American Colossus: The Triumph of Capitalism, 1865-1900
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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was smitten with despair, and the cheeks of the legislators were blanched, for it was reported that Vanderbilt had withdrawn his opposition to the bill.”26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.
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.