“He was a spider.(who) spun huge webs, in corners and in the
dark.”
–Henry Adams
We pick up our story on Jay Gould in 1869. Since the end of the
Civil War, agricultural prices had been falling as the railroad
system was built out, thus enabling an increase in supply of farm
products. At the same time, the federal government was
withdrawing the currency, greenbacks, from circulation, which
led to a fall in the price of gold from nearly $300 an ounce to
$130 in early 1869. The greenback fluctuated in relation to gold,
so the government could influence the price by selling or
withholding the precious metal.
Now you have to picture that since U.S. exports were paid for in
gold, the decline in the gold price made American farmers less
competitive overseas since American grain was more expensive.
Jay Gould thought that if he could concoct an argument that the
government should refrain from selling its gold on the market
(because if the gold price was allowed to rise, the farmer would
then be able to sell more of his grain in Europe), it would raise
already depressed farm prices. [Think of the situation in the gold
market of the past few years, where every time central banks
would sell off some of their reserves, the gold price would
plummet. This is what Jay Gould was trying to prevent.]
In 1869 the federal government held gold reserves of $100
million at Fort Knox, compared with $15 million in circulation,
and the Treasury would use this to stabilize the gold market. For
Gould to corner the market, he would need control of
government policy. Then, as Gould accumulated his position, he
could raise the price paid by the market and unload before it fell.
Gold was traded in New York at the “Gold Room” and back then
it was the most heavily traded market. One could buy a large
exposure to gold with very little money down, as the margin
requirements were a pittance, so fortunes were won, and lost,
constantly.
Now what Gould needed was access to President Grant. In May
1869 he met an aging speculator by the name of Abel Rathbone
Corbin, who had recently married Grant”s sister. Gould offered
Corbin $1.3 million of gold at $133 on credit. And speaking of
credit, Gould at the same time had acquired a controlling interest
in Tenth National Bank, meaning he had unlimited access to the
funds necessary to back his gold play.
In June, Gould met President Grant on Jim Fisk”s steamership.
Grant, himself, loved being around big-moneyed men and
listened intently to Gould”s description of the plight of the
farmers and how the government could help by not intervening
in the gold market. Then in July, Gould caught another break
when another contact, General Daniel Butterfield, was named
Assistant Treasurer. [Butterfield, by the way, was a Civil War
congressional medal of honor winner, as well as the writer of the
music for “taps.”] So let”s see; access to Grant.check .
unlimited credit.check.Treasury contact.check. Yup,
everything”s in place.
In September, Gould was convinced that Grant wouldn”t stand in
the way of a bit of inflation in order to help the farmers so he
began to accelerate his gold purchases. In fact, at one point,
while Corbin met with Grant to convince him not to intervene in
the gold market, Gould was in a back room listening to the
conversation. At this meeting Corbin supposedly got the
president to sign a specific order for the U.S. Treasury Secretary,
George Boutwell, not to sell gold without direct orders from
Grant.
Gold had been trading in a narrow range during the summer of
1869, basically around $135. Then in mid-September, as Gould
was further accumulating his position, Corbin wrote President
Grant to argue once again for the case for higher gold prices.
Grant received the letter by private messenger on Sunday,
September 19, while he was vacationing in Pennsylvania.
Finally suspicious of his brother-in-law”s motives, Grant noticed
that his wife, Julia, was writing a letter to Mrs. Corbin (Grant”s
sister). The president told Julia to add the following to her note.
“Tell your husband that my husband is very much annoyed at
your speculations. You must close them as quick as you can!”
On September 23, gold hit $142 and Gould, now aware of
Grant”s reply to Corbin, began unloading his position as secretly
as possible, while at the same time his partner, Fisk, was buying.
[More on this later.]
Then on September 24, “Black Friday,” gold quickly ran to $150
(again, remember that everyone was using excessive margin so
these were huge relative moves), but the market was beginning to
gather that the Treasury was preparing to make a move. Stories
of the rally had reached back to the president and he instructed
Treasury Secretary Boutwell to sell. Right before word hit the
Gold Room that Treasury was dumping $4 million of gold, the
price peaked at $160.and then the bottom dropped out, as gold
plunged to $135.
[There is a story that when the gold price hit $160, the bells at
Wall Street”s Trinity Church, which survived the attack of 9/11,
tolled, and that by the time the bells fell silent gold had plunged
to $138.]
Scores of brokers went out of business on Black Friday. One of
them even shot himself, another victim of Jay Gould. Jim Fisk
ended up repudiating his trades, the ones entered as gold was
rising, because he claimed he hadn”t written anything down on
the transaction slips which he had placed through an intermediary,
an act which otherwise would have made him liable for the margin
debts. This move reminded some of an earlier time when Fisk,
during the Erie Railroad debacle, ventured, “Nothing is lost, save
honor.” Gould, who remained friends with Fisk (thus making it
pretty clear that the two were in on the scam), was rumored to
have cleared $10 or $11 million and there was one account of
this story which noted that when news of the gold corner became
public, Gould was attacked by an angry mob, barely escaping
with his life. Thereafter, he always traveled with a bodyguard.
[In reading all of the accounts from the below listed sources,
there are some which opine that Gould may not have made a
dime in his attempted gold “corner.” Others say that Fisk lost a
ton and that he was obviously miffed at Gould. All I can do is
weigh the different tales and reach my own conclusions. Thus I
opt for those detailed above.]
Sources:
“Wall Street: A History,” Charles Geisst
“Devil Take the Hindmost,” Edward Chancellor
“A History of the American People,” Paul Johnson
“Manias, Panics, and Crashes,” Charles Kindleberger
“Money, Greed and Risk,” Charles Morris
“The Presidents,” edited by Henry Graff
“The Great Game,” John Steele Gordon
Brian Trumbore
