The period after the Civil War was one of significant economic and technological expansion in the nation and one in which corporations headquartered in Lower Manhattan and Wall Street would obtain a significant hegemony over the American economy.
This was a time in which individual entrepreneurs were running private businesses located on Wall Street. Men such as Cornelius Vanderbilt, Jay Gould, John D. Rockefeller and J.P. Morgan were major figures in the country and attained economic power and wealth on a scale previously unknown in United States history.
Much of their wealth was derived exploiting natural resources and technological innovations (notably steam engines, railroads, and oil). It was also largely dependent on the economy’s western expansion and African-American and immigrant labor. These men, who some call “Titans of Industry” and others “Robber Barons,” generally consolidated independent businesses into national enterprises, large monopolies, and multinational corporations. Many of these were headquartered in Lower Manhattan.
Prior to the Civil War, the New York Stock Exchange operated primarily as a private club among wealthy white brokers and was not the primary source of capital or trading companies in the United States. It was more significantly a place where government securities were traded and while a number of banks and other private companies were increasingly listed on the exchange, they were not the majority of the entities traded.
This began to change shortly after the Civil War when there arose a number of aggressive entrepreneurs who became actively involved in the market for whom previous norms did not apply. Without any form of regulation, market manipulation of stocks, bear raids, bribery of public officials and outright fraud was especially common on Wall Street in this period. Unbridled competition in various industries became much more standard.
One of the early practitioners of this trend who would become a major figure on Wall Street prior to his death in 1877 was Cornelius Vanderbilt, who was born on a farm in Staten Island in 1794. Vanderbilt began his career by running a sail ferry between Staten Island and Manhattan, with money borrowed from his parents.
After the War of 1812, he became interested in steamboats and with his partner Thomas Gibbons helped break the Fulton-Livingston monopoly on steam navigation on the Hudson River (which had been authorized and supported to the end by the NY State Legislature). At the time of the California Gold Rush of 1849 he formed the most prominent steamship line between New York and California and later became active in investing in street cars and railroads. As a result Vanderbilt became an active investor and speculator in stocks on the New York Stock Exchange, where a number of securities in these companies were traded.
The prices of these stocks, particularly street car companies, were (like the steamboat companies before them) dependent on government franchises. The earliest of these were located in New York State, and were awarded by the the government of the city of New York. As it had been with lending of the city’s first banks, influence with the political faction controlling the city was important to determine a corporation’s value and bribes paid to city leaders influenced these decisions. Vanderbilt and others trading on the Exchange were not above paying such bribes or attempting to manipulate stock prices.
A standard technique of stock manipulation was to buy large numbers of shares so as to cause a rise in the company’s stock and once others had bought in, sell the shares and pocket the profits before those unaware of the manipulation caught on. Frequently, the manipulator would also sell the company’s share short at just the right time, doubling his profit opportunity.
Cornelius Vanderbilt is known to have encouraged speculators to sell the company short, driving down the price, and then buy all the stock available so short sellers could not obtain shares to cover their short position. Short sellers would be forced to pay an exorbitant price, incurring huge losses while Vanderbilt reaped enormous profits.
This was a so-called “corner” which Vanderbilt used successfully with the New York & Harlem Railroad in 1863. In that case, a significant number of bribed legislators had sold the stock short in anticipation of a drop in the market. Vanderbilt however, bought all the stock available and instead of dropping the stock rose to inflated prices. Vanderbilt allegedly bragged “we busted the whole legislature.”
A much more audacious but ultimately unsuccessful effort to execute a corner was the attempt in 1869 to corner the nation’s gold supply. At the time, Jay Gould was a veteran Wall Street speculator who controlled a number of railroads. Gold, like other commodities, was traded on rival exchanges to the New York Stock Exchange. Originally the U.S. Government insisted on payments of custom duties and land sales in gold or hard specie, and so most gold was held by the U.S. Government. In theory U.S. Government securities were backed up by gold and could be exchanged at a fixed price (say $20 per ounce) for gold nuggets.
After the California Gold Rush, as the volume of gold in the nation expanded, so did the nation’s money supply which also helped to expand the economy. During the Civil War, the U.S. Government temporarily suspended the convertibility of U.S. Government securities into gold in order to help finance the war. A number of Wall Street leaders sought to reverse this policy once the war was over by calling for “hard money” policies which would favor creditors over debtors.
Jay Gould and others, an owner of the Erie Railroad with a line from the city of New York to the West, took a different tack. He tried to convince President Ulysses S. Grant (through payments to his brother-in-law Abel Corbin) that a more inflationary policy for the price of gold would benefit farmers in the Midwest. Of course those farmers would ship more grain and other products east over the Erie Railroad.
