Wednesday, May 23, 2012

BOOKS- The NEW YORK GOLD ROOM: Wall Street's Big Gamble on the Civil War

Scene on the floor of the New York Gold Exchange or "Gold Room," 1869.

In all American history since 1789, with its many financial booms and busts, only once has the United States Congress ever stepped in and closed down a major financial market in the middle of active trading, trying to stop speculation and cool prices. This took place in 1864 at one of the bloodiest points in the Civil War, prompted by a case of war profiteering in the extreme. It failed miserably. It’s target? The New York Gold Exchange, or Gold Room.

A British-born writer named Kinahan Cornwallis (1839-1917) witnessed this event while working in New York City as a reporter for the New York Herald.  We at Viral History Press LLC are proud now to bring you Kinahan's account, first published in pamphlet form by A.S. Barnes & Company in 1879, as the first of a new series of eBooks called History Shorts / Original Voices, brief but compelling eye witness accounts of key events in American history.The NEW YORK GOLD ROOM: Wall Street's Big Gamble on the Civil War, in Corwallis account of war profiteering run amok. 

Gold speculation never existed in the United States before January 1862. Weeks earlier, in December 1861, President Abraham Lincoln had decided to suspend the national gold standard, the legal right to convert paper money into gold coin or “specie,” as a step to help finance since the Civil War.  At the same time, Lincoln also asked Congress to float some $450 million in paper dollars and began borrowing heavily. His Treasury Department would sell over $2 billion in bonds by the end of the War, easily worth half-a-trillion in modern dollars.

These steps created a new dual-currency system in America, with two forms of money circulating side by side: paper “greenbacks” as legal tender for domestic debts and claims, and gold coin as the currency of the world, needed for foreign trade, tariffs, and custom duties.

A brisk gold trade arose along Wall Street in early 1862. Each Confederate military victory sent gold prices soaring and greenbacks plummeting. Speculators, stock traders, rebel and Union sympathizers, and Washington officials with access to battlefield news dominated the market, far outnumbering the bankers, exporters, importers, and other commercial gold users. Daily price fluctuations affected the national war effort, since rising gold prices directly eroded the value of the federal Treasury.

Bankers like Philadelphia’s Jay Cooke called the New York gold traders “General Lee’s left flank.” The New York Stock Exchange agreed; it considered gold trading disloyal and refused to allow it under its roof. This forced gold speculators to form a separate Gold Exchange on nearby William Street.

Gold prices spiked in June 1864 to $200 in paper -- a full fifty percent devaluation of the nation’s paper currency -- as General Ulysses Grant’s army sat stalled outside Petersburg, Virginia. Responding to public anger at the spectacle of Wall Street moneymen profiting off the bleak military stalemate, Congress passed the Gold Act, a statute designed to close the Gold Exchange immediately. To its surprise, however, closing the Exchange only made matters worse, encouraging hoarders and fueling a panic. The gold price skyrocketed by an additional $100, reaching almost $300 paper-to-gold, before frantic appeals from New York merchants convinced Congress to repeal the Gold Act and reopen the Exchange ten days later.

Only General William T. Sherman’s capture of Atlanta in August 1864 finally broke the bull market and cooled the fire. When Robert E. Lee surrendered to Grant at Appomattox Courthouse on April 9, 1865, the gold price sagged to $144, less than half its wartime high. It raises an age-old question: Which was worse: Over-speculation by the Wall Street gold traders, or Congress’ uninformed over-reaction that did far more harm than good?

For ease of reading, we have made minor edits and format changes, particularly shorter paragraphs and sub-headings, and added a few annotations to clarify historical context. Otherwise, we’ve left Kinahan Cornwallis's text alone. We hope you enjoy this original voice from the 1870s.

Here, as an excerpt, is where Cornwallis describes what happened ton Wall Street the day after Congress stepped in and closed the Gold Room --

From The NEW YORK GOLD ROOM: Wall Street's Big Gamble on the Civil War --

But the effect of large issues of irredeemable paper was not thus easily to be legislated away by a mere enactment closing the regular market for the precious metal. …

The abolition of the Gold Room, involved in this unwise, not to say absurd law, was its worst feature, for it closed the door to competition among bona fide holders of coin, as well as among speculative sellers. The real holders of gold were thus isolated, and each individual of their number was free to ask whatever price he pleased for the metal. Every one naturally wanted the highest price obtainable, and there began a rise faster than ever in the Gold Room. Those who had to pay customs' entries and foreign indebtedness became alarmed, and rushed to the offices of the bullion dealers in Wall street, to make their gold purchases at the going price, whatever that might be, fearing that it would soon be still higher. Those who had sold "short" were still more apprehensive of the future course of the premium, and in trying to "cover" their contracts accelerated the upward movement.

