Part One
Chapter 1
The capitalist revolution was a matter of technique and technology. The techniques that carried the capitalists to power in the final third of the nineteenth century grew out of the methods of the merchant entrepreneurs of the eighteenth century, men like John Jacob Astor, who got his business start selling musical instruments, graduated to furs, added tea and other addictive luxuries (including opium), and topped out in real estate. The secrets of Astor’s success included his acquisitive nature, his eye for a bargain (and a wife whose eye was even better than his), and the networks of buying and selling that brought his suppliers to him and him to his customers. And yet, as he was happy to admit, the most powerful secret was the one that was least secret of all: the rapid and relentless expansion of the American population, which drove property values ever upward. Shortly before his death in 1848 he was asked what he would do differently, if he could live his life over. “Could I begin life again,” he answered, “knowing what I now know, and had money to invest, I would buy every foot of land on the island of Manhattan.”1
There were other secrets of American success that, like the growth of the American population, were available to Astor imitators by the middle of the nineteenth century. The legal system of the country, adapted from the system of the English common law, secured property from arbitrary seizure by government. The financial system of the country, based on hundreds of competing state banks but no central bank (after Andrew Jackson killed the second Bank of the United States), promoted rapid economic growth, albeit at the cost of recurrent instability. The financial panic of 1837 followed Jackson from office; the panic of 1857 unnerved a country already on edge regarding slavery.
Underlying the benefits and costs of finance was the question of money. The federal government issued specie currency: gold and silver coins. But since colonial times specie had never sufficed to keep the economy moving at the pace Americans demanded, and so they turned to paper. Banks printed notes, which circulated at par (face value) near the point of issue but were discounted, for the trouble and uncertainty of redemption, the farther they traveled. The notes were convenient, but because they weren’t legal tender (no one was required to accept them in payment of debts) they were no stronger than the issuing banks, which often collapsed in the recurrent panics. The discovery of gold in California in 1848 alleviated the strain on the paper system by increasing the supply of gold (it was estimated that more gold was dug from the earth in the quarter century after 1848 than in the previous 350 years), but it didn’t end the demand for paper.2
In fact, the demand for paper grew—enormously—during the Civil War, when both sides issued paper notes by the hundreds of millions of dollars. No one took the Confederate currency seriously, which was why the Confederate government had to keep printing more of the stuff, touching off a ruinous inflation. The Union currency—printed in green ink, and so dubbed “greenbacks”—was more persuasive, but only because it was supported by series of draconian fiscal innovations. The Legal Tender Act required debtors to accept the greenbacks (an exception being the Union government itself, which insisted on hard money). The National Bank Act barred state banks from issuing notes, thus giving the government a monopoly on paper. And the Internal Revenue Act imposed a federal income tax and other levies that assured the federal government a reliable source of revenue, thereby easing the pressure to print more greenbacks.3
The wartime measures diminished the anarchy in the money system, but considerable uncertainty remained. The constitutionality of the Republican financial program was open to serious question. The Constitution said the federal government can “coin” money. Did that mean it could print money as well? Did the proscription against state bank notes follow from the commerce clause, from the elastic clause, or from Treasury secretary Salmon P. Chase’s imagination? As for the income tax, that seemed a patent violation of the constitutional ban on “direct” taxes not proportioned to population.
Until the courts settled the constitutional questions, the postwar financial markets faced the problem of accommodating the dual money system. Gold dollars and greenbacks competed directly with each other for the affections of merchants and investors, and indirectly for the affections of everyone else. The greenbacks drove gold from domestic circulation (why pay a debt with expensive gold when cheaper greenbacks would do?), but gold was still required for international transactions (American legal tender rules didn’t apply abroad) and for payments to the government. The relative prices of the two currencies fluctuated according to the laws of supply and demand, and the fluctuating attracted speculators, who tried to anticipate the direction of the market. From anticipation to manipulation was a short, tempting step.
Gold transactions took place in a special room in the neighborhood of lower Manhattan that had become the financial hub of the country. In colonial days Boston had been the center of finance, followed by Philadelphia in the early national period. But New York’s central location, its unsurpassed harbor, and the ambitions of the heirs of its Dutch founders made it a worthy rival to its northern and southern neighbors. New York’s traders organized themselves on Wall Street in the 1790s, gathering under a buttonwood tree to forge an agreement establishing rules for buying and selling bonds and shares of companies. The traders eventually moved indoors, gaining credibility with the growth of the city’s economy, especially after the opening of the Erie Canal in 1825. The demise of the Philadelphia-based Bank of the United States (at the hands of Andrew Jackson) crippled New York’s primary rival, and by the time California gold began flowing east, New York was the clear leader in American finance. The energy of its brokers, most notably Jay Cooke, in selling Union bonds during the Civil War, cemented its primacy.4
By that time New York’s reputation and reach were international. London and Paris still did more financial business than New York, but the comparative maturity of the European economies caused bold investors to look to developing countries for higher returns. Of the developing countries, the United States appeared the most promising. The rate of return on investments in American railroads and telegraphs, for instance, outstripped that on most investments in Europe. America’s periodic panics were disconcerting, but the revolutions and civil wars in Latin America and the mutinies and insurgencies in India and other parts of Asia made the United States seem quite stable in comparison with those areas. And after the revolutions that rocked Europe in 1848, it seemed more stable than several countries much closer to home. The American Civil War briefly frightened fainthearts among European investors, but long before Appomattox sealed the Union victory, the international investors had written off the Confederacy and were writing American securities back into their portfolios.
As it happened, the telegraph linked New York to the markets of Europe just as the war was ending. Samuel Morse’s invention had spread across the eastern half of the United States during the 1840s and to California in the early 1860s. By detaching communication from transportation (for the first time in history, excepting the odd smoke signal and semaphore), the telegraph further consolidated American financial markets in New York. The fundamental commodity bought and sold in financial markets is information, and once information slipped the bonds of gravity and friction it tended to cluster where it was most valuable—that is, in the largest markets. The Atlantic cable extended information’s reach, and, by reducing the message time from London to New York and back from several weeks to several minutes, it allowed European investors to operate in the American market almost as efficiently as brokers and speculators with offices on Wall Street itself.5
WILLIAM WORTHINGTON FOWLER was a grandson of Noah Webster, but where the great lexicographer’s passion had been for letters, Fowler’s was for numbers. With hundreds of other ambitious young men he migrated to New York during the 1850s, hoping to win his fortune among the brokers and bankers there. His timing proved unfortunate when the Panic of 1857 slaughtered the money men, yet he hung on till the Civil War made most of the survivors rich. Though his fortune never rivaled that of the great capitalists, he was a keen observer of the markets and their denizens, whom he judged worthy of serious—but not too serious—study.
Many Americans misapprehended Wall Street, Fowler believed. The term itself was misleading, suggesting a strip of geography when in fact it signified far more.