Gould also began an extensive campaign to buy gold so that he could control more of the nation’s supply and thus force up its price on the open market. This plan presupposed that the U.S. Treasury would not try to depress the price by selling gold out of its reserves. Gould and his associates were told by Corbin this would not be the case. Grant however, apparently got wind of the scheme and ordered his Secretary of the Treasury George Boutwell to sell $5 million of gold once the price got too high, destroying the attempted corner.
Subsequent Congressional investigations led by Ohio Congressman, and later President, James Garfield resulting in “hard money” policies (which tended to favor Wall Street banks) would generally prevail for the next generation. (Ironically, Gould’s concept of raising the price of gold to inflate the economy would be employed during the Great Depression by Franklin D. Roosevelt).
The political profiteering of Gould and Vanderbilt were not in isolation. In many ways it was a feature, not a bug, of the financial system. For example, the Morgans had not been as active as the Seligmans or Jay Cooke in financing the Civil War, but 24-year-old John Pierpont Morgan was involved in a significant scandal in 1862. He was accused of financing the sale of 5,000 deficient carbine rifles to Union General John C. Fremont at $22.00 each, when then had previously cost just $3.50.
(Morgan’s actual involvement in this affair, which was also subject of a Congressional investigation, remains unclear although it was occasionally the source of embarrassment for him and his firm. In 1937 a historian of an account largely exonerating him of responsibility became the head of JP Morgan’s public relations department.)
After the Civil War the scale of such manipulation expanded. By the time of Gould’s attempt to corner the gold market in 1869, railroads were in full swing as the nation’s primary mode of transportation, extending from coast to coast. With respect to the city of New York’s access to the West, there were three main lines: the New York Central; the Erie Railroad; and the Pennsylvania Railroad.
The Erie Railroad, considered the weakest of the three, was subject to varying ownership, but in 1868 it fell under the control of Jay Gould and Jim Fisk (Vanderbilt had previously attempted to buy a controlling interest). In 1871, Gould and Fisk sought to acquire control of a smaller strategically located railroad through Upstate New York and New England to Boston known as the Albany & Susquehanna. Originally owned by Joseph Ramsey, the Albany & Susquehanna was the subject of one of the most hard fought, and at times almost comical, corporate takeovers in New York State history.
Essentially Fisk and Gould began buying up shares to accumulate a controlling interest and Ramsey issued their supporters thousands of new shares and at one point hid the company’s books in Albany Rural Cemetery. Fisk and Gould were closely allied with William “Boss” Tweed, who assisted them in obtaining an order from New York State Supreme Court Judge George G. Barnard in their favor. This was countermanded at the last minute however, by an order from Rufus W. Peckham, an Albany judge favorable to the Ramsey group, who had also recruited the support of John Pierpont Morgan, who held a large mortgage on the railroad.
At one point J.P. Morgan reportedly blocked the entrance to a corporate meeting and threw opponents from the Gould and Fisk group down a flight of stairs. When the dust settled the Ramsey group prevailed. The conflict eventually devolved into physical violence. Fisk stormed the Albany railroad offices with thugs and a new order from Judge Bernard, seized the rail station at Binghamton and took one of the trains toward Albany. In a tunnel near Harpursville, in the town of Colesville, Broome County, NY, the railroad men met Fisk and his men in a battle with various weapons. The militia was called out to end the violence.
The upshot was that John Pierpont Morgan, acting for his father as representative of British capital, gained a reputation as a fighter for the rights of more conservative investors against unsavory speculators and the Morgans became noted for safe investing.
The expanding United States required a great deal of artificial light. Before the ability to drill for oil in Pennsylvania was discovered in 1859, the primary lighting source for the working classes was candles made of wax or tallow; while upper classes were the main users of more expensive whale oil. In 1851 Samuel Kier began selling local miners kerosene that he had distilled from oil waste he had been removing from his salt mines and dumping in the Pennsylvania Main Line Canal. Kerosene lamps would become the basis of the petroleum industry until the automobile became widespread in the 1920.
In the 1860s local companies built derricks and drilled wells all over Pennsylvania, shipping barrels of their products throughout the East. Cleveland, Ohio, the closest major rail center to Western Pennsylvania’s oilfields became a center for the sale and purchase of new petroleum products.
One problem that soon developed was that it was not that easy to ship large quantities of oil to the eastern market and the production of oil was not that regular but came in boom and bust cycles. Also the quality of oil could vary from place to place and refinery to refinery. John D. Rockefeller (born in Richford, Tioga County), using money borrowed from his parents, moved to Cleveland and eventually partnered with a chemist, Samuel Andrews, and the family of Maurice B. Clark, to establish a refinery.
