Part 9 (1/2)

CHAPTER XX.

THE UNITED STATES TREASURY THE Va.s.sAL OF WALL STREET--STOCK ”OPERATIONS”

EXPLAINED.

We now beg to call the reader's attention to the financial operations of the monopolists, and the course resorted to by them to control the finances of the country. There are now (January, 1873) seventy thousand one hundred and seventy-eight miles of railroad completed in the United States and territories. At an expense of $35,000 per mile, the total cost of these roads is $2,456,230,000. The cost as given by the companies is $3,436,638,749, or $48,970 per mile. In contemplation of law, and as reported, this cost is represented by stock certificates, and is supposed to be paid up. If the roads cost but $35,000 per mile, then $980,408,749, of the stock certificates (that amount being the excess over actual cost), have only an imaginary value. In addition to the stock certificates, representing the above sum of $3,456,230,749, the railroad companies have issued and put upon the market their bonds to the amount of $2,800,000,000, thus making their roads represent the enormous sum of _six billions two hundred and thirty-six millions six hundred and thirty-eight thousand seven hundred and forty-nine dollars, or eighty-eight thousand eight hundred and seventy-two dollars per mile_. The only real value all these bonds and certificates of stock represent, is the railroads. These we have put at $35,000 per mile. Of course some lines of road exceed this valuation; but an examination of the actual cost, as reported by the engineers of the respective roads, will show that much the largest portion of the roads have cost less. Now let us look at the amount of the capital represented by a few of these roads, as reported in the _Railroad Manual_, and _The Stockholder_. The Chicago, Burlington, & Quincy is reputed to be one of the best and most prudently managed roads in the country. This road represents in stock and bonds the sum of $32,845,880, or $43,292 per mile. On the other extreme we will take the Central Pacific, which represents the sum of $182,208,000, or $130,000 per mile. The Atlantic & Great Western (an organization of the N. Y., Penn., & Ohio) represents the sum of $109,000,000, or $256,000 per mile. The Cedar Rapids & Missouri River railroad represents $11,334,000, or $41,000 per mile. The Chicago, Rock Island, & Pacific represents the sum of $25,717,000, or $56,667 per mile. The Erie represents the sum of $112,935,710, or $125,750 per mile.

The New York Central & Hudson River railroad represents $104,660,049, or $142,656 per mile. The Union Pacific represents $112,911,512, or $109,507 per mile. We give the above as samples of the amounts represented by the different roads. In some other instances the stocks are ”watered” more, and in others less than in the roads above named.

Taking all the roads in the country, and adding together the stock and bonds issued, they represent $3,800,408,749 more than their actual cost.

It will not be out of place here to state that the only resource these railroad companies have for the payment of interest and dividends on their stock and bonds, representing the sum of $6,236,638,749, is the earnings of their roads. While a low rate of charges would pay fair dividends on the actual cost of the roads, yet in order to pay dividends on their ”watered” stock, and interest on their bonds, oppressive and extortionate rates must be charged and collected. The men who control these great monopolies, viz: Col. Scott, who controls roads representing about $700,000,000; Vanderbilt, who controls about as great an interest; Drew, Gould, and some few others of the princ.i.p.al railroad men, care but little about the prosperity of the country, or the profits made by their roads, save as a basis for their Wall street speculations. The roads serve as a basis for financial operations. Like the old ”wild cat” banks that issued bills without regard to stock or capital, so the roads controlled by these railroad monarchs are loaded with ”watered” stock and bonds, until their value as roads are destroyed, and pa.s.sengers and s.h.i.+ppers are oppressively taxed for the purpose of giving some sort of market value to the bonds and ”watered” stock with which Wall street is flooded. The issuing of stock certificates goes on, and will continue as long as dividends can be declared. At the present time the railroads of the country collectively represent about three times their value, or actual cost. If the people were not taxed on ”watered” stock and bonds, dishonestly issued, the rates charged for transportation would be but little more than one-third the figures of the present tariff. The vast wealth claimed by railroad corporations is about two-thirds pure fiction, and but for the extortions practiced upon the public, their stocks and bonds, beyond the value of their roads, would not be considered in market; but so long as interest at the rate of six, eight, and ten per cent can be drawn from the public, they are marketable.

