America's Money Machine

88 PART II / THE GREAT REVERSAL
The immediate effect of the war tension in Europe had been an unprecedented
demand for gold from abroad. As the crisis mounted the
gold flow increased. On Friday, July 31, 1914, the S.S. St. Louis of the
American Line left New York carrying the largest cargo of gold ever to
have been shipped from that port in one bottom-over $1 1,025,000.
Earlier in the week the S.S. Kronprinzessin Cecilie carried out $10 million.
At 9:45 A.M. on July 31, the New York Stock Exchange authorities,
facing a day ofcertain demoralization, ordered the doors ofthe Exchange
to remain closed-for the first time since the panic of 1873. London,
earlier that morning, had taken similar action, and had doubled the bank
rate, from 4 to 8 per cent. J. P. Morgan-the junior*-perhaps recalling
his father's calming influence in the 1907 panic, issued a reassuring
statement that, "alarming as the news is from Europe, I am still hoping
there will not be a general war,"l but history had already traveled beyond
recall by either bankers or statesmen. The issue was now in the hands
of the general staffs. As the New York Tribune reported, in horror, on
August 1:
Although Russia and Germany have not yet come to the breaking point,
all the developments yesterday indicated the swift approach of a crisis. The
Kaiser declared all Germany except Bavaria to be in a state of war, Bavaria
being allowed under the constitution of the empire to make such declaration
herself. Mr. Asquith told the House of Commons that Russia had mobilized
her army and navy and that Germany would answer with a similar mobilization.
The world looks on in a stunned, incredulous way while Europe is rushing
forward to a stupendous catastrophe.... We have been told again and again
that the financiers of the world, largely denationalized in their sympathies
and interests, would never permit the great nations to impoverish themselves
by a general war. A tightening ofthe screws ofcredit, it has been said, would
bring most chancelleries to their senses....
On Saturday, August 1, 1914, Germany took the irrevocable step of
declaring war on Russia. Under the treaties by which they held themselves
bound, France and Austria were thereupon involved, but Great
Britain not until August 4 when Germany invaded neutral Belgium, while
Italy, though bound by alliance to Germany, managed to avoid war for
the time being.
The effect of the war declarations changed the nature of the. financial
panic. During the week the reserves in the New York banks had dropped
*Morgan senior died March 3 1, 1913.