When Washington shut down wall street is likened to a mystery and describes William McAdoo, the Treasury secretary on how he succeeded to turn America into a monetary triumph after the world war one at a time of financial threatening crisis. The book also gives the blueprint for the control of a crisis that is applicable in the current times. The following provides the summary of the book and a critical analysis of the situation discussed in the same as per economic knowledge. The book remains adamant that McAdoo was solely responsible for the financial turning point in America during this period.
Summary
The great World War 1 threatened the economic grounds of the United States as the Europeans had started liquidating their investments in Wall Street in the last week of July the year 1914. The foreign investors owned and controlled more than twenty percent of the securities on the stock exchange in New York (Silber 2007, Pg. 13). The large transfer of gold in exchange for stock sales for the Europeans ensured that America stopped being able to repay its debts. Because of the fear of gold standard abandonment by America, the dollar value fell to unprecedented levels in the markets of the world.
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America would fail to achieve its dream as a global monetary leader if it neglected to meet its international obligations. However, a bright future lay before the country were it to pass the test of time. Woodrow Wilson, an investment banker, based in Boston, gave a plan that would make the United States a supreme financial country (Silber 2007, Pg. 14). Woods sent a letter to McAdoo that had already made plans to make the country a prosperous commercial place.
The United States was the lack of a central bank in 1914 unlike most developed countries like Australia and Italy. It was thus a financial giant without a head. The Congress following the situation authorized the Federal Reserve System, which remained stalled, made the country a power vacuum, and especially with Woodrow distracted by his ailing wife. However, McAdoo took up this opportune time to deal with the growing panic by attempting to have the Federal Reserve System combat the looming danger (Silber 2007, Pg. 25). However, McAdoo faced stiff resistance from Benjamin, the governor of the Federal Reserve System and was thus forced to innovations. The dollar sales for Sterling and a jump in the rate of exchange to four cents above the export point of gold pinched the shipments of gold to Europe. The resultant failure of the sterling to decline about the exports of gold posed a significant problem (Silber 2007, Pg. 27). In an attempt to curb the situation, the Treasury Secretary McAdoo rushed a lot of gold to the treasury offices across the country to redeem the dollar in the precious metal. McAdoo followed up the move by shutting down the New York Stock Exchange for four months to slow down the British sales on the American securities. The move implied that the British had no power to drain the gold in America due to the lack of dollar proceeds from the selling the stock and bonds of the United States. McAdoo went further to fill the country with a paper currency that prevented bank runs that had gravely humiliated the country in the past years (Silber 2007, Pg. 29).
McAdoo understood that the measures he had undertaken were temporary considering that the shutdown of the stock exchange threatened inflation. The Treasury secretary acknowledged this fact and understood it was possible to reverse the gold drain with the promotion of agricultural products to Europe in a bid to offset their sales in the American securities. He met with various businesspersons to make arrangements on how to ferry their agricultural products to Europe creating a war risk insurance that redeemed the dollar in the exchange market (Silber 2007, Pg. 34). McAdoo further subsidized the rescue of New York protecting it from bankruptcy and insisted the city must pay all matured debts in British pounds if they were in London.
Britain wore the financial crown because the sterling pound was the foreign money and London was a global lender of money. Similar to the dollar today, the pound served as the preferred currency for all international transactions. The war between Wall Street and London would stop the London capital supplies abroad although it could continue being the central transfer agent for international transactions as long as it remained like gold (Silber 2007, Pg. 37). McAdoo sought to have America continue to gold when Britain announced intentions to remain the world financial superpower. McAdoo stuck to the gold standard while every other country abandoned it in the face of the war. His ingenious idea helped America gain a strong position to challenge Britain for the position of financial superior in the world. Soon the dollar discount disappeared in the stock market and marked the turning point for the country regarding economic leadership in the world (Silber 2007, Pg. 42). The New York Capital replaced London as the capital moneylender in the world in January the year 1915.
McAdoo proved fruitful and victorious in his bidding and endeavors to throw out London as the financial capital of the world replacing it with New York. McAdoo was born in Georgia; a town called Marietta in the year 1863 but moved to Knoxville in Tennessee in 1877 after his father became a professor of English and history at the University of Tennessee (Silber 2007, Pg. 46). McAdoo learned a lot of things including calculations on how dynamos operate and electric power systems. History remembers him as an individual that was swift to both learn and act contrary to many people that know what should be done but lack the courage to the pursue the same. It is imperative to appreciate the man behind the success and position that America enjoys today as a global financial hub. One needs not be hesitant to act just like McAdoo did not fail to act in time with regards to the situation in 1914. McAdoo undertook to power the country with the suspension of trading of stock for four months during which time he used to flood the country with an emergency currency (Silber 2007, Pg. 48). On learning that this move could injure the country in significant ways, McAdoo undertook to combat the problem head on. Therefore, McAdoo found an exit plan that stimulated the agricultural commodities exportation in compliance with the Bureau of the risk insurance of war and thus was able to avoid a long-lasting damage to the American economy. McAdoo provided more than a mere blueprint out of the crisis but rather gave the direction of thought in the event of such troubling times that risk the entire country. The Federal Reserve System had been in leadership but did nothing even during times of high levels of inflations.
Analysis of the Book
The financial crisis experienced in the year 1914 assumes an ambiguous position in all of the series of financial problems and American banking. However, it marks one of the most significant times in the history of the country financial system. According to the book, the period was hardly celebrated as an era of national banks panic nor is it so as a crisis due to the faults of the Federal Reserve System. Therefore, it was neither a panic in banking nor a struggle due to the transition between the two significant times in banking in the country and thus qualifies as a coda to the previous panics (Jon, 2007 Pg. 1). The book by Silber argues intently that the 1914 crisis was the driver to the pre-eminence of both the United States and the dollar to its raised status past the panic observed in the year 1907.
