THE 1907 BANK PANIC: WHAT IS “MONEY”?

Few events in American history had such a direct and immediate impact on Sonoma County as the Bank Panic of 1907. Although Ground Zero was the New York City financial district, the tsunami that rippled west from Wall Street hit the Pacific coast two weeks later. Everyone who read the papers knew the general history of recent events, and anticipated the worst was coming; it was like California was the last child in a long line of children waiting for to receive a doctor’s shot with a big, scary needle. People in Sonoma County began literally burying their gold and silver coins in their backyards rather than trust local banks.

The local papers were sketchy on the details of what was happening out east, but it was clearly bad. Stocks were crashing; a bank run on one of the country’s largest trust companies forced it to close, with thousands of depositors losing their savings. “FINANCIAL SITUATION IS PANICKY ALL OVER COUNTRY,” was the Press Democrat headline on Oct. 24. These were not problems that touched most Santa Rosans, who kept their money in local banks; few in this farm town would have played the stock market. But then came news that must have terrified them: The local banks would soon be paying withdrawls in something called, “clearing house certificates” instead of money.

Only those who lived in the eastern U.S. during the summer of 1893 had probably seen such a thing before. Certificates were intended to provide some traction for the financial system when it was skidding towards a cliff. During such a severe crisis, the clearing houses – which were normally obscure waystations in the banking world where checks were exchanged between big banks – would be allowed to print these certificates and use them as if they were U.S. currency. At the end of the crisis, everyone could exchange this quasi-legal tender for cold, hard, cash. It’s understandable that many were uncomfortable about this funny money; these certificates weren’t backed by a precious metal, or even in the name of the United States Treasury, but were issued by unofficial, unregulated consortiums of regional banks – which might also close if there were a total banking meltdown. Skeptics probably buried their remaining coin more often that we’d expect.

There was another unique problem with certificates in California and Nevada: People in 1907 were still accustomed to using gold and silver coins (minted in San Francisco) for regular business, not paper greenbacks (printed in Washington, D.C.) – in fact, a contemporary source pointed out that the public held different meanings for the words, “currency” and “money.” It’s understandable that some balked at being forced to accept nondescript slips of paper cranked out quickly at some local printing place. The enormous Goldfield mining camp shut down in November because workers refused to accept the clearing house scrip; troops were called to protect the scab miners who were sent in.

Criminals exploited the public’s unfamiliarity with paper money; a farmer in Northern California was arrested after he tried to pay an immigrant worker with cigar coupons, telling him they were certificates. A certificate counterfeiting ring in Sacramento was busted, with one member confessing, “Why, it is the easiest graft I know. With $3.50 I can make $10,000 worth of those certificates and they will pass. All one has to do is get the paper, a little colored ink, make a stamp of the signatures and run off a batch as long as the paper and ink last.” And in Arcadia, a crook robbed a victim of $3 in certificates, and when taken to court, used the defense that since the paper had no technical value, it couldn’t be a felony to steal them.

Sonoma County bankers formed their own Clearing House Association with twenty member banks, printing their own certificates in $1, $10, $20, $500, and $1000 denominations (alas, I can find no images of any of these, and a collector’s price guide suggests that they are quite rare). By mid-November, the county was using these certificates to pay its debts. But at the same time, the county was refusing to accept certificates in payment of taxes. If you didn’t have the gold coin, you had to pay the taxman with a certified check from a bank. That’s a vote of confidence in the clearing house, yessir.

In the end, the clearing house certificates probably saved the Sonoma County economy that year. The crisis hit just before the main local crops, hops and wine grapes, were to reach the market. If the banking system was still paralyzed, growers probably would have been forced to sell their crops at ruinous prices.

That wraps up the Sonoma County angle to the Bank Panic of 1907, but as I was researching the topic, I was dismayed that I couldn’t find anything on the Internet with a clear explanation of why the crisis happened, although there are many disconcerting parallels to our recent financial firestorm. I also discovered there was an unsolved mystery concerning an apparent attempt to incapacitate (and potentially, murder) a senator in the United States Senate chamber. Lots more interesting stuff in part 2.

MOST SENSATIONAL DAY IN HISTORY OF STREET

– Press Democrat headline, October 23, 1907

FINANCIAL SITUATION IS PANICKY ALL OVER COUNTRY

– Press Democrat headline, October 24, 1907
FINANCIAL FLURRY HAS REACHED PACIFIC COAST
Governor Declares a Holiday for the Banks

– Press Democrat headline, October 31, 1907
GOVERNMENT FUND DEPOSITS

When money is “tight” on Wall street the United States government often relieves the tension by depositing government funds in the Wall street banks, so that these banks may in turn lend the money to their customers.

Congressman Burleson of Texas thinks that other parts of the country and other interests are as much entitled to this sort of assistance as Wall street and its money kings. He has begun a campaign to secure government deposits of ten million dollars of public funds in the banks of the west and south to be secured–not by stocks and bonds of finance, as is the case in New York–but by cotton, tobacco, and wheat to the value of forty millions–the goods to be stored in government warehouses as security before the money is loaned.

