“The greater portion of all the large mercantile firms do business in the same way. And all the importing firms deal in futures. They sell goods by sample, agreeing to deliver them at a future stated period, varying from thirty days to twelve months. In the meantime the goods have to be manufactured, and in many instances purchasers have to wait until they are grown, and imported thousands of miles.
“If it were not for the support which comes from the ‘short’ interest in grain and the general activity created thereby in times of depression, which come periodically in this country, it would be in the power of the large speculative grain dealers in Europe to manipulate prices downward, and purchase our products every year, on raids, at prices much under the cost of production.
“When we sell to Europe we must do so at a profit, or our transactions don’t help to enrich the country.
“Another curious thing about ‘corners’ is that the people who organize and manipulate them generally get most hurt in the enterprise. This was the case with the ‘corner’ referred to in Hannibal and St. Joseph. Mr. John Duff, of Boston, was the man in whose prolific brain that ‘corner’ originated, and the result to him was financial ruin. The stock ran up to 350, though the short account amounted to only about 1,200 shares, and the ‘shorts’ had to settle at 280.
“The result was similar in the ‘corner’ in Northwest in 1872, manipulated by Jay Gould. The stock was started at 80 and it ran up to 280. It then reacted to the former figure. I believe Jay Gould was alone in that deal, and it came pretty near crushing him, in spite of his incomparable capacity for wriggling out of a tight place.
“Patents are ‘corners’ protected by law. The inventor has a monopoly for seventeen years in his invention against all the world, and this gives him a right to make and sell the article covered by his patent, often at a profit of several hundred per cent. on the original cost, and on the price it would bring if placed in competition in the open market, like railroad stocks and grain.
“If it is the intention of the Legislature of this State to stop enterprise in business, then your Committee is undertaking to accomplish that work in the right way, but I think your success would be a public calamity.”
I doubt the expediency of either undertaking to regulate enterprise by law or to choke off competition by the law-making power. The result would be woeful stagnation in business. It would crush the motives for commercial activity and depress the creative energies of prosperity.
The law of supply and demand is the best regulator.
Congress attempted to suppress speculation in gold during the war, and as soon as the act was passed prohibiting such dealings, the premium on gold advanced 100 per cent. This so much terrified the wise statesmen who concocted this sweeping measure of financial reform, that they immediately displayed much more wisdom in hastening to have the bill repealed.
The simple reason that such laws will not work in practice is that where there is a will there is generally a way to evade them. This is the case with the very best of such laws that can possibly be framed. Take the usury laws for example. The methods of getting around these are numerous, and there is practically no limit to the rate of interest that can be exacted except the conscience of the lender, which is frequently very elastic. Daniel O’Connell said he could drive a coach and six through any act of Parliament. Jake Sharp was also of opinion that he could run a double-track horse-car railroad through the best act that could be framed by any Albany Legislature. Jake was checked in his career at considerable trouble and expense, but his case illustrated that the rule referred to holds good generally in legislation.
The fact, however, that it seldom happens that anybody gets badly hurt in “corners,” except the conspirators themselves, is sufficient protection for the general public, and should set the minds of legislators at rest, if they mean to do legitimate business in their law-making capacity.
The conspirators in “corners” are usually left high and dry without any market for their fictitious values, and the “corner” very frequently has the effect of putting the property out of the speculative market for a long time. The fate of Han. & St. Jo. is a warning to those who manipulate “corners.” The stock was seldom quoted for months afterwards.
Take the case of Black Friday for example. It was most disastrous to the parties intimately connected with it. It came near proving Gould’s ruin, and he has not got over the moral effect of it yet. The probability is it will be an heirloom in his family, a skeleton in the Gould closet for generations to come. Gould and Black Friday have become synonymous in the minds of many people, and the further from Wall Street the more the distinction becomes confounded.
