IN THE HALF CENTURY between the end of the Civil War and the beginning of World War I in Europe, the American economy changed more profoundly, grew more quickly, and became more diversified than at any earlier fifty-year period in the nation’s history.
In 1865 the country, although already a major industrial power, was still basically an agricultural one. Not a single industrial concern was listed on the New York Stock Exchange. By the turn of the twentieth century, a mere generation later, the United States had the largest and most modern industrial economy on earth, one characterized by giant corporations undreamed of in 1865. The country, an importer of capital since its earliest days, had become a world financial power as well, the equal of Great Britain.
While displaced from the center of the American economy, agricultural production also greatly increased, as farmers and ranchers poured into the Great Plains via the railroads that were laid across them in these years. By 1890 the Census Bureau declared that the frontier—a primary feature of American political geography since 1607 and a profound influence on the American character—had ceased to exist. There was still much land that was unoccupied, but it was fragmented, and there was no longer an identifiable line across the continent that marked the end of civilization and the beginning of the once boundless wilderness. The United States was now a continental nation in geopolitical reality as well as nominal geographic fact.
The need to devise the new rules and institutions that would allow this new economy to flourish, and to assure that its fruits were equitably enjoyed by all segments of society, would dominate domestic American politics for the next century, just as preserving the Union and slavery had dominated the politics of the antebellum period. Many of the devices adopted to govern the new economy in this time would come through governmental and legislative action, especially in the latter decades. But, in fact, just as many would emerge out of the private sector, as the lawyers, bankers, brokers, railroaders, labor leaders, and industrialists sought to advance their own long-term self-interests, which were by no means always identical.
Increasingly involved in the debate over economic policy and the rules of the game as the nineteenth century drew to a close were intellectuals who had previously had no role beyond abstract economic theory. Often they sought to speak for society as a whole, rather than the self-interests of a particular group. Inevitably, of course, they spoke for their own self-interests, although it usually seems they were unaware that they had any. Some such as Karl Marx and Henry George remained theorists, but ones who attracted large popular followings. (Henry George, however, running as a reformer, was very nearly elected mayor of New York in 1886, and finished well ahead of the Republican candidate, Theodore Roosevelt.) Others, such as Charles Francis Adams and his brother Henry, were principally writers and journalists. Many of these intellectuals, however, had a very limited acquaintance with the real economic world they sought to influence.
It was, in short, a typically messy democratic process, but, as democratic processes usually do, it worked in the long term. No society in history had ever needed to govern a highly dynamic industrially based economy in a nation that was constitutionally a federal republic of limited powers. The United States learned how to do so, using, largely unconsciously, the great insights of the Founding Fathers: that men are not angels, that they are driven by self-interest, and that that self-interest can be exploited for the general good by an interlocking system of divided powers.
Although sometimes racked by severe depressions, the American economy would flourish so abundantly, in the long term, in the next 140 years precisely because the American nation devised a highly effective system of checks and balances for governing that economy in the decades after the Civil War.
IMMEDIATELY AFTER THE WAR, however, nothing characterized American politics and thus the American economy so much as corruption. There were, in effect, no cops on the beat, and the result, for a few years, was capitalism red in tooth and claw. It was often entertaining, at least for those who were not directly involved, but it was no way to run an economy. Capitalism without regulation and regulators is inherently unstable, as people will usually put their short-term self-interests ahead of the interests of the system as a whole, and either chaos or plutocracy will result. As Herbert Hoover explained, “The trouble with capitalism is capitalists. They’re too damn greedy.”
Nowhere was this corruption more pervasive than in New York, and especially on Wall Street. Before the Civil War, the financial market had been small enough that formal regulation was largely unnecessary; the various players could keep an eye on one another. While chicanery and outright fraud were hardly unknown, the players in the game were mostly professionals who knew what they were getting into. With the vast inflow of securities due to the war and an equally large increase in the number of people trading there, however, the situation changed.