To the merchant and banker it is a financial centre, collecting and distributing money, regulating the exchanges of a continent and striking balances of trade with London and Frankfort. To the outside observer and novice it is a kind of work-shop thronged by cunning artisans who work in precious metals, where vessels of gold and silver are wrought or made to shine with fresh lustre, and where old china is fire-gilt as good as new. The moralist and philosopher look upon it as a gambling-den, a cage of unclean birds, an abomination where men drive a horrible trade, fattening and battening on the substance of their friends and neighbors—or perhaps as a kind of modern coliseum where gladiatorial combats are joined, and bulls, bears and other ferocious beasts gore and tear each other for the public amusement. The brokers regard it as a place of business where, in mercantile parlance, they may ply a legitimate trade, buying and selling for others on commission. To the speculators it is a caravansera where they may load or unload their camels and drive them away betimes to some pleasant oasis. To the financial commanders it is an arsenal in which their arms and chariots are stored, the stronghold to be defended or besieged, the field for strategy, battles and plunder.6
The striking thing about the business of Wall Street—striking to those ordinary Americans who dealt in real goods, the actual produce of farm and shop and factory—was the degree to which the traders there dealt in ephemera. “All the principal values of commerce are in this mart represented by so many paper certificates,” Fowler explained. “The goods and credit of the merchant are represented by promissory notes, which are bought and sold, and pass from hand to hand, almost like bank-bills. Cotton, pork, grain, sugar, tobacco, and a thousand other bulky and gross products are represented under the form of warehouse certificates. The wealth of banks, of railway corporations, and of many other stock companies, are floating about under the guise of certificates, and to the very gold in the vaults of the Treasury, wings are given, and coin and bullion fly in notes of yellow and green.”
Precisely because everything took wing in Wall Street, because everything was reduced to paper, speculation became the predominant form of activity. The speculators were a distinctive species, yet one that crossed other lines of social demarcation. “All classes and grades are represented here—rich and poor, gentle and simple, learned and illiterate. Not unfrequently these noisy groups contain more than one white cravat, on divines who have left their lambs to graze at large, while they, the shepherds, wander among a herd of another complexion, clad in bull’s or bear’s clothing. A certain harmony reigns among these discordant elements.… The bankrupt elbows the millionaire, and asks of him the price of Fort Wayne, and the millionaire replies with the utmost suavity, ‘eighty-five, sir, at the last quotation.’ The broken operator takes whiskey ‘straight’ with the wealthy capitalist, and the puritan and blackleg exchange a sympathetic smile when they see the stocks advancing in which they are interested.”7
To the uninitiated, the life of the speculator seemed full of ease. Fowler didn’t deny that the Wall Street trader exerted himself physically rather less than the farmer threshing wheat or the mason building stone walls. “And yet what life is more trying than his?” he asked.
Beneath his frontal sinuses, amid the convolutions of his brain, a silent, invisible struggle is going on, which if put into bodily shape, would startle the beholder. There the vulture passions are at work, led on by their generals, ambition and avarice. Pining envy, fear of an evil which always impends, rage over injuries inflicted by others, or by his own weakness and incapacity, jealousy and hatred of successful rivals, all hold carnival in the space of an hour, and are kept active and sleepless by hope which quickens them with her enchanted wings. Above him hovers, day and night, a vast, dark, formless shape, threatening ruin and penury. This is the spectre of panic. One day he is lifted to dizzy heights, the next, plunged into black depths. He is hurried through dark labyrinths through paths where a single step is destruction. He climbs on the edge of a sword to a fool’s paradise, where he tastes joys brief as a dream, and in an hour is abased to the earth where he drinks the full cup of humiliation and want.
And to what could speculators look forward? “When they have once entered the street, they never leave it except in a pine box or a rosewood case, according to circumstances. If they lose money, they stay there to regain it, and if they make money, they stay there to make more.”
Fowler adduced a modest taxonomy of traders, arranged by numbers and speculative weight. Most numerous were the small fry, who nibbled at the edges of the market and measured victory and defeat in the thousands of dollars. Fewer but more formidable were the serious operators, men with resources and connections to move markets and not simply respond to them, and who didn’t flinch when the stakes rose to tens or hundreds of thousands of dollars. And then there were Cornelius Vanderbilt and Daniel Drew, the “central Titanic figures” of Wall Street.
These men are the Nimrods, the mighty hunters of the stock market; they are the large pike in a pond peopled by a smaller scaly tribe. They are the holders of those vast blocks of stock, the cubical contents whereof can be measured by an arithmetic peculiar to themselves; they are the makers of pools large enough to swallow up a thousand individual fortunes. Sooner or later, the money of the smaller tribe of speculators finds its way into the pockets of these financial giants.
Young men! ye “wealthy curled darlings of our nation,” who are about to “put up your money in the street,” let me whisper a word in your ear. Before you venture on this perilous step, go to Cornele or Uncle Daniel, and make them a free gift of all the money you are willing to risk (for into their strong boxes it will come at last), and thus you will be saved a world of wrong and trouble, entailed by that mysterious, protracted, and to you painful process which will surely end, finally, in the transfer of your money into the strong boxes aforesaid.8
DANIEL DREW REMEMBERED when most of Manhattan was farmland and Broadway a cattle trail. As a drover in the early decades of the nineteenth century he herded cattle the sixty miles from his home in Putnam County to the abattoirs of the Bowery. Drew was a diligent worker, of impoverished necessity. “I was rarely in those days off my horse’s back,” he said later. “It was all-day work riding about the country and buying the cattle, and all-night work driving them to the city.” On one occasion, amid a thunderstorm, he took a blow from a lightning bolt that killed his horse and nearly killed him. The experience seems to have intensified a piety he inherited from his mother; he frequently cited Scripture in explaining his actions, and after he acquired the wealth to do so he endowed a Methodist seminary in New Jersey. Faith afforded Drew solace and moral self-confidence. A nosy interlocutor once asked if his business practices troubled his sleep. “Sir,” Drew answered, “I have never lost a night’s rest on account of business in my life.”9
As the query suggested, some people thought he deserved insomnia. A story linked to Drew from his droving days captured his reputation for sharp practice. At the end of a long cattle drive, Drew arranged for the animals to be fed salt, which heightened their thirst and caused them to drink large quantities of water. This swelled their weight and fattened Drew’s account when they were sold. If Drew in fact did what he was said to have done (which is doubtful, as cattle were typically sold by the head rather than the pound), he certainly didn’t invent the scam (the human connection to cattle being older than commerce and almost as old as greed). But Drew may have been the one who introduced the term watering stock into the argot of Wall Street by applying the dilutionary technique to corporate stock.
