Wall Street - Venezuela Message Panic
( Originally Published Early 1900's )
This panic one of the most far-reaching and most disastrous in its consequences. It was a surprise, and hence its great power for mischief, especially at a time when prosperity was just under way. An utter collapse of credit, both foreign and domestic, aggravated by foreign holders returning our securities. - The Monroe Doctrine and how President Cleveland construed it. Simply an outburst of honest and overweening patriotism on his part. His misapprehensions regarding the nature of so-called international law, and what constitutes a casus belli. The President's just cause for offense at Salisbury's hauteur, but still the Monroe Doctrine not applicable to the case.- How the message and its consequences played into the hands of the free-silver faction and helped to make the candidacy of Bryan possible. THE Venezuela message panic was probably farther reaching and really more disastrous than any in recent times, primarily for the reason that it was sudden and unexpected. The rumblings of the silver panic were distinctly heard in the distance; so with the tariff panic, and also in the case of the currency-reform panic. Disaster growing out of the lastnamed was due to the apprehension that State banks were going to supplement the national banks with all the horrors of wild-cat currency associated with the name of those institutions in former years, the great variety and large volume of whose notes, together with their numerous and bewildering counterfeits, had complicated finances prior to the Civil War. But let us examine the circumstances associated with the Venezuela message panic more closely. They are of the deepest interest to the people of this country, and show us the stern necessity of an Executive acting with the most diplomatic discretion where international affairs are involved, and where a rash or false move may in an instant let loose the dogs of war and ruin business. It is like playing with fire, when the head of a nation touches rudely a point which may be made a casus belli by some sensitive people. Happily, Great Britain was not very sensitive on the matter in question. The candid intention of Mr. Cleveland was a patriotic defense of the Monroe Doctrine, but the time and the occasion were inappropriate. For several months prior to the date of this diplomatic document business had been reviving, and confidence was being gradually restored. A fresh impetus was visible in the channels of trade all over the country, and a general feeling of cheerfulness, which had not been discernible since 1893, pervaded the masses. Stocks had gone up very considerably, dry goods were selling at a more lively rate, with advancing prices from the jobbers to the retail merchants, and quite a prosperous business all around had been successfully initiated. At this juncture news came from Washington, and was duly distributed by the news agencies, to the effect that Mr. Cleveland had gone off on another duck-hunting tour. This, too, was a reassuring feature of the times, bearing upon the subject of prosperity. It was naturally inferred that if the President felt at liberty to go off on a tour of recreation, his mind must be in a state of agreeable composure so far as public affairs were concerned, and that he, too, was enjoying a full share of the beneficent influence of the improved condition of business. After a few days' absence from Washington, the nation was informed, to its great satisfaction, that the President was having unprecedented success in his sport and that he seldom missed his aim. Then, in an evil hour, he returned to Washington and sprung that ill-starred Venezuela message on Congress and the civilized world. It was December I7, 1895, when the blow fell. The effect was instantaneous, and the panic spread like wildfire all over the Union, and wherever our credit relations in Europe existed the same feeling of distrust and dread of coming calamity seized the minds of the people at large. There was a wild rush to sell everything on the very shortest notice, and to get gold if possible, for the dreadful specter of war admonished the people that the yellow metal would be their tower of strength in the event of hostilities. Credit was broken down to an extent that the country had not witnessed since I873, and there was scarcely a household throughout the length and breadth of the land where the baneful effects of this war scare were not felt. In fact, the whole country lay prostrate in presence of the phantom of" blood and iron " which the people had conjured up from the depths of their own fertile imaginations, because there was nothing in reality to justify half the excitement which the occasion developed. With the exception of the last two paragraphs or so, the language of the message was almost as mild and inoffensive as the one delivered to Congress by President Monroe on December 2, 1823; and that message was a model of smoothness and politeness, the Monroe Doctrine itself, so called, being couched in such harmonious and conciliatory language as not to offend the most fastidious taste. The whole pith of the Monroe Doctrine is contained in the following clear and admirably constructed sentence, “With the existing colonies or dependencies of any of the European powers we have not interfered and shall not interfere; but with the governments who have declared their independence and maintained it, and whose independence we have on great consideration and on just principles acknowledged, we could not