President Grant’s Exploitive Economic Plan

(September 19, 2017) After the first transcontinental railroad connected Omaha with Sacramento during President Grant’s first term in 1869, other tycoons sought government financing to build additional lines. One was Jay Cooke whose investment company was the leading underwriter of federal bonds during the Civil War. Cooke backed the Northern Pacific Railroad, which was to connect Lake Superior with Puget Sound.

Originally chartered by Congress in 1864, the Northern Pacific had not built a mile of track by 1870. Cook reasoned that he could buy the company at a bargain price if he could later get Congress to extend the life of its charter and provide him other concessions. After paying consulting fees to one of President Grant’s personal secretaries, Horace Porter, he learned that Grant was as “firm as a rock” on a bill tailor-made to his needs.

The 1870 act gave the company more time to complete construction without losing rights to its land subsidies, which were unusually generous. It also permitted Cooke to collect a $200 fee in stock for each $1,000 bond sold as well as a 12% cash commission. As the railroad stretched westward from Minnesota rumors of corruption filtered back east. Still, Cooke was selling about a million dollars in bonds every month. Overseas investors arrived on junkets to ride the rails to the ever-lengthening end of the line. By the late summer of 1873 it had reached Bismarck in present-day North Dakota.

But the railroad was generating little revenue. Nearly all its operations and construction were funded by debt. Anything that prevented Cooke from selling more bonds and stock would cause the Northern Pacific to coast to a halt. A March 1873 congressional report into corruption and political bribery involving the first transcontinental railroad was just such a factor. The public perceived the scandal as an indictment of widespread immorality within the railroad industry and the federal government.

Nonetheless, when Jay Cooke & Company collapsed on September 18, 1873 there could hardly have been a bigger blow to the public confidence. One Philadelphia newspaper reported, “No one could have been more surprised if snow had fallen during a summer noon.” Without new sales of Northern Pacific securities, Cooke & Company soon ran out of cash. The night before it shut down President Grant was a Cooke houseguest. The two shared a breakfast the vey morning of the debacle.

Cooke’s failure triggered a panic that led to a five-year depression. The New York Stock Exchange closed for ten days, amplifying the panic. Business failures in 1873 climbed to 5,000, from 4,000 in 1872 and 3,000 in 1871. Track construction across the nation declined by a third in 1874, causing 500,000 layoffs within the railroad eco-system including the iron and steel industry. Prices fell. Pig iron dropped from $56 a ton in 1872 to $17 five years later. Wages fell about 50% from 1873 to 1877. The country seemed to be overrun with vagrants.

As the economy progressively weakened during the months following Cooke’s bankruptcy, President Grant reflected upon how earlier gold discoveries in California and the Rocky Mountains had promptly energized America’s economy. Thus, in the summer of 1874 he sent a military expedition into the Black Hills of present-day South Dakota to look for evidence of rumored gold deposits. Since the Hills were part of a Lakota Sioux reservation—officially off limits to white civilians—the expedition’s goal was falsely represented as a site search for a military fort, which was permissible.

Lieutenant-Colonel George Custer led the thousand-man expedition that included President Grant’s eldest son as well as three newspaper reporters, a photographer and two gold miners. Although the group saw few Indians they discovered tempting quantities of gold. Soon the first rush of prospectors began tearing through the Hills. Within two years the largest deposit in the Continental United States—ultimately to become the Homestake Mine—was discovered. A year after discovery, George Hearst and two partners purchased the mine for $70,000. Before ending production in 2001, Homestake yielded over $1 billion in gold and helped finance the legendary career of George’s son, William Randolph Hearst.

Initially Grant made little effort to control the prospecting, but within a year there were so many prospectors that the he decided that the government must buy the Black Hills from the Sioux. When he learned that the Sioux refused to sell, he resolved to contrive a reason to start a war in order to take it from them by force.

