Financial History the Magazine of the Museum of American Finance

Financial history The magazine of the Museum of American Finance

Ladies of the Ticker The Poverty of Slavery The Origins of Taxation in America

ISSUE 122 | SUMMER 2017

Financial IN THIS ISSUE FEATURES history The magazine of the Museum of American Finance in association with 10 the Smithsonian Institution The Poverty of Slavery Economic growth and slavery, then and now. Issue 122 • Summer 2017 (ISSN 1520-4723) By Robert E. Wright

Kristin Aguilera Editor 15 Taxing to Build a Commonwealth EDITORIAL ADVISORY BOARD Howard A. Baker, Esq. Public finance in America, 1607–1861. Howard Baker Associates By W. Elliot Brownlee Lawrence A. Cunningham The George Washington University Brian Grinder Eastern Washington University Gregory DL Morris Freelance Journalist Arthur W. Samansky The Samansky Group Bob Shabazian American Stock Exchange (ret.) Myles Thompson Columbia Business School Publishing Robert E. Wright Augustana University 20 Ladies of the Ticker Jason Zweig Pioneering women stockbrokers from the 1880s to the 1920s. The Wall Street Journal By George Robb ART DIRECTION Alan Barnett Design 24 John J. Kiernan MUSEUM STAFF David J. Cowen, President/CEO Business journalism pioneer, 1845–1893. Kristin Aguilera, Deputy Director By Rob Wells Tony Critelli, Accountant Maura Ferguson, Director of Exhibits Chris Meyers, Director of Education 28 Creditworthy Sarah Poole, Collections Manager Linda Rapacki, Managing Director A history of consumer surveillance of Visitor Services and Operations and financial identity in America. Mindy Ross, Director, External Relations By Josh Lauer

Copyright © 2017 by the Museum of American Finance, publisher, 48 Wall Street, New York, NY 10005. Telephone: 32 The New Iron Age 212-908-4110; fax: 212-742-0573. All rights reserved. West Point Foundry on the Hudson Financial History is the official membership magazine of the Museum of American Finance. pioneered heavy manufacturing. By Gregory DL Morris

2 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org TRUSTEES

IN THIS ISSUE DEPARTMENTS Richard Sylla, Chairman New York University

Andrea de Cholnoky, Vice Chair Golden Seeds

Robert Muccilo, Treasurer 4 The Ticker Consolidated Edison Alvi Abuaf Museum collaborates with Cheddar on CEO Video Series. Financial Services Executive

Gregory Bauer 4 Message to Members Moody’s Marcy Cohen By David Cowen, President and CEO ING Americas

David J. Cowen, President/CEO 7 Connecting to Collections Museum of American Finance Sanford Crystal New Acquisition: Argentinian Inflationary Currency Crystal & Company By Sarah Poole John P. Davidson III Citigroup

Charles Elson 8 Educators’ Perspective University of Delaware Winning Without Subsidies: Planes, Steamships and Automobiles Adam Goldstein Vettery By Brian Grinder and Dan Cooper Martha Clark Goss American Water Works 36 Cory Gunderson Book Reviews Protiviti

A Rabble of Dead Money, by Charles R. Morris Robert Hotz Reviewed by Gregory DL Morris Houlihan Lokey Alfred F. Hurley, Jr. Why Wall Street Matters, by William D. Cohan Emigrant Bank

Reviewed by Bart Ward Myron Kandel CNN

Glenn Kaufman 39 Trivia Quiz Kaufman Family LLC

Ranch Kimball Glorious Cahoots Capital Partners

Consuelo Mack WealthTrack

Richard B. Payne, Jr. Financial Services Executive

Verne O. Sedlacek Financial Services Executive

Karen Seitz Fusion Partners

ON THE COVER Mark Shenkman Portrait of an unidentified woman, Shenkman Capital Management, Inc. a smile on her face, as she reads David L. Shuler itBit a stock ticker, early 20th century. Maria Smith See related article, page 20. Smith Affiliated Capital (SAC)

Charles Wait The Adirondack Trust Company

John E. Herzog, Chairman and Trustee Emeritus Herzog & Co. Vintage Images/GettyVintage Images

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 3 THE TICKER MUSEUM NEWS

Finding the “Fun” in Financial History

Summer greetings from the Museum! The following week, on September 12, Also in September, stay tuned to our It has been peak tourism season here in we will launch our Fall Evening Lec- YouTube channel for the launch of our New York, and we continue to welcome a ture Series with a talk by award-winning CEO video series, which will feature steady stream of visitors from around the Harvard Business School professor Mihir monthly videos of finance executives world who come to learn about American Desai on The Wisdom of Finance: Discov- speaking on the topic of “Why Wall Street finance and financial history through our ering Humanity in the World of Risk and Matters” from a variety of perspectives. exhibits, tours and classroom programs. Return. This event will be live streamed And, finally, I would like to welcome One of my favorite recent thank you notes on our YouTube channel (www.youtube. to our Board of Trustees Ranch Kimball, came from a student named Shia, who com/FinanceMuseum/live) in partnership who brings to our Museum a vast amount with Bloomberg for Edu- of knowledge and experience in both the cation, in order to reach a for-profit and non-profit sectors, includ- global audience of students ing as the Chairman of the Board of Over- Message to Members and professors, in addition seers at the Museum of Science, Boston. David J. Cowen | President and CEO to our live audience. For a We are excited to work with Ranch as complete list of upcoming we continue to develop our vision for the events, visit our website at future of our Museum. said, “Thank you for letting us visit your www.moaf.org/events. Museum. It was fun to learn how much debt our society is in!” Although “fun” is not a word often associated with our national debt, we did recently pay tribute to the creator of that debt, as we honored Alexander Hamilton on July 12 (the anniversary of his death), with a talk by Hamilton scholar Robert Wright on “Hamilton’s Blessed Debt.” There was a full house to hear Bob speak about Hamilton’s conception of excessive debt and how the national debt, as reformed and revitalized by Hamilton, served to cement our young nation and spur economic growth. The program will soon air on C-SPAN’s American History TV. We have several other engaging programs lined up for the coming months, and we’ll be launching our Fall Lunch and Learn Series on September 7 with a program featuring Fidelity fund manager Joel Tillinghast on his new book, Big Money Thinks Small. Financial historian Robert Wright’s talk on “Hamilton’s Blessed Debt” was filmed for C-SPAN and will air later this year.

The Indian Head cent that was minted Pennsylvania farmers rebel against AUG 2 from 1859 to 1909 is replaced by the AUG 7 the Whiskey Tax, prompting George 1909 Lincoln cent, making the Indian Head 1794 Washington to call for volunteer federal cent a popular collector’s item. troops to suppress the “Whiskey Rebellion.”

4 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org MUSEUM NEWS THE TICKER

Museum of American Finance Collaborates with Cheddar on CEO Video Series: “Why Wall Street Matters”

On September 6, the Museum will announce a new monthly video series featuring 10 CEOs from across the financial industry discussing “Why Wall Street Mat- ters” from their individual perspectives. The CEO Series is a collaboration between the Museum and Cheddar, a live and on- demand news network covering technology, media and entertainment, which broadcasts daily from the floor of the New York Stock Exchange. The first CEO video in the series will be released on September 7 via the Muse- um’s website, YouTube channel and social media outlets. Each month, the featured • David Siegel, CEO of Investopedia Follow us each month as we explore “Why CEO will appear on Cheddar’s Opening • Adena Friedman, CEO of Nasdaq Wall Street Matters” with some of the most Bell show as well. The CEOs participating prominent figures in the industry. in this series are: • Tom Farley, CEO of the NYSE • Art Steinmetz, CEO of Oppenheimer- • Jon Stein, CEO of Betterment Funds • Ellen Alemany, CEO of CIT • Joseph Tarantino, CEO of Protiviti • Michael Corbat, CEO of Citi The CEO Video Series will be available • Paul Taylor, CEO of Fitch Ratings The video release schedule will be avail- at YouTube.com/FinanceMuseum. • Ralph Hamers, CEO of ING able on the Museum’s website in September.

UPCOMING EVENTS Sep 7 Lunch and Learn Series: Joel Tillinghast on Big Money Thinks Small. 12:30 – 1:30 p.m. Talk followed by Q&A and book signing. $5 includes Museum admission; members and students free. Sep 12 Evening Lecture Series: Mihir Desai on The Wisdom of Finance: Discovering Humanity in the World of Risk and Return. Talk followed by Q&A, book signing and reception. 5:30 – 7:00 p.m. $15 admission; members and students free. Sep 19 Lunch and Learn Series: Aron Gottesman and Michael Leibrock on Understanding Systemic Risk in Global Financial Markets. 12:30 – 1:30 p.m. Talk followed by Q&A and book signing. $5 includes Museum admission; members and students free. Oct 12 Lunch and Learn Series: John Wasik on “Lightning Strikes: Nikola Tesla, New York Finance and the History of Everything.” Talk followed by Q&A and book signing. 12:30 – 1:30 p.m. $5 includes Museum admission; members and students free. Oct 20 Lunch and Learn Series: John Herzog on A Billion to One. 12:30 – 1:30 p.m. Talk followed by Q&A and book signing. $5 includes Museum admission; members and students free. All events are held at the Museum (48 Wall Street, NYC) unless otherwise noted. For more information or to register online, visit www.moaf.org/events.

In the depths of the Great Depression, the Dow The earliest known advertisement by an American AUG 8 Jones Industrial Average closes at 41.22 — its AUG 14 broker appears in the Massachusetts Centinel. The 1932 lowest point since June 1897. It has lost 89.2% of 1784 broker, Joshua Eaton of Boston, announces “Public its value since its peak on September 3, 1929. Securities of every denomination negotiated.”

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 5 THE TICKER MUSEUM NEWS

MUSEUM OF AMERICAN FINANCE 2016–2017 DONORS ($1,000 AND ABOVE)

•• Howard J. Abner •• Martha Clark Goss •• Peter G. Peterson Foundation •• The Adirondack Trust Company •• Cory Gunderson •• Protiviti •• Ally Financial •• William B. Harrison •• The Ricketts Family •• American Express •• Healey Family Foundation •• Rodger Riney •• Anonymous (3) •• Michael Henriques •• Charles M. Royce •• Theodore Aronson •• Herzog & Co. •• Royce & Associates •• American-Scottish Foundation •• Scott and Melissa Hirsh •• Judith O. and Robert E. Rubin •• Cliff and Laurel Asness •• Robert Hotz •• Richard Ryffel •• Bank of America Merrill Lynch •• Houlihan Lokey •• Daniel and Sarah Rueven •• Barrett Asset Management •• Al and Denise Hurley •• S & P Global •• Barclays •• ICE/NYSE •• Saybrook Capital •• Bloomberg •• Incapital •• Charles Schwab & Co., Inc. •• John Bogle •• ING •• Verne Sedlacek •• Briar Foundation •• International Precious Metals Institute •• Karen Seitz •• Robert Buckholz •• Investopedia •• Shenkman Capital Management •• Capco •• Paul J. Isaac •• Shine Financial Services •• Capgemini •• Carol Kaimowitz •• Walter V. Shipley •• Carter Ledyard & Milburn LLP •• Myron Kandel •• David L. Shuler •• Cheddar, Inc. •• Glenn Kaufman •• The Paul E. Singer Foundation •• Citadel Securities •• Henry Kaufman •• Robert Smith •• Citi •• Kohlberg Kravis Roberts & Co., LP •• Smith Affiliated Capital •• Clarfeld Financial Advisors •• Kx Systems •• The Starr Foundation •• CME Group •• Lepercq de Neuflize Asset Management •• Ewout Steenbergen •• Consolidated Edison •• Sherry and Alan Leventhal •• Strategas Securities •• Cowen Group, Inc. Family Foundation •• Richard Sylla •• Crystal & Company •• London Stock Exchange Group •• TD Ameritrade •• Ray Dalio •• The Longhill Charitable Foundation, Inc. •• Third Point LLC •• John P. Davidson, III •• Carol Loomis •• Mark Tomasko and Shirley Schaeffer •• Adrienne and Dan Lufkin •• UBS Financial Services •• Andrea de Cholnoky •• Consuelo Mack •• U.S. Bancorp •• Randolph DelFranco •• Marge Magner •• U.S. Trust, Bank of America •• William Donaldson •• Moody’s •• Vested •• William H. and Jane P. Donaldson •• Elizabeth P. Munson •• Vedder Price PC •• Charles Elson •• J. Edward Murphy •• Taylor B. Wagenseil •• Ending Spending •• New York City Department •• Wells Fargo •• Mr. and Mrs. Eric C. Fast of Cultural Affairs •• Kendrick R. Wilson, III •• Vincent Favaro New Albion Partners •• New York Life •• Anthony Yoseloff •• Financial Women’s Association •• Duncan Niederauer For more information about •• Flooring Solutions Group LLC •• OppenheimerFunds supporting the Museum, •• Paxos Trust Company •• Arturo Gomez please contact Mindy Ross at •• Lawrence Goodman •• William Penn Foundation [email protected].

President John Tyler vetoes the third Bank of the The Main Treasury Building in United States, leading to a riot at the White House. AUG 16 AUG 24 Washington is burned down This violent incident led to the formation of the 1841 1814 by the British. District of Columbia police force.