He gained his opportunity after leaving the saddle for the management of the Bull’s Head Tavern on Third Avenue at Twenty-fourth Street. The saloon was a favorite of the drovers and cattle buyers, who often asked Drew for credit. He complied, eventually becoming a private banker to the bovine trade. In the late 1830s he formalized his new practice and broadened it, moving downtown to Wall Street, where he established a banking and brokerage firm.10
If Drew’s youth had included any formal education, the effect quickly faded. Nor did his innate intelligence particularly impress those people who knew him. But he was cunning, as everyone agreed, and utterly unscrupulous in matters pertaining to business. He would drop slips of paper on the ground, as if by accident; the unwitting discoverers exploited the intelligence the slips conveyed—only to be exploited by Drew himself, doubling back on his own apparent advice. He betrayed partners as readily as rivals, and did so time and again. “The belief that he never hesitates to sacrifice his friends, if the necessities of speculation require it, is entertained with such unanimity in the money-quarter, and is illustrated by so many anecdotes, that one is compelled to acquiesce in it,” observed a contemporary who had studied the matter and who went on to remark, “This foible is the more salient on account of the genuine piety of the man. All who have heard him speak at Methodist Conferences are struck by the fine religious fervor and earnestness of his demeanor.… He has built churches, founded a Theological Seminary, and given away prodigally to individual charities. Yet he has the reputation of being close in the extreme. Probably the secret of this amazing contradiction between facts and opinion is to be found in the enmities which his daring, subtle, and obscure speculations have excited. He is the sphinx of the Stock Market.”11
IF DREW WAS the Sphinx, Vanderbilt was the Colossus. Born into modest circumstances on Staten Island in 1794, Vanderbilt became the wealthiest man in America by the time of his death in 1877, the one person whose private resources could break the market and throw a large part of the American economy into turmoil.
Vanderbilt’s power and fortune reflected his peculiar ability to master both the techniques and the technology of the capitalist revolution. The technological heart of the revolution was the application of steam power to transport and manufacture. Vanderbilt knew little about manufacture but a great deal about transport. At the time he was born, modes of transportation had scarcely changed in the several millennia since humans had domesticated horses, put wheels on axles, and raised sails over watercraft. Not least because he grew up on an island, Vanderbilt took to sailing as a youth. At sixteen he ferried passengers by sailboat across the Hudson River and about New York’s harbor.
But by then the new age of transport had begun. In 1807 Robert Fulton bolted a steam engine onto a river packet and chugged from Manhattan to Albany. Though the novel technology was unreliable and dangerous—boilers often exploded, superstructures caught fire—the more insightful ferrymen could see their future in the black clouds that trailed behind the steamboats. Vanderbilt was as insightful as any, and he abandoned his sailboats for the steam craft. His first employer was a man whose name would attach to a landmark case in the evolution of corporate law. Thomas Gibbons operated a steam ferry out of New Brunswick, New Jersey. In crossing the Hudson, Gibbons’s vessel crossed the legal path of a vessel operated by Aaron Ogden under an exclusive license from the New York state legislature. Gibbons challenged Ogden’s monopoly as infringing the commerce clause of the Constitution, which reserved to Congress the control of interstate commerce. In 1824 the Supreme Court agreed, thereby liberating capitalism from most attempts by the states to rein it in.12
Vanderbilt was no lawyer, but he read the court’s decision for the declaration of entrepreneurial independence it was, and he promptly began building a steam fleet of his own. His vessels plied the Hudson, turning profits that attracted competitors, including Daniel Drew. Vanderbilt managed to fend off Drew by buying him out, but the purchase simply attracted greater attention to the profits to be had from moving people and products about the bustling, growing country.
Vanderbilt remained a waterman till midcentury. He launched a fleet of steamships to exploit the demand for transport to California during the days of the gold rush. The steamers carried argonauts from Boston, New York, and New Orleans to Nicaragua, which they crossed by various means; another set of steamers picked them up on the Pacific side and transported them to California. Vanderbilt’s Nicaraguan venture involved him in international machinations for which he wasn’t fully prepared. After some associates tried to swindle him, he responded with a terse letter: “Gentlemen: You have undertaken to cheat me. I won’t sue you, for the law takes too long. I will ruin you.” And so he did, although the overall experience cured him of any further desire to expand abroad.13
In this attitude he wasn’t alone. A characteristic of American capitalism from the middle of the nineteenth century to the end was its parochialism. At a time when the capitalists of Europe were scouring the earth (including the United States, but also Latin America, Asia, and Africa) for investment opportunities, American capitalists concentrated on their home market. They had good reason, for the American market was the largest in the world, as the result of several mutually reinforcing influences. Geographically, the United States was one of the most extensive countries in the world, commanding the resources of several geologic and climatic zones. Demographically, America’s population (40 million in 1870, growing to 76 million in 1900) placed it among the planet’s several most populous countries. Legally, the American Constitution (as interpreted in the Gibbons and subsequent cases) made it a single arena of commerce, with no customs officials or money changers to impede transactions across the borders between the states. Politically, the defeat of secession guaranteed that all these benefits of geography, demography, and law would remain within a single set of national borders, even as emancipation, the principal side effect of suppressing the rebellion, extended the principles of market capitalism to the labor and property system of the South.
AS VANDERBILT RETURNED his attention to the United States, he couldn’t ignore a growing threat to his steamboat empire. For decades the “Commodore”—a nom de guerre reflecting his exploits on water—had derided “them things that go on land,” as he called railroad trains. It didn’t help matters that one of his first experiences of trains ended in a wreck that nearly killed him. But despite Vanderbilt’s scornful antipathy, the new technology of transport advanced. Steam-powered railcars were introduced in England’s coalfields in the second decade of the nineteenth century; in the mid-1820s they began carrying passengers. The technology crossed the Atlantic a few years later, and in 1830 the Baltimore & Ohio Railroad started moving passengers and freight from the Chesapeake to points west. During the three decades till the Civil War, railroads short and longer ramified across the country from northeast to west and gradually south. Because their iron (later steel) rails could support cargoes much heavier than the mostly dirt roads of the era could accommodate, and because their steam engines outperformed horses, mules, and oxen, they soon captured most of the freight traffic on the routes they served. And because they were largely—though not completely—immune to disruptions by weather and afforded a smoother, faster ride than horse-drawn coaches, they became the technology of choice for paying passengers. The Erie Canal, which in 1825 opened the interior of the continent to inexpensive freight transport, had been operating hardly a decade when the Erie Railroad and other lines from the Atlantic to the Lakes began stealing its traffic. Railroads reached Chicago in the early 1850s and made that city the gateway to the upper Midwest. Steamboats on the Ohio and Mississippi held out against the railroads for a while longer, enjoying the advantage of natural rights-of-way. But by the Civil War the convenience of rail lines (which didn’t clog with ice during the winter or know the difference between upstream and down) was prompting the shrewder among steamboat men to look for alternative employment. (Pilot Samuel Clemens, for one, went into journalism in silver-bonanza Nevada before settling on fiction as Mark Twain. In the latter guise he gave the steamboats an extended lease on life in the American imagination.)
