Is it possible the breakfast meeting was a trap? Grant’s conversation with his brother-in-law seems, by today’s standards, impossibly indiscreet, although at this point Grant’s promiscuity with the Gold Ring, willing or unwilling, was hardly shocking. The apparent absence of the Grant-Boutwell gold “cancellation order” is another anomaly.8
If it was a trap, it was about to catch its prey and ensnare many others in a multimillion-dollar disaster. Confident that he now had the inside track, Gould that day bought another $3 million in gold, much of which was on behalf of Corbin and the president’s sister, as well as in the trading account of assistant treasury secretary Butterfield. Within days, Gould’s gold pool controlled more than $18 million in gold—with prices continuing to rise, banks and other gold holders could not resist selling.
For all his cockiness, Gould worried that rival financiers might persuade Grant to change his mind. Gould persuaded Corbin to write a long letter to the president, detailing Gould’s crop theory of the virtues of abundant money and scarce gold. The letter was too delicate to be entrusted to a normal courier, so Gould’s partner Fisk provided an Erie Railroad functionary for the occasion. The letter reached Grant while he was on one of his many vacations in 1869 (the White House was being renovated that year) in Washington, Pennsylvania, not far from Pittsburgh. In fact, the president was playing croquet with a close assistant whom Gould had tried to bribe with a half-a-million-dollar gold account. Grant read the letter, and the courier went to the nearest telegraph office to send Gould and Fisk a wire: “Letter delivered all right.”
But all was not right. After a summer of mingling with Wall Street fixers, Grant finally seemed to understand that he was being played. Grant instructed his wife to write a letter to his sister telling her that she should tell Corbin to remove himself from the Gold Ring. When the letter arrived on Wednesday, September 22, Corbin showed it to Gould and demanded that his share in the Gold Ring be liquidated immediately. Gould, acting like a cornered animal, tried to argue his way out; he offered Corbin $100,000 in cash on the spot. Corbin considered this overnight, but was adamant the next day that he wanted out. Gould left his house pleading that Corbin keep quiet, saying, “If the contents of Mrs. Grant’s letter is known, I am a ruined man.”
Meanwhile, anyone who had been paying attention to the gold market knew that an attempted corner was in progress. On Monday, September 20, the Sun publicly named “notorious Erie speculators”—Gould and Fisk—as part of a “conspiracy to raise the price of gold,” and labeled it “one of the most immoral and pernicious conspiracies ever concocted in Wall Street.” This only increased the trading frenzy. The “official” location of American gold trading was a high-ceilinged chamber adjacent to the New York Stock Exchange known as the “Gold Room.” Its main feature was a circular iron railing around a bronze fountain statue of Cupid and a dolphin, at the bottom of which was a goldfish pond. Buyers and sellers congregated around the rail and stared up at a new invention: an electronic gold price indicator, which flashed the latest gold-trading price to every trader in the room, as well as on a sign outside and to various trading offices in the city via telegraph. The operator was a 22-year-old tinkerer who already had some telegraph patents to his name: Thomas Alva Edison. His job consisted of turning several wheels with numbers on them, including one wheel with fractions.
The Gold Room was dominated by a few Wall Street firms, and most of them were now working with Gould’s unspoken corner on the market. Rumors of a bull pool caused sales to spike; daily gold-trading volume roughly doubled to $160 million a day every day from September 4 to 10, and then to $200 million for the next two days. New York banks reported that their gold reserves had begun to deplete. And all the while the price crept higher—on Wednesday, September 22, gold closed at $141, and on Thursday at $144¼, with five times the normal volume of trading. These prices were pure speculative energy; nothing in the supply of gold or other economic fundamentals justified them. On the floor it was rumored that Grant himself had an interest in gold going up. And the speculation knew few bounds. The gold trade was still new and loose enough that there were still unofficial venues to buy and sell gold, notably “Gallagher’s evening exchange,” which took place in hotel rooms in Manhattan even after it had theoretically been shut down in 1865. That night in the Fifth Avenue hotel market, gold traded at more than $180.