No quotations for gold were made on the Stock Exchange, or on the street, and purchasers had to run from office to office, inquiring the price at which holders were willing to sell. Leading merchants and bankers, who had urged upon Congress this prohibitory legislation, now wrote and telegraphed to Washington, imploring the repeal of the Gold bill.

The whole country was alarmed by the rocket-like ascent of the premium following its passage, and Congress, amazed and rebuked by the advance -- gold having sold at 198 on the 20th of June, and at 250 before the end of the month¬ -- repealed the bill on the 2d of July, and the bears began to breathe a little more freely. Sunday, and "the Fourth" followed, and on the morning of the 5th, the Gold Room was re-opened; but the tug of war had yet to come. [By late June 1864, General Grant’s advance had been stopped, and his Army settled into a siege around Petersburg, Virginia, just twenty-one miles south of Richmond, that would last until March 1865.]

Still another corner

The bulls were prepared to twist the “shorts," and as the outstanding contracts for future delivery were large, they found it easy to control the floating supply of "cash" gold -- that is the coin available for immediate delivery -- and so force the bears to buy to make their deliveries, unless they preferred the alternative of borrowing at exorbitant rates each day, to keep their contracts good. The market was virtually cornered. The highest price on the 5th of July was 249. On the 6th, it had risen to 261 ½, on the 7th to 273, on the 8th to 276 ½. On the 9th it remained steady, and on Monday the 11th leaped up to 285.

The bears quivered with rage and excite¬ment, or abandoned the contest in despair. Gilpin's News Room, at the corner of William street and Exchange Place -- to which the gold market had been removed before this from the Coal Hole -- was turned into a scene of tumult, vociferation, agony, and disorder, that might be likened, for want of a better illustration, to Pandemonium. Men who were losing thousands every hour, or every minute, were there, shouting themselves hoarse, their hands uplifted and their eyes roll¬ing in frenzy, while their countenances indicated that they we're undergoing mental tortures colloquially described as equal to those of the damned. Others were there, emboldened by and wildly elated with their own success, and tempting fortune by testing their luck to the utmost, apparently believing with the poet, that-

‘He either fears his fate too much, Or his deserts are small,
Who dares not put it to the touch, To gain, or lose, it all.’

A surging, writhing mass of humanity shook the Gold Room, and the sound of many voices filled the air, while men with anxious and fevered faces rushed in and out of the clamorous confusion with a semi-frantic celerity such as might have been expected of them if their lives or fortunes had been dependent on the result of a moment. The din would rise and fall like the roar of a tempest, but every few minutes new men would rush in, and yell far above the storm, and then rush out again after executing their orders; and day after day the exciting drama of gold was repeated. Meanwhile the whole country looked on with apprehension.

The "Corner" -- for such it may be termed -- culminated on the 11th of July, and after the Gold Room had closed on that day, private transactions took place at still higher figures than any chronicled during the regular hours of busi¬ness, one of these, it was rumored, being at a price above 300. But although the market had reached "top," it showed stubbornness in yielding. On the 19th of July, sales were made at 268 3/4, on the 6th of August at 261 3/4, and on the 2d of September at 254 1/2. By the end of that month, however, there was a decline to 191 ; yet so erratic was the course of speculation, that on the 9th of November the price touched 260 again.

On that day General [William Tecumseh] Sherman began his mem¬orable and triumphant march through Georgia to the coast, and gold never afterward reached that altitude, but on the whole steadily declined, until it sold at 125 in March 1866, in consequence of the successes of the Union armies, culminating in the overthrow of the rebellion.

If you enjoyed the excerpt, just click here to check out the full ebook on  

Tuesday, May 15, 2012

MONEY: Boss Tweed's Bondholder Revolt

Cartoon by Thomas Nast depicting the Tweed Ring in Harper's Weekly, Aug. 19, 1871. Source: Library of Congress.

A hearty thanks to the Bloomberg "Echoes" financial history blog for running this item first on May 9, 2012.  Check them out for a great daily history fix.

How can excessive debt sink a government? Look no further than New York -- in 1871, under the leadership of the eminently corrupt William M. Tweed.

Today, the U.S. government owes some $15.2 trillion. Its largest group of public creditors comprises foreigners and foreign governments, led by China and Japan. Overseas creditorshold $5.1 trillion in U.S. paper and continue to be big buyers at Treasury auctions. What would happen in the (still unlikely) event they stopped buying?

Take a look at “Boss” Tweed’s New York. Tweed, the legendary Grand Sachem of Tammany Hall and a renowned political fixer, was easily the most corrupt politician in American history. He and his cronies stole a remarkable amount of money during their brief reign from 1868 to 1871: Estimates range from $60 million to $100 million in 1871 dollars, worth many billions today.

