Banking Panics of the Gilded Age (review)

In this slim volume, Wicker provides new interpretations of the banking panics of 1873, 1893, and 1907, as well as the pseudo-panics of 1884 and 1900. Banking panics begin with some unanticipated shock, typically the collapse of a merchant house, which leads to a loss of depositor confidence and runs that may, or may not, remain limited to troubled banks. We know how the story goes for New York and Chicago. We are less sure about the effects of money-center panics in the hinterlands. Wicker corrects this long-standing oversight.

The four substantive chapters follow a common pattern. After a brief introduction, the first section outlines the origins of each panic or pseudo-panic. The next section provides a narrative of the panic, highlighting the cities struck hardest by it and tracing its progression. A third section typically details the responses of the New York Clearing House Association (NYCH), as well as those of government departments (U.S. Treasury), nongovernmental organizations (other regional clearing houses), and prominent financiers ( J.P. Morgan). A fourth section assesses the effects of the panic on aggregate economic activity, with a special focus on the typical citizen's experience.

Wicker's book represents a valuable contribution in at least three ways. First, most studies of banking panics focus on events in New York City. Wicker reminds us that most of the country is not New York, that New York did not constitute the financial universe, and that events in the city and the hinterlands can unfold differently. Indeed, the Panic of 1893 originated in the hinterlands and moved to the city. In this regard, the panic of 1893 was unique among nineteenth-century panics, closely resembling the banking panics of the Great Depression.

Wicker's second signal contribution is that he highlights the connection between financial events and aggregate economic activity. Like his predecessors, Wicker has frustratingly little information, but makes good use of what he has. He shows that most panics had relatively small and fleeting macroeconomic effects. Most Americans were neither party to, nor witnesses of, a bank run, but they may have experienced some inconvenience due to reduced deposit checking.

Third, Wicker asks whether a decentralized, internally regulated system like that of the NYCH and other regional clearing houses was capable of preventing or stemming incipient panics. The conventional wisdom was that the structural deficiencies of the national banking system were too great to be resolved by any other than fundamental banking reform, which was the impetus for the Federal Reserve System. The minority opinion, then and now, was that the NYCH had the capability to prevent panics, but often lacked the will or the leadership to do what was necessary. Although Wicker obviously favors a strong central bank, he argues against its necessity and inevitability.

One shortcoming of the book, but an understandable one given its narrow focus, is a lack of explanation of initial events. Wicker's descriptions of how panics unfolded in certain cities are well done, but he often fails to unify these stories. It is certainly interesting that bank runs erupted in Petersburg and Richmond, Virginia, in 1873, 1884, and 1890, but Wicker never explains why these two relatively unimportant urban centers experienced a series of runs when runs were so rare elsewhere.

It is difficult to label Wicker's approach interdisciplinary. It is unabashedly economic, but the text is not jargon-laden and should be amenable to practitioners from any discipline. Wicker does, however, make use of many sources and does a commendable job of grounding aggregate economic statistics in the average American's experience.