As the nation’s leading industry, the railroads were also susceptible to the frenzy for combination—though as the financial commentator James Grant has observed, its mergers “were typically the result of distress, not prosperity.” This is correct; Pierpont Morgan was working the magic of Morganization in part to wring from the railroads decades of stock watering, which had driven nearly two hundred rail lines into bankruptcy by 1894. In the following half decade, no business would undergo as much consolidation and transformation as the railroads. “At the beginning of the decade there had been innumerable great independent systems, . . . each competing against rival systems in the same regions,” observed the railroad historian Edward G. Campbell. “At the end of the decade there were practically no independent systems; the various systems had been drawn into a few huge combinations which were dominated by a single man or a small group of men working in harmony with each other . . . The railroad industry had been transformed from one dominated by hundreds of competing leaders into one controlled by a small group of financiers”—Morgan and Harriman towering among them. The members of this group would soon be at each others’ throats—at the same time that the American people and their elected leaders were attempting to drag them down by their lapels.
By the mid-1890s the railroads and their investors had been blamed for not one, but two economic crashes that cost millions of families dearly in lost savings and lost employment. Farmers and merchants complained that the railroads “have been exorbitant in their charges [and] have discriminated unjustly between localities,” despite being gifted generously with power and money by state and federal lawmakers (to quote a bill of particulars issued by a national agricultural congress in 1873). Workers had wearied of the boom-and-bust employment cycle that saw them lured across the country en masse to build and operate new lines, only to have their wages ruthlessly slashed and their jobs eliminated when conditions deteriorated. It did not escape the notice of the boomers, who had helped the railroads expand during the fat years, that the lean years resulting in wage cuts and layoffs for themselves somehow left the fortunes of the owners and their protégés in Congress untouched. To the public at large, these capitalists had suborned the entire political structure of the country with graft.
Some hardened veterans of Wall Street grew wary of the market’s unleashed animal spirits early in the boom. Among them was Jacob Schiff, who in September 1897 exchanged letters with a fellow banker, Robert Fleming, about the sudden upsurge in American economic fortunes after the McKinley election. “The revival which you and I have been looking for has come with a vengeance, and already at this early stage speculation is threatening to run away with good judgment,” Schiff wrote uneasily. “The time appears not to be distant when almost any printed certificate, no matter what it represents, will command a market, and for this reason I believe it is already necessary to exercise considerable caution.” Schiff was more in the right than he knew.
* * *
THE RAILROAD-DRIVEN speculation and consolidation sweeping the US economy may have been bad for most ordinary Americans—but they had a peculiarly democratizing effect on Wall Street itself. It was a time when the word of a single individual or a cunning campaign of buying and selling could drive a stock higher or lower. Wall Street broker Roswell Pettibone Flower, for example: A former New York governor described as “the bull market incarnate,” Flower had turned around a strong bear movement in early 1898 by declaring publicly that he was “a believer in American stocks and a buyer of American stocks.” Investors hung on his every word, buying on his say-so just as later generations would follow the investment choices of Warren Buffett. In 1899 Flower had driven up shares of the Brooklyn Rapid Transit Company by repeatedly declaring that the trolley line was bound to rise—placing the target price at $75 when it was trading at $20, at $125 when it had reached $50, and eventually at $135. At that moment, however, Flower was struck down by a heart attack while fishing. The air instantly rushed out of BRT and other “Flower stocks,” threatening to take down the entire market, until Morgan and other leading bankers stepped in with millions in capital to stem the downturn.
One manifestation of popular mania that brokers remarked on was the increasing presence of women among the investing throngs. Traditional club rooms and trading offices—not to mention the trading floor itself—were closed to women, but there was no dearth of entrepreneurs willing to give them access to the ticker in their own specialized rooms and to take their orders at the standard commission of twelve and a half cents per share. Condescension dripped from newspaper accounts of female trading habits. According to the New York Sun, women made money in the roaring bull market because they were always long (that is, they were exclusively buyers): “All she has to do is buy and the average woman who speculates in stocks can do that with as much éclat as she displays in dancing a cotillion or buying a spring bonnet.” Many male bankers and traders were unsure what to make of the new customers. Investment banker Henry Clews regarded them with distaste and pity. “As speculators,” he wrote, “women hitherto have been utter failures. They do not thrive in the atmosphere of Wall Street, for they do not seem to have the mental qualities required to take in the varied points of the situation upon which success in speculation depends. They are, by nature, parasites as speculators, and, when thrown upon their own resources, are comparatively helpless. . . . They have no ballast apart from men, and are liable to perish when adversity arises.”
Clews’s contemporary William Worthington Fowler had the exact opposite impression. “The female character is, in many respects, suited to a life of speculation,” he wrote. “Speculation requires patience and fortitude, which are, or should be, both womanly virtues. Speculation derives its food from excitement, and women often feed on excitement.” Fowler’s conclusion was that women “are not only frequent, but daring speculators. They encounter risks that would appall the stoutest Wall Street veteran, and rush boldly into places where even a Vanderbilt would fear to tread.”
