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The Morgan-Belmont Syndicate of 1895 and Intervention in the Foreign-Exchange Market*

Published online by Cambridge University Press:  11 June 2012

Matthew Simon
Matthew Simon
Affiliation:
Late Associate Professor of Economics, Queens College
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Abstract

In response to crisis conditions, and for eight months during 1895, the American government subcontracted its responsibility for the maintenance of monetary stability to a private syndicate of businessmen. This action and its results challenged both political and economic orthodoxy and represent one of the most important episodes in government-business relations during the nineteenth century. While previous studies of the Morgan-Belmont syndicate have emphasized its political and social costs, Professor Simon's concerns are to clarify and weigh the economic benefits of this remarkable arrangement.

Type
Research Article
Information
Business History Review , Volume 42 , Issue 4 , Winter 1968 , pp. 385 - 417
Copyright
Copyright © The President and Fellows of Harvard College 1968

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References

1 For an excellent analysis of this episode see Bloomfield, Arthur I., Capital Imports and the American Balance of Payments, 1934–1939 (Chicago, 1950)Google Scholar.

2 For a discussion of pre-1941 abnormal international capital movements in more general terms see Bloomfield, Arthur I., Short-Term International Capital Movements Under the Pre-1914 Gold Standard (Princeton, N.J., 1963), 83–89.Google Scholar See also the same author's Monetary Policy Under the International Gold Standard, 1880–1914 (New York, 1959), 52–55Google Scholar, for a detailed discussion of the techniques and experience of pre-1914 manipulation of gold points.

3 Noyes, Alexander Dana, “The Late Bond Syndicate,” Political Science Quarterly, X (December, 1895), 573–602CrossRefGoogle Scholar, and the same author's Thirty Years of American Finance (New York, 1896), 207–249.Google Scholar In their recent comprehensive monetary history, Friedman and Schwartz, referring to the array of government actions employed in the 1890's to counter hot money outflows, conclude: “The fact that such measures were taken is important, though the details of the measures are not.” (My italics.) Interestingly, the same authors proceed to qualify this statement by summarizing the salient features of the episode of the Morgan-Belmont Syndicate in a lengthy footnote occupying two pages. See Friedman, Milton and Schwartz, Anna Jacobson, A Monetary History of the United States, 1867–1960 (Princeton, N.J., 1963), 111–112Google Scholar.

4 For discussions of criteria for classification of international capital movements see: Bloomfield, Capital Imports, 1–34, and the same author's Speculative and Flight Movements of Capital in Postwar International Finance (Princeton, N.J., 1954)Google Scholar; Kindelberger, Charles Poor, International Short-Term Capital Movements (New York, 1937), 155–172Google Scholar; and Fanno, Marco, Normal and Abnormal International Transfers (Minneapolis, 1939), 31Google Scholar, 49, 61.

5 Dewey, Davis Rich, Financial History of the United States (New York, 1934), 449.Google Scholar For monthly data on the redemption of U.S. notes and Treasury notes see Sale of Bonds, 54 Cong., 2 Sess., Sen. Doc. 187 (Washington, 1896), 217; and on the gold reserves of the Treasury see Andrew, A. Piatt, Statistics for the United States 1867–1909, 61 Cong., 2 Sess., Sen. Doc. 578 (Washington, 1910), 161–162.Google Scholar For daily data on redemptions in 1894–1895, see Banker's Magazine of New York, L (March, 1895), 476, 480Google Scholar; and on the gold stock of the Treasury, see United States Treasury, Daily Statement.

6 For U.S. Money market rates see Andrew, Statistics for U.S., 122–124. For British Money market rates see: Palgrave, Harry and Hirst, Francis W., Statistics for Great Britain, Germany, and France, 1867–1909, 61 Cong., 2 Sess., Sen. Doc. 578 (Washington, 1910), 47Google Scholar; Economist, February 2, 1895; and Economist: Commercial History and Review (1895), 4.

7 Statist, January 26, 1895.

8 Economist, January 5, 1895, January 12, 1895, January 19, 1895, January 26, 1895; Commercial and Financial Chronicle, December 8, 1894, January 26, 1895, February 2, 1895, February 9, 1895; Banker's Magazine, February, 1895.

9 Banker's Magazine, January 1895.

10 Ibid., March 1895; U.S. Congress, Sale of Bonds, 316; Commercial Yearbook (New York, 1896), I, 344–345Google Scholar; Financial Review (1895), 11, (1896), 3; Economist, February 2, 1895, February 9, 1895.

11 U.S. Treasurer, Annual Reports.

12 Commercial and Financial Chronicle, December 15, 1894, January 26, 1895, February 2, 1895; Financial Review (1896), 3, 4; Banker's Magazine, January 1895, February 1895.

