Knowledge that Transforms

THE CRISIS OF i86o AND THE FIRST ISSUE OF CLEARING-HOUSE CERTIFICATES. I. The causes of crises are so subtle in nature that any attempt to foretell fluctuations in the financial world might well be considered hazardous. No one in the opening months of the year i86o thought of doubting the continuance of the rising tide of prosperity which had begun to gather strength the year before. And yet the closing months of the year saw such a destruction of trade and credit, and the downfall of so many powerful houses, that the financial situation in New York and, indeed, throughout the United States generally, occasioned deep anxiety to the financiers of the world. This revulsion is in itself worthy of attention as a study of a financial panic; but it is of still greater historical interest to the student of credit and crises because it was the first occasion, in this country, of the issue of clearing-house certificates as a means of checking the course of liquidation. As will be shown hereafter, the panic was caused by the rupture of business relations between the North and the South, and aggravated by the suspension of normal trade relations between the East and the West. In order that the causes that occasioned the revulsion may be clearly apprehended, it will be necessary, first of all, to describe the condition of industry and agriculture in the South and West. In doing so, the inquiry will be confined to the decade I850-60.

The Interstate Commerce Commission have already intro? duced into Railway Accounts, beginning with July 1, 1907, the principle of making a fixed monthly charge for depreciation of equipment (locomotives, passenger and freight cars, work-train equipment and tools) and have furthermore suggested that the principle should be applied to track, bridges, and buildings, and minor structures. Under these circumstances, it seems desirable to set forth somewhat fully the methods of dealing with this general subject which have been developed in this country and in Great Britain during the last seventy-five years; and if possible, arrive at a fair conclusion as to the best course to adopt. Furthermore, while in some parts of the country it may be to the interest of railroad corporations to swell their operating expenses as much as possible; or in other parts of the country it may be to their interest to make the operating expenses appear as low as possible, this question of depreciation should not be considered from the standpoint of selfish or local interests, but rather from the standpoint of the broad principles involved, which apply very generally to many commercial undertakings. Nothing in this paper is intended as in any sense a reflection or attack upon the rulings of the Interstate Commerce Com? mission; but is an endeavor to co-ordinate the facts in relation to the subject and point out wherein these rules for depreciation are both unjust and unwise in their method of application.