Through a number of cost-cutting measures, increasing access to capital and consolidating acquisitions Rockefeller refineries were soon producing more oil-based products than any others in the Cleveland area. By 1870, Rockefeller, Andrews & Flagler was the leading shipper of oil and kerosene in the United States. That year, the firm was dissolved and Rockefeller established the Standard Oil of Ohio (the claim was a customer could be assured of a product of uniform – standard – quality).
Because Rockefeller had more volume, his firm obtained volume discounts from the railroads that were not available to smaller independent refiners so that their oil could be sold more cheaply than that of their competitors. Rockefeller aggressively exploited this advantage and began acquiring the capacity of other refiners. With this he was able to induce the railroads to give him even larger discounts, and at one point required the railroads pay him 25% of the cost of shipping his competitor’s oil on their railroads (the “rebate”).
In relatively short time most of the refiners in and around Cleveland had either sold out to, or combined with, Rockefeller, or gone out of business. Over a few month in 1872, Rockefeller’s “Cleveland Massacre” resulted in Standard Oil taking over 22 of its 26 competitors in Cleveland. He was then in a position to dictate the price at which he would pay for oil and to set the price consumers had to pay.
By the end of the 1870s Rockefeller was a millionaire, Standard Oil was refining 90% of U.S. oil and through “integration” and controlled 90% of petroleum oil products market, from paint to chewing gum.
As the demand for Standard Oil products grew to national and then international scope, Rockefeller moved his headquarters to the commercial center of finance and transportation, the city of New York. From its building at 26 Broadway, three blocks from Wall Street, Standard Oil helped set a pattern of national and multinational American enterprises being centrally directed from Lower Manhattan. Access to major telegraph, transportation, and transportation lines enabled these enterprises to operate more efficiently than local independent companies.
Two particular areas of efficiency were created through research and development of new and existing products, and uniform advertising and promotion. With minimal legal restrictions the proprietors of such enterprises could attain previously unheard of wealth.
Standard Oil and similar enterprises operating in different states had their stock placed in a separate centrally controlled trust. This enabled the true owners to hide their ownership of disparate and at times competing companies.
Rockefeller’s model of organization was generally extended to other industries by John Pierpont Morgan starting in the 1880s. Unlike Rockefeller, whose activities were generally concentrated in one industry, Morgan was a financier whose interests extended to industrial enterprises throughout the economy.
Starting with railroads, Morgan’s general philosophy was similar to that which Rockefeller applied to oil: that unbridled competition was destructive to the profitability led to modulated prices. To the extent it could the House of Morgan sought to combine railroads through mergers and other agreements in an attempt to control shipping rates and retain steady profits. When they financed a company, Morgan generally sought a seat on its Board of Directors so they could review its management. With such attention to stability, investors, especially in Britain, were induced to invest in the growth of American railroads and other enterprises.
Morgan created a series of trusts to control various industries including coal, iron ore, steel, and international shipping. Like the Standard Oil Company, these trusts were centrally controlled from the Morgan headquarters at 23 Wall Street. (As a banker Morgan generally took a somewhat more active role in public affairs than Rockefeller. For example, he was a strong advocate of hard money and sought relationships with Presidents such as Grover Cleveland and William McKinley who advocated those positions.)
It’s believed that Morgan and Rockefeller were not particularly friendly. At times they were involved in competing industries, including electricity and kerosene. They were united in a faith in technology as a means of economic and human advancement however, and in their implacable opposition to workers’ rights that could threaten their economic hegemony.
By the beginning of the 20th century, Wall Street enterprises had become the center of a greatly-expanded American economy. “Wall Street” was however, being increasingly seen as the enemy of working people. There would soon be a significant backlash.
This is a series of articles on the history of Wall Street in the city of New York. You can read the entire series here.
Illustrations, from above: S.A. Mitchell Jr,’s 1866 map of the city of New York; “In The Hollow of His Hands,” an anti-Vanderbilt cartoon from the 1860s; Jim Fisk is “The Boy of the Period Stirring Up The Animals” in this cartoon from 1871 (Currier and Ives); a map showing the position of the Albany and Susquehanna Railroad in relation to the other railroads of the state of New York, Pennsylvania, Massachusetts, etc., 1854 (NYPL); Venango County, Pennsylvania oil wells in 1866; a contemporary nineteenth century depiction of an acquisitive and manipulative Standard Oil as an all-powerful octopus; and a Gilded Age Puck cartoon “The Bosses of the Senate” showing Robber Barons overseeing the U.S. Senate.