Such measures as this have often been proposed, but never before with such prospect of success as now. The turning of the light upon Wall street’s dark places has had the effect of opening the eyes of the people to the fact that Wall street does not own the riches of the world or control the destinies of the nation. But Wall street has pulled the strings for a long, long while; and will not let go without making a fierce “roar.”

There is a local application of all this, although it may not at first glance be apparent. Farmers here can find no present market for their hops and wool, because money is “tight.” There is no particular reason why government money should be loaned to banks on paper security in order that the banks may loan it again on better security. The government can take that security as well as the banks can, and it will not be surprising if some such result as that now proposed by Congressman Burleson should in time work itself out.

– Press Democrat editorial, October 27, 1907

LOCAL BANKS TO STAND TOGETHER
Important Meeting Held Here Last Night to Consider Financial Situation

“All principal clearing house associations in the United States, including San Francisco, have gone on clearing house basis and will not ship money to correspondents. We suggest you organize locally for protection. Stamp your drafts on as payable only through San Francisco clearing house.”

The above telegram ws received by all of the local banks yesterday from their respective San Francisco correspondents.

Last night a meeting of the banks of Santa Rosa, Sebastopol, and Guerneville was held to consider this telegram and what action was to be taken.

It was the sense of the meeting that local conditions are sound and satisfactory.

We are in the midst of marketing one of the most valuable crops in the history of the county, on which large advances have been made by the different banks, and on which returns cannot be immediately received owing to conditions existing as outlined in the above telegram.

Statements of the different banks show ample funds on hand to handle all necessary requirements, provided the money is not withdrawn from circulation or diverted to other localities.

All of the banks agreed to stand together for the protection of their depositors, and to care for local business.

Checks will be handled in the usual manner but cash will be paid only when actually necessary.

It is hoped that these conditions will not long be continued. Meanwhile, people should aim to handle their funds in a manner as nearly normal as possible, as this will hasten the resumption of the usual order of things.

– Press Democrat, October 31, 1907
NEW PAPER MONEY HAS APPEARED HERE

W. H. Grissim, of “The Swell” received a $10 Clearing House certificate, probably the first seen in Santa Rosa, over the bar Thursday evening in payment for a couple of drinks, It was tendered by a well known traveling man, who said he was given ten of the certificates when he left San Francisco for expenses as there was no cash available for the firm.

The certificates are printed in a neat manner on special paper carrying a certain water mark and are signed by the Secretary of the Clearing House Association in person while the President’s signature is a facsimile printed on. The paper is worth face value through the clearing house and will be accepted by banks on deposits the same as a draft or check, but cannot be cashed in. They will be taken for collection.

People arriving from Sacramento on Thursday tell of the appearance there of a large quantity of paper money. The latter has never been acceptable in California, but it is said it has come to be so common in Sacramento as to pass without comment during the past week or ten days. It will probably become quite common all over the state as a result of the gold stringency.

– Press Democrat, November 8, 1907

CLEARING HOUSE FOR THIS COUNTY
Organization Effected at Meeting of Bankers Held in Santa Rosa Monday Night–Plans of Organization

Representatives from all of the twenty or more banks of Sonoma county were present here Monday evening at a meeting called for the purpose of completing organization which has been under formation for a week past.

As a result of the gathering the Sonoma County Clearing House Association was organized with President John P. Overton of the Savings Bank of Santa Rosa as president, and Cashier E. C. Merritt of the Union Trust-Savings Bank as secretary. All the cashiers of the various banks in the county were elected assistant secretaries, while the selection of a vice president was deferred until the next meeting.

Financial matters was discussed at some length and while everything was reported to be moving smoothly. It was decided that Clearing House certificates should be issued as occasion arises so as not to allow all the gold to work its way to San Francisco and other financial centers. This action is in accord with that of San Francisco, Oakland, Sacramento and other cities of the state as well as of the cities of other states.

San Francisco Clearing House receipts are being accepted by all the county banks for credit and exchange is being issued on San Francisco and New York as usual. Business is reported good and the deposits are larger than the withdrawals.

– Press Democrat, November 11, 1907
CLEARING HOUSE ASSOCIATION

The banks of Sonoma county have organized what is to be know as the Sonoma County Clearing House Association, the purpose of which is to allow the banks to afford proper assistance to their respective business communities by issuing clearing house certificates and to facilitate inter-bank settlements.

Every city in the country is now temporarily on a clearing house basis. There is no better money than a clearing house certificate. The certificates not only have behind them the strength of all the banks, but every dollar they represent is secured by the pledge of high-class securities far above their face value. They are as well secured as national bank notes, of which not one dollar ever did or ever will fail of redemption.

Except in California and Nevada, and to a less extent in Oregon and Washington, gold does not circulate at all in this country, and where people are accustomed to paper money the new form is accepted without question. The notes are not legal tender, it is true, but neither are national bank notes legal tender, and yet nobody refuses them. As between national bank notes and the clearing house certificates, one is precisely as good as the other. Some of our people, accustomed as we are to use gold and silver exclusively, are inclined to sniff a little at any paper money because it is new to them. But they need not worry. The certificates are as safe as gold, and except on this coast, are preferred as more convenient. It is merely a question of habit. If we should use the certificates a few months we might dislike to return to metallic currency.

