A Barnes, “The Gold Democrats,” 422. The Chicago and Populist platforms explicidy denounced sales of bonds to syndicates to preserve gold monometallism. See The Commercial Yearbook, II (1897), 232–33Google Scholar, 235. The ardent populists felt it would win millions of votes for the silver cause. See Rocky Mountain News, July 16, 22, 23, and 25, 1896; and The Cleveland Plain Dealer, July 25, 1896.

40 Financial Review, 1897, p. 8Google Scholar; The New York Tribune, July 21, 1896; The New York Evening Post. July 21, 1896.

41 Ibid., July 22, 1896; and The New York Herald, July 23, 1896.

42 The New York. World, July 22, 1896.

43 The most complete account of the meeting can be found in The New York. Tribune, July 23, 1896. Among those attending besides Morgan, were Ernst Thalmann of Ladenberg, Thalmann & Co. F. M. Thierot and J. Walter Wood of L. Von Hoffmann and Co. George Grossman of W. H. Grossman and Bros., E. Mayer of Lazard Freres, Jacob Schiff of Kuhn, Loeb and Co., Pilny Fisk of Harvey Fisk and Sons, William Solomon of Speyer & Co., and Joan A. McCall, President of New York Company.

44 Ibid..

45 Ibid..

46 The New York Times, July 23, 1896.

47 Ibid., July 24, 1896.

48 The New York. Tribune, July 23, 1896.

49 Curtis Manuscripts, VII.

50 Manuscripts of Grover Cleveland (Library of Congress, Washington), CCCXLI.

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55 The New York Tribune, July 23, 1896

56 Ibid., July 24, 1896.

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59 Ibid.; and The New York. Journal, July 23, 1896.

60 Ibid.; It estimated $175,000,000 would be exported. See The New York. Tribune, July 23, 24, 1896.

61 The New York. World, July 23, 1896.

62 The New York. Times, July 24, 1896; The New York Evening Post, July 23, 1896.

63 The New York Tribune, July 23, 1896.

64 Ibid.; Bradstreets, XXI (Aug. 1, 1896), 49.Google Scholar

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66 The New York Tribune, July 30, 1896.

67 The Journal of Commerce, July 30, 1896.

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71 Ibid.

72 The New York. World, July 26, 1896.

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74 The New York. Herald, July 27, 1896. It is interesting to observe that the contemporary supporters of the gold standard regarded the exchange pool proposal as a temporary and artificial device, which was required as a “result of a scare.” See Commercial and Financial Chronicle, LXIII (Aug. 1, 1896), 168.Google Scholar The following statement of the Economist illustrates the skepticism concerning the probable durability of the pool prevailing in gold standard circles; “Of course these measures can only prove temporily effective, for a prolonged manipulation of the exchange market is a practical impossibility.” See The Economist, LIV (July 25, 1896), 957.Google Scholar

75 The New York World, July 26, 1896; and The New York Journal, July 31, 1896.

76 Commercial and Financial Chronicle, LXIII (Aug. 1, 1896), 179, 190Google Scholar, and Aug. 29, 1896, 284, 285; and Bradstreets, XXIV (Aug. 1, 1896), 492Google Scholar and (Aug. 8, 1896), 502.

77 The Journal of Commerce, Aug. 28, 1896.

78 The action of the bankers was regarded as the decisive factor in restoring confidence by high government officials. See the letter of Assistant Secretary of Treasury William Curtis to Assistant Secretary of Agriculture Dabney, Charles W., dated October 14, 1896, in Curtis Manuscripts, VIII.Google Scholar