At 8 A.M. on Monday, 9 August, Van Valkenburg sent messengers out on the A&S local for Binghamton with instructions for stationmasters to ignore court orders siding with Erie control. At the same time, Fisk had Barnard wire copies of his writs directly to Binghamton. There, the Broome County sheriff, acting on Barnard’s writs, seized the A&S terminal at 2 P.M. The sheriff locked down three of the four locomotives, the last making a fast escape in the direction of Albany. Thirty minutes later, the sheriff joined H.D.V. Pratt (Receiver Fisk’s newly appointed superintendent of the A&S, and no relation to old Zadock) and some twenty Erie mechanics on an Erie train aimed east through the Catskills toward Albany. They traveled at a fast clip, intent on taking possession of each station as they went. On the opposite end of the line, Van Valkenburg ordered all regularly scheduled A&S trains to pull onto sidings. Then he sent a special train headed east toward Binghamton loaded with 150 heavily armed men under the command of attorney Henry Smith. Smith’s special stopped at each station, leaving off a contingent of guards to protect the property of the A&S from Erie invaders.
The two engines met at the town of Bainbridge. Smith’s train arrived there first. When the Erie train rolled in that evening, Pratt and his cohorts saw the A&S special pulled up on a siding. After a brief pause to ponder the possibilities, Pratt foolishly ordered his train to continue straight ahead. As a more astute commander–perhaps Gould–might have predicted, the Erie engine soon ran into sabotage. A “frog” routing device laid down on the track quickly derailed the Erie train, stranding it where it stood. Pratt then surrendered to Smith, whose men set the Erie engine back onto its tracks before escorting it to Albany. Undaunted by this turn of events, Fisk at the Delavan House wired his men at Binghamton to prepare another engine. The new train set out on the afternoon of Tuesday, 10 August, with 600 men but little in the way of guns or ammunition: just clubs hastily carved from the trees of the nearby woods. Later that day, at the railroad tunnel near Harpursville, New York, the Erie engine met an A&S train loaded with 450 Van Valkenburg stalwarts.
The Erie train stopped at the sight of the oncoming A&S engine traveling slowly up a steep grade on the eastern side of the tunnel. Thus the collision, when it came, was not overly traumatic. It demolished each engine’s cowcatcher and partially derailed the A&S train, from which the well-armed Van Valkenburg forces poured out, scattering the club-wielding Erie defenders, who broke and ran back into the safety of the dark tunnel, their engine backing up behind them. A few minutes later, after the A&S fighters put their engine back on the tracks and proceeded to meet the Erie men at the western end of the tunnel, a full battle broke out. “The conflict was reopened with great fury,” reported Leslie’s Illustrated Newspaper. “The Erie men, occupying their own ground, had no intention of giving it up. . . . The Albany men, flushed with success, attacked vigorously. Pistols were used, with stones, clubs, and fists.”19 This bloody stalemate continued until the Forty-fourth Regiment of the State Militia arrived to quell the riot–at which point all combatants, those of the Erie together with those of the A&S, retreated into the woods to avoid arrest. By nightfall, the Erie train occupied the western end of the tunnel and the A&S train the eastern. Miraculously, no one died, although ten had been shot and many more suffered various bruises.
The next day–Wednesday, 11 August–both sides agreed to the governor’s appointment of Major General James McQuade, Inspector General of the State Militia, as interim superintendent of the A&S. Less than a month later, at the annual election of the A&S board on 7 September, there erupted “a perfect meteoric shower of suits, injunctions, and receiverships that has not been surpassed in any of the Erie Wars,” continuing the stalemate.20 A series of court cases followed, amid which–during a brief interlude when the courts gave him and his clique control of the A&S–Ramsey adopted the advice of J. P. Morgan, who recommended that the A&S be leased to the Delaware & Hudson Canal Company, thus effectively insulating it from takeover by the Erie.
In the aftermath of the war for the A&S, more than one commentator noted the absence of Jay Gould from center stage. Some assumed, incorrectly, that the fight had been Fisk’s alone, a diversion allowed the Prince of Erie by the railroad’s undisputed king. Nothing could have been further from the truth. Gould was in fact preoccupied with another, far more important project at the same–a complex and ultimately flawed scheme that would forever cement his and Fisk’s reputations as pirates.
