- FINANCE AND FINANCIAL CRISES
I find it difficult to understand how Pollok,
Gilmour & Co. managed their business so successfully in view of the
absence of modern monetary facilities. Their transactions, even in the
early days, were very large. For the American camps salt provisions,
sugar, biscuit, tea, etc., had to be purchased in quantity, and sent up to
the woods in August to meet the needs of the parties which went up in
September for the winter's cut, which was not marketed until the following
year. The wages of the axemen and the camp followers—unless it were in
advances in kind to their wives and households—would not have to be met
until the succeeding spring, but in addition to the stores, there had to
be a considerable equipment of horses, wagons, gear, and general articles.
The logs cut in the autumn or winter would only reach the mill by June or
later in the following season; and all the while there would be heavy
disbursements to be met. The bills drawn on the purchasers of the
early cargoes shipped home would not mature until November or December,
and by far the greater bulk not until the following year, for the timber
trade on this side has always been a long credit one.
Thus there was a considerable capital outlay, which did not yield any
actual cash return for fifteen or eighteen months; indeed, a considerable
portion would run to two years, for the shipping houses had to carry over
each winter a considerable stock wherewith to load the spring ships
arriving out in May or June. Their transactions were marvellously large
when one considers the small capital they started with, and that time and
distance were alike adverse to the rapid adjustment of money matters. The
working capital of Messrs. Pollok, Gilmour & Co., when they opened their
doors was £3000, but it rapidly grew. What anxieties may have oppressed
the Polloks, and later Mr. Rankin and Mr. Gilmour, no one now can tell.
Money cares would sit comparatively lightly on the foreign partners. If
their work was physically harder, Providence, as compensation, had
allotted to them the drawing of the bills and to the home partners the
paying of them, and the news of any stringency in the money market would
only reach them weeks after the event, when the trouble was over. Within
the narrow space of five or six months 300 to 500 cargoes of lumber of an
aggregate value of nearly £1,000,000 would be shipped by the several
foreign houses; and in addition provision had to be made to finance
various shipbuilders, and the general stores.
I think the system was that the foreign houses drew upon Wm. Ritchie &
Co., Montreal (the financial centre of British North America) to meet the
maturity of these bills Wm. Ritchie and Co. would draw upon Pollok,
Gilmour & Co., and discount them to retire their own acceptances ; or, at
times of pressure, upon Maitland, Phelps and Co., who were the strong and
attached financial agents of the firm at New York. In such case Maitland,
Phelps & Co., to meet the maturity of their acceptances would similarly
draw upon Pollok, Gilmour & Co., bills payable in London. Thus the day for
meeting necessary requirements would be deferred for nine or twelve
months, by which time some of the bills on home customers would have
matured, or would be in process of maturing. The Maitland, Phelps facility
would only be utilised as a safety valve, but the safety valve at times
was assuredly heavily weighted. Finance is at all times a very delicate
operation, and any hitch or breakdown would have been fatal.
One thing we may be assured of—the Polloks recognised that the essence of
their business was the unfailing meeting of any obligations undertaken,
and must early have established a reputation with, and been given
considerable facilities by, their bankers.
There must have been times when they were severely
tried, as when Allan Gilmour senior made his two huge purchases or
corners, and when he retired. Then there were the recurring panic years.
It may be of interest if I here give some notes upon these.
The first crisis or panic—for there is a
distinction—they would encounter would be that of 1825. To a period of
considerable speculation succeeded the recognition of the independence of
the South American States and Mexico. Visions of countless wealth to be
extracted from these gold and silver producing countries led to
£150,000,000 of British capital being sunk there. All the propensities of
human nature were constantly solicited into action, and crowds of
individuals of every description—the credulous, the suspicious, the crafty
and the bold, the raw and the experienced, the intelligent and the
ignorant, princes, nobles, politicians, placemen, patriots, lawyers,
physicians, divines, philosophers, poets, intermingled with women of all
ranks and degrees—spinsters, wives and widows —hastened to venture some
portion of their property in schemes of which scarcely anything was known
except the name.'