The book by Silber gives informative and well referenced historical account of all personalities and events that were in the months that led to the opening of the federal reserve system on the 16th of November the year 1914 (Jon 2007, Pg. 1). The focus is on the actions by the Treasury secretary, McAdoo William. Silber insists that the decisive action to close down the New York Exchange market did best to safeguard the gold in the United States for four months giving the country time to change its federal reserve system regarding organization (Jon 2007, Pg. 2). However, this remains contrary to popular belief that a governing board of the stock market in New York initiated that particular closure in a bid to curb a significant sell-off in the shares to protect the prices of the shares (Jon 2007, Pg. 2). McAdoo had no interest in the sell-off shares that sought to drive down prices because he understood they would soon snap up the same shares. However, McAdoo was more concerned with the youthful Federal Reserve System that lacked a backing for its issue note and thus diminished it as a central bank. Also, the Treasury secretary signaled that the country had all the intentions to honor its foreign debts and hence prevented a significant devaluation of the dollar. Indeed, the foreigners could easily convert the stock assets to dollars and thus remain on the gold standard, but that would be too easy for the noted states. What McAdoo does is that he creates an environment for the thriving purpose of the country during a harsh time. It is well to believe that McAdoo understood that the currency of the United States would remain the only functional one in the future if the other countries were to experience such kinds of panics. The fact that the book gives a chronological account of the banking panics that transpired in the country assures that the fear of such repetitions made the treasury secretary think hard on avoiding them. The reason for these repetitions in the previous years was a lack of a central control system due to London controlling the stock sales. However, a twist in the head would imply that the country became independent and would dictate its terms on the foreign market. The decisive move undertaken by McAdoo set the tempo from the pound sterling to the US dollar as the international reserve after the war.
The book remains of utmost importance to a scholar on financial panics in the banks although it is written for a general audience. Indeed, it has a very little analysis of the crisis and makes up for this lack of numerous historical information. For instance, the book accounts for the gold arbitrage that worked well under the gold standard. It is nothing new because it is well appreciated and known that gold thrived across the Atlantic during times when the sterling and dollar reached certain points on the exchange market. Silber elaborates on the exact mechanics of the arbitrage of gold with the example of the Max May. Chapter 2 defines how Max would have possibly located a ship headed for England and insured it safely (Jon 2007, Pg. 3). Furthermore, the book gives proper numerical shows of the profit that Max obtained from the exchange rates. Max is further seen in chapter five explaining the sterling value and its bonus in the year 1914 at the bills of exchange.
Various chapters of the book describe different scenarios and are of pertinence especially to the financial scholar. The book remains central to the thesis that McAdoo was responsible for the success the country experienced during the 1914 period. He was the person that transformed the country into a superpower. Chapter three of the book elaborates well that the 1907 panic led to the creation of an emergency currency that was authorized by the Aldrich-Vreeland Act (Jon 2007, Pg. 3). Silber informs clearly that key bankers experienced the horror of the 1907 banking possible collapse and saw the flowing out of gold from the country amidst the First World War (Jon 2007, Pg. 3). An in-depth analysis concludes that the plunge into the 1907 panic was courtesy of large inflows of gold from Europe. The chapter sets the pace for chapter four which describes the emergency currency that would have been unavailable for the 1914 tragedy (Jon 2007, Pg. 3). The Federal Reserve sought to prolong the life of Aldrich-Vreeland currency and should have expired a year before but did not because many New York Banks had not yet issued notes at less than 40% of their capital (Jon 2007, Pg. 3). It is here that McAdoo meets a Congress and advise them to amend the Aldrich Act that would suspend the 40% requirement and allow the large banks of New York to fulfill the demands of withdrawals of cash because the Americans needed the money during the times of war (Jon 2007, Pg. 3).
The book does insist that McAdoo was a significant person in the historical time of the 1914 bank panic. The notion holds ground is judging from the decisions and actions he undertook. However, the book still fails to give a comprehension of certain parts of history that would prove vital to the situation. The onset of the war should have caused tremendous effects to the dollar at the exchange market, but this does not seem to fit the given description. It is only natural that a crisis of this caliber would plunge the dollar into a downward drive on the stock exchange market.
Conclusion
When Washington shut down Wall Street describes William McAdoo, the Treasury secretary on how he succeeded to turn America into a monetary triumph after the World War 1 at a time of financial threatening crisis. The great World War 1 threatened the economic grounds of the United States as the Europeans had started liquidating their investments in Wall Street in the last week of July the year 1914. The great World War 1 threatened the financial grounds of the United States as the Europeans had started liquidating their investments in Wall Street in the last week of July the year 1914. America would fail to achieve its dream as a global monetary leader if it failed to meet its international obligations. However, a bright future lay before the country were it to pass the test of time. The book does insist that McAdoo was a significant person in the historical time of the 1914 bank panic. The notion holds ground is judging from the decisions and actions he undertook. However, the book still fails to give a comprehension of certain parts of history that would prove vital to the situation. Therefore, the thesis of the book that McAdoo was solely responsible for the victory of the United States during the 1914 period to becoming a superpower financial hub remains questionable despite the hard evidence.
References
Jon, M. (2007). When Washington Shut down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy. [Online] Eh.net. Available at: http://eh.net/book_reviews/when-washington-shut-down-wall-street-the-great-financial-crisis-of-1914-and-the-origins-of-americas-monetary-supremacy/ [Accessed 4 Nov. 2016].
Silber, W.L., 2007. When Washington shut down Wall Street: the great financial crisis of 1914 and the origins of America's monetary supremacy . Princeton University Press