But we are not likely to do so. We shall be back on a gold basis as soon as the great streams of gold now entering the country reach San Francisco and allow things to resume their normal state. Our banks are not out of gold. Far from it. And what is more, they do not intend to get out. In any large city there are a great many people who, whenever there is any talk about scarcity of money, will rush to the bank, draw out their gold, and hoard it. This is something that they will not be allowed to do this time, because such tactics are not fair either to the other depositors or to the business community as a whole.

As a result of he experience had during the past few weeks, when, for no good reason, there has been an unprecedented demand for money and in order to properly protect the country’s business interests all the banks of the country have been compelled to get together and devise ways and means for providing additional circulating media. It is very probable that some form of legislation will be evolved to meet such conditions in future. There certainly should be. New conditions demand new methods, and the business of the country has now grown to such enormous proportions that the methods for so long in vogue are no longer adequate. When Bryan said there was not enough money in the country to transact the business of the country he knew what he was talking about. There is plenty of wealth, but not enough exchange media. This fact has now been demonstrated to the satisfaction of everybody, and Congress at its next session will be very apt, as it should, to enact laws providing the country with a more elastic form of currency than we possess.

– Press Democrat editorial, November 11, 1907
PAID IN CERTIFICATES
County Treasurer Murdock Kept Busy Wednesday Paying Claims

County Treasurer Glen Murdock was a busy man Wednesday when he paid off many claims against the county in the new clearing house certificates, issued by the Clearing House Association of Sonoma County, representing twenty banks. In all but a few instances the paper money was accepted cheerfully. Once in a while, because the person receiving the same, did not understand the situation, there was some reluctance at taking the certificates. Treasurer Murdock did his best in such cases to explain the matter to the satisfaction of the doubting Thomas. But for the purpose of accommodating patrons County Treasurer Murdock need not have opened payment on Wednesday had he so desired, owing to the fact that the legal holidays still continue.

– Press Democrat, November 14, 1907
THE PAYMENT OF TAXES IN BANKING CERTIFICATES

Somebody signing his letter “A Subscriber” but neglecting to give his name, asks why the city and county tax collectors will not accept certificates in payment for taxes. The county tax collector is receiving the certificates of the Association of Sonoma County Banks in payment of all taxes collected at his office. Under the advice of the city attorney, the city tax collector is not receiving these certificates. At the same time any taxpayer having certificates can take them to any bank in the county and receive a certified check for the amount of his taxes and the city tax collector will receive the same and deliver the receipt for taxes paid. An ordinary check drawn on any bank in the city, or for that matter, the county, will be accepted by the city tax collector if he is satisfied that the money to pay the check is on deposit. It seems that the failure to receive the certificates directly when they will be accepted indirectly is a technicality to considerable extent. Anybody having certificates of the clearing house of this county can pay any kind of taxes with them in the manner stated above.

– Santa Rosa Republican editorial, November 16, 1907
TEMPORARY DEPRESSION IS DUE TO WILD SPECULATION

– Press Democrat headline, November 17, 1907

PAID IN CHECKS; NO CASH ABOARD
Arrival of the Southern Pacific Pay Car in Santa Rosa Yesterday Morning–First Time in Years

The Southern Pacific pay car arrived in this city yesterday morning and it brought in a large supply of checks. It is a long time since the pay car came to town, the plan of late having been to send checks to the agents and have them in turn distributed to the men at the different stations.

In view of the financial stringency the men here and along the line had hoped that the pay car would bring cash as was the rule in the days ago. There was consequently some disappointment when checks were handed out. Of course there was no difficulty in cashing the Southern Pacific checks, only that some of the men objected to taking clearing house certificates in part payment when they came to cash them.

They pay car was so badly wrecked at Sacramento Wednesday night by the switching crew in the yards that it had to be left there for repairs, and a tourist coach was used to complete the trip for paying off.

– Press Democrat, November 23, 1907

HOW TO DETECT BOGUS PAPER CERTIFICATES

Now that “paper certificates” are becoming very plentiful, it is very good idea to learn to know the good ones from the bogus.

The “lines” or “threads” or “fibers,” as seen in the ordinary government issues of paper money are not seen in the clearing house certificates, nor are they seen in ordinary checks with stripes both visible and invisible are seen in the latest suits made by Hodgson-Henderson Co., 517 Fourth st.

– Press Democrat advertisement, December 18, 1907

BURIED TREASURE WAS FOUND IN HEN HOUSE

While searching in the ground in the floor of the chicken house Sunday for the money, a son of the late John Wesley Sparks found about $140 that his father had buried there a few weeks ago. It was known that when the banks opened after the special holidays Mr. Sparks withdrew life savings and buried them. The money will be quite a help to the widow at this time.