Outside of the small ring who owned the gold, these prices were ruinous. Imports and exports froze, because no one could afford the gold necessary to pay in foreign currencies. Wheat, cotton, and corn prices all dropped. On Thursday, Grant relented to his treasury secretary; the gold price at more than $144 was “unnatural,” and the government should intervene if things got worse. The next morning the price topped a phenomenal $150. Boutwell and Grant decided to sell $4 million in gold, and the sell signal was to go out over two different telegraph lines, suggesting that they knew Butterfield was tainted. The telegram arrived in New York at 11:57 in the morning, minutes after gold had passed the $160 mark.
Within ten minutes, the gold price had dropped $20, or 12.5 percent. On that day, Gould was himself discreetly selling gold while aggressively claiming the price was going to continue to rise. Trading became so frantic and complicated that Gould’s brokers had to be careful not to sell to brokers who they knew would soon be bankrupted by their indebtedness to Fisk and Gould. Men screamed in desperation, and threatened brokers on the gold floor with stabbing or worse. Many had not settled their trades from the day before, and so what they had thought were profits were now losses. Within minutes angry crowds spilled out of the Exchange and descended on Jay Gould’s office, where he and Fisk had locked themselves in a small room. When night fell they were able to escape to an opera house on 23rd Street that Fisk owned, with guards posted at every entrance. Dozens of brokers were wiped off Wall Street, and hundreds went bankrupt, though Fisk and Gould, thanks to a friendly judge, were never made to pay back the millions they owed.
The Black Friday incident is instructive for many reasons. The first is that a country valuing two forms of money will quickly create an arbitrage market between them, and that market will almost inevitably swing violently to the point of political or social impact. To proponents of “sound money,” Black Friday was the most powerful lesson imaginable that severing the value of American money from gold would lead to disaster. For Grant and his presidential successors (mostly Republican but including Democrat Grover Cleveland), the chaos of Black Friday was an argument that only a gold standard could maintain a stable American economy. A second lesson is that American financial markets were, through the latter nineteenth century and beyond, stunningly exposed to profound and easy corruption. The very idea that a high-ranking Treasury official in charge of monitoring the gold market could himself be making massive gold investments—let alone that he was colluding with the largest gold-market manipulators—would today drive nearly all legitimate investors away from any such market. For all the laissez-faire rhetoric that circulates about gold as a monetary instrument, Black Friday proves that an unregulated market will quickly become politically corrupt and financially disastrous. The idea of a president, even one not financially tied to the gold trade, making buy-or-sell decisions based on a market price ought to give pause to those who advocate gold standards and limited government power.
The country as a whole, however, derived a different lesson, which only deepened the political tensions of the Jackson period. To many, Black Friday proved that the nation’s economy was too easily manipulated by East Coast elites for results that harmed the rest of the country. “Confidence had been severely shaken,” one financial historian wrote. “Markets were far more susceptible to declines on bad news than they had previously been.”9 And this mistrust pushed the population in a monetary direction completely opposite of Grant’s. Jay Gould was a cynical, self-interested, manipulative East Coast railroad baron, but the monetary policy he advocated—keeping gold scarce while allowing other forms of m
oney to circulate to points in the marketplace where they would help businesses like railroads and the telegraph to continue to thrive—had many passionate adherents who, like Gould, valued growth over party loyalty. That audience would continue to grow and to reshape American politics.