By 1865 the railroad was a comparatively mature technology. Steam-driven locomotives pulled (occasionally pushed) heavy cars along steel rails. Coal (or, less and less frequently, wood) boiled the water that became the steam. The very rich could afford private passenger cars; others made do with less sumptuous accommodations. Change continued in track and rolling stock, but not as rapidly as before.14
The technique of railroads—in contrast to their technology—changed dramatically, however. Railroads were the first really large corporations in American history, employing thousands of persons spread over entire regions. They were the first to develop the methods of corporate administration that would characterize modern enterprise. Other businesses—mercantile houses, plantations, factories—had typically set supervisors over workers, but the railroad corporations set supervisors over supervisors (over supervisors) in multilayered administrations. Railroads pioneered the kind of precise management of operations that other firms would follow. Initially this was a matter of safety: more than a few early trains collided, causing injuries and death, when their schedules overlapped. Later it became a matter of corporate survival, as competition compelled the roads to utilize their personnel and rolling stock with maximum efficiency. Railroads were the first industry to evolve a cadre of professional managers—men who specialized in railroad administration, developed standards for measuring performance, shared and debated new ideas, and published journals. “By an arrangement now perfected, the superintendent can tell at any hour in the day the precise location of every car and engine on the line of the road, and the duty it is performing,” the American Railroad Journal reported, regarding recent innovations on the Erie Railroad. “Formerly, the utmost confusion prevailed in this department, so much so that in the greatest press of business, cars in perfect order have stood for months upon switches without being put to the least service, and without its being known where they were. All these reforms are being steadily carried out as fast as the ground gained can be held.”15
Railroads were also the first large corporations to be publicly traded. The capital demands of the railroads required expanding the pool from which that capital might be drawn. One way of acquiring capital was to borrow it from banks or other lenders. Railroads did borrow, but often their business plans were too risky, their collateral assets too meager, or the banks too cautious to cover all the roads’ investment needs. The other technique was to sell partial ownership—that is, shares of the railroad corporation. This spread the risk among the many owners and allowed for more-rapid expansion than borrowing alone did. In the process it forced the blossoming of the financial markets of New York. On one day in 1830 the New York Stock Exchange reported a total of thirty-one shares traded; by the 1850s, after railroads discovered the stock market, tens of thousands of shares were traded each day. After the Civil War, as other industries learned from the railroads, hundreds of thousands of shares changed hands daily.16
The massive sale of shares led to something new in American economic history: the divorce of ownership from management. Previously, owners typically managed their firms, leaving little distance between the interests of ownership and the interests of management. But as ownership spread to hundreds and then thousands of people, the vast majority of whom had no responsibility for day-to-day management of the firm, owners and managers could develop interests that diverged and occasionally collided. In particular, owners might come to consider their shares simply a commodity to be bought and sold as prices fell and rose, regardless of the effect of such transactions on the operation of the firm. If a trader could speculate in cattle and cotton, as traders had for decades, why not in railroad stocks?
DANIEL DREW ASKED himself that question, and decided that railroad stocks were at least as promising as livestock. The New York & Harlem Railroad allowed an early test of the theory. Chartered to operate entirely on Manhattan Island, the Harlem, as it was called, later extended its lines north to Albany. Besides providing competition for steamboats on the Hudson (including Cornelius Vanderbilt’s), the road for the first time allowed people who worked in Manhattan to live outside the city and commute on a daily basis. Drew purchased enough shares to have himself named to the board of directors. From this position he could influence the operation of the road; he could also manipulate the price of its shares.
Vanderbilt bought into the Harlem not long after Drew did. But where Drew, as matters soon proved, saw the road as a speculation, Vanderbilt perceived it as an investment—a property to be held and improved rather than pillaged and sold.
Vanderbilt’s interest in the Harlem helped drive the share price up. The price rose further when Vanderbilt persuaded—probably through bribery, the commonest mode of persuasion in the New York politics of Tammany Hall—the city council to let the Harlem extend its line south from Union Square, its previous terminus, to Wall Street and the Battery.
As a director, Drew applauded Vanderbilt’s coup, for it increased the likely profits of the Harlem considerably. As a shareholder he should have been similarly pleased, for the promise of future profits enhanced the value of his own holdings. But it was as a speculator that Drew perceived the greatest benefit, for with everyone else bidding the Harlem up, he decided to bet on a fall. He sold the company short (that is, took present payment for future delivery of shares he didn’t yet own but hoped to purchase at a lower price before the delivery date). To prompt a fall in the price, he employed some persuasion of his own—again, almost certainly bribes—causing the city council to rescind the approval it had just given Vanderbilt.
The stock indeed began to fall, and Drew began counting his profits. But Vanderbilt, though new to railroads, was no innocent in the ways of speculators, and he snatched the falling Harlem stock before Drew could make good his short contracts. This left Drew in the lurch, as he had promised to deliver more shares than were now available, and reminded him of the peculiar risk in short selling: that while a person who owns stock can lose no more than the purchase price of the stock, a person who has promised to deliver stock not yet purchased can lose an indefinite amount (as there is no upper limit on how high the stock price can climb before the short seller buys it). At this point or later Drew composed a couplet intended as warning to short sellers:
He that sells what isn’t his’n
Must buy it back or go to pris’n.
Drew avoided prison in this case by throwing himself on Vanderbilt’s mercy. So convincing was Uncle Daniel, who didn’t hesitate to cry when circumstances suggested that tears might soften a rival’s heart or at least blur the ink on a troublesome contract, that Vanderbilt offered him a private settlement.17
———
HAVING WON CONTROL of the Harlem, Vanderbilt proved himself a good manager. He invested heavily in track, cars, and locomotives, till the line became a model of efficient passenger service. Even Horace Greeley, no flack for capitalists, remarked the favorable change in the operation of the road. “We lived on this road when it was poor and feebly managed, with rotten cars and wheezy old engines that could not make schedule time,” Greeley wrote in 1867. “And the improvement since realized is gratifying.”18
But the Harlem was simply a start for Vanderbilt. He purchased the Hudson River Railroad, whose tracks paralleled those of the Harlem, and turned his gaze on the New York Central, which ran from Albany to Buffalo. The directors of the Central sought the help of Drew, notwithstanding his recent defeat at Vanderbilt’s hands and his longer record of double-dealing. Drew ran a steamboat line that ferried Central passengers from Albany to New York City, except when extreme weather made river travel risky. During these periods, the Central passengers switched to the railcars of the Hudson line, by a preexisting agreement. Vanderbilt waited till January 1867 and then abruptly canceled the agreement, leaving the Central shivering far from its Manhattan market. The directors shortly accepted Vanderbilt’s terms, yielding him the dominant railroad position in the Empire State.
