Fifty years in Wall Street
general effects which the foregoing considerations show to be
beneficial. It regulates production by instantaneously advancing prices
when there is a scarcity, thereby stimulating production, and by
depressing prices when there is over-production. It thus becomes one of
the most beneficial agents in the business world for the prevention of
panics.
“Speculation, moreover, makes a market for securities that otherwise
would not exist. It enables railroads to be built through the ready sale
of their bonds, thus adding materially to the wealth of the whole
country, and opening a more profitable market to labor. In this it
becomes the forerunner of enterprise and material prosperity in
business.
“There are ‘corners’ in all kinds of business as well as in Wall Street
speculation. Mr. A. T. Stewart, the great dry goods merchant, made more
‘corners’ during the latter part of his life than half the rest of the
business community put together. He did this mainly by contracting for
the entire and exclusive production of certain classes of goods, and as
such goods could only be bought at his establishment he had a close
‘corner’ in them, and accordingly put on his own prices.
“The greater portion of all the large mercantile firms do business in
the same way. And all the importing firms deal in futures. They sell
goods by sample, agreeing to deliver them at a future stated period,
varying from thirty days to twelve months. In the meantime the goods
have to be manufactured, and in many instances purchasers have to wait
until they are grown, and imported thousands of miles.
“If it were not for the support which comes from the ‘short’ interest in
grain and the general activity created thereby in times of depression,
which come periodically in this country, it would be in the power of the
large speculative grain dealers in Europe to manipulate prices downward,
and purchase our products every year, on raids, at prices much under the
cost of production.
“When we sell to Europe we must do so at a profit, or our transactions
don’t help to enrich the country.
“Another curious thing about ‘corners’ is that the people who organize
and manipulate them generally get most hurt in the enterprise. This was
the case with the ‘corner’ referred to in Hannibal and St. Joseph. Mr.
John Duff, of Boston, was the man in whose prolific brain that ‘corner’
originated, and the result to him was financial ruin. The stock ran up
to 350, though the short account amounted to only about 1,200 shares,
and the ‘shorts’ had to settle at 280.
“The result was similar in the ‘corner’ in Northwest in 1872,
manipulated by Jay Gould. The stock was started at 80 and it ran up to
280. It then reacted to the former figure. I believe Jay Gould was alone
in that deal, and it came pretty near crushing him, in spite of his
incomparable capacity for wriggling out of a tight place.
“Patents are ‘corners’ protected by law. The inventor has a monopoly for
seventeen years in his invention against all the world, and this gives
him a right to make and sell the article covered by his patent, often at
a profit of several hundred per cent. on the original cost, and on the
price it would bring if placed in competition in the open market, like
railroad stocks and grain.
“If it is the intention of the Legislature of this State to stop
enterprise in business, then your Committee is undertaking to accomplish
that work in the right way, but I think your success would be a public
calamity.”
I doubt the expediency of either undertaking to regulate enterprise by
law or to choke off competition by the law-making power. The result
would be woeful stagnation in business. It would crush the motives for
commercial activity and depress the creative energies of prosperity.
The law of supply and demand is the best regulator.
Congress attempted to suppress speculation in gold during the war, and
as soon as the act was passed prohibiting such dealings, the premium on
gold advanced 100 per cent. This so much terrified the wise statesmen
who concocted this sweeping measure of financial reform, that they
immediately displayed much more wisdom in hastening to have the bill
repealed.
The simple reason that such laws will not work in practice is that where
there is a will there is generally a way to evade them. This is the case
with the very best of such laws that can possibly be framed. Take the
usury laws for example. The methods of getting around these are
numerous, and there is practically no limit to the rate of interest that
can be exacted except the conscience of the lender, which is frequently
very elastic. Daniel O’Connell said he could drive a coach and six
through any act of Parliament. Jake Sharp was also of opinion that he
could run a double-track horse-car railroad through the best act that
could be framed by any Albany Legislature. Jake was checked in his
career at considerable trouble and expense, but his case illustrated
that the rule referred to holds good generally in legislation.
The fact, however, that it seldom happens that anybody gets badly hurt
in “corners,” except the conspirators themselves, is sufficient
protection for the general public, and should set the minds of
legislators at rest, if they mean to do legitimate business in their
law-making capacity.
The conspirators in “corners” are usually left high and dry without any
market for their fictitious values, and the “corner” very frequently has
the effect of putting the property out of the speculative market for a
long time. The fate of Han. & St. Jo. is a warning to those who
manipulate “corners.” The stock was seldom quoted for months afterwards.