But there was no mechanism to provide oversight. The federal government was not thought to have any role in regulating markets at this time, and the state and city governments were cesspools of corruption. As early as 1857 George Templeton Strong wrote despairingly in his diary, “Heaven be praised for all its mercies, the Legislature of the state of New York has adjourned.” A few years later Horace Greeley in the New York Tribune wrote that it was not possible “that another body so reckless, not merely of right but of decency—not merely corrupt but shameless—will be assembled in our halls of legislation within the next ten years.”
Greeley was wrong. In 1868 the New York State Legislature actually passed a law the effect of which was to legalize bribery. “No conviction [for bribery],” the act read, “shall be had under this act on the testimony of the other party to the offense, unless such evidence be corroborated in its material parts by other evidence.” In that preelectronic age, that meant that as long as the official took his bribe in private and in cash, there was no possibility of his being convicted.
The state courts were no better than the legislature. Judges had been elected in New York State since the 1840s, when the state adopted a thoroughly Jacksonian constitution. This made them dependent on the political machines, as, indeed, they still are. The results were predictable. “The Supreme Court is our Cloaca Maxima,” George Templeton Strong, a very successful lawyer himself, wrote in his diary, “with lawyers for its rats.” In 1868 the popular English Fraser’s Magazine wrote that “in New York there is a custom among litigants as peculiar to that city, it is to be hoped, as it is supreme within it, of retaining a judge as well as a lawyer.” Nowhere was this more true than in what became known on Wall Street as the Erie Wars, the struggle for control of the Erie Railway.
The Erie had had a very unusual history among early American railroads. It had been chartered as the result of a political deal and intended from the beginning to be a great trunk line. To secure for the Erie Canal project the political support of the “Southern Tier” of counties along the border with Pennsylvania, they were promised an “avenue” of their own. The railroad, chartered in 1832, was to be that avenue.
Political forces kept the Erie out of Buffalo, its logical western terminus, but where it might have competed with the canal, and from passing through New Jersey so as to terminate across the Hudson from New York City, its logical eastern terminus. Instead, what was, at 451 miles, briefly the longest railroad in the world ran from the tiny town of Dunkirk, New York, on the shore of Lake Erie, to the equally tiny town of Piermont, New York, on the Hudson River north of the New Jersey state line.
The line had gone bankrupt during its seventeen-year-long construction, and by the time it was finally finished it had an extraordinarily complex capital structure involving common stock, preferred stock, and convertible bonds. These securities were a speculative favorite on Wall Street, especially with a speculator named Daniel Drew, who was also, from time to time, the Erie Railway’s treasurer and sat on its board.
Drew was one of the great characters in Wall Street history. Uneducated but profoundly—and genuinely—devout, he had begun his career as a drover, supplying the New York cattle market. He soon moved into Wall Street and steamboats. By the 1860s he was very rich, worth at one point, at least by his own reckoning, $16 million. He founded what is now Drew University and paid for the construction of several churches. But when not praising the Lord, he practiced with boundless enthusiasm every trick in Wall Street (some of which he invented himself ) to separate the unwary from their money. Known as the “speculative director,” Drew liked nothing better than to manipulate Erie securities.
The Erie, despite its chronic financial problems (it went bankrupt a second time in 1859), was a very large enterprise, with forty-four hundred employees that year, thousands of cars, and millions of dollars in revenue. Its economic potential was considerable. From his seat on the board, Drew had access to inside information, which he used without compunction, as did many of the other directors. The result, according to a ditty on the Street, was:
Daniel says up—Erie goes up.
Daniel says down—Erie goes down.
Daniel says wiggle-waggle—Erie bobs both ways.
Railroading has always been a difficult business to make money in because it has very high fixed costs, which continue whether there is good business or bad. For that reason, market share is crucial to profitability on the lines where there is competition, as every additional passenger or ton of freight adds to income without adding much to expenses. Because of the need for market share, price wars were common between competing railroads in the nineteenth century (and are common between airlines today for precisely the same reasons).
But there are natural limits to these price wars, as below a certain point, rate cuts become economically suicidal. The board of the Erie, however, was largely unconcerned with such mundane, long-term matters as profitability or even viability. They were far more interested in short-term trading profits on the Street. This made the Erie the wild card of New York railroading (and caused Charles Francis Adams to dub the line the “Scarlet Woman of Wall Street”). An increasingly powerful figure in that market, Cornelius Vanderbilt, wanted to do something about it.
