By Steve Fraser
Faber and Faber
Thomas Jefferson, the 3 rd President of the United States, once described New York City as “a cloacina of all the depravities of human nature”. Whether this was justified or not there is little doubt that this reputation stemmed back to the City’s origins as a remote outpost of the Dutch Empire in the seventeenth century. It was the Dutch, of course, who invented the rudiments of modern finance (the very first exchange was set up by dealers to trade in stocks on a bridge over the Amstel River in Amsterdam). The Dutch colony in America created by Holland in its “avidity for trade and lucre” ignored the scriptural preoccupations of a more zealous protestanism and traded in “a wide range of commodities including lumber, slaves, fur and flour, and was a most unprovincial Dutch province”. Wall Street itself was a Dutch construction, or at least the wall was. It was originally built to keep the cows in and the Indians out, but was rebuilt in sturdier fashion to discourage neighbouring British colonists from casting covetous eyes on this frail Dutch colony with its marvellous harbour and outlet to lucrative trans-Atlantic commerce.
From these early origins this scholarly history of Wall Street is different from all the other historical and financial dissertations as it deals mainly with the capitalistic aspect of the Wall Street phenomenon and the multitude of ways in which the world’s most powerful financial centre has infused everyday life and culture in America over the past two centuries. Indeed it significantly infused everyday life in Great Britain and, as I was to find out all too soon in the 1960’s, Canada as well. It is a comprehensive study.
Steve Fraser has cleverly divided his cultural thesis into four sections:
1. Buccaneers and Confidence Men on the Financial Frontier, 2. The Imperial Age,
3. The Age of Ignominy, and 4. The World Turned Upside Down. Throughout the first section Fraser guides us through the early years of America’s nationhood from the founding of the Republic in the late 18 th century through to the mid 19 th century. It exposes the early financial titans from Cornelius Vanderbilt, Daniel Drew, James Fisk and Jay Gould and explains that throughout this pioneering era there was continuous friction between government and financial capitalism – through the War of 1812 (fought until 1815 by the United States and Great Britain) and the American Civil War 1861–1865, after which an industrial revolution remade the nation at unimaginable speed. Wall Street figured centrally in that transformation and its financiers dominated the economic and political landscape. The two financial classics The Age of the Moguls by Stewart Holbrook who wrote about the businesses and characters that built the United States; and also The Robber Barons by Matthew Josephson about the Great American Capitalists between 1861 and 1901 and this turbulent period in American financial history were my governing guides to understanding Wall Street and the American way of thinking. Nothing much has changed.
“The Imperial Age” was almost totally dominated by the legendary J.P. Morgan who was born in Hartford, Connecticut in 1837. His father, Junius Spencer Morgan, was a prosperous financier who taught his son how to manage the family assets. When the Civil War broke out Morgan joined his father’s financial ventures and from 1864 to 1871 he was an increasingly influential member of the firm Dabney Morgan & Co. In 1871 he became a partner in Drexel Morgan & Co., which in 1895 became J.P. Morgan & Co. It was soon recognised as one of the most powerful institutions in the world. Disdainful, secretive and imperious, he was utterly lacking in anything resembling the common touch. Unlike the buccaneering Vanderbilt, Drew, Fisk and Gould, all of whom rose from obscurity, Morgan’s ancestry was steeped in the elite sophistication of Knickerbocker New York. By rescuing an economy where competitive capitalism had gone somewhat out of control, Morgan and his confederates created a virtual economic command centre where his influence spread from the railroads into every key industrial sector. According to Pulitzer’s New York World Morgan managed to “bestride the world like a Colossus”. His realm included shipping interests, coal mines, insurance, and communications industries. He even backed a $62 million dollar government bond issue in 1895 and secured a $50 million dollar American issue for the British war loan. In the early 1900’s he also provided the backing that assisted the US Treasury in stemming a stock market panic. He continued to be America’s foremost financier throughout his life and his personal wealth was enormous. When he died in 1913 he had given substantial portions of his wealth to charities, churches, hospitals and schools. Much of his huge collection of art was given to the Metropolitan Museum of Art.