– Santa Rosa Republican, February 11, 1908

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THE 1907 BANK PANIC: LONG ROAD TO A FAST CRASH

Before the crisis, they said safeguards were in place to prevent it. During the crisis, they said some banks were too big to fail and needed an immediate bailout, or the U.S. economy might collapse. After the crisis passed, they said it had been caused by a few bad eggs and not underlying flaws in the system. They said that all the average people who ended up losing everything were to blame for their own misfortune because they were reckless and probably just as dumb as bugs.

Welcome to 2008. Welcome to 1907.

(This is the second part of an essay about the 1907 Bank Panic. Part I described its impact on Sonoma County, and explained how clearing house certificates worked and their impact on local economies.)

The usual take on what happened recently was that lenders were too easy with credit for risky subprime home loans, but we’ve since learned that the 2008 meltdown wasn’t all that simple; insiders had created a new financial underworld that few really understood. They invented a complex game of credit default swaps, collateralized debt obligations, and toxic securities, to name just a few of the new cards they slipped into the financial world’s playing deck.

History books usually explain that the crash of 1907 was caused by lenders who were too easy with credit for risky stock market deals, and once it began, events happened with the inevitability of falling dominoes. But the backstory of that crisis is as deep as the events that recently led to the collapse of Lehman Brothers and Bear Stearns. Only problem is, you can’t find good information about causes of the 1907 crash online. There are a few books and papers on the topic (particularly “The Panic of 1907“), but these are either off-limits or available only as excerpts. (A short bibliography is included at the end.) None present a concise description of the root causes, and none continue the discussion into 1908, when Congress attempted to fix the problems.

So in sum, here’s my take on the Bank Panic of 1907 and events leading to it, followed by a bit of a mystery story: One senator stood in the way of passage of the bill that would give banks new powers regarding the printing of “emergency currency,” and he fell ill on the floor of the Senate. The story emerged that something had been slipped into a drink that was intended to incapacitate (and potentially, murder) him. If the near-collapse of the U.S. economy holds no interest for you, jump ahead to the “whodunit.”


Looking back on it, the first surprise of the Bank Panic is that it took so long to happen. Every contributing factor was in place for at least a year prior, and many went back to the end of the last century:

* MEET THE MEGABANKS In the dozen years before the panic, big businesses were on a merger frenzy, gobbling up other companies at an unprecedented rate, both up to that time or since; 93 corporations bought out 1,800 firms. While the smaller, pre-merged companies usually had relationships with local bankers, big conglomerates used big banks. As a result of this merger mania, banking became more centralized between a very few large institutions in New York, Chicago, and San Francisco.

* A BANKING SYSTEM BUILT ON SAND America’s Gilded Age ended in a trio of depressions during the 1890s, when thousands of banks failed nationwide. The ad-hoc state rules and regs that emerged afterwards appeared to stabilize the banking system; the markets were booming by early 1906, and only 53 banks collapsed that year. But it was a fragile network based on personal relationships between bankers and their back-scratching investments and deposits. The result was a banking world that worked smoothly only when there were no clouds in the sky; its inflexibility was revealed when calamity struck, such as a massive crop failure or…

* THE 1906 EARTHQUAKE San Francisco was nearly destroyed in the Great Earthquake and Fire, but the impact of the disaster was also strongly felt in New York and overseas. To rebuild the financial epicenter of the Western United States, $50 million in relief money poured in from England and Europe. Faced with enormous insurance claims, some firms closed or paid a fraction of what was due, and the overseas insurers that did pay claims sent over literally boatloads of gold – another $65 million in bullion between April and September 1906 was shipped to America as cargo aboard regular passenger ships. (Attention Hollywood: Let’s have lunch to discuss a movie about what could have been the greatest heist in the history of mankind.) In the wake of this enormous transfer of gold, a credit crunch spread across the Atlantic to New York, and from there on to the rest of the U.S. By the end of 1906, banks were gripping tight credit and cash.

* TRUSTS ARE LIKE BANKS, ONLY DANGEROUS Why put your life savings in a boring ol’ bank when you could open an account with one of the new trust companies and get much higher interest? In some states, the trusts held greater assets than the banks by 1907. No one seemed concerned that the trusts were held to looser regulations, such as only requiring 5% of the deposits kept as cash reserve. One of the largest, the Knickerbocker Trust Company in New York, had such shoddy business practices that few within the company, even management, knew details of their holdings, and the Directors rarely met.

* THE CLEARING HOUSE RULES The keystone of the financial world was the clearing house, where large regional banks exchanged checks and bank notes. But it was more than a big room filled with bean counters and cashiers pushing wheelbarrows of money between vaults; the directors (presidents of member banks) formed the ultimate inner circle of the financial world. Members pooled their risk, and cheap short-term loans were routinely provided when any of institution needed help. During the weeks of the Bank Panic, the Treasury Dept. authorized the the clearing houses to print certificates that could be used as U.S. currency; once they had the ability to literally print their own money, certificates could be used for membership loans, making clearing house associates completely invulnerable to financial turmoil. The trust companies and the smaller banks didn’t have such advantages, of course, and were forced to appeal for a clearing house loan (which meant the bank’s owners might be forced to cede control), liquidate assets, borrow at high interest rates, or declare bankruptcy.