view any interposition for the purpose of oppressing them, or controlling in any other manner their destiny, by any European power, in any other light than as a manifestation of an unfriendly disposition toward the United States." This is a very long sentence, but at the same time the language is clear and comprehensive. It is smooth, non-committal, and diplomatic in every happily chosen word. There is a peaceful tone even in its rhythm, and yet when you read between the lines you find that beneath the conciliatory and peace-loving surface there is something in it which says, "If you don't heed this admonition, but intend to bring on the armies of your Holy Alliance to recapture Brazil for a worthless king who will cover the Atlantic with fleets of pirates and commit wholesale murder and robbery, the United States will fight." Viewed in this light, the Monroe message was virtually more belligerent than the Cleveland message. Yet the words of the sentence are so well put together that it is difficult to construe it so. In reading Mr. Cleveland's message carefully in its entirety, one can see where it was quite natural and easy for him to fall into the error which provoked the threat in the last three paragraphs, and especially in the final one. Mr. Cleveland inferred that the very act against which President Monroe mildly admonished the European powers had been actually committed in the Venezuela affair. He labored under the impression that the English claim as to the boundary line was simply a pretext for extending the English system to this hemisphere in violation of the Monroe Doctrine. The following short paragraph explains the logic on which Mr. Cleveland leaned for the justification of this opinion: - " If a European power, by an extension of its boundaries, takes possession of the territory of one of our neighboring republics against its will and in derogation of its rights, it is difficult to see why, to that extent, such European power does not thereby attempt to extend its system of government to that portion of this continent which is thus taken. This is the precise action which President Monroe declared to be 'dangerous to our peace and safety,' and it can make no difference whether the European system is extended by an advance of frontier or otherwise." This reasoning appears very plausible from Mr. Cleveland's standpoint, but it is not conclusive nor broad enough in its scope to take in the whole situation. It seems to overlook the fact that the land in dispute had belonged to Great Britain by prescriptive right and adverse possession for sixty years, whereas twenty years would have been sufficient, according to the laws of most countries, to establish permanent ownership. Having got this idea fully impressed upon his mind, and reasoning on these premises, it is easy to see how he arrived at the panic-breeding and hostile conclusion which he honestly thought was indispensable to maintain the honor and integrity of the nation whose "peace and safety," as the Monroe Doctrine expresses it, he considered endangered. When in connection with this interpretation we consider the somewhat supercilious and haughty refusal of Lord Salisbury to submit the matter to arbitration, it is not so difficult to discern the exasperating causes that moved him to treat Salisbury as cavalierly as his lordship had treated our President and Mr. Olney, the Secretary of State. These are certainly extenuating circumstances, panic or no panic, for that imprudent part of the message which caused the financial upheaval. The following and concluding parts of the message are self-explanatory on these points: - " The course to be pursued by this government, in view of the present condition, does not appear to admit of serious doubt. Having labored faithfully for many years to induce Great Britain to submit this dispute to impartial arbitration, and having been now finally apprised of her refusal to do so, nothing remains but to accept the situation, to recognize its plain requirements, and deal with it accordingly. Great Britain's present proposition has never thus far been regarded as admissible by Venezuela, though any adjustment of the boundary which that country may deem for her advantage, and may enter into of her own free will, cannot, of course, be objected to by the United States. " Assuming, however, that the attitude of Venezuela will remain unchanged, the dispute has reached such a stage as to make it now incumbent upon the United States to take measures to determine with sufficient certainty for its justification what is the true divisional line between the Republic of Venezuela and British Guiana. The inquiry to that end should of course be conducted carefully and judicially, and due weight should be given to all available evidence, records, and facts in support of the claims of both parties. "' In order that such an examination should be prosecuted in a thorough and satisfactory manner, I suggest that the Congress make an adequate appropriation for the expenses of a commission to be appointed by the Executive, who shall make the necessary investigation and report upon the matter with the least possible delay. When such report is made and accepted it will, in my opinion, be the duty of the United States to resist, by every means in its power, as a wilful aggression upon its rights and interests, the appropriation by Great Britian of any lands or the exercise of governmental jurisdiction over any territory which, after investigation, we have determined of right belongs to Venezuela. "In