by Amy Reading
Notwithstanding these provisions for the comfort of the refined class, the Palace had garnered a reputation for depravity and violence. In 1888, when Blonger arrived, The Denver Republican denounced it as “a thoroughly tough, hard place, frequented by a class of desperate, depraved men and women.” Indeed, the previous thirteen months had witnessed four homicides within its walls. But no one ever threatened Chase himself. With his tall frame, his prematurely gray hair, his clear blue eyes, and his perfect suits, the gambling king of Denver was more patrician than thuggish, and he was treated with deference by criminals and politicians alike.
Soapy Smith and Ed Chase had divided the town between them: Smith ran the bunco steerers on Seventeenth Street, fleecing the out-of-towners, and Chase ran the square gambling halls, taking Denverites’ money in exchange for an evening of jollity and refreshment. The two men coexisted well enough, as evidenced by the fact that Chase held a stake in Smith’s Tivoli Club, but Chase was the lodestar in the city’s constellation of power. From his tenure on the city council in the 1860s, when he’d set the fines for gambling so low that they became a kind of backdoor license, to the 1880s, when he had the police force on his payroll and the mayor took a regular 20 percent cut of all gambling profits, Chase had been designing the city to his own purposes. By 1886, the fix was working perfectly: when an amateur crime statistician analyzed the numbers and types of arrests in July of that year, he found that the Denver police had detained 431 people—but not one person had been arrested for gambling. Police regularly staged raids on the city’s saloons and gambling dens, but they always made sure to knock out a secret code before they entered to allow the evidence of vice to be swept away.
Lou Blonger surveyed the city’s invisible power grid and threw in his lot with Big Ed. He quickly went to work in Chase’s vote-fixing organization, escorting tramps and tipplers from bars to polling places so they could stuff ballot boxes on behalf of vice-friendly candidates. He and his brother Sam opened up the first of a series of saloons just off Seventeenth Street. They owned it jointly with Soapy Smith, but it was Chase to whom they tithed for the privilege of running crooked faro games. Blonger was working his way up in the underworld of Seventeenth Street, but he was succeeding just as the business world was ousting the paid-off politicians and reaching down into the underworld to seize control of the city.
They began with Seventeenth Street, aiming to turn it into a more comfortable home for eastern capital. Already, a prime triangle of land at Tremont Place on which a single cow had expensively grazed was being transformed into the lavish Brown Palace Hotel. Just across the street was the Denver Club, a private men’s club that expressed Denver’s financial ambitions in red sandstone Romanesque arches and turrets on a manicured lawn. No bandit barbers for the members of this club. Each morning, the “17th Streeters,” the dozen leaders of the club, would take turns settling into the chair of the club barber, Fred Basford, and without needing to say a word, they would receive his meticulous attention to their hair and beards. Nor did these men need the entertainments that Soapy and Chase offered. Each evening, they’d stop back in again at the club for dinner at the central table of the imposing dining room, sipping the city’s best champagne and discussing their entwined business interests. Men like David H. Moffat, Jerome B. Chaffee, Horace Tabor, and Eben Smith didn’t need to compete against each other at faro, because they collaborated with each other in the far more intoxicating game of mining speculation.
One visitor to Denver was astonished to discover that everyone at his hotel, from the owner to the desk clerk, porter, and chambermaid, held claims to mines up in the mountains. The question was how to extract profit from those promising pieces of paper. Moffat, Chaffee, Tabor, and Smith could simply sit in their downtown lairs, receive a steady stream of prospectors and engineers from the mountains who spieled about the invisible richness of their properties, and decide whom to buy out and enfold into their ongoing mining operations. But most entrepreneurs looking to finance the exploration and extraction of gold or silver formed joint-stock companies, hired promoters, and sent them to New York and Boston to chase down the money where it lived.
