By HENRY ADAMS ( 1838 - 1918 )

New York Stock Exchange, in the nineteenth century

( from "Historical Essays, 1891." )

THE Civil War in America, with its enormous issues of depreciating currency and its reckless waste of money and credit by the government, created a speculative mania such as the United States, with all its experience in this respect, had never before known. Not only in Broad Street, the center of New York speculation, but far and wide throughout the Northern States, almost every man who had money employed a part of his capital in the purchase of stocks or of gold, of copper, of petroleum, or of domestic produce, in the hope of a rise in prices, or staked money on the expectation of a fall. To use the jargon of the street, every farmer and every shopkeeper in the country seemed to be engaged in "carrying" some favorite security "on a margin." Whoever could obtain twenty-five dollars sent it to a broker with orders to buy two hundred and fifty dollars' worth of stocks, or whatever amount the broker would consent to purchase. If the stock rose, the speculator prospered; if it fell until the twenty-five dollars of deposit or margin were lost, the broker demanded a new deposit, or sold the stock to protect himself. By means of this simple and smooth machinery, which differs in no essential respect from the processes of roulette or rouge et noir, the whole nation flung itself into the Stock Exchange, until the "outsiders", as they were called, in opposition to the regular brokers of Broad Street, represented nothing less than the entire population of the American Republic. Everyone speculated, and for a time, everyone speculated successfully.

The inevitable reaction began when the government, about a year after the close of the war, stopped its Issues and ceased borrowing. The greenback currency had for a moment sunk to a value of only 37 cents to the dollar. It is even asserted that on the worst day of all, the 11th of July, 1864 ; one sale of $100,000 in gold was actually made at 310, which is equivalent to about 33 cents in the dollar. At thIs point, however, the depreciation stopped, and the paper which had come so near falling into entire discredit steadily rose in value, first to 50 cents, then to 60 and to 70, and within the year to more than 90 cents.

So soon as the industrious part of the public felt the curb of this return to solid values, the whole fabric of fictitious wealth began to melt away under their eyes. Thus it was not long before the so-called "outsiders," the men who speculated on their own account, and could not act in agreement or combination, began to suffer. One by one, or in great masses, they were made the prey of the larger operators; their last margins were consumed, and they dropped down to the solid level of slow, productive industry. Some lost everything, many lost still more than they had; and there are few families of ordinary connection and standing in the United States which cannot tell, if they choose, some dark story of embezzlement or breach of trust committed in these days. Some men who had courage and a sense of honor found life too heavy for them; others went mad. But the greater part turned in silence to their regular pursuits, and accepted their losses as they could. Almost every rich American could produce from some pigeon hole a bundle of worthless securities, and could show check books representing the only remaining trace of margin after margin consumed in vain attempts to satisfy the insatiable broker. A year or two of incessant losses swept the weaker gamblers from the street.

But even those who continued to speculate found it necessary to change their mode of operations. Chance no longer ruled over the Stock Exchange and the gold market. The fate of a battle, the capture of a city, or the murder of a President had hitherto been the influences which broke the plans of the strongest combinations, and put all speculators, whether great or small, on fairly even ground; but as the period of sudden and uncontrollable disturbing elements passed away, the market fell more and more completely into the hands of cliques which found a point of adhesion in some great mass of incorporated capital. Three distinct railways, with all their enormous resources, became the property of Cornelius Vanderbilt, who by means of their credit and capital again and again swept millions of dollars into his pocket by a process curiously similar to gambling with loaded dice. But Vanderbilt was one of the most respectable of these great operators. The Erie Railway was controlled by Daniel Drew, who used the mean tactics of a common swindler too timid to risk his person. Vanderbilt acted in the interests of his corporations; Drew cheated equally his corporation and the public. Between these two men and the immense incorporated power they swayed, smaller operators one after another were crushed to pieces, until the survivors learned to seek shelter within some clique sufficiently strong to afford protection. Speculation in this manner began to consume itself, and the largest combination of capital was destined to swallow every weaker combination which ventured to show itself in the market.

Thus between the inevitable effect of a currency which steadily shrank the apparent wealth of the country, and the omnipotence of capital in the stock market, a sounder and healthier state of society began to make itself felt. Nor could the public, which had been robbed with such cynical indifference by Drew and Vanderbilt, feel any sincere regret when they saw those two cormorants reduced to tearing each other. In the year 1867 Mr. Vanderbilt undertook to gain possession of the Erie Road, as he had already obtained possession of the New York Central, the second trunk line between New York and the West. Mr. Vanderbilt was supposed to own property to the value of $50,000,000, all of which might be made directly available for stock operations. He bought the greater part of the Erie stock. Drew sold him all he wanted, and then issued as much more as was required to defeat Vanderbilt's purpose. After a violent struggle, which overthrew all the guaranties of social order, Drew triumphed, and Mr. Vanderbilt abandoned the contest. The Erie corporation paid him a large sum to reimburse his alleged losses. At the same time it was agreed that Mr. Drew's accounts should be passed, and he obtained a release in full, and retired from the direction. And the Erie Road, almost exhausted by such systematic plundering, was left in the undisturbed, if not peaceful, control of Mr. Jay Gould and Mr. James Fisk, Jun., whose reign began in the month of July, 1868.

