Parading as Millionaires: Montana Bankers and the Panic of 1893

One day two swindlers came to this city; they made people believe that they were weavers, and declared they could manufacture the finest cloth to be imagined

Hans Christian Anderson “The Emperor’s New Clothes”

This man Hauser has for years paraded as a multi-millionaire ….

L. H. Hershfield President, Merchants National Bank

Historians, in general, and historians of the trans-Mississippi West, in particular, have paid scant attention to the Panic of 1893 except to summarize its highlights: the silver-mining industry collapsed; banks and businesses failed; unemployment increased; labor rebelled—sometimes violently; and the Populists gained political ground.¹ Some historians of the American West have given the panic a miss entirely.² Only a few have explored the panic beyond a paragraph or two, and fewer still have studied bank failure.³ By and large, historians have left the field to economists who provided analyses of bank runs in the Panic of 1893 by testing models of economic behavior.⁴ However theoretical or empirical, however brief or lengthy their discussions, both historians and economists agree on two points. That the Panic of 1893 and its subsequent depression equaled or surpassed the economic decline of the Great Depression and possessed a clear geographical bias; and that the panic affected the West to a greater extent than other regions of the country, and far more western banks failed than failed in other areas of the nation.

The course of the 1893 panic in Montana accorded with these generalizations. Of the forty-one national banks chartered in Montana before 1893, twenty-two or 53 percent failed or merged with other banks before the combined banks failed.⁵ All categories of banking—assets, loans, and deposits—declined by more than one-third in 1893 and fell again to even lower levels in 1897. (See figure 1.) The panic especially affected Montana’s capital, Helena. Occupying a central place in the area’s capital markets, Helena was a financial center dominating a region defined by an international border to the north, St. Paul to the east, Denver to the south, and San Francisco to the west; its banks’ capitalization exceeded that of firms in Spokane, Salt Lake City, and Seattle, for example.⁶ In 1889, the Comptroller noted: “If population be considered, the State of Massachusetts will be found to have the largest amount of capital invested in national banks per capita, closely followed by the new State of Montana.”⁷ In the parlance of a later century, Helena banks were “major players.”

Figure 1.

A detailed view of the years before and after the Panic of 1893 illustrates the notable economic growth resulting from the completion of the railroad and the income from federal silver purchases as well as the devastating effect of bank failures on the availability of capital and the worth of assets. The graph also shows the longevity of the panic’s depression: the “echo” effect in 1897 and the tenacity of the economic downturn that did not abate. Montana’s economy, in short, “flatlined.” Source: Adapted from Clarence Groth, “Montana Banking History,” Appendix, 47–49.

When the economy faltered in 1893, Helena felt the full force of the contraction. After an initial period of financial nervousness in 1893, Helena’s citizens regained confidence. Banks that had suspended reopened; silver mines resumed operations, and workers returned to their jobs. On New Year’s Day 1895, Helena’s newspapers touted the city’s rapid recovery and predicted brighter days ahead. Helena’s rally was short-lived. In September 1896 and February 1897, Helena’s premier banking houses, the First National Bank, and the Merchants National Bank, ceased operations permanently. Four of Helena’s seven financial institutions had disappeared, leaving behind banks of limited resources and capital (see table 1). While bank runs certainly pressured the banks and occasioned liquidity problems, the critical factor in the banks’ failure was their long-standing weakness and ultimate insolvency, resulting from “reckless,” fraudulent banking in combination with ineffective supervision by the Comptroller of the...