Tweed himself ultimately was convicted on 204 counts of fraud and died behind bars in New York’s Ludlow Street jail as a disgraced man.

Still, while in power, Tweed ran a happy city. Everyone made money under his system. Real estate boomed and business prospered. He financed his corrupt regime on low taxes while providing good service and plenty of graft for friends. To pay the tab, he borrowed.

Debt, Debt, Debt

Under Tweed, the city treasury issued oceans of debt: Croton Aqueduct Bonds, Central Park Improvements Bonds, four classes of County Court House stock, Bonds for Repayment of Taxes, Assessment Fund Stock, Park Improvement Bonds, Street Improvement Bonds. New York’s city and county debt swelled to more than $97 million by mid-1871 from $36.3 million in January 1869, with interest payments approaching $10 million a year.

Local banks and brokers snapped up these bonds and sold them to investors in Europe, mostly British and German, who didn’t know any better and considered them safe.

But that changed in July 1871, when the New York Times (NYT)received a stolen copy of the Tweed Ring’s secret accounts and published it on its front pages -- disclosing all manner of fraud and theft, including embezzlement and bill padding on construction of the Tweed Courthouse in lower Manhattan. City leaders read with disbelief.

Thomas Nast’s clever cartoons of the time depicted Tweed as a laughable crook. But one group that found no humor in the situation was the bondholders. In late July, they cut off credit. The city put $40,000 in bonds up at auction one day and failed to receive a single bid. A few days later, the Commercial and Financial Chronicle warned of a panic. In Europe, the Berlin Stock Exchange banned New York’s city and county bonds from its official trading list.

The city had a looming interest payment of $2.7 million due Nov. 1, and its agents could no longer raise money in world markets. “They distrust our securities in London,” an unnamed broker told the New-York Tribune.

If credit dried up and the city defaulted on its debt, the impact on New York’s wealthy would be devastating, wiping out their bulging bond portfolios and crippling their standing in Europe, which was still a principal source of capital for American finance.

An “insurrection of the capitalists” quickly organized itself in lower Manhattan. Some 1,000 merchants rushed to sign a petition refusing to pay any more property taxes until city officials gave a full account of their spending. Another group filed a lawsuit to block a city construction project on Broadway. Calls went out for city leaders to convene publicly on Sept. 4 -- when wealthy men had returned from their summer holidays.

The Fall

After that, the fall came quickly. In early September, reformers won a court injunction demanding an accounting and blocking any more spending by Tweed’s City Hall. By October, Tweed had been indicted, and would soon begin his long journey through the city and state prison system. The flow of credit only resumed after the entire Tweed system had been dismantled.

America’s current mountain of debt wasn’t built on fraud like Tweed’s. Nor did the European bondholders in Tweed’s day worry that stopping the money flow to one city government would hurt their larger investments portfolios in the long term, as U.S. creditors today surely would. They demanded regime change - - replacement of the Tweed Ring with an honest government -- and they got it.

But there are lessons for modern American politicians here. First, don’t steal. (Hopefully they know that one already.) Second, it’s not just in Europe where debt can topple governments -- in a pinch, creditors always call the tune.

(Kenneth D. Ackerman is the author of four books, including“Boss Tweed: The Corrupt Pol Who Conceived the Soul of Modern New York.” The opinions expressed are his own.)

Wednesday, May 9, 2012

GUEST BLOG: Susan Tejada on crime fighting technology in the era of Sacco and Vanzetti

The original electric chair at Sing Sing prison in New York where, in 1905, Robert Elliott executed
a prisoner for the first time in his career.

The story of Nicola Sacco and Bartolomeo Vanzetti, two left-leaning Italian immigrants convicted and executed in the 1920s for a murder in South Braintree, Massachusetts, they claim they never committed, became an international cause celebre at the time and is re-discovered in the new book by Susan Tejada, In Search of Sacco and Vanzetti: Double Lives, Troubled Times, and the Massachusetts Murder Case That Shook the World.  Here, Susan tells us more about the crime-fighting technology of the era, copied with permission from her web site:
The collision of old and new technology is striking in the story of Sacco and Vanzetti—at least when it comes to cars, coal, and capital punishment.

In 1920 not all law enforcement officials had cars, or even knew how to drive. A criminal with access to an automobile, a so-called bandit on wheels, could often escape unpursued.

A coal bin could facilitate covert ops. In 1921, when defense committee members wanted to make a secret recording of a bribery attempt in their office, they concealed a secretary with an early-model Dictaphone in a coal bin.

