Chapter 4 An Economic Nightmare
1. You may define a mass delusion. You cannot explain it, really.
It is a malady of the imagination, incurable by reason, that apparently must run its course.
If it does not lead people to self-destruction in a wild dilemma between two symbols of faith,
Once the peace of the world was shattered by this absurd question, was the male or the female faculty the first cause of the universe?
There was no answer, for man himself had invented the riddle.
Nevertheless, what one believed about it was more important than life, happiness, or civilization.
Proponents of the male principle adopted the color white.
Worshippers of the female principle took for their sign and symbol the color red, inclining to yellow.
Under these two banners there took place a religious warfare which involved all mankind,
dispersed, submerged and destroyed whole races of people, and covered Asia, Africa and Europe with tragic ruins.
Then someone accidentally thought of a third principle which reconciled those two, and
human sanity was restored on earth.
All this is now forgotten.
Since then people have been mad together about a number of things, God, tulips, witches,
definitions, alchemy, and vanities of precept.
In 1894 they were mad about money, not about the use, possession, and distribution of it,
But as to the color of it, whether it should be silver, that is to say, white, like the
symbol of those old worshippers of the masculine faculty, or gold, that is, red inclining to
yellow, as was the symbol of those who in the dimness of human history adored the feminine
faculty.
And as people divided on this question of silver or gold, they became utterly delirious.
Their side was willing to see the government's credit ruined, as it very nearly was, for
the vindication of a fetish.
They did not know it.
They had not the remotest notion why or how they were mad, because they were unable to
realize that they were mad at all.
I have recently turned over the pages of the newspapers and periodicals of that time to
verify the recollection that events as they occurred were treated with no awareness of
of Their Significance.
And it was so.
Intelligence was in suspense.
The faculty of judgment slept as in a dream.
The imagination ran loose, inventing fears and fantasies.
That the government stood on the verge of bankruptcy, or that the United States Treasury
was about to shut up under a run of panic-stricken gold hoarders, was regarded not as a national
emergency, in which all were concerned alike, but as proof that one theory was right and
another wrong, so that one side viewed the imminent disaster gloatingly and was disappointed
at its temporary postponement, while the other resorted to sophistries and denied self-evident
things.
Nor does anyone know to this day why people were then mad.
It's right about it as the struggle for sound money, gold, against unsound money, silver,
and that leaves it where it was.
Money is not a thing, either true or untrue.
It is merely a token of other things, which are useful and enjoyable.
Both silver and gold are sound for that purpose.
Their use is of convenience, and the proportions and quantities in which they shall circulate
as Currency is rationally a matter of arithmetic.
Yet here were millions of people emotionally crazed over the question of which should be
paramount, one side talking of the crime of dethroning silver and the other of the gold
infamy.
2.
All other business having come to a stop while this matter was at an impasse, a truce was
affected in this wise by law.
Gold should remain paramount, nominally, but the Treasury should buy each month a great
quantity of silver bullion, turn it into white money, force the white money into circulation,
and then keep it equal to gold in value.
Now the amount of precious metal in a silver dollar was worth only half as much as the
amount of precious metal in a gold dollar.
Yet Congress decreed that gold and silver dollars should be interchangeable and put upon the
Treasury a mandate to keep them equal in value.
How?
By what magic?
Why, by the magic of a phrase.
The phrase was, it is the established policy of the United States to maintain the two metals
at a parity with each other by law.
Naive trust in the power of words to command reality is found in all mass delusions.
The Coxseites were laughed at for thinking that prosperity could be created by phrases
written in the form of law.
Congress thought the same thing.
It supposed that the economic distress in the country could be cured by making 50 cents
worth of silver equal to 100 cents worth of gold, and that this miracle of parity could
should be achieved by decree.
Anyone would know what to expect.
The gold people ran with white dollars to the treasury and exchanged them for gold,
and either hoarded the gold or sold it in Europe.
In this way, the government's gold fund was continually depleted, and this was disastrous
because its credit, the nation's credit in the world at large, rested on that gold fund.
It sold bonds to buy more gold, but no matter how fast it got more gold into the treasury,
even faster came people with white money to be redeemed in money the color of red inclining
to yellow.
And all the time, the treasury was obliged by law to buy each month a great quantity
of silver bullion and turn it into white money, so that the supply of white money to be exchanged
for Gold was inexhaustible.
