For three years the boom continued. Banks encouraged spending and loaned generously at low interest. When customers reached their credit limit, instead of cutting off further loans, the bankers urged them to borrow more, and then sold the loans at discounted prices to other institutions. With easy money, merchants and manufacturers expanded their businesses. Consumers shopped at a furious pace, importing fancy French furnishings for their oversized mansions, cashmeres and furs for their elaborate wardrobes, truffles and caviar for their lavish dinners and opulent balls. The banks exported gold to pay for them.
The country was drunk on prosperity. The nation reveled. New York floated on bubbles of champagne. New Bedford tippled. In 1857 the city boasted a record number of ships in its whaling fleet, and local citizens thrived in its commerce. For those who sought new homes, the New Bedford Five Cents Savings Bank opened its doors to lend them low-cost money for mortgages. To decorate their new houses, a few bought paintings from local artist Albert Bierstadt.
Henry David Thoreau’s Lyceum lecture “Getting a Living” drew a sizable crowd. The impoverished author of Walden wrote that he was “rich in sunny hours and summer days.” He had no regret, he said, that he had not wasted his hours in a workshop or a classroom. He preferred truth to money. “Money is not required to buy one necessary [necessity] of the soul,” said Thoreau. In the New England town where many like Edward Robinson equated wealth with virtue, the puzzled audience walked away scratching their heads. They found his words “decidedly peculiar,” the local newspaper said.
Instead, the hardworking residents of New Bedford erected a new building for the Friends Academy, started new enterprises, and enlarged their existing businesses. One entrepreneur, Abraham Howland, experimenting with coal, discovered a way to distill the chunks of fossil so that drops of oil trickled out. It was a portent of things to come.
Like other firms, Isaac Howland Jr. and Company prospered, making Edward Mott Robinson and Sylvia Howland two of the richest people in town. Sylvia spent some of her time eyeing her investments and much of her time in the world of books. Her favorites included the abolitionist works of Harriet Beecher Stowe, the lyrical travel writing of Bayard Taylor, and the feminist volumes of Fredrika Bremer.
The Swedish author traveled for a year around America and wrote a forthright account of her impressions. She admired the country’s education of women and the value its citizens placed on teachers. After meeting Quakers, she praised the “chaste and dew-like purity” of their women and applauded the antislavery position of the group. But she derided their suspicion of beauty and art and their fear of joy, and she noted that their numbers were dwindling. Attending a Friends meeting one hot day, she observed that not a single person was moved by the spirit inside them. After an hour of utter silence in the trying heat, the assembly finally broke up. “Peace be with them,” she said.
Bremer spent time with friends in New York and complained about the crowds and the bustle and the boring dinners. “Is there anything in this world more wearisome, more dismal, more intolerable, more indigestible, more stupefying, more unbearable, anything calculated to kill both soul and body, than a great dinner in New York?” she asked.
Hetty Robinson gave her own account to her aunt. Her stories of endless dinners and chatty teas, costly clothing and overfurnished homes, relentless traffic and dizzying throngs fed the imagination of Sylvia, who might have enjoyed this life. How different the Grinnells’ world was from the dull routine of the frail spinster whose companions were more and more the maids and nurses who looked after her. She was pleased her niece had spent time in New York and disappointed she had shortened her trip. Sylvia may have wanted to live her life through Hetty, but Hetty kept thwarting her dreams.
In New Bedford, Hetty shuttled between her father’s house on Second Street and her aunt’s house on Eighth Street and kept a room at both. Weekends and summers, she and Sylvia, one rumpled, the other crisp, rode in the carriage together on the two-hour trip to Round Hills. But tensions ran high between them. The young woman who had been sent to Quaker schools to learn plainness and thrift frowned on her aunt’s indulgences. Hetty insisted on using simple linens for entertaining and complained when Sylvia wanted a butler instead of a servant girl for a dinner party; she criticized her aunt for hiring a fancy livery hack instead of keeping a one-horse carriage; she admonished the older woman for keeping too many in help.