These stocks and bonds are owned or controlled by the men who not only manage the railroad interests, but also the bond and stock market of the country. Being the leading spirits among Wall street brokers, using their railroads for the purpose of aiding in their stock-jobbing speculations, by compelling them to earn interest on all of the worthless stocks and bonds they put upon the market, a fict.i.tious value is given to them. Having their princ.i.p.al place of business in the commercial metropolis of the country, being able whenever their interests demand it to ”corner” the money of the country, it could be hardly expected that the treasury department of the government would escape their control. If a conflict should arise between the secretary of the treasury and these vast monopolies, the question of which side would come off victorious could not be doubtful.

The circulating medium of the country is, in legal tender notes, $356,000,000. That of national banks, excluding their reserves, is less than $300,000,000. This currency is scattered over the country--a small portion of it in foreign countries. No coin is in circulation, most of it being locked up by Wall street brokers, in the interest of these railroad corporations. Many of the national banks of the country are owned by railroad men. In addition to the immense earnings of the railroads, which under the present system are concentrated in the city of New York, almost the entire amount of stock and bonds issued by railroad companies is either owned or represented in Wall street, and as occasion demands is put upon the market. Thus the whole of this corporate influence can be used at any time in a financial conflict with the government. It has been and is still being used against the government. Under the revenue laws of the country, import duties are paid in coin. A part of the sum thus realized is applied in payment of the national debt. There is no good reason why the secretary of the treasury should not apply this sum directly in payment of government bonds. Such a policy would tend toward the resumption of specie payment, making the money of the people of equal value with that used by the government. This would not suit railroad companies. So long as a margin can be preserved between coin and currency (and for their purposes the wider the better) under the decision of the supreme court they can discharge their bond indebtedness, contracted to be paid in gold, with depreciated paper at par, and save the margin. In order that a margin may be continued, instead of making direct payment of government bonds to the direct holders thereof, the secretary of the treasury is required to sell gold in New York, and purchase or liquidate the bonds with the proceeds of these sales. It is noticeable in all cases of the sale of coin, that Wall street brokers are the purchasers, and usually at less than the quoted market value. By this means the interests of these railroad managers are subserved in more than one particular. Their brokers purchase and corner the coin sold, and prevent it going into circulation, and the margin between coin and currency is preserved. The day for the resumption of specie payment is kept in the distant future.

The importing merchant must buy gold of the brokers (who are the railroad managers) at its market value, to pay government duties on their imports, and thus the companies make the difference between the price paid and the price obtained. When some favorite railroad stocks are to be forced upon the market, these brokers, who can do so at pleasure, supply the money market, and sell the stocks at a large profit; and when the object is to reduce the value of stocks, they withdraw from circulation a sufficient amount of the currency to cause a stringency in the market, until their end is accomplished. Controlling absolutely the gold market, as well as the secretary of the treasury in his financial operations, they have only to corner a few millions of currency to make the entire commerce of the country subserve their special purposes. With all of their interests united, all their business concentrated in Wall street and controlled by six or eight leading men, they regulate the finances, fix the value of the produce of the country, and hold the producers of the great west in a state of va.s.salage which has no precedent, even in despotic countries. The secretary of the national treasury, who is supposed to control the financial department of government, is in fact the servant of these men, and whatever policy is beneficial to their interests must be adopted by the government. To the uninitiated it may appear impossible for a few men in New York to exercise a controlling influence over the financial policy of the nation, but if we remember that all the wealth of these corporations, actual and fict.i.tious, is concentrated in that city, or controlled by men doing business there, and that an immense stream of money, received by these corporations from pa.s.sengers and s.h.i.+ppers, is constantly flowing into Wall street from all parts of the country, we can understand their power and appreciate their influence. The fact that it requires more than twice as much money to pay the interest on the bonds issued by these corporations, and dividends on their stock, as would pay the interest on the national debt, is significant. When private corporations combine their interests and become so powerful as to require an annual expenditure of more than twice the amount expended by the United States government, and when their revenues more than quadruple those of the government, they must of necessity exercise a controlling influence over the financial and industrial interests of the country. This fact is now being demonstrated by a combination of the railroad corporations of the country, as the people know to their cost.