The scariest technological innovation appearing in this story has to be the electric chair.

It’s difficult to believe now, but in the late nineteenth century the chair was seen as a humane method of capital punishment, more humane at least than the gallows it replaced.

As a teenager in upstate New York in 1888, Robert Elliott became fascinated with the then-emerging technology of consumer electronics, so fascinated that he decided to become an electrician. He could not have foreseen that he would go on to become a part-time executioner, and would electrocute Sacco, Vanzetti, and three hundred eight-five other people over the course of his electrician’s career.

Visit Susan Tejada at her web site,

Friday, May 4, 2012

GUEST BLOGGER: Edwin Ivanauskas, on Modern Day Prohibition in America, as applied to Marijuana.

When someone thinks about the term “prohibition,” where first comes to mind usually is the era of illegal alcohol from 1919 to 1933 in the United States. Unbeknownst to many, similar legal bans were in effect during this same time period in other countries around the world, including Russia, Iceland, Norway and Finland.  But prohibition in America was unique, as alcohol consumption was so intertwined in the American  popular culture.  Today, we see many of the same  effects playing out over the use of marijuana.

The prohibition movement was first initiated by the American Temperance Society (ATS), which was primarily made up of women concerned at the effect of then-widespread alcoholism on their husbands. The ATS turned into an overwhelmingly effectively lobbying force behind state and the federal bans on drinking. Later, at the end of the 1800s, the movement was later taken up by The Prohibition Party, working with the Woman's Christian Temperance Union to educate the public on the need to control drink. 

By the early 1900s, prohibition became a hot button political topic.  Those in favor of Prohibition - the "dries" - were generally religious, associated with Methodist, Baptists, or other churches.  In the 1916 presidential election, the last before prohibition went into effect, both parties and candidates, including Woodrow Wilson, purposefully ignored the topic, since both Democrats and Republicans were split throughout the country and had candidates on each side of the issue.

The prohibition controversy was undoubtedly similar to the modern day debate over the potential legalization of marijuana. Both Democrats and Republicans have internal devisions on the issue, and individual candidates sometimes divorce themselves even from their own personal experiences. Many candidates admit to smoking marijuana in their past, but will still stand against its legalization. Practically every presidential candidate in the last two decades has admittedly smoking marijuana, including Barack Obama, Bill Clinton (though famously not inhaling), and John Kerry.

Marijuana and alcohol both have their negative sides. Alcohol, when consumed in excess, can cause danger to others in the form of drunk driving, or general public intoxication. It can also lead to the use of more addictive and dangerous intoxicates.  Marijuana too, many believe, can to be a stepping stone or gateway drug to other substance abuse like cocaine and meth.   Still, alcohol and marijuana are generally considered to be less severe intoxicates, with both considered to have about the same potency.  And while alcohol has an addictive nature and can eventually lead to alcoholism, many experts believe marijuana to not be addictive.

Going back to the prohibition era, the law forbidding alcohol consumption, sale, and storage in the United States eventually was repealed after its enforcement proved nearly impossible, creating networks of organized crime and widespread violations.   Police and prohibition agents generally ignored violations by wealthier citizens while cracking down on everyone else.  A lower low class citizens could get into trouble for housing a bottle.  Presidents Wilson and Harding both kept large alcohol supplies with them in the White House during prohibition.

In our modern era, the law against marijuana have produced similar inconsistencies -- though without the social class inequalities. People of all class levels use marijuana, like alcohol in the ‘20s, and they are all treated fairly similarly.  Some law enforcement is lenient in bringing cases for marijuana possession, other not. Furthermore, marijuana charges can only be brought for possession, because there is no field sobriety test as there is for alcohol. With that said, there was no such test in the prohibition days, and those charged, like marijuana now, had to have been in possession.

A substantial political rationale for legalizing marijuana is that it would allow the government to become involveed and regulate the business, as it has done  with alcvohol since prohibition ended in December 1933.  Legalizing marijuana would allow the FDA (Food and Drug Administration) to oversee its quality and use, and monitor the over-25,000 products derived from marijuana, including many hemp products.

Perhaps the most often-mentioned reason for allowing marijuana is its medicinal use. Many believe the drug helps those with a variety of health conditions, including pain control for diseases like cancer. Although there have been some abuses where permitted, eighteen state so far have decided to experiment with legalizing it for this lmited purpose.

Whether you believe in the legalization of marijuana or not, the parallels between the modern debate and America's earlier experiment with prohibition in the 1920s are striking. Many legalization advocates point to the mistake of alcohol prohibition to support their view, and they make a very strong argument.

Edwin Ivanauskas is an unabashed history nerd who studied economics and marketing at the University of Utah.