1877

America's Year of Living Violently

Michael A. Bellesiles

• Editore: The New Press
• Anno: 2010
• ISBN:
  9781595585943
• Argomento: History
• Categoria: American Civil War History

"[A] powerful examination of a nation trying to make sense of the complex changes and challenges of the post–Civil War era." —Carol Berkin, author of A Brilliant Solution: Inventing the American Constitution In 1877—a decade after the Civil War—not only was the United States gripped by a deep depression, but the country was also in the throes of nearly unimaginable violence and upheaval, marking the end of the brief period known as Reconstruction and reestablishing white rule across the South. In the wake of the contested presidential election of 1876, white supremacist mobs swept across the South, killing and driving out the last of the Reconstruction state governments. A strike involving millions of railroad workers turned violent as it spread from coast to coast, and for a moment seemed close to toppling the nation's economic structure. Celebrated historian Michael A.Bellesiles reveals that the fires of that fated year also fueled a hothouse of cultural and intellectual innovation. He relates the story of 1877 not just through dramatic events, but also through the lives of famous and little-known Americans alike. "A superb and troubling book about the soul of Modern America." —William Deverell, director of the Huntington-USC Institute on California and the West "A bold, insightful book, richly researched, and fast paced... Bellesiles vividly portrays on a single canvas the violent confrontations in 1877." —Alfred F.Young, coeditor of Revolutionary Founders: Rebels, Radicals, and Reformers in the Making of the Nation "[A] wonderful read that is sure to appeal to those interested in the challenges of creating a post–Civil War society." — Choice

1

On the Edge of a Volcano

I can not say that I am in the slightest degree impressed by your bigness, or your material resources. As such, size is not grandeur, and territory does not make a nation. The great issue … is what are you going to do with all these things? What is to be the end to which these are to be the means?

—Thomas Huxley, inaugural address, Johns Hopkins University, 18761

Hard Times

A Scottish immigrant to America, Andrew Carnegie, recorded the September 1873 advent of the nineteenth century’s worst depression as the interruption of a lovely summer holiday: “All was going well when one morning in our summer cottage … a telegram came announcing the failure of Jay Cooke & Co.” Carnegie sat at the telegraph office as each hour “brought news of some fresh disaster,” as banks and investment firms went under. Over the next several days, the only question seemed to be “which would go next?” Rushing back to work, Carnegie found near chaos in every aspect of the economy, as some of the most revered financial institutions collapsed in a matter of days. “Every failure depleted the resources of other concerns,” he wrote. “Loss after loss ensued, until a total paralysis of business set in.”2 The Panic had begun.

Economic historians speak of “the Panic of 1873,” an oddly limited name for an economic crisis second in duration and severity only to the Great Depression of the 1930s.3 The depression that started in 1873 lasted until 1879 and had a massive impact on the United States. While contemporaries often referred to the “financial depression,” they mostly preferred to call upon Charles Dickens’s popular novel Hard Times to describe what they were going through.4 As one Georgia paper put it, they were experiencing “Hard Times and No Money.” Local businesses made few sales, one formerly successful merchant stating that “it was hardly worth while to open his doors as the sales did not pay the salaries of his clerks.” Merchants were reduced to barter, taking cotton in payment, with cash seldom seen “except as a curiosity.” New York’s superintendent of the poor reported on October 25, 1873, that there were twenty thousand people in his city “who are utterly destitute,” and he expected the number to quickly rise to fifty thousand.5 By the time visitors arrived for America’s great centennial, the country was in its third year of economic depression. How had the fabulously wealthy land of promise come to this dire crisis? For most foreign visitors the answer was obvious: that same avarice that imparted such ceaseless energy to the American people had driven them straight over a cliff.

The years from 1865 to 1873 had witnessed extensive prosperity and economic growth. It was also a time of notable expansion in railroad and building construction, and in immigration, as tens of thousands of people came to the United States to take advantage of the high demand for labor. Northern banks largely had capitalized the Civil War, giving them significant control over the money supply at a time when the federal government understood neither economics nor the concept of conflict of interest. Bankers like Jay Cooke, judged the most creative investment banker of his era, shifted to railroads at the war’s end. So lucrative did railroads appear, and so much capital did they require, that Cooke and others did not hesitate to borrow heavily. The economy appeared fevered in its growth, increasing from 431,000 businesses in 1870 to 609,904 in 1871; there were 364 railroads at the beginning of 1873—260 of which paid no dividends—representing a total investment of $3.7 billion, tripling the industry’s capitalization in just six years. Banks were loaning five times their money supply; major fires in Portland, Boston, and Chicago led each of these cities to increase their borrowing in 1872, funding their rebuilding projects by increasing their debt to historically high levels. All of that collapsed in September 1873, with no sign of recovery until 1879.6