Vanderbilt had left the employ of Thomas Gibbons in 1829 and struck out on his own in the steamboat business. He was soon the greatest shipowner in the country, and in 1837 the Journal of Commerce first used the honorary title by which he has been known to history ever since: Commodore. The Commodore’s business model was simplicity itself: (1) run the most efficient, lowest-cost organization possible; (2) compete fiercely by means of price until the opposition is either broke and can be bought out or pays you to stop competing; and (3) live up to your agreements. Matthew Hale Smith, both a lawyer and a Congregational minister, wrote of him in 1870 that “the Commodore’s word is as good as his bond when it is freely given. He is equally exact in fulfilling his threats.”
Vanderbilt was willing to accept payment to stop competing on a particular run because steamboats, unlike railroads, can operate anywhere there is water enough to float them. If paid to leave the Hudson, say, that made it just that much easier to compete on Long Island Sound or the New York to Philadelphia route. Some did not understand. The New York Times editorial page, in the 1850s, first used the image, if not quite the words, of the medieval “robber barons” in criticizing Vanderbilt’s tactics. The robber barons, supposedly, lived along the Rhine and charged traffic a fee to pass their castles unmolested. (Whether they existed in fact or were a nineteenth-century construct is another matter.)
Charging passersby for safe passage was, of course, a pure extortion racket, for no wealth was created by it, merely transferred. But Vanderbilt was doing no such thing. In 1859 Harper’s Weekly, far less economically obtuse than the Times, explained. “It has been much the fashion,” it wrote, “to regard these contests as attempts on his part to levy blackmail on successful enterprises. It is hardly fair for any man to undertake to decide what are the particular motives of his neighbor in undertaking a specific work, if the work be in itself legitimate and fair. He must be judged by the results; and the results in every case of the establishment of opposition lines by Vanderbilt has been the permanent reduction of fares. Wherever he ‘laid on’ an opposition line, the fares were instantly reduced, and however the contest terminated, whether he bought out his opponents, as he often did, or they bought him out, the fares were never again raised to the old standard. This great boon—cheap travel—this community owes mainly to Cornelius Vanderbilt.” Even the Times would soon come around to this view of the Commodore.
The term robber baron, of course, came to stand for the men, of whom Vanderbilt was one of the first, who built great industrial and transportation empires in the late nineteenth-century American economy. While many of these men were capable of ruthlessness, gross dishonesty, and self-aggrandizement (and others were honest men who scrupulously stayed within what were often inadequate laws), none of them merely transferred wealth to themselves from others by their activities. They all built vast wealth-creating enterprises. Regardless, the term is obviously here to stay.
By the early 1860s Vanderbilt began to move into railroads, a technology he had always disliked (he had been very nearly killed in one of the earliest major railroad accidents in this country). He acquired controlling interest in the New York and Harlem Line and the Hudson River Railroad, the only two railroads that had direct access to Manhattan Island. When his interests in these two roads were attacked by Wall Street speculators in 1863, including Daniel Drew, Vanderbilt quickly proved himself the utter master of the Wall Street game, cornering the speculators in Harlem twice and the Hudson once in a matter of weeks, earning millions, and establishing a reputation such as no man has had on Wall Street since. A British journalist of the day described him as “a Gaetulian lion among the hyenas and jackals of the desert.”
In 1867 Vanderbilt was invited to become president of the New York Central and soon planned to merge it with his Hudson River Railroad, creating a line that would extend all the way from New York City to Buffalo and that would compete directly with the Erie Railway. Vanderbilt had no doubt that he could compete successfully. But he wanted the Erie run in a businesslike manner so that both lines could make money by agreeing on a division of traffic (which was perfectly legal at the time but today would be a combination in restraint of trade).