In November 1875 he summoned the general commanding the region and the commissioner of Indian affairs to a White House meeting. Although the general and the commissioner were both on record as reporting that the Lakota had been peaceful in recent years, a contrary report was issued a week after the meeting by an inspector of the Indian Affairs Bureau. According to historian James Donovan the report “cited various trumped-up accusations and smoothly worded falsehoods regarding Indian violations.” Accordingly, the “wild” Indians in the hunting territories were told that they must return to the reservation by January 31, 1876 or be declared hostile, which would thereby authorize the army to force their return.

It was an impossible demand. The weather-weakened Indian ponies could not move entire villages, which included women and children. One warrior later said, “It was very cold and many of our people and ponies would have died in the snow. We were in our own country and doing no harm.” Even the departmental military commander admitted the ultimatum “will in all probability be regarded as a joke by the Indians.”

After an abortive winter campaign, the army launched a three-pronged offensive against the off-reservation Lakota in June 1876. They converged on the Powder River country in southeastern Montana. One column approached from the south out of Wyoming and a second approached downstream along the Yellowstone River from western Montana. A third column under General Alfred Terry marched upstream along the Yellowstone from the column’s starting point in present-day North Dakota. Terry’s force included the Seventh Cavalry Regiment under Custer’s command.

In response, the scattered Indian settlements concentrated into a single big village along a tributary of the Big Horn River, blandly named the Little Big Horn. The soldiers’ Wyoming column was quickly turned back at the Battle of the Rosebud. As Terry continued marching westward along the Yellowstone with his infantry, he sent the Seventh Cavalry south of the river on a reconnaissance in force to find the Indian village, or villages. Custer found the Little Big Horn village on 25 June. He divided his command into three separate components and attacked the Indians with two of them. The third guarded the regiment’s slower-moving pack train but was also sent on a vague reconnaissance mission to the southwest, perhaps to search for unseen hostiles.

The village had about 1,800 warriors as compared to 500 soldiers in the entire Seventh Cavalry. Custer’s column totaled 225 men. He allocated 150 men to a group under Major Marcus Reno to attack the village from the south. The final pack train guard under Captain Frederick Benteen included 125 men. After Reno’s attack was repulsed his command retreated to a defensive position on a bluff overlooking the Little Big Horn where Benteen’s pack train joined him. The Indians killed all the troopers in Custer’s command east of the village. Reno and Benteen suffered 53 killed and 60 wounded. The Lakota moved their village beyond sight the evening before General Terry’s infantry arrived on 27 June.

The Indian victory was merely temporary and only intensified white hostility. Within nine months the federal government forced the Lakota to cede the Black Hills. An 1877 act usurped the 1868 Treaty of Laramie requirement that it could only be amended by a three-quarter vote of adult male Sioux, which was not obtained. Instead, the federal authorities told the Indians that the 75% supermajority applied only to the Lakota residing on the reservation. Even given the narrower interpretation, however, it is doubtful that a three-quarter vote was obtained.

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Discarded peel cruelly unnerves school’s student leaders

The Cotton Boll Conspiracy

It’s a cliché as old, it would seem, as humanity: Each generation feels the one that follows isn’t doing its bit to uphold civilization.

That, of course, is questionable, as society has ebbed and flowed over the millennia. However, we would seem to be on a downward swing at present.

Consider: A randomly discarded banana peel at a University of Mississippi weekend event “designed to build leaders” resulted in “tears and frustration” as organizers “didn’t feel safe.”

Yes, Ole Miss Greek Life leaders cut short a three-day leadership retreat the weekend before last after black students discovered a banana peel dangling in a tree outside of one of the camp’s cabins.