6 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org CONNECTING TO COLLECTIONS THE TICKER

New Acquisition: Argentinian Inflationary Currency

By Sarah Poole, Collections Manager above 10% and inflation reached an esti- by the government; a series of budget cuts mated 310%. By the time of the election and revenue increases would be imple- This summer the Museum received a at the end of 1983, the foreign debt had mented with the intention of reducing the donation of two Argentinian 500 australes grown to $45 billion and the already high federal deficit; and new regulations would bank notes. Issued from 1985–1991, the inflation rates doubled. limit the government’s ability to issue cur- austral was a new currency issued as part Alfonsín tasked Economics Minister rency for the purpose of meeting expenses. of a plan to stabalize Argentina’s econ- Bernardo Grinspun with implementing The plan saw initial success in lower- omy. According to the donor, Andrew a recovery plan. Rather than taking the ing inflation, but it failed to sustain these Oh, who collected the notes while living in traditional approach of spending cuts and decreases. After a year of the program, Argentina, the color discrepancy between devaluations, Grinspun announced that inflation rose to pre-austral levels and the two notes (shown here) was caused Argentina would sponsor wage increases grew to hyperinflation by 1989, topping by the printers literally running out of and increased employment. The govern- out at 5000%. The fixed pricing of goods ink as the government rapidly printed ment would also maintain funding for and set wages also led to price gouging money during a period of high inflation. social programs and support for provin- and labor conflicts, while cuts in spending While the Museum has not yet been able cial governments. These efforts failed to led to public frustration as benefits and to definitively confirm this to be the true produce results, and Grinspun refused support programs declined. The govern- cause of the color misprinting, the aus- to compromise with Argentina’s credi- ment also started printing money again, tral nevertheless is an interesting story tors’ attempts to persuade him to adopt despite the limitations set by the Austral from Argentina’s decades-long battle with more customary methods for the nation’s Plan, as export prices dropped and Argen- inflation. economic rehabilitation. In May 1985, the tina’s international debt grew. Raúl Alfonsín was elected president of IMF suspended all new loans to the coun- Alfonsín did not run for re-election Argentina in October 1983 and inherited a try and demanded a schedule for the in 1989 and his party’s candidate, Edu- nation with a number of economic issues. repayment of existing debts, effectively ardo Angeloz, was defeated by Carlos At the end of 1982, Argentina owed $43.5 forcing Grinspun’s resignation. Menem. Rioting over hyperinflation and billion in foreign debt and had narrowly Alfonsín appointed Juan Sourrouille to food shortages led Alfonsín to resign the avoided sovereign default with emergency replace Grinspun, and Argentina adopted presidency and turn the government over loans from the International Monetary his “Austral Plan” in June 1985. The Austral to Menem in July 1989, five months early. Fund (IMF). That same year, Argenti- Plan consisted of four parts: a new cur- Under Menem, Argentina returned to the na’s GDP fell 5.6%, manufacturing prof- rency, the austral, would replace the peso; peso as its currency in 1991 with a new its dropped 55%, unemployment climbed firm wage and price controls would be set Convertibility Plan.

These Argentinian 500 australes bank notes were recently donated to the Museum. The note on the left shows the correct color scheme, while the one on the right is much lighter, possibly due to the printers running out of ink as the government rapidly printed the money during a period of high inflation.

After announcing it would post record-breaking pre-tax losses The stock market crashes. Western Union SEP 7 for the year, Chrysler asks the federal government for $1 billion SEP 20 falls from 75 to 54½ and the NYSE Board 1979 in loan guarantees to avoid bankruptcy. 1873 of Governors closes the exchange.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 7 EDUCATORS’ PERSPECTIVE

Winning Without Subsidies: Planes, Steamships and Automobiles

By Brian Grinder and Dan Cooper The object of the statement, concerning which you made inquiry, David McCullough, paraphrasing was to make it clear that we stood on quite different ground Orville Wright, highlights the brothers’ from Prof. Langley, and were entirely justified in refusing to accomplishments at Kitty Hawk: “Their flights that morning were the first ever in make our discoveries public property at this time. We had paid which a piloted machine took off under the freight, and had a right to do as we pleased. The use of the its own power into the air in full flight, sailed forward with no loss of speed, and word “any,” which you underscored, grew out of the fact that landed at a point as high as that from we found from articles…and…correspondence that there was a which it started.” However, from a financial perspective, the next paragraph in his somewhat general impression that our Kitty Hawk experiments biography of the Wright brothers is much had not been carried on at our own expense, &c. We thought more interesting. In that paragraph, McCullough notes that it might save embarrassment to correct this promptly. the Wright brothers spent less than $1,000 — Wilbur Wright to Octave Chanute, January 18, 1904 in total to develop their flying machine. In contrast, competitor Samuel Pierpont Langley spent 70 times that amount, much of Pennsylvania and the director of the practical and commercial reality. How- of it financed by the government, in his Allegheny Observatory when he became ever, increased tensions between the failed attempt to be the first to fly a manned interested in aviation. His work in Penn- United States and Spain that eventually heavier-than-air craft. sylvania enabled him to show that Isaac culminated in the Spanish-American War The brothers used profits from their Newton was wrong when he theorized renewed the US military’s interest in the bicycle business to fund their experiments that motorized flight was impossible. His possibilities of manned flight. in flight. The Wright brothers’ authorized reputation as one of the foremost scientists Langley was not politically astute, but biographer, Fred Kelly, commented on the of his time led to a position as Assistant his associates in the scientific commu- surprising smallness of their expenses, not- Secretary of the Smithsonian Institution in nity who had important political connec- ing that most of the costs involved mechan- 1887. He became Secretary of the Smithso- tions quickly brought his experiments in ical labor, which the Wrights did them- nian a few months later upon the death of flight to the attention of President William selves. Kelly goes on to address the legends then-Secretary Spencer Baird. In 1896, with McKinley. Langley soon found himself of where the brothers procured that $1,000. friend Alexander Graham Bell as witness meeting with representatives from the Many of Dayton, Ohio’s wealthy business- and photographer, Langley conducted the Army and the Navy. This led to an agree- men claimed to have funded them. The first unmanned mechanical flight with two ment with the War Department’s Board money, some claimed, came from the sale flying machines he dubbed “aerodromes.” of Ordinance and Fortification (BOF) to of an Iowa farm owned by the family or Some among early aviation enthusiasts finance Langley’s experiments. The BOF from a mortgage on the family home. Kath- believed that manned flight was achiev- agreed to advance Langley $25,000 with erine Wright, Wilbur and Orville’s sister, able only with government funding. Of the promise of an additional $25,000 was amused by claims that she provided course, aviation’s potential usefulness in when Langley could demonstrate substan- the funds from her schoolteacher’s salary. times of war attracted the interests of gov- tial progress to the board. She found that to be about as laughable as ernments around the world. Thus, anyone By late 1900, Langley had assembled a the rumor that her brothers relied on her with a credible and convincing plan to staff that included chief engineer Charles mathematical skills to build their airplane. build a heavier-than-air flying machine Manly, seven machinists and three car- According to Kelly, “Their bicycle busi- would find government funding readily penters. The monthly payroll ballooned ness had been giving them a decent income, available. to $800 not including Manly’s salary, the and at the end of the year 1903 they still had Langley believed it would cost at least cost of building the engine or the cost of a few thousand dollars in a local building $50,000 to build an aerodrome that could building the houseboat that would serve and loan association.” carry a man, but he was reaching the as a launch pad for the aerodrome. Lang- Langley was a professor of astronomy end of his career and doubted he would ley burned through the initial $25,000 and physics at the Western University be involved in making manned flight a allotment in no time and nearly ran out

8 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org EDUCATORS’ PERSPECTIVE Hulton Archive / Stringer Archive Hulton American Stock/Getty Images Brothers Wilbur (left) and Orville (right) Wright spent less than $1,000 in total to develop their flying machine.

of money before the BOF sent the next New York and Liverpool appeared to give Undaunted, the unsubsidized Vanderbilt $25,000 installment. When that money the firm an advantage. Many felt the sub- Line competed aggressively against the ran out, he tapped into funds given to the sidy was patriotic, since it allowed Collins subsidized Collins Line by cutting costs Smithsonian by Bell and Dr. Jerome H. to compete on a more even playing field and slashing rates. Kidder to continue the work. with the British-subsidized Cunard Line. A series of disasters struck the Collins Finally, in October of 1903, the manned Collins built luxurious steamships that Line beginning in 1854, when its steamship aerodrome was ready for its first test. far exceeded the minimum standards set the Arctic struck a smaller vessel and sank. Launched from the top of a houseboat on by the federal government. The four ships Many of the passengers on board the Arctic the Potomac River, the craft piloted by Collins built to fulfill its agreement with perished, including Edward Collins’s wife, Manly immediately plummeted into the the Post Office each cost an average of Mary, and two of their children. Then, in water. Langley blamed the failure on a $730,000. Moreover, these ships burned January of 1856, the Collins steamship the flaw in the launching system. After mak- twice as much coal as other ships and, Pacific left Liverpool bound for New York. ing repairs to the aerodrome, Manly took according to historian Michael W. Sum- The ship disappeared without a trace, never a second bath in the Potomac on Decem- mers, “…cost more in repairs after six arriving at its destination. The final blow ber 8 — a few days before the Wright years than the original outlay for construc- came in August of 1856, when Congress brothers’ first successful manned flight at tion.” The increased repair costs came notified the firm that its subsidy would be Kitty Hawk. The Wright brothers’ success about partially because Collins ran the withdrawn six months hence. In early 1858, was witnessed by very few. In contrast, an ships at full bore in the interests of speed. the Collins Line ceased operations. increasingly skeptical press eagerly cov- Unfortunately, the Collins Line was Vanderbilt received a contract to deliver ered Langley’s failures and heaped scorn unable to make a profit given its high transatlantic mail after the termination of on the crazy professor with wild ideas expenses. In 1852, company head Edward the Collins agreement. Victory was his, about flight. K. Collins decided to lobby Congress for but by now he was already directing his Langley returned to the BOF to ask for more money instead of cutting costs. attention toward more lucrative opportu- additional funding, but he was denied. In spite of a veto by President Franklin nities in the railroad business. His experiments in manned flight were Pierce, Collins was successful in increas- Today, electric vehicles (EVs) are all finished. Two self-taught entrepreneurs ing the subsidy to $858,000 annually, the rage. The rollout of the Tesla Model spending their own hard-earned money but there was a catch. Opponents of the 3 has raised hopes that inexpensive, high had bested the brightest scientific minds subsidy increase included an option in quality EVs will soon be available to the government funding could buy. the appropriations bill that gave Congress masses. However, a recent study from A similar thing had happened before, the right to cancel the subsidy with six Edmunds.com indicates that once govern- in the mid-19th century, when competi- months’ notice. ment subsidies are exhausted, the market tion began to heat up in the trans-Atlan- Cornelius Vanderbilt was one of for EVs will probably fall dramatically. EV tic trade wars between several American Collins’s fiercest competitors. His very sales in Hong Kong slumped earlier this steamship companies. A 10-year annual public fight against the Collins subsidy year, when a dramatic reduction in the tax subsidy of $385,000 granted to the Collins increase led to accusations that Vanderbilt break for EVs went into effect. This also Line in 1847 for delivering mail between bribed the President to veto the increase. happened in Georgia with the repeal of a

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 9 Brian Grinder uses these photos — of his grandfather branding cows and his father recovering in St. Joseph’s hospital — to introduce his students to the concept of risk management. Hulton Archive / Stringer Archive Hulton Samuel Pierpont Langley’s “aerodrome,” ready to be catapulted from a houseboat on the Potomac River, 1903. Langley spent 70 times as much as the Wright Brothers in his failed attempt to be the first to fly a manned heavier-than-air craft.

state tax credit for EVs. Brian Grinder is a professor at Eastern Kelly, Fred C. The Wright Brothers: A Biogra- According to The Wall Street Journal, Washington University and a member phy. New York: Dover Publications. 1989. the federal government currently provides of Financial History’s editorial board. Langley, S P. “The Flying-Machine.”McClure’s a tax credit of up to $7,500 each for the Dr. Dan Cooper is the president of Active Magazine. IX, 647–660. 1897. first 200,000 electric vehicles sold by a Learning Technologies. McCullough, David G. The Wright Brothers. manufacturer. Tesla will likely hit the Sources New York: Simon & Schuster. 2015. 200,000 mark in early 2018. When this happens, it will take about a year to phase Butler, John A. Atlantic Kingdom: America’s McFarland, Marvin W., ed. The Papers of out the tax credit. As the tax credit phases Contest with Cunard in the Age of Sail Wilbur and Orville Wright. New York: out, a subsequent reduction in Tesla sales and Steam. Washington, DC: Brassey’s, Inc. McGraw-Hill. 1953. is likely to follow. 2001. Stiles, TJ. The First Tycoon: The Epic Life of Perhaps government-subsidized Tesla Cummings, Steve. “GM vs. Tesla: Who Will Cornelius Vanderbilt. New York: Alfred A. will be able to overcome all of the obsta- Reach 200,000 US Electric Car Sales First?” Knopf. 2009. cles in its path and dominate the automo- Clean Technia. September 23, 2016. Summers, Mark W. The Plundering Genera- tive industry with its EVs. Wouldn’t it be Elimination of Federal Tax Credits Likely to tion: Corruption and the Crisis of the Union, great, though, if somewhere a couple of Kill US EV Market. Edmunds.com. 2017. 1849–1861. New York: Oxford University obsessed, bicycle-shop-owning siblings, in Press. 1987. their spare time and at their own expense, Goldstone, Lawrence. Birdmen: The Wright Tobin, James. To Conquer the Air: The Wright were at this moment perfecting an inex- Brothers, Glenn Curtiss, and the Battle to Brothers and the Great Race for Flight. New pensive EV with a single charge capacity Control the Skies. New York: Ballantine York: Free Press. 2003. of 1,000 miles or more? Maybe it will even Books. 2014 be capable of flight! Ip, Greg. “Electric Cars Are the Future? Not So Whitney, Ralph. “The Unlucky Collins Line.” Fast.” The Wall Street Journal. July 13, 2017. American Heritage. 8, 48–53, 100–102. 1957.

10 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org The New York Public Library Public York New The Economic Growth and Slavery, Then and Now Illustration of a slave auction in Virginia, 1861.

