American Colossus: The Triumph of Capitalism, 1865-1900 Read online

  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 a
n 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 p
roducts 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.