He determined to throw Drew off the board at the election of October 8, 1867, and get people who agreed with him elected instead. Drew, an old friend as well as a competitor since steamboating days, went to see the Commodore and promised to behave himself and even to work in Vanderbilt’s interests. Vanderbilt relented, and Drew not only stayed on the board but was named treasurer of the Erie once again, a position he had not had since the mid-1850s. Also elected to the board were two newcomers to Wall Street, Jay Gould and Jim Fisk.
Drew quickly broke his promises to Vanderbilt by organizing a pool to bull the price of Erie stock upward. And when Vanderbilt asked the board to agree to divide the New York City traffic among the Erie, the New York Central, and the Pennsylvania, the Erie board voted it down with only Frank Work—the Commodore’s man on the board—in favor.
Vanderbilt, thwarted, decided to strike back. If he couldn’t influence the board to behave like businessmen, he would use what Charles Francis Adams called “the brute force of his millions” to buy control of the Erie. There were officially 251,050 shares of Erie common. But Drew also controlled 28,000 unissued shares that were in Drew’s possession as collateral for a loan, and some of the many issues of Erie bonds could be converted into common stock. And Drew, as treasurer, was in a perfect position to issue still more convertible bonds and to convert them as necessary to prevent Vanderbilt from winning control by buying a majority of the common stock.
Vanderbilt went to Justice George G. Barnard, described by a contemporary as “a Tammany healot numbered among the Vanderbilt properties.” Barnard quickly issued an injunction forbidding Daniel Drew as treasurer from converting bonds into stock and personally from selling any stock in his possession. The Commodore thought he had the situation under control and ordered his brokers to go into the market and buy all the Erie stock that was offered.
But Drew got one of his judges, named Gilbert and sitting in Brooklyn, to order that the Erie continue converting bonds into stock on request. As a broker, E. C. Stedman, explained, “Since they were forbidden by Barnard to convert bonds into stock, and forbidden by Gilbert to refuse to do so, who but the most captious could blame them for doing as they pleased?”
Within a few days, the Erie had issued bonds that were converted into one hundred thousand shares of new stock and thrown on the market. “If this printing press don’t break down,” Jim Fisk offered, “I’ll be damned if I don’t give the old hog all he wants of Erie.”
When Vanderbilt found out that the Erie board was printing new shares of stock as fast as his brokers could buy them, he went back to Justice Barnard and had him issue arrest warrants. The sheriff was dispatched to bring in the Erie board. The board, alerted to their impending arrests, fled.
As William Worthington Fowler, a broker who wrote a best-selling memoir of Wall Street in 1870, described it, a policeman on the beat “observed a squad of respectably dressed, but terrified looking men, loaded down with packages of greenbacks, account books, bundles of papers tied up with red tape, emerge in haste and disorder from the Erie building. Thinking perhaps that something illicit had been taking place, and these individuals might be plunderers playing a bold game in open daylight, he approached them, but soon found out his mistake. They were only the executive committee of the Erie Company, flying the wrath of the Commodore, and laden with the spoils of their recent campaign.” Indeed they were: they had $7 million of the Commodore’s money stuffed in a carpetbag. They quickly fled to New Jersey, where they were safely beyond the immediate reach of the New York law.
The action then moved to Albany, where each side tried to bribe the legislators, who “flocked to Albany like beeves to a cattle mart. All were for sale, and each brought a price proportioned to his weight.” Jay Gould, according to the New York Herald, arrived in Albany with a suitcase filled with thousand-dollar bills, and when arrested produced $500,000 in bail money on the spot.
The Commodore could have won a bribing contest, but he realized that it might be a pyrrhic victory in the long run, for public opinion was turning against the idea of his owning the Erie as well as the Hudson River, Harlem, and New York Central lines. This would have given him near monopoly power in the New York transportation market. Vanderbilt decided to deal and sent a note to Drew. He insisted on two things. The worthless stock (it had been declared to be not “good delivery” by all the major exchanges) had to be taken off his hands at a price near what he had paid for it, and Daniel Drew had to sever all ties to the Erie. To get their agreement, Jay Gould was made president of the Erie and Jim Fisk treasurer.
The Erie Wars had galvanized the public, and the story was given even more space in the newspapers than the concurrent impeachment trial of President Andrew Johnson. But while the public was vastly entertained, most members of the New York commercial establishment were horrified.