Chapter 19
WHERE THE WOODBINE TWINETH
EARLY IN THE AFTERNOON of 15 June 1869, President Ulysses S. Grant, in office just three months, encountered Jay Gould at the West Twenty-seventh Street mansion of the president’s sixty-seven-year-old brother-in-law, Abel Rathbone Corbin.1 Grant and his wife, Julia, who’d attended the commencement at West Point that morning, were passing through Manhattan on their way to a somewhat belated celebration marking the end of the War Between the States: the National Peace Jubilee in Boston. After an hour or so of cordialities, the Grants, together with Corbin, Gould, Treasury Secretary George S. Boutwell, Atlantic-cable innovator Cyrus Field (brother of Gould’s sometime-attorney David Dudley Field), and several other worthies traveled with a military escort down to the Chambers Street pier. There Fisk’s Narragansett Line steamship Providence awaited. Fisk and Gould had volunteered the vessel to the convenience of the president. Fisk, dressed in his admiral’s finery, stood beaming on the gangway. Just behind him, Dodworth’s Band, the finest such organization in Manhattan, boomed a rousing march as the president boarded.
Grant’s brother-in-law Corbin–the man instrumental in bringing Gould and Grant together–was a widower who’d only recently married Grant’s spinster sister, Virginia Paine Grant. Corbin had a gnarled and troubled history as a somewhat shady lawyer, speculator, and lobbyist. Technically retired, he nevertheless continued to dabble in various Wall Street and real estate investments. It was, in fact, a New Jersey land speculation that had first brought him into Gould’s orbit early in 1869. More recently, Gould had allowed Corbin to join him in an audacious private investment involving gold.
Until the end of 1861, the federal government had contributed only coinage to the national money supply. All paper currency had emanated from state-chartered banks, which issued notes backed by their deposits. Early in the Civil War, however, the National Banking Act and the Legal Tender Act set up nationally chartered banks with the power to issue currency backed by government bonds. At the same time, the U.S. Treasury began issuing nonredeemable notes: some $400 million in greenbacks, not backed by gold, that allowed the government to pay for the Civil War but caused great inflation. Starting in mid-1865, the government slowly began to withdraw greenbacks from circulation. This withdrawal led to a fall in the per-ounce price of gold from nearly 300 in greenbacks in 1865 to 130 by early 1869. (Of course, in addition to adjusting the amount of currency in circulation, the U.S. Treasury could also influence the greenback price of gold through carefully calculated sales from the million-ounce gold hoard in the Federal Reserve.)
In 1862, traders had set up a formal “Gold Room” right next to the New York Stock Exchange. Four years later, various members of the Exchange organized the Gold Exchange Bank, a clearinghouse that by 1869 averaged $70 million in greenback business every day, the lion’s share of this trade being transacted on margin. As Gould later explained to a congressional investigating committee, “A man with $100,000 of money and with credit can transact a business of $20,000,000,” the latter figure, coincidentally, being the total gold available in New York City at that time.2
Gould did not, at first, attempt to reach this far. During April 1869–using only the smallest slice of his own capital–he tied up approximately $7 million in gold contracts, purchasing these on margin at rates varying from a low of 130 (ounce price) to a high of 137. When he sold a few weeks later, he did so after bulling the price up to 142. A subsequent bull rush in Jay’s wake sent the price even higher, to 145–a number that caused Treasury Secretary B
outwell to double the weekly amount of gold sold by the government, which promptly brought down the price. Gould, meanwhile, took notice of the Treasury Department’s power to shape and move the market. To Giovanni Morosini he commented–as if idly, by way of fantasy–that if one could control or at least have advance knowledge of the Treasury’s movements with regard to gold, then one would be in a position to corner the market, reaping a massive return in the process.
