Financial History 146 Summer 2023 | Page 23

In short , Cortelyou and Morgan played crucial but distinct roles in the panic . Both deserve recognition for their significant efforts . But where Cortelyou warrants special recognition is in his activism in moving government gold reserves into national banks around the country to provide the liquid money supply that the panic had dried up .

To some extent , this was an extension of the policy of his predecessor , Secretary Leslie M . Shaw , who started to move gold reserves into banks at the start of the harvest season , when the US financial system had historically shown a propensity to crisis . But theretofore , except for Alexander Hamilton in 1791 , no Treasury Secretary had taken steps to quell systemic instability by deploying Treasury resources across the nation .

Morgan ’ s signal contributions were to recognize threats to systemic stability before others and quickly to galvanize collective action among bankers in a targeted way .

A study by Moen and Rodgers found that Morgan ’ s “ individual [ lender of last resort ] efforts may have been distinguishable from institutional efforts by the Clearing House and the US Treasury .” They ascribed Morgan ’ s success to his reputation as an informed market agent , a source of valuable advice and rescue loans , and his experience in dealing with earlier crises . Morgan demonstrated an ability to mobilize his social and financial network in ways that others could not . Quite simply , he acted , persuaded others to do so too , and had an effective impact .

In their monetary history of the United States , Milton Friedman and Anna Schwartz commented that leadership or its absence affected key turning points in crises :

The detailed story of every banking crisis in our history shows how much depends on the presence of one or more outstanding individuals willing to assume responsibility and leadership . It was a defect of the financial system that it was susceptible to crises resolvable only with such leadership . … In the absence of vigorous intellectual leadership … the tendencies of drift and indecision had full scope . Moreover , as time went on , their force cumulated . Each failure to act made another such failure more likely .

Human agency makes a difference ; the path and outcome of crises are not simply the result of macro forces . There are several instances in which the choices of decision makers affected the course of events .

History crystallizes as archival research brings new facts to light , as analytical conclusions emerge from better empirical techniques and as scholarly debate sharpens interpretations . History is alive with change . A case in point is the Panic of 1907 .

Robert F . Bruner is Professor Emeritus and Dean Emeritus at University of Virginia ’ s Darden School of Business . Sean D . Carr is Executive Director and CEO of the University of Washington ’ s Global Innovation Exchange . They are the coauthors of The Panic of 1907 : Heralding a New Era of Finance , Capitalism and Democracy ( John Wiley & Sons , 2023 ).

Sources

Illustration originally captioned “ Anxious depositors of the Trust Company of America waiting in line to receive the $ 12,000,000 which was paid out to them in one day ,” from the November 9 , 1907 edition of Harpers Weekly .

Bruner , Robert F . and Sean D . Carr . The Panic of 1907 : Heralding a New Era in Finance , Capitalism , and Democracy . Hoboken , NJ : John Wiley & Sons . 2023 .

Bruner , Robert F . “ Framing the Dilemma : Whether to Rescue a Bank .” AIRA Journal , 36 ( 2 ): 26 – 27 . 2023 .

Dalio , Ray . Principles for Dealing with the Changing World Order : Why Nations Succeed and Fail . New York : Simon and Schuster . 2021 .

Dalio , Ray . Principles for Navigating Big Debt Crises . New York : Simon and Schuster . 2022 .

Friedman , Milton and Anna Schwartz . A Monetary History of the United States , 1867 – 1960 . Princeton , NJ : Princeton University Press . 1963 .

Jorda , Oscar , Moritz Schularick and Alan Taylor . “ Macrofinancial History and the New Business Cycle Facts .” Working paper 22743 . Cambridge , MA : National Bureau of Economic Research . 2016 .

Mackay , Charles . Extraordinary Popular Delusions and the Madness of Crowds . New York , NY : Crown Publishers . 1980 [ 1841 ].

Moen , Jon and Mary Tone Rodgers . “ How J . P . Morgan Picked the Winners and Losers in the Panic of 1907 : An Exploration of the Individual over the Institution as Lender of Last Resort .” Essays in Economic and Business History . 2022 .

Collection of the Museum of American Finance www . MoAF . org | Summer 2023 | FINANCIAL HISTORY 21