As if Black Friday were not convulsive enough, within a few months the country would face the most bizarre monetary legal decision during its century of existence. Despite Grant’s intention to restore a full gold standard, it became clear even before he took office that greenbacks would remain on the economic landscape for some time to come. “Contracting” the economy by taking greenbacks out of circulation might have seemed like responsible economic policy in places like New York and Washington. After all, the depreciation of the tender notes so despised by their opponents was very real; in the late 1860s it typically took between $1.20 and $1.40 worth of paper money to buy a dollar’s worth of gold. But in the South and West, that contraction would involve genuine economic pain, and thus the political pressure to retain paper money was strong. The bigger problem with greenbacks was that their constitutionality had never been resolved, and where one stood on this delicate question depended largely on whether one identified with the creditor class or debtor class, and with the Republican or Democratic Party. Between 1863 and 1870 at least sixteen lawsuits were filed at the state level questioning the constitutionality of the legal-tender clauses. Democratic judges, reflecting the old Jacksonian prejudice against anything but gold, almost always deemed greenbacks unconstitutional, while their Republican opponents, eager not to interfere with the Republican financing of the war, usually approved of them.
The case that finally came before the Supreme Court, Hepburn v. Griswold, was a seemingly straightforward dispute over a contract signed in 1860 and due in February of 1862, five days before Congress created the first greenbacks. The debtor (Mrs. Hepburn) repaid in 1864, using paper money for the amount owed plus interest to her creditor (Mr. Griswold). Griswold refused payment, and after some legal back-and-forth Hepburn took the case to the Supreme Court.
What was not straightforward was what had happened to the Court. In late 1864, the chief justice of the Supreme Court, Roger Taney, died and Salmon Chase, who had been trying to resign from the Lincoln cabinet, was named to replace him. Chase, of course, had been treasury secretary when the greenbacks were established, and had argued at that time, albeit reluctantly, for their constitutionality. Lincoln and his successors might well have assumed that Chase would maintain his position or perhaps—given the obvious conflict of a man who pushed through a piece of legislation later deciding on its constitutionality—recuse himself. The case was argued and reargued; one legal scholar asserted, “it is probable that never in the history of the Court has any question been more thoroughly considered.”10 The justices were initially split, 4 votes apiece—with Chief Justice Chase now coming out against the constitutionality of legal paper money. Later, Justice Robert Grier, who was 75 years old and not able to walk by himself, changed his mind, and the vote was 5 to 3.
Although the votes were taken in November 1869, the announcement of the verdict was postponed until February 7, 1870—after the aging Grier had already stepped down. Chase was said to be “almost wholly inaudible” as he delivered the verdict.11 Without referring directly to his own reversal, he blamed the war. “The time was not favorable to considerate reflection upon the constitutional limits of legislative or executive authority,” Chase said. “Many who doubted yielded their doubts; many who did not doubt were silent. Some who were strongly averse to making government notes a legal tender felt themselves constrained to acquiesce in the views of the advocates of the measure. Not a few who then insisted upon its necessity, or acquiesced in that view, have, since the return of peace and under the influence of the calmer time, reconsidered their conclusions, and now concur in those which we have just announced.”12
In important ways, the Hepburn decision was limited in its scope; the Court said merely that the Legal Tender Act could not be enforced for debts incurred prior to its passage, of which there were believed to be relatively few anyway. Nonetheless, Chase’s decision framed the issue as one of foundational freedom—here was a plain instance of Congress stretching the meaning of the Constitution to interfere with a private contract between two citizens. To allow it to stand “would completely change the nature of American government,” Chase wrote. “It would convert the government, which the people ordained as a government of limited powers, into a government of unlimited powers.” For a country that had within the last decade been plagued by a cataclysmic civil war and the assassination of a president followed by the impeachment of his successor, to say that paper money was not merely unconstitutional but a step toward tyranny was a provocative challenge. The political overtones of the decision were heightened by the fact that all the votes to reject greenbacks came from Democrats (Chase had switched party affiliation after the war) and all the votes to uphold the law came from Republicans. A New York Times editorial chided Chase bluntly: “If these views had then prevailed the rebellion would have been successful, probably to the extent of imposing its own authority over the entire Union.” For their part, many conservative scholars and advocates to this day argue that the original Hepburn decision repudiating greenbacks was constitutionally correct.13
The initial market response to the decision was subdued, yet the drama was far from over. The battle over Andrew Johnson’s impeachment had left the Court scarred and polarized. In 1866, Congress passed a law reducing the total number of Supreme Court justices from ten to seven. Then, in 1869, with Johnson out of office, Congress brought the number back up to nine, one chief and eight associates. By the time the Hepburn decision was released to the public, Justice Grier had resigned, meaning that there were two vacancies on the Court. One of Grant’s nominees was blocked, and another died four days after his confirmation. Thus, when the Hepburn decision was released, the four votes in its favor did not constitute a majority of the whole membership of the Court authorized by Congress.