It will be proper here to detail the _modus operandi_ of these railroad companies at their headquarters in Wall street. We read of large operations in stocks and bonds, as well as in gold, and are apt to conclude that sales and purchases are made by regular transfers in a fair and legitimate manner. Such is not the case. Among the initiated sales are pure fiction in many cases, and in others it is but purchasing or selling the chance of an advance or decline in the price of stocks, bonds, or coin. To call these transactions by their right name--_they are nothing but gambling_. If legitimate sales are made, it is with outside parties, or to the uninitiated. The corporation rings congregated in Wall street, calling themselves bankers and brokers, sell to, or purchase stocks from, each other, without delivery or even payment, all the money pa.s.sing between the seller and purchaser being the margin between the price agreed to be paid and the market reports at the time fixed for delivery. To ill.u.s.trate, let us suppose that certain railroad stock is quoted at ninety-three cents, or seven per cent below par. A, who believes that there will be no further rise in the price, but that the same will decline, offers B $10,000 of this stock at ninety-one cents, to be delivered in three days. He has no stock, but believing it will decline to ninety cents or less, within the time fixed for delivery, he expects to buy at a still lower rate than he has agreed to sell, or to borrow it for a consideration if the decline does not meet his antic.i.p.ations. Or he will settle his contract with B by paying him the difference between the market value at the time of delivery and the price at which he agreed to sell. The same process is gone through if the sale is made with the expectation of the stock advancing in price. A agrees to purchase of B four days after the date, $15,000 in stock at ninety-five cents, being an advance of two per cent on the market price on the day of sale. The stock does not advance, and at the time for delivery A pays B the margin between two cents on the dollar, and the market price. No stock has pa.s.sed between them. It was a fight between a ”bull” and a ”bear” for the margin.

Nearly all of the financial operations of Wall street brokers are of a like character. Some of them involve immense amounts. One man makes a fortune, and another becomes bankrupt in a day. Wall street is the place where men of all creeds and nationalities meet to engage in this kind of gambling traffic. Men run about the streets--into the ”gold room,” the ”clearing house,” their faces flushed, their whole person excited, their appearance ”distorted, hair dishevelled,” their voices hoa.r.s.e, all intent on making money, not in a legitimate way, but by the chance of a rise or fall in gold, bonds, and stock. Let us see some of the terms used by them in their business. The rings operating in stocks are divided into two cla.s.ses--”bulls” and ”bears.” They have the advantage of the real bear and bull in this: they can change from one to the other as the occasion serves. Daniel Drew, Col. Scott, and Commodore Vanderbilt can be bulls to-day and bears to-morrow, as their interests dictate. The object of the _bulls_ is to advance the price of stocks; that of the _bears_ to depreciate. They thrive most when the people generally are in want, or when some public calamity unsettles commerce.

They oftentimes devise means to bring on a panic, that they may break the market and buy favorite stocks at low rates. They do not care how much the community may suffer, or how many men engaged in legitimate business may be ruined, provided their own interests are served. We take from _Appleton's Journal_ a description of some of their terms, and their manner of doing business:--

