Featured Panic of 1907

Discussion in 'Paper Money' started by lettow, Oct 23, 2019.

  1. lettow

    lettow Senior Member

    George McClellan's post inspired me to showcase some pieces issued during the Panic of 1907. The Panic was caused by a number of factors including a significant drop in the stock market, a failed attempt to take over the United Copper Company and the collapse of the Knickerbocker Trust Company in NY. The ripples of these events were felt throughout the country as depositors withdrew cash from the banking system.

    The inelasticity in the money supply exacerbated the problem and led directly to the creation of the Federal Reserve System.

    To put liquidity in the system local clearing houses, businesses and banks created cash substitutes to act as circulating media. The most common were circulating checks, clearing house certificates and payroll checks.

    This first piece is a clearing house check (really a draft) issued through the Milwaukee Clearing House.

    1 (1).jpeg
    This is a Clearing House Certificate from San Francisco. The legend explains that the banks of the Clearing House have deposited securities to back the issue of the certificates.

    1 (2) - Edited (1).jpg
    This is an example of a pay roll check issued by the Duluth, Missabe & Northern Railroad Company in Minnesota. It was paid out by the railroad as part of its October pay roll as it was not possible to obtain enough cash to pay employees. It is in the form of a bearer check that would pass without endorsement through the banking and commercial systems. The checks were backed by the company's deposits in the American Exchange Bank of Duluth. The checks could be spent in commerce or deposited in the bank but could not be cashed.

    1 (2) - Edited.jpg
    1 (3) - Edited.jpg
    This is the face and back of a $2.00 pay roll check from the Great Lakes Coal Company in Pittsburgh. The back explains how the check can be used.

    Actions taken in November 1907 were sufficient to hold off total collapse. The certificates continued to circulate into early 1908.
    Clawcoins, Michael K, TIF and 13 others like this.
  2. Avatar

    Guest User Guest

    to hide this ad.
  3. SteveInTampa

    SteveInTampa Always Learning

    Interesting thread @lettow , thanks for sharing.

    I’ve read different accounts of the Panic of 1907 and some conclude it lasted for weeks and some say months. How long or short lived was the situation and did the purchase of TC&I by US Steel help, hurt or make no difference ?
    Last edited: Oct 24, 2019
    GoldFinger1969 likes this.
  4. Penna_Boy

    Penna_Boy Just a nobody from the past

    Nice bit of history. Thanks for posting it.
  5. lettow

    lettow Senior Member

    The economy was on the brink of collapsing for several months at the end of 1907 and beginning of 1908. The effects of the Panic were felt for some time after and the country remained in deep recession. The band aids that were applied stopped the hemorrhaging and prevented a 1929 type depression.

    There were hundreds of different types of scrip issued during the Panic of 1907.
    GoldFinger1969 likes this.
  6. gsalexan

    gsalexan Intaglio aficionado

    Fascinating stuff. I was aware of the Panic of 1907, but didn't realize there was scrip associated with it. How many varieties would you say there are, relative to the Depression scrip of 1933?
    GoldFinger1969 likes this.
  7. lettow

    lettow Senior Member

    Maybe 10% of the number issued in 1933.
    gsalexan likes this.
  8. Paul M.

    Paul M. Well-Known Member

    These are all great pieces. I have a clearinghouse certificate from San Francisco that I picked up at Long Beach a couple years ago for a few bucks. I don’t primarily collect paper currency, but it’s an amazing piece of history.

    Banks in the west were closed for several months after the Panic started. Court judgements couldn’t be paid, and hard money was scarce as a result of the bank closures. These certificates essentially kept the economy functioning in the west (maybe the entire country, but I’m only familiar with the situation on the west coast).
  9. GoldFinger1969

    GoldFinger1969 Well-Known Member

    Their was no official BEA or NBER statistics at that time so we have to guestimate based on older data sources. But the economy appears to have slumped for about 15 months. It was a relatively short recession, more of a financial accident, and once JP Morgan (the man and the bank) re-liquified the NY Fed district, things bounced back.

    You didn't have much excesses built up at that time, because the Panic of 1893 was still less than 10 years in the rear-view mirror and the Russo-Japanese War had stalled trade and GDP/GNP growth 2 years earlier.

    The Panics of 1893 and 1873 were far deeper and longer-lasting. But the fact that the 1907 Panic could have been prevented by a Federal Reserve-type central bank (doubtful the 1893 and 1873 Panics would have been; too steep declines in GDP growth).

    All of these panics were painful because they were INTERNALLY ADJUSTED by falling wages/prices because flexible monetary and exchange rate policies were not available.
    gsalexan likes this.
  10. GoldFinger1969

    GoldFinger1969 Well-Known Member

    Oops, my dog needed to go out and I didn't finish the sentence (and too late to edit)::D

    "But the fact that the 1907 Panic could have been prevented by a Federal Reserve-type central bank (doubtful the 1893 and 1873 Panics would have been; too steep declines in GDP growth) is what led to the creation of the Fed in 1914. And the primacy of the NY Fed in the structure of the Fed and the conduct of monetary policy is also a direct result of the 1907 Panic."
Draft saved Draft deleted

Share This Page