In making these remarks I have no intention of throwing any reflection upon Mr. George Gould, who seems to be a very promising young man for a rich man’s son. His careful education has, no doubt, done much to counteract the drawbacks incident to the sons of wealthy men to which I have referred more fully in another part of this book. His maternal training, I understand, has been of the most exemplary kind. This will go far to offset the disadvantages to a business career, which the accident of his birth in luxurious surroundings, according to my theory, otherwise entails. If his brain is composed of the genuine plastic material out of which the craniums of successful financiers are made, he may learn to forget that he has been nursed in the lap of luxury, and look back with due respect to the hole whence his father was digged and the rock whence he was hewn. He may have brains enough, possibly, to reflect with more pride on that ingenious mousetrap that first brought his father into prominence, than the gew-gaws of the gilded palace in Fifth avenue, the luxuries of the handsome parlors and rich conservatories at Irvington, and the gorgeous trappings of his father’s yacht and palace cars. I have, therefore, great hopes that George will be a conspicuous exception to the rule I have propounded elsewhere regarding rich men’s sons.
When a large mercantile firm buys up goods in any line so that nobody else has the same goods, it then has a “corner” in these goods.
“Corners” in goods differ from “corners” in Wall Street in regard to their influence on the organizers. They don’t act like a boomerang as the Wall Street “corners” mostly do. The “corner” is sometimes sustained during the life of the manipulator, as in the case of Mr. Stewart.
The successors of the great operators sometimes maintain it, but in this instance Judge Hilton made a signal failure, though in some respects he is a far abler man than Stewart was. Yet, he had not the genius, for working “corners,” of his eminent predecessor. He is, probably, so well learned in the law that he has too much inclination to go around the “corners.”
One thing is certain, very few of these merchants can become wealthy except through the medium of “corners.” It is by these peculiar methods that nearly all large fortunes are amassed in their line, and in a perfectly legitimate manner, too, whatever casuists and hair-splitting moralists may say or think about the matter. The tendency to make “corners” seems to be interwoven in our business methods, and to play an important part in the struggle for existence. So I don’t see what we are going to do about it without a radical change in that compendium of the best political wisdom that the world has ever seen. I refer to the Constitution of the United States. All the acumen and sophistry which the most astute Philadelphia lawyer could bring to bear upon it has hitherto failed to show that there is anything in this wonderful document opposed to the liberty of making “corners.”
As Mr. Gladstone has truly said: “This document is the most wonderful work ever struck off at a given time by the brain and purpose of man.”
I hold there is nothing in the Constitution opposed to the freedom of making “corners,” and that all the evils resulting from these speculative inventions can be met and counteracted by business methods, and the laws regulating the ordinary concerns of life without resorting to any rigid or special methods.
To dispose of “corners” or abolish them on the large scale to which I have alluded would presume an entire revolution in our social system, and to attack them piecemeal, as the Legislature frequently does, involves a very suspicious kind of discrimination, and is at variance with the spirit of the Constitution. In fact it often amounts to a kind of thinly-disguised blackmail.
The truth is, that it is almost impossible to legislate against “corners” without aiming a fatal blow at speculation itself, which, as I have shown, is a vital principle in the regulation of values, the stability of business, and the prevention of panics.
I believe the men of most experience, not only in Wall Street, but in other departments of finance and commerce, will bear me out in the statement that a market where even values are considerably inflated by speculation, is more desirable than a period of depression. The result, in the long run, is the greatest good to the greatest number. I don’t believe that the ghost of Jeremy Bentham himself could rise up and consistently condemn this statement.
I believe that speculation in grain and provisions is materially beneficial to consumers, and that the latter are better off, one year with another, and less liable to be menaced with periodical famines, than if there were no speculation in these necessities of life.
Before leaving this prolific theme of “corners” I wish to say a few words about my own experience in that line. The only “corner” in which I have ever been materially hurt during my long business experience was one manipulated by the State of Georgia.