Yet Vanderbilt had a larger empire in mind. If he could add the Erie Railroad to his network, it would give him control of a corridor from America’s primary port to its agricultural heartland. But the Erie was an elusive target, having earned a reputation as the “scarlet woman of Wall Street” for being bought and sold so promiscuously. And her main consort was Daniel Drew, who perfected his speculative gifts driving her shares prices this way and that. As the wisdom of the street put it:
Daniel says “up”: Erie goes up.
Daniel says “down”: Erie goes down.
Daniel says “wiggle-waggle”: it bobs both ways.19
Drew had allies, more formidable this time than in his previous bouts with Vanderbilt. James Fisk Jr. (“Jubilee Jim,” the “Barnum of Wall Street”) was hard to take seriously but impossible to ignore. “He is first, last, and always a man of theatrical effects, of grand transformations, and blue fire,” William Fowler wrote. “All the world is to him literally a stage, and he the best fellow who can shift the scenes the fastest, dance the longest, jump the highest, and rake up the biggest pile.” Fisk had been a peddler in New England, from a family of peddlers. “His wagon was magnificent, his four horses sleek and mettlesome,” Fowler explained. “At different points in his triumphal progress through the rural districts, he was met by a train of his subalterns, who filled the sheds of the country inns with their wagons, held audience with their chief, and obeyed his orders.” From peddling Fisk turned to dry goods, and from dry goods to paper products—that is, stocks and bonds. He opened a brokerage in New York, where he fell in with Daniel Drew, who taught him the arts of speculation—by swindling him out of everything he owned. “James saw his pile growing small by degrees and beautifully less,” Fowler related. “And early in 1868, as he told a friend, he was worth not a dollar in the world.”
Yet even in his poverty Fisk was magnificent. “The strong point of this man is his physique, so robust, so hale, so free from the shadow of every peptic derangement,” Fowler marveled. “His boldness, nerve, and business capacity are supplied by this physique, which also supplies him with animal spirits beyond measure. He is continually boiling over with jokes—good, bad and indifferent.” Fisk liked to recount how his father had been accused by an elderly woman of cheating her on a piece of calico worth twelve and a half cents. The son defended the old man to the woman. “I don’t think father would tell a lie for twelve and one-half cents,” Fisk said, “though he might tell eight of ’em for a dollar.” The grammatically fastidious Fowler was reduced to fragments to characterize Fisk: “Boldness! boldness! twice, thrice, and four times. Impudence! Cheek! Brass! Unparalleled, unapproachable, sublime!”20
Drew’s other ally in the Erie struggle was a different sort entirely. Jay Gould was as silent as Fisk was noisy, as thin as Fisk was full, as pallid as Fisk was florid. He had lost his mother at four, his first stepmother in the same year, a second stepmother not long after that. His father was a difficult man addicted to drink, whose angered neighbors took out their anger on his son. Jay fled home as soon as close calls with typhoid and pneumonia allowed. He taught himself surveying, then bought an interest in a tannery. His partner committed suicide, causing some of the customers to wonder whether Gould’s increasingly evident ambition—“Look at Gould; isn’t he a driver?” one said—speeded the self-destruction.21
Gould arrived in New York in time for the Civil War. He learned the ways of the speculators but distinguished himself for particular talents. He mastered the arcana of finance and displayed a preternatural single-mindedness. “When intensely interested in any matter,” a contemporary remarked of Gould, “he devoted his whole concentration of thought upon that one thing, and would seem to lose interest in things often of greater pecuniary importance but of not so much commercial fascination. He loved the intricacies and perplexities of financial problems.” His associates recognized his financial reveries by his unconscious habit of tearing paper into tiny bits, which piled around his chair like indoor drifts of snow.22
THE FIRST FEW years after Appomattox were a slow time for American journalism. Correspondents accustomed to reporting the victories and defeats of the battlefield found themselves—and their readers—hungry for similarly dramatic fare. New York alone had several dailies competing for the public’s penny (James Gordon Bennett in the 1830s had exploited the power of steam to produce the first penny paper, the New York Herald, and other publishers had followed suit). Politics provided intermittent entertainment, but nothing like the daily drama of war.
Eventually, however, the New York papers perceived in the stock market a substitute for the battlefield, and when Vanderbilt tangled with Drew, Fisk, and Gould, the press promptly labeled the conflict the “Erie War.” The opening salvo was a preemptive purchase by Vanderbilt and some allies of what seemed a majority of Erie stock; this was followed by a putsch against the board of directors, including Drew.
Drew again threw himself on Vanderbilt’s mercy, portraying himself as an old man (he was nearly seventy, but three years younger than Vanderbilt) who required his income from the Erie directorship to keep the wolf from the door. Again Vanderbilt relented. He let Drew remain with the Erie as treasurer and added him to the Vanderbilt alliance.
Drew avowed his gratitude—but almost immediately returned to his usual tricks. “Daniel Drew could no more refrain from playing his old games in Erie than the veteran gamester can withhold his hand from cards and dice,” William Fowler said. “It was play to him, but death to others.” Soon Drew was speculating in Erie stock against the interests of his new sponsor. Vanderbilt’s group was bulling Erie stock—conniving to push its price upward—and Drew exploited his inside knowledge of the scheme to unload some of his own shares on the group, adding to their burden but profiting at their expense. He also sold the stock short, hoping to reverse the price rise and profit still further at their expense.23
When Vanderbilt discovered Drew’s double cross, the battle escalated. He petitioned the New York supreme court (which, despite the name, was—and is—not the august court of final appeal in the state but a modest court of original jurisdiction) to remove Drew as treasurer of the Erie and, by means similar to those he had employed with the New York city council, obtained an injunction barring Drew from issuing any new shares in the company. Drew’s habit of doing precisely this was what had linked his name to the practice of stock watering, and Vanderbilt expected more of the same.