Unlike speculators, who look no further than the next big killing, brokers earn their money one commission at a time and need a market with as much predictability as possible so as to enjoy the greatest number of customers possible. If the amount of a stock that has been issued could be doubled or halved without even a moment’s notice by the management, how could anyone know what the value of a share was? The Commercial and Financial Chronicle, an influential weekly, put its finger on the heart of the problem. The capitalists were not wholly at fault because “the letter of the law is very deficient in its regulation of the management of corporate interests.” The Chronicle published a suggested law to remedy the situation, requiring that directors get consent of the stockholders for new issues, that no issues of stock be made without notice, that a register of all issues be available for inspection at a financial institution, and that infractions be punished criminally.
In the late 1860s there was no way to get such a law enacted because of the corrupt state legislature. The stock exchanges, however, owned by the brokers, could act on their own and, within a month, did so. On November 30, 1868, the Open Board of Brokers and the New York Stock Exchange issued identical sets of regulations requiring listed companies to register all listed securities within two months in a registry open to public inspection, and to give thirty days’ public notice of intent to issue new securities. The Erie Railway, now the plaything of Jay Gould and Jim Fisk, refused and was delisted.
Shortly afterward, these two stock exchanges merged under the name of the New York Stock Exchange. Finally there was an institution on Wall Street large enough and powerful enough to act as an effective regulator. Jay Gould quickly found out that he had no choice but to comply if there was to be a decent market for Erie securities, and he registered the company’s stock and bonds on September 13, 1869.
It was just a start, of course. James K. Medbery, in his Men and Mysteries of Wall Street in 1870, knew what was at stake. “It remains for the brokers of the Stock Exchange,” he wrote, “to decide whether they will seek the petty profits of a speculation marred by grave faults, or will cast their influence still farther and with more strenuous emphasis against the encroachment of the cliques. The former means isolation. The latter will be prelusive of an expansion in international relations which will make New York imperial, and Wall Street what its pivotal position demands and allows, the paramount financial center of the globe.”
Wall Street chose to go down the second path, and the New York Stock Exchange began to exert its new power to effectively regulate stock trading. The Street was still no place for fools—it never will be—but compared with just a few years earlier, Wall Street had become a modern, reasonably well-regulated financial market. The stocks traded on Wall Street at this time had a total market capitalization of about $3 billion, while London’s market was more than $10 billion. But Wall Street was catching up fast. Successful self-regulation would guide Wall Street for the next sixty years as it eclipsed London and became the world’s leading financial center.
THE CORRUPTION OF THE POSTWAR PERIOD was by no means limited to New York capitalists, government, or New York railroads. Indeed, the greatest railroad project in the nation’s history—the transcontinental railroad built between 1864 and 1869—also set off the greatest financial and political scandal of the nineteenth century.
The transcontinental railroad had been envisioned ever since California had joined the Union in 1850, but the deepening political crisis between North and South had prevented any action. In 1862, with only loyal states now represented in Congress, the Pacific Railroad Act was passed creating the Union Pacific Railroad, the first corporation chartered by the federal government since the Second Bank of the United States in 1816. The project was intended as much as a symbol that the Union would endure (hence the name of the railroad company) as it was a commercial project.
The company, from the beginning, was to receive a great deal of government help because it would have been impossible to raise capital in the open market for a railroad across more than a thousand miles of unsettled land. Railroads in the East (and in Europe) had largely connected areas of economic activity, greatly increasing the amount of that activity. In the West they often created these areas of activity, as people and commerce followed the paths of the railroads. The original capital of the Union Pacific was to be one hundred thousand shares at a par value of $1,000 each, a huge capitalization of $100 million. The Union Pacific and the Central Pacific, which was to build eastward from Sacramento, would be granted a right-of-way of two hundred feet on each side on public lands. In addition the railroads would receive, for every mile of track completed, title to sixty-four hundred acres of land to be sold to settlers, alternating with sections of land retained by the federal government.
