Every Man a Speculator: A History of Wall Street in American Life|
by Steven Fraser
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|A Review of: Every Man a Speculator: A History of Wall Street in American Life
by Christopher Ondaatje
Thomas Jefferson, the 3rd 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 the City's reputation stemmed from its origins
as a remote outpost of the Dutch Empire in the seventeenth century.
It was the Dutch 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
protestantism 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 transatlantic commerce. The wall, probably
erected by slaves and native Americans, was made of twelve-foot-high
wooden posts running from the East River to the Hudson. The gun
emplacements faced northwards as Peter Stuyvesant (colonial governor
of the time) feared an attack by land from New England. The British
came by sea instead and in 1664 overran Stuyvesant's bustling and
commercially minded settlement. Hints of Dutch and later French
designs on New York kept the wall in place, though poorly maintained,
until the 1690s, when it was paved over with cobblestones and a
street appeared in its stead.
>From its descriptions of the early origins, this scholarly history
of Wall Street is different from all the other historical and
economic 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 influenced
everyday life and culture in America over the past two centuries.
Indeed, it significantly affected everyday life in Great Britain
and, as I was to find out all too soon in the 1960s, Canada as well.
This is a comprehensive study.
There have been other attempts to document Wall Street's important
role in American economic history. The two classics are The Age
of the Moguls by Stewart Holbrook, who wrote about the enterprising
characters who built the United States, and The Robber Barons by
Matthew Josephson, a book about the Great American Capitalists of
1861 to 1901 and this turbulent period in American financial history.
These were my governing guides to understanding Wall Street and the
American way of thinking.
Nothing much has changed. More recently there have been other
critical books, notably Tom Wolfe's fictional masterpiece, The
Bonfire of the Vanities, which exposed the excesses and arrogance
of the 1980s. Steve Fraser's history, on the other hand, although
still focused on the early financial titans-Cornelius Vanderbilt,
Daniel Drew, James Fisk and Jay Gould-as well as on the more recent
rogues-Diamond Jim Brady, Charles Jerkes, Joseph Kennedy, Samuel
Insull and Michael Milken-is nevertheless aiming to make the
unarguable point that "the history of Wall Street . . . is one
of deep ambivalence and one of chronic cultural warfare."
Steve Fraser has cleverly divided his cultural thesis into four
sections: Buccaneers and Confidence Men on the Financial Frontier;
The Imperial Age; The Age of Ignominy; and 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 18th century to the middle of the 19th century.
Throughout this pioneering era there was continuous friction between
government and finance capitalism-during the War of 1812 (fought
until 1815 by the United States and Great Britain), and the American
Civil War 1861-1865-following which an industrial revolution reforged
the nation at an unimaginable pace. Wall Street figured centrally
in that transformation and its financiers commanded the economic
and political landscape.
"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 whose influence
spread from the railroads into every key industrial sector. "The
social order he epitomised was extraordinary in the history of Wall
Street," and this lent the whole political economy a coherence
and direction it would otherwise have lacked. As Morgan's fortune
grew, he continued to make investments and acquisitions. He funded
Thomas Edison through the 1870s and 1880s. When the railroads ran
into trouble after the Civil War he acquired them. By the middle
of 1900 he owned some five thousand miles of rail. He founded and
acquired huge steel-making operations, and in 1901 established the
US Steel Company by merging several steel companies into the dominant
steel producer in the country-thus owning the steel operations that
supplied his rail companies. Morgan's 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 1900s 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 Twenties 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 1860s, so the Crash and the ensuing Depression posed a similar
challenge to capitalism in the 1920s and 1930s. 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 Twenties. Everyone now
suffered the consequences. "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 1930s; 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 1940s,
Truman, who presided during the start 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 portent 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 1940s.
From the 50s on stock prices went up 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 1960s (Ling Temco
Vought, Litton Industries, Texetron and Gulf and Western), misconduct
again, and the subsequent rise of the institutional investor (also
in the late 1960s). More and more money was being handled by fewer
and fewer people.
It was my specialised brokerage firm's early decision to serve these
demanding institutional investors and collective funds, rather than
the individual retail investor or Charles Merrill's "thundering
herd", that gave us the niche we wanted 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
driving the public frenzy, and even Bill Clinton overturned outdated
New Deal legislation-most importantly the Glass Steagall Banking
Act-which had lasted seventy years and kept banks from becoming
brokers. This created a whole new period of abuse, culminating in
the zany dot.com era which gripped the public's imagination. America
had become a "shareholder nation", with no less than half
of 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 portray Wall
Street and its roller-coaster ride in public opinion and acceptance.
It is a real story, and an entertaining encyclopedic history. Nothing
is left out 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 tantamount to 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. No history of
Wall Street is complete without a full discussion of the dollar's
part in it. Much more than a simple medium of exchange, the US
dollar from its inception was an icon of revolutionary unity embued
with great symbolic significance. It was a primer in American
purpose, an instrument for the future of the New World, pitting
Federalists against Republicans, farmers against goldbugs, and the
money power against the people. It was this struggle that forged
the identity of the dollar and settled forever the shape of American
civilisation. Today's Federal Reserve notes are backed only by faith
in the US Government.
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 it and
are willing to use the system.