Book Review: When Washington Shut Down Wall Street

The Economic History Association owns and operates the EH.net website, which published a book review of When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy (2007) by William L. Silber. A podcast interview with the author is also available. William Silber is Marcus Nadler Professor of Finance and Economics at the Stern School of Business, New York University. The author or editor of eight books, he has served as Senior Economist with the President's Council of Economic Advisors and as a member of the Economic Advisory Panel of the Federal Reserve Bank of New York.

From the Publisher

When Washington Shut Down Wall Street unfolds like a mystery story. It traces Treasury Secretary William G. McAdoo's triumph over a monetary crisis at the outbreak of World War I that threatened the United States with financial disaster. The biggest gold outflow in a generation imperiled America's ability to repay its debts abroad. Fear that the United States would abandon the gold standard crushed the value of the dollar on world markets. Without a central bank in the summer of 1914, the United States resembled a headless financial giant.

William G. McAdoo stepped into the breach with bold and courageous action. He shut the New York Stock Exchange for more than four months to prevent Europeans from selling their American securities and demanding gold in return. He smothered the country with emergency currency to prevent a replay of the bank runs that embarrassed America during the Panic of 1907. McAdoo launched the United States as a world monetary power by honoring America's commitment to the gold standard, while every other country, except for Britain (the reigning financial superpower), abandoned it at the outbreak of the Great War. In 1914 the gold standard conferred the monetary stamp of approval. McAdoo also provides a blueprint for crisis control that merits attention today. His recipe for smothering a crisis emphasizes the importance of an exit strategy. An exit plan allows policymakers to bludgeon the crisis with a sledgehammer, while minimizing collateral damage.

Archival material and contemporary newspaper accounts recreate the drama of McAdoo's plan to sustain American financial honor. His accomplishments during 1914 place him alongside Paul Volcker and Alan Greenspan as Great American financial leaders. McAdoo, in fact, nursed the Federal Reserve into existence as the 1914 crisis waned and served as first Chairman of the Federal Reserve Board by virtue of his position as Treasury Secretary.

Comments on the Book

Niall Ferguson, Harvard University, author of Colossus: William Silber has performed two sterling services with this fascinating and original book. He has illuminated the hitherto neglected financial crisis of 1914, an event that deserves to be mentioned in the same breath as the Crash of 1929 in the history of Wall Street. But he has also come up with some bold and compelling answers to two burning questions that are of more than purely historical interest: How should monetary policymakers cope with a really big and unexpected political shock? And how does one international reserve currency come to be overtaken by another? I cannot praise this book too highly. It is rare that one author so skillfully unites the disciplines of finance and history.

Peter L. Bernstein, author of The Power of Gold: Silber tells a compelling tale proving the power of the law of unintended consequences. The financial crisis of 1914 was a major turning point in American economic history, an outcome nobody could have predicted as massive amounts of gold sailed to Europe, banks shook at their foundations, and the nascent Federal Reserve System was only just going into operation. What a story!

Business History Review from Harvard Business School also published a review by Maury Klein.

For further reading:
"Ccompetitive Currencies, Legal Restrictions, and the Origins of the Fed: Some Evidence from the Panic of 1907", Steven Horwitz, 2001