Part 1: Major Players
Jason “Jay” Gould: Born on May 27, 1876 Jay Gould would go on to become the ninth richest American of all time. A prolific businessman, he began his career by obtaining half-interest in a blacksmith’s shop for which he was a book keeper. Never static for long he dabbled in map making, wrote two books, and created a tanning business in a Pennsylvania town that later would be named Gouldsboro. However, he is best known as a railroad tycoon. He was introduced to that business by his father-in-law who asked him to help save his investment in the Rutland and Washington Railroad. Gould had a large reputation as an unscrupulous businessman, and is frequently associated with the term Robber Baron.
James Fisk: Born April 1, 1835 James Fisk, after being in school for only a short time ran away to join the circus. Frequently referred to as flamboyant, “Big Jim” Fisk was, and wanted to be, a “larger than life” character. A 1937 movie, “The Toast of New York” is a highly fictionalized story of his life. Bob Dylan wrote a song that is supposedly inspired by Fisk. Employed by Daniel Drew, Fisk worked as a stockbroker in New York. His work with Drew would lead Fisk to play part in the Erie War. After the war, and some shady business dealings, both Fisk and Gould gained control of the Erie Railroad, which made them both extremely wealthy men.
Ulysses S. Grant: Born April 27, 1822 Ulysses S Grant was 18th president of the United States. Grant’s presidency was peppered with many scandals. This was largely due to the way business was conducted in mid-19th century America. Taking place in the gilded age of American history, Grant’s presidency was very good for big business. The lack of regulations allowed corporations an almost free hand. Insider trading was still a legal business practice. The era also saw great wealth inequality.There was very little government over-sight, and where it existed, it was often corrupt. Grant kept high tariffs on imported industrial goods which also helped American businesses, and made many American businessmen very rich.
Abel Corbin: Born May 24, 1808 Abel Corbin was a newspaper editor, and husband of Virginia Grant, who was the sister of Ulysses S. Grant. This relationship would lead him to play a background role in the Black Friday stock market crash of 1869.
Part 2: What Happened
After the civil war, the United States had a lot of reconstruction to do, and the reconstruction was going to cost a lot of money. Due to this, the government would incur a large amount of public debt. The government paid in “greenbacks,” the legal tender of the time. During this period the United States was on a gold bullion standard. This meant the the government agreed to redeem gold at a fixed price for currency. Because of the reconstruction costs, the government was printing more and more of this money. It became increasingly true that whoever could corner the market in gold would have an immense amount of power. By holding large amounts and not selling, they could drive up the price by creating a scarcity in the market. This would greatly increase the value of their gold as redeemable in currency.
At some point, this occurred to Gould and Fisk, and they decided to attempt acquisition just that kind of power. Gould alone bought seven million dollars worth of gold. This purchase by itself sent the price of $100 in gold from $131 in greenbacks, to $140 (Miller p.147). There was a problem however. The United States Treasury held 80 million dollars in gold that could be sold into the market, causing them to lose money. Obviously this was not acceptable to Gould. So, he teamed up with Fisk and they came up with a plan to both protect their investment and make a lot of money from it.
First, they would need the help of someone close to the president. That man would be Abel Corbin, the presidents brother-in-law. Corbin was able to influence the President’s decision regarding whom to elect as Assistant U.S. Treasurer. Both Corbin and the new treasurer acquired around 2 million dollars in gold bonds which were purchased by Gould, which, assured their interest in the metal’s value as well as their allegiance to Gould. Having an insider high up in the U.S. Treasurers office allowed Gould and Fisk to be tipped off if the government should decide to sell. Their relationship with Corbin would also allow them to get close to President Grant in social situations. In this way, they would be able to influence the president not to sell gold in order to keep the prices up.
By the end of the summer of 1869 Gould and Fisk had managed to corner the market. Never selling the gold they purchased, and simply holding on to it, had caused prices to continue to rise. When Grant realized what was happening to the price, he instructed the Treasury to release gold from their reserves to help regulate it. However, Gould and Fisk were, of course, tipped off by their man inside the Treasury ahead of time. When the gold came into the market, the price rose substantially for a short time, then began rapidly to fall. Most investors scrambled to sell their holdings which caused the situation to get worse and worse. Many small investors went bankrupt, and exports leaving the United States would be effected for years. The influx of gold from the government would however stabilize the price of gold, and Gould and Fisk would no longer have a corner the market. The crash happened on September 24, 1869, the date that would come to be known as Black Friday. Gould made $11 million dollars. Most though lost considerable sums of money, including (in an example of kharma) Abel Corbin.
Thankfully, since 1869 the United States has come a long way in regulating its markets so as to protect from these kinds of things happening. Insider trading has becoming illegal, and organizations like the U.S. Securities and Exchange Commission would make what Gould did impossible today. And, we are much better off because of it. It has evened the playing field for investors to speculate in the market, rather than having a playing field for a select few with “inside information” or influence.
Part 3: Additional Information
It was harder than I expected to find video’s that related to “Black Friday.” I did however find this lecture/video by Dr. Michael Brooks that is worth sharing, and helped provide me with information.
Here is an old radio production of the story of Jay Gould. Dated, but still entertaining.
Sexton, Robert L. Roger Leroy Miller. “Issues is American Economic History.” Mason, Ohio:Thomson South-Western. 2005. Print.