Wall Street was the stronghold of the gold people.
It was to Wall Street that the government came to sell bonds for the gold it required
to replenish its gold fund.
The spectacle of the Secretary of the Treasury standing there with his hat out like a Turkish
beggar was viewed exultingly by the gold people.
Carlisle's bonds won't go, said the New York Sun in a front-page headline on one of these occasions.
Carlisle was the Secretary of the United States Treasury in treating the gold people to buy the government's bonds with gold.
They did it each time, but no sooner was the gold in the Treasury than they exchanged it out again with white money.
This could not go on without wrecking the country's financial system.
That would mean disaster for everyone, silver and gold people alike.
Yet nobody knew how to stop.
The silver people said the solution was to dethrone the gold token and make white money paramount.
The others said the only way was to cast the white money fetish into the nearest ash heap
and worship exclusively money of the color red, inclining to yellow.
3. Delusions are states of refuge. The mind, unable to comprehend realities or to deal
with them, finds its ease in superstitions, beliefs and modes of irrational procedure.
It is easier to believe than to think.
The realities of this period in our economic history, apart from the madness, were extremely
bewildering.
For five or six years preceding there had been an ecstasy of great profits.
The prodigious manner in which wealth multiplied had swindled men's dreams.
No one lay down at night, but he was richer than when he got up, nor without the certainty
of being richer still on the morrow.
The golden age had come to pass.
Wishing was having.
The government had become so rich from duties collected on imported luxuries that the treasury
surplus became a national problem.
It could not be properly spent, therefore it was wasted, and still it grew.
This time for sure the tree of mammon would touch the heavens and human happiness must
endure forever.
Then, suddenly, it had fallen.
Speculation, greed and dishonesty had invisibly devoured its heart.
The trunk was hollow.
Everything turned hollow.
People were astonished, horrified and wild with dismay.
They would not blame themselves.
They wished to blame each other without quite knowing how.
The casual facts were hard to see in right relations.
Popular imagination had not been trained to grasp them.
The whole world was dealing with new forces, resulting from the application of capital
to machine production on a vast scale, and there had just appeared for the first time
in full magnitude that monstrous contradiction which we name overproduction.
This was a worldwide phenomenon, but stranger here than in European countries because this
This country was newly industrialized on the modern plan and knew not how to manage the
conditions it had created, could not understand them, in fact.
We are a giant in swaddling cloths, explained Mordecai, the Jewish banker who was one of
the directors of the Great Midwestern.
He said it solemnly at every director's meeting.
Just so.
Still, it was incomprehensible to people generally, and as the pain of loss, chagrin and disappointment
unbearably increased, the conglomerate mind performed the weird self-saving act of going
mad.
That is to say, people made a superstition of their economic sins and cast the blame
for all their ills upon two objects, gold and silver tokens.
Thus, what had been an economic crisis only, subject to repair, became a fiasco of intelligence.
The Europeans, all gold people, who had bought enormous quantities of American stocks and
bonds, said, What now?
These people are going crazy.
They may refuse ever to pay us back in gold.
Whereupon they began hastily to sell American securities.
After all, side the London Times, the United States, for all its great resources, is a
poor country.
In the panic of 1893, confidence was destroyed.
People disbelieved in their own things, in themselves, in each other.
Important banking institutions failed for scandalous reasons.
Railroads went headlong into bankruptcy until more than a billion dollars worth of bonds
were in default, and in many cases the disclosures of inside speculation were most disgraceful.
United States Senators were discovered speculating in the stock of corporations that were interested
in tariff legislation, particularly the sugar trust.
The name of Wall Street became accursed, not that morality was lower in Wall Street than
anywhere else, but because the consequences of its sins were conspicuous.
All Industry Sickened
A scourge of unemployment fell upon the land, and labor as such, with no theory of its own
about money, knowing only what it meant to be out of work, assailed the befuddled intelligence
of the country with that embarrassing question, why were men helplessly idle in this environment
of boundless opportunity?
The Coxsites thought it was for want of money, so many people thought.
They proposed that the government should raise money for extensive public works, thereby
creating jobs for the workless.
But the United States Treasury, which only a short time before contained a surplus so
large that Congress had to invent ways of spending it, was now in desperate straits.