This Sovereign State issued and granted altogether about eight millions of bonds, all bearing the great seal, properly signed and legally issued for full value. I advanced over two million dollars in good money on a part of these bonds. Shortly after this transaction, the State of Georgia ascertained through a garbled report of a committee sent to this city by the Georgia Legislature, that all these bonds were held outside of her own borders. The Legislature then passed an act of repudiation, thereby reducing the value of the bonds from par to that of waste paper. When I discovered that my little pile of two million dollars in what I considered good securities would no longer exchange for greenbacks, I had a very disagreeable sensation of having been “cornered” by the high toned and chivalrous representatives of the State of Georgia, which, through its lawmakers, claimed the sovereign right to do wrong to the citizens of a sister State.
In the Harlem “corner,” which is referred to in another place, contracts to deliver at 110 were settled at 179.
About three million dollars were taken out of the pockets of the bears. Several prominent houses went down in the struggle. The result of the “corner” was that the bulls were saddled with the entire capital stock of the property.
One broker, who had sold calls at 150 and was requested to fulfil his contracts when the stock had advanced to 250, was very much in the same position as Glendower’s spirits, which were called from the vasty deep but would not come. “I don’t see anything here,” he said, “about delivering. You can call, but I don’t mind it.”
There were two “corners” in Harlem. The Common Council was cornered in one and the Legislature in the other.
In the Rock Island “corner” the bulls bought 20,000 shares more than existed, and the price rose from 110 to 150.
London financiers have a fearful horror of “corners.” Hence the London Stock Exchange is very chary about listing our railroads, especially those with a moderate number of shares.
“Corners” are seldom profitable, and the parties connected with them can hardly escape getting badly hurt unless they are prepared to own and carry the entire property. Even in that event, it is usually put out of the speculative market for a considerable time.
The Hudson “corner” was one of the most successful. It paid a profit of 12 per cent. There was a profit of 4½ on the Rock Island “corner.”
The first “corner” of which there is any record in Wall Street was in Morris Canal, an old “fancy” now almost forgotten except for its “corner.” It had been forced upward as fancies frequently are, until it was far above its intrinsic value, and several operators began to sell “short.”
After this operation had gone on for some time a pool was formed to protect it, and the pool bought it all up and locked it up in a trunk. The operation was new to the Street and the bears were astounded, but when called upon to settle they became furious, and accused the manipulators of the “corner” of entering into a conspiracy. The “bulls” asked the “bears” why they had sold what they did not possess and could not procure.
The dispute was referred to the arbitration of the Board of Brokers, and that eminent body, then unsophisticated in the arts of speculation, took what seemed to them an equitable view of the case, and decided it in favor of the “shorts,” who, on the ground of conspiracy on the part of the clique, were relieved from fulfilling their obligations.
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CHAPTER XIII.
THE COMMODORE’S “CORNERS.”
THE GREAT HUDSON “CORNER.”—COMMODORE VANDERBILT THE “BOSS” OF THE SITUATION.—THE “CORNER” FORCED UPON HIM.—HOW HE MANAGED THE TRICK OF GETTING THE BEARS TO “TURN” THE STOCK, AND THEN CAUGHT THEM.—HIS ABLE DEVICE OF UNLOADING WHILE FORCING THE BEARS TO COVER AT HIGH FIGURES.—THE HARLEM “CORNER.”—THE COMMON COUNCIL BETRAYED THE COMMODORE, BUT WERE CAUGHT IN THEIR OWN TRAP, AND LOST MILLIONS.—THE LEGISLATURE ATTEMPT THE SAME GAME, AND MEET WITH A SIMILAR FATE.
In the Hudson “corner,” the stock jumped from 112 to 180. Commodore Vanderbilt was the “Boss” of the situation in this “corner.” He got the “bulge” completely on all the other parties connected with it, and what is more, he had the balance of the sympathy of the Street with him, for he was not the aggressor in getting up the “corner.” The fighting at first was forced upon him, but he acted on the defensive in a way that made his opponents sorry for their rashness. Though he did not know much about Shakespeare, he acted in accordance with old Polonius’ advice to his son by pushing the opposition to the wall.
