The Jews in America Trilogy (18 page)

*
Can this “unsalable” exchange have had anything to do with the “protested” exchange Mr. Hart was talking about? Probably not, because Hart did retract all his unkind remarks, and apologized.

*
On a Congressman's salary?

14

“THE D—D RAILROADS!”

In the years following the Civil War, the mergers, bankruptcies, organizations, and reorganizations of American railroads were creating an enormous field for stock and bond speculation. Railroads were being built competitively and haphazardly, which made them all the more interesting to speculators. By the late 1860's railroad stocks and bonds were not only the great “wonder” securities of the age; with the exception of government issues, they had become the chief interest of Wall Street and comprised 85 percent of all shares traded. There was great enthusiasm for railroad shares in Europe, and the ability to sell railroads in the Frankfurt, London, Paris, and Amsterdam markets was making many a banker wealthy.

By 1869 Joseph and his brothers had a working capital of over six million dollars, and their firm became the first of the German Jewish banking community to enter the railroad-securities field. They entered it, however, with reservations which, in retrospect, were more sound than not, and with Joseph's innate dread of land speculation, which, of course, was what railroad speculation was all about. A year before his banking firm was founded Joseph had turned down his brother James's suggestion that they invest in railroads, saying, “I consider this a speculation entirely out of our line.… Certainly none of us
know
enough
of Erie, Central, etc. to keep them for an investment. We ought not to buy them at all.… We can make enough money in a legitimate way without gambling or hazard.”
*
And yet, as railroads began to dominate the financial scene, Joseph quickly fell victim to railroad fever, an ailment that replaced gold fever. Railroad fever, in fact, visited Joseph Seligman with an almost fatal attack.

Not quite two years after his antirailroad advice to James, Joseph, already deeply involved in the “Erie, Central, etc.,” wrote excitedly to Isaac in London: “We have just now seen Mr. Drew and he requested you to sell his 5000 shares of Erie in London.… Mr. Drew is a large operator and if satisfied will give us frequent orders in future.”

Drew—the notorious “Uncle Daniel” Drew, an ex-cattle drover—was indeed a large operator, and was able to force the price of Erie stock up and down at will. Why did Drew want his shares sold in London and not New York? So New York wouldn't find out about it for a while. Allied with Drew in his operations were two other terrors of the age—“Jubilee Jim” Fisk, a former circus roustabout, and an ex-farm hand who became the leader of the threesome named Jay Gould. Joseph Seligman felt somewhat out of his league with these powerful roughnecks (which, perhaps, was why they employed him), but he did his best to keep up with them. At Drew's bidding, Joseph wrote to an important customer in Cincinnati, urging him to buy Erie because “it is now 59, but we have reason to believe that old Drew is at work and we should not be surprised to see it up to 65 or 66 before two weeks.” The stock did reach that figure, then toppled again. In the great Erie “war” of 1868—when Drew, Fisk, and Gould sold millions of dollars' worth of Erie stock to Cornelius Vanderbilt, and then drove the stock down, leaving Vanderbilt two million dollars poorer—the Erie Railroad became known as “The Scarlet Woman of Wall Street.” When Gould went to jail for this particular manipulation, the Seligmans, who had been acting as his brokers, loyally guaranteed his $20,000 bail bond and, with this action, more or less permanently committed themselves to Gould.

Just what brought the Seligmans and the Jay Gould group together to begin with is uncertain, but it was an alliance that has provided lasting controversy. Perhaps Gould—who himself admitted candidly that he was “the most hated man in America”—sought out the Seligman firm because he hoped their name would lend prestige, as a kind of ballast, to his own high-flying operations. (This, at least, is what the
Seligmans have always said.) Or perhaps the Seligmans sought out Gould. Or, possibly, Gould simply had to settle for the young Seligman firm when older, more conservative gentile banking houses refused to act as his brokers. (One of these many years later told Frank A. Vanderlip, president of the National City Bank, “I made money because I stuck to one rule: I never dealt in Jay Gould bonds.”)

