LIONS, TIGERS, BULLS AND BEARS - PANIC - OH MY!

The word no one wants to use: Panic. It is what economists used to call economic downturns. Thought I would post an interesting description of what a panic is from Clement Juglar.

From Clement Juglar’s A Brief History of Panics and their Periodical Occurrence in the United States, 3rd edition. Available for free through google books.

A panic may be broadly states as due to overtrading, which causes general business to need more than the available capital, thus producing general lack of credit. Its precipitating causes are broadly anything to do with overtrading. (Credit default swaps, housing speculation . . .)

In the United States they may be classed as follows:

1. Panics of Circulation, as in 1857, when the steadily increased circulation, . . . had rendered it very easy to grant excessive discounts and loans . .

2. A Panic of Credit, as in 1866, when the failure of Overend, Gurney & Co. rendered the whole business world over cautious, and lead to a universal shrinkage of credit.

3. Panics of Capital, as in 1847, when capital was so locked up in internal improvements as to prove largely useless.

4. General Tariff Changes. Luckily, we haven’t hit this panic yet.

The symptoms of an approaching panic, generally patents to every one, are wonderful prosperity as indicated by very numerous and schemes of all sorts, by a rise in the price of commodities [Sound familiar?], of land [Ring a bell?], of houses [ Holy cow!], etc, etc., by . . . a lowering of interest, by the gullibility of the public, by a general taste for speculating in order to grow rich at once, by a growing luxury leading to excessive expenditures, a very large amount of discounts and loans . . .

Juglar is famous for his business cycle theory: Prosperity, Panic and Liquidation (The Juglar Cycle). We are not in Panic mode - moving to Liquidation mode. Hang on tight!

Games to play in a Panic!

Panic: The Great Wall Street Game 1903 by the Panic Card Co.

OIL SPECULATION

With all the talk about oil speculation, I thought I would give a little bit of history about oil speculation. Folks, this isn't the first time, nor the last time speculation will occur. It is the way of the stock market and especially commodities for it to happen.

With oil close to topping $150 per barrel - the topic of speculation is being brought up time and time again. This is not the first time speculation in oil has taken Americans by storm. One of the “first” oil speculations took place in Pennsylvania when oil was first discovered there in the 1850s. In 1854, George H. Bissell and his law partner Jonathan Eveleth bought the Oil Creek territory that had oil deposits for the sum of $5,000. They sent samples of the oil to a Dr. Benjamin Silliman at Yale College who drafted a report that was published by Eveleth & Bissell in 1855. His report opined that oil was the most promising illuminator as well as lubricator. The partners soon organized a joint-stock company named the Pennsylvania Rock & Oil Company. Dr. Silliman was selected as president with Eveleth and Bissell maintaining controlling interest. In 1857, the company selected Co. E.L. Drake as its superintendent and agent and off he went to Titusville to drill for oil. On August 28, 1859, oil was finally struck and the Titusville well became a national attraction. At the time of the find, oil was $1 per gallon. Speculators flocked to Oil City to make their fortunes. Land prices skyrocketed as speculators gobbled it up to drill their wells. Leases became a popular way for smart land owners to hold on to their land while reaping oil profits. See www.oil150.com for more info.

The first joint stock companies in the oil fields were not successful. The companies merely assessed the large group of owners a fee in order to raise capital to drill for oil. The “investors” could pull out at any time. A joint-stock company usually begins when a piece of “oil territory” is acquired and then a lawyer draws up articles of incorporation. Sometimes shares are sold to create “working capital” or investors give a sum of money to the company. “The shares have a certain par value, which must be plainly expressed on the face of the certificate, and on the books of the company.” (Eaton at p. 238). Some 600 joint stock companies were formed over the oil territory. The nominal stock in these companies varied from $50,000 to millions with the par value of the shares from one to one hundred thousand dollars.

Speculation came to a grinding halt for several reasons; by a great flood in March 1865 which destroyed oil and property, a war tax of $1 per barrel instituted in April, 1865, and the fraudulent nature of some of the oil companies. (Cone p. 81). “The oil companies fell, in Fall and Winter of 1866 and 1867, one after another, like a row of bricks.” (Id. at p. 84).

Next week - the 1910 Texas Oil Boom.

Standard Oil

An appropriate company to write about with oil such a popular topic in today's world. I filled up my Honda Accord today and I finally went over the $50 mark. I hate "remember whens," but I can't help but day dream of $20 fill-ups.

Standard Oil - the creation of John D. Rockefeller, William Rockefeller, Henry Flagler, Samuel Andrews and Stephen Harkness in 1865. By 1878, it controlled over 95% of the oil business in U.S. I am not going to go into much more history here as there is a plethora of information on the internet. Here are a couple of free books through google books about Standard Oil:

The Rise and Progress of of the Standard Oil Company by Gilbert Holland Montague
The Truth About the Trusts by John Moody
The History of the Standard Oil Company by Ida Tarbell

The images I have uploaded are from two games I have in my collection. On the Board by the Parlor Games Co. 1936 and Trusts and Busts or Frenzied Finance by Optimus Pub Co. 1904.

There are several board games that deal with oil:

The Game of Oil by Parker Brothers 1939
Gusher by Carrom 1946
King Oil by Milton Bradley 1974

Also there is literature that deals with oil:


Sevenoaks by J.G. Holland (1875) - story of theft of inventions and sale of stock in a fake oil co.
Oil! by Upton Sinclair (1927) - see movie There Will Be Blood
The Money Captain by Will Payne (1898) - story of the "Duke of Gas"

Books taken from Walter Taylor's The Economic Novel in America.

Finally, don't forget stock and bonds. In 1881, Rockefeller, et al. set up a trust to control all stock in the trusts estates. The stock certificates bear the signatures of John D. Rockefeller and Henry Flagler - the number of shareholders was small - 5 in 1870 to 40 in 1880 - few of the signed shares exist. A liveauctioneers search shows these stock certificates selling from $800-$2,000. Obviously, the high end of this collectible area. There are plenty of oil stocks and bonds out there that are cheaper and good for a beginning collector.

Expectations

I am a wall street / finance / stock market history junkie. Probably started when I bought the PC game Railroad Tycoon. Loved it and played for hours on end - at a time when there was no internet and the parents really could have cared less how long I was on the computer as long as I didn't flunk out of school. Anyway, Railroad Tycoon introduced me to Vanderbilt, Cooke, Gould and the other great railroad men. From railroads to wall street I went. I first started collecting 19th century books about successful men, then pre-WWII board games about the stock market and wall street, now on to trade cards, stocks and bonds, and other printed ephemera about wall street, finance, etc. I suspect there are many collectors out there that like this sort of thing as the ebay auctions for such items are always hot - especially in the 19th century wall street book area.

I am basically going to write periodically about the stuff I collect, or interesting items on ebay to check out and touch on a little bit of history. I might not update this as much as I would like, but I will try to to it weekly.