Although the United States was slow to get back onto a firm gold standard after the Civil War, the rest of the world had never left it. Therefore all American merchants involved in export were forced to pay for domestic goods and commodities using fluctuating greenbacks, before selling these goods overseas for gold. For American importers, of course, this process reversed itself, but it still involved the same dilemma of exposure to unpredictable greenback values. “To protect themselves,” explained Maury Klein, “merchants paid a premium to borrow gold and sold it for the greenbacks needed to make their purchases. After a foreign exchange house discounted his bill, the merchant took the gold paid him and returned it to the loaner. This was in theory the legitimate business function of the Gold Exchange, but it also offered choice opportunities for speculation. Merchants who borrowed in this manner were in effect short of gold. A fall in the price could wipe out their profits on business transactions. However, a sharp rise in gold required merchants to put up fresh margins (in greenbacks) against what they had borrowed. In the process some might go bankrupt before their bills were discounted abroad. If speculators could control the available supply of gold, they could use the frantic buying by merchants who were short to help run the price up.”3
Going into the summer of 1869, as Gould began to consider a serious move to corner gold, he did so with two agendas. First, of course, he hoped to make a speculative killing. But he also sought to raise chronically depressed commodities prices and thus build up the Erie’s farm-freight-hauling business. Taking his cue from James McHenry, a British financier who held stock in the Erie and was also president of the Atlantic & Great Western Railway, Gould realized that a sharp decline in the value of greenbacks against gold would stimulate American agricultural exports by making western wheat and grain–not to mention southern cotton–relatively cheap for gold-based foreign markets to buy and more profitable for American farmers (paid in greenbacks for their crops) to sell. On the other hand, as Gould told Corbin several weeks before their cruise with the president, if the government were to do anything to strengthen greenbacks (such as stepping up sales of gold from the Federal Reserve as it had in May), then in the long run American crops would go unharvested, farmers would go bankrupt, boxcars would stand idle, and economic depression would overwhelm the landscape.
Gould ensured Corbin’s dedication to the economic national good (that is, escalating gold prices) by providing him an account (recorded in his wife’s name) containing certificates for $1.5 million in gold without margin. From that moment on, Corbin (or rather, his wife) would profit $15,000 on every $1 rise in the greenback price of gold. In early June, shortly after the account materialized in the name of Grant’s sister, Gould sent Corbin to Washington, there to lobby his brother-in-law on the necessity of tightening the gold supply. And now, as the Providence eased away from Manhattan on the evening of 15 June with the Grants ensconced in the ship’s bridal suite, Gould prepared to drive home the argument in person.
After a fine dinner followed by whiskey and cigars, Gould broached the topic of federal gold policy with Grant and Secretary Boutwell. “The President was a listener,” Gould would recall for congressional investigators. “The other gentlemen were discussing. Some were in favor of Boutwell’s selling gold, and some were opposed to it. After they had all interchanged [sic] their views, some one asked the President what his opinion was.” Gould said later that he was chagrined when Grant discounted his carefully crafted arguments for boosting the price of gold. Grant, much to Gould’s surprise, spoke on behalf of sound money and the orderliness of the gold standard. “There is a certain amount of fictitiousness about the prosperity of the country,” Grant said, adding that “the bubble might as well be tapped in one way as another.” The remark, Gould commented later, “struck across” him and his allies “like a wet blanket.” As Gould recalled, “I gave it as my opinion that if that policy were 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. . . . 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.” Grant remained unmoved through the rest of the journey, and as Gould said later, “We supposed from that conversation that the President was a contractionist.”4
With typical fortitude, Gould continued his siege of the chief executive. When Grant returned to New York on 18 June, he attended a performance of Jacque Offenbach’s La Perichole at Fisk’s Fifth Avenue Theater, Grant sharing Fisk’s proscenium box with Gould and the Corbins. Jay talked nothing but gold during the intermission. On several other occasions that summer when Grant overnighted at the home of the Corbins, Gould made it his habit to materialize along with a briefcase full of data demonstrating the need for some healthy inflation. Eventually, in early August, an exasperated Grant told Corbin’s chief butler to turn Gould away if he showed up, because the Erie president “was always trying to get something out of him.”5