The promoter would arrive in an eastern city with a prospectus carefully worded to appeal directly to the heart of the second-tier businessman, someone who admired the market manipulations of Jay Gould and Cornelius Vanderbilt in the newspapers but could not himself command enough capital to replicate those feats of enterprise and greed. Western mining, the prospectus would implicitly promise, afforded the proper scope for someone of modest capital and outsize daring. In the 1870s and 1880s, the conservative New York Stock Exchange did not list mining stocks. The chance that any given patch of mountain soil would open up to yield gold or silver was unbelievably slim, and even if it did, the capital required to ship, assemble, and maintain the equipment to work the lode deposits and mill the ore was so steep as to halt the enterprise before it could begin. And then there was the rampant fraud. Promoters named their worthless claims after the famous producers, or salted Colorado mines with Utah gold. Even the 17th Streeters were caught up in the great diamond craze of 1872, when two prospectors found jewels up in the mountains, and it seemed as if Colorado’s riches might well be inexhaustible. Soon over twenty-five investment companies were created with a total capitalization of $250 million, and just as soon thereafter a geologist discovered that the prospectors had planted the diamonds.
But the ore specimens that were passed around bankers’ offices and gentlemen’s clubs were often too tempting to manufacturers who wanted to become speculators. Isaac L. Ellwood, the barbed-wire magnate and Norfleet’s former boss, became principal owner of a Colorado silver mine that netted $96,000 in its first six months. On the other hand, Norvin Green, the president of Western Union, spread $100,000 over twenty different Colorado mining properties with little return. Even though men of Ellwood and Green’s class believed gambling to be a sin, and even though some of the mining prospectuses felt obliged to acknowledge the risky nature of the endeavor—mining is “essentially a lottery, with a few great prizes and very many blanks,” confessed one—everyone still wanted in.
The question, in the second half of the nineteenth century, was how to separate a definition of speculation from the larger, messier classification of gambling, a definition that could perform the moral work of enshrining speculation as a necessary part of economic growth while decrying gambling as a waste of productive dollars. It was a laborious process because, for the first chapter of American history, the two activities were nearly identical, and gambling was an economic mainstay of the developing nation.
Colonists had used lotteries to raise money for capital-intensive building projects like roads, bridges, dams, canals, lighthouses, jails, and schools. They favored lotteries over taxation because they were a voluntary way to pool funds. They held dozens of small, private schemes in cities and towns, including Benjamin Franklin’s contest to raise money for strengthening Philadelphia’s defenses during the War of the Austrian Succession in the 1740s. Far from being a social menace, lotteries were so crucial to the success of the new nation that by 1776, all but two of the states insisted that they be run by the government, thus monopolizing for themselves the competition for scarce dollars. At the end of the eighteenth century, the annual sale of lottery tickets ran as high as $2 million among a population of four million. By 1815, every town with more than a thousand residents had at least one person making a living by selling lottery tickets for civic infrastructure. Gambling was at once an unremarkable occurrence and the spark for economic development.
As the nineteenth century advanced, Americans began to think more concertedly about the moral implications of monetary acquisition. At issue was not the legitimacy of personal profit itself but rather the emotions that were released in its pursuit. To moralists and reformers, gambling encouraged superstition rather than rationality and undermined the willingness to work hard by offering the fantasy of a quick reward. By 1840,
gambling was reproachable enough that citizens agreed the government should have no hand in it, and most states had shut down their lotteries. Yet gambling was tempting enough that it thrived in urban gaming halls, on the ships and shores of the southwestern frontier along the Mississippi River, and in outposts like Denver. Newspapers published exposés of vice districts that were so detailed in their enumeration of the gambling halls that they could also be read as guides to the city’s nightlife—Soapy’s dive for the greenhorns this way, Chase’s lair for the miners and millionaires two blocks over. With a style of gambling for each social class, it permeated the commercialized leisure world, and reformers found it impossible to root out.
