|Scene on the floor of the New York Gold Exchange or “Gold Room,” 1869.|
These steps created a new dual-currency system in America, with two forms of money circulating side by side: paper “greenbacks” as legal tender for domestic debts and claims, and gold coin as the currency of the world, needed for foreign trade, tariffs, and custom duties.
A brisk gold trade arose along Wall Street in early 1862. Each Confederate military victory sent gold prices soaring and greenbacks plummeting. Speculators, stock traders, rebel and Union sympathizers, and Washington officials with access to battlefield news dominated the market, far outnumbering the bankers, exporters, importers, and other commercial gold users. Daily price fluctuations affected the national war effort, since rising gold prices directly eroded the value of the federal Treasury.
Bankers like Philadelphia’s Jay Cooke called the New York gold traders “General Lee’s left flank.” The New York Stock Exchange agreed; it considered gold trading disloyal and refused to allow it under its roof. This forced gold speculators to form a separate Gold Exchange on nearby William Street.
Gold prices spiked in June 1864 to $200 in paper — a full fifty percent devaluation of the nation’s paper currency — as General Ulysses Grant’s army sat stalled outside Petersburg, Virginia. Responding to public anger at the spectacle of Wall Street moneymen profiting off the bleak military stalemate, Congress passed the Gold Act, a statute designed to close the Gold Exchange immediately. To its surprise, however, closing the Exchange only made matters worse, encouraging hoarders and fueling a panic. The gold price skyrocketed by an additional $100, reaching almost $300 paper-to-gold, before frantic appeals from New York merchants convinced Congress to repeal the Gold Act and reopen the Exchange ten days later.
Only General William T. Sherman’s capture of Atlanta in August 1864 finally broke the bull market and cooled the fire. When Robert E. Lee surrendered to Grant at Appomattox Courthouse on April 9, 1865, the gold price sagged to $144, less than half its wartime high. It raises an age-old question: Which was worse: Over-speculation by the Wall Street gold traders, or Congress’ uninformed over-reaction that did far more harm than good?
For ease of reading, we have made minor edits and format changes, particularly shorter paragraphs and sub-headings, and added a few annotations to clarify historical context. Otherwise, we’ve left Kinahan Cornwallis’s text alone. We hope you enjoy this original voice from the 1870s.
Here, as an excerpt, is where Cornwallis describes what happened ton Wall Street the day after Congress stepped in and closed the Gold Room —
From The NEW YORK GOLD ROOM: Wall Street’s Big Gamble on the Civil War —
But the effect of large issues of irredeemable paper was not thus easily to be legislated away by a mere enactment closing the regular market for the precious metal. …
The abolition of the Gold Room, involved in this unwise, not to say absurd law, was its worst feature, for it closed the door to competition among bona fide holders of coin, as well as among speculative sellers. The real holders of gold were thus isolated, and each individual of their number was free to ask whatever price he pleased for the metal. Every one naturally wanted the highest price obtainable, and there began a rise faster than ever in the Gold Room. Those who had to pay customs’ entries and foreign indebtedness became alarmed, and rushed to the offices of the bullion dealers in Wall street, to make their gold purchases at the going price, whatever that might be, fearing that it would soon be still higher. Those who had sold “short” were still more apprehensive of the future course of the premium, and in trying to “cover” their contracts accelerated the upward movement.
No quotations for gold were made on the Stock Exchange, or on the street, and purchasers had to run from office to office, inquiring the price at which holders were willing to sell. Leading merchants and bankers, who had urged upon Congress this prohibitory legislation, now wrote and telegraphed to Washington, imploring the repeal of the Gold bill.
The whole country was alarmed by the rocket-like ascent of the premium following its passage, and Congress, amazed and rebuked by the advance — gold having sold at 198 on the 20th of June, and at 250 before the end of the month¬ — repealed the bill on the 2d of July, and the bears began to breathe a little more freely. Sunday, and “the Fourth” followed, and on the morning of the 5th, the Gold Room was re-opened; but the tug of war had yet to come. [By late June 1864, General Grant’s advance had been stopped, and his Army settled into a siege around Petersburg, Virginia, just twenty-one miles south of Richmond, that would last until March 1865.]
Still another corner
The bulls were prepared to twist the “shorts,” and as the outstanding contracts for future delivery were large, they found it easy to control the floating supply of “cash” gold — that is the coin available for immediate delivery — and so force the bears to buy to make their deliveries, unless they preferred the alternative of borrowing at exorbitant rates each day, to keep their contracts good. The market was virtually cornered. The highest price on the 5th of July was 249. On the 6th, it had risen to 261 ½, on the 7th to 273, on the 8th to 276 ½. On the 9th it remained steady, and on Monday the 11th leaped up to 285.
The bears quivered with rage and excite¬ment, or abandoned the contest in despair. Gilpin’s News Room, at the corner of William street and Exchange Place — to which the gold market had been removed before this from the Coal Hole — was turned into a scene of tumult, vociferation, agony, and disorder, that might be likened, for want of a better illustration, to Pandemonium. Men who were losing thousands every hour, or every minute, were there, shouting themselves hoarse, their hands uplifted and their eyes roll¬ing in frenzy, while their countenances indicated that they we’re undergoing mental tortures colloquially described as equal to those of the damned. Others were there, emboldened by and wildly elated with their own success, and tempting fortune by testing their luck to the utmost, apparently believing with the poet, that-
‘He either fears his fate too much, Or his deserts are small,
Who dares not put it to the touch, To gain, or lose, it all.’
A surging, writhing mass of humanity shook the Gold Room, and the sound of many voices filled the air, while men with anxious and fevered faces rushed in and out of the clamorous confusion with a semi-frantic celerity such as might have been expected of them if their lives or fortunes had been dependent on the result of a moment. The din would rise and fall like the roar of a tempest, but every few minutes new men would rush in, and yell far above the storm, and then rush out again after executing their orders; and day after day the exciting drama of gold was repeated. Meanwhile the whole country looked on with apprehension.
The “Corner” — for such it may be termed — culminated on the 11th of July, and after the Gold Room had closed on that day, private transactions took place at still higher figures than any chronicled during the regular hours of busi¬ness, one of these, it was rumored, being at a price above 300. But although the market had reached “top,” it showed stubbornness in yielding. On the 19th of July, sales were made at 268 3/4, on the 6th of August at 261 3/4, and on the 2d of September at 254 1/2. By the end of that month, however, there was a decline to 191 ; yet so erratic was the course of speculation, that on the 9th of November the price touched 260 again.
On that day General [William Tecumseh] Sherman began his mem¬orable and triumphant march through Georgia to the coast, and gold never afterward reached that altitude, but on the whole steadily declined, until it sold at 125 in March 1866, in consequence of the successes of the Union armies, culminating in the overthrow of the rebellion.
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