The very structure of Wall Street also reflected the strange democratization of the stock market. There seemed to be a place for punters of every variety, for the investment business had coalesced into several strata. At the elite summit of the market, at least by its own estimation, was the New York Stock Exchange, which charged fixed commissions, required securities issuers to make financial disclosures (albeit meager ones, especially by comparison with the standards imposed under federal regulations after the crash of 1929), and maintained a huge trading floor inside its Victorian five-story edifice on Broad Street. The exchange’s scrappy, not to say squalid, junior cousin was the “Curb,” an unregulated gang of traders who gathered on the Broad Street sidewalk in rain or shine. There they traded securities unlisted on the Big Board, whether because the stocks were too “unseasoned” to win the New York Stock Exchange’s imprimatur or they were issued by companies preferring to circumvent the exchange’s disclosure rules. To the dismay of police, on heavy trading days the Curb brokers spilled onto the pavement, blocking traffic and frightening horses with the shouts and wild gesticulations by which they transmitted their orders to clerks hanging out of windows just overhead.
The Curb’s brokers—indeed, all its employees—ran heavily to eastern European Jews and the Irish, ethnic groups shunned by many member firms of the Big Board thanks to perceptions of their lowly family backgrounds and less than elite educations. What the Curb’s personnel lacked in gilded qualities they made up for in eccentricity and exuberance, pouring buckets of water over each other during the dog days of summer, dueling with water pistols, gifting each other with exploding cigars. Their investors, too, were typically shunned by the New York Stock Exchange, with its pretensions to aristocracy—though they were not necessarily poorer. Hetty Green, the heiress to a whaling fortune who haunted the byways of the financial district in frayed widow’s weeds, could never gain entrée into the upstairs rooms of the New York Stock Exchange firms; but she was welcomed by the Curb, wh
ich handled the trades through which she turned her $6 million inheritance into an estimated $100 million at the time of her death in 1916. A figure of ridicule during her life, she died as reputedly the richest woman in the world.
At the lowest depths of Wall Street were the “bucket shops,” which catered to the gambling blood of market players. To the solid citizens of the marketplace, the bucket shops were havens for “specious frauds,” as Henry Clews put it. The New York Stock Exchange spent decades trying to get them eradicated. But others saw the shops as necessary relief valves for the speculation inherent in the buying and selling of shares. Bucket-shop customers would bet on a stock selected from a list posted on a chalkboard, posting 10 percent of its quoted price and theoretically borrowing the rest like an ordinary margin investor. The shop operator would record the transaction but not buy the stock. At the end of the day, players whose shares had risen would collect the closing price, less the 90 percent “loan” and a commission. Those whose shares had fallen typically allowed their positions to be liquidated, abandoning their stakes like losers discarding their worthless betting slips on a racetrack floor.
Legitimate traders were not above treating the bucket shops as prototypical options markets, using them to hedge their positions or making the equivalent of long or short investments in bulk without tipping off market rivals. But the tolerant oversight of bucket shops by law enforcement also gave free rein to thinly capitalized and thoroughly unscrupulous operators on Lower Broadway, where the shops proliferated. The shops that could not cover customers’ winning streaks simply closed up and disappeared; in major panics, such as those of 1873 and 1893, bucket shops were wiped out by the hundreds. But once the economy regained its footing their operators would often reappear, sometimes under new names but at their old addresses.
Warnings like Clews’s that “speculators who wish to make money in Wall Street . . . turn their backs on ‘bucket shops’” tended to go unheeded by enough plungers to keep the shops in business. What really concerned the would-be aristocrats of the stock market was that the bucket shops placed all of Wall Street in bad odor. But by this point, they need not have worried—for the stench of the place, and the pools of stagnating wealth it had created, had already reached well beyond New York.
* * *
THE AMERICAN PUBLIC eyed the ostentation and excess of the late Gilded Age with a combination of disgust, fascination, and envy. Nothing brought those sentiments together in a bubbling emotional cauldron like the Bradley Martin Ball, almost literally a fin de siècle gala, held at the Waldorf on February 10, 1897, a snowy Wednesday evening in Manhattan.
The Bradley Martin Ball was, the newspapers said, a “once in a generation” affair, “an entertainment so stupendous in scope and sumptuous in detail that it makes an epoch in the history of society.” Somewhere between six hundred and nine hundred guests attended, in costumes based on the garb of the European aristocracy dating back to the seventeenth century. Paintings by the old masters had been consulted to ensure that certain ladies were attired accurately, including one as “The Honorable Mrs. Thomas Graham,” after a portrait by Gainsborough in 1777, and a debutante as the Infanta Margarita, princess of Spain, after a Velázquez work produced in 1659.
