Professor William Silber of New York University has allowed Historical Financial Statistics to publish his stock market data (Excel file; you may have to click on your Excel icon to see it) on the often neglected U.S. financial crisis of 1914.
This year will be the 100th anniversary of the start of World War I. What is less well known is that the start of the war occasioned a financial crisis in Europe and the United States. In the United States the crisis came at a critical juncture because the Federal Reserve System had been established by law in December 1913 but would not become operational until November.
The Austrian archduke Franz Ferdinand was assassinated in Sarajevo on June 28, 1914 by a Bosnian Serb. After several weeks of mounting tensions, Austria-Hungary declared war on Serbia on July 28. Stock exchanges across Europe closed. The New York Stock Exchange followed suit, deciding to shut down just minutes before the beginning of the July 31 session at the urging of the Secretary of the Treasury.
The exchange remained closed until December, but within two weeks, traders began unofficial trading in stocks in New Street, in back of the stock exchange. The Wall Street establishment successfully discouraged trades from being reported in the financial press. In an engaging piece of historical detective work, Professor Silber found that trades had however been reported in the little-remembered New York Morning Telegraph. The Morning Telegraph specialized in racetrack and entertainment reporting, so it was not beholden to the Wall Street establishment for scoops, readers, or advertising. However, it too eventually gave in to pressure not to publish trades, ceasing after late October.
Professor Silber found that data were available on many stocks, including those of the Dow Jones Industrial Index and the Dow Jones Transportation Index. He first published his work in academic journals, but believing that the story would be of wider interest, later wrote a book for a general audience, When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy (hardcover 2007, paperback 2008). The book explains how policy makers and participants in financial markets addressed the challenges raised by the war in Europe in a largely successful way that helped the United States become the world’s great safe haven for foreign investment, a position it has enjoyed ever since.
Later this year we hope to follow up with other data from the New York financial market of a century ago, and perhaps from other financial markets.