Take the case of Black Friday for example. It was most disastrous to the
parties intimately connected with it. It came near proving Gould’s ruin,
and he has not got over the moral effect of it yet. The probability is
it will be an heirloom in his family, a skeleton in the Gould closet for
generations to come. Gould and Black Friday have become synonymous in
the minds of many people, and the further from Wall Street the more the
distinction becomes confounded.
In making these remarks I have no intention of throwing any reflection
upon Mr. George Gould, who seems to be a very promising young man for a
rich man’s son. His careful education has, no doubt, done much to
counteract the drawbacks incident to the sons of wealthy men to which I
have referred more fully in another part of this book. His maternal
training, I understand, has been of the most exemplary kind. This will
go far to offset the disadvantages to a business career, which the
accident of his birth in luxurious surroundings, according to my theory,
otherwise entails. If his brain is composed of the genuine plastic
material out of which the craniums of successful financiers are made, he
may learn to forget that he has been nursed in the lap of luxury, and
look back with due respect to the hole whence his father was digged and
the rock whence he was hewn. He may have brains enough, possibly, to
reflect with more pride on that ingenious mousetrap that first brought
his father into prominence, than the gew-gaws of the gilded palace in
Fifth avenue, the luxuries of the handsome parlors and rich
conservatories at Irvington, and the gorgeous trappings of his father’s
yacht and palace cars. I have, therefore, great hopes that George will
be a conspicuous exception to the rule I have propounded elsewhere
regarding rich men’s sons.
When a large mercantile firm buys up goods in any line so that nobody
else has the same goods, it then has a “corner” in these goods.
“Corners” in goods differ from “corners” in Wall Street in regard to
their influence on the organizers. They don’t act like a boomerang as
the Wall Street “corners” mostly do. The “corner” is sometimes sustained
during the life of the manipulator, as in the case of Mr. Stewart.
The successors of the great operators sometimes maintain it, but in this
instance Judge Hilton made a signal failure, though in some respects he
is a far abler man than Stewart was. Yet, he had not the genius, for
working “corners,” of his eminent predecessor. He is, probably, so well
learned in the law that he has too much inclination to go around the
“corners.”
One thing is certain, very few of these merchants can become wealthy
except through the medium of “corners.” It is by these peculiar methods
that nearly all large fortunes are amassed in their line, and in a
perfectly legitimate manner, too, whatever casuists and hair-splitting
moralists may say or think about the matter. The tendency to make
“corners” seems to be interwoven in our business methods, and to play an
important part in the struggle for existence. So I don’t see what we are
going to do about it without a radical change in that compendium of the
best political wisdom that the world has ever seen. I refer to the
Constitution of the United States. All the acumen and sophistry which
the most astute Philadelphia lawyer could bring to bear upon it has
hitherto failed to show that there is anything in this wonderful
document opposed to the liberty of making “corners.”
As Mr. Gladstone has truly said: “This document is the most wonderful
work ever struck off at a given time by the brain and purpose of man.”
I hold there is nothing in the Constitution opposed to the freedom of
making “corners,” and that all the evils resulting from these
speculative inventions can be met and counteracted by business methods,
and the laws regulating the ordinary concerns of life without resorting
to any rigid or special methods.
To dispose of “corners” or abolish them on the large scale to which I
have alluded would presume an entire revolution in our social system,
and to attack them piecemeal, as the Legislature frequently does,
involves a very suspicious kind of discrimination, and is at variance
with the spirit of the Constitution. In fact it often amounts to a kind
of thinly-disguised blackmail.
The truth is, that it is almost impossible to legislate against
“corners” without aiming a fatal blow at speculation itself, which, as I
have shown, is a vital principle in the regulation of values, the
stability of business, and the prevention of panics.
I believe the men of most experience, not only in Wall Street, but in
other departments of finance and commerce, will bear me out in the
statement that a market where even values are considerably inflated by
speculation, is more desirable than a period of depression. The result,
in the long run, is the greatest good to the greatest number. I don’t
believe that the ghost of Jeremy Bentham himself could rise up and
consistently condemn this statement.
I believe that speculation in grain and provisions is materially
beneficial to consumers, and that the latter are better off, one year
with another, and less liable to be menaced with periodical famines,
than if there were no speculation in these necessities of life.
Before leaving this prolific theme of “corners” I wish to say a few
words about my own experience in that line. The only “corner” in which I
have ever been materially hurt during my long business experience was
one manipulated by the State of Georgia.
This Sovereign State issued and granted altogether about eight millions
of bonds, all bearing the great seal, properly signed and legally issued
for full value. I advanced over two million dollars in good money on a
part of these bonds. Shortly after this transaction, the State of
Georgia ascertained through a garbled report of a committee sent to this
city by the Georgia Legislature, that all these bonds were held outside
of her own borders. The Legislature then passed an act of repudiation,
thereby reducing the value of the bonds from par to that of waste paper.