Cooke’s commitment to the Northern Pacific Railroad led him to bribe politicians, buy newspapers, and lie shamelessly about the qualities of the northern plains, all of which earned him numerous government subsidies. Cooke banked heavily on his reputation as the man who financed the Civil War to pour other people’s money into the Northern Pacific, which faced enormous obstacles on its way to being the second transcontinental railway. An additional challenge arose when a young competitor, J.P. Morgan, sought to torpedo Cooke’s schemes by circulating stories intended to scare away investors. The railroad operated over just 500 miles, with a thousand-mile gap between its two sections, despite expending $15 million. Embarrassed in early 1873 by the Credit Mobilier scandal, in which the Union Pacific Railroad bribed numerous elected and appointed officials from both political parties in order to cheat the United States out of vast sums of money, Congress temporarily stopped taking bribes from the railroads and cut off federal subsidies. Further revelations of corruption and the misuse of government funds followed, as the public learned that Cornelius Vanderbilt had received federal subsidies for not developing rail routes.7

Foreign visitors were awed by the sweep of American political corruption in 1876, from the spectacles of the Whiskey Ring and Secretary of the Interior William Belknap taking money for patronage, to several lesser scandals that touched every corner of the Grant administration. In Albany, the lobbyists for the horse railways defeated the Husted transit bill by buying votes in the legislature for as little as $250. Leaders of both parties, Sir George Campbell wrote, “carried into politics what I may call joint-stock morals,” or the view that a political office exists to make its holder a profit. During 1876 the “gas ring” stole $8 million from Philadelphia, a legislative committee found New York City police not simply accepting bribes from criminals but also taking a portion of the stolen goods, while Connecticut’s Democrats sold a Senate seat to William H. Barnum for a $20,000 contribution to the party.8 As Denis Tilden Lynch wrote, “The nation was off on a moral holiday” in the years Mark Twain and Charles Dudley Warner called the Gilded Age.9

The economy started to wobble in the summer of 1873 as the money market tightened. Congress had decided that paper money—greenbacks—posed a danger to society and began withdrawing them from circulation, moving the United States onto the gold standard. It was in this context that Jay Cooke, no longer able to get loans, began using his clients’ money without bothering to tell them. By September 1873, he had used up most of the bank’s resources.10

The papers carried bad news nearly every day that September, beginning with the collapse of the New York Warehouse and Securities Company on September 8. Rumors flew and the stock market slipped, though the warnings were quickly dismissed by such stalwarts of the status quo as the New York Herald and the New York Times, both of which continued to report that the stock market was doing just fine. Unknown to these papers, Cooke and other financiers had attempted to persuade the Treasury Department to release an additional $40 million in greenbacks but were soundly ignored. Predictions of a coming crisis picked up, while the Times insisted on September 17 that “Money and Stock affairs in Wall Street are again reported free of exciting rumors.”11 That same day, President Ulysses S. Grant spent the evening in Jay Cooke’s 75,000-square-foot Philadelphia mansion, Ogontz. Grant and several members of his family had borrowed heavily from Cooke, and the president expressed public confidence in his host’s integrity. But the very next morning, Thursday, September 18, Harris Fahnestock, Cooke’s partner and manager of the New York branch of Jay Cooke & Co., began diverting his personal holdings to his wife to avoid seizure. He then ordered the doors to the bank closed and suspended operations, admitting to a reporter that the bank had been using depositors’ money to keep the Northern Pacific afloat for some time. “Where else could we get the money?” he demanded to know. Within a few hours Cooke ordered his Philadelphia house closed, followed by his Washington office and the First National Bank, the city’s largest bank, presided over by Jay Cooke’s brother Henry.12

The collapse of Jay Cooke & Co. was “a financial thunderbolt”13 and “as unexpected as an earthquake,”14 reported newspapers in New York and Philadelphia. The bank and the man had appeared impervious, the bank’s “name was everywhere the synonym for strength and solidity.”15 When the president of the New York Stock Exchange announced Cooke’s suspension of business, there was “an uproar such as has scarcely filled the Exchange since it was built. Messengers fled every way with the story of ruin, and down came the stocks all along the line.”16 Crowds of thousands gathered in Philadelphia and New York. Members of the Philadelphia Stock Exchange rushed out into the street to check for themselves that Cooke’s business had actually shut its doors. Judges adjourned trials to hurry to their banks. A police officer in Philadelphia arrested a newsboy for spreading the rumor that Jay Cooke had gone out of business.17 General Alvred Nettleton, an executive with the Northern Pacific and longtime confidant of Cooke’s, read in the following morning’s newspaper of the suspension of Cooke’s bank. “If I had been struck on the head with a hammer,” he wrote his wife, “I could not have been more stunned.” He rubbed his eyes in disbelief and then set about firing people.18

