Chapter I: Wall Street, Past, Present, and Future

BY HENRY CLEWS.

I.

The twenty-seven respectable citizens of New York who, in 1792, met under a buttonwood tree in front of the premises now known as Number 60 Wall Street, and formed an association for the purchase and sale of public stocks at a fixed and unvarying commission, with a proviso of mutual help and preference, committed themselves to an enterprise of whose moment and influence in the future they could have formed no adequate conception. At that date Wall Street was a banking district, small indeed when compared with its present condition, but important in its relations to the commerce of the nation. This transaction of the twenty-seven--among whom we find the honored names of Barclay, Bleecker, Winthrop, Lawrence, which in themselves and their descendants were, and are, creditably identified with the growth of the community--added the prestige and power of the stock exchange to those of the banks, and fixed for an indefinitely long period the destinies of the financial centre of the Union.

During the earlier part of this century the banking interests of Wall Street quite overshadowed those of the stock market. The growth of railway securities was not fairly under way until the opening of the fifth decade. Elderly men can recall the date when the New York Central existed only as a series of connecting links between Buffalo and Albany, under half-a-dozen different names of incorporation; and passenger cars were slowly and laboriously hoisted by chain power over the "divide" between the latter city and Schenectady. Since there were but few railways in the entire country, there were few opportunities for speculative dealings in their shares. These shares, too, were as a rule locally held, and were more frequently transferred by executors under court orders than by brokers on the stock exchange.

Prior to 1840 and 1845, however, the members of the stock exchange were not idle. Public stocks were largely dealt in. The United States government frequently issued bonds, and the prices of these bonds fluctuated sufficiently to afford tempting chances of profits. State bonds also were sold in Wall Street in larger amounts than to-day. About the year 1850 the sales of Missouri sixes and Ohio sixes frequently amounted to millions of dollars daily. During that uncertain epoch of finance when the United States Bank was both a financial and a political power, the shares of that institution were a favorite subject of speculative dealing. The shares of Delaware & Hudson, and of the original Erie Railway, the latter laboriously constructed over a rough, barren, and thinly settled portion of the State, partly by State funds, had also become actively exchangeable in the market.

During this period a relatively enormous quantity of banking capital had located itself in and near Wall Street. The Bank of New York existed before 1800, and later, although not long after, the Street witnessed the erection of buildings of a now obsolete, and yet at that time an attractive, style of architecture, devoted to the uses of the Manhattan Banking Company, the Bank of America, the Merchants, the Union, the Bank of Commerce, and others. Were it not that land in the banking district is so valuable, and that the need of upstair offices is so great, one might be tempted to regret the demolition of the graceful money temples occupied by three of these corporations on the north side of Wall Street. In each of them the entablature rested upon two fluted stone pillars with Doric capitals, in addition to the supports of the side walls. Between the steps and the doors of the temple extended a marble-paved court which often served as a convenient place of 'change for borrowers and lenders. Entering the doors you found yourself in a large, airy, dome-lighted room, the sides of which were occupied by the clerks of the institution, guarded by high barricades from the intrusive eyes and feet of the general public. At the rear were the offices of the president and cashier. Throughout the entire building there reigned a solemn and semi-religious silence. One may witness something like this to-day in the Wall-Street end of the U. S. Treasury Building, and only there.

Up to the epoch of the rise of railway building and railway-share speculation, the main aliment of Wall-Street banks was the profit derived from the discount of commercial paper and from loans upon government and State securities. But when railway shares and bonds, based upon lines of road which were constructed through the rich regions of the Union lying between the Atlantic and the Mississippi river, came upon the market in large amounts, affording ample security for investment and loans, the great banks of Wall Street were quick to appreciate the advantages of loans made upon such undoubted values, which were at all times convertible into cash on the stock exchange. In times of pressure, commercial paper is an inferior asset for a bank, all of whose obligations are payable on demand. At such times notes become practically unsalable, and are not always paid at maturity. A failure of one firm brings down others, and renewals are urgently required from banks just when they are least able to grant them. Salable securities are on such occasions an ark of safety, and, dating from the early fifties, this class of securities has always been the basis of a large amount of the loans of the banks of Wall Street and their near neighbors of the same class in lower Nassau Street and also Broadway.

