Panic of 1907

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The Panic of 1907 was a severe US financial crisis that struck in early October of 1907. "Not only was there a general recession and contraction, but the major banks in New York and Chicago were, as in most other depressions in American history, allowed by the government to suspend specie payments; that is, to continue in operation while being relieved of their contractual obligation to redeem their notes and deposits in cash or in gold."[1]

The Panic of 1907 was the result of an inflation stimulated by Secretary of the Treasury Leslie Shaw in the previous two years.[2]


In the forty years 1890 to 1930, the population of the country doubled, the value of farm property increased three and a half times, pig iron production four and a half times, exports five times, coal production five times, and freight traffic five and a half times, but commercial bank deposits increased over seventeen and a half times. Thus, while the gold stock had increased proportionally with the increase of industrial production, the expansion in bank credit had far outstripped both and had thus been at the expense of a thinning gold reserve. The monetary gold stock available to support and redeem this tremendous amount of bank liabilities that was being created, which had been 25.3 per cent of total note and deposit liabilities of banks in 1865, and 23.9 per cent in 1880, steadily dropped under the pressure of the public upon the banking interest for more and more credit, standing in 1900 at 20.4 per cent, in 1910 at 14.2 per cent and in 1930 at 10.4 per cent. Such had been the diminution of reserves that by the decade 1920-1930, banking was being conducted "on a shoestring." In 1900 the ratio of vault cash to deposit liabilities of commercial banks had dropped to 14.8 per cent, and in 1910 to 12.7 per cent—vault cash in those years being respectively $706,302,000 and $1,366,164,000.[3]

After attempts to create a central bank failed, the Secretary of Treasury Leslie Shaw attempted to continue and expand the experiments of his predecessor Lyman Gage in making the U.S. Treasury function like a central bank. In particular, Shaw made open-market purchases in recessions and violated the Independent Treasury statutes confining Treasury funds to its own vaults, by depositing Treasury funds in favored large national banks. In his last annual report of 1906, Secretary Shaw urged that he be given total power to regulate all the nation's banks.

The Panic of 1907 struck in October, the result of an inflation stimulated by Secretary of the Treasury Leslie Shaw in the previous two years.[2]


  1. Rothbard, Murray N. History of Money and Banking in the United States.
  2. 2.0 2.1 Rothbard, Murray N. The Case Against The Fed, 1994, p.106, 108. Referenced 2011-03-17.
  3. Elgin Groseclose. Money and Man, 1934, p.209-210. Referenced 2011-03-17.