Once those in the economic community figured out that their debts far exceeded the nation’s total money supply, panic spread. A run on the banks ensued as depositors frantically attempted to get their deposits out before the doors closed, driving more banks under. During the run on the Mellon Bank of Pittsburgh, Thomas Mellon did not close his doors, but he did refuse to give his depositors their money, sending them off with promises that they would get it at some point in the future while he hastily sent his agents to demand immediate repayment of every debt owed his bank. The failures racked up over the next few days: a run on Fiske & Hatch in New York led to its closure; the Lake Shore Railroad went bankrupt, as did the Union and the National Trust companies; twenty more New York and twelve Philadelphia firms followed within a week. One of these institutions, the Fourth National, held millions in deposits from other banks, so that these smaller banks could no longer access their funds, leading to further collapses in the weeks ahead. The remaining banks worked together to try to stem the flow, attaining some control by early October.19

The swell from these failing banks capsized other businesses, while even those that stayed afloat were in serious trouble. The stock market slid into free fall, a “mad terror” taking hold of Wall Street, The Nation reported, as “great crowds of men rushed to and fro trying to get rid of their property.” Like many other leading stocks, Western Union lost one-third of its value in a few days, and fully one-half before the markets stabilized at the end of October; most railroads lost one-fifth to one-third of their value during the same period. A total of forty financial institutions failed in September 1873, and on September 20 the stock market suspended all trading for the first time in its history, remaining closed for ten days. Henry Clews & Co., one of the most prestigious Wall Street firms, collapsed September 23. As Theodore Roosevelt Sr. observed the next morning, Clews’s life work “is swept away in a day.”20

As stocks sank, banks unloaded investments and called in loans, propelling more investors to sell off their holdings. Railroads, which required credit to expand and operate, faced an immediate crisis and could not, in their turn, pay for purchases they had made for goods, such as those from Andrew Carnegie’s new steelworks. In order to pay his employees, Carnegie had to sell his stocks at a loss, cease construction of his new mill, and take out loans at high interest rates.21 A further drain on Carnegie’s resources was his friend Tom Scott, who ran the Texas & Pacific Railroad. As that railway began to crumble, Scott turned to Carnegie and Edgar Thomson’s Pennsylvania Railroad for help with his $7 million debt. The Pennsylvania came through with a $4 million loan, but Carnegie refused to endorse a loan, leaving the Texas & Pacific to stumble along and exert a curious influence on the election of 1876. The stress of the panic proved so great on Carnegie that he became seriously ill in late October and took to his bed. When he made it to the end of the year with his company intact, Carnegie, like most of the rich, was confident that “the foolish panic” was behind them and that “the spring will see things prosperous again.”22 He was completely wrong.

Though the actual “panic” was brief, its consequences were extensive. With their total capital reserves reduced by 23 percent within a month, banks became more skeptical about lending money and tended to hoard their funds over the next several years, further tightening the credit markets. Real estate markets collapsed as thousands of mortgages were foreclosed. The surviving banks took advantage of the crisis to seize properties at historically low prices, with Thomas Mellon even grabbing the property of James Kelly, the revered elderly patriarch of Wilkinsburg. Like Kelly, tens of thousands of Americans saw a lifetime of investment vanish in a few minutes at a sheriff’s sale. Bankers like Mellon felt no sympathy, as clearly the losers were to blame for the “bad habits and extravagant living” that left them unable to pay their mortgages. Mellon made no connection between these failed mortgage payments and the fact that businesses nationwide found it difficult to meet their payrolls and to acquire loans, leading to layoffs and wage cuts, both of which reduced demand, leading to production cuts, leading to further layoffs. Those who failed had only themselves to blame.23

The waves of crisis ran westward, with five national banks suspending business in Chicago and many western banks going under. The president of the Bank of California, William A. Ralston, lost his entire fortune and committed suicide. By the end of the year, five thousand businesses had gone bankrupt, taking $228,500,000 in liabilities with them, while bank deposits fell $100 million, and eighty-nine railways defaulted on bonds worth $400 million. As each fell, it took another with it; by June of 1876, 40 percent of all railroad bonds, valued at $789,367,000, had defaulted. The economic crisis just would not let up as some of the oldest institutions in the country, such as New York’s City Savings Bank, went down in flames. In 1874, 5,830 businesses went under; in 1875, that number was 7,740, rising to 9,000 a year in 1876 and 1877. Overall, business declined by one-third during these hard times. A spate of frauds and embezzlements further undermined public confidence...