”The terms, 'long' and 'short' are of respective application to the 'bull' and 'bear' parties. The bulls are always 'long' of stock, and the bears are always 'short.' The speculator who has stock on hand which he bought with expectation of selling at higher prices, is on the bull side, and, in the parlance of the street, is 'long.' A bear seldom has stock on hand. His business is to sell 'short'--that is, to sell property which he has not got, intending to buy and deliver when prices are lower. Generally, the stock is to be delivered the day after it is sold, but quite often the bear does not buy it for a month or two, or three months. How, then, can he deliver it in twenty-four hours? By borrowing it from another person. There is in Wall street a regular system of borrowing stock. The borrower, who represents the speculator, procures the stock from another broker, to whom he gives a check as security for the stock borrowed. This transaction is good for one day only, but it may be renewed for the next day, and then the next, and thus several weeks may pa.s.s before the stock is really purchased for delivery. Meantime the seller, if he belongs to a clique, or 'pool,' is trying every day to depress prices, in order that he may buy the stock at a lower figure than that at which he sold it. This is the operation known as 'hammering the market,' and a very exciting one it sometimes is. But the bears are sometimes badly 'squeezed,' and then they make a rush to 'cover.' When the bulls learn that there is a large 'short'

interest in a particular stock, they put their heads together and get up a 'corner.' When a stock is said to be 'cornered,' the meaning is that it is controlled by a clique. The clique hold enough of it to control the market, and exact such terms as may be desired. An upward movement is suddenly developed, and then the bears, who have sold 'short,' in expectation of lower prices, become alarmed, and begin to buy. In the majority of cases, the men who work the advance are the very ones who bought what the bears sold, and they are now selling it to them at higher figures for delivery back to themselves. 'Twisting' is the process of making the bears pay high prices for what they probably sold at low prices, and 'covering' is the operation of buying stock to close 'short' contracts. Once in a while a stock is so closely 'cornered' that it can only be borrowed at an enormous interest for a day's use--perhaps at a rate that exceeds a thousand per cent per annum. An operation of this sort is the worst squeeze of all; and it is not to be wondered at, that, as the gentlemen of the stock exchange say, the bears generally squeal under it. One shrewd manipulator of stock is known to have cleared $50,000 in one day, by loaning a fancy stock that he had 'cornered.' But the same gentleman sometimes gets into a 'corner'

prepared by others. It is commonly understood that he was fleeced to the amount of $2,000,000 during the lively 'Northwest' gale a few weeks since. 'Puts' and 'calls' are terms of more than ordinary difficulty for the uninitiated to understand. A proposes to 'put' to B, that is, to deliver to him, a certain amount of a certain stock at a certain time, at a price agreed upon when the contract is made, and gives B a bonus of one, two, or three per cent, as the case may be, for the privilege. This is a 'put.' If the stock does not decline in value to an amount exceeding the sum given to B, A cannot make anything by the transaction; and, unless he chooses to deliver the stock, he is not obliged to do so.

If it falls more than the amount, A makes a good profit, for B, having accepted the bonus, is bound to take it, even though it may be selling five or ten cents below the price at which he agreed to take it. A 'call' is pretty much the same thing, with this difference: A gives B a hundred or a thousand dollars, or whatever sum may be agreed upon, for the privilege of 'calling' from B a certain amount of stock within a given number of days. If it advances, A may 'call' it and make money. If it declines, he need not 'call' it, but of course the bonus he gave to B is forfeit. There are times when the business in 'puts' and 'calls' is quite large, and a great deal of money is made by it; but, like all other kinds of speculation, it is dangerous to the inexperienced.

'Scoop' is a term less familiar to the public than any of the foregoing.

This 'scoop game' is a very common one, and is played in this way: A clique of speculators, let us suppose, wish to get possession of a good deal of some particular stock, which they have reason to believe will soon advance in price; but of course they want to get it cheap, and they accomplish their object by starting a break in the stock. This is done by offering it at low figures. They instruct their brokers to offer small quant.i.ties under the market price, and to keep on offering lower and lower, until other holders of the same stock who are not in their confidence become alarmed, and sell out at the best price they can get.