The government's income was not sufficient to pay its daily bills.
However, neither the curse of unemployment nor the poverty of the United States Treasury
The theory was owing to a scarcity of money.
The banks were overflowing with money, idle money, which they were willing to lend at
one half of one percent just to get it out of their vaults.
In one instance, a bank offered to lend a large amount of money without interest.
But nobody would borrow money.
What should they do with it?
There was no profit in business.
So there was unemployment of both labor and capital.
4
At the time of my arrival in Wall Street conditions were already very bad.
They grew worse.
There was the shocking disclosure after bankruptcy that one of the principal railroads had deliberately
falsified its figures over a period of years.
European investors were large holders of the shares and bonds of this property and naturally
The United States Treasury had survived two runs upon its gold fund, but its condition
was chronically perilous and began at length to be despaired of.
was leaving the country by every steamer.
The feud between the gold and silver people grew steadily more insane and preoccupied Congress
to such a degree that it neglected to consider ways and means of keeping the government in
current funds.
Labor, which had been clamorous and denunciatory, now became militant.
Reports of troops being used to quell riots of the unemployed were incessant in the daily
news.
Sweet fell to a very low price and the farmers embraced populism, a hot-eyed political movement
in which every form of radicalism this side of anarchy was represented.
Then came the disastrous American Railway Union strike, bringing organized labor into
direct conflict with the authority of the Federal Government.
The nation was in a fit of jumps, public opinion was hysterical.
As I understood more and more the bearing of such events, I marveled at Galt's solitary
serenity.
He was still buying great Midwestern stock, as we all knew.
Each time another lot of it passed into his name, word of it came up surreptitiously from
the transfer office.
Some of the directors, at the same time, were selling out.
This fact Harbinger confided to me in a burst of gloom.
He thought it very ominous, nothing less than an augury of bankruptcy.
I felt that Galt ought to know, yet I hesitated a long time about telling him.
My decision finally to do so was sentimental.
I had by this time conceived a deep liking for him, and the thought that he was putting
his money into great Midwestern stock, his own, grandma's and Vera's, while the directors
were getting theirs out, bothered me in my sleep.
And when I told him, he grinned at me, I know it, Coxie, they didn't know enough to sell
when the price was high and they don't know any better now.
That was all he said.
The ethical aspect of the matter, if there was one, apparently did not interest him.
Now befell a magnificent disaster.
One of the furnace doors came unfastened in the heavens and a scorching wind, a regular
Senator Seraco began to blow in the Missouri Valley.
More than half the rich, wealth-making American corn crop was ruined.
This was a body blow for the Great Midwestern.
It meant a slump in traffic which nothing could repair.
On the third day, the news was complete.
We received it in the form of private telegraph reports from the Chicago office.
They were on my desk when Galt came in.
I called his attention to them, but he looked away, saying,
The Lord has furnished us, Coxie.
Maybe he is.
5.
That night I went home with him to dinner.
He was in one of his absent moods and very tired.
Natalie overwhelmed him as usual in the hallway, and when he neither grumbled nor resisted,
she put off her boisterous manner and began to look at him anxiously.
At dinner, everyone was silent. He communicated his mood. Vera was there at her mother's left.
Efforts to make conversation were listless, Galt participating in none of them. There was
a sense of something that was expected to happen. That was Grandma's remorseless evening
question.
What is the price of Great Midwestern stock today? she asked, speaking very distinctly.
Five and a half, said Galt, in a petulant voice.
The announcement was received stoically, with not the slightest change of countenance anywhere,
though that was the lowest price at which the stock had ever sold, and represented a
serious loss for the House of Galt.
However, the state of feeling made itself felt without words.
It became, at last, intolerable for Galt.
He threw down his napkin, shouted three times, wow, wow, wow, and each time brought his fist
down on the table with a force that made the china jump.
With that, he got up and left us.
We heard him unlock the door of his room and slam it behind him.
What has happened? asked Vera, looking at me. I told them of the disaster to the corn crop, and how for that reason there had been heavy selling of great mid-western shares.
Vera shrugged her shoulders. Later in the evening, when we were alone, she looked about her at the walls and ceiling as one with a premonition of farewell, and said bitterly,
A pretty shipwreck it will be this time.
Has your money gone into it too, I asked.
She nodded and said, Now he wants to mortgage the house.