making these recommendations I am fully alive to the responsibility incurred, and keenly realize all the consequences that may follow. "I am, nevertheless, firm in my conviction that while it is a grievous thing to contemplate the two great English-speaking peoples of the world as being otherwise than friendly competitors in the onward march of civilization, and strenuous and worthy rivals in all the arts of peace, there is no calamity which a great nation can invite which equals that which follows a supine submission to wrong and injustice and the consequent loss of national self-respect and honor, beneath which are shielded and defended a people's safety and greatness." Another error into which Mr. Cleveland incidentally fell, and which stimulated him to arrive at the conclusion that a casus belli had been committed by Great Britain, is contained in the following excerpts from the message: - "Practically, the principle for which we contend has peculiar, if not exclusive, relation to the United States. It may not have been admitted in so many words in the code of international law, but, since in international councils every nation is entitled to the rights belonging to it, if the enforcement of the Monroe Doctrine is something we may justly claim, it has its place in the code of international law as certainly and as securely as if it were specifically mentioned; and when the United States is a suitor before the high tribunal that administers international law, the question to be determined is whether or not we present claims which the justice of that code of law can find to be right and valid. "The Monroe Doctrine finds its recognition in those principles of international law which are based upon the theory that every nation shall have its rights protected and its just claims enforced." Unfortunately for these opinions there is no code of international law except by a figure of speech highly inflated. In a well-regulated world there ought to be such a code, and doubtless there will be after the millennium; but so long as the lion and the lamb lie down together, according to present custom, with the lamb inside the lion, the prospects for an international code are not very bright. Nor is the Monroe Doctrine a law either national or international. It is simply a policy or another Declaration of Independence. Henry Clay tried hard to make it a law, but Congress tabled his resolution, and the subject was dropped. The Monroe Doctrine, however, is universally respected in the sense just stated, and Marshal Bazaine was quick to recognize it in the interest of his imperial master, Napoleon III., when our troops were sent to the frontiers of Mexico soon after our Civil War. The French politely withdrew, and bloodshed was thereby prudently avoided. Other cases less conspicuous might be quoted, but this will do for an illustration. The theory laid down by Mr. Cleveland, that every nation shall have its rights protected by international law, is simply a cosmopolitan chimera, yet a very beautiful and poetical idea. Every nation is obliged to fight its own battles. If the theory were true, Cuba would not so long have sustained the struggle single-handed against the power of Spain. It remains now to state briefly the origin of the Monroe Doctrine. England was chiefly responsible for it, as she suggested the idea through George Canning, her famous statesman and diplomatist, then Secretary of State for Foreign Affairs and afterward Prime Minister. The Holy Alliance had resolved to restore to Ferdinand VII. of Spain his former colonies in South America; and England, seeing that that would be a serious menace to her shipping interests and her " rule of the waves," nipped in the bud the despotic scheme. Canning proposed that England should join the United States in the declaration; but Monroe was too shrewd a diplomatist for that, as his French training while minister at the Tuileries, together with his personal associations with Washington, Jefferson, John Adams, and James Madison, had taught him to be very circumspect in diplomacy. The Holy Alliance, I scarcely need to state, was organized by Russia, Austria, and Prussia shortly after the battle of Waterloo in 1815, for the ostensible purpose of pacifying Europe, maintaining the purity of religion, - hence "holy," - returning to the rightful owners some of the plunder of which Napoleon had deprived them, and of being prepared for the contingency of another possible Napoleon. Other nations of Europe joined it; but England, through Canning, was the first to perceive that its real object was conquest and despotic rule. She therefore withdrew, taking self-protective action, as has been stated. France followed England's example a year or two afterward, and the Alliance was broken up a few years later, all its ambitious schemes being dissipated; after which Europe became comparatively tranquil for a season. The last paragraph or two in which Mr. Cleveland's threat is contained, and which caused the panic, are said to have been composed as an addendum to the original document as agreed upon by Mr. Cleveland and Mr. Olney. Perhaps the idea of this unfortunate addition to the message entered the brain of Mr. Cleveland while on the duck-shooting expedition. His notion seems to have been that if Great Britain got an inch in Venezuela she would take an ell, put to rout the existing government, and set up the English system in its place; and if it had been manifest that this was the intention of Great Britain, then the Monroe Doctrine would have been