By Robert E. Wright even — than African slaves in the New to understand that if they run away their World in the 19th century. They are, as offspring, siblings, friends or parents will As the third decade of the Third Mil- antislavery scholar Kevin Bales has called be killed, but a human will immediately lennium ad approaches, about 40 million them, disposable people. get the picture, either through language or people worldwide are enslaved. Slavery The good news is that 40 million slaves example. is not meant metaphorically here; it does out of a total global population of 7.5 The bad news is that 40 million people is not refer to people voluntarily work- billion is perhaps the lowest percentage a lot of people, probably the most people, ing long hours for low wages. It refers figure in human history, literally. The first in absolute terms, ever enslaved at one time to individuals who are de facto owned writings almost all mention slavery as a throughout world history. (It was only in by other people (or businesses), human well-developed institution, so it must have 1927, after all, that the global population beings who have no say about the work evolved during pre-history. Slavery’s roots, reached even two billion.) But the worst they do. Most receive no remuneration in fact, probably extend all the way back news of all is that the world supposedly other than enough water, food, clothes to the domestication of animals because ended slavery in the 19th and 20th centuries, and sleep to keep them on task. They don’t many of the same technologies used to when the largest slave societies — including control where they live, what happens tame wild beasts were used to physically Britain, the United States and Brazil — out- to their children (or parents) or even, in control humans as well. Of course, in lawed the institution. many cases, their own names. Many are many instances human beings can be con- Of course, it was more than a little naive worse off than chattel slaves (like Toby/ trolled psychologically far more easily and to believe that mere laws abolishing such Kunta Kinte from Roots) because they cost cheaply than they can be controlled physi- a hoary and ubiquitous institution would so little, much less — in nominal terms cally. A horse, cow or dog cannot be made actually obliterate it. Why would slavery

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 11 Most Americans are rightly upset to hear stories like those related in gripping detail in The Slave Next Door: Human Trafficking and Slavery in America Today, by Kevin Bales and Ron Soodalter. The United States eventually abolished slavery, they learned in school, because it was beyond immoral; it was an abomination unto the Lord and/ or natural rights. How dare anyone (except the government) enslave anybody (not duly convicted of a crime)! Meanwhile, in the Ivory Towers of the Ivy League, some historians have been hard at work re-writing US economic history to make it appear that slaves were the root cause of US economic growth and development. Led by Cornell University’s

The New York Public Library Public York New The Ed Baptist, those historians are trying to Prisoners in New Hanover County, North Carolina, preparing road materials, 1927. establish a case for reparations for the descendants of 19th-century chattel slaves. In other words, they want the US govern- be any different from the manufacture and enacted to ensnare young black males ment (and hence ultimately taxpayers) to sale of drugs or guns or the making of usu- and other “undesirables” who lacked the give African Americans money to compen- rious loans? Outlawing lucrative practices money or education to resist. sate for the enslavement of their ancestors. does not stop them; it merely drives them In the world’s poorer corners, like Reparations have hitherto faltered politi- underground. Africa, Latin America and South Asia, cally because they seem patently unfair After emancipation in the United States, the abolition of slavery often did not even to taxpayers, few of whom are descended slavery manifested itself anew in two ways. create substantive changes in the structure from enslavers. (In fact, a higher percent- One, the so-called “White Slavery” scare of of bondage, only changes in nomencla- age of African Americans are descended the late 19th and early 20th centuries, was, ture. Slaves became indentured or bonded from slave masters than the population at in retrospect, the foundation for today’s laborers and the ultimate owners hid large because many slave masters regularly “sex trafficking” networks. The other took behind layers of contractors, some of them raped one or more of their female slaves.) advantage of the loophole created by the enslaved themselves. As Siddarth Kara, the If the new scholarship is correct, however, 13th Amendment, which outlawed slav- Director of the Program on Human Traf- all Americans are materially better off due ery “except as a punishment for crime ficking and Modern Slavery at Harvard to slavery because it induced the Indus- whereof the party shall have been duly University’s Kennedy School of Govern- trial Revolution and so forth, so taxpayers convicted,” and led to the enslavement of ment has shown, apathy and bribes keep should have no problem paying a gratuity millions of African Americans, American millions of Indians in open slavery, rolling to the descendants of slaves. Indians, Hispanics and poor whites in bidis (filter-less cigarettes), breaking boul- Economic historians have been quick to various prison work systems throughout ders for construction, baking bricks, weav- criticize the work of Baptist and those who the nation. ing carpets and so forth. Millions more, followed the main gist of his 2014 book, Enslaved criminals appeared in popu- mostly children, find themselves working The Half Has Never Been Told: Slavery lar culture — in movies like Cool Hand as forced beggars or prostitutes in Mumbai and the Making of American Capitalism. Luke; O Brother, Where Art Thou? (chain or other South Asian megacities. The whole genre, they have shown, makes gangs) and Shawshank Redemption (con- Americans are just beginning to awaken numerous claims that cannot be sub- vict-lease system), and in dramatic series to the realities of modern slavery as sor- stantiated empirically, much less econo- like Orange Is the New Black (in-prison did stories of sex trafficking, especially metrically. Only one critique, however, factory system) and Boardwalk Empire underage prostitution, repeat themselves has gone to the root of the matter, my (chain gangs) — but convicts never quite throughout the country. Even in God-fear- own The Poverty of Slavery: How Unfree registered as modern slaves because of ing places like South Dakota, sex trafficking Labor Pollutes the Economy (2017), which the presumption of guilt and the seeming runs amok every year during the state’s shows that slavery has never, anywhere, justice of the 13th Amendment’s loophole. huge Sturgis motorcycle rally and its much- been a net benefit to an economy because Doug Blackmon, Dennis Childs, Talitha vaunted pheasant hunting season. Non-sex the institution invariably creates massive LeFlouria, David Oshinsky and other slavery also occasionally makes the news, negative externalities, or costs borne by scholars, however, have shown that many usually when illegal domestic helpers are non-slaveholders. Slavery, in other words, of those caught up in America’s prison sys- kept under lock and key for years but is akin to a huge smokestack or a large tem complex were convicted wrongly, sub- sometimes when agricultural workers are sewage pipe. While the factory owners jected to trumped-up charges or convicted discovered to have been enslaved in open (enslavers) benefit from the production of “crimes,” like loitering, deliberately sight, as in Florida’s tomato fields. of pollution (the negative externalities

12 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org created by enslaving others), the rest of the world suffers from it. The fact that slavery created huge social costs was so well understood as recently as the 1970s-80s that it rarely came up in the great slave debates of the era touched off by the publication of Robert Fogel and Stan Engerman’s Time on the Cross (1974). Instead, the debates centered on enslaver profitability and slave efficiency. Many -his torians were outraged to learn that Fogel, Engerman and other economic historians believed that slavery could be profitable and that in some situations, like on cot- ton plantations utilizing the gang system, slaves could be more efficient (more out- put from a given input) than free laborers. The economists eventually won the debate, and historians scampered off to study how slaves resisted their bondage. Library Public York New The Today, historians of capitalism, like “Desperate Conflict in a Barn,” an illustration of escaped slaves fighting for freedom, 1872. Baptist, minimize the impact of slave resistance in order to maximize exploita- tion and hence profit and hence, in their adherents forgot about (or, more likely, were stealing from everybody, not just minds, investment available to spark the never learned about) slavery’s negative their slaves. Industrial Revolution. As Richard Sylla externalities. Throughout the 1850s and To keep their slaves hard at work, and other scholars have shown, however, 1860s, writers like Cassius Clay, Hinton enslavers had to enlist poor Southern America’s economic growth spurt was not Helper and J.E. Cairnes catalogued the whites to patrol at night, Northerners touched off by mid-19th century indus- huge costs that slavery imposed on non- to return runaway slaves, Northern mail trialization, but rather by the financial slaveholders. Their claims were so com- users to subsidize the US Postal Service revolution masterminded by Alexander pelling that it gave rise to a second reason, (which ran a profit in the North but a defi- Hamilton in the 1780s and 1790s. after immorality, for abolishing slavery. cit in the infrastructure-poor South) and By the time Hamilton’s reforms were Many Americans stirred against slavery Northern taxpayers to maintain armed made law, the new United States of Amer- for the first time not in response to a reli- services sufficient to put down slave rebel- ica had a Constitution that was strong gious or humanitarian calling, but because lions and to win new territories for enslav- enough to create a government that was they saw, for the first time, that enslavers ers to master. energetic enough to protect Americans from foes foreign and domestic, but yet internally checked enough to prevent tyranny. Aided by the Mint Act (which defined the US dollar unit of account in terms of gold and silver), funding and assumption of the Revolutionary War debt (which brought America and its con- stituent states out of bankruptcy), the Bank of the United States (which solidified the new nation’s credit standing) and cor- poration formation (which allowed entrepreneurs excited by the new system of political economy to pool their resources to start banks, insurers, transportation infrastructure concerns, manufacturers, utility companies and even service companies), the US economy began to grow at modern rates starting in 1790, not the antebellum period. The other major problem with the new history of capitalism’s claim that slav- Library Public York New The ery induced economic growth is that its “White Slavery in the East — Exposed for Sale,” 1875.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 13 Secession erupted not when the North Slaves were a most troublesome property, growth and development has thus far moved to abolish slavery, but merely when as evidenced by the large, complex legal not proven sufficient motivation for most its candidate for President, Abraham Lin- codes that applied to them wherever their people to donate to Free the Slaves or coln, hinted that he would eliminate fed- legality remained sacrosanct. other antislavery NGOs. Some govern- eral subsidies for slavery. Aware that those Today, slavery is illegal, but it still cre- ments, though, are waking up to the fact subsidies were what made slavery profit- ates large negative externalities. Its illegal- that despite what some historians of capi- able, enslavers faced the real possibil- ity encourages corruption, ranging from talism argue, allowing slavery to persist in ity of slavery unwinding rather quickly, payoffs to border guards and police offi- their nations or other jurisdictions is not certainly at a great loss to themselves, or cers to the wholesale purchase of judges about to stimulate growth. For growth, instigating a war that they just might win. and other local administrators. As Kevin they need to look to the policies of Alex- They of course chose the latter. Bales shows in his most recent book, ander Hamilton, who was a major critic of Throughout history, enslavers have Blood and Earth: Modern Slavery, Eco- slavery. received massive public subsidies in cide, and the Secret to Saving the World order to be able to afford to keep people (2016), today’s slaves are at the literal Robert E. Wright is the Nef Family Chair enslaved. Not even so-called voluntary cutting edge of deforestation, on deck for of Political Economy at Augustana Uni- slaves, those who enslaved themselves over-fishing and adding fuel to the fires of versity, where he has taught courses in in times of famine in order to survive, pollution-spewing brick kilns and other business, economics, government and wanted to be slaves. Slaves almost con- dirty manufacturing ventures. The eco- history since 2009. He is the co-author or stantly resisted their bondage in ways nomic metaphor of slavery as pollution co-editor of more than 20 books, includ- large and small. Some, like Aesop (of fable has become reality as illicit activities like ing most recently The Poverty of Slavery: fame), perplexed their masters at every drug, arms and sex trafficking reinforce How Unfree Labor Pollutes the Econ- turn. Others played the dutiful servant and strengthen each other. omy (Palgrave Macmillan, 2017), from until an opportune time to escape pre- Bales hopes that painting enslavers which this article has been adapted. He is sented itself. Still others joined Spartacus as polluters will help add some green on the editorial advisory board of Finan- or other slave rebels. Yet others lever- momentum to the modern antislavery cial History magazine and has served on aged knowledge of their masters’ affairs movement. The fact that slavery is a the board of Historians Against Slavery, (amorous or business) to gain advantages. moral abomination and bad for economic an antislavery NGO, since 2012.

14 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org Taxing to Build a Commonwealth Public Finance in America, 1607–1861

Part printed tax circular ordering the collection of taxes by the Sheriff of Fairfield County, Connecticut, dated April 12, 1787

Collection of the Museum of American Finance and signed by John Lawrence.

By W. Elliot Brownlee rather than lower taxes. The long swing of new fiscal state, the crown and Parliament taxation and public finance in general was relied on taxing domestic consumption Histories of taxation in early America toward creating and sustaining an American and international trade, collected taxes often give center stage to the era of the “commonwealth,” to use a term employed indirectly (through third parties) and lev- American Revolution. The usual story is by historians Oscar and Mary Handlin. By eraged their new tax revenues in under- one of social crisis and resolution: oppres- this, they meant a society that was republi- taking long-term lending. sive British taxes, fierce American resis- can, capitalist and expansionist. The swing The taxes on colonial trade raised rev- tance to taxation, a revolution that con- began very early during the colonial period, enue that funded most of the routine costs tained powerful tax revolt (“Tea Party”) continued for more than a century and of governmental administration in the elements, the writing of a Constitution accelerated during the formation of the new American colonies and helped finance the that limited taxation and the formation of republic and the building of a powerful loans that the British floated to fight its an early republic of modest government nation by the time of the Civil War. colonial wars. The taxes also served as a and low taxes. The “commonwealth” swing originated means for regulating economic activity There is something to recommend this in the process of transplanting and adapt- according to mercantilist principles. The approach, but beneath the drama was a ing the fiscal system of England (and current consensus of historians is that this more profound social trend, or a long swing, Britain) to America and adapting it to regulatory taxation proved only moder- as I call it. The swing encompassed far American conditions. The fiscal system ately burdensome to the colonial economy. more history than the American Revolution, had emerged following the crisis of the Moreover, powerful commercial and agri- involved more elements of public finance English Civil Wars in 1642 and constituted cultural elites in the colonies understood than just taxation and produced higher the world’s first modern fiscal state. In this that the benefits of membership in the

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 15 Collection of the Museum of American Finance

Boston Town Treasury Certificate issued to Oliver Brewster on July 13, 1780 for £390 with interest due in 1786, payable “out of the next tax…for the sole Purpose of carrying on the War.” empire, especially naval power exerted on legal and commercial papers, newspapers yielded the American Revolution. behalf of trade expansion, outweighed the and pamphlet literature, as well as playing The successful Revolution ended any costs of the mercantile system that penal- cards and dice; the Townshend Acts of obligation of Americans to share in Brit- ized trade with other empires and nations. 1767, which taxed consumption of paper, ain’s financing of the French and Indian In numerous colonial wars, including glass, lead, paints and tea imported from War. But the new nation had to finance three with the French between 1739 and Britain; and, in 1773, the Tea Act, which its revolution. As a percentage of national 1763, the government of Britain dem- provided favorable tax treatment in Amer- product, it was probably the most expen- onstrated that it had the economic and ica for the British East India Company. sive war in American history. Moreover, financial strength to conduct transatlan- The new regime prompted a crisis of the newly-acquired lands offered promise tic warfare on an unprecedented scale on tax consent in the colonies. To many for vast expansion of the commonwealth, both land and sea. For the aggressive and Americans, the new taxes threatened but controlling them posed the same fiscal acquisitive settler class in North America, their regime of internal taxation that they problems that the British had found daunt- the wars presented enormous opportuni- had developed informally and incremen- ing. In meeting these two challenges, the ties to expand their command of landed tally over the decades. When the Brit- Americans had to replace the British fiscal resources. In 1763, the Treaty of Paris, fol- ish government had previously expanded regime from which they had just exited. lowing the eight-year French and Indian its spending on behalf of its American Between 1775 and the early 1790s, the 13 War, gave the British possession of virtually colonies, it had left them relatively free former colonies puzzled their way through all of French Canada and most of the terri- to develop their own internal systems of the process of forming a fiscal state that tory the French had claimed in the valleys self-governance and fiscal autonomy. The would live up to the aspirations of the of the Ohio River and the Mississippi River. colonies had used their discretionary fiscal new society. In 1775 and 1781 (under the The Treaty, however, did not secure the space within the British Empire to expand Articles of Confederation), the Americans newly-acquired lands. Powerful Native their taxation of property and internal replaced the British fiscal regime with American groups still controlled most of trade. They used these taxes to administer weak alternatives. Under these temporary the North American interior. Massive new justice, fund modest programs of road regimes, the central government had to public resources — tax revenues and the building, schooling and welfare, and help rely most heavily on both inflation and additional financial resources they could prosecute colonial wars. outright confiscation, thus forcing ordi- leverage — were required to exploit the In response to the Stamp Act, a congress nary Americans to make great economic new conquests. of nine colonies called for repeal of the sacrifices on top of the huge personal In 1763, to acquire those resources, to act, declaring that it was “essential to the losses they had endured in wartime vio- reduce the burden of the debts that accu- freedom of a people, and the undoubted lence. In addition, taxation made less mulated from the French and Indian Wars right of Englishmen, that no tax should of a contribution to war finance during and to moderate increases in excise and be imposed on them, but with their own the Revolution than in any other major land taxes within Britain, Britain launched consent.” Riots followed, and colonists American war. At the end of the war, the a major expansion of its tax effort in the responded to the Townshend duties with outstanding debt of the Congress and the colonies. The result was a new tax regime nonimportation boycotts. By the time of states was huge — probably larger, relative for the colonies — one that was more the Boston Tea Party in 1773, the crisis of to national product or income, than at the ambitious, centralized and tightly admin- tax consent was clearly contributing to a conclusion of any other war in US history. istrated. New tax measures included the crisis of confidence in the legitimacy of In order to manage this large debt, the Stamp Act of 1765, which placed a levy on British rule, and that much larger crisis central government eventually settled on