He didn’t move fast enough. Drew gathered Gould and Fisk and some other Erie bears—short sellers—and all worked to drive the price down. They spread evil rumors about the company’s prospects and the liquidity of its sponsors. When these efforts failed to stem the rise in Erie shares, Drew got an injunction staying Vanderbilt’s injunction, and he and Gould and Fisk, operating as the executive committee of the corporation, proceeded to issue fifty thousand new shares of Erie stock. Vanderbilt discovered that the more shares he purchased, the more hit the market. Fisk, directing the production of the new stock certificates, reveled in Vanderbilt’s discomfiture. “If this printing press don’t break down,” he said, “I’ll be damned if I don’t give the old hog all he wants of Erie.” (Fisk later called the outcome of the Erie War a victory for the First Amendment—for “freedom of the press.”)24
Vanderbilt summoned fresh allies, including a sheriff with a warrant to arrest the Erie trio and seize the corporate offices. But word of the lawman’s approach preceded him. “There were hurryings to and fro in the Erie Railroad Office,” William Fowler recorded. “A few moments later and the policeman on that beat observed a squad of respectably dressed but terrified looking men, loaded down with packages of greenbacks, account books, bundles of papers tied up with red tape, emerge in haste and disorder from the Erie building. Thinking perhaps that something illicit had been taking place, and these individuals might be plunderers playing a bold game in open daylight, he approached them. But he soon found out his mistake; they were only the executive committee of the Erie Company, flying the wrath of the Commodore and laden with the spoils of their recent campaign.”25
The three didn’t stop till the Hudson River separated them from Vanderbilt and his judges and sheriffs. They used some of the money they had absconded with—estimated at six to ten million dollars—to persuade the New Jersey legislature to let them incorporate the Erie in the Garden State. But they also sent Gould to Albany to purchase protection from the New York legislature. The lawmakers licked their chops. “The boys were poor and hungry after the long abstinence of the session,” a journalist covering the legislature wrote. “How beautiful, then, the prospect which the Erie contest opened up to them! How they gloated over the pleasures which the fight would develop.” Vanderbilt prepared to match the bribes offered by Gould, till votes on measures touching the Erie commanded more than fifteen thousand dollars each. But at the last moment Vanderbilt hesitated. “A rumor ran through Albany as of some great public disaster, spreading panic and terror through hotel and corridor,” a contemporary recounted. “The observer was reminded of the dark days of the war, when tidings came of some great defeat.… In a moment the lobby was smitten with despair, and the cheeks of the legislators were blanched, for it was reported that Vanderbilt had withdrawn his opposition to the bill.”26
He had indeed. The prize was no longer worth the price, Vanderbilt concluded, and in exchange for a large but publicly unspecified payment from Gould and Fisk (Drew having determined that his health couldn’t stand such excitement and chosen to leave the company to his younger partners), he called off his campaign for control of the Erie and dropped his lawsuits against the conspirators. The scarlet woman was theirs.27
HENRY ADAMS OBSERVED the Erie War and wondered what it meant. Adams was thirty and seeking a career, having lost his bearings amid the turmoil of the Civil War and its aftermath. Had he been an Adams of an earlier generation, he would have gone into politics, as his great-grandfather John Adams and his grandfather John Quincy Adams had done with the highest distinction. He did dabble in diplomacy, acting as secretary to his father, Charles Francis Adams, during his father’s service as American minister to Britain. But the partisan strife that pervaded Republican politics at the end of the war precluded a post of his own and left him at a loss as to what to do with himself. “Henry Adams could see easy ways of making a hundred blunders,” he recalled, employing the self-referential third person. “He could see no likely way of making a legitimate success.”28
Adams wandered Europe and discovered Darwin. The English naturalist had published his landmark work, The Origin of Species, in 1859, but not till after the Civil War did Adams have the time and attention to appreciate the revolution in human understanding Darwin had set in train. Adams was an instant convert. “He was a Darwinist before the letter, a predestined follower of the tide,” Adams wrote of himself. He admitted to ignorance of the science required to appreciate Darwin’s arguments in detail. “But this never stood in his way.” Darwin’s theory of evolution by natural selection explained much that had puzzled Adams about the world, and he embraced it with enthusiasm.29
At the heart of the puzzle was the historic decline of the Adams family. John Adams had been a foremost Founder: sponsor and drafter of independence, second president. John Quincy Adams had been secretary of state, president, and congressman. But even in Quincy’s day the decline was apparent, for his presidency began under a cloud of scandal (when candidate Henry Clay threw his electors to Adams and received appointment as secretary of state) and it ended in political ignominy (when voters overwhelmingly rejected him in favor of Andrew Jackson). The decline continued under Henry’s father. The ministry in London wasn’t unimportant, especially during the Civil War, but it was nothing next to the White House or the State Department. And yet, by all evidence, it was far more than Henry himself could expect to achieve.
He had to ask whether the fault lay with him or his stars. He didn’t claim special gifts, but he deemed himself reasonably competent. The trouble, he concluded, was that the world had changed. America, at least, no longer rewarded the same talents and traits it had in the glory days of the Adams clan. Henry returned across the Atlantic to trace the transformation and discovered that it was even larger than he had thought. “The last ten years had given to the great mechanical energies—coal, iron, steam—a distinct superiority in power over the old industrial elements—agriculture, handwork, and learning.” The effect on society he discerned everywhere around him; the effect on himself was only a bit more subtle. “The result of this revolution on a survivor from the fifties resembled the action of the earthworm; he twisted about, in vain, to recover his starting point; he could no longer see his own trail; he had become an estray, a flotsam or jetsam of wreckage, a belated reveler, or a scholar-gipsy like Matthew Arnold’s. His world was dead.”30
The new world awaited explanation. The market for scholar-gypsies being limited in postwar America, he became the next best thing: a journalist. The dailies were dominated by men of fewer letters than Adams (like all of his family he was a Harvard man) and sharper politics (partisan detachment being a quality that promised, to that generation of publishers, little of either profit or honor). So he aimed instead for the quarterlies, among which the North American Review, conveniently edited by a family friend, appeared the most likely. Few people read the quarterlies, but these were the ones who could appreciate quality. And presumably they were the ones whose sense of derangement in the new order most closely paralleled Adams’s.
“OF ALL FINANCIAL operations, cornering gold is the most brilliant and the most dangerous,” Adams wrote in 1870. “And possibly the very hazard and splendor of the attempt were the reasons of its fascination to Mr. Jay Gould’s fancy. He dwelt upon it for months, and played with it like a pet toy. His fertile mind even went so far as to discover that it would prove a blessing to the community, and on this ingenious theory, half honest and half fraudulent, he stretched the widely extended fabric of the web in which all mankind was to be caught.”31
Adams had intended to write about the Erie War, but by the time he put pen to paper an even more spectacular scandal had rocked the American financial world. In the summer of 1869 Jay Gould evolved a scheme to drive the price of gold dramatically upward. Since the Union government began printing greenbacks during the Civil War, their price had fluctuated dramatically compared with gold, with as many as 285 paper dollars required to purchase 100 gold dollars at dire moments during the war. After Appomattox the discrepancy diminished; by 1869 the ratio had fallen to around 135 paper dollars per 100 gold dollars (for a quoted price of 135, which was often shortened to 35, as gold never dipped below par with paper). Gold was purchased for use—by merchants with international accounts and by anyone who had to pay customs duties. It was also purchased for speculation—by anyone willing to bet that the price would move one way or the other.
Gould wasn’t a user of gold directly, but neither was he a mere speculator. He claimed to have become interested in gold as it influenced traffic on the Erie. The extension of railroads to the grain belt of the Midwest allowed the farmers of that region to ship their produce cheaply to the ports of the East Coast, whence steamships owned by the likes of Cornelius Vanderbilt carried the grain to Europe. In other words, for the first time American farmers competed on a world market—which meant that for the first time they needed to pay attention to the dollar’s standing against other currencies, particularly gold. When gold rose, products denominated in dollars—including wheat—fell in price on the world market, making them more attractive to foreign purchasers. Gould didn’t grow wheat, but he (that is, the Erie) transported wheat bound for the world market, and hence had reason to hope for a rise in gold. And although altruism wasn’t his nature, he recognized that what was good for the Erie, in this case, was good for the wheat farmers, for the railroad workers, longshoremen, and sailors who moved the wheat, and for much of the American economy as a whole. This “ingenious theory,” as Adams derisively called it, knowing its subsequent use, was what Gould peddled as the harvest of 1869 approached.