In the meantime the clique have other brokers buying all the stock that is offered, and thus they get possession of a large amount of stock at low prices, which they can probably sell, a few days later, at a large profit. This 'scoop game' is one of the most profitable that the Wall street gentlemen play. The process of 'was.h.i.+ng'--a very good one in its ordinary sense--is often employed in Wall street. 'Was.h.i.+ng' is a peculiar operation there, very peculiar indeed, and the outsiders ought to keep as far as possible from the suds. A clique is as necessary to it as to the 'scoop' business. There is a stock on the list, for instance, that the public persist in letting alone, and the holders of it want to stir up some excitement in this stock, and induce the public to buy it.

How do they proceed? Their plan is quite simple: Several brokers--let us suppose four--are employed to 'wash' the stagnant stock. No. 1 offers to sell; No. 2 takes what is offered. No. 3 wants to buy; No. 4 sells him all he wants. This is kept up for a few days, the price rising steadily as the 'wash' proceeds; but not one share is actually sold. The innocent outsider, supposing these fict.i.tious transactions to be real, and thinking there is a chance to make a turn in the stock, goes in as a buyer himself. Ten to one he will never get as much for the stock as he paid, for it falls stagnant when the speculators have got it off their hands. 'Coppering' is a term recently introduced, but very well understood in the street. It means operating in a direction contrary to that of another. For example, one buys a particular stock, believing that it will advance; another man, observing that the first has not been lucky in his operations, sells this particular stock, believing it will decline. Or the first may sell a particular stock 'short,' and the second, calculating on the other's ill luck, will buy. This sort of speculation is carried on only among the smaller cla.s.s of operators, and may be set down as sheer gambling. A 'straddle' is a double privilege, ent.i.tling the purchaser to either 'put' or 'call' a stock. The bonus is generally the amount paid for the single privilege of 'put' or 'call.' A 'margin' is the money deposited with the broker through whom the stocks are purchased, as a security against a sudden depreciation. The amount is generally about ten per cent of the par value of the stock. 'Margins'

are the rocks on which many adventurers on the uncertain waters of speculation are utterly wrecked. 'Carrying' means holding stock in antic.i.p.ation of higher prices. Often a stock is 'carried' for six months, but generally the time is not more than two months, and frequently not more than a week. Quick turns is the rule of a majority of speculators. 'Watering' is the operation of suddenly increasing the capital stock of a company. Wall street was thoroughly familiarized with it by the reckless Erie managers, who earned a notoriety that certainly honorable men would not covet. It is very dangerous to the holders of the stock previously in the market.”

The foregoing discloses the manner in which these corporations, through their managers, play the double _role_ of operating railroads and operating in Wall street. To outsiders there seems to be but little difference between what is known everywhere as downright gambling, and Wall street operations. The gambler who risks his half-dollar on a game at cards is punished for violating the law; but these Wall street operations, which are but games of chance, are dignified with the name of ”speculations.” Honorable men, reputed Christian men--Jew and Gentile--all engage in them. While they prey upon the producer in operating their roads, they prey upon the unsuspecting public in their stock operations; and, by way of variety, occasionally devour each other. Controlling, as they do, the means of transporting the products of the country to market, as well as the coin of the country and the stock market in Wall street, they are prepared to get up a ”corner” on any marketable commodity--upon the currency of the country, and upon gold. In fact, they may have all the coin of the country under their control, save the amount held in the treasury of the government. The monthly reports of the secretary of the treasury show that while there was the amount of about $100,000,000 in the treasury one year ago, there is but about two-thirds of that amount now. The reports of sales show that these Wall street operators have cornered about one-third of the gold held by government within the last year. This cornering process goes on, and is now reduced to a system. Suppose the secretary sells, in the month of January, 1873, in New York, $6,000,000 in coin. It is all bought and cornered by the brokers. The importing merchants require but $3,000,000 during the same month to pay duties. The difference, $3,000,000, is locked up in Wall street. This transaction, in a greater or less degree, is repeated each month, and while the amount of gold in the treasury is decreasing, that controlled by railroad brokers is increasing. The treasury weakens, and these gambling rings and combinations strengthen. It is only a question of time, under the present system, when the treasury will be obliged to replenish itself by purchases from the brokers. So completely are the finances of the country under their control, the secretary of the treasury is obliged to keep a large surplus of coin on hand to meet emergencies. In order to prevent a panic, he is obliged to sell coin monthly, and whether the financial condition of the treasury or of the country will warrant it or not, he is obliged to pay some portion of the national debt as an excuse for selling coin. These corporate rings are laboring to control the gold of the country, and thus prevent the resumption of specie payment. To make resumption impossible, they ”bull” gold as well as stock, and thus force gold sales by the secretary. The sooner they can deplete the national treasury, the sooner can they become masters of the situation. They now hold the secretary of the treasury at their mercy, and compel him to serve their selfish purposes. When they achieve their final victory (and achieve it they will under the present system) they can, without hindrance, fix the value of gold, and extort from the people and the government just such premiums as they please to ask for it. They can render specie payment impossible, and thus reap the full benefit of the ”Legal Tender Decision.”