As soon as he gained the mastery, he became severely aggressive, as he was in everything.
The beginning of this story of the Hudson “corner” is somewhat romantic. The Commodore was sunning himself on a pile of logs on the Jersey side of the Hudson while his yacht lay in the stream, and he was in the mood for enjoying a long and well-earned vacation, attempting to lay aside for a time the toil and trouble of eking out a precarious existence in speculation. While basking in the noon-day sun and gazing with delight on the luxurious foliage that arose from the New Jersey bank of the river, he was aroused from his charming reverie by a messenger from Wall Street, who conveyed to him the important intelligence that a wicked and unregenerate clique of “bears” had conspired to sell Hudson stock “short,” and that it was declining with great rapidity under the repeated and unmerciful blows of their hammers.
The Commodore arose and shook off his lethargy, as a lion may be supposed to shake the dew from his mane prior to his preparation for a spring upon an unfortunate foe.
The Commodore hastened down to Wall Street and instructed his brokers to take all the sellers’ options offered in Hudson. Cash stock was then taken as quickly as possible until the market was bare. A brief calculation showed that the buyers had secured either as cash or contract stock all the Hudson stock in existence with the exception of a small number of shares which were not expected to come upon the market.
The prolific brain of the Commodore then invented a new move in the game. A number of leading “bear” houses were requested to “turn” Hudson, which means to buy it for cash from the cornering party and sell it back to them on buyers’ options for periods varying from ten to thirty days. This able ruse was intended to impress the bears with the idea that the cornering party was weak. It seemed as if they were short of cash. So the leading bears grasped at the good chance, as they imagined, of turning several thousand shares, and instantly threw the cash stock on the market. It was privately picked up by the brokers of the great “cornerer.”
Everything having thus far progressed in favor of the ruse the trap was sprung upon the unsuspecting party. The sellers’ options began to mature, and there was no Hudson to be obtained.
The “corner” was complete, and the stock rose to 180. It had been 112 a few mornings before, when the Commodore was basking in the sun, and found that the bears were taking advantage of his absence. The loss on a hundred shares was $6,800.
There were about 50,000 shares contracted for to be delivered at this rate of profit by the “cornerers.” It will thus be seen that they were well fixed.
The bears were in terrible anguish.
But the worst part of the deal for these poor animals had yet to come. The bears who had turned the stock were notified that they must stand and deliver. They complained bitterly of the ingratitude of the bulls, whom they had only sought to oblige, by turning the stock. The bulls were implacable, however, and demanded their property. They proposed a compromise which was most exacting. They were willing to lend stock at five per cent. per day. Some of the bears paid this, thinking the “corner” would be of short duration, but it continued for over two weeks, and, after paying five per cent. a day for several days, these poor victims bought the stock at the high rate and settled.
This double move in turning the stock was the ablest trick that had ever been accomplished in cornering. It made Vanderbilt king of strategists in that line.
But the best part of the stratagem was that wherein the bulls saved themselves from being saddled with the whole stock, and made immense profits out of the deal.
While some of the bears were purchasing to cover at 170, Vanderbilt’s private brokers were selling at 140, the clique thus craftily unloading at good paying figures. This was one of the best inside moves in the whole history of “corners.”
The bulls thus saved themselves from the risk of being loaded with probably the whole, or at any rate the greater part of the capital stock, and through the Commodore’s able management the load was comparatively light at the end of the deal, the property remaining as good a speculative as before, which is a rare exception in “corners.”
The “corner” in Harlem was not less skilfully managed than the one in Hudson, but it had fewer complications. It was all plain sailing, so to speak, compared with the former, yet it clearly illustrated that the Commodore had a genius for “corners.” When he managed the Harlem “corner” he had had no experience in railroad matters, and he had reached the ripe age of sixty-nine.