Socially, Gould was ostracized from every group in New York. Even at the height of his success, when he controlled the Erie and had made millions in the stock market, he was never invited to Mrs. Astor's balls and, when he tried to join, was blackballed—almost unanimously—by the New York Yacht Club. He was an unappetizing little creature-sallow, frail, shy, and ill. He spent twenty years dying of tuberculosis, often in terrible pain and bleeding from the lungs, and, unable to sleep at night, he paced the sidewalk in front of his Fifth Avenue house under the eye of a bodyguard. By joining forces with Gould, the Seligmans did nothing to enhance their position with gentile society, nor did Gould profit socially from his association with the Seligmans. If anything, the relationship fanned the billowing anti-Semitism of the postwar period, and is perhaps responsible for the fact that many people today believe that Gould himself was Jewish. At the height of his unpopularity, Henry Adams referred to him as “the complex Jew,” and many of his contemporaries in Wall Street regarded him, as Dixon Wecter has said, “as a Shylock in habits and probably heredity.” This notion was supported by the discovery that Gould was descended from one Nathan Gold, who had settled in Fairfield, Connecticut, in 1646, and that the “u” had been added to the family name as late as 1806. Still, as Wecter points out, “it is quite possible that Israel has been blamed unfairly” for Jay Gould. And the best reason for believing this is that Gould was a man who simply did not care what anybody thought of him. If he had been Jewish, he would not have troubled to deny it.

This was a period which has been labeled “one of the most sordid of United States political and economic history,” what with the carpetbaggers in the South and, in the North, a high tolerance for “bribery, political gangsterism, and wild speculation.”
*
Gould and Drew and Jim Fisk were, from that standpoint, very much in tune with their times. Gould admitted that he used bribery and blackmail to buy up Erie Railroad stock options from towns along his routes, and that he used Fisk's force of “plug-uglies” to take over by force and violence when other methods failed. Gould, furthermore, was by his own
admission a raider and a ruiner. He had no interest in managing or improving railroads. He merely liked to drive a railroad's stock up, with rumors and with trading, and then sell it and let it collapse of its own inflated weight.

The Seligman firm, in Joseph's words, did “an enormous amount of business” in the Gould manipulations of the Erie stock, selling short for their own account whenever Gould or Fisk or Drew sold short—as they did consistently—letting the triumvirate's operations provide the pattern for the Seligmans' own. In almost no time, the Seligmans had let the name of their old friend President Grant be linked with one of the most spectacular and scandalous financial coups of the decade—Jay Gould's attempt to corner the gold market.

The scheme boggled the minds of some of the brightest financiers of the day, and perhaps, in fairness to Joseph and his brothers, they never quite grasped what Gould was up to. Certainly President Grant was slow to realize what was afoot, as Gould had expected he would be.

In essence, it was a two-part plan designed to fill Gould's pockets by selling inflated gold shares and by collecting higher freight rates on his Erie Railroad.
*
Gould planned to start buying up gold and then, as the price climbed, to go to Grant—with the aid of the Seligmans and their entree to the White House—and persuade him that there was a shortage of gold. “What shall we do?” Grant was intended to ask, whereupon part two of the scheme was to go into effect. In order to build up the American gold supply again, it would be suggested that Grant step up United States grain sales to Europe, which would be paid for in gold. (This would be good for the American farmer, Gould pointed out charitably, though farmers were a class of Americans in which he had never shown much interest previously. It would also be good for his Erie Railroad, which was the major grain shipper from the Midwest to Eastern ports.)

Gould's stratagem was to raise the price of gold from $100 to about $145 and then unload it, meanwhile having got new freight contracts—at a higher rate—for shipping grain on the Erie. Gold began to climb as the Gould-Drew-Fisk group began buying, while the Seligmans, acting as the trio's brokers, also bought for their own account. Grant seemed to be falling into line perfectly, and gold did indeed reach $145. Then, apparently, avarice—one of Mr. Gould's most consistent emotions—took over, and Gould decided to let gold get a little higher—to $150—before selling. At this point Grant belatedly realized what was
going on, and ordered his Secretary of the Treasury to release enough of the government's own stock of gold reserves to bring the price down again. On what became known as Black Friday, gold prices crashed.

But, it turned out, Gould had sold out at the top of the market anyway, and so had the Seligmans. It was almost, or so it seemed at the time, as though Gould and the Seligmans had been given some advance warning of the Treasury's forthcoming action. Had Grant tipped his old friends off? It was never proved, but this was widely assumed to be the case.

