Collection of the Museum of American Finance
Jay Gould Jim Fisk
Collection of the Museum of American Finance
By Donald P . Morgan and James Narron
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 .
Foiled !
September 24 started in a frenzy as “ bears and bulls jammed the floor … an 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 . When news of the Treasury sale finally reached the other traders , “ prices galloped like mad ; from $ 160 … to $ 133 .”
The aftermath was chaotic , and the gold room closed for several days as clerks tried to match sales from heavy trading
www . MoAF . org | Spring 2016 | FINANCIAL HISTORY 29