The Black Friday gold panic of September 24, 1869….

by on 24 September 2020

The Black Friday gold panic of September 24, 1869 was caused by a conspiracy between two investors, Jay Gould and his partner James Fisk, and Abel Corbin, a small time speculator who had married Virginia (Jennie) Grant, the younger sister of President Grant. They formed the Gold Ring to corner the gold market and force up the price of that metal on the New York Gold Exchange. The scandal took place during the Presidency of Ulysses S. Grant, whose policy was to sell Treasury gold at weekly intervals to pay off the national debt, stabilize the dollar, and boost the economy. The country had gone through tremendous upheaval during the Civil War and was not yet fully restored.

Gould and Fisk hoped to take advantage of Corbin’s brother-in-law relationship with the president, and Gould persuaded Corbin to introduce him to Grant. Gould and Fisk hoped that befriending the President would get them privy information about the government’s gold policy—and even prevent the sale of gold—and thereby manipulate the market. It worked, resulting in a scandal that undermined both the credibility of Grant’s presidency and the national economy. Gould and Fisk used their personal appearances with Grant to gain clout on Wall Street in addition to using their insider information.

During the first week of September, Grant’s Secretary of the Treasury George S. Boutwell received a letter from Grant telling him gold sales would be harmful to Western farmers, a notion planted by Gould and Fisk. Boutwell suspended Treasury gold sales. At the same time, Gould and Fisk began buying gold through New York City’s Gold Room, raising the price of gold. After learning about the nature of their scheme, Grant first told Corbin to unload his gold holdings before ordering the release of $4 million in government gold on September 24. Grant’s move immediately drove down the price of gold, crushing the Gold Ring’s corner on the market. A panic on Wall Street ensued and the country went through months of economic turmoil. Thanks to Grant’s efforts, as well as those of his administration, a national depression was averted. Gould and Fisk hired the best defense available. Favored by Tweed Ring judges, the conspiratorial partners escaped prosecution. An 1870 government investigation, headed by fellow Republican James A. Garfield, exonerated Grant of any illicit involvement in the conspiracy.

History

To finance the Civil War and Reconstruction, the federal government had assumed a large national debt. This debt escalated from $64 million in 1860 to $2.8 billion by the end of the Andrew Johnson administration, when Grant was elected president. The problem was further compounded when the federal government issued paper money, known as “greenbacks”, which were not redeemable in gold. Mandated as the only payment for federal debts, “both public and private”, these “notes” also served to take gold currency out of circulation, causing the price of gold to rise sharply. It was generally believed that the U.S. Government would eventually redeem the “greenbacks” with gold. Grant was determined to return the national economy to pre-war monetary standards, and one of the first things he did as President in 1869 was to sign the Public Credit Act,[a] which would repay U.S. bonds in “gold or its equivalent” and would redeem greenbacks from the economy as soon as possible. Grant believed that putting “sound money” back into circulation was the best approach to restoring the economy.

Grant put the talented George S. Boutwell in charge of the U.S. Treasury. Boutwell’s primary task was to reduce the national debt. To accomplish this, in April, Boutwell ordered his assistant treasurer to sell gold from the Treasury and buy up wartime bonds. He also initiated reforms in the Treasury Department by improving methods of tax collecting and attacking the problem of counterfeiting. By the end of May, the national debt had been reduced by $12 million. Boutwell’s treasury policy of reducing the national debt kept the money supply level and the gold price artificially low. The purpose of Grant’s fiscal policy was to reduce the amount of greenbacks in circulation that could be redeemed in gold at some future date.