It was obvious that another decision would be necessary, to deal with the debts incurred after the law’s passage. Such cases were already in the lower courts, and the administration was key to having a judgment, especially with new Republican justices whom Grant appointed on the very day that the Hepburn decision was announced. (Although Grant partisans denied at the time that Grant had “packed” the Court with judges he knew would reverse the decision, subsequent scholarship makes a compelling case that he did precisely that.)14 Chase tried to keep new cases off the Court’s calendar; a rival justice charged that Chase “resorted to all the stratagems of the lowest political trickery to prevent their being heard.”15
Strong asserted that Congress’s constitutional power “to coin money and regulate the value thereof” clearly included the right to define money as it saw fit. After all, the Coinage Act of 1834—an example designed to stymie his opponents, as it had been championed by Democrat Andrew Jackson—changed the relationship among gold, silver, and the dollar. Strong categorized this as part of “that general power over the currency which has always been an acknowledged attribute of sovereignty in every other civilized nation than our own.” An additional, more practical argument came from one of the newer justices, reflecting the value that greenbacks brought to the broader economy: “If relief were not afforded, universal bankruptcy would ensue, and industry would be stopped and government would be paralyzed in the paralysis of the people.”
And thus, while the Court’s 1872 rulings in the Knox and Parker cases were the last word legally about the validity of inconvertible paper money, the political resentment over paper money and its raw assertion of government power never quieted and would continue to echo through the twentieth. Both sides could point to the Court’s highly unusual and contradictory actions as proof that an injustice had occurred. Little wonder that a twentieth-century chief justice would classify the Legal Tender cases, along with the Dred Scott decision a
nd the 1895 income tax decision, as one of “three notable instances [in which] the Court has suffered severely from self-inflicted wounds.”16
And the political gap between governmental monetary policy and popular opinion was about to get wider. A seemingly innocuous passage in the US Coinage Act of 1873 would, as the century wore on, be blamed for any number of economic ills and vilified as the “Crime of 1873.” The law’s goal seemed straightforward: to move the country’s money back onto a metallic standard. The act provided for various official changes to the role of a mint within Treasury and also spelled out specifically the denominations for both gold and silver coins. In an omission that was largely ignored at the time, the bill’s text did not refer to any role for a traditional silver dollar, but only half-dollars, quarter-dollars, and ten-cent pieces.17 Congress also put a $5 limit on the legal-tender status of any payment made with silver coins.
These steps were not accidental: many congressional leaders and the Grant administration were deliberately trying to restore a gold standard and thereby demonetize silver. Partly they feared that the recent discovery of the Comstock Lode in Colorado would flood the country’s monetary supply with silver. In addition, many of the world’s most important economies in 1871—notably Germany—were also making a monetary shift from silver to gold. And neither was the legislation passed in haste or in secret: the Coinage Act was drafted, redrafted, and submitted widely for comment over a period of three years before it was passed, and there was ample time for any concerned legislators or other parties to express dissatisfaction. Few did, and indeed those who would later decry the Coinage Act were part of the robust majorities that voted for it; the act passed by a vote of 110 to 13 in the House and 36 to 14 in the Senate.18
If the Coinage Act’s details seem minor, it’s because on paper they were. Nothing in the 1873 law made it illegal to forge silver coins, and in fact through the mid-1870s Treasury was minting millions of dollars’ worth of silver coins every month. The disappearance of the obsolete silver dollar, which had scarcely been minted since 1853, would hardly have been noticed by most Americans; as a financial journalist later put it, “Not one man in ten of mature years had ever seen one.”
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