16 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org lighthouses, river and harbor improve- ments, assistance for internal improve- ments by the Army engineers, the Postal Service, construction of public buildings and grants-in-aid to the states. From the beginning of the new nation, however, two important differences distin- guished the American fiscal system from its British counterpart. The effects of those differences remain significant even today. The first major difference with the Brit- ish system was that the fiscal capacity of the new nation included the ability not only to tax and borrow, but also to exploit the ownership of vast expanses of land. The federal government held enormous tangible assets in trust for its owners, the American people. Consequently, the new government was an “asset state,” as well as a fiscal state that taxed and borrowed. The ownership of massive assets gave the federal government a great deal of political flexibility in developing social programs because the assets often relieved the central govern- Collection of the Museum of American Finance ment of the onus of seeking tax increases. Commonwealth of Massachusetts, Plymouth County, Tax Collector’s Certificate #718, Between the Revolution and the Civil dated February 1783 and issued to Solomon Lovell. War, the landed assets of the nation expanded to include the lands ceded by the model of the British fiscal state. The management of the federal debt, over a the original 13 states to the federal govern- fiscal transitions between the end of the broad base of taxation. ment and lands acquired in the Louisiana Revolution and the early 1790s seemed The new American fiscal state was Purchase and the war with Mexico. By prolonged and painful at the time, but the a worthy successor to the British fiscal 1850, the United States held about 1.2 bil- new nation actually created its modern state. Moderate tariffs, helped by gener- lion acres in trust for its citizens. fiscal state rather quickly. This was pri- ally strong economic growth and dynamic The federal government used the lands marily because America’s financial lead- exports, paid off the national debt, includ- in three ways. Most important, the govern- ers, especially Secretary of the Treasury ing the money borrowed by President ment offered public lands for sale at low Alexander Hamilton and Robert Morris, Thomas Jefferson to fund the Louisiana and increasingly favorable terms to those had acquired intimate familiarity with Purchase. In addition, the tariff revenues, who would settle, develop and pay state the British fiscal state. The most dramatic supplemented at times by excises and and local property taxes. The government and influential steps came with the enact- special property taxes, funded the military also used land to finance education at the ment of Hamilton’s financial program expenses of the republic. state and local levels. It began doing so in during the first administration of Presi- As Noah Webster declared in 1790, 1785 for the benefit of public local schools dent George Washington. Americans now had “an empire to raise and added support for colleges in 1802. Hamilton and the other architects of and support.” The new nation went to Expanded by the Morrill Acts during and the fiscal state made taxation its lynchpin. war with numerous Native American after the Civil War, educational grants to As in Britain, taxes would fund important nations over several generations, France the states totaled nearly 150 million acres national projects directly and also pay in an undeclared naval war in the 1790s, of public land by World War I. the interest required to support national the Barbary States during the next two The federal government also used land debt. Also as in Britain, national taxation decades, the British in the War of 1812 to subsidize infrastructure projects, pri- would draw most heavily on customs and Mexico in the 1840s. Until the 21st marily components of the nation’s trans- duties. Hamilton intended that the cen- century, the Mexican War (1846–48) was portation system, reducing the potential tral government would keep the duties at the only major war funded without any burden on the state and local tax system. relatively low levels by spreading the costs wartime tax increases. In addition, tar- Over the decade of the 1850s, Congress of the federal government, primarily the iffs funded subsidies for roads, canals, granted about 22.5 million acres of federal

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 17 region were far less interested in major expenditure programs for education or improved transportation. Consequently, these states could rely heavily on random fees, licenses, poll taxes and poorly- assessed property taxes. Southern states taxed slave owners lightly, often through poll taxes that the slave owners preferred to taxes on the market value of their slaves. At the federal level, slave owners blocked the federal government from

Collection of the Museum of American Finance applying property taxes to slaves. If it had Massachusetts Treasury Certificate #1794, which “shall be received in not been for the determination of south- Payment for one-third of the Tax (No. 5) granted in March 1786.” ern slaveholders to shield slavery from federal taxation, the framers of the Con- land to 10 states for the benefit of about 45 state fiscal autonomy, however, varied stitution probably would have softened railroads. greatly by region. The differences between the restriction of federal property taxa- The second difference was a more lim- the northern and southern states were tion established by Article 1, Section 9. By ited reliance in the United States on inter- powerful and tragic. including this provision in the Constitu- nal taxation by the national government, In the North, state governments assumed tion, the founders were interested not only and much heavier use of internal taxes a wide range of economic and social respon- in protecting state and local tax revenues, by state and local governments. In other sibilities, financing canals and railroads, but also in accommodating the political words, the intergovernmental compact building state hospitals and prisons, and power of slave owners and, thereby, hold- over taxation in the United States was establishing colleges. To fund these pro- ing the new union together. substantially different than that in Britain. grams, northern states increased property The result was a tragic compromise The key element of the compact in the taxes that piggy-backed on local property of republican ideals and a serious, long- United States was a strong commitment taxes and expanded the scope of property term limitation on the development of to the fiscal prerogatives of state and local taxation in order to tax all forms of wealth the fiscal capacities of the federal govern- government. The British efforts to impose rather than just land and buildings. ment. Without this protection, the fed- internal taxation had only strengthened In addition, states imposed special taxes eral government might well have begun the traditional commitment of the colo- on corporations. Between 1830 and 1860, a gradual assault on slavery, just as the nies to state autonomy. Funding state Massachusetts, for example, raised between slave owners feared, and also attempted to militias during the Revolution and paying one-half and three-fourths of its general expand national-level spending programs off war debts of the states during the 1780s revenue from a tax of 1% on the capital for infrastructure, education and even had produced further expansion of state stock of banks. In 1854, Wisconsin adopted welfare. The federal government might taxes. Within the New England and Mid- a tax on gross corporate receipts, and this have funded those programs in part on dle Atlantic states, reformers embraced state tax became a model for federal corpo- the models created by innovative state “ability to pay” and succeeded in moving rate taxation during the Civil War. Mean- governments, perhaps by piggybacking a away from deeply unpopular poll taxes while, local governments spent heavily on federal property tax on the property taxes and shifting to taxes on wealth as mea- schools and roads and, during the 1840s assessed by state and local governments. sured by the value of property holdings. and 1850s, industrializing cities like New Without the Constitutional constraint on Successes in reforming and expanding York, Philadelphia and Boston expanded property taxation by the national govern- the capacity of the states to tax increased property taxation to pay for water and ment, the commonwealth ideal — a com- their reluctance to relinquish taxing pow- sewer systems, paved streets, hospitals and bination of capitalism with government ers to a central government. In part to police and fire departments. Beginning in promotion of both economic develop- protect the states’ tax base, the Constitu- the 1840s, local governments collectively ment and social cohesion — might have tion constrained the ability of the cen- spent and taxed on a scale that almost found fuller expression at the federal level. tral government to tax internally. Article equaled that of the federal government. By the 1860s, the modern financial state 1, Section 9 required that “direct” taxes Between the Revolution and the Civil War, rested on three legs: buoyant federal rev- (taxes levied directly on individuals), state and local governments together spent enues kept strong by vigorous foreign trade; which included property taxation, be allo- more than the federal government. a rich domain of federal lands; and a vibrant cated to the states according to the distri- In the southern states, the attachment partnership among all levels of government. bution of population rather than wealth. to state fiscal autonomy was also strong. However, the prospect of the expansion Motivations to maintain or expand But state and local governments in the of slavery and the division of the Union

18 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org over slavery threatened all three legs. To Brown, Roger H. Redeeming the Republic: Government, 1850–1902.” Journal of Eco- defeat the forces of slavery, the leaders of Federalists, Taxation and the Origins of nomic History. Vol. 48, pgs. 347–356. 1988. the Union expanded the fiscal capacity of the Constitution. Baltimore: Johns Hopkins Rabushka, Alvin. Taxation in Colonial Amer- the state they had inherited from the early University Press. 1993. ica. Princeton: Princeton University Press. republic. In the process, they strengthened Brownlee, W. Elliot. Federal Taxation in America: 2008. each of the three legs and established the A History, Third Edition. Cambridge. United Sylla, Richard. “Long-Term Trends in State means to finance ambitious American gov- Kingdom: Cambridge University Press. 2016. and Local Finance: Sources and Uses of ernments well into the 20th century. Edling, Max. A Hercules in the Cradle: War, Funds in North Carolina, 1800–1977,” in Money, and the American State, 1783–1867. Long-Term Factors in American Economic W. Elliot Brownlee is Emeritus Professor Chicago: University of Chicago Press. 2014. Growth, ed. Stanley L. Engerman and Robert of History at the University of California, E. Gallman, National Bureau of Economic Einhorn, Robin. American Taxation, American Santa Barbara. His most recent book is Research, Studies in Income and Wealth, Slavery. Chicago: University of Chicago. 2006. Federal Taxation in America: A History, Vol. 51, pgs. 832–35. Chicago: University of Third Edition. Cambridge, UK: Cam- Ferguson, E. James. The Power of the Purse: A Chicago Press. 1986. bridge University Press, 2016. History of American Public Finance, 1776– Sylla, Richard. “Shaping the US Financial Sys- 1790. Chapel Hill: University of North Caro- tem, 1690–1913: The Dominant Role of Pub- lina Press. 1961. Sources lic Finance,” in Richard Sylla, Richard Tilly Becker, Robert A. Revolution, Reform, and the Handlin, Oscar and Mary Flug Handlin. Com- and Gabriel Tortella, eds., The State, the Politics of American Taxation, 1763–1783. monwealth: A Study of the Role of Govern- Financial System and Economic Moderniza- Baton Rouge: Louisiana State University ment in the American Economy: Massachu- tion, pgs. 249–270. United Kingdom: Cam- Press. 1980. setts, 1774–1861, Revised Edition. Cambridge: bridge University Press. 1999. Brewer, John. The Sinews of Power: War, Money Harvard University Press. 1969. Wright, Robert E. One Nation Under Debt: and the English State, 1688–1783. New York: Legler, John B., Richard Sylla and John J. Wal- Hamilton, Jefferson and the History of What Alfred A. Knopf. 1989. lis. “US City Finances and the Growth of We Owe. New York: McGraw Hill. 2008.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 19 By George Robb

During the late 19th century, a growing number of women were finding employment in banking and insurance, but not on Wall Street. Probably no area of Amer- ican finance offered fewer job opportunities to women than stock broking. In her 1863 survey, The Employments of Women, Virginia Penny, who was usually eager to promote new fields of employment for women, noted with approval that there were no women stockbrokers in the United States. Penny argued that “women could not very well conduct the business without having to mix promiscuously with men on the street, and stop and talk to them in the most public places; and the delicacy of woman would forbid that.” The radical feminist Victoria Woodhull did not let delicacy stand in her way when she and her sister opened a brokerage house near Wall Street in 1870, but she paid a heavy price for her audacity. The scandals which eventually drove Wood- hull out of business and out of the country cast a long shadow over other women’s careers as brokers. Histories of Wall Street rarely mention women brokers at all. They might note Victoria Woodhull’s distinction as the nation’s first female stockbroker, but they don’t discuss the subject again until they reach the 1960s. This neglect is unfortu- nate, as it has left generations of pioneering Wall Street women hidden from history. These extraordinary women struggled to establish themselves professionally and to overcome chauvinistic prejudice that a career in finance was unfeminine. Ladies When Mrs. M.E. Favor opened the Uptown Stock Exchange on West 24th Street in 1880, established brokers and of the financial commentators treated her with great suspicion. Favor’s newspaper adver- tisements and circulars, sent to “prominent ladies” inviting them to entrust their money to “a lady of standing who had a long and Ticker successful experience in stock speculation,” were condemned as lures to trap unsophis- Pioneering Women Stockbrokers ticated women. One businessman feared that the ads would entice “many a woman from the 1880s to the 1920s to pledge her diamonds, or to compromise

Portrait of an unidentified woman, a smile on her face, as she reads a stock ticker, early 20th century.