13 Banker's Magazine, 445–446; Financial Review (1896), 3, 4; U.S. Treasury, Daily Statement, January 28, 1895, January 30, 1895, February 2, 1895; Barnes, James A., John G. Carlisle, Financial Statesman (New York, 1941), 381–382Google Scholar; Noyes, “Late Bond Syndicate,” 591–592.

14 U.S. Congress, Sale of Bonds, 293, 297.

15 Annual Report of the Secretary of the Treasury on the State of Finances for the Year 1895 (Washington, 1896), lv.Google Scholar

16 Allen, Frederick Louis, The Great Pierpont Morgan (New York, 1949), 120–121.Google Scholar

17 Ibid., 119.

18 U.S. Congress, Sale of Bonds, 46–47, 233.

19 Ibid., 223–224, 246, 257, 260, 293; Allen, Pierpont Morgan, 106–117; Barnes, John G. Carlisle, 371–375; Noyes, Thirty Years of American Finance, 235, 236; Satterlee, Herbert L., J. Pierpont Morgan, An Intimate Portrait (New York, 1939), 279–82Google Scholar, 296; New York Times, February 1, 4, 5, 6, 7, 8, 23, 1895.

20 Journal of Commerce, August 12, 1895.

21 U.S. Congress, Sale of Bonds, 297. A letter dated March 25, 1966 to the author from Mr. Walter H. Page, Executive Vice President of the Morgan Guaranty Trust Company, indicated that the files of J. P. Morgan & Co. for that era were destroyed some years ago. See New York Times, February 10, 12, 1895, on the secrecy of membership.

22 Bradstreet's, June 29, 1895.

23 Barnes, John G. Carlisle, 388, 393; U.S. Congress, Sale of Bonds, 11; Noyes, Thirty Years of American Finance, 235–236; Dewey, Financial History of U.S., 450; Commercial Yearbook (1896), 344–345; Banker's Magazine, February, 1895; Commercial and Financial Chronicle, February 23, 1895, March 9, 1895.

24 Statist, February 23, 1895; Financial Review (1896), 39; Banker's Magazine, September, 1895; Noyes, “Late Bond Syndicate,” 594; Noyes, Thirty Years of American Finance, 246; Economist, August 17, 1895; Bradstreet's, August 3, 1895.

25 Financial Review (1896), 4–6.

26 U.S. Congress, Sale of Bonds, 11, 12, 222, 223, 304; Annual Report of Secretary of Treasury (1895), lvi. For estimates of the gold deliveries of the Syndicate from Europe see: Statist, June 1, 1895; and Bradstreet's, June 22, 1895, June 29, 1895, September 28, 1895.

27 Barnes, John G. Carlisle, 374; U.S. Congress, Sale of Bonds, 293; Financial Review (1896), 4. Daily data on gold exports from New York can be obtained from Director of the Mint, Annual Reports, 1894–1895 (Washington, 1895), 33Google Scholar; for actual sight-sterling exchange rates, see Bradstreet's.

28 New York Times, February 16, 1895.

29 Ibid.

30 Financial Review (1896), 4, 9; U.S. Congress, Sale of Bonds, 312; Bradstreet's, August 3, 1895, August 10, 1895; Economist, August 24, 189S, August 31, 1895, September 7, 1895; Commercial and Financial Chronicle, August 17, 1895; Noyes, Thirty Years of American Finance, 249.

31 New York Times, August 16, 1895; Bradstreet's, May 11, 1895; Banker's Magazine, April 1895, 700; Financial Review (1896), 5, 6; Commercial and Financial Chronicle, March 16, 1895, March 23, 1895, March 30, 1895.

32 New York Times, February 15, 1895.

33 Commercial and Financial Chronicle, September 14, 1895; Financial Review (1896), 9.

34 Burns, Arthur F. and Mitchell, Wesley C., Measuring Business Cycles (New York, 1946), 78–79Google Scholar; Frickery, Edwin, Production in the United States 1860–1914 (Cambridge, 1947), 60Google Scholar; and the same author's “Bank Clearings Outside New York City, 1875–1914", Review of Economic Statistics (October, 1925), 360. For data on the operating revenue and expenditures of the American railroads see: U.S. Department of Commerce, Historical Statistics of the United States, Colonial Times to 1957 (Washington, 1960), 434Google Scholar; Statist, August 31, 1895; Economist: Commercial History and Review (1895), 6.

35 Cowles, Alfred, 3rd, et al., Common Stock Prices, 1871–1938 (Bloomington, 1938)Google Scholar; Noyes, Thirty Years of American Finance, 243–244; Commercial and Financial Chronicle, May 25, 1895; Economist, May 25, 1895.