The basic timeline of the crisis is well documented on the Wikipedia page. In short: The panic began on October 16, 1907, as a banker’s stock manipulation scheme disastrously backfired. The banker couldn’t make good on his debts and his brokerage house collapsed. A run on his bank followed, and the clearing house backed it up. It soon became known that the banker and his Wall St. partner had created a shaky financial empire via “chain-banking,” where they would use their controlling shares in one bank as collateral to buy shares in further banks and trusts. The panic spread to these other institutions. When it came out that the Knickerbocker Trust was mostly financing the pair of scoundrels, customers lined up at their doors to withdraw their deposits. Knickerbocker’s associated clearing house refused to stand behind them. The next day, a representative from one of the big banks walked into the lobby and cashed a check for $1.5 million. After another bank presented a $1 million check, the Knickerbocker closed. That was all during the first six days. (A brief discussion about media coverage of this period can be found in the previous essay.)

In the week that followed, almost every day a new crisis emerged that could have crumbled the foundations of the U.S. economy. Brokers at the New York Stock Exchange found no one willing to loan “call money” to keep the trading floor open; over four hours on Oct. 24, the interest rate on such loans shot from 6 percent to 100 percent. New York City had four days to raise $20-30 million or declare bankruptcy. And in each case, it was J. P. Morgan who came to the rescue, purchasing city bonds and constantly twisting the arms of bank and trust company presidents to come to the aid of their ailing brethren instead of hoarding their cash. At one point, he locked them in a room together and pocketed the key in his vest, refusing to let them out until they signed an agreement to cooperate. It’s a cracking good tale and if you’d like to learn more, I recommend the well-told narrative in “The Panic of 1907.”

When the dust began to settle on November 4, congrats were due Morgan and Treasury Secretary Cortelyou; only six of the national banks failed, and stocks were just down 37% from the last market peak of Sept. 1906. But survival came at a cost. At least four dozen banks and trust companies were closed, with their depositors losing everything. Money remained tight and the sudden shutdown of foreign investment had consequences, including partial blame for the Mexican Revolution of 1910. The banks that belonged to clearing houses emerged stronger and more powerful than ever before.

Most importantly, the 1907 panic destroyed all faith that there were adequate safeguards in the banking system to prevent another disaster. The bankers didn’t want to work together to stop the crisis; rather, they sought to exploit it for short-term gain, or tried to weather it out by doing nothing at all, or stood paralyzed watching the disaster unfold, like innocents about to be stomped to death during Godzilla’s Tokyo rampage. If not for the not-so-invisible hand of J. P. Morgan, the U.S. quite possibly could have led the world into the Greatest Depression.


Congress saw that some kind of central bank was needed, and a few months later passed the Aldrich–Vreeland Act, which became the groundwork for creation of the Federal Reserve System in 1913. More important in the short term was a new federal policy in case of another full-tilt bank panic; the country would temporarily switch to a government printed scrip. A little noticed provision in the Act, however, had the potential to change the entire banking system for the worse. To be deemed solvent, a bank would not need to have its cash assets in precious metals or government bonds; they could use any securities on hand. Thus (in theory), an institution might not have a single penny in its vaults, but be able to keep the doors open because it had old railroad stock certificates with a face value of millions of dollars on its books, even though the stock was actually worthless. The implications of this were staggering: If a stock certificate had a par value of $100, then it was worth $100 in scrip, which was worth $104 (including the guaranteed interest for certificates) in gold. In short, the Wall Street bankers would be motivated to create another crisis because resurrecting old stocks from the dustbins would make them enormously rich.

As the Act approached final debate on Capitol Hill, the only politicians concerned about this unprecedented change to the banking system were members of the tiny Republican progressive caucus of the Senate, led by Robert M. (“Fighting Bob”) La Follette of Wisconsin. After he discovered that a last-minute provision had been slipped into the bill that specifically gave the banks power to include their worthless railroad bonds and stocks among their securities, he launched a filibuster on May 29, 1908.

La Follette, who ran for the Republican presidential nomination later that year, believed that 97 wealthy men formed a “Money Trust” that secretly controlled the economy. Earlier that year he had read their names into the Congressional Record and spoke often about their cabal in speeches on the Senate floor and on the campaign trail. He argued that through their interconnected board of director memberships – primarily through Standard Oil and the Morgan banking houses – they conspired to manipulate markets, and even engineered the Bank Panic as a means to consolidate power. It’s probably unnecessary to mention that La Follette has found a renewed following today on conspiracy web sites (example here). Although the interlocking directorships of the wealthiest companies was – and truly still is – an issue of great concern, the details of the 1907 panic prove the conspiracy-minded wrong; instead of acting in concert to manipulate the crisis, the elite bankers preyed upon each other with usurious interest rates, and ran to Morgan like frightened children begging daddy to fix.

La Follette personally filibustered for 17 hours, and another progressive senator followed for almost another two. While La Follette was taking a much-needed break, that senator flubbed his handoff to a third filibuster speaker. Senator Aldrich pounced on this parliamentary error, and the filibuster was over. The Aldrich–Vreeland Act quickly passed, but La Follette later claimed victory because he had exposed “another chapter to the record of the subserviency of Congress to special interests.” Privately, President Teddy Roosevelt wrote that the filibuster was “pointless and stupid,” and La Follette was “an entirely worthless Senator.”