20 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org her settlements or her husband’s financial and energetic, hurrying along at an “unla- Another eccentric, but decidedly more standing, with the vague promise of a for- dylike” pace, and barging into brokers’ glamorous, broker was Marie Antoinette tune thus held out to her.” offices, where she was not always wel- Nathalie Pollard, a Virginia woman who Favor responded that her circular was come. Once, when a businessman ordered for many years combined an interest in no different from those routinely distrib- her out of his office, she struck him with stock speculation with public perfor- uted by male brokers and that her transac- her umbrella and was arrested for assault. mance. She had been arrested by the Con- tions “were conducted upon strictly busi- federacy for buying federal money during ness principles.” She did not endanger the the Civil War and later pieced together a savings of the poor, as she “took no orders living by lecturing, acting and speculating for less than 100 shares,” and she provided in the stock market. She dabbled in “wild a valuable service to women investors cat” mining shares in California and later who were otherwise at a disadvantage, appeared on the stage in Washington, “because their facilities for information DC in the character of Princess Mui Qui, were not equal to those of men.” “the educated Chinese lady.” Frequently Another woman, Mary Gage, also described as beautiful and accomplished, opened a brokerage business for women in Pollard clearly had a flair for the dramatic. 1880 which was championed by the wom- In 1890, Pollard moved to New York, en’s rights movement. Gage, the daughter where she opened an “attractively fitted of prominent suffragist Frances Dana Gage, up” brokerage office “for the accommoda- was previously employed as a clerk for the tion of ladies who want to deal in stocks.” Equal Rights Association and the US Trea- She claimed to have several customers, sury Office in New York City. Mary Gage many of whom preferred to “speculate on established her “ladies’ exchange for rail- the quiet,” since their husbands objected road and mining stocks” at 71 Broadway in to this behavior. Never one to do things by Lower Manhattan because she had person- halves, Pollard also announced her inten- ally experienced “much inconvenience and tion to apply for a seat on the Consoli- annoyance in transacting her own opera- dated Stock Exchange, which would have tion” with male brokers. made her “the first woman in the world to

According to the official History of Collection of the Museum of American Finance become a member of a stock exchange.” If Woman Suffrage(1886), “after Miss Gage Print advertisement for “Duke’s ‘Preferred Stock’ the application was ever made, it was not was fairly settled, other women who had Cigarettes,” featuring a woman reading ticker tape. successful. Nor was Pollard’s brokerage labored under the same disadvantages business long-lived, as she was perform- began to drop in, their numbers increasing ing her Chinese princess act again in 1892. daily.” That Gage was clearly following the Twitchell’s combination of brokerage Press accounts of eccentric, and mar- example and mission of Victoria Woodhull with women’s rights no doubt reminded ginal, Wall Street characters like Pollard was not mentioned, as the suffrage move- some people of Victoria Woodhull. Yet, and Twitchell reinforced conventional ment has jettisoned Woodhull as a liability. while Woodhull was depicted as a beauti- views of women’s financial incapacity and Most women who tried their hand at ful siren seducing the likes of Cornelius probably discouraged other women from stock brokering received a chilly reception Vanderbilt out of stock tips, Twitchell was seeking employment as stock brokers. on Wall Street. Such was the case of Soph- mocked as an outlandish old woman. She The very idea of a woman broker struck ronia Twitchell, a women’s rights activist was described at different times as a “crazy many people as absurd. A 1912 Broadway turned businesswoman. She worked as crank,” a “nuisance,” a “human curio” and musical, The Wall Street Girl, treated the an agent for the Equitable Life Insurance “the Galloping Cow from Frisco.” escapades of a woman broker as a comic Company in San Francisco and specu- In 1888, the New Haven Register pro- diversion. The play was a light-hearted lated heavily — and successfully — in min- vided an unflattering portrait: “She is a romp in which a “brokeress” saves her ing shares. She moved to New York in woman almost six feet tall and very mas- father from bankruptcy through a lucky 1880, where at the age of 50, she opened a culine in build and manner. Her hair is investment and then happily gives up the business on lower Broadway as a broker in almost white and she is well along in years, stock exchange to marry her sweetheart. mining securities. but you see her rushing around at a lively Humorous musical reviews and cen- Although she ran “a genuine stock busi- pace on Wall Street in all sorts of weather, sorious newspaper stories about failed ness” and sometimes made “a great deal looking for tips and watching an opportu- women brokers overshadowed the exam- of money,” she was very unpopular with nity to play the market to her advantage.” ples of many anonymous women quietly other brokers. They may have resented Twitchell was clearly an intimidating and honestly toiling away in brokerage her success, and they certainly resented and bewildering presence, and male bro- houses. Wall Street had long employed her manner, which for a woman was kers did not know how to deal with her. numerous women clerks, stenographers unusually forthright and outspoken. She They tried variously to freeze her out and and typists, but by the early 20th century was a familiar figure on Wall Street, tall to discredit her as an unwomanly freak. it had also begun employing a few women

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 21 in better paying, professional positions as office managers, librarians, statisticians and advertising agents. One estimate, from 1914, had “about 200 women in the Financial District filling posts of these kinds.” Working behind the scenes, they lacked the visibility and glamour of stockbrokers, but earned good money, with annual salaries of $2,000 or more. The New York Times profiled one such woman, the college-educated Beatrice Carr, who was the manager of the financial statis- tics and mailing departments at the investment house of Fisk and Robinson. Carr had risen during eight years on Wall Street from a $14-a-week position as an assistant librarian to her current post. She believed that new opportunities were opening up in financial firms for college educated women, and she encouraged such women to “turn to Wall Street.” Her optimism was somewhat tempered by the fact that, however well women like her were paid, men were paid from 30-50% more “for the same work.” She hoped that this disparity, which she characterized as “a relic of barbarism,” would soon disappear. Despite Carr’s optimism, Wall Street did not rush to create workplace equal- ity. Some brokerage firms, however, did begin establishing women’s departments “to capitalize on the investment needs of women, some of whom were both independent and well-heeled.” Women were frequently hired to staff those departments, creating new opportunities for careers in finance. The first woman to manage a women’s department at a brokerage house was Alice Carpenter, a Boston native and Smith graduate who was active in the suffrage movement and settlement work. She managed her own substantial inheritance so effectively that in 1914, William P. Bonbright and Company, an international bond house, asked her to organize a women’s department at their New York Office. Bonbright believed “that probably women would prefer to deal with other women in making their investments, that they possibly considered the investment of money a confidential matter and that they would talk more freely with a woman than with a man.” So successful was this endeavor that Bonbright opened another women’s department in Boston in 1916,

Illustration by Jean Pages/Condé Nast via Getty ImagesIllustration Jean Pages/Condé by under the direction of Margaret Stack- Illustration of an elegantly dressed woman examining a length of ticker tape pole, a Radcliffe graduate with coursework to check on her stock prices, Vogue magazine, 1929. in Economics and Psychology. Bonbright

22 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org extensively advertised its women’s depart- of intelligence, ambition and tact,” many application was ever made to the Stock ments and published a series of pamphlets of whom were also “college graduates.” Exchange’s Admissions Committee. The on investments for women. Other pio- One such woman, Irma Eggleston, had story may have been circulated to test neering directors of women’s departments been hired by the brokerage house C.F. the waters as to whether the Admissions include Catherine Taylor at John Muir Childs and Company as an “experiment” Committee was receptive to a woman’s and Company in New York and Eleanor in 1917 to sell Liberty Bonds. A decade application. If so, the answer must have Hall at S.W. Stearns and Company in Chi- later, she had set a national sales record been negative, as no woman was to join cago. Mary Riis, widow of social investiga- by selling $30 billion worth of bonds. The the Exchange until 1967, when Muriel tor Jacob Riis, later headed Bonbright’s New York Times celebrated her achieve- Siebert purchased a seat. women’s department in New York. ment in April 1927, although its story The first generation of women stock- The 1910 Census lists 207 women as concluded with the sentence: “She has no brokers faced great resistance, but they “stockbrokers,” four of whom were Afri- children.” In spite of her business suc- chipped away at the old boys’ network can American. By 1920, the number of cess, or because of it, she had failed in her on Wall Street that sought to exclude women stockbrokers had grown to 376, most vital duty. The number of women and marginalize them. They carved out all of whom were white. As a cohort, they stockbrokers more than quadrupled dur- a niche for themselves as advisers and were mostly young and single; 79% were ing the 1920s, from 376 to 1,793, but still liaisons to women investors. They helped unmarried and 61% were between the only represented 2.5% of the nation’s bro- break barriers to women’s employment in ages of 25 and 44. 98.7% of the nation’s kers. In 1930, more than 160,000 Ameri- brokerage firms, and they made it possible stockbrokers were still male. Most of the can women were employed in banking for women today to have greater financial pioneering women brokers and financial and brokerage services, although 92.5% of opportunities. advisors avoided the spotlight, fearful of them were still engaged in clerical work. the ridicule so often heaped on Wall Street Women brokers usually oversaw the women in the past. They kept a low profile accounts of women customers, whom bro- George Robb is a professor of history in the office, trading by mail or phone and kerage houses were assiduously cultivating at William Paterson University of New never “in the street.” at the time. TheNorth American Review Jersey. He is the author of British Cul- Rosalind W. Alcott, who worked as a mentioned one woman broker in 1929 ture and the First World War (Pal- broker in the 1920s, even disguised her who “personally handles 300 accounts” grave-Macmillan, 2015) and Ladies of the voice on the telephone, “so that others of business and professional women. The Ticker: Women and Wall Street from thought she was a man.” Elizabeth Cook Times profiled another woman broker, the Gilded Age to the Great Depression sold bonds for Harris and Forbes by mail, Marjorie Sweet, who had been hired by (University of Illinois Press, 2017), from an approach she endorsed for women the Wall Street firm of Throckmorton and which this article has been adapted. since outside sales required “continual Company in 1928 to recruit women cus- travel and staying in country hotels, which tomers in New Jersey. In her first year she for the most part, are very bad.” Cook acquired 150 new accounts from “working Sources doubted whether many women were girls” in the Garden State. As Sweet mat- suited to such rigors, but she believed ter-of-factly explained, “I have a little car Barnard, Eunice Fuller. “Women in Wall Street that they possessed both the patience and and I drive around nights after the girls Wielding a New Power.” The New York the social skills necessary for carrying on get home from work and talk securities Times. June 23, 1929. extensive and protracted correspondence. to them.” This “petite, blue-eyed” broker Hill, Joseph A. Women in Gainful Occupations, In 1921, Cook founded the Women’s Bond with “bobbed hair” was depicted as a kind 1870–1920. Washington, DC: US Govern- Club as a professional organization for of Wall Street flapper. The press account ment Publishing Office. 1929. Pgs. 178–79. women employed in financial services. of Miss Sweet was rather patronizing, “Ladies as Stock Speculators.” The New York By the late 1920s, at the height of the and, as such, typified the amused, flippant Times. February 3, 1880. speculative mania, many more stock attitude often employed when discussing exchange firms hired women, some of women’s “invasion” of Wall Street. “Mrs. Pollard’s Business.” Chicago Herald. whom were “rated as among the best Whatever modest, and contested, October 15, 1890. brokers in Wall Street,” according to The inroads some women had made as bro- “Mrs. Sophronia Twitchell Dead: She Was New York Times. By 1929, at least 22 New kers on Wall Street, the New York Stock a Well Known Figure on Wall Street and York Stock Exchange firms had women Exchange remained an exclusively male a Female Suffragist.” New York Herald. partners. That same year, financial writer club, its floor “better protected against August 4, 1893. Eunice Fuller Barnard profiled the women women members than that of Congress.” “Radcliffe Girl is Bond Salesman.”Boston Her- of Wall Street for the Times. She noted No official rule barred women from ald. July 11, 1915. that “saleswomen’s desks are ranged indis- membership, but the sexist traditions of “Wall Street Offers Good Chances to College criminately, if still sparsely, among the the Exchange were not easily overcome. Women.” The New York Times. March 1, 1914. desks of ‘the boys’ in many a big invest- In January 1927, the press reported that ment house.” Experienced women brokers negotiations were underway by a bro- “Woman Seeks a Seat on the Stock Exchange.” were said to earn as much as $20,000 a kerage firm to purchase a seat on the The New York Times. January 14, 1927. year, while beginners might make $6,000. Exchange for a woman. Neither the firm “Working Girls Buying Wall Street Securities.” Barnard praised these brokers as “women nor the woman was named, and no formal The New York Times. January 5, 1928.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 23 by James D. Reid, 1886. Reid, James D. by Business Journalism Pioneer, 1845–1893

John J. Kiernan and Morse Memorial, in America Telegraph The Published in Published

By Rob Wells

John J. Kiernan was a little-known but tape machines to serve Gilded Age clients symbiotic relationship with the markets key transitional figure in business journal- such as JP Morgan and Jay Gould. Kiernan and was partly a servant to business. His ism in the 19th century, a journalist and thrived through this blend of physical news agency began in 1869, about 30 years business owner who operated at the dawn news gathering and electric-powered news into the growth of modern business jour- of electric news dissemination. Kiernan distribution to serve stockbrokers and the nalism, a genre that evolved with the new and his Wall Street Financial News Bureau market, his core audience. Kiernan’s office industrial society and a related demand are best known for training three younger was also a social gathering spot for a grow- for advertising. Specialized commercial reporters — Charles Dow, Edward Jones ing corps of financial journalists who were publications expanded significantly after and Edward Bergstresser — right before beginning to form an identity and separate the Civil War to meet a demand from they launched the Dow Jones News Ser- genre in this era. industrial firms and brokers. vice and then The Wall Street Journal. Kiernan was a popular Wall Street fig- Historian Frank Luther Mott described Kiernan, however, deserves more than a ure who transitioned from finance to poli- the late 19th century as the rise of the footnote in the Dow Jones company histo- tics, a move that led to his downfall as he independent press, a period when more ries. Several accounts identified Kiernan’s lost focus and later control of his news than 9,000 periodicals launched. Prior operation as the leading financial news agency. Kiernan was elected to the New to Kiernan, significant business journal- agency on Wall Street in the two decades York State Senate in 1881 and was men- ism included The Economistin 1843 and following the end of the Civil War. tioned as a possible mayor of Brooklyn. William Buck Dana’s Commercial and A focus on Kiernan’s business deal- Yet during his time in Albany, Kiernan’s Financial Chronicle in 1861, as well as ings shows the entrepreneurial energy and business began to unravel, and he was trade publications such as the American evolution of early business journalism, a surpassed by Dow Jones and the reporters Railroad Journal, founded in 1826, which dynamic post-Civil War era where signifi- he once trained. historian Alfred Chandler called “one of cant changes in technology, the economy the most influential business journals of and markets were creating a new demand Business Journalism History the day.” for business news. In this period of disrup- tive technology — the expansion of the Kiernan’s Wall Street Financial News 1 telegraph — Kiernan adapted by using a Bureau fit comfortably within the notion John J. Kiernan, a fixture on Wall Street and the combination of messenger boys and ticker that business journalism enjoyed a financial news business in the late 19th century.