“And then of course came the inevitable university action plans, flurry of letters exchanged, and sensitivity meetings,” the blogZero Hedge reported. “Bleary-eyed and shaken students had to text friends and family to come pick them up early (sounds…

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President Grant’s Gold Conspiracy

(September 5, 2017) The September 1869 attempted gold corner debacle began three months earlier in June when President Grant and his wife took a holiday trip to New York City to visit his sister and her husband, Abel Corbin, who had earlier sold Grant the “I” Street home in Washington. This time Corbin introduced Grant to Jay “The Mephistopheles of Wall Street” Gould, who together with Jim Fisk controlled the Erie Railroad. Along with the New York Central, the Erie was one of two trunk lines between New York and Chicago. Thus, began a series of conversations involving Gould, Fisk, Grant, and Corbin supposedly focused on boosting the economy and helping the western farmer.

Gould’s plan had a core of merit, if not corrupted for personal gain. He argued, correctly, that the vast majority of domestic transactions where unaffected by the price of gold in terms of Greenbacks. Since Greenbacks were legal tender they were widely accepted at face value among Americans transacting commerce with one another. Except in selected port cites where goods were imported, Greenbacks had driven specie (gold and silver coins) out of circulation. Even in port cities, Greenbacks were the main form of currency.

Conversely, international buyers purchased—imported into their countries—American goods by paying with specie. Therefore, the Greenback-to-gold exchange ratio was inconsequential to overseas buyers per se. Put another way, the price of grain in London was immune to the gold-to-Greenback ratio in New York. Therefore, Gould reasoned, manipulation of the gold-to-Greenback exchange rate might offer an opportunity to help the economy and the western farmer.

When he proposed the scheme, gold dollars traded at a value of about 130% to those of Greenbacks. Therefore, if he could induce gold to rise to 145% each shipload of grain sold in London would net American farmers about 12% (145/130) more in Greenbacks, even though the amount of gold Londoners would use to purchase the shipload would not change.

Eventually, Gould explained that he had enough money to execute his plan as long as the U. S. Treasury did not enter the New York gold market as a seller. He would simply buy gold on the exchange until it reached 145%. Since only about $20 million in gold was normally available to trade on the exchange, only sales from the $100 million Treasury reserve could disrupt Gould’s intentions.

In a partial “what-I-get-out-of-it” confession, Gould admitted that the plan would increase freight traffic for the Erie Railroad as grain was shipped from western states to the port of New York. He said nothing, however, about the capital gains he’d make as his gold holdings increased in price. It is likely he also realized that there was a good chance the premium would rise well above 145% as speculators began to comprehend that Gould had purchased all of the available market supply in a classic corner operation. Gould originally discussed the plan with Grant on 15 June when he was invited to meet the President at the Corbin household. Fisk joined Gould and Grant in a second discussion over dinner aboard a Long Island Sound steamer the following evening.

Although Fisk concluded from the conversation that Grant would not cooperate, Gould remained unconvinced. Together with Corbin the two successfully advised Grant to appoint General Daniel Butterfield to head the New York sub-Treasury office on 1 July where he could provide the conspirators with advance warning should Treasury Secretary George Boutwell send orders from Washington to sell gold. Grant made a second visit to Corbin’s household on 2 September where he wrote a letter to Boutwell explaining that it was “undesirable to force down the price of gold.”

Gould had been buying gold since 20 August with little affect on the market, but Grant’s letter to Boutwell implied that the market would soon do his bidding since the Treasury would not be a seller. Nonetheless, since Gould understood he was playing for big stakes he sought every possible advantage. Thus, using his own money he purchased $1.5 million in gold for the account of Abel Corbin. He intended to sell the contract later at a higher price, letting Corbin keep the profit while allocating the original $1.5 million back to his own account.

Next Gould started buying gold aggressively on 3 September. But on 7 September a member in his original conspiracy pool abandoned the operation and sold his holdings at 138, putting pressure on the price. Gould responded by purchasing $1.5 million in gold for the account of Daniel Butterfield. That gave the New York sub-Treasury officer a powerful incentive to warn Gould of any signs that Washington was on the verge of selling gold. Gould also offered a $500,000 contract to White House staff member Horace Porter who claimed he declined it. Seven years later, however, an investigation into