With the immense outgrowth of business consequent upon the discovery of gold in California in 1849, and the construction of the great railways of the Middle West, such as the Michigan Southern, the Northern Indiana (now the Lake Shore), the Michigan Central, the Galena & Chicago, the Rock Island, and others of like importance and real value, the banks and banking houses of Wall Street, and the stock exchange, grew into most important factors in developing the prosperity of the country. Enterprises were originated by able men acting under corporate powers, and when these were brought before the committees of the stock exchange and duly approved and listed, capital instantly flowed forth from its reservoirs in answer to the securities thus offered. And it may safely be said that but for the combined machinery of the New York banks and the stock exchange the actual developments of twenty years would have dragged laboriously through an entire century.

Amid so much progress and activity, speculation was not idle. Those were the days of many of our greatest railway operators, daring, able, enthusiastic men, who had the rare gift of imparting confidence to their followers and the public, and realized the fable of King Midas, whose touch transmuted all things into gold. Their careers were those of conquest and accumulation, like that of Napoleon; and, like him, they underwent, with few exceptions, their retreats from Russia and their Waterloos. Of such were Jacob Little, Daniel Drew, Anthony Morse, and others, to whom now the motto of Junius applies: _Stat nominis umbra_. Merely the shadows of their names reach over to us from the horizons where their suns set so long ago.

There was an epoch too in the Wall Street of the past when gigantic and deeply considered combinations were set in motion, entitled "corners." As to corners, a word of explanation may not be amiss. There are always two factions in the stock market: the bulls, who want stocks to rise in price in order that they may sell out; and the bears, who want stocks to fall in price so that they can buy in. Contrary to the superficial belief of the public, the bulls are sellers and the bears are buyers. But in order to sell a commodity you must buy or borrow it; and in order to buy at a future date you must sell at a previous date; and thus the bull buys for the purpose of selling at a profit, and the bear sells something which he doesn't own for the purpose of buying it at a lower price. The bull therefore hopes to push prices up so that he can sell his purchase at a profit, and the bear hopes to drag prices down so that he can buy what he has sold, also at a profit.

Meanwhile, the bear has delivered the shares sold by him, and in order to deliver them, has borrowed them, and given security in money at its market price. Here he has placed himself in danger, because the owner of the shares may at any time tender him this money and demand the shares, which the bear may not be able to provide himself with, except at the price which the owners choose to set upon them.

Thus a person might be under contract to deliver the shares of some corporation which might be absolutely worthless, and yet these shares _might_ be so held that the holders could exact one thousand dollars a share. Given a railway with a share capital of ten millions, one person or knot of persons might own every certificate of its stock, and have it all loaned out to bears who had sold, borrowed, and delivered it. It is obvious that this person or club of persons could compel purchases of the shares which he or they alone possess, at whatever price he or they think proper to demand; and since such things can be done by skilful combinations under able generalship, they have been done, and were a favorite scheme during the eventful years between the sixties and the eighties. The corners in Harlem, Hudson, Erie and Northwest, in which Vanderbilt, Drew, and Gould achieved such success for themselves and their associates, have passed into history as a conspicuous portion of the great events of Wall Street. Their interest is chiefly historical, because of late years no comprehensive corners have been organized. Share capitals are so large that it is difficult for one man to control any one of them, and a divided corner is apt to fail. But in their day and generation they have offered brilliant illustrations of genius and strategic skill in financial warfare.

The system of selling short, however, which gave birth to the idea of creating corners, and which came into vogue in the fifties, has never ceased to be a leading factor on the stock exchange. It was the result of certain inflations of values which necessarily follow the construction of great enterprises. However high a valuation may be set upon any given commodity, there are always persons who expect a higher price. Early historical examples of this fact are the South-Sea shares and John Law's Mississippi shares, over which England and France respectively went crazy in the last century. The loftier the figures to which these shares mounted, the greater was the eagerness of the public to buy them. But at that period the art and mystery of selling short had not been brought into practice, and when the bubbles collapsed there were universal losers and no direct winners.

During the latter half of this century there have been periods in the history of Wall Street when the prices of railway and industrial shares have been forced enormously above the standard of actual values, and innumerable persons have parted with good money in exchange for mere phantoms of imaginary values. At such times the short sales of discernment, directing the X rays of clear-sighted criticism into the swollen and opaque mass of financial carrion that is exposed for sale in the market, are of the utmost benefit to the public. The bear is then a benefactor to the community, and when he pulls down and tears to pieces the rotten carcass of some gigantic humbug, strewing the highway with its remains, we cannot praise his work too highly.

II.