24 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org Kiernan and His Wall Street sunny smile. He was dressed in the words or less, were rushed to brokerage Financial News Bureau height of fashion and was known as a offices by a small army of messenger boys. bon vivant and clever raconteur. News developments drove the production Kiernan’s Wall Street Financial News schedule, and the Kiernan bulletins were Bureau distributed breaking news on ship- Kiernan was born on February 1, 1845, sent out “hourly, half-hourly or oftener, as ping, railroad and construction, as well as and was the eldest of six children. Prior the development of financial news might information from the New York Stock to starting his news bureau, he worked in dictate.” Exchange, to clients around the country. all aspects of the business. As a teenager, The Kiernan bulletins included items Kiernan launched the business using his he was a messenger boy for the Magnetic such as London stock quotations an hour own savings and borrowing from family Telegraph Company and then worked in ahead of the New York Stock Exchange and friends. The news agency’s office was the foreign news division of The Associ- opening, a weekly statement of bank- in the heart of the Financial District at ated Press, where he rowed out in the har- ing financial conditions, railway company 12 Broad Street and known as “Kiernan’s bor to greet ships arriving from Europe. earnings and changes in freight rates. Corner,” a hub of socializing and gossip- Once on board, Kiernan reviewed Euro- With this method in hand, the Kiernan ing for journalists and brokers. pean newspapers, interviewed passengers News Agency was known as the leading “John J. Kiernan was one of the best and crew and was able to deliver news financial news provider. “For years, his known men in Wall Street, and one of the to the AP’s subscribers a day before the Wall street news agency was the stan- most popular. He knew every bank presi- competition. He also worked in financial dard of its kind,” The Worldnewspaper dent, every trust company official and advertising with the Albery Frank & Co. reported in 1893. every member of the Stock Exchange,” Kiernan’s news business at first distrib- Kiernan was popular and well-known noted The New( York) World, which also uted handwritten financial news bulletins, among the leading financial capitalists of provided this description of Kiernan: known as “flimsies;” they were produced the era. J.P. Morgan read Kiernan’s reports He was about five feet in stature, with with a stylus written on books of tis- closely and had a set delivered to his desk. a ponderous girth, making him look sue paper sheets and carbon paper that Former Wall Street Journal reporter Henry as broad as he was long. His face was would produce about 24 copies simulta- J. Alloway, in a 1932 history of Dow Jones, florid and overspread with a genial neously. These bulletins, generally 200 described such an encounter. Alloway Collection of the Museum of American Finance Stock certificate for the Kiernan News Company, 1888.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 25 wrote of an episode when Morgan sent information transmission. Kiernan struck a message to Kiernan asking how he was an arrangement with an early pioneer in able to get earnings for a railroad company transmission of financial news, Gold and ahead of public distribution. Stock Telegraph, to supply Wall Street Kiernan went to Morgan’s office, with news about foreign markets. Kiernan prepared to apologize if the report was had a redistribution agreement where he wrong. Morgan replied, “The figures are would transmit foreign financial news right — but ahead of time. What’s hap- gathered by the Associated Press exclu- pened to you?” Kiernan responded he sively to his customers over telegraph lines hired a new reporter. Morgan replied, a half hour before its general transmission. “Well, John, maybe he’s got a brother. If I Kiernan operated during a period of were you, I’d hire him too. Anyhow, send intense competition between rival tele- an extra set of the bulletins along hereafter graph services. Even in this horse-and- for my personal desk.” buggy era, minutes mattered in news Lloyd Wendt, author of a well-regarded distribution. Kiernan successfully sued history of Dow Jones and The Wall Street rivals for breaking a 15-minute exclu- Journal, described Kiernan’s eye for tal- sive embargo on his telegraphed news ent. He would hire reporters “to cover bulletins. Another Kiernan legal victory the stock exchanges who could obtain against Manhattan Quotation Company the earnings statements early, who knew established a notable legal precedent of a traders, callers, brokers and customers, property right and the time value of wire and who could provide relatively accurate service reporting. The 1876 decision in reports on the condition of the markets New York State Supreme Court said that and transactions at any time.” despite the information being generally Railroad mogul Jay Gould and Kier- in the public domain, “There is a right nan tangled on at least one occasion. The of property in telegraphic news collected Brooklyn Daily Eagle describes a market in Europe and forwarded here by wire, “pandemonium” in June 1887 when one of because of the labor and expense thereon Gould’s companies, Manhattan Elevated bestowed.” Railroad, fell 36.5 points amid rumors that Gould had a falling out with his business Dow, Jones and Bergstresser partners and was seeking loans. Gould issued a statement to Kiernan: Kiernan’s office was a gathering point for roving financial reporters of the daily The bulletin you are putting out that newspapers, and it is likely that Charles my Manhattan stock is in loans is a Dow joined these gatherings at “Kier- malicious falsehood. Not a share of my nan’s Corner” when he moved to New Manhattan is in loans or has had my York from Providence, RI, in 1879. Wendt name on the back, nor do I owe a dol- describes some details of the relation- lar in the world. You should promptly ship between Kiernan, Dow, Jones and contradict. Bergstresser. Kiernan hired Dow, then an expert in mining companies, as an editor. The Ticker “Whether his mining knowledge was of much benefit in his new job is doubtful, for Development of new printing and engrav- Kiernan’s bulletins generally were entirely ing technology, as well as the telegraph, confined to crisp news developments and advanced business journalism in this era. factual statements. Few clients at the time News agencies moved to adopt the tele- were looking for financial guidance from a graph shortly after its commercial devel- messenger service,” wrote Wendt. Edward opment in the 1830s, and it fit well in Jones joined Kiernan around this same the growing market for financial news in period of time. Jones covered the New Europe and the United States. By the end York Stock Exchange, “quickly becoming of the 1860s, there was general demand a favorite with traders, bankers and cus- by brokers and others in the investment tomers.” Jones was also popular at the bar community for a stock ticker service. This at the Windsor Hotel on 5th Ave and 46th marked a critical time in the history of Street, a watering hole known as the “All global communications: in 1866, a transat- Night Wall Street.” A headline from The Brooklyn lantic telegraph cable first became opera- Wendt described Jones as having a Daily Eagle, May 25, 1892. tional, ushering in an era of transnational drinking problem. “There were hints from

26 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org time to time that he continued to be too Politics & Downfall business journalism then and now. “He friendly with the bottle, but he always knew, by constant interaction with the appeared sober on the job.” During this period of political activity, Street, what news was most likely to be Meanwhile, another founder of Dow Kiernan brought Sullivan on board to run relished — a failure, a race, a death, a good Jones, Charles Bergstresser, joined Kier- the daily operations of his news bureau. lively rumor — and it rushed all over his nan in 1881. The young reporters began to The two soon clashed over control of the ticker tape.” chafe at the confines of Kiernan’s limited firm, a dispute that wound up in court. news reports. Dow proposed a daily news Kiernan’s business began to collapse and Rob Wells is an assistant professor at the report on business, “but Kiernan, an extro- legal troubles mounted. In 1887, he was Walter J. Lemke Department of Journalism verted man who was busy with his politics arrested in a securities fraud case involv- at the University of Arkansas. He is author and advertising interests, wasn’t really ing the Columbia Rolling Mill Company of a 2016 doctoral dissertation, “‘A Report- interested. Kiernan simply wanted Dow of New Jersey, which accused him of er’s Paper’: the National Thrift News, Jour- to provide good, readable news copy in a deceit concerning ownership of real estate nalistic Autonomy and the Savings and hurry, and if he possessed extra energy, he and bonds. The World reported, “Mr. Loan Crisis,” which won the 2017 Ray could go out to solicit new clients.” Kiernan was arrested, but the whole mat- Hiebert History of Journalism Endowed By several accounts, Kiernan grew ter ended in his favor.” Award from the University of Maryland, wealthy during this period. Aliah O’Neill, The late 1880s were a period of finan- Philip Merrill College of Journalism. writing for the website Irish Central, cial trouble, and Kiernan lost control of observes, “At only 35 years old, Kiernan his business. Another fraud case arose in Note had amassed a fortune of about $250,000,” 1888. The Bank of Montreal sued him for an amount that would be worth about $5.5 a fraudulent transfer of ownership interest 1. The literature has several different names million in 2016 dollars. in his company, John Kiernan & Co., to for Kiernan’s news business: The Wall Kiernan’s growing involvement with outside parties, a move designed to pre- Street Financial News Bureau, The Kiernan politics came at the time that Dow, Jones vent the bank from collecting on a debt. News Company, John J. Kiernan & Co. and and Bergstresser worked at the news By 1892, Kiernan discontinued his J.J. Kiernan & Co. Towards the end of the agency. Kiernan, an alderman in Brook- ticker news service, although delivery of 1880s, press accounts more consistently lyn, was elected as a delegate to the Demo- the printed bulletins still remained. Effec- called it The Kiernan News Company. cratic National Convention in 1880 and tively exiled from his news agency and fac- During its first ventures with the Western then as a New York State Senator rep- ing a backdrop of persistent legal troubles, Union Telegraph Company in the 1870s, resenting Brooklyn for two terms until Kiernan died at his home, 56 First Place, press accounts and histories referred to it 1883. Kiernan moved to Albany to serve Brooklyn, on November 29, 1893. as The Wall Street Financial News Bureau. in the state senate, a time that marked his Although he had lost his business and was departure from close engagement with the out of office, his funeral was a major event Sources news service. “He soon found that politics and at least five newspapers carried his obit- would require most of his time and gradu- uary. As The Brooklyn Daily Eagle reported, Alloway, Henry. “Wall Street News Gathering ally withdrew from the active manage- St. Stephen’s Roman Catholic Church “was A Half Century Ago.” The Wall Street Jour- ment of the news department.” packed to the doors and hundreds of people nal. June 27, 1932. Kiernan was noted for his expensive were unable to gain admission.” Hoffman, Deborah. “Email with Deborah lifestyle in Albany, as The Worldreported, To this point, Kiernan has been rel- Hoffman, Dow Jones Corporate Archivist.” “for he entertained on a royal scale and egated to footnote status in the Dow Jones March 4, 2017. was fully $100,000 poorer at the end of his corporate histories, or overlooked alto- O’Neill, Aliah. “John J. Kiernan: The Pioneer of second term. He always was a contribu- gether, due to two developments. First, Wall Street.” Irishcentral.com. July 19, 2010. tor to every deserving charity.” In 2017 Kiernan became infatuated with politics www.irishcentral.com. dollars, that would amount to about $2.4 and drifted away from journalism in the Quirt, John. The Press and the World of Money: million. Based on this figure, Kiernan may early 1880s. Second, his news of the mar- How the News Media Cover Business and have lost as much as 40% of his fortune ket was ephemeral — bulletins on tissue Finance, Panic and Prosperity, and the Pur- during his time in Albany. paper and ticker tape — so there is little suit of the American Dream. Byron, CA: Dow, Jones and Bergstresser would surviving record of his work. By con- Anton/California-Courier. 1993. leave Kiernan in November 1882 to start trast, his proteges — Dow, Jones and Berg- Dow, Jones & Co. Later, the relationship stresser — established a newsletter and Schwartz, Colleen. “Email from Colleen between the new Dow Jones and Kier- then a newspaper, which lend themselves Schwartz, Dow Jones Corporate Communi- nan news agencies turned testy. In 1887, to historical examination. cations.” February 23, 2017. Dow Jones accused the Kiernan agency of One enduring lesson of Kiernan’s life, Tofel, Richard J. Restless Genius: Barney stealing its dispatches concerning a coal however, was his ability to evolve with the Kilgore, the Wall Street Journal, and the handlers’ strike in Hoboken, NJ. Kiernan’s changes in news gathering and produc- Invention of Modern Journalism. New York: company president at the time, William P. tion, from messenger boys with flimsies to St. Martin’s Press. 2009. Sullivan, said he was considering a libel ticker tape machines. He did this by keep- Wendt, Lloyd. The Wall Street Journal: The suit against Dow Jones for falsely accusing ing the market’s needs close to his sights, Story of Dow Jones and the Nation’s Business his company of stealing news. consistent with the normative practices of Newspaper. Rand McNally & Company. 1982.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 27 CREDITWORTHY Collection of the Museum of American Finance

28 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org By Josh Lauer

In late November 1913, a dapper old man of our transaction and instantly updates It was funny that Rockefeller’s credit stand- stopped into a Cleveland department store our status and legitimacy as a paying ing had been questioned, but it was taken to do some shopping. On his way out, he consumer. All of this happens in the few for granted that systems for interrogating gave a young female clerk his name and seconds that it takes to swipe a plastic one’s identity and creditworthiness already instructed her to charge several items to his card — or just as commonly, in the time existed. Rockefeller, like millions of Ameri- account. The clerk, who did not know the it takes for an online purchase to be con- cans from all walks of life, had a second self, man, insisted on calling the credit depart- firmed. Such speed and ease are hard to a disembodied financial identity that inhab- ment to authorize his purchases. Perhaps the argue with. Why fool around with cash ited the vast files of retail credit departments stranger’s wig and lack of eyebrows aroused when the whole thing can be settled with a and local credit bureaus. No one, not even her suspicion. The 74-year-old man suffered signature or code? the wealthy or famous, could escape the from generalized alopecia, a condition that Rockefeller and many of his fellow gaze of this unseen surveillance apparatus. had caused him to lose all of his body hair. Americans would have agreed. For some- How did this happen? How did Ameri- After the credit department confirmed the one like Rockefeller, a charge account cans become faceless names and numbers customer’s identity and creditworthiness, was largely a matter of convenience. He in an enigmatic network of credit records, scoring systems and information brokers? How did financial identity become such an important marker of our personal trustworthiness and worth? It is easy to mistake consumer credit surveillance A History of Consumer Surveillance and financial identity for new technological developments, products of late 20th and Financial Identity in America century databases and algorithms. The importance of financial identity and credit risk has become a topic of serious public debate. The scourge of so-called identity theft and the 2008 subprime mortgage his charged goods were approved, and he had piles of money sitting in the bank. crisis illustrate the high stakes of credit left without incident. This exchange would But for many Americans who did not, information in contemporary life. be completely unremarkable except that the credit accounts allowed them to walk out However, systems for monitoring con- stranger was no average consumer. He was of stores with all sorts of things — from sumer credit identities and for judging John D. Rockefeller, literally the richest man furniture and appliances to clothing and one’s creditworthiness are not new at all. in the world. The multimillionaire oil baron food — all on the thin promise of future They were central to the ascent of con- had been denied access to credit, “at least earnings. Credit was not just a frivo- sumer capitalism in the United States. until the clerk learned that he was ‘good.’” lous indulgence, as its critics have long Long before credit cards filled mailboxes One hundred years later this story still insisted. In many cases, it was a necessary in the 1960s, before Americans bought resonates. Twenty-first century Ameri- bridge between income and paychecks. refrigerators on the installment plan or the cans are accustomed to having their iden- The absurdity of the Rockefeller incident first mass-produced and mass-financed tities and creditworthiness tested, often was comic fodder for newspapers through- Model Ts rolled off assembly lines, con- multiple times each day, to see if they out the nation. The retired titan of industry sumer credit surveillance systems were are “good.” Indeed, whenever we use a took it in stride and even commended the already in place. This was the surveillance bank card to pay for something, we enter embarrassed clerk for her “caution.” He had system that Rockefeller stumbled into into an invisible surveillance network that bigger concerns, such as founding some of when his financial identity — his hidden confirms our identity, records the details the nation’s most venerable philanthropic record of prompt payment and trustwor- organizations and caring for his ailing wife. thiness — temporarily trumped his iden- Yet the story, for all of its populist mirth, tity as the world’s richest man in the flesh. Portrait of John D. Rockefeller. Even the world’s richest man was subject to credit reveals something else: consumer credit At the center of this story is the consumer