Yet it remained increasingly difficult to discern where gambling ended and speculation began. Some of the very same people who had run the state lotteries now worked as stockbrokers in an increasingly lawless system of capital accumulation that promised outrageous profits with a mere exchange of papers. The success of the Erie Canal bond issues in the late 1810S and early 1820s had uncovered a wide reservoir of capital from which public works could now draw, initiating the railroad boom that would define nineteenth-century economic expansion. In 1830, there were only 23 miles of railroad tracks in the entire country, but thereafter the number increased exponentially, from 2,818 miles in 1840, to 9,021 in 1850, to 30,626 in 1860. The railroads integrated local markets into national ones by allowing producers to sell their goods to faraway warehouses and consumers. They powered the Industrial Revolution by creating a demand for homegrown components like rails, cross ties, spikes, bridges, and, eventually, locomotives (the first American commercial locomotive was named the Tom Thumb, after one of Barnum’s most successful humbugs).
But more than that, railroad financing swelled the coffers of Wall Street and turned it into a roulette wheel with no croupier. In 1835, only three railroads issued stock on Wall Street. By 1855, the volume of securities available on Wall Street had ballooned by a factor of ten, and more than half of them were railroad stocks. A full third of the tracks built between 1830 and 1890 served no purpose other than lining the portfolios of the financiers who looted their securities, and they were called “blackmail railroads” by those who saw through the deception. Jay Gould’s Erie Railway, or the “scarlet woman of Wall Street,” was only the most notorious of a list that included the Harlem, the Michigan Southern, Prairie du Chien, and the Chicago and North Western. In 1873, the collapse in value of Northern Pacific’s securities caused a panic on Wall Street and the longest depression of the century. In 1884, Moody’s credit-rating service calculated that as much as $4 billion in railroad stock had been watered by unscrupulous owners who inflated the value of their assets, much as cattle drivers once bloated their cows with water before weighing them at auction.
The nineteenth century witnessed new ways to profit but also a ratcheting up of the risks within the financial market, and the very existence of those risks began to overturn the traditional understanding of Providence. If, at the beginning of the century, Americans largely viewed Providence as an orderly but unknown plan that gambling unnaturally disrupted, by the end of the century it was everyday life that was itself a gamble, and the judicious appropriation of capital could neutralize its risks. Life insurance and savings banks, once perceived as hazardous uses for hard-earned income, now seemed the very safest hedges against the wide swings of Fortune’s pendulum.
A taste for speculation began to creep down from the robber barons to the middle class, some of whom first saw their capital grow upon itself through compound interest and then began to participate in the securities and bond markets during the Civil War. At the beginning of the war, fewer than 1 percent of Americans owned securities. During the war, the Treasury bond drive created a new investor class, and eventually about 5 percent of northern citizens held bonds in denominations as low as $50. Wartime speculation was a dicey business, however. The price of gold went up with each Union victory, so a handful of speculators paid agents on both sides of the war to obtain information straight from the battlefield. Wall Street learned the outcome of the Battle of Gettysburg before President Lincoln did. Lincoln’s feelings on the matter ran high, and one day he asked Andrew Curtin, the governor of Pennsylvania, “What do you think of those fellows in Wall Street, who are gambling in gold at such a time as this? For my part,” and here the mild president banged his fist down on a table, “I wish every one of them had his devilish head shot off!” Lincoln attempted to stop such speculation, but he succeeded only in driving it underground.
So which was it? Was gambling a pernicious social evil or a respectable pathway from the striving underclasses to wealth? The urgency of this question increased as the nineteenth century progressed and opportunities to gamble propagated. By the 1870s, there was a general if often unheeded consensus that gaming was immoral, and most states, as well as the Colorado Territory, had outlawed it.