Hetty’s insolent behavior irritated Sylvia. Her sorry wardrobe had not improved, her temper tantrums had not ceased, and her air of defiance had not eased. She argued incessantly with the servants and ignored her aunt’s advice. When Sylvia warned her away from a dangerous horse, Hetty took it upon herself to break him and rode the wild animal until he settled down. The agitated Sylvia, trembling from head to heels, had to be put to bed.
Under her father’s sharp eye, however, she worked for her money and kept an accurate account of her spending. Once more she set off with him to the countinghouses and storerooms, the commodities traders and stockbrokers, and followed the intricacies of his dealings. He often reminded her that as the sole heir of her aunt, her mother, and himself, she would inherit the family’s entire wealth. “If you can manage your brain,” he told her, “you can manage your fortune.” She knew from his frequent admonishments that it would be her responsibility to turn over the fortune undiminished to the next generation. His lessons taught her the value of money and the necessity of having it. “We have to have money to be happy,” she said. But she carried the burden like a sack of gold bricks strapped to her back.
Chapter 5
Irrational Exuberance
Are we a happy people?” asked Harper’s Magazine. “The richest man has no definite idea of a fortune, and is more eager to double his million than … to turn his first dollar. His only sense of enjoyment,” the editor said, “consists in making more.” More happy people were making more dollars in New York.
And then the bubble burst. Toward the end of 1857, the news from the Ohio Life Insurance and Trust Company leaked the first bits of air. Unbeknownst to its Midwestern directors, the manager of its New York branch had embezzled millions of dollars. In addition, the bank had borrowed funds from other New York institutions in order to lend money to railroad builders and speculators in railroad stocks. But European demand for American grain had waned with the end of the Crimean War, and with bumper crops around the world, Midwestern farmers received lower prices and shipped fewer foodstuffs by railroad.
The overextended railroads had borrowed millions of dollars from Ohio Life and could not pay them back. When the insurance company revealed its $2 million loss from the embezzlement plus $5 million in losses on loans to railroad builders, stock speculators, and in its own trading accounts, the New York banks demanded the money owed them. In response, Ohio Life declared bankruptcy at its New York office and shut its doors.
Events spiraled downward.
Midwestern banks were forced to borrow more money from New York. The farmers who withdrew their money from their accounts every summer to cover seasonal costs could not replace it in the fall; nor could they repay the merchants who had extended them credit. N. H. Wolfe, the oldest flour and grain company in New York, declared bankruptcy. The president of a Michigan railroad announced his resignation. Railroad stocks slid to half their prices of four years earlier.
Big bankers, worried that other clients were overextended, nervously called their customers for immediate repayment of matured loans. But Ohio Life was not the only one that had borrowed far beyond its means. Within weeks other banks and major Wall Street investors, ruined by bad loans, suspended operations or defaulted. Rumors raced through the city, growing more exaggerated at every telling. Crowds huddled in the canyons of Wall Street as panicked creditors, worried that their banks would not be able to pay them, withdrew their money. Although each bank issued its own version of paper money backed by gold, in reality the paper notes were not at par value with the metal. The public demanded the
gold. With imports high and confidence low, the banks were forced to make their payments in gold, but their stores of specie, as metal coins were called, were shrinking.
Dark clouds hovered. “People look dubious and whisper darkly,” one man wrote, noting that several stock operators suffered serious failures. A few clever men like Russell Sage, a future role model for Hetty, kept substantial amounts of cash on hand and used it to buy stocks at rock-bottom prices. John Pierpont Morgan told his son there was a good lesson to be learned from other people’s greed and good bargains to be found in the aftermath. In future times, Hetty would always keep cash available and use it to buy when everyone else was selling. Much later, Warren Buffett would do the same. But most people watched their money wash away in the flood; it felt like the crash and depression that had taken place twenty years before. “Wall Street stocks panting and tumbling under a pressure that reminds one of the financial tragedies of 1837,” wrote George T. Strong.