applicable in the case, as with the French in Mexico. Under such conditions, the belligerent language of the President might have been justifiable, but hardly so until all attempts at arbitration had been exhausted. There is no evidence, however, that England had any intention of conquest; neither had she committed any overt act that the United States could consider " dangerous to its peace and safety," which would be necessary to create a casus belli, according to another clause in Mr. Monroe's message. Consequently, to say the least, Mr. Cleveland was rather precipitate in his patriotic purpose, and his rash and premature action cost this country about $2,000,000,000 in the shrinkage of all securities and the almost total suppression of credit, or more than two thirds of the amount of the national debt at the close of the Civil War. Credit paper became of little or no value or use, thus contracting the medium with which we do most of our business at least 75 per cent. Nothing would pass but coin or its convertible equivalent, and so business was brought to a general condition of stagnation. As all the nations of Europe regarded the concluding part of the message as a menace of war which England must regard either by accepting or by showing the white feather, business with foreign nations was also largely blocked, and all our foreign relations became immediately strained. We were almost as much isolated for a short time, in a financial sense, as if we had been surrounded by a Chinese wall. The worst feature of the predicament was that the message was popular before the people began to think and reflect upon it, and this feeling was further fomented by Congress catching the "Jingo" contagion. Speculators and investors were tumbling over one another in their excitement to get rid of their securities and to obtain gold, no matter at what sacrifice, for the purpose of hoarding it in safe-deposit boxes against threatened business disaster and the probable upheaval of thrones and kingdoms in prospect; for if war should break out between two of the greatest civilized nations in the world, there was no knowing where it would end. Money, in consequence of this state of affairs, became stringent, and our securities were sold by European holders as fast as they could get rid of them, the gold meantime flowing from our shores in a steady and rapid stream. The United States Treasury reserve of $100,000,0000, melted away like snow before the noonday sun until it fell to $49,000,000, and the faster it decreased the more the panic increased, and the tighter grew the money market, so that there was scarcely a spot in our whole broad land that the panic did not cover. Failures of bankers, brokers, and merchants were reported daily and sometimes hourly; there was a tremendous run on nearly all the savings banks, and general disorganization in the whole financial world seemed imminent. Lord Salisbury may have felt like William Pitt at the breaking out of the European campaign of his day, when the powers of Europe were beginning to league themselves against Napoleon. "Roll up that map of Europe," said Pitt, "it will not be required for the next ten years." His words were truly prophetic, and the thought of his prophecy being fulfilled, as it was afterward, is said to have caused his death. There was no fear of such a fatal result, however, in the case of Salisbury. He is not so sensitive; yet the circumstances afford food for very serious reflection to the people of the United States, when it is considered that Mr. Cleveland's faux pas, made with honest intentions and but slightly wrong in theory, cost this country nearly one half of the aggregate debt incurred by England during her fifteen years' war with Napoleon, including the period that she assisted the allies with money and munitions of war when she was not actually in the field herself. This country had never before met such a sudden revolution in business. The panic of I873 had hitherto been considered quick and expansive in its action, but it hardly compared with that of I895. This latter reduced business transactions generally to a retail basis, a kind of hand-to-mouth operation, and on purely cash principles. The strained relations between buyer and seller were of a very disagreeable character, making commercial transactions quite irritating, and threatening to sap the foundations of our prosperous system of trade and commerce. Business was thus pent up within exceedingly narrow limits, and profits accordingly must have been reduced to the very lowest ebb. All securities, as a matter of course, experienced a tremendous fall in prices, many of them seeking a lower level than in the panic of I893. That panic was not to be compared to the Venezuela message panic, because it did not carry with it a total annihilation of credits, which the later hobgoblin of war did. The paralysis in business that ensued, growing out of this terrible disaster, was continued without much visible abatement up to the time of the Chicago Free Silver Convention, July 9, I896. The agony had been endured by the most long-suffering people on the face of the earth from December I7, 1895, the date of the message. It is not an exaggeration, I think, nor am I guilty, I believe, of attaching too much importance to that part of the message productive of the panic, when I say that it was mainly due to it that a few men, some of them quite obscure previously and others notorious for their revolutionary predilections, were enabled at Chicago to organize the new democracy.