Collection of the Museum of American Finance checks during his lifetime. surveillance was an established fact of life. credit bureau. The modern credit bureau is

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 29 them, to repay a debt? The answer is that they could not. But neither could local grocers or tailors. As eastern cities and upstart interior towns filled with unfamiliar faces after the Civil War, the problem of judging creditworthiness was a problem for everyone, including small shopkeepers who allowed their neighbors to run up debts. In this new world of ano- nymity and transience, consumers who looked “good” — well dressed, professional occupation, well connected — often turned out to be the worst deadbeats. And just as troubling, some who looked “bad” — shabby clothes, low-skilled job, no references — often turned out to be entirely reliable and loyal customers. How could a merchant identify the “good” consumers and avoid the “bad” ones? This problem, the confounding task of deciding whom to trust and whom to invest in, led to the development of sys- tematic credit surveillance in the United States. The first organizations devoted to monitoring the creditworthiness of Amer- ican consumers appeared in New York John D. Rockefeller and his family received consumer credit ratings like everyone else. Their names and around 1870. The idea quickly spread. By ratings appeared beside those of fellow citizens, as shown here in The Credit Rating Book for Cleveland, 1909. 1890 consumer reporting organizations could be found in cities and towns across the nation, from New York to San Fran- one of the most powerful surveillance insti- debt into corporate profits. Without this cisco. These early ventures were a motley tutions in American life, yet we know almost infrastructure, the modern credit econ- array of private agencies and voluntary nothing about it. The industry is currently omy and today’s digital commerce would protective associations. While some pro- dominated by three major bureaus — Equi- be inconceivable. More than any other duced little more than blacklists of debtors fax, Experian and TransUnion. Together institution, the consumer credit bureau and delinquents, others developed com- these private firms track the movements, formalized financial identity as an inte- plex identification and rating systems that personal histories and financial behavior of gral dimension of personal identity and monitored the lives and fortunes of entire nearly all adult Americans. established a technological framework for city populations. The most ambitious pub- Until the late 1960s, when the reporting predicting credit risk and extracting debts. lished annual reference books in which industry suddenly became a lightning rod While we know quite a bit about the the names, addresses, occupations, marital in debates over database surveillance and history of consumer culture in the United status (for women) and credit ratings of privacy, credit bureaus worked in quiet States — its advertising, its spectacular more than 20,000 individual consumers obscurity. They seemed to come from commodification, its desires and deceits— were listed. nowhere during the late 20th century and we know much less about how all of this From the beginning, credit bureaus and to exemplify the frightening new realities consumption, much of it done on credit, credit departments were eager adopters of computerized surveillance. Yet many of was even possible to transact. This is of new office technologies, from vacuum these bureaus have been around since the no trivial detail. The ascent of consumer tube and teletype systems to multiline 1920s or earlier. In fact, two of the nation’s capitalism, after all, is inextricably linked telephone banks and mechanical filing leading bureaus, Equifax and Experian, to the growth of institutional credit at the devices. The most probing and compre- have roots dating to the 1890s. turn of the 20th century. It was nothing hensive credit information was useful only The consumer credit bureau was a vital new for a local grocer or tailor to trust his if it could be quickly located and com- information infrastructure upon which well-known customers to pay later. This municated. Speed was crucial when credit American consumer capitalism was built. kind of informal open book credit was managers or sales clerks requested credit These surveillance systems supported new pervasive in 19th-century America. checks, often with the customer waiting consumer lending and financing indus- But how could new institutional lend- anxiously nearby. tries that emerged during the first half of ers — department stores, mail order The machinery of credit surveillance the 20th century, as automobile makers, houses, installment dealers, finance com- was typically operated by women, often department stores, mortgage companies panies and, later, banks — trust total rooms full of them, tethered to headsets and banks learned how to turn personal strangers, hundreds or thousands of and switchboards among columns of filing

30 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org cabinets. In the early 1950s, Life magazine the reason they do today: they wanted marveled at the scale and efficiency of the borrowed goods or money more than the modern credit bureau, ranking its they cared about their privacy. Even the intelligence-gathering capacity alongside famously reserved Rockefeller accepted that of the Federal Bureau of Investiga- this tradeoff as the price of convenience. tion (FBI) and the Soviet KGB. Postwar The modern freedom to buy now and credit bureaus would add new elevator pay later would be a dubious one, to say filing systems, document conveyers and the least. Surcharges and interest pay- photoduplicating devices to their array of ments were not the only hidden costs. information-handling technologies. In return for the trust of retail creditors All of this was soon overshadowed by and institutional lenders, Americans sur- another machine: the computer. During rendered the intimate details of their lives. the 1970s and 1980s the credit report- This exchange, personal information for ing industry was completely reshaped by access and convenience, may have seemed mergers, as a handful of computerized a fair trade to credit-hungry Americans bureaus bought out hundreds of small during the early 20th century, but it set a local bureaus. While computerization precedent with profound implications for accelerated credit surveillance and con- the future of commercial data gathering solidated the reporting industry’s national Collection of the Museum of American Finance and privacy. When asking for a merchant’s reach, it also opened the door to new Comic book published by the Federal Reserve trust, credit customers relinquished their technologies of consumer discipline, most Bank of New York Public Information Department right to withhold information about their in 1980 entitled The Story of Consumer Credit. importantly statistical scoring. During the personal and financial circumstances. closing decades of the 20th century, the Mass credit not only trapped Americans leading national bureaus became deeply everyday life. They were becoming faceless in the bondage of debt; it also ensnared involved in the development of risk scor- accounts and dollar signs in the ledgers of them in bonds of institutional surveil- ing and database marketing programs that corporate employers, creditors, insurance lance. Applying for credit was the original did more than simply calculate credit companies, retailers and other business sin of modern consumer surveillance. risk. They drew upon massive datasets to concerns. This, ultimately, was the darker A century after Rockefeller exchanged predict the behaviors, interests and com- subtheme beneath the comedy of Rock- his privacy for credit in a Cleveland mercial value of Americans. efeller’s department store interrogation. department store, consumer surveillance Looking back at the history of American When it came to judging creditworthi- had crept into nearly every facet of every- credit surveillance, it is easy to understand ness, a quality rooted in trust and integ- day life. It is embedded in the technolo- why systems of organized credit report- rity, no one was beyond the objectifying gies we depend upon for communication, ing were created in the first place. As the gaze of capitalism. It was doubly ironic, work, commerce and entertainment. No nation’s population became more numer- and poetic justice perhaps, that the iconic digital presence goes untracked; no digital ous and mobile, one was more likely to industrialist was temporarily an anony- profile goes unmined. This is by design. transact with strangers. And as imper- mous cog in the capitalist machine he had In our data-driven economy, personal sonal market relationships — relationships helped to build. information is the coin of the realm. based on contracts, prices and monetary Until the late 1960s, the American pub- It is the commodity we use to pay for exchange — displaced traditional bonds of lic was untroubled by credit reporting. “free” content, memberships and ser- obligation, human interactions became Contrary to sensational press coverage of vices. Thisquid pro quo — information for more abstract. the time, credit surveillance was no dark access — has fueled innovation and built “In the complex march of mod- conspiracy unmasked by Congress in 1968. new industries, but it has also eroded the ern affairs, business has become more Americans had always known that their boundaries of privacy and, more signifi- mechanical,” the author of a credit text- lives were held under a microscope when cantly, opened the doors to new forms of book remarked in 1895. “We have lost the they applied for credit. They just did not social classification and economic objecti- personal equation of our customers, or get care. Consumer groups had long fought fication. The history of credit surveillance it only at second-hand. The name of the for safer products, better labeling and ethi- is the history of this Faustian bargain and debtor or creditor on our books is only cal advertising, but the one thing they did the starting point for understanding the a symbol which might as well be repre- not demand was privacy. Such silence on monetizing logic of digital capitalism in sented by a number.” the issue is difficult to fathom from the our own time. New “mechanical” ways of know- vantage of our own privacy-conscious age. ing one’s fellow citizens — via credit In the absence of evidence, we can only Josh Lauer is an associate professor of reports, credit records and, later, credit speculate as to why. Perhaps the lingering media studies at the University of New scores — were disturbing because they sug- stigma of borrowing and the uncertain Hampshire and the author of Credit- gested that economic relationships were legitimacy of “the consumer,” a new con- worthy: A History of Consumer Surveil- losing their human scale and personal cept in the early 20th century, was enough lance and Financial Identity in America touch. Americans were not just estranged to keep dissent at bay. More realistically, (Columbia University Press, 2017), from from their neighbors and community in consumers probably acquiesced then for which this article has been adapted.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 31 32 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org By Gregory DL Morris

Two hundred years ago, the industrial The New Iron Age age in the United States got off to an early start along a brook in a ravine tumbling into the Hudson River opposite the Military Academy at West Point, New York. The West Point Foundry West Point Foundry (WPF), actually in Cold Spring, grew to be a major manufac- on the Hudson Pioneered turing complex, vertically integrated from raw materials to finished goods, the likes of which would not become common in North Heavy Manufacturing American heavy manufacturing for decades. Very little is left today on the site of the once-mighty WPF, but that which remains has been conscientiously preserved by a coalition led by the Scenic Hudson Land Trust. And while the WPF site makes for a charming and informative day trip by train from New York City, its wider legacy comprises a historical diaspora: • WPF made the first locomotive manufactured in the United States, the Best Friend of Charleston, in 1831, as well as many other early locomotives. • Both combatants in the epochal Battle of Hampton Roads during the American Civil War, the first-ever clash of ironclads, used WPF manufactured materials. The company made the engines for the steam frigate USS Merrimack that was rebuilt by the Confederacy as the CSS Virginia. WPF also made the XI-inch Dahlgren guns in the turret of the revolutionary USS Moni- tor. (Roman numerals are used to des- ignate smoothbore naval artillery; rifled guns are designated in Arabic numerals.) • WPF made many of the building fronts in New York City’s historic Cast Iron District. • WPF made cast-iron components for several surviving historic lighthouses, including Cape Canaveral, Florida; and Bodie Island, Cape Hattaras, North Carolina. Ground was broken for WPF at the ravine outside Cold Spring in 1817; operations began in 1818. That was 34 years after the end of the War of Independence and just two years after the end of the War of 1812. All of the big guns in North America had been brought by colonizers, primarily

“The Gun Foundry,” painted by John Ferguson Weir in 1864, is a Romantic-style amalgam of several processes at the West Point Foundry.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 33 Mark Forlow Collection Mark Forlow This Bank of New York stamped receipt, dated May 4, 1818, is believed to be for one of the original start-up contributions for the foundry from one of the 10 members of the newly-formed West Point Foundry Association. The signature is that of Gouverneur Kemble, the association’s first president.

British and French. Indeed, Parliamen- supervision. The fourth, WPF, was an Still, the initial stake was not quite tary prohibitions on manufacturing in the entirely private commercial venture. long-shot venture capital. First there was colonies were one of the grievances that According to Mark Forlow, historian the stated federal need for hardware. The led to the revolution. for the Village of Cold Spring and the initial partners included munitions expert The second conflict, notably the invasion Town of Philipstown, “there was an asso- Brigadier General Joseph G. Swift. There of Washington, DC and the burning of the ciation of 10 men, led by Gouverneur was also the location, with ample supplies Executive Mansion (called the White House Kemble, a successful businessman. They in the region of iron ore, coal and wood after the smoke damage was painted over) raised start-up capital of $100,000, which for fuel and construction. There was a fast- were painful lessons that the young repub- was a big chunk of money in those days. running stream for water power and sand lic needed a well-organized and robust It was an early example of a collaborative in the lagoon for making molds. River armaments industry. To that point it had effort to organize and fund a business. transport for large, heavy objects made relied upon a scattering of government and That makes it compelling.” shipping easy in an era of bad roads. Rail commercial foundries — none very large or On a strictly inflationary adjustment, access came by 1848. standardized — that had sprung up during that capital would be worth close to $2 WPF flourished with government con- and after the revolution. million today, but liquidity was extremely tracts, as well as supplying commercial Three existing foundries — in Pitts- rare in those days. Indeed, the lack of seed machinery, engines, consumer goods and burgh, Pennsylvania; Georgetown, near capital to start new businesses led to the tools. It expanded in volume and com- Washington, DC; and Richmond, Vir- rise of the shares system and stock mar- plexity to fill most of the ravine. In 1836, ginia — were put under War Department kets to trade them. Kemble hired Robert Parker Parrott, the Mark Forlow Collection Mark Forlow Courtesy of Scenic Hudson This carte de viste of the largest of the Parrott guns is seen at the foundry during the One of the historic cast iron buildings Civil War, in May 1864. The gun crew loads the massive shell during the proving of the gun in Manhattan, many of which were made before shipment. Such trials usually involved firing the weapon over 100 times. by the West Point Foundry.