The foregoing is very apposite to what many of my
generation have seen on at least two occasions —the cotton speculation
during the American War, and of recent years, but in less degree, the
speculation in South African Mines.
The second crisis would be that of 1838, the very
year in which, it may be noted, Rankin, Gilmour & Co. started in business,
and in which the senior firm started upon the task of paying off their
indebtedness to Allan Gilmour senior. The causes of the crisis of this
year were an 'immense extension of the Joint Stock Banking system
multiplying Bankers' credits; flotation of American securities; and
wholesale speculation in connection with the first railway advances. Even
Bank of England notes were at a heavy discount in Dublin. The Bank of
Ireland would only take them in very small quantities from their
customers, and at a discount of 2s 6d each,'
presumably on the £5 note, though I think at
that date the Bank issued notes of £1.
The same causes produced another crisis in 1839,
while it should be added that the crops of 1838 were the worst since 1816;
and those of 1839 were worse still.
A very sharp crisis in 1847 was precipitated by the
first failure of the potato crop in Ireland in 1845, and was rendered
still more serious by the railway mania of that year. 'Almost every
tradesman in the Kingdom from Land's End to John O'Groats was deep in
Railway Speculation'; and commercial credit was in a more unhealthy state
than it had ever been before. In September the Royal Bank of Liverpool,
the North and South Wales Bank, Liverpool, the Liverpool Bank (not the
Bank of Liverpool) and many others stopped payment. The first two of
these, however, must have gone on again.
On 25 October the Ministry
authorised the suspension of the Bank Act, which means that the Bank of
England was empowered to issue notes in excess of the limits prescribed by
the Act of 1844. No sooner was this done than the panic vanished like a
The crisis of 1857 was caused by
overextended trade due to the great stimulus given by the Crimean War
expenditure, and by an immense depreciation of American railway
securities. It is supposed that £8o,000,000 of such stock was held in
On 17 October news came that 150
banks in Pennsylvania, Maryland, Virginia and Rhode Island had stopped
payment; out of thirty-three banks in New York only one maintained its
payments. The Borough Bank of Liverpool failed; its liquidation was
On 7 November, Dennistoun, Cross
& Co. suspended payment with liabilities of £2,000,000.
On 9 November the Western Bank of
Scotland failed, bringing terrible disaster to innocent shareholders.
On 10 November the City of
Glasgow Bank stopped; but, I think, went on only to collapse most
disgracefully some years later.
On 12 November the Ministry authorised the
suspension of the Bank Act 'provided the directors undertook not to reduce
their discount rate under 10 per cent.' The necessity for this measure is
illustrated by the fact that 'the total reserve in London on the evening
of the 12th was £384,144.
Such were the resources of the Bank of England to commence on the morning
of the 13th!' A very ordinary provincial bank carries to-thy that amount
in cash, and double, in its vaults every night.
In 1866 came another crisis whose causes were (1)
the 'failure of the cotton supply from the Southern States of America on
account of the War. The enhanced value of cotton caused immense quantities
to come from the East Indies, Egypt and other places, and this led to a
great drain of silver towards the East.' (2) The wholesale 'formation of
companies under the new law of Limited Liability. Finance and discount
houses had advanced enormous sums to promote enterprises which could not
repay their cost till completed.' In February the Joint Stock Discount
Company went under; in March Barned's Bank, Liverpool, went under with
liabilities of 3 millions.
On 10 May, long known as
'Black Friday,' Overend, Gurney & Co. stopped payment with liabilities
exceeding to millions. Of Quaker origin, Overend, Gurney had become the
chartered libertines of the banking world. I have heard the story that
at some earlier period, their requirements not being favourably received
at the Bank of England, they had issued and presented at the counter a
cheque for £1,000,000. Their intention, of course, was to throw the
consequences of any refusal upon the Bank of England, and they
succeeded—the cheque was paid. I have heard of similar tactics being
employed by customers of provincial banks, of course on a much more
moderate but equally unwelcome scale.