CHAPTER XXI.

HOW WALL STREET BUILDS RAILROADS--A HOT-BED OF CORRUPTION.

We have attempted to show the controlling influence of these railroad corporations upon the legislative and executive departments of the government, and have placed before the reader the danger to republican inst.i.tutions and liberties of the people, resulting from this influence.

In this connection it remains for us to treat of the influence of these corporations upon the judiciary of the country. Before proceeding to this branch of the subject we desire to direct the reader's attention to some alarming facts respecting these corporations, hitherto only alluded to, and the disastrous results which must follow their present management.

We have already shown that railroads, in stocks and bonds, represent capital to about three times their actual value, and that because of this, the people are compelled to pay rates of transportation ruinous to the agricultural interest of the country. We have shown the relations existing between the men who manage these corporations and the Wall street gamblers, with their manner of issuing and putting upon the market fict.i.tious or ”watered” stock. The idea generally prevailing is, that the enormous wealth which these monopolies represent is real. In fact, about two-thirds of it is pure fiction. It is _manufactured_, and by reckless and dishonest men, who stop at nothing, and who care not for the prosperity of the nation, or of the government, when their own interests are in view. They drain the country of its wealth, concentrate it in Wall street, and there spend it in stock and gold gambling; and this hot-bed of corruption which has no counterpart, save in the infernal regions, has raised such a combination throughout the country as to control the whole financial policy, and compels even the secretary of the treasury to yield to its demands. The public and private wealth of the country is being rapidly destroyed by these corporations, and all departments of government are compelled to do them homage.

We have shown that the railroads of the country are in the hands of unscrupulous men, whose sole interest in transportation is the money it can extort from the public. This must be so from the manner in which roads are built and controlled. Formerly railroads were paid for from the proceeds of paid-up capital. The men who became stockholders were interested in making good and cheap roads, and in operating them honestly and economically. These men were free from the scandal of watering stock, issuing and selling bonds to an unlimited amount, and were not partners in the iniquitous Wall street speculations which have become the bane of the country. In Appleton's Railroad and Steamboat Companion, published in 1849, we find a statement of the cost of railroads then constructed. The roads then constructed were supplied with rails that cost less than those now in use, but the road-beds in most cases, in the eastern states, cost much more than those constructed at more recent periods. Some of them were lines of solid masonry, supporting lateral or string timbers, throughout the entire length, and the rails were placed upon these timbers. Others were constructed upon the plan now in use, costing less than half the cost of the others. The roads in the eastern states, built upon the plan first named, cost as follows: In Ma.s.sachusetts and the other New England states, $24,000 per mile. In New York, $26,000. In New Jersey and Pennsylvania, $40,000. In Michigan, Ohio, and Indiana, where the roads were built upon the modern plan, $11,000. Of course, the small cost in these last named states is attributable in part, to the nature of the country through which they pa.s.s. The facilities for building railroads at the present time more than counterbalance the additional cost of iron, and no good reason can be shown why the actual cost of roads at this time should exceed that of the more substantially constructed roads built thirty or forty years ago. But at the present time the building of railroads from the proceeds of paid-up stock is not generally practiced. A different rule prevails.