I place the Hudson “corner” first in order because it was, in several respects, the greatest, though it happened at a later date than the Harlem.
It is a curious fact that in nearly all “corners” with which the Commodore was connected, he was on the defensive, and seldom the aggressor at the beginning of the fight. He was always placed in such a position that he had to fight hard to defend his property, or let it go to the dogs.
Buying stock in Harlem was his first venture in railroad transactions. He bought it as an investment. This was in 1863. Thirty years prior to this he had been requested to go into Harlem, but he declined, ironically remarking: “I’m a steamboat man, a competitor of these steam contrivances that you tell us will run on dry land. Go ahead. I wish you well, but I never shall have anything to do with ’em.”
When the Commodore went into Harlem it was selling at eight or nine dollars a share. It had been down as low as three dollars about the time I arrived in Wall Street. He put some money in the road, began improvements and the stock soon rose to 30. Many people predicted that the Commodore would lose all the money in railroads that he had made in steamboats.
The stock, however, gradually rose to 50, and speculators began to perceive that there was some inside movement going on. This was made apparent when, one day in April, 1863, the Common Council of this city passed an ordinance authorizing the Commodore to build a street railroad down Broadway to the Battery. So Jake Sharp’s enterprise was not original, as the Commodore was over twenty years ahead of him.
The Common Council were not immaculate in those days either, though the Jaehnes and Waites escaped punishment. They basely deceived the Commodore after taking his money; but he punished them severely. As soon as the franchise was granted, Harlem advanced to 75, and the Aldermen began to sell it “short.” They thought they had the Commodore fast in their clutches, and took their friends into the secret. They expected to sell enough of stock to make several millions. Their plan was to sell “short” all that the market would take, and then repeal the ordinance, which would cause the stock to drop probably below 50. Drew was one of the great bears in this deal with the Aldermen.
The Commodore got wind of the scheme, went on buying, and got others to help him, taking all the “shorts” that were offered. The operators had soon sold a great deal more Harlem stock than there was actually in existence. There were 110,000 shares of Harlem. When the Aldermen and their friends thought they had made millions, they repealed the ordinance, and Judge Brady, in the Court of Common Pleas, at the same time issued an injunction prohibiting the laying of rails on the Broadway road.
Everybody thought that the Commodore was hopelessly ruined. Harlem stock, however, dropped three points only, to 72. This created surprise among the Aldermen and the bears. They thought it should have dropped to 50. The “shorts” went into the market for the purpose of covering. Harlem ascended with amazing rapidity to 100, to 150, to 170 and finally to 179. The Common Council were obliged to make their final settlements at the last figure. The Commodore had all the stock. The Common Council lost a million, and their friends, whom they had advised to sell “short,” lost several millions. The Commodore “raked in” five or six millions, and went on his way rejoicing and improving Harlem, having now taken “Bill” in with him as vice president.
One would naturally imagine that the severe lesson which the Common Council had received in “corners” would have taught others to beware of the Commodore in this line of speculation, although it was new to him, but it did not. People as a rule will not learn either by precept or example. They must go through the rough experience themselves.
The Legislature soon fell into the same trap in which the Common Council had been caught and which they had actually set for themselves. The following year the Commodore secured control of the Hudson River Railroad through the purchase of its stock, and afterwards secured a sufficient number of the members of the Legislature to pass a bill consolidating the road with Harlem. He also won the promise of the Governor to sign the bill.
Harlem again began to rise, and went from 75 to 150. This was early in 1864.
The members of the Legislature employed to pass the bill pocketed the money of the Commodore and then hatched a conspiracy, after the manner of the Common Council, to ruin him and make millions by his fall. He had a shrewd lobbyist in the Legislature, however, who attentively watched his interests while he came down to New York to purchase stock for the rise that must have necessarily followed the passage of the bill. He had not been long in Wall Street when he was informed that the Legislature were imitating the game in which the Common Council had been so signally defeated the previous year. The Commodore sent him word to keep close watch at Albany, and he went on buying stock in Wall Street.