The situation grew worse. The English needed capital to fight a rebellion in India and raised their interest rates for depositors to attract funds. European investors, concerned about American banks and drawn to the higher rates in London, demanded their deposits in gold from the New York financial institutions. In the spring of 1857 the steamship Central America set sail from California with four hundred passengers and $1.6 million in gold bars for the New York banks. But a few months later, as the steamer rounded Cape Hatteras, a hurricane smashed across its hull. The passengers and the gold went down with the ship.
“Extra! Extra!” newsboys called out every day, as customers grabbed the latest edition of bad news. More banks in New York and other cities suspended business, seven railroads failed, including the Erie and the Reading, factories closed, and merchants around the country shut their doors. Bankers, worried about the solvency of their borrowers, raised their interest rates and refused to lend money to anyone who did not have rock-solid collateral: certified checks were required; stocks and bonds were dismissed as worthless.
In the past, merchants with accounts receivable could bring their due bills to their bankers, who would take off a percentage of the funds payable and give the rest to the merchant. But now, no matter how strong the creditor’s reputation, banks refused to accept the receivables. Even the credit of reputable merchant princes like Henry Grinnell was questionable, because chances were they had been operating and gambling in stocks and railroad bonds. All those securities were unmarketable and useless.
Old-line conservatives mocked the newly minted millionaires who were agonizing over worthless securities and pleading vainly with the banks in a desperate fight to save their social status. If only they could hold on to their big mansions on Fifth Avenue, continue to entertain their boring friends at outrageously expensive dinners, and maintain their private boxes while they yawned through the opera, they begged. But their pleas did not budge the adamant directors and rigid cashiers.
A congressional banking oversight committee blamed the disaster partially on the lightning speed of the latest tool, the telegraph. What’s more, information from the telegraph now raced across the country and around the world via the new railroads and better-equipped oceangoing steamships. The innovative methods of communication and transportation wiped out “distance and time,” said an observer. Informed depositors worldwide, worried by what they read, rushed to the banks demanding the return of their money immediately in gold.
In October 1857, the banks announced they would no longer pay depositors in specie. They hoped the move would stop the drain on gold and force customers to accept paper money at par. The New York Times heaved a sigh of relief and accused the bankers of having created the crisis of confidence in the first place. Their reckless lending and risk taking were irresponsible. “Banks as business concerns must act upon the same principles and be governed by the same laws as individuals,” the newspaper said. It would repeat those warnings a century and a half later.
As often happens in crises of confidence, people panicked and put away their wallets. George T. Strong observed “an epidemic of fear,” blaming it more on crowd psychology than on financial reality. Prices for everything were coming down in the panic; all businesses were affected, and merchants suffered badly. Brooks Brothers, Lord & Taylor, dry goods stores, and small shops on every street declared drastic sales with prices well below cost. Construction came to a halt; unfinished buildings stood naked around the city.
With customers afraid to spend their money and goods piling up on the shelves, manufacturers were forced to close their businesses. Tens of thousands of people lost their jobs, and the salaries of many others were slashed. In New York, unemployment rose from 40,000 to 100,000. Men without jobs, but still with families to feed, took to the streets to protest. Major riots broke out. Robberies increased, gangs roamed the streets, and the city, already corrupt, became so dangerous that at night many gentlemen carried guns to protect themselves. “It was,” said one banker, “the most violent and destructive financial panic ever experienced in the country.”
The panic reverberated on an international scale as the crisis spread from Wall Street to Main Street and then to South America and to Germany, France, and England. A few years later the British statesman Benjamin Disraeli noted the problems brought about by “all the bubble, blunders and dishonesties of five years’ European exuberance.” The cause of it all, said the Louisville Courier, was Wall Street: “Their houses are dens of iniquity. Their aim is financial ruin. Their code of laws is that of the gambler, the sharper, the impostor, the cheat and the swindler.” The bubbles continue to burst; the words continue to echo.
