History Of Wall Street
( Originally Published 1939 )
IT is hard to visualize this narrow street, with its towering sky-scrapers, its hurrying throngs, and its immeasurable wealth, as the same street, where some one hundred and fifty years ago, a few men gathered under a button-wood tree to exchange quotations with each other. Nevertheless, such is the tale of history, and tracing on down through the years we find one after another reaching the sublime heights of wealth, and, more often than not, dashed against the reefs of greed.
It all started when Alexander Hamilton, whom John Adams denounced as the "bastard brat" of a Scotch trader, was appointed Secretary of the Treasury, of the young States, who had thrown off the yoke of England, and set sail after seven years of blood-shed and privation, to captain their own ship.
Those who are familiar with revolutionary history need no re-minder of the struggles, both physical and financial, that the young country encountered during its first years of freedom. Plantations were barren for the want of man-power and cultivation; shipping was dead and industry was idle.
The young country had no credit and her currency was practically worthless. Printing presses had worked at high-speed throughout and following the war, and the currencies issued by the new Federal Government, as well as local and state bodies, were enormous. No one knew its real value, if any. A barrel of flour was priced as high as sixteen hundred dollars.
Such was the condition and task confronting our newly formed government, hard on the heels of the final victory of our Continental army. Foreign governments had no faith in our money, and neither did our own people. Not worth a "Continental damn" became a popular expression when referring to the currency which was held by the people.
Alexander Hamilton, however, a shrewd and studious man, and possibly the greatest Secretary of the Treasury this country has ever known, had his own opinions as to how to establish the country's credit and put a fiscal foundation beneath it which would lift it out of the financial mire of despondency. His plan was to redeem all government money at par, and, needless to say, he was bitterly opposed. His contention was that no government could endure which repudiated its obligations. When he was appointed in September, 1789, he lost no time in setting the machinery in motion for the fulfillment of his plan.
It was at this period of time that syndicates, such as we have learned to understand the word, came into prominence and existence. Immediately upon the announcement of Hamilton's bill, syndicates were organized to purchase at greatly depreciated prices, such amounts of currency as they could purchase, in anticipation of it being redeemed at par.
The success of their plan was assured from the start, for it is to be remembered that we had no telegraph or telephone lines; and news by stage-coach travelled slowly. Especially was this true in the far Southern states and in the interior.
Adopting the same tactics which the unscrupulous might employ today, the members of the Syndicate and their representatives soon persuaded the holders to part, not only with their government script, but such state and local script as they possessed for a fraction of its value. Thus the majority of wealth, as it was represented by federal, state and local script, was soon concentrated in the large cities of the East.
Hamilton headed a bitter fight in his efforts to have the currencies redeemed, but he was a determined fighter and eventually he achieved his aims. He was not to stop there, however. Part of his program was to also redeem all state and local script, and in this he was more bitterly contested than ever. Challenges and counter challenges were freely flung. Evidence was offered that thousands and thousands of unsuspecting people had been defrauded by the organized speculation of greedy, wealthy men.
Hamilton had no part in this, but, notwithstanding the truth of the charges, he was not to be deterred in his original plan. He was firm in his belief that his plans meant the basis for a solid credit structure and time itself has proven the integrity of his theory. However, when it came to the assumption of state debts he met with a solid opposition from the Governments of the South, and was temporarily defeated. He did not stop, however, and finally, with the aid of Thomas Jefferson, carried his plans through to ultimate success.
His next step was the organization of the National Bank, and another scandal broke out after the issuance of its stock. The success of Hamilton's first financial plans attracted to him a large following and the National Bank stock became the popular issue of an investing public. Not unlike twentieth century trading, the higher the stock rose the more eager the public seemed to buy, until finally the bubble burst. The stock broke over 75 points in less than two months. The insiders, however, were not concerned. They had bought cheap and sold dear. In this connection it might be mentioned that many members of Congress participated in this profit. At the time of organization they had alloted quite a bit of the original stock to themselves.
It is hard to predict how long the National Bank would have continued its monopoly in the banking world, had it not been for the ingenuity of Aaron Burr. He secured a charter from the State of New York, in 1799, under the pretense of supplying pure water to the City of New York. The Ethiopian in the wood-pile, however, was the clause permitting the Manhattan Company to invest their surplus funds in stocks, or any other financial transactions, which did not conflict with state laws. Thus did Hamilton's enemy, who later killed him in a duel, break the banking monopoly and pave the way for a number of other banks which opened in rapid succession.
Notwithstanding Hamilton's sincerity, and the fact that order and efficiency were given to national finances, his vast financial undertakings offered an opportunity for large and greedy profits.
The fact that thousands of unsuspecting people found them-selves defrauded out of their script, wiped out when the insiders sold out and withdrew their support from the National Bank stock, created a national scandal and brought about a financial investigation. Hamilton routed his opponents in confusion and successfully exonerated himself; nevertheless, the young "Street," which was to become the financial mart of the world, made its debut with a great deal of stigma which it did not deserve.