Cornering the gold market

In 1869, Jay Gould, an unethical director of the Erie Railroad who had made his fortune as a cotton smuggler during the Civil War, sought to corner the gold market with the connivance of Abel Corbin, a financier with a shady past who was President Grant’s brother-in-law. They worked to persuade the President to stop Boutwell from releasing weekly gold (but not affecting those routine gold sales for the sinking fund) from the Treasury Department in order to raise the gold price. James Fisk, another unethical director, controlled the Erie Railroad in conjunction with Gould. He would join the conspiracy in force later on. The first step in Corbin and Gould’s plan was to recruit Daniel Butterfield, a former Major General and war hero during the Civil War[b] who lacked any experience in finance. Both Corbin and Gould lobbied successfully for Butterfield’s appointment as the assistant treasurer, through whom Boutwell gave orders to sell Treasury Department gold. Gould bribed Butterfield with a $10,000 check, more than Butterfield’s annual salary of $8,000. Butterfield agreed to tip the men off when the government intended to sell gold.

Abel Corbin was considered a smooth talker and had made money speculating in real estate. More importantly to Fisk and Gould, he had direct access to Grant. They used Corbin’s relationship to get close to Grant in social situations, where they would argue against government sale of gold, and Corbin would support their arguments. Gould also attempted to bribe Grant’s personal secretary Horace Porter by giving him a $500,000 gold account in his name, but Porter, a former military aid to Grant, stated that he declined the offer. Not accustomed to having such offers turned down, Gould went ahead and made the purchase and opened a brokerage account in Porter’s name regardless. When Porter was informed of Gould’s unauthorized transaction, he refused the offer in writing. In similar fashion, Corbin approached Grant’s wife Julia and attempted to entice her into accepting half interest in $250,000 in bonds, but she turned that offer down.

Gould secured controlling interest in the federally audited New York’s Tenth National Bank, a Wall Street broker’s bank that was used as a facility to contract business. In addition to meeting at Corbin’s mansion home, Fisk and Gould also talked with Grant on their Erie Canal railroad car and in Fisk’s box seats at New York’s Fifth Avenue Theatre. Gould suggested to Grant that increasing gold prices would lower the dollar and allow farmers in the West to sell their crops overseas, but Grant gave no response. Both Grant and Boutwell strongly felt that the nation’s wartime debt had to be paid to assure the credibility of the United States in the eyes of the European banks. To accomplish this, Boutwell began selling gold from the Treasury’s reserve of $100 million in gold bars, initially without the President’s express consent, and then using the proceeds to buy back U.S. bonds. Boutwell’s controversial approach was later endorsed by Grant, giving Boutwell all the latitude he needed. Boutwell later wrote that only outsiders unaware of the finer designs of his dealings thought “the President was taking any part in the operations of the treasury concerning the price of gold”. Grant, meanwhile, was unaware that his appearances in the company of Gould and Fisk sent a message to Wall Street that he supported raising the gold price.

When buying gold and bonds, Boutwell placed all his orders through Daniel Butterfield in New York. To reduce the temptation of illicit dealing, Boutwell, at Butterfield’s recommendation, publicly announced his orders by telegraphing the news to the Associated Press. Over the next few months Treasury gold began to flood the market while Boutwell began buying back wartime bonds. By September 1, Boutwell had reduced the national debt by $50 million. He continued this practice at an accelerated rate while Grant, having closely followed Boutwell’s dealings, began to express reservations and sent him a letter from Washington, Pennsylvania criticizing that driving the price of gold down would hurt farmers. Many brokerage firms collapsed while trade volume and agriculture prices plummeted, causing a mild recession, but by January 1870, the economy resumed its post-war recovery.[13] Boutwell saw little merit in either Grant’s or Gould’s arguments, feeling that the government had no place in manipulating the market regardless of who benefited. However, not wanting to go against the President, Boutwell ordered Butterfield to halt semi-weekly September government gold sales. Believing he now had a “green light” from Grant, Gould began buying gold through brokers at an accelerated rate while his gold account grew from $10 to $18 million in specie.