34 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org Courtesy of Scenic Hudson West Point Foundry office building with cupola.

iron cannon-making to its highest point, even after the presence of better materials. They were like the last great clippers that persisted decades after steamships asserted primacy, or the Lockheed Con- stellation and Douglas DC-6 that served Mark Forlow Collection Mark Forlow The main masonry chimney for the original 1818 reverberatory air furnace is seen in this photograph well into the jet age. of the West Point Foundry Casting House amid a sprawling complex of buildings. In these shops, Fate was not kind to the WPF site. It thousands of smoothbore and rifled cannons were cast from 1818 through the Civil War. went through a series of owners, some in ironwork and some in other forms of inspector of ordnance at the military acad- demonstration firing of big 100- and 200- manufacturing. Eventually the site fell to emy across the river, as the superintendent pound Parrotts (Artillery in those days looting and ruin. The ravine became a for WPF. It was a propitious move. was rated by the weight of the projectile). dumping ground, and it is rumored that Several artillery designers were experi- By the end of the war, WPF had delivered several brick buildings in the area are built menting with ways to give big guns better more than 2,700 Parrotts of all sizes and partially from bricks scavenged from the range and hitting power. The focus was on more than 1.3 million projectiles. WPF site. An electric battery factory was ways to strengthen the breach of the gun to The end of hostilities in 1865 naturally built on an adjacent site, contaminating allow for more powerful charges without brought a sharp reduction in military the lagoon with heavy metals. In 1983, the bursting the barrel. Rear Admiral John A. orders, but WPF soldiered on for several Environmental Protection Agency (EPA) Dahlgren developed the beautiful and effec- decades. added the “Marathon Battery Corp.” site to tive “soda-bottle” shape. In 1860, Parrott “WPF was an iron foundry,” said For- its priorities list for superfund remediation. developed a method of forming a strong low. “They also operated a small brass The site was taken off the list in 1996 band of iron and fitting it over the breach of foundry and worked with some soft steels. and acquired by Scenic Hudson the fol- a rifled cannon. The Parrott gun became the But the Bessemer process took hold in lowing year. The Industrial Archaeology defining artillery piece of the war. industry to make large quantities of steel Program at Michigan Tech University “Other designers worked with several that were lighter and stronger than cast collaborated on the excavation and resto- different foundries,” said Forlow, “but the or wrought iron. WPF did not have the ration. Several foundations remain, as well Parrott process was proprietary to WPF. space or the capital to rebuild as a steel as parts of the millrace. The only complete The Confederates captured Parrotts when- works. The owners proposed to the ordi- building is the 1865 headquarters, built at ever they could and tried to duplicate the nance bureau that they and one other the high-water mark for WPF. process. But they did not have the technol- ironworks be kept operating, but that was The restored park is open to the pub- ogy or facilities.” declined, severing their relationship with lic. Scenic Hudson runs organized tours, WPF was able to supply quantities of the government.” some of them led by Mark Forlow. Parrott guns and shells to the US Army Ironically, it had been weight and almost from the outbreak of war. Accord- poor performance of iron cannon in Gregory DL Morris is an independent ing to Forlow, WPF was delivering 25 Par- the Crimean War (1853–56) that led Sir business journalist, principal of Enter- rott rifles and 7,000 projectiles a week by Henry Bessemer and others to develop prise & Industry Historic Research September 1861. improved steelmaking. So rather than (www.enterpriseandindustry.com) and President Abraham Lincoln vis- being mourned as a victim of progress, an active member of the Museum’s edito- ited WPF in June 1862 and watched a WPF should rather be lauded for taking rial board.

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 35 BOOK REVIEW BY GREGORY DL MORRIS

political, social and religious tenets. and savior of starving Belgium, he seems to There is a focus on the growth of the be taking the path of the revisionists who automobile, both as a new technology try to excuse Hoover for his inaction. But in and as the defining consumer good of the the end the fault is all the more glaring. The period. Steel and appliances, as well as man who built a legend as relentless and real estate, are touched upon, but Mor- resourceful in getting things done in the end ris hangs his hat on the Ford Model T, becomes hopelessly hesitant. its competitors and successors. There is “Hoover’s grasp of the potential power also discussion of how religion and poli- of government spending to off-set busi- tics color views of economics and social ness downturns was proto-Keynesian, well mobility. There are more than a few unset- before all but a narrow elite had heard of tling parallels to current events. Keynes,” Morris writes dolefully. “His eco- Morris is hardly the first to explain nomic instincts, however, were waylaid by that the Great Depression was not an his scruples against expanding the federal immediate or inevitable consequence of government, his fear of inflation and his the Great Crash. But Morris has done an emotional attachment to the gold standard.” excellent job of putting the two cataclysms It has been said that an economist is in context. They were inter-related, not someone who, upon seeing that something strictly as cause and effect as is widely works in practice, wonders if it will also believed, but as results of the same greater work in theory. That would be funny except economic, political and social events. That for the real and lasting suffering. “To the is what Morris does so well. He puts average person, the central reality of the events into context locally, nationally and Depression was the collapse of the job mar- A Rabble of Dead Money: The Great globally. He takes pains to demonstrate ket,” Morris writes. “Despite the haunting Crash and the Global Depression that while the Wall Street collapse was a images of the Dust Bowl, he notes, “cities 1929–1939 classic bubble and painful correction, it were particularly hard hit since construc- was unemployment and a liquidity crisis tion employment fell by more than 40%, By Charles R. Morris that transmogrified the situation into a and hours worked were cut by 60%.” Public Affairs Press, New York, 2017, $30 national and global catastrophe. The toll was especially grim among 389 pages, with photographs, charts, In particular, Morris cites Yale economist blue-collar workers. “In Chicago, a Cen- tables, appendices, notes and index Irving Fisher. Unfortunately, Fisher’s most sus Bureau study found that 30.7% of male famous pronouncement was that the stock workers were unemployed in 1931; 40.7% Charles Morris (no relation) is a poly- market in 1929 had reached “a permanently of skilled workers, 36.6% of semi-skilled math, which will be a delight to most read- high plateau.” Such a howler should not be workers and 57.2% of unskilled workers… ers but will vex a few. His prose is animated, allowed to taint the greater body of Fisher’s Detroit was particularly hard hit because and he manages to deliver all but the most work, which was spot on, Morris relates: of its dependence on the automobile dense economics with vigor. The research “The worst possible reaction to a defla- industry. The Ford payroll alone shrank is broad and deep. Serious students of the tionary depression, Fisher continues, is to from 128,000 in March 1929 to 37,000 by period and of financial history will find ‘balance the budget,’ because that always the summer of 1931.” A plunge of 71%. plenty of substance. More casual readers entails reducing spending and/or raising “Hoover’s response was to set up the will be impressed with the way Morris can taxes, either of which worsens the defla- President’s Emergency Committee on summarize important, if recondite, research tion since it is extracting spending power Employment,” Morris states. “The com- and communicate its relevance clearly. from the economy.” mittee comprised a number of talented This book, which is substantively a The book goes on to specify an incisive and sincere people, but it had no appro- financial history, starts with an excellent, indictment by Fisher. “A 1932 Hoover priation except for a small staff budget, concise 16-page summary of World War I tax increase came ‘when each dollar was and could do little more than be a cheer- and the Treaty of Versailles. The premise already 60 percent more burdensome to leader for local efforts.” is that the devastation of the war, which the debtor than in 1929.’” Morris details The last few chapters of the book return was highly concentrated in France and Bel- that if the Federal Reserve had “actively to Europe. There is a solid review of how gium, led to cross purposes in the peace. supplied new reserves to the system it negotiations over war reparations were Those conflicting national agendas mag- could [have] generate[d] up to 30 times wholly confounded by cross purposes. nified the biases of conventional wisdom that much in new economic activity.” Into that toxic ground came first the stock about money supply and economic stimu- Morris is unsparing of Hoover. In a chap- market collapse, then the Depression then lus. Those, in turn, were underpinned by ter about the brilliant young mining engineer the slide into totalitarianism.

36 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org BY BART WARD BOOK REVIEW

In Cohan’s words, the book is also people inside and outside of government “meant to serve as a starting point for wrongly attributed the crash to the Act’s a long-overdue, non-hysterical national repeal. According to Cohan, “politicians debate about how to retain the best of who should know better… are profoundly Wall Street while eliminating the incen- wrong to think that what worked in the tives that tend to foster the basest instincts 1930s, when Wall Street was a collection of human nature that lead Wall Street of undercapitalized private firms, would bankers, traders and executives to misbe- work again today, when Wall Street is the have on a regular basis.” supreme force dominating global finance… Cohan has written extensively on The fact that commercial banks are in the investment banking, with books includ- investment banking business and invest- ing Money and Power, House of Cards and ment banks are in the commercial banking The Last Tycoons,and his insights come business had almost nothing to do with the from years of working on “The Street” at causes of the financial crisis of 2008.” Lazard Frères, Merrill Lynch & Co. and as He does state, however, that “intelligent a managing director at JP Morgan Chase. reform” of Wall Street is a must. In the introduction and second chapter Chapter six is particularly strong, as of Why Wall Street Matters, Cohan defines Cohan covers the decades-long process of “Wall Street” and explains how that defi- Wall Street firms transitioning from pri- nition has changed over the years. While vate partnerships — in which owners took in the early days, it meant a physical loca- few chances and operated their firms with tion — Wall Street from Broadway to the discretion — to public entities, by selling East River in Lower Manhattan — today stock in their firms to outside investors. Why Wall Street Matters it is synonymous with the global financial He writes that this “new culture on Wall system. Street was one that encouraged swinging By William D. Cohan The first chapter is a whirlwind history for the fences — taking risks with other Random House, 2017 of American finance, beginning with the people’s money — in the hope of getting a 192 pages early development of New York’s Finan- big annual bonus.” cial District on Wall Street. Why Wall Street Matters includes serious In chapters three through five, Cohan ideas about where the problems are and In Why Wall Street Matters, author and gives the reader lessons on crises, central what should be done in the future. It is a former investment banker William Cohan banking and the importance of what can book that people who work on Wall Street takes a hard look at what “Wall Street” be learned from the Crash of 1929 and the and those who know little about finance can means. The book can be described as a Great Depression that followed. Here he equally read and understand. historical primer and a “counterintuitive gets into the discussion of the Banking Act defense” of Wall Street. of 1933 — more commonly known as the Cohan’s primary objective is to explain Glass-Steagall Act — which was respon- why an absence of financial markets would sible for breaking up banks into com- Bart Ward is CEO of the Investment severely limit the ability of the world (and, mercial banks (deposit institutions) and Advisory firm of Ward & Company, Ltd. more specifically, the United States) to investment banks (capital formation insti- Since 1993 he has written the weekly Wall allocate capital efficiently in order to grow tutions). The Act was repealed in 1999. Street history and market-oriented col- the economy and protect our standard of We heard much about Glass-Steagall umn, “The Corner.” He has his degree in living. after the 2008 Crash, and Cohan says many history from UCLA.

Watch William Cohan speak on Why Wall Street Matters on our YouTube channel at YouTube.com/FinanceMuseum

www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 37 Purchase your copy at www.moaf.org/ newbook

Genealogy of American Finance

By Robert E. Wright and Richard Sylla Foreword by Charles M. Royce

An immersive history of 50 major American “Genealogy of American banks and their transformation of the nation Finance is a treasure trove into a leading world power. of information on American banking and its history, in In this gorgeously illustrated hardcover book — published by the an unusual — and unusually Museum of American Finance and Columbia Business School useful — format.” Publishing — readers learn how 50 financial corporations came to dominate the US banking system, shaping the nation’s political, social — John Steele Gordon, and economic growth along the way. A story that spans more than author of Empire of Wealth two centuries of war, crisis and exciting promise, this account reminds readers that American banking was never a fixed enterprise but has evolved in tandem with the fits and starts of the country. A key text for navigating the complex terrain of American finance, this volume draws a fascinating family tree for projecting the future of a nation.

38 FINANCIAL HISTORY | Summer 2017 | www.MoAF.org HOW MUCH DO YOU KNOW ABOUT FINANCIAL HISTORY? WALL STREET TRIVIA WALKS QUIZ

1. Who is considered the financier of the American Revolution?

2. What historical business leader and philanthropist said, “I believe that every right implies a responsibility; every opportunity, an obligation; every possession, a duty.”

3. In what year was “In God We Trust” added to US paper money?

4. Who invented the first stock ticker in 1863?

5. How many times can you fold a dollar bill back and forth before it tears?

6. What is the world’s heaviest currency?

7. The 1951 US silver half dollar features two Black Americans. One is George Washington Carver. Who is the other?

8. Who vetoed the third Bank of the United States?

Wall Street Walks takes visitors through the historic capital 9. Who said, “A national debt, if it is not of world finance — the one-square-mile of downtown Manhattan excessive, will be to us a national known as “Wall Street.” Our visitors learn about people, places and blessing?” events comprising over 200 years of history, as they walk among 10. What city housed the nation’s first locations where it all happened. bank?

• Regular public tours daily, except Sunday.

• Group and private tours available.

Proud walking tour partner of the Museum of American Finance.

Philadelphia 10.

Hamilton Alexander 9. CONTACT: Tyler John

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www.MoAF.org | Summer 2017 | FINANCIAL HISTORY 39 IT’S YOUR BUSINESS.

Join the Museum’s Corporate Membership Program Put your company’s support behind the Museum’s work to teach financial empowerment using the lessons of financial history Corporate memberships can include the following benefits: • Free admission for employees and their guests • Private tour of the Museum for up to 50 people • Acknowledgment on the Museum’s website, in Financial History magazine, and in all other relevant publicity For information, please contact Director of External Relations Mindy Ross • Special invitations to Museum openings and events at 646-833-2755 or [email protected] • Opportunity to rent Museum spaces

A Unique Museum Shop Experience The Museum Shop at the Museum of American Finance is the country’s only finance- themed museum store. Here you will find an exciting assortment of carefully selected specialty merchandise with financial, historical and New York themes.

Museum of American Finance Shop 48 Wall Street, New York City 212.908.4613 Open Tuesday–Saturday, 10 am–4 pm Shop online anytime at shop.moaf.org

MUSEUM MEMBERS RECEIVE A 10% DISCOUNT ON ALL PURCHASES

Visit the Museum of American Finance in the historic home of the bank Alexander Hamilton founded

48 Wall Street Institution New York, NY 10005 www.MoAF.org 212-908-4110

Present this coupon to receive 2-FOR-1 ADMISSION Valid through December 2017

48 Wall Street Alexander Hamilton: America in Circulation: For the Love of Money: New York, NY 10005 Man With a Plan A History of US Currency Blacks on US Currency www.MoAF.org Featuring the Collection 212-908-4110 of Mark R. Shenkman Follow us on Facebook and Twitter: @FinanceMuseum