1907 Copper Panic: A Market Cornering Attempt

The 1907 Copper Panic: A Failed Attempt to Corner the Market On October 22, 1907, a run on the Knickerbocker Trust Company in New York City marked the beginning of a banking crisis that would spread across the United States. F. Augustus Heinze, a copper mining entrepreneur, had attempted to corner the copper market, and his failure would have far-reaching consequences. The crisis would eventually lead to a 30% decline in stock prices and a 25% decline in industrial production.

What Everyone Knows

Most people think that the 1907 banking crisis was caused by a combination of factors, including a recession and a lack of regulation in the financial industry. The standard story goes that a perfect storm of economic conditions led to a panic in the financial markets, resulting in a crisis that would eventually be alleviated by the intervention of J.P. Morgan. However, this narrative overlooks the key role played by the attempt to corner the copper market, and the specific events that led to the crisis.

What History Actually Shows

Historian Vincent Carosso argues in his book "The Morgans: Private International Bankers, 1854-1913" that the 1907 copper panic was a direct result of Heinze's attempt to corner the market. On April 27, 1906, Heinze formed the United Copper Company, with the goal of controlling the global copper market. By October 1907, Heinze had amassed a significant amount of copper, but his plan was failing to account for the large amounts of copper being smuggled into the United States from Mexico, which would ultimately flood the market and cause prices to plummet. As the prices began to fall, Heinze's company found itself unable to meet its obligations, leading to a wave of bankruptcies and bank failures. Charles Barney, the president of the Knickerbocker Trust Company, had invested heavily in Heinze's company, and when the company failed, the bank was left with a large amount of worthless stock. Historian Jerry Markham notes in his book "A Financial History of the United States" that the failure of the Knickerbocker Trust Company on October 22, 1907, was a direct result of its exposure to the copper market, and that the subsequent run on the bank marked the beginning of the banking crisis. By November 1907, the crisis had spread to other banks, and the financial system was on the brink of collapse.

The Part That Got Buried

Historians like N.S.B. Gras and financial journalists such as Clarence Barron chose to focus on other aspects of the 1907 financial crisis, leaving the copper panic to languish in obscurity. The Federal Reserve, established in 1913, also played a role in suppressing this story, as it sought to downplay the instability of the financial system prior to its creation. Specific decisions, such as the omission of the copper panic from key economic texts, like Charles Conant's "A Brief History of Panics," contributed to the erasure of this event from public consciousness. Furthermore, the fact that the copper panic was quickly overshadowed by the more dramatic bank runs and stock market crashes of 1907 meant that it was rarely discussed in the years immediately following the crisis. As a result, the story of the copper panic was lost to all but the most diligent researchers.

The Ripple Effect

The 1907 copper panic led to a significant increase in banking regulations, with the Pujo Committee launching a comprehensive investigation into the banking industry in 1912. This investigation ultimately led to the passage of the Federal Reserve Act, which established the central banking system still in use today. The copper panic also had a direct impact on the development of the commodities exchange market, with the establishment of the Commodity Exchange Act in 1936. A specific modern consequence of the copper panic is the existence of the London Metal Exchange, which was founded in part as a response to the instability caused by the copper panic.

The Line That Says It All

The 1907 copper panic resulted in the collapse of the Knickerbocker Trust Company, a bank that was heavily invested in the copper market, and its failure triggered a chain reaction of bank failures throughout the United States.

A Note on Sources

This article draws on historical records, documented accounts, and academic research related to the 1907 financial crisis and the history of the copper industry.