And then came the Roaring 20’s and the Jazz Age, all of which is included in Fraser’s “Age of Ignominy” and all of which was followed by the 1929 stock market crash. Just as the Civil War had called into question the legitimacy of the nation state in the 1860’s, so the Crash and following Depression posed a similar challenge to capitalism in the 1920’s and 1930’s. Both the Civil War and the Great Depression live on indelibly in the national memory as the two profound trials of modern America. “Wall Street was not merely accountable for the country’s dilemma; it was its perpetrator, the principal villain in a saga of guilt, revenge, and redemption. ......White shoe Wall Street suddenly seemed no better than a gang of common criminals, skimmers, double-dealers, and confidence men, stripped of every last vestige of moral authority and heroism to which they had once laid claim.”
And then came Franklin Delano Roosevelt, a Brahmin well familiar with Wall Street. He realised, as few before him, that a handful of men ran most of the country’s industry, and that abuses had reached epidemic proportions in the Roaring 20’s. Everyone now suffered the result. “Unrestrained financial exploitations which created fictitious values never justified by earnings have been one of the great causes of our present tragic conditions,” he said. Wall Street’s enmity for the President was raw and unconcealed, but Roosevelt introduced increasingly strong securities and banking regulations. Social Security and Unemployment Insurance were also introduced in the 1930’s; and Richard Whitney, the autocratic President of the New York Stock Exchange, was sent to prison for embezzlement. There is no doubt that Roosevelt’s New Deal put a stop to capitalism’s excesses. After Roosevelt died in the 1940’s Truman, who presided over the creation of the Cold War, was the last President to adopt an adversarial position to Wall Street.
But Wall Street roared back again. In Steve Fraser’s fourth and final section “The World Turned Upside Down” it mirrored its own political and cultural emotions. “It seemed to cut adrift. Somehow it boomed through the second half of the decade, unfazed by urban riots and insurrections, the Tett offensive, the thundering herds of anti-war demonstrators, the assassinations of Robert Kennedy and Martin Luther King, the debacle in Chicago at the Democratic Party convention; it shrugged off the ominous portense that the dollar’s pre-eminence in international trade and investment would no longer be taken for granted." Charles Merrill founded what eventually became Merrill Lynch Pierce Fenner, and Smith, and was the first to evangelise the stock market to the “thundering herd”. This was in the early 1940’s. From the 50’s on stock prices increased and Wall Street played a major role in providing new capital for the nation. This was followed by the great conglomerate movement of the early 1960’s (Ling Temco Vought, Litton Industries, Texetron and Gulf and Western). Abuse again. And then the rise of the institutional investor also in the late 1960’s: more and more money handled by fewer and fewer people. It was our early descision to serve these demanding institutional investors and collective funds rather than the individual retail investor or Charles Merrill’s “thundering herd” that gave my specialised brokerage firm the niche we craved first in Canada and then in Europe. Similar firms like Donaldson, Lufkin and Jenrette had similar immediate success in the United States. Lyndon Johnson, when he signed a bill amending the Securities and Exchange Act in 1964, poked fun at Soviet denunciation of American capitalism.
Eventually the bull market of the Reagan years saw Wall Street again infusing the public frenzy, and even Bill Clinton overturned out of date New Deal legislation, most importantly the Glass Steagall Banking Act which had lasted seventy years and kept banks from becoming brokers. This opened up a whole new era of abuse culminating in the zany dot.com era which gripped the public’s imagination. American had become a “shareholder nation”; no less than half the householders owning stocks either directly or indirectly.
Wall Street is an expansive social history. Fraser has drawn on histories, novels, cartoons, songs and hearsay to expose Wall Street in its roller-coaster ride in public acceptance. It is a real story, and an entertaining encyclopedic history. Nothing is excluded except perhaps a fuller explanation of the “paper economy” which was introduced in the late nineteenth century and still exists today. The very creation of “greenbacks” in 1862 is an American phenomenon, and the story of the dollar is in itself the invention of America. There are 7 trillion dollars in the world today -–most of which exist electronically. There are 14 billion paper dollars – a third of which are held outside the United States. Thus there are more dollar bills in existence than any other branded object including coke cans. Today’s Federal Reserve notes are backed only by faith in the US Government. In fact the story of America’s history is told in its currency. Changes in American currency usually came about during times of crisis such as the American Revolution and the Civil War. It may well happen again. Faith in paper notes is an enduring theme in the history of the American dollar and Wall Street is the machine that uses this unique commodity. It is the instrument of measure and achievement. Money is a belief that has to be shared and, just like Wall Street, it only works if people have confidence in and are willing to use the system.