The Great War, the NYSE and a Legacy of Strength
On July 31, 1914, the New York Stock Exchange closed its doors for the longest period in exchange history. It stayed closed until Nov. 28, 1914, when bonds began trading again. Stock trading re-opened Dec. 15, 1914, but shares were not allowed to trade below closing prices of July 30, 1914. By April 1, 1915, all trading was re-established without price limits.
Most would dismiss the closing as a natural response to the beginning of World War I. But no war before or after (including the Civil War), or even the devastating attack on the World Trade Center less than one-half mile from the NYSE in 2001, has shuttered the exchange for more than 10 days in its 222-year history.
I will discuss why it was necessary to close the exchange and what lessons we can draw from the events of 100 years ago.
The ‘longest circuit breaker’
There is abundant historical significance to this story, and Henry George Stebbins Noble, president of the New York Stock Exchange from 1914 to 1919, chronicled it artfully in a 1915 book called The New York Stock Exchange in the Crisis of 1914. It is a story of disparate and even competing parties including bankers, brokers, other exchanges and clearing firms that steadfastly remained loyal to the New York Stock Exchange. Even the press cooperated in the closing by refraining from printing articles overly critical of the financial markets and by agreeing not to publish off-market prices in an attempt to calm and bolster the financial markets and forestall a run.
Noble recounted: “The fundamental reason for closing the Exchange was that America, when the war broke out, was in debt to Europe, and that Europe was sure to enforce the immediate payment of that debt in order to put herself in funds to prosecute this greatest of all wars…There was to be an unexpected run on Uncle Sam’s Bank and the Stock Exchange was the paying teller’s window through which the money was to be drawn out, so the window was closed to gain time.”
What Noble omitted is any reference to government interference, coercion or even influence on the closing or re-opening of the NYSE. In contrast to Noble’s version, a solid case can be built that Washington’s influence, particularly due to Treasury Secretary William G. McAdoo, was substantial. This was persuasively argued by New York University professor William Silber, in his book When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America's Monetary Supremacy.