Gould did, however, make some inroads. When the post of assistant federal treasurer for New York came open in late June, Gould through Corbin lobbied successfully for the appointment of Brigadier General Daniel Butterfield, a retired Civil War officer (and former eastern superintendent of the American Express Company), remembered today as the composer of “Taps.” Butterfield was actually Gould’s second choice for the job. The first had been Corbin’s son-in-law, Robert B. Catherwood, who evidently took himself out of the running when he learned the impropriety of what would be expected of him. “I satisfied myself that I could not fill the bill,” Catherwood would tell future president James A. Garfield, chair of the House Committee looking into Gould’s gold speculations, “[for] it was understood that if I took the position, Gould, Corbin, myself and others would go into some operations such as the purchase of gold and stocks, and that we would share and share alike.”6 Not afflicted by Catherwood’s scruples, Butterfield started as assistant treasurer on 1 July. His new position called for Butterfield to execute all orders for U.S. Treasury transactions in the New York market. By definition, therefore, Butterfield would be the second man after Secretary Boutwell himself to know of any U.S. Treasury moves with regard to gold. Shortly, Gould gave Butterfield a “loan” of $10,000 that was never to be repaid. He also set up a no-margin gold account for Butterfield just as he’d done for Corbin, even though Butterfield would later deny it.
By mid-July, the price of gold stood at 136 and was headed south. This downward movement looked as if it would continue even though Boutwell–surveying Department of Agriculture forecasts projecting bumper crops and at the same time noting steep declines in port grain export receipts–took steps to shore up gold prices by reducing government sales. Two weeks later, at the start of August (as Fisk waged the war for the A&S), Gould bought a controlling interest in New York’s Tenth National Bank, many shares of which he soon conveyed to Fisk and several other Erie and Tammany colleagues. Henceforth, the Tenth National would supply Gould with a more than ample line of unsecured credit for his gold speculations, even issuing certified checks for funds not already on deposit. Meanwhile, Gould formed a pool comprising a number of Wall Street brokers and investors, including Arthur Kimber, W. S. Woodward, Russell A. Hills, James Ellis, H. K. Enos, Edward K. Willard, and Charles Quincy.
Fisk, however, bowed out at first. In leaving Gould to his plan, Fisk cited Grant’s seeming intransigence and uncontrollability. Although Fisk remained willing to help his partn
er any way he could, at the outset he kept his own money off the table. “The thing began to look scary to me,” he would say later.7 Indeed, given the many wild cards in play, it seems surprising that the normally careful Gould–always so intent on controlling every aspect of his deals–decided to go ahead with the plan to corner gold. For starters, Gould’s pool was barely that. The “members” remained independent, giving Gould no fiduciary authority over their investments. Each player was free to buy or sell according to his own clock. As well, although Gould’s “inside” man, Corbin, had succeeded in securing the nomination of Butterfield, it seemed apparent after numerous conversations with Grant that Corbin would be useless in influencing economic policy. (Worried about Corbin’s value, Gould soon tried to seduce Grant’s military secretary and confidante, General Horace Porter, with a no-margin gold account of $500,000, only to find himself indignantly rebuffed.)
Nevertheless, after a false start during late July when he managed to bull gold up to only 140 before a precipitous fallback to 135 7/8, Gould and his allies began buying in earnest in mid-August. On the 25th, to help his campaign along, Gould arranged for the witless John Bigelow–former ambassador to France and newly appointed editor of the New York Times (where he would not last)–to publish an editorial that pretended to present informed details concerning Grant’s position on gold. Entitled “The Financial Policy of the Administration,” the piece asserted that “until the crops are moved, it is not likely Treasury gold will be sold for currency to be locked up. . . . The President will not send gold into the market and sell it for currency.”8 The next day, feigning ignorance of how the editorial had come to be, Gould wrote Boutwell, “If the New York Times correctly reflects your financial policy during the next three or four months . . . then I think the country peculiarly fortunate in having a financial head who can take a broad view of the situation. . . . It is only by making gold high and scarce that . . . we are enabled to compete in the London and Liverpool markets.”9
Dark Genius of Wall Street Page 19
