Magazine article Financial History


Magazine article Financial History


Article excerpt

Wall Street in the late 1860s was a bare-knuckles affair plagued by robber barons, political patronage and stock manipulation. In perhaps the most scandalous instance of manipulation ever, a cabal led by Jay Gould, a successful but ruthless railroad executive and speculator, and several highly-placed political contacts, conspired to corner the gold market. Although ultimately foiled, they succeeded in bankrupting several venerable brokerage houses and crashing the stock market, causing America's first Black Friday.

A Man, a Plan, a Railroad

Jay Gould was the president of the Erie Railroad. He and "Jubilee" Jim Fisk, his vice president and fellow robber baron, had a plan to corner the gold market and had the political connections to pull it off, or so it seemed. At the time, the Treasury was headed by Secretary George Boutwell, and it sold gold every week in exchange for US Treasury greenbacks - the unbacked (fiat) currency issued by the Union to fund the Civil War. Gould and Fisk schemed to convince President Ulysses S. Grant, who they knew socially via his brother-in-law, to halt those sales and give them room to corner the market.

Through a series of meetings with the President over the summer of 1869, Gould advanced his "crop movement" theory to justify driving gold higher. His theory was that the business interests of the country required an advance in the price of gold; that, in order to move the fall crops and secure the foreign market for US grain, it was necessary that gold should be put up to $145.

Gould was essentially arguing that raising gold prices would devalue greenbacks and, thus, make US crops cheaper abroad and boost exports. That stimulus would, in turn, relieve what he perceived as a "general business dullness" prevailing at the time. Left unsaid was that he and Fisk would benefit on two fronts: first, from the rise in gold prices and, second, from increased crop movements via the Erie Railroad, in which they were major shareholders.

Although President Grant was reportedly tight-lipped during these meetings and refused to reveal his thoughts on the crop movement proposal, he eventually wrote to Secretary Boutwell expressing doubts about continued gold sales. Boutwell responded by pausing them.

Extraordinary Fluctuations in Gold

When Gould and Fisk learned that gold sales had been halted (from an Assistant Treasurer they had bribed for inside information), the two men accelerated their purchases. As gold prices rose quickly over a matter of days, President Grant began to suspect their motives. The President also worried that his brother-in-law, Abel Corbin, was involved. He had the First Lady, Julia Grant, write Corbin's wife, his sister Jennie, informing her that the President was "very much annoyed by your speculations. You must close them as quick as you can."

On the evening of Thursday, September 23, President Grant met with Secretary Boutwell to discuss the precipitous rise in gold prices. He granted Secretary Boutwell permission to break the suspected corner by selling $4 million in gold. That was a considerable amount relative to the overall market of about $15 million.


September 24 started in a frenzy as "bears and bulls jammed the hour before the opening." Gold opened at $145 but quickly spiked to $160. Fisk planned to continue "bulling" gold, but when Gould caught wind of the pending Treasury sale, he reversed course and began quietly selling without telling Fisk. …

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