One of Montana's most colorful early entrepreneurs, F. Augustus Heinze,
not only had a major impact on that state's copper mining industry,
but he may also be closely linked to events that eventually led to the
formation of the Federal Reserve System.
It is generally accepted that the Panic of 1907a credit crunch
that spread from New York to the whole country, closing banks and businesseswas
the major impetus for the formation of the Federal Reserve System. While
the nation had considered central banking systems in the past, it was
the severity of the Panic of 1907 (the fourth in 34 years) that inspired
congressional action leading to establishment of the Fed.
The "spark" of the Panic, howeverlike many economic phenomenais
open to speculation. One Montana historian, Sarah McNelis, in her biography,
"Copper King at War," writes that Heinze was at the forefront of a financial
battle that resulted in the October 1907 panic within the financial systema
view shared by others.
Heinze, a member of a Montana copper mining family, sold most of his
mining shares for $12 million in 1906, moved to New York, bought a bank
and became a director in a national financial chain involving banks and
trustsan affiliation that embroiled him in the growing battle between
banks and trust companies.
At the turn of the century the banking industry felt threatened by the
new trust companies (and their young, wealthy financiers) and decided
to sway public and congressional opinion by making an example of a trust
company with connections to Heinze, namely, Knickerbocker Trust. If Knickerbocker
Trust would falter, then Congress and the public would lose faith in all
trust companies and banks would stand to gain, the bankers reasoned.
"Silent runs" began on Heinze's bank and Knickerbocker Trust, and Heinze
made a questionable loan to his brothers, who were faltering as owners
of a copper company. In October 1907, Heinze's brothers made a failed
attempt to corner the copper market on the stock exchange, which allowed
a competitor to exploit the Heinze family's financial problems. Heinze
was then forced to resign as president of his bank, "scare headlines"
appeared in newspapers, runs started on both Heinze's bank and Knickerbocker
Trust, and both institutions were initially denied financial aid to keep
from failingeach event purposely caused, according to McNelis.
"The panic had long since been decreed and prepared and was inevitably
on its way ... The Clearing House refused to help and [Knickerbocker Trust]
had to close its doors. Charles Barney, its president, shot and killed
himself that night and runs started on nearly every bank and trust company
in New York," wrote one of Heinze's brothers.
The financial fires that were intended to ruin Heinze and the trust
companies quickly roared out of control and the Panic of 1907 became a
nondiscriminatory economic catastrophe for the entire nation. Six years
later, partly as a means to quench such fires, the Federal Reserve System
In her analysis, McNelis does not disregard other factors for the cause
of the 1907 bank runsfor example, corporate speculation, overextended
capital and the general demand for money. Indeed, she says those problems
alone were possibly enough to touch off a financial panic that year just
as they had in years pastbut such a possibility does not eliminate
the evidence of a personal vendetta gone awry.
As for Heinze, the events of October 1907 brought a total of 16 counts
of financial malfeasance. However, a series of fortunate incidents in
the courts led to his complete exoneration in 1909, and on Nov. 7 of that
year he returned to Butte, Mont.:
"His arrival was a monumental event. Reception committees met his train
... A lively band and an automobile procession of his followers paraded
into town ... A large rope was attached to the wagon tongue so more men
could assist in pulling their hero."
Despite full exoneration by the courts and a triumphant return home
(Montanans never lost touch with Heinze, having followed his New York
exploits in the local press), the events of October 1907 left an indelible
mark on his life: his mining ventures collapsed, his relationships with
his brothers (former business partners) were destroyed, his marriage failed
and his health disintegrated. He became "distraught in appearance"; at
37, his hair was almost completely white.
In 1914, just 44 years old, Heinze suffered a hemorrhage of the stomach
caused by cirrhosis of the liver, and died.
"There was discussion of establishing a scholarship or erecting a monument
to retain his name and contribution to the city [Butte]," McNelis writes.
"After the initial shock of his death faded, however, the talk must have
ceased; no such memorial was established."
"Copper King at War," published in 1968 by the University of Montana
Press and currently out of print, is based on McNelis' master's thesis
completed in 1947. Among her many sources for her thesis was a 72-page
collection of correspondence she had with Otto Heinze, F. Augustus'
brother, between 1943 and 1947. That collection remains in the author's
McNelis received a bachelor's degree from St. Mary College of Leavenworth,
Kan., in 1933. Her 1947 master's degree in history and political science
was received from the University of MontanaMissoula. A retired
teacher, she lives in Butte.