Speculation, on the other hand, was hoarded as a prerogative of the elite. Its risks required such detailed knowledge, and its actions demanded such a broad playing field, that only the already wealthy had the reach and vision for it. Norvin Green, the president of Western Union, a man who had doubled his fortune with shares in his own company even as he lost money in Colorado mining stock, firmly believed that the general public had no business in stock speculation. He opposed efforts to nationalize the telegraph and defended its high prices, testifying to Congress that farmers and artisans had no business with the stock quotations it carried and that it should remain a specialized tool of financiers. In his private correspondence, Green considered it his “duty” to warn his friends and family away from mining stock, even as he continued to pour his own money in. He was the president of two mining concerns, one of them the United Claims Mining Company, a steady money loser. When, in a bid to shore up its books, a promoter solicited Western Union managers for shares of stock, wholly without Green’s permission, his two interests collided. He could not abide the idea of the “more ignorant” employees throwing their hard-earned money away on what he knew to be an unwise gamble, but neither could he speak out against his own mine and appear as if he had “no faith in the value of the property.” At the time of his death in 1893, he was still vainly trying to keep United Claims afloat, but now only with rich men’s money.
Blame it on Barnum. The willingness to speculate long after it had become unprofitable was an increasingly common American trait, and it was closely related to humbug, to the tolerance that Barnum had unleashed for minor fraud and perceptual ambiguity. Barnum’s hoaxes both exploited and further created a market sensibility that thrived primarily on a willingness to take risks. But even more than that, the growing opportunities to speculate on America’s development played into other, less overtly economic mind-sets, such as a reluctance to be left out of national trends that helped Americans define themselves. Most notably, those with the means to speculate found confidence to be more pleasurable than skepticism. It was as simple as that. There was a strikingly noncapitalist impulse at the heart of American economic expansion.
So it was not as easy to keep the middle class out of the capital markets as Norvin Green would have liked. Even as Green shielded Western Union employees from the plummeting fortunes of mining stocks, enterprising businessmen were tapping the Western Union lines that fed into brokerages and stealing stock price quotations from its tickers for use in bucket shops, in order to peddle a new kind of democratic speculation. Bucket shops were brokerage houses at which customers could place bets on the direction of the market without actually purchasing securities or commodities. Beginning in the 1870s, they catered to small-time speculators on the margins of the great financial centers, clerks and newsboys and farmers in from the country who wanted to dabble in finance but lacked the capital to participate in the New York Stock Exchange or the Chicago Board of Trade.
A customer would enter a building adorned with a sign reading “Bankers and Brokers.” Inside, he would invariably find a large office
dominated by an oak-framed blackboard on which stock quotations were incessantly chalked and erased in columns underneath gold-painted categories like “cotton” and “grain.” He would take a seat in one of the chairs facing the board, joining the rows of men already gazing eagerly at the numbers as if at a riveting performance, and there he would sit, listening to the stock ticker transmitting prices from the nearest central exchange. When he felt confident enough to plunge into the action, he would fill out a buy or sell order for an amount as small as five shares, and then he’d put down a margin as tiny as 3 percent per share of stock, much less than the hundred-share minimum and the margin requirement of 10 percent mandated by the New York Stock Exchange. A clerk would then forward his order to the exchange via telegraph. While he waited for the market to move in the direction he’d predicted, he might sample the complimentary luncheon laid out for him, smoke a cigar, or gaze at the illustrations of nude women on the walls.
What happened next depended on the exact form of chicanery in which each bucket shop indulged. All orders were “bucketed”; that is, none of them were exercised on a legitimate exchange. Such orders were side bets between a customer and the bucket shop on the fluctuations of prices on the stock ticker, a zero-sum game in which the bucket shop took the other side of the customer’s “trade” and almost invariably profited by it through a menu of tricks. If the price referenced by a buy order went down by even a small amount, the customer’s margin would be swallowed up, and the order would be closed out. A bucket shopper could simply fake the prices he displayed on the board. He could “wash down” a stock on which many of his customers were bullish by selling small lots on a legitimate exchange at a low price. In the event of an honestly reported increase in a stock’s price, the bucket shopper could adjust his commission to bite into his customer’s profit, called “till-tapping.” And rival bucket shops could join together to pool their customers’ funds and open opposite positions in the legitimate market for their own accounts. Customers patronized bucket shops thinking they were democratic portals into the thrilling world of financial markets, when in fact they were confidence games for the common man.