An intrigue equally successful and disreputable brought these two men into the Erie board of directors, whence they speedily drove their more timid predecessor Drew. In July, 1868, Gould made himself president and treasurer of the corporation. Fisk became comptroller. A young lawyer named Lane became counsel. These three directors made a majority of the executive committee, and were masters of Erie. The board of directors held no meetings. The executive committee was never called together, and the three men-- Fisk, Gould, and Lane -- became from this time the absolute, irresponsible owners of the Erie Railway, not less than if it had been their personal property and plaything.

This property was in effect, like all the great railway corporations, an empire within a republic. It consisted of a trunk line of road four hundred and fifty-nine miles in length, with branches three hundred and fourteen miles in extent, or seven hundred and seventy-three miles of road in all. Its capital stock amounted to about $35,000,000. Its gross receipts exceeded $15,000,000 per annum. It employed not less than fifteen thousand men, and supported their families. Over all this wealth and influence, -- greater than that directly swayed by any private citizen, greater than is absolutely and personally controlled by most kings, and far too great for the public safety either in a democracy or in any other form of society, -- the vicissitudes of a troubled time placed two men in irresponsIble authorIty; and both these men belonged to a low and degraded moral and social type. Such an elevation has been rarely seen in modern history. Even the most dramatic of modern authors, even Balzac himself who loved to deal with similar violent alternations of fortune or Alexandre Dumas with all his extravagance of imagination, never have reached a conception bolder or more melodramatic than this, nor have they ever ventured to conceive a plot so enormous or a catastrophe so original, as was now to be developed.

One of the earliest acts of the new rulers was precisely such as Balzac or Dumas might have predicted and dilated upon. They established themselves in a palace. The old offices of the Erie Railway were in the lower part of the city, among the wharves and warehouses, a situation no doubt convenient for business, but by no means agreeable as a residence; and the new proprietors naturally wished to reside on their property. Mr. Fisk and Mr. Gould accordingly bought a huge building of white marble, not unlike a European palace, situated about two miles from the business quarter, and containing a large theater, or opera house. They also purchased several smaller houses adjoining it. The opera house cost about $700,000, and a large part of the building was at once leased by the two purchasers to themselves as the Erie corporation, to serve as offices. This suite of apartments was then furnished by themselves, as representing the corporation, at an expense of $300,000, and in a style which, though called vulgar, was certainly not more vulgar than that of the President's official residence, and which would be magnificent in almost any palace in Europe. The adjoining houses were connected with the main building; and in one of these Mr. Fisk had his private apartments, with a private passage to his opera box. He also assumed direction of the theater, of which he became manager in chief. To these royal arrangements he brought tastes commonly charged as the worst results of royal license. The atmosphere of the Erie offices was not supposed to be disturbed with moral prejudices; and as the opera itself supplied Mr. Fisk's mind with amusement, so the opera troupe supplied him with a permanent harem. Whatever Mr. Fisk did was done on an extraordinary scale.

These arrangements, however, regarded only the pleasures of the American Aladdin. In the conduct of their interests, the new directors showed a capacity for large conceptions and a vigor in the execution of their schemes such as alarmed the entire community. At the annual election in 1868, when Gould, Fisk, and Lane, having borrowed or bought proxies for the greater part of the stock, caused themselves to be elected for the ensuing year, the respectable portion of the public throughout the country was astonished and shocked to learn that the new board of directors contained two names peculiarly notorious and obnoxious to honest men, the names of William M. Tweed and Peter B. Sweeney.

The effect of this alliance was felt in the ensuing winter in the passage of a bill through the State legislature, and its signature by the governor, abolishing the former system of annual elections of the entire board of Erie directors, and authorizmg the board to classify itself in such a manner that only a portion should be changed each year. The principle of the bill was correct. Its practical effect however was to enable Gould and Fisk to make themselves directors for five years, in spite of any attempt on the part of the stockholders to remove them. The formality of annual re-election was spared them; and so far as the stockholders were concerned, there was no great injustice in the act. The Erie Road was in the peculiar position of being without an owner. There was no cestui que trust, unless the English stockholders could be called such. In America the stock was almost exclusively held for speculation, not for investment; and in the morals of Wall Street, speculation meant or had almost come to mean disregard of intrinsic value. In this case society at large was the injured party, and society knew its risk.

This step, however, was only a beginning. The Tammany ring, as it was called, exercised a power far beyond politics. Under the existing Constitution of the State, the judges of the State courts are elected by the people. There are thirty-three such judges in New York, and each of the thirty-three was clothed with equity powers running through the whole State. Of these judges Tammany Hall elected several, and the Erie Railway controlled others in country districts. Each of these judges might forbid proceedings before any and all the other judges, or stay proceedings in suits already commenced. Thus the lives and the property or the public were in the power of the new combination; and two of the city judges, Barnard and Cardozo, had already acquired a peculiarly infamous reputation as so-called "slaves to the ring," which left no question as to the depths to which their prostitution of justice would descend.

