Julia Ott is an assistant professor of history at the New School. A former RSF Visiting Scholar, Ott is also the author of When Wall Street Met Main Street: The Quest for an Investor's Democracy (Harvard University Press, 2011), which chronicles the initial phase of mass investment at the turn of the 20th century and the issues surrounding it.
Q: Your book starts at the turn of the 20th century, when less than 1 percent of Americans owned stocks or bonds (compared to 50 percent of households in 2007). What was prevailing sentiment about financial securities and markets in that era?
A: No question about it – the prevailing sentiment was negative.
Since the nation’s founding, Americans for the most part had viewed financial securities, the individuals who traded bonds and stocks, and the private associations (like the New York Stock Exchange) that administered securities exchanges as antithetical to their most cherished economic ideals, political values, and savings practices. Popular economic thought held that economic value derived from diligent labor and steadfast thrift—qualities utterly absent in the scuffle of the stock exchanges’ trading floors. American political culture identified ownership and control of real property as the foundation of a citizen’s virtue and independence, of his investment in the nation. Bonds, stocks, and the malefactors who traded them seemed to imperil this ideal of proprietary democracy. The lure of speculative riches subverted the work ethic; it diverted capital from productive pursuits.
At the start of the twentieth century, financial securities and markets played a very limited role in the way in which most Americans saved money and most firms acquired funds. Most people considered the stock and bond markets to be insiders’ games, rigged against investors of modest means who lacked access to adequate information about the corporations whose securities they might purchase. And because New York City banks (which held the reserves of other banks across the nation) loaned money to securities brokers (these brokers’ loans paid a high rate of interested and could be called in at any time), stock market declines produced terrible consequences for the financial system.
Take the Panic of 1907 as one example. In October, an unsuccessful attempt to corner the market in the stock of the United Copper Company ended in the failure of participating brokerages. Frightened depositors clamored to recover their savings from banks associated with the scheme. The resulting collapse of the third-largest trust company in New York City wreaked havoc. Faith in financial institutions evaporated; even depositors at sound banks and trusts lined up to withdraw their money. Depositors’ demands forced regional banks to call in their reserves from the New York City banks. These, in turn, demanded the repayment of loans made to brokers, who sold stock to pay those banks. The stock market plummeted and credit markets froze, driving all kinds of borrowers into bankruptcy. With no central bank to step in, it fell to J. P. Morgan to stem the crisis. Americans weren’t particularly thrilled to discover just how much financial stability depended upon one man.