A few places remained untouched. California prospered with its gold mines. In the South, plantation owners profited as European orders for cotton increased and prices rose. The country’s largest export, cotton was king. Southerners looked for more land to plant their crops and more slaves to work them. They turned their attention to the territories out west where they could also grow more sugar, rice, and tobacco. Textile manufacturers in New England and merchant shippers in New York, who exported the goods and benefited from the increased production, supported them. Some New York bankers even accepted receipts from slave purchases as collateral.
Southerners rejoiced at the Dred Scott Decision, in which the Supreme Court declared that slaves were property and could be legally transported either to the North or into the western states. That 1857 decision, along with the deep recession, shook the country to its foundations. Southerners clamored for slaves in Kentucky, Kansas, Mississippi, Louisiana, and other states, while Northerners argued against it. In Massachusetts, freed slaves and slaves who had escaped through the Underground Railroad convened in New Bedford to protest.
In that same city the flour mill expanded, and a new candle and oil company was established. The paper money issued by the Mechanics Bank featured a whale, and whaling reached its peak, with more ships, more capital, and more sailors than ever, making New Bedford the richest city per capita in the world. But at the end of 1857, as people switched to kerosene, the price of whale oil seeped down, and the New Bedford Bank went under. Edward Robinson, who made it a practice never to borrow, kept his business buoyant; he even won a bid for election to the town council.
Some of the time Hetty lived with her father as they followed their old routine. Days were spent down at the wharfs and countinghouses, where he watched his pennies with a miser’s eye. Evenings Hetty read him the news. It was hard to ignore the papers’ reports of the Illinois senatorial debates taking place in the summer of 1858 between the Democratic incumbent Stephen Douglas and the Republican upstart Abraham Lincoln. The Howlands, the Grinnells, and Robinson had long supported Lincoln, who, like the Quakers, saw slavery as a moral wrong.
From physical shackles to emotional chains, slavery comes in many forms. Abby Robinson, enslaved by her psyche, suffered bodily pain and mental anguish. Depressed, she lived for years as an invalid, but when the agony became unbearable, she escaped fro
m Edward’s house and entered her sister’s world. Sometimes Hetty stayed with them too, in the room set aside for her over the kitchen, and heard the angry accusations hurled at her father by her mother and her aunt.
Tortured by fears of her husband, tormented by her own sense of failure, on February 21, 1860, at the age of fifty-one, Abby Howland Robinson died. The motherless woman had never known how to be a mother herself. Her death seemed to mean little to her daughter, who had nothing to mourn but the loss of love she never received. Abby’s only way to express affection was through her money. Yet she died without a will; her entire estate of more than $100,000 went to her husband.
Hurt and angry and urged on by her aunt, Hetty appealed to her father for her share in the inheritance: the Howland fortune, which had gone from her great-grandfather Isaac Howland to her grandfather Gideon Howland to her mother, Abby Howland, should now go to her, the only direct living heir. But Edward insisted he knew how to invest the money and make it grow. Not only that, he had the responsibility to increase it until his death. Then, he reminded his daughter, he would turn the money over to her to do the same.
They took the case to the family’s attorney, B. F. Thomas, in Boston for arbitration. But instead of the Solomonic decision Hetty hoped for, Edward was allowed to keep everything except for a house worth $8,000 that was given to her. Hetty was devastated. Alone and adrift, she sought solace with Sylvia.
Money may have ruled discussions in the Howland and Robinson households, but it was the demands of the South that inundated conversations around the rest of the country. Not only was cotton the nation’s largest export, the South’s slaves had a dollar value far greater than the money invested in railroads or manufacturing; slavery represented 80 percent of the country’s gross national product.
The Richest Woman in America Page 5