Breaking the Gold Ring

Starting on September 1, Gould and Fisk put their plot into motion by purchasing $1.5 million in gold in the names of Corbin and Butterfield. The conspirators would make $15,000 ($263,000 in 2016) for every dollar rise in gold. By September 6, the price of gold had risen by $4.50 to $137 an ounce. By September 7, Gould was faced with a startling reversal when members of his pool were directed to sell off their $6 million they had achieved during the previous buying frenzy. Prices of gold fell sharply from $137 to $134 in one day. Gould lost more than $100,000 in two days. Abandoned by his associates, Gould looked to Fisk for assistance, but he was away on railroad business. Fisk returned to New York on September 8 and found Gould worried and depressed. Fisk reminded Gould that he still had “enough gold to sink a ship” while the two looked to others and devised other schemes to come out on top, but they knew by this time that if they began buying again, the Treasury would counter their efforts and begin selling at an accelerated rate once again.

Gould and Fisk had a list of every broker and speculator who had borrowed gold from the gold exchange, some 250 of them, including Jay Cooke, the biggest financier on Wall Street. Fisk proposed that the list be published in the newspapers the next day with the demand that the “bulls and bears” settle on their debts by three o’clock the next day, at a fixed rate of $160. If they refused, Fisk was ready to squeeze them at an even higher rate, a scheme that bordered on blackmail. Fisk’s associates scoffed at the scheme and criticized Fisk of being true to form for suggesting such an unconventional idea. After being warned that the idea violated New York State criminal conspiracy law, Gould, Fisk and their associates chose another approach: On Friday, they would bull the price of gold to an even higher price by buying large amounts of gold at the current high price and selling even higher. The idea that their plan could bankrupt innocent men and ruin the standing of the nation in world credit markets never entered the conversation. Fisk, however, saw the flaw to this alternative approach, fearing that pushing the price of gold up too quickly would provoke the President to step in and break the gold corner.

On September 12, Grant warned Boutwell that a “desperate struggle” was taking place between the “bulls and bears” of the gold market and that Boutwell should continue the current policy, which was to suspend the sales of gold. Corbin told Gould he was concerned that Grant would start selling gold from the Treasury, so Gould told Corbin to write a letter to Grant encouraging him not to sell. Corbin wrote Grant the letter, now lost, encouraging Grant not to sell gold. Fisk had the letter delivered by William Chapin of the Erie Railroad, to Washington, Pennsylvania, where Grant was vacationing with his wife’s cousin. Interrupting Grant’s croquet game, Chapin gave him Corbin’s letter, whereupon Grant read the letter and told Chapin “No, nothing” when Chapin asked for a reply. When Chapin had left, Porter told Grant about Gould setting up a $500,000 gold account in Porter’s name.[19] Upon hearing this, Grant finally realized what Gould and Fisk were up to. Through a letter his wife was writing to his sister, Grant urged Corbin to have nothing to do with Gould and Fisk and get out of the speculation, and Grant promptly arranged a meeting with Boutwell. On September 20, 1869, Gould and Fisk started hoarding gold, driving the price higher. Gold closed at $141 an ounce on September 22, at which time Fisk and Gould owned between $50 and $60 million in gold between the two of them, about three times the public supply available in New York. The increase in gold prices on this day alone had netted a profit of $1.75 million for the two conspirators. On Thursday, September 23, Gould visited Corbin’s house and was informed of Julia’s letter, which had arrived that day. After reading it and discovering that Grant was annoyed with Corbin’s speculations, Gould knew that Grant was likely to sell government gold on Friday. Subsequently, Corbin asked Gould if he would buy Corbin’s account so he could tell Grant that he no longer owned any gold, but Gould refused to bail Corbin out, fearing it would trigger a collapse in the market. Instead, he offered Corbin $100,000 interest and exclaimed, “Mr. Corbin, I am undone if that letter gets out”. Gould chose not to inform Fisk of this recent development. When Grant returned to Washington D.C., he found $60,000 worth of gifts from the Gold Ring sent to the White House. Sensing bribery, Grant immediately ordered the paintings and statues boxed up and returned.