On io May the Cabinet, hurriedly
called together that evening, once more suspended the Bank Act. The relief
was immediate, though it failed to prevent some more stoppages. 'The
Chancellor of the Exchequer stated that the Bank had advanced £12,225,000
in five days. . . . One bank alone paid away £2,000,000 in six hours.' It
would be idle to attempt to name the banks and commercial establishments
that stopped payment in this year. I will only mention the Royal Bank of
Liverpool, which had revived after the 1857 panic, but now went definitely
under. It was noteworthy that while the storm was raging in England the
Bank of France was in a state of the greatest serenity.
This contrast was due to several
causes. 'England had fallen into utter discredit. It was fully expected
the Bank of England would stop payment. Quantities of English bills were
hurried over from the Continent and realised at any sacrifice and the
proceeds remitted back. There was no commercial crisis in France, but
strong expectations of war, consequently mercantile enterprise was
The crisis of 18go followed
somewhat the same lines as that of 1878. Argentina, a land 'of immense
extent and boundless resources constantly receiving a vast immigration . .
. had fallen into the hands of an unscrupulous gang who created loan after
loan for the ostensible purpose of developing the country.' Baring Bros. &
Co. had constituted themselves the principal agents for floating these
loans on the public. They were seriously alarmed when 'one of the usual
South American revolutions took place and the crew who were chiefly
responsible for the loans, and had feathered their own nests to the tune
of millions, were driven from power; this, of course, formed a fatal blow
to Argentine credit.'
'On 8 November it became known
that Baring Brothers & Co. were in the extremest danger of stopping
payment with liabilities to the amount of £21,000,000.' Overend, Gurney's
liabilities in 1866 had been only £10,000,000, chiefly internal, whereas
Barings' paper was 'held by millions in foreign countries. The Bank of
England itself being utterly unable to meet the crisis unaided, the joint
stock banks in London, the provinces, and Scotland, were summoned to
combine, and a guaranteed fund of £15,000,000 was subscribed for.' The
Bank also contracted loans from abroad for £5,000,000, and panic was
averted, though for years after the trade of the country suffered
mercilessly from the rash conduct of this one firm
The 1893 crisis may
be termed the Australian crisis. It was due to the same old causes,
commercial overtrading, undue inflation in land values, and over-advancing
by the banks of Australia in all directions. Some of these banks went
under; the bulk of the others were saved by a paternal Government which,
at the expense of the investors, gave them extended and long terms of
years to repay the loans they had contracted, mostly on this side, besides
scaling down to a peppercorn rate the interest they had undertaken to pay.
The office to-day cannot have any
appreciation of what these crises and panics meant when they occurred.
Happily in the later period they were less frequent and less virulent,
doubtless due to greater promptitude of inter-communication and stability
of exchange. Mr. John Ritchie told me he had known, on the occasion of one
of these panics, a Dock Bond being offered him at 50 per cent. of its face
My quotations and much of my
information are from MacLeod's Theory o/ Credit, 1891.
While there was no doubt severe
tightness of money here in 1907, we did not have the crisis through which
the United States passed. This country was saved by the judicious action
of the Bank of England, supported by the Banking community generally, in
protecting our cash reserves. America had undoubtedly counted upon milking
the mother cow as she had so often done before; but, guided by former
experience, the authorities here took such steps as were necessary to
prevent their getting control of our finance.
Rise and fall seems to be the law
of nature. The firm's operations and successes would seem to have reached
their climax shortly after the time of Allan Gilmour senior's secession.
True, Allan Gilmour junior and Robert Rankin senior maintained their
activities in developing their own special firms at Glasgow and Liverpool,
but abroad there was lacking the indispensable touch of close personal
visitation. No one could deny that to rest and be thankful was the due of
these two gentlemen, but it would seem that their partners abroad elected
to run on the same lines. A few of the letters from home, especially after
they had presented their balance sheets, might for the moment have been a
disturbing element, but on the whole they found these two home partners
simply beneficent fairies.
Except for the development in the
Southern States of U.S., inaugurated by Robert Rankin, there would appear,
both in Canada and New Brunswick, to have been a process of
disintegration, a general inertness of management. I feel some shame that
in my own generation more endeavours at regeneration were not attempted.