The allIance between Tammany and Erie was thus equivalent, to investing Mr. Gould and Mr. Fisk with the highest attributes of sovereignty; but in order to avail themselves to the utmost of their judicial powers, they also required the ablest legal assistance. The degradation of the bench had been rapidly followed by the degradation of the bar. Prominent and learned lawyers were already accustomed to avail themselves of social or business relations with judges to forward private purposes. One whose partner might be elevated to the bench was certain to be generally retained in cases brought before this special judge; and litigants were taught by experience that a retainer in such cases was profitably bestowed. Others found a similar advantage resulting from known social relations with the court. This debasement of tone was not confined to the lower ranks of advocates; and it was probably this steady demoralization of the bar which made it possible for the Erie ring to obtain the services of Mr. David Dudley Field as its legal adviser. Mr. Field, a gentleman of European reputation, in regard to which he was understood to be peculiarly solicitous, was an eminent law reformer, author of the New York Code, delegate of the American Social Science Association to the European International Congress, and asserted by his partner, Mr. Shearman, in evidence before a committee of the New York legislature, to be a man of quixotic sense of honor. Mr. Shearman himself, a gentleman of English parentage, had earned public gratitude by arraigning and deploring with unsurpassed courage and point the condition of the New York judiciary, in an admirable essay which will be found in the North American Review for July, 1867. The value of Mr. Field's services to Messrs. Fisk and Gould was not to be measured even by the enormous fees their generosity paid him. His power over certain judges became so absolute as to impress the popular imagination; and the gossip of Wall Street insisted that he had a silken halter round the neck of Judge Barnard and a hempen one round that of Cardozo. It is certain that he who had a year before threatened Barnard on his own bench with impeachment, now appeared in the character of Barnard's master, and issued as a matter of course the edicts of his court.

One other combination was made by the Erie managers to extend their power, and this time it was credit that was threatened. They bought a joint-stock bank in New York city, with a capital of $1,000,000. The assistance thus gained was purchased at a very moderate price, since it was by no means represented by the capital. The great cliques and so-called "operators" of Wall Street and Broad Street carry on their transactions by a system of credits and clearing houses with a very limited use of money. The banks certify their checks, and the certified checks settle all balances. Nominally and by law the banks only certify to the extent of bona fide deposits, but in reality the custom of disregarding the strict letter of the law was not unknown; and in regard to the bank in question, the Comptroller of the Currency, an officer of the national Treasury, testified that on an examination of Its affaIrs in April, 1869, out of fifteen checks deposited in its hands as security for certifications made by it, selected at hazard for inquiry, and representing a nominal value of $1,500,000, three only were good. The rest represented accommodation extended to brokers and speculators without security, as an actual fact it is in evidence. This same bank, on Thursday, September 24, 1869, certified checks to the amount of nearly $7,500,000 for Mr. GouId alone. What sound security Mr. Gould deposited against this mass of credit may be left to the imagination. His operations, however, were not confined to this bank alone, although this was the only one owned by the ring.

Thus Mr. Gould and Mr. Fisk created a combination more powerful than any that has been controlled by mere private citizens in America or in Europe since society for self-protection established the supreme authority of the judicial name. They exercised the legislative and the judicial powers of the State; they possessed almost unlimited credit, and society was at their mercy. One authority alone stood above them, beyond their control; and this was the distant but threatening figure of the national government.

Nevertheless, powerful as they were, the Erie managers were seldom in funds. The huge marble palace in which they lived, the theater they supported, the reckless bribery and profusion of management by which they could alone maintain their defiance of public opinion, the enormous schemes for extending their operations into which they rushed with utter recklessness, all required greater resources than could be furnished even by the wholesale plunder of the Erie Road. They were obliged from time to time to issue from their castle, and harry the industrious public or their brother freebooters. The process was different from that known to the dark ages, but the objects and the results were equally robbery. At one time Mr. Fisk is said to have ordered heavy speculative sales of stock in an express company which held a contract with the Erie Railway. The sales being effected, the contract was declared annulled. The stock naturally fell, and Mr. Fisk realized the difference. He then ordered heavy purchases, and having renewed the contract the stock rose again, and Mr. Fisk a second time swept the street. In the summer and autumn of 1869 the two managers issued and sold two hundred and thirty-five thousand new shares of Erie stock, or nearly as much as its entire capital when they assumed power in July, 1868. With the aid of the money thus obtained, they succeeded in withdrawing about $12,500,000 in currency from circulation at the very moment of the year when currency was most in demand in order to harvest the crops. For weeks the whole nation writhed and quivered under the torture of this modern rack, until the national government itself was obliged to interfere and threaten a sudden opening of the Treasury. But whether the Erie speculators operated for a rise or for a fall, whether they bought or sold, and whether they were engaged in manipulating stocks or locking up currency or cornering gold, they were always a public nuisance and scandal.

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