On September 23, Grant and Boutwell met and the two decided to break the Gold Ring by selling gold from the treasury if the gold price continued to rise. On September 24, Gould began quietly selling his gold while Gold Room agents put up a public front and continued buying at a lesser rate with Fisk leading the spurious buying activity. When gold had surpassed $155 an ounce on Friday September 24, Grant ordered Boutwell to release $4 million in gold and buy $4 million worth of bonds. Within minutes, the price of gold dropped from $160 an ounce to $138 and Gould’s and Fisk’s gold corner was broken. Some speculators were ruined, while gamblers who had bet that the gold price would go down made money. Corbin lost money on the loan he had taken to buy gold.

Aftermath and investigation

The Black Friday September 24 gold crash caused the United States financial devastation for months. On Saturday, September 25, Gould, Fisk and Corbin met at Gould’s office at the Opera House, each claiming to be the victim and blaming the other for the disaster. Obligated to make good on all debts, the Gold Exchange Bank no longer had enough reserves to cover the mounting debts, while the situation there deteriorated by the hour. The Tenth National Bank, which normally closed at 3:00 pm on that day, had depositors and speculators crowding the sidewalk at its front door. The Police set up patrols inside and outside the bank.

Stock prices dropped by 20 percent from September 24 to October 1, while trade was minimal. Between January 1870 and September 1870, only 4 million shares of stock were exchanged. Dozens of brokerage firms went bankrupt, those who bought paper gold from Fisk’s gold room going unpaid. Farmers, who constituted 50 percent of the country’s workforce, suffered the worst: wheat prices on the Chicago trade fell from $1.40 to $0.77 a bushel, corn dropped from $0.95 to $0.68, and other commodities such as rye, oats, and barley had similar losses. The New York Tribune reported that goods ready for export could not be shipped. American agriculture went into steep decline and would be plagued by tight money and dwindling markets for years to come. Grant’s and Boutwell’s actions to break the Gold Ring, however, kept the Wall Street panic from growing into a national depression. Butterfield was allowed to resign from the U.S. Treasury without an investigation in October, 1869.

The subsequent Congressional investigation[f] was chaired by Republican James A. Garfield. Grant’s decision to counter the escalating price of gold did not completely dispel rumors that he and his administration had profited from the affair. It has been alleged on the one hand that the investigation had been limited because Virginia Corbin and First Lady Julia Grant were not called to testify at President Grant’s behest. Julia Grant may even have received $25,000 in profits from the speculation, but proffered testimony on this point was rejected by the committee’s Republican majority. Garfield’s biographer, Alan Peskin, however, maintains that the investigation was quite thorough. The investigation cleared Grant of wrongdoing, but excoriated Gould for his manipulation of the gold market and Corbin for exploiting his personal connections to Grant. Butterfield was implicated for serving as a double agent giving information to Gould. In his Congressional testimony, Gould said Grant “was a very pure, high-minded man; that if he was satisfied what was the best thing to do, that was what he would do.”

Dodging any financial harm, Fisk and Gould escaped conviction, spending money to buy the best legal defense, including talented attorney David Dudley Field, while Democratic Tweed Ring judges such as Albert Cardozo shielded them in court. Gould continued to remain a force on Wall Street, and when he died in December, 1892, his estate was worth $70 million. Fisk remained wealthy, but was caught in a scandalous romance for a lady’s affection and was shot to death by a jealous lover on January 6, 1872. Boutwell served the remainder of Grant’s first term, until in 1873 he resigned to be elected United States senator from Massachusetts. He served in the Senate until 1877 and afterwards retired to private life. In 1871, the Tweed Ring run by “Boss” Tweed was broken by New York reformers including Edwards Pierrepont, Grant’s future Attorney General, and prominent member of the Committee of Seventy.

Henry Adams believed that President Ulysses S. Grant was much too tolerant of his corrupt associates. In 1870, Adams wrote an article, “The New York Gold Conspiracy”, that detailed Gould and Fisk’s scheme to corner the gold market, and hinted that Grant had participated in or at least known of the scheme.