There was more. For each mile completed, the Union Pacific would receive from $16,000 to $48,000 in government bonds, depending on the difficulty of the terrain, and government loans, in the form of first mortgage bonds, repayable over thirty years, for construction costs. It was soon clear, however, that more help would be needed. In 1864 a new bill allowed the two railroads to sell first mortgage bonds (subordinating the government mortgage bonds) and doubled the land grants to the railroads to 12,800 acres per mile of track laid.
Despite the enormous government subsidies, it was still a very risky venture, and the management quickly moved to ensure their own profits, if not those of the regular stockholders. They set up a construction company, owned by themselves, with a fancy French name, Crédit Mobilier, and hired it to build the railroad. Needless to say, they charged the railroad top dollar, and often then some, for their services. Although the chief engineer, Peter Dey, had estimated that the initial section, west of Omaha, could be built for an average of $30,000 a mile, when Crédit Mobilier asked for $60,000, the president of the line, Thomas C. Durant, ordered Dey to resubmit his proposal, making the sum needed $60,000 a mile. Rather than go along, Dey resigned what he called “the best position in my profession this country has ever offered to any man.” Others, needless to say, were not so scrupulous.
As many as ten thousand men—immigrant Irish, freed blacks, mustered-out soldiers, Chinese immigrants—worked on the two roads as they wended their ways across the plains, mountains, and deserts of the West toward a rendezvous at Promontory Point, Utah. The crews sometimes laid rails at the astonishing rate of four a minute. The casualty rate was appalling. Many were killed in accidents, but many too were killed in the drunken brawls that regularly erupted in the camps that moved along with the railhead.
Even at the time, the transcontinental railroad was perceived as one of the great epics of that age of engineering miracles in which they lived. William Tecumseh Sherman called it the “work of giants.” The Western poet Joaquin Miller thought that “there is more poetry in the rush of a single railroad across the continent than in all the gory story of the burning of Troy.”
Although physically one of the marvels of the age, financially the Union Pacific was wrecked by its construction, thanks to Crédit Mobilier, which was wildly profitable. In 1867 Crédit Mobilier paid its first dividend to its stockholders, amounting to 76 percent of their investment. Future dividends ranged up to 350 percent. In the second dividend of 1868 alone, a person holding $10,000 par value in Crédit Mobilier stock received $9,000 in cash, $7,500 in Union Pacific bonds then selling at par, and forty shares of Union Pacific stock worth $1,600, a return on capital of 181 percent.
Oakes Ames, a stockholder of Crédit Mobilier as well as a congressman from Massachusetts, thought that other members of Congress should be cut in on the action to make sure there would be no trouble from that quarter, and many were. They had to pay for the stock, but as they were allowed to do so out of the munificent dividends, that was not a burden. Among those receiving stock were Schuyler Colfax, who would be President Grant’s first vice president, and Henry Wilson, who was his second; others were James A. Garfield, who would be elected president in 1880, and James G. Blaine, who would be the Republican nominee for president in 1884.
This did not go unnoticed. In January 1869 Charles Francis Adams, who would himself be president of the Union Pacific Railroad in the 1880s, wrote in the North American Review that Crédit Mobilier was nothing but a Pacific Railroad ring. “The members of it are in Congress; they are trustees for the bondholders; they are directors; they are stockholders; they are contractors; in Washington they vote the subsidies, in New York they receive them, upon the plains they expend them, and in the ‘Crédit Mobilier’ they divide them.”
Adams’s charges were only allegations, as he had no proof, and were easily brushed off. But, as so often happens, thieves fell out, and a disgruntled Crédit Mobilier stockholder, Henry S. McComb, thinking himself cheated, sued. The court papers were leaked to Charles A. Dana, editor of the New York Sun, and on September 4, 1872, the story ran under a six-column lead:
THE KING OF FRAUDS
HOW THE CREDIT MOBILIER BOUGHT
ITS WAY THROUGH CONGRESS
Colossal Bribery
A congressional committee convened to investigate the scandal recommended that Oakes Ames and one other congressman—one of the few Democrats involved—be expelled, but they were only censured. The Republicans, however, suffered heavily in the election of 1874 and lost control of the House. Ulysses S. Grant, himself personally honest to a fault, would go down in history as presiding over the most corrupt administration in the nation’s history.