But bulling gold was a bigger chore than anything he had contemplated previously. By comparison, the Erie finagles were a piker’s pastime. Gold touched everyone, including the government, which owned more gold than any private individual and used it to stabilize the dollar. If Gould intended to boost gold by more than a point or two, he’d have to persuade the government not to push the price back down by selling some of its gold.
As it happened, Gould knew Abel Corbin, who had recently married Ulysses Grant’s spinster—till then—sister. Gould applied to Corbin to arrange an interview with the president, at which he explained his theory of gold and American prosperity and urged Grant to support, or at least allow, higher prices for the yellow metal. Grant was dubious of monetary theories and discouraging to Gould. “He remarked that he thought there was a certain amount of fictitiousness about the prosperity of the country, and that the bubble might as well be tapped in one way as another,” Gould testified later. Grant asked Gould for his opinion, and he obliged. “I remarked that I thought if that policy was carried out, it would produce great distress, and almost lead to civil war; it would produce strikes among the workmen, and the workshops, to a great extent, would have to be closed; the manufactories would have to stop. I took the ground that the government ought to let gold alone, and let it find its commercial level; that, as a matter of fact, it ought to facilitate an upward movement of gold in the fall.” But Grant wasn’t persuaded, at least not visibly. “We supposed, from that conversation, that the President was a contractionist.”32
Yet as the harvest progressed, bringing large crops and correspondingly low prices, Gould hoped Grant might change his mind. Meanwhile he worked on Grant’s subordinates. A friend of Abel Corbin had recently been hired as assistant federal treasurer in New York, in the office that monitored the gold market and would release the government’s gold if matters came to that. The Treasury’s man was Daniel Butterfield, and to make him feel at home in his new post, Gould loaned him ten thousand dollars. Repayment might have been discussed, but not seriously.
At the beginning of September 1869 Gould approached Grant again. One of the president’s former comrades in arms had died; Grant attended the New York funeral and stayed at the home of Abel Corbin. Gould dropped in on Corbin, encountered the president, and reiterated his argument about the value to the country of rising gold prices. This time Grant listened more carefully. “The President said then that he was satisfied the country had a very bountiful harvest; that there was to be a large surplus; that unless we could find a market abroad for that surplus it would put down prices here,” Gould remembered. “And he remarked that the government would do nothing during the fall months of the year to put down the price of gold or make money tight. On the contrary, they would do everything they could to facilitate the movement of breadstuffs.” Gould added that Grant appeared to have thought the question through. “It seemed to have been a matter of study with him. I was surprised at the clearness with which he seemed to comprehend the whole question.”33
Buoyed by this conclusion, Gould ordered his brokers to buy gold. He covered his tracks, dividing his business among many brokers and shielding each from knowledge of the others’ activities. He also purchased insurance, of a sort, by cutting Corbin in on the scheme, to the amount of $1.5 million. Corbin expressed appreciation but, sensitive to appearances, asked that the transaction be made in his wife’s name rather than his own. Evidence indicates that Gould made a similar arrangement for Butterfield, although Butterfield later denied it.34
The purchase orders pushed the price of gold steadily up, from the mid-130s to 140. As it climbed, the gold bears exhibited various forms of distress, including crying to the Treasury for relief and planting rumors that their cry was being heard. The prospect of a federal rescue briefly brought the price back down to 135.
Gould intensified his efforts to forestall government intervention. He again visited Grant and again urged the president to let the markets have their way. He evidently increased Butterfield’s stake in the plot and tried—unsuccessfully—to win over Grant’s private secretary. And he persuaded Corbin to write Grant delineating the dire consequences to the economy if gold fell. Corbin’s letter reached the president in western Pennsylvania, where he was vacationing. The courier arrived while Grant was playing croquet. He waited patiently, then impatiently, for the president to finish his game and read the letter. After Grant did, the courier asked whether there was a reply. The president said there was none. The courier rode to the nearest telegraph office and reported that the letter had been “delivered all right.” But the message was garbled in transmission and reached Gould as “Delivered. All right.”35
Yet Gould soon sensed that things weren’t all right. He had never relied on Corbin to move events in the right way, only to warn him if things began to move wrong. And Corbin now began to cry warning. His wife had learned that her brother, the president, was catching on to the gold bulls’ scheme. “I told Mr. Gould, at once, that I must go out of this matter,” Corbin testified later.36
Gould realized the game was up. The current price of gold was unsustainable: it must either rise or fall. If the president was determined to prevent its rise, a fall was inevitable. The only question was when the plunge would occur. To delay it, Gould offered Corbin $100,000 to keep quiet. “Mr. Corbin, I am undone if that letter gets out,” Corbin recounted Gould saying. Corbin refused the money but told Gould, “I am not going to publish it.… You need not have any anxiety of mind on that account.” Gould skeptically prepared his own retreat.37
Suddenly Jim Fisk became useful. Gould had hesitated to bring Fisk in on the planning of the gold scheme; the Vermonter’s talents notably lacked an ability to keep secrets. But he hadn’t objected when Fisk noticed the rise in gold and jumped on board. Fisk’s presence was felt at once, as he rollicked about the Gold Room shouting purchase orders and making side bets that gold would top 145. The gold shorts were in agony. “As the roar of battle and the screams of the victims resounded through New Street,” a journalist reported, “it seemed as though human nature was undergoing torments worse than any that Dante ever witnessed in hell.”38
Fisk remained bullish overnight, chiefly because Gould declined to share the intelligence that the government was going to break the market. Fisk and his friends celebrated the fortunes they were about to make; Gould kept to himself. “I had my own views about the market, and had my own fish to fry,” he said later. “I listened to what was said, but it went in one ear and out of the other. I was all alone, so to speak, in what I did, and I did not let any of those people know exactly how I stood.”39
The next day was Friday, September 24. The Gold Room opened at ten o’clock, but the bidding began early, and by the opening bell gold had jumped from 143 to 150. “Take all that you can get!” Fisk shouted above the tumult. The price leaped another five points to 155. The shorts were in despair. Some cut their losses and sold; others held on for precious life. Threats of mortal violence flew across the room. Fisk, utterly in his element, shouted the louder: “Take all you can get at 160.” An eyewitness marveled at the tumult. “It was a desperate battle between two hosts of gamblers, whose minds were quickened by incessant plots, whose hearts were cold and their greed rapacious,” he wrote. “Gold, Gold, Gold was the cry.”40
Gould was always quiet, and so his silence this day occasioned scant notice. And Fisk was too excited to pay attention to what his partner was about. But stealthily, employing that regiment of brokers, he disposed of his gold. The price reached 162, and Gould continued to sell, pocketing millions beneath the nose of the bulls.