The Aldrich-Vreeland Act was repealed a couple of years after the Federal Reserve System came into effect, and was only invoked once, when over $300 million in emergency currency was circulated during the panic created by the start of WWI in 1914. Whether any banks took advantage of the stock par value loophole (or whether it even made it into the final law) is left for someone else to research. But there’s an anecdote about La Follette’s filibuster that’s repeated by every biographer and often mentioned in books on the Senate’s history:

During his marathon soliloquy, he maintained his strength via turkey sandwiches and numerous glasses of eggnog ordered from the Senate cafeteria. He tasted something foul in one glass. According to a recent book on the Senate, “He swallowed some and then screamed to his colleagues and the gallery, ‘Take it away, it’s drugged’…the moment made for great political theater.” It is also sometimes mentioned that a subsequent chemical analysis discovered enough “ptomaine” (a general term at the time for a food contaminant) to have killed him if he had consumed the entire glass.

Did someone really poison La Follette on the floor of the Senate? Only a couple of general interest authors (and Senator Byrd in the definitive book on Senate history) go as far to speculate that it was done intentionally, and a few biographers propose that it was likely natural food poisoning, as it was over 90° in Washington DC and the drink consisted of milk and raw eggs, all handled and prepared before the age of modern refrigeration. Refreshing drink, thy name is salmonella.

But never is the basic story questioned, although there’s not a single primary source from 1908 (that I can find) which mentioned anything concerning ptomaine tests, his flights to the bathroom, or remarks by La Follette, either quiet or screamed, about funky-tasting eggnog. Because the entire Washington press corps gave white-hot coverage to the filibuster – and hour by hour coverage at that, once it became clear that it could be a record-setting event – without mentioning any of those details, I was skeptical that it happened at all, and, frankly, have spent (too much) time working to debunk it. Here are the facts, you decide:

Reporters were united in praising La Follette’s endurance. At the end of his 17 hour soliloquy, “his voice seemed to be almost as fresh as when he began,” stated a wire story reprinted in the Wisconsin State Journal. “He was wonderfully fresh to the end,” according to Walter Wellman, the Chicago Record-Herald correspondent who was apparently the best reporter on the scene. Other wire stories attest to his apparent unflagging energy during his marathon.

Not to say that he was robust health; he was bedridden for several weeks earlier in 1908 with the flu (which sounds more like pneumonia), and there were many mentions in the filibuster coverage that he was still recovering from an unnamed illness. “La Follette complained of his recent illness and during much of the day leaned strongly on the arm of a chair half sitting as he talked.” (AP); “Senator La Follette, Weak From Long Illness, Keeps Senate In Session” (sub-headline on The Racine Daily Journal); “Mr. La Follette is not very well, and is, in fact, in poor physical condition for such a struggle.” (Chicago Record-Herald). “He had come practically from a sick bed to make his fight” (Washington Herald).

The strongest case against the ptomaine ptale is that it’s not mentioned in La Follette’s 1913 autobiography, although he doesn’t hesitate to belabor other illnesses that occurred at crucial junctures in his life. The story first appeared in a book published in 1912, written by a highly biased writer who viewed the political landscape as a starkly black-and-white battle between “reactionaries” against progressives, with La Follette as their great champion. After that, the story was forgotten for forty years, until his daughter and widow published a two-volume biography in 1953. This is the source cited by all modern authors, and worth quoting in full:



From time to time during the afternoon and evening Bob sent out messages to [his daughter] Fola, who was in the gallery, that he was “feeling tip top.” Until late in the evening his strength was holding out far better than he had anticipated. At about 11:30, however, a discerning reporter noted that “it was apparent he was under a great strain. His words did not come anywhere near as easily as they had in the afternoon, and he embraced every opportunity for even a slight delay.” Some time between ten and eleven o’clock, during the interval of a roll call, Bob had taken a large swallow from a glass of eggs and milk which had been brought to him on the floor. As it went down, he detected a vile, bitter taste. He handed the remaining three-fourths of liquid back to his clerk and said in a voice distinctly audible on that side of the floor, “Take it away,” it’s “drugged.” Soon after that he had been stricken with a severe and painful dysentery unlike anything he had ever experienced before. Subsequently a chemical analysis of the remaining contents of the glass disclosed that it had contained enough ptomaine to have killed him had he taken all of it. At first the pain was so acute and he was in such distress that Bob thought “the jig was up” so far as continuing his speech was concerned. But by forcing several roll calls between 11:30 and 1:30 he managed to leave the floor for a few minutes and get back to his desk in time to resume speaking before each roll call was finished.

The “discerning reporter” was from the New York Times, who indeed reported that La Follette appeared in distress. The source for the rest of the account was a letter from La Follette to his wife written a couple of days later, and now among his papers in the Library of Congress, so it should be considered his own version.