IT WAS A NEWSPAPER that brought the Crédit Mobilier scandal to public attention, a sure sign of the growing power of the new medium to influence the political events it covered. Lord Macaulay had dubbed the press the “fourth estate” as early as 1828, but it was only after the newspapers had become a mass medium, read by millions, that they truly became a powerful force in the body politic in both Britain and the United States. The exposure of gross incompetence in the Crimean War by William Howard Russell (later Sir William) of the Times of London brought down the government of Lord Aberdeen and led to thorough reform in the British army.
The year before the Crédit Mobilier scandal broke, the so-called Tweed Ring, which had built a modest courthouse north of New York’s City Hall for $12 million—fully 20 percent more than the vastly larger and more ornate Houses of Parliament had cost to build in London in the 1840s—had been exposed by the New York Times. A wave of reform had swept over New York State and City as a result. A new law regarding bribery was placed as an amendment in the state constitution, where it was safely out of the reach of the legislature.
The judiciary and the profession of law itself were also reformed, thanks mainly to the lawyers. “The abused machinery of law is a terror to property owners,” George Templeton Strong had written in his diary. “No banker or merchant is sure that some person calling himself a ‘receiver,’ appointed ex parte as the first step in some frivolous suit he never heard of, may not march into his counting room at any moment, demand possession of all his assets and the ruinous suspension of his whole business…No city can long continue rich and prosperous that tolerates abuses like these. Capital will flee to safer quarters.”
The basic problem was that technology had outrun the law. The New York lawyer David Dudley Field, in one of the great intellectual achievements of the nineteenth century, had written the Field Code of Civil Procedure, adopted in New York State in the 1840s and widely copied elsewhere. (Used by Britain as the basis of reforming its laws in the 1870s, it is today the basis of civil law throughout the common-law world.)
Before the telegraph and railroads, judges needed wide discretion to act in order to protect life and property. But by the 1860s this discretion was being widely abused. In a speech that was printed in many newspapers, William Maxwell Evarts, one of the country’s leading lawyers, who had served as attorney general in the last days of the Andrew Johnson administration, said regarding his early career that “for a lawyer to come out from the chambers of a judge with an ex parte writ that he could not defend before the public, would have occasioned the same sentiment towards him as if he came out with a stolen pocket book.”
Evarts and other leading lawyers organized the New York State Bar Association in 1870 to police the profession and to work to make needed reforms in the law, such as restricting judges from interfering in cases not before them. Lawyers in other states quickly followed suit and formed their own bar associations. The following year, as the Tweed Ring collapsed, the Bar Association contributed $30,000 to help pay the expenses of prosecuting corrupt judges, such as Justice Barnard, who was successfully impeached, and helped push extensive reform of the law through the suddenly virtuous legislature.
Scandals such as the Tweed Court House, Crédit Mobilier, and all the ones that have followed right up to Watergate and the Enron scandal of our own day have proved to be the engines of reform. It is impossible to anticipate every form of corruption that might develop in a constantly evolving free-market economy and in a government of limited powers. And the law will always lag well behind the ideas, both good and bad, that people, driven by self-interest, will develop for quickly exploiting new opportunities as they appear. The reason that the nineteenth century seems so peculiarly scandal-ridden, perhaps, is that there was so much economic, technological, and social change in that century.
With the reforms brought about by the scandals of the immediate post–Civil War era, the American economy and American politics settled into a more law-abiding period while the economy continued to evolve at breakneck speed. But many of the men who would play a central role in shaping the new economy, men such as J. P. Morgan, John D. Rockefeller, and Andrew Carnegie, came of age in the era of unprecedented government corruption and would never be able to conceive of government as a suitable instrument for reforming and regulating the economy.
To them, government was part of the problem, not the solution. They thought it was up to men like themselves to put the new American economy on a sound and honorable basis and keep it there. A rising political movement that would come to be known by many different names—the left, liberalism, populism, progressivism, and so on—would have a very different view.