“BLACK FRIDAY” was only a symptom of the deeper disorders of the body politic. The minority of the committee of the House which investigated the “Black Friday” episode declared that “no one doubts that if the constitutional currency of coin had remained to us, such panics would have been, and would now be, impossible.” The stimulus to over-expansion afforded by an unstable currency operated also upon mercantile enterprise and railway development. The demand for the extension of the railway network over new farm land, and across the Rocky Mountains to the Pacific, became the channel through which speculative influences converged to bring on the panic of 1873. Already, in 1862, Congress had granted a charter for the construction of the Union Pacific line, and in 1864 it granted further aid by making the United States bonds that were to be issued for construction purposes a subordinate lien to that of the bonds of the company sold in the market. Thus, as John Sherman put it, “The constructors of these roads, who were mainly directors and managers of the company, practically received as profit a large portion of the bonds of the United States issued in aid of the work, and almost the entire capital stock of the company.” At the same time was enacted the Northern Pacific charter, which, according to the same authority, was an act “with broad and general powers, carelessly defined, and with scarcely any safeguards to protect the Government and its lavish grants of land.”
Already, shortly before the war, the ground had been cleared for extensive railway enterprises by the knitting together of small roads into trunk lines connecting New York with the Mississippi Valley. Originally, eleven companies owned and operated the lines making up the route between Albany and Buffalo. After this anomaly disappeared, it remained for the genius of Commodore Vanderbilt to acquire the Hudson River road in 1864 and the New York Central lines in 1867, and to bear his share in the picturesque battles of the Stock Exchange and the courts, which gave such fascination to this lawless epoch of American finance.
VANDERBILT AND DREW
IT was the period of Cornelius Vanderbilt, Daniel Drew, Jay Gould, and “Jim” Fisk; the period in which were conceived and carried out the famous “corners” in Harlem, in Hudson River, and in Erie stocks. None of the leaders in these speculations would have shone in Newport or in the polished, well-groomed crowd that watches the races at Deauville or takes the “cures” at Vichy or at Nauheim. Cornelius Vanderbilt, the son of a farmer in moderate circumstances on Staten Island, was ferrying passengers over to New York at sixteen years of age, and at the age of eighteen owned two boats and was captain of a third. He derived his education from practical experience, his successes from innate shrewdness. Daniel Drew, beginning as a drover and afterward the keeper of a tavern, never sought to rise socially above his early environment. To a reported trick of his in early life is ascribed the familiar stock-market expression, “watering stock.” According to the legend, Drew gave his cattle salt in order to create a thirst, which would cause them to drink freely and make them appear bigger and fatter when brought to market. He was negligent in his attire, even to the verge of slovenliness, and never departed from the provincial pronunciation of his youth. In many a broker’s office where he called for his securities his loud demand for “them sheers” was long remembered.
THE BATTLE OF THE GIANTS OVER ERIE
“THE COMMODORE,” as Vanderbilt was familiarly called, was seeking to develop the Hudson River property, when he found it assailed by a large “bear” element. Immediately taking the situation in hand, he tricked his opponents into the belief that his position was weak, and lured them into increasing their output of short stock. Getting virtually all the real stock in existence into his possession, and accepting contracts for additional amounts from the short interest, he soon had the market at his mercy. From 112 the stock rose in a few days to 180. The shorts, unable to make the deliveries they had contracted for, begged for mercy, and the stock was sold back to them at a handsome profit.
Much more complicated and daring were the operations of Daniel Drew, Jay Gould, and Fisk in Erie. The story of their use of the Erie road is worth outlining, if only to illustrate methods which in the financial world of to-day would no longer be tolerated, even if they were possible. In July, 1868, the Erie Railroad became the personal property of Fisk and Gould. The board of directors held no meetings; the executive committee never was called together. The Erie offices were moved to a white marble “palace” on the corner of Eighth Avenue and Twenty-third Street, which was furnished with vulgar ostentation, contained an opera-house (still a popular theater), and was connected with the private apartments of Fisk. Just before this (in 1866), Drew had operated his famous plan of loaning money to the Erie Railroad on the security of stock and convertible bonds, and converting the bonds into stock to meet his short contracts.
It was the acquisition by Commodore Vanderbilt in 1867 of the New York Central Railroad which brought him into conflict with Drew and Gould. “The Commodore” desired to acquire Erie. To guard against the transformation of more “convertible bonds” into stock, he employed the services of Frank Work to obtain from Judge Barnard an injunction restraining Drew from the payment of interest on $3,500,000 in bonds, pending an investigation of his accounts as treasurer of the railway. But Drew was equal to the emergency. Under a statute authorizing any railroad to create and issue its own stock in exchange for that of a leased line, he and his associates issued against an insignificant property, worth perhaps $250,000, the amount of $2,000,000 in Erie stock. Deals and counter-deals, and injunctions to restrain injunctions, did not prevent Fisk from seizing the enjoined stock certificates by force, nor Drew from aiding him by throwing 50,000 shares on the market and breaking Vanderbilt’s attempted “corner.” It is said that while new stock was thus being put out, Fisk summed up the purposes of his clique toward Vanderbilt in the remark, “If this printing-press don’t break down, I’ll give the old hog all he wants of Erie.” Vanderbilt was credited with spending $7,000,000 in this operation, and it was the wonder of his friends that he was not ruined.
To tell fully the story of these battles of the financial giants would be beyond the scope of a sketch like this. How Gould and Fisk succeeded Drew in control of the Erie; how they nearly ruined him when he came back into the speculative field; how Judge Barnard authorized Gould and Fisk to sell their Erie stock, issued at 40, back to the corporation at any price less than par, is a story of surpassing interest, but it represents methods long since discarded in American finance.