The first question is whether it’s even possible that the story is true. It’s impossible to say for sure because the “chemical analysis” is ancedotal, and a couple of important words are inexact; “ptomaine” was a generic Victorian term for any kind of food poisoning. It’s also almost certain that he really didn’t have “dysentery,” which is a very acute condition and includes fever and bloody diarrhea; the Senator (or his wife) surely used the word to simply mean an epic bout of diarrhea.

If it was “ptomaine,” the likey suspect was salmonellosis (salmonella), as guessed by a few biographers. But he claimed to have been sickened almost immediately; can food poisoning incapacitate someone within 60-90 minutes? Definitely not salmonella, which takes at the very least 6-12 hours to have effect. If La Follette had food poisoning he had to have been exposed to the toxins before the filibuster, or shortly after it began.

So could the eggnog have been “drugged,” as he believed? Without (reported) fever or vomiting, the symptoms come down to diarrhea lasting a couple of very stressful hours, which could be easily explained by a powerful laxative slipped into the drink. Laxatives were considered a cure-all (even for cancer!) in that era, and every pharmacy had shelves filled with the latest name-brand cures as well as old-timey formulas. But the sort of violent, painful effect suffered by La Follette was hardly a selling point for most of these concoctions (one exception was an old formula called “Warburg’s tincture,” which was described as an “anti-malarial ‘shot-gun’ prescription” that would put you to sleep after a near-death experience on a commode – ingredients included aloes now banned by the FDA, alcohol, chalk, black pepper, and opium). And if you want to wander into an Agatha Christie scenario, the powerful Southeast Asian herb senna, which was used in tiny amounts in some of the old nostrums, could have been the culprit if enough was used.

But if something was placed in La Follette’s drink, the most likely candidate was something probably found in every office on Capitol Hill: Magnesium sulphate, better known as “epsom salts.” Normally used to soak aching feet and wrists sore from election year handshaking, it can also be mixed in a drink to create a strong, fast-acting laxative, albeit one with a quite bitter taste. It matches all the criteria, including the risk of death via respiratory paralysis if the senator had consumed the entire glass.

If epsom salts was the means, there were loads of people in the building that had personal and/or political motive to somehow force La Follette to sit down and shut up. The filibuster started on the beginning of the Memorial Day recess, when senators and their staffs were eager to flee the stifling Washington heat; the marathon session also prevented the cafeteria workers and all other Senate employees from going home. And, of course, there were the railroad lobbyists and their friendly senators who had vast riches to gain if the bill was passed. Like “Murder on the Orient Express,” it’s not hard to imagine that nearly everyone had some reason to do him in. But if I were detective Hercule Poirot, my first stop would be the medicine cabinet of bill author Senator Aldrich, who had remained on the floor throughout the entire filibuster, his keen eyes always “scanning the situation like an eagle,” as noted by a reporter.
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FOR FURTHER READING

The Panic of 1907
Banking panics of the Gilded Age
Financing banking crises: Lessons from the panic of 1907
The Great Merger Movement in American Business, 1895-1904
The San Francisco Clearing House Certificates of 1907-1908
The 1907 Crisis in Historical Perspective (Harvard Center for History and Economics)
Robert M. La Follette, June 14, 1855-June 18, 1925, Volume 1
Robert M. La Follette and the insurgent spirit

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PRETTY PAGE, UGLY PAGE

A gourmet savors the taste of a sauce; a lover of classical music and art sighs over symmetry of a sonata or sculpture. Me, I swoon over the frenzied chaos found in turn-of-the-century newspapers, with screamer headlines using enough black ink to gag a squid. “LOOK AT ME!” “BUYYY MEEEE!” headlines shouted in cacophony, each promising stories more sordid, more terrific than any of their competition on the sidewalk newsstand, often with eye-catching photographs exploding out of the frame. The wonderful artists who designed these pages had little idea what they were doing; they were unbound by established conventions or stylebooks, guided only by what they hoped might tease a curious citizen out of a nickel.

There is no good book on the evolution of newspaper graphic design (as far as I can tell), which is a shame – as the craft matured from the Civil War onwards, so was developed the art of persuasion, both for political and advertising ends. Much originated with the Victorian England tabloids and was imitated in late 19th century America, but a new pace was set by the newspapers of William Randolph Hearst, who clearly understood that visual style was integral to telling a compelling story (as well as using those stories to advance his political objectives). Nor did he hesitate to use graphics for just the sake of attention; my favorite Hearst design story is that one of his papers printed a full-sized picture of a revolver that took up far more space than the accompanying story, which simply mentioned that a gun had been used in a minor crime.

Besides paying tribute to Hearst’s innovations, I hope that whomever writes this history will give salute to George French, who wrote prolifically in printing trade journals at the time about the importance of typography, then later specifically about graphic design (and psychology) in “The Art and Science of Advertising” and other works. If you have any interest at all in this topic, don’t miss his 1919 masterwork, “How to Advertise” which could be a textbook for communication majors today (and probably should). French and others ushered in the golden age of newspaper design, magazine illustration, and print advertising, which all coincided c. 1910-1925. Stylish was the new style; it was as if every editor and artist decided it was time to doff the work clothes and slip into evening wear, a chilled martini in hand. But that’s getting ahead of our story.