And then, near noon, the market collapsed. Rumors circulated that the government was going to sell gold. Minutes later came confirmation, in the form of an order from the Treasury in Washington to sell $4 million in gold. Though this amount was a small fraction of the total being traded in New York, it had a solidity those paper transactions lacked. James Fisk, queried afterward, replied matter-of-factly: “O, our phantom gold can’t stand the weight of the real stuff.” In the event, the real gold crashed downward with unprecedented speed and fury. “Possibly no avalanche ever swept with more terrible violence,” the New York Herald explained. “As the bells of Trinity [Church] pealed forth the hour of noon, the gold on the indicator stood at 160. Just a moment later, and before the echoes died away, gold fell to 138.”41
Now it was the bulls’ turn to howl. Most of the gold had been purchased on margin, or highly leveraged credit; as the falling price consumed the margin, the purchasers were left naked before their creditors. Everyone knew of Fisk’s role in driving the price up, and nearly everyone supposed that where Fisk went, Gould went too. Traders screamed for the Erie partners’ skins. One witness to the riot asserted that their lives were in actual jeopardy. If the two hadn’t gone into hiding, he said, “the chances were that the lamp-post near by would have very soon been decorated with a breathless body.”42
Even without a lynching, that day became known as Black Friday. Fortunes evaporated in minutes; brokerages failed by the score. The tumult in the gold market spread across the street to the stock market, claiming thousands of victims who had never been tempted by currency speculation. Gould probably made money on gold, having unloaded most of his holdings before the government intervened, but the collapse of the stock market caught him by surprise and left him unprepared to meet his margin calls. Even he didn’t know for months whether he came out ahead or behind in the whole affair, so tangled were the accounts and inadequate the accounting practices of the day. Scores of people were sure he had cheated them, though they couldn’t say quite how. Lawsuits rained down upon him, which he countered with lawsuits of his own.
One person, strikingly, who didn’t hold Gould’s actions against him was James Fisk. Whether because he understood the inescapable uncertainties of speculation or because Gould quietly compensated him for his losses, the impresario of Wall Street adopted a phlegmatic view of the affair and its denouement. “It was each man drag out his own corpse,” he said.43
———
SURVIVORS AND OTHER witnesses searched for meaning in the scandal. Congressman James A. Garfield, writing for the majority of the House Committee on Banking and Currency, which investigated the affair at length, expressed shock at what Gould and Fisk had nearly accomplished. “The whole gold movement is not an unworthy copy of that great conspiracy to lay Rome in ashes and deluge its streets in blood, for the purpose of those who were to apply the torch and wield the dagger,” the Ohio Republican said. Calming himself somewhat, Garfield added:
But however strongly we may condemn the conspirators themselves, we cannot lose sight of those causes which lie behind the actors and spring from our financial condition. The conspiracy and its baneful consequences must be set down as one of the items in the great bill of costs which the nation is paying for the support of its present financial machinery. For all purposes of internal trade, gold is not money, but an article of merchandise; but for all purposes of foreign commerce it is our only currency.
So long as we have two standards of value recognized by law, which may be made to vary in respect to each other by artificial means, so long will speculation in the price of gold offer temptations too great to be resisted, and so long may capital continue to be diverted from enterprises which add to the national wealth, and be used in this reckless gambling which ruins the great majority of those who engage in it, and endangers the business of the whole country.44
Henry Adams drew a different lesson. Adams mined the Garfield committee’s report and produced an interpretive summary entitled “The New York Gold Conspiracy.” He liked his article immensely. “It was the best piece of work he had done,” he declared. Yet Adams decided against publishing it in the North American Review or any other American quarterly. The American press had reported the Erie War and the attempted gold corner in great detail, and Adams wanted his masterpiece to be appreciated by unjaded eyes. “London was a sensitive spot for the Erie management,” he explained, “and it was thought well to strike them there, where they were socially and financially exposed.” Adams on this point was being naive or disingenuous. Gould and Fisk, social pariahs in America, hardly feared the censure of Britain’s respectable classes, and though English money underwrote many American railroads, including the Erie, Gould and Fisk never had more trouble fleecing English investors than those of any other nationality. Adams’s subsidiary explanation for seeking a British outlet for his gold-conspiracy article was more to the point. “Any expression about America in an English review attracted ten times the attention in America that the same article would attract in the North American. Habitually the American dailies reprinted such articles in full. Adams wanted to escape the terrors of copyright; his highest ambition was to be pirated and advertised free of charge, since, in any case, his pay was nothing.”45
The piece, which appeared in the Westminster Review in 1870, recounted the conspiracy as revealed by the congressional committee and interpreted by Adams. He didn’t hesitate to impeach the witnesses, including the principals. Of a long and intricate explanation by Fisk of a critical meeting among the conspirators, Adams remarked, “There is every reason to believe that there is not a word of truth in the story from beginning to end. No such interview ever occurred, except in the unconfined apartments of Mr. Fisk’s imagination.” Nor did Adams hesitate to render his judgment of the whole affair.
The fate of the conspirators was not severe. Mr. Corbin went to Washington, where he was snubbed by the President, and at once disappeared from public view, only coming to light again before the Congressional Committee. General Butterfield, whose share in the transaction is least understood, was permitted to resign his office without an investigation. Speculation for the next six months was at an end. Every person involved in the affair seemed to have lost money, and dozens of brokers were swept from the street. But Mr. Jay Gould and Mr. James Fisk, Jr., continued to reign over Erie, and no one can say that their power or their credit was sensibly diminished by a shock which for the time prostrated all the interests of the country.
Yet the experience hadn’t been all for the bad. Quite the contrary, Adams said. “The result of this convulsion itself has been in the main good. It indicates the approaching end of a troubled time. Messrs. Gould and Fisk will at last be obliged to yield to the force of moral and economical laws.”
Adams wasn’t so sanguine about the corporations Gould, Fisk, and the other capitalists directed. The Erie War and the gold conspiracy were evil omens for democracy.
For the first time since the creation of these enormous corporate bodies, one of them has shown its power for mischief, and has proved itself able to override and trample on law, custom, decency, and every restraint known to society, without scruple, and as yet without check. The belief is common in America that the day is at hand when corporations far greater than the Erie—swaying power such as has never in the world’s history been trusted in the hands of mere private citizens, controlled by single men like Vanderbilt, or by combinations of men like Fisk, Gould, and Lane [Frederick Lane, counsel to Fisk and Gould on the Erie], after having created a system of quiet but irresistible corruption—will ultimately succeed in directing government itself. Under the American form of society, there is now no authority capable of effective resistance.46