36 This estimate is cited in Economist, August 10, 1895.

37 Ibid., June 1, 1895; Financial Review (1896), 67; Commercial and Financial Chronicle, May 4, 1895, May 11, 1895; Noyes, “Late Bond Syndicate,” 599.

38 New York Times, February 15, 1895.

39 For weekly data on posted rates, see Andrew, Statistics for U.S., and on actual rates, see Commercial Yearbook (1896), 350.

40 Economist, April 13, 1895.

41 Ibid., April 20, 1895.

42 United States Investor, July 20, 1895.

43 Banker's Magazine, September, 1895, October, 1895.

44 Statist, May 11, 1895; Commercial and Financial Chronicle, June 15, 1895.

45 Statist, May 18, 1895; July 13, 1895; Economist, July 13, 1895, July 20, 1895, July 27, 1895, September 14, 1895, September 28, 1895.

46 Commercial and Financial Chronicle, June 1, 1895; Bradstreet's, May 18, 1895, May 25, 1895, June 8, 1895; Noyes, Thirty Years of American Finance, 246.

47 Commercial and Financial Chronicle, September 14, 1895; Noyes, Thirty Years of American Finance, 246; Noyes, “Late Bond Syndicate,” 599.

48 Commercial and Financial Chronicle, June 22, 1895; Financial Review (1896), 7–8; Bradstreet's, June 22, 1895, June 29, 1895; Economist, July 13, 1895.

49 Commercial and Financial Chronicle, July 6, 1895.

50 Ibid., July 13, 1895; Bradstreet's, July 13, 1895.

51 Bradstreet's, July 13, 1895.

52 Ibid., July 20, 1895; Commercial and Financial Chronical, July 13, 1895, July 20, 1895.

53 Commercial and Financial Chronical, July 27, 1895; Bradstreet's, July 20, 1895, July 27, 1895; Economist, August 3, 1895; United States Investor, July 20, 1895, July 27, 1895.

54 Economist, August 17, 1895; Bradstreet's, July 27, 1895, August 3, 1895.

55 New York Times, August 9, 1895.

56 For monthly data on net gold exports of United States, see Department of Commerce and Labor, Monthly Summary of Commerce and Finance (December, 1910), 1127–1129. For deposits see references cited in footnotes.

57 Data on the gold receipts of the Bank of England, compiled from the weekly circulars of Messrs. Pixley and Abel, are available in: Statist, August 10, 1895, August 17, 1895, August 24, 1895, August 31, 1895; Economist, August 17, 1895, August 24, 1895; Banker's Magazine, September 1895; Bradstreet's, August 31, 1895; and Financial Review (1896), 9.

58 See references cited in footnote 33.

59 Financial Review (1896), 9; Bradstreet's, September 28, 1895.

60 Noyes, Thirty Years of American Finance, 239–240; and the same author's Forty Years of American Finance (New York, 1909)Google Scholar.

61 Economist, July 25, 1896.

62 Noyes, Thirty Years of American Finance, 246–247.

63 Allen, Pierpont Morgan, 108, 111.

64 Noyes, Thirty Years of American Finance, 249.

65 New York Herald, July 27, 1896. For a discussion of this episode, see Simon, Matthew, “The Hot Money Movement and the Private Exchange Pool Proposal of 1896,” Journal of Economic History, XX (March, 1960), 31–50CrossRefGoogle Scholar.

66 New York Times, August 9, 1895.

67 To be sure, these costs were not uniform for all shippers. Average freight costs and insurance charges tended to be lower for large shipments. See Einzig, Paul, “The Gold Points of the Exchanges Today,” Economic Journal, XXXVII (March 1, 1927), 135Google Scholar; and Whitaker, Albert C., Foreign Exchange (New York, 1922), 522Google Scholar.

68 Whitaker, Foreign Exchange, 92, 517-44; Kindleberger, Charles P., International Economics (Homewood, III., 1963), 65–68Google Scholar.

69 Morgenstem, Oskar, International Financial Transactions and Business Cycles (Princeton, N.J., 1959). 166–279Google Scholar, especially 252–253. For additional discussion of gold points in the 19th century context see: the excellent review of Morgenstern's volume by George Borts in the Journal of the American Statistical Association, LV (March 1960), 223–227Google Scholar; Davis, L. E. and Hughes, J. R. T., “A Dollar Sterling Exchange, 1803–1895,” Economic History Review, 2nd Series, XIII (August, 1960), 52–79Google Scholar; and Hughes, J. R. T., “Fact and Theory in Economic History,” Explorations in Entrepreneurial History, 2nd Series, XII (Winter, 1966), 75–100Google Scholar, especially 88–90.

70 Morgenstern, International Financial Transactions, 276.