For fifteen years, Mr. and Mrs. Bradley Martin had been shouldering their way to the forefront of New York society via events such as this. Their wealth had come not from their own industriousness but as a bequest from Mrs. Martin’s father, a merchant who had been thought to be modestly well-off but left his only child a fortune estimated at a robust $6 million. Mrs. Martin put the money to work by staging a series of increasingly notable society affairs. This would be the couple’s most fabulous—and also their last. And it marked the very peak of Gilded Age society.
The timing of the Bradley Martin Ball was inauspicious, for the ostentation of the Gilded Age had already come into disrepute. The Panic of 1893 had ruined thousands of businesses and put tens of thousands of workers out on the street. Labor unrest was spreading, much of it aimed at that largest American industry, the railroads, and their barons, the Jay Goulds and George Pullmans of the world. The Bradley Martins may not have been tied up in the railroads, themselves—but before long, they would find themselves tarred with the same brush.
Mrs. Bradley Martin was not insensitive to the optics of staging the most lavish society ball in American history while in the real economy craftsmen and tradespeople were starving. She put it out that her true purpose was to provide an “an impetus to trade.” For that reason, she explained, the invitations had gone out on short three weeks’ notice—so the guests would not have time to order their costumes and finery from Paris and London but would be forced to patronize local couturiers and bijouteries instead. That seemed reasonable enough to some commentators. Dr. George Gunton, the president of the School of Social Economics on Union Square, sermonized against “the present state of the public mind, which is in a fever akin to an epidemic against wealth. . . . It is much better for the laboring people if the wealthy spend their money here instead of taking it to Europe.” The Bradley Martins’ spending “is bound to percolate down . . . to the humblest laborer,” he concluded, voicing an early version of “trickle down” economic theory. “I don’t want the man who is above me to get down to my level of living,” Gunton declared. “I want to be helped up to his level.”
This rosy view was not universally shared, however. Dr. William S. Rainsford, the rector of St. George’s Episcopal Church, declared days before the ball that “lavish entertainments at this time by the rich are politically, socially, and ethically unwise.” This was perilous ground for the rector of J. Pierpont Morgan’s own church, and under pressure from his colleagues in the high-society pastorate, Rainsford backed down, assuring his flock that he had not been referring to any “entertainments” in particular. But his moment of candor triggered a debate in the press and pulpits across the city about what the social harvest might be from the accumulation of wealth in so few hands. “With all the people who have to lie awake nights contriving to spend their time and their money, and all the others who lie awake wondering how they may get food, there is danger in the air,” remarked the Reverend Madison C. Peters. “All history teaches us that the concentration of wealth is the forerunner of social upheaval.”
Such sermonizing failed to cause the Bradley Martins to cancel the ball or moderate its flamboyance. Sixty cases of French champagne were delivered to the Waldorf, and six thousand mauve orchids. The New York Times sniffed at the ostentation and scoffed at the turnout, which it judged to be disappointing. (“Twelve hundred invitations had been issued for the event, but little more than half the number of those invited were in attendance,” the newspaper reported the following morning. “Of those that came, also, quite a number left early.”) The Times might have reminded its readers that on almost every day the previous week it had published at least one article about the ball, and often two or more. On February 7, for example, the newspaper had devoted a full page to listing the most celebrated guests expected—Astors, Beekmans, Delafields, Harrimans, Rhinelanders, Van Cortlandts, Winthrops—along with detailed descriptions of their period costumes. This was accompanied in print by a Bradley Martin family biography and accounts of the couple’s previous balls and cotillions. Over the following week, the Times continued to mine the event for gossipy articles, including an account of the security precautions, which involved the stationing of two hundred policemen outside the hotel under the personal supervision of New York’s police commissioner, Theodore Roosevelt. After the ball, mortified by the obloquy showered upon them for hosting an event that was not much different from any other during that season except in its scale, the Bradley Martins fled New York for their estates in Britain; they would never return to the United States.
Discontent over the conspicuous spending of the nation’s new industrial plutocrats had been building for years—the Bradley Martin Ball merely served as an exemplary target. It did not help that th
e source of much of the new wealth was railroads, for they had become transformed in the public mind from technological marvels and economic boons into rapacious, heartless juggernauts. Their builders and owners no longer were seen as industrial kings but buccaneers and cheats.
Storm clouds were on the horizon. For the time being, however, the “irrational exuberance” of that era persisted. It would continue for another four years after the 1897 ball. But Jacob Schiff never fully shed his disquiet, writing in March 1901 to his European friend Ernest Cassel, “To the cautious observer . . . it is almost terrifying to contemplate the way in which the market has risen, by leaps and bounds. The reaction must come; it is only a question of time.”
During the first four months of 1901, the mania for stocks continued unabated. “Buying orders seemed to come from everywhere,” Noyes reported. “Everyday conversation in clubs, business offices, social gatherings, trains, and ferryboats was largely made up of the ‘good things’ in the market, of successful ‘turns in the market’ which this or that individual had made, of ‘tips’ which acquaintances on the inside had privately communicated. The newspapers told of bootblacks, barbers, and hotel waiters who had got rich by following such pointers from an accommodating Wall Street patron.”
Iron Empires Page 32