Below are partial front pages of four newspapers, all published on October 23, 1907 (click on any image to enlarge). This was an important news day; it was near the peak of the Bank Panic, and fears ran high that the U.S. financial system was about to collapse at any minute. The Santa Rosa Press Democrat is included not just because it’s the hometown fishwrap, but because its coverage and layout was quite typical of smaller newspapers at this time. Stories were crowded together with little or no organization, making it difficult to read; the front page was an ugly slab of newsprint, little changed from how it had looked during the late 19th century. An academic paper comparing coverage by the New York Times and the Wall Street Journal is also available.

* The Press Democrat was a morning paper, so to be fair, it must be noted that it was reporting on events from the previous day (although the following edition kept the same layout, with a 2-column story in the same place and the same font; the headline that day was, “FINANCIAL SITUATION IS PANICKY ALL OVER COUNTRY”). Not much detail on the crisis was ever provided in the PD; as Santa Rosa is on the rim of the San Francisco Bay Area, anyone seeking in-depth coverage could find it in papers from that city and Oakland, which arrived on the morning train. Typical of 19th century newspaper design, there are plentiful subheads and every story is presented in the same, basic typography. The single graphic is unrelated to any news in the paper – it’s a portrait of an East Coast railroad company president. In this era the PD front page often splashed portraits of notables and pictures of buildings; did editor Ernest Finley hope any random photograph would boost readership?

* Before the advent of Hearst, the New York World (top right) was certainly the best-looking paper in Victorian-era America. The front page was usually illustrated with original small engravings, and in 1898, their massive color printing press changed the Sunday Comics forever. But like the New York Times, the 20th Century began with World remained locked into the 19th century grid format of simple typography pouring down columns that were the length of the page. By 1907, however, the design was less rigid, and the World could (almost) pass for an outpost in the Hearst empire. In the example here, the World’s front page tastefully mixed typography to differentiate and emphasize stories. The World also followed Hearst’s style of placing the results of the most talked-about sporting event at the top of the front page, no matter what else the news.

* The San Francisco Call presented the most beautiful layout of the day, with banner-width headlines and neatly organized articles. Alas, the progressive Call also followed Hearst’s lead in twisting the news to further the paper’s political objectives. President Teddy Roosevelt didn’t “boldly defy” bankers as the headline claimed; he’d only made a short comment to the press blaming “stock speculators” for the crisis. The Call also featured a political cartoon on the front page, another hallmark of the Hearst style – and coincidentally, this cartoon actually jabbed at Hearst, himself. (The cartoonist’s message refers to Hearst’s backing Dan Ryan for San Francisco mayor; Leon Czolgosz assassinated President McKinley In 1901, and his supposedly “weak and excitable brain” was driven to murder because of Hearst’s fear-baiting editorials. Ipso facto, Ryan was in league with a crazed assassin.)

* The Oakland Tribune produced a front page with quite a nice layout, but the paper is also the hands-down winner of the Rosebud Award for Hearstian Sensationalism. The “rich man” who committed suicide had nothing to do with the financial crisis; he was a local businessman who killed himself for no known reason. And the “Stock Exchange” was really the Pittsburgh Clearing House, whose temporary closure was little noticed outside of Pennsylvania and, for some reason, Oakland California.

I want to write more about this topic in the future, and had intended to share my appreciation of old newspaper design since this blog was launched in 2007, but never got around to it. What finally inspired me was the advertisement below, which is so godawfully bad that you must understand that really, really good design existed at the time in order to appreciate its brain-freezing idiocy.

The full page Press Democrat ad – which appeared SEVERAL TIMES in early 1908 – depicted a drawing of a house. Over the drawing were small business ads, sometimes shaped as if they were signs physically posted on the house, but also sometimes awkwardly floating in the air. These were supposedly “the leading business houses in Santa Rosa.” Houses: Get it? Get it? (I swear, I have not seen an adult human bean produce anything this childlike since a dental hygienist once forced me to gaze upon an instructional poster she had created at dental hygienist school. Red heart-shaped sparkles were glued around the mouth of a patient to suggest a clean bill of health, but I recoiled because without my glasses, it looked like the person was spewing blood after a runaway drill mishap.)

Regrettable concept aside, someone at the PD probably deserved credit for creative salesmanship. These businesses were all steady advertisers who had 1-inch text ads appearing three or more times a week. Presumably the paper collected a premium for “featuring” them in this swell display.

And then there was the ad copy, which offered additional wonders. The slogan, “better smoke here than hereafter” was, more or less, the advertising message of the tobacco industry for the rest of the century, although it was usually expressed with more subtlety. It was nice to know that H. H. Moke was an EXPERIENCED mortician, and the Marlott Bros. conducted a first-class bicycle business, even though their address was secret. The White Star Laundry included the squib, “And this is the House of Clean Linen”, which I always read as a question delivered in a Borscht Belt accent. And who could resist Little Pete, whose restaurant had the charming motto, “eat with me and you will love me always.” Now, there was a guy who truly understood advertising.



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