The present condition of Wall Street is one of lassitude and expectancy. The great banks have an abundance, perhaps a superabundance, of money, their own and their depositors, which they are only too glad to lend on solid and readily salable collateral at low rates of interest, approximating the prevalent rates in London and Paris, where similar accumulations of idle capital exist. A large part of this money is deposited with them by local banks in all parts of the country, which recognize New York City as the financial centre of the Union, and are content with interest of from one to two per cent upon the funds which they are unwilling or unable to use safely at home. The stock exchange is also in a condition of quietude. The public are neither buying nor selling stocks in any large amount.

This state of things is the resultant of well-known facts. Numerous over-capitalized and badly managed railways have gone into bankruptcy, and either are in the hands of receivers or have emerged from such guardianship, and are painfully toiling along on the road to prosperity on the twin crutches of assessments upon stockholders and the withholding of dividends from the same long-suffering and patient class.

The transactions at the stock exchange at present average about two hundred thousand shares a day, exclusive of bonds, government, State, and railway; and a certain class of observers who like to subject circumstances to a minute analysis inform the public that the daily profits of the members of the exchange are about sufficient to pay the expense of office rent and clerk hire. This conclusion takes it for granted that these profits should be equally divided among the membership. This is not a reasonable supposition. Many of the members are such only in name, and rarely go on the floor. Others live during most of the time on their accumulations, and come into the market to buy or sell only when prices are abnormally low or high. The comparatively small busy portion manage somehow to keep fairly active, and are cheerfully looking forward to better times, through a vista from which the cloud of a change of the monetary standard has already passed away, and into which the genius of enterprise beckons them to enter.

III.

While in many respects the future is a sealed book, yet there is such a thing in the economy of nature as an absolutely accurate prevision of events, such as eclipses of the sun and moon, and conjunctions of the planets, and a relatively correct prevision of events depending upon the growth of enlightened communities. Since the incorporation of the Bank of New York, at the corner of Wall and Williams Streets, the banking capital of New York has increased more than sixtyfold, of which more than one-half is held and used in and around Wall Street, and the aggregation of deposited and loanable capital has grown from a few millions to over half a billion. If this has been the result during one century, what will take place in the same direction during the next century? The ratio of increase will not be kept up. A thousand dollars may be doubled in a day, but no such ratio as a hundred per cent a day can be predicated of a million. And yet it is certain that, under proper management, the million will go on increasing; and in the same manner will our half-billion increase by its own earning power, and by contributions from all parts of the Union. The development of the United States in the direction of population, agriculture, manufactures, and mines is so enormous and so steady that this nation will at some not distant period become the most opulent of all the nations of the planet, unless unforeseen and improbable political events happen by which our great commonwealth shall be disrupted or its financial stability overturned. Under a normal condition of things the capital of the citizens of the Union will continually increase, and the banks of the city of New York will be the depositary of larger and larger reserves of whatever capital is temporarily idle in the places where it is created. In due time the financial centre of the world will be shifted from London to our imperial city.

Such a destiny has been foretold for St. Petersburg, in view of the construction of the Siberian Railway and its branches, which in time will open up to industry an immense tract of productive soil in the most fertile parts of Asia, abounding in wheat and corn land, and full of superior water power. But in this superb rivalry between the United States and the colossus of Europe and Asia, the former nation has an immense start as to time, and a still greater advantage in the character of its population. And in addition to these we have the undoubted and constantly increasing supremacy of the English language. Just as during the Middle Ages Latin was the vernacular of the learned classes, and as to-day French is the language of diplomacy in Europe, so is English the common tongue in all the commercial localities of the globe. With English a man can commit himself to foreign travel anywhere, while outside of Russia there are few towns on the various continents in which Russian is not an unknown speech. These controlling conditions cannot be readily or easily changed, especially since no paramount reasons exist why they should be changed.

It is then a reasonable forecast of the future, that in due time the weighty import of the names of Lombard[1] and Threadneedle Streets will be transferred to the name of Wall Street, and the facts implied by such a transfer are of a dignity and power which it is impossible to estimate. The road leading to this great destiny can only be blocked by injurious legislation, and the good sense of our citizens may be confidently relied upon to prevent the creation of such a barricade against national prosperity.

[1] It will be recollected that Macaulay has pictured a New
Zealander of some future day as sitting upon a broken arch
of London Bridge, contemplating the ruins of St. Paul's
cathedral; and readers of the classics may recall the
forecast of Seneca in the time of Nero, as to the discovery
of a Western continent by which Rome should be dwarfed: "In
later ages the time shall come when the ocean shall loosen
the chains which bind us, a mighty continent shall be
disclosed, and a deity shall unveil a new world beyond
Britannia."