One thing was certain: though Jay Gould emerged from the scuffle not quite so rich as Fort Knox, he was some ten to twenty million dollars richer than he had been, and the Seligmans, though no figure for their profits exists, cannot have done badly even if they made no more than a straight commission. When Gould's role in the “gold conspiracy” was discovered, he was attacked by an angry mob and barely escaped being lynched. As an almost anticlimactic aftermath, it turned out that Gould had double-crossed his old partner, Jim Fisk, by not letting him know that it was time to sell.

In 1872 Gould was ousted from the presidency of the Erie, and there was a long overdue investigation of the road's management. Joseph Seligman was the first witness called. He pointed out that his firm had been merely brokers for, not manipulators of, the Erie. The line between a manipulator and a manipulator's agent is somewhat thin, but in those more tolerant days this explanation apparently satisfied the investigating committee. Gould himself went on to blow stardust in the committee members' eyes by telling a pathetic tale of how, as a poor farm boy, he “drove the cows to pasture and stung my bare feet on the thistles,” and how, at the age of seventeen, he came to New York hoping to sell a mousetrap he had invented. “It was in a pretty mahogany case,” he said, “which I carried under my arm. I went into a Sixth Avenue car, I think, and every now and then I ran out on the platform to see the buildings, leaving the case containing the mousetrap on the seat.” He came back to find the mousetrap gone, and there, sure enough, was a sinister retreating figure hurrying down the aisle of the streetcar. Gould collared the man, who turned out to be a notorious criminal. For having helped apprehend the rogue, Gould said, he had surely done his duty to society. The mousetrap story also satisfied the investigating committee, and both Gould and the Seligmans emerged from the investigation unscathed. Or nearly so. The unholy light from the “Scarlet Woman of Wall Street” now bathed the Seligman brothers.

In the first months following the investigation, Joseph resolved to “stay out of the d——d railroads altogether.” But the temptation was too great. Soon he had stepped up his railroad activities again, and was into them even more heavily than before. In 1869 America got its first transcontinental railroad when California's Governor Leland Stanford went to Promontory, Utah, to drive the famous “golden spike” into the link joining the Central Pacific and the Union Pacific. The portly Governor aimed a silver mallet at the golden spike, swung, and missed. The miss was symbolic of the chaotic state of railroads, but no one perceived the symbolism. From that point onward, the growth of railroads was so rapid and disorganized that today there is virtually no American hamlet so small that it does not have its miles of rusted track approaching it, and a dilapidated station at its heart.

One transcontinental railroad might have seemed enough, but the first merely spurred dozens of rivals. One of these was called the South Pacific Railroad Company of Missouri, a line to run between St. Louis and the Kansas border. (Early railroads were named in the same helter-skelter fashion as they grew; what the South Pacific had to do with Missouri is unclear, except that the aim of the road was westward.) Joseph Seligman undertook to sell the South Pacific's first bond issue.

His system, a favored one of the period, was to loan a line money in return for bonds which were secured by the huge government land grants being given to railroads. It was a system which worked well when the bonds were marketable. In the case of the South Pacific the bonds sold poorly, and Joseph was briefly discouraged, suspecting that the country was becoming railroad-poor, “in view of the fact that nearly 200 railroads are being constructed within the borders of the United States.” Nevertheless, Joseph agreed to take on a second bond issue for the South Pacific with the proviso that someone from his firm be put on the railroad's board. Thus Joseph himself became a director of the South Pacific.

Meanwhile, he was also helping to finance the Atlantic & Pacific Railroad, a much more ambitious project which planned to lay tracks all the way from Springfield, Missouri, to the California coast (going nowhere near the Atlantic, however). There were a few problems. To begin with, though the Atlantic & Pacific had been granted 42 million acres of land for its proposed 2,000 miles of track, only 283 miles of track had actually been laid. It was essential to the economics of railroads that the lines have, at their terminal points, cities, or at least markets, to provide the completed lines with revenue from freight. A project such as the Atlantic & Pacific had to make its way through a
great deal of industrially barren Western land, and across the industrially dead Rocky Mountains, before it got to the commercially profitable Pacific Coast. There were, furthermore, only a few level or practicable crossings over the mountains and, at the time, only two possible crossing points on the Colorado River. In the case of the Atlantic & Pacific, it turned out that other lines had already preempted these points. The Atlantic & Pacific was, when Joseph took an interest in it, in effect a railroad to nowhere.