The bill was defeated. Harlem stock had a slump from 150 to 90. The Commodore was in a dilemma, and would have been dreadfully embarrassed only for the intense avarice of the Legislature. If they had bought and delivered at 90, they would have made millions, which the Commodore would have lost; but, like the horse leech’s daughter, they cried out for more. Nothing would satisfy them until the stock should be depressed to 50. Then they could “scoop” in several millions and the Commodore would be wound up. This was probably the darkest hour in the Commodore’s life. He hardly knew which way to turn. He was on the ragged edge. He has often pathetically described his feelings at this crisis to his intimate friends. He was almost on the brink of despair. He sent for old John Tobin, who had been a gate keeper at the ferry-house at Staten Island. Tobin had made quite a haul in the former deal in Harlem, and was worth over a million. He told Tobin what the perfidious members of the Legislature had done. John had been buying Harlem also in prospect of a rise.
“They stuck you too, John,” said the Commodore. “How do you feel about it?” John sighed, and replied that his feelings were not the most enviable. “Shall we let ’em bleed us?” queried the Commodore.
John sighed again, but did not know what reply to make.
“John, don’t them fellows need dressing down?” emphatically queried the Commodore. John answered in the affirmative, but did not see how it was to be accomplished, as “them fellows” at that moment seemed to hold the fort.
After a pause of deep reflection, the Commodore, again addressing John with intensified emphasis in his tone, said: “John, let us teach ’em never to go back on their word again as long as they draw breath. Let us try the Harlem ‘corner’ once more.”
It was agreed to try and repeat the Harlem “corner.”
John put up a million. Leonard Jerome also went into the deal. It took five millions to face the Legislature in this game, in which they had every opportunity of packing all the cards. It was virtually, at first, a silent game of whist, at which the Commodore was a noted player. He never played with greater skill than this time, except in the Hudson “corner,” and in both instances he almost manifested the skill of inspiration.
The members of the Legislature completely lost their heads. The old classic maxim, “whom the gods devote to destruction, they first make mad,” appeared to apply peculiarly to them, in the manipulation of the Harlem “corner.” Some of them mortgaged their houses and lands to get money to sell Harlem “short.” They advised all their friends that it was such a sure thing that failure was impossible, and brought all of their acquaintances whom they could influence into the speculative maelstrom of Harlem.
In the coarse of a few weeks, the members of the Legislature and their friends had sold millions of Harlem to be delivered at various periods during the summer, when they expected it would go ‘way down, probably to 8 or 9, where the Commodore had originally bought it.
They expected, moreover, that the Commodore would have appeared at Albany either in person or by his lobby representatives to sue for terms of settlement. They were greatly disappointed. He never left the company of his brokers in Wall Street, and persisted in purchasing. The members thought he must be mad, or at least in his dotage. He was then threescore and ten, the Scriptural limit of human days.
The Commodore continued to purchase Harlem until he had bought—paradoxical as it may seem to the general reader—27,000 shares more than were in existence of Harlem stock.
When the members of the Legislature who set the trap to catch Vanderbilt, but in which they themselves were now hopelessly ensnared, went into the market to buy for the purpose of covering, there was no Harlem to be had. Vanderbilt and his brokers had every share of it safely secured in their strong boxes.
The members of the Legislature were paralyzed. They could expect no mercy from the Commodore. He owed them none, and though a good Christian prior to his death, he was then practically a stranger to the doctrine of the great Nazarene. “Return good for evil,” or, “whosoever shall smite thee on thy right cheek, turn to him the other also.” He was rather inclined to follow the maxim of that practical Quaker, who, when smitten on the cheek and asked to turn the other, replied, “Friend, thou didst not read far enough. It is written, ‘pay what thou owest,’” and he knocked the fellow down.