When Washington Shut Down Wall Street

At the Financial Brink

In July 1914, a skittish Europe was poised for all-out war. The so-called "Great War," World War I, would have far-reaching implications beyond bloody battles won and lost. It could threaten the financial integrity – and economic stability – of the United States. At the time, U.S. railroad stocks represented the largest industrial category on the New York Stock Exchange (NYSE), America's financial barometer. Investors from other countries owned more than a fifth of these shares. As European tensions mounted, foreign investors quickly began to sell their railroad stock and their other American securities. They demanded payment in gold bullion, shipped to Europe immediately so it could be used to fund the intense preparations for war.

Would America, a debtor nation that had suffered major financial crises in 1873, 1884, 1893 and during the Panic of 1907, be able to survive financially if it had to export its gold reserves? Most astute observers did not believe that it could. This uncertainty quickly translated to a severe decline in the dollar's value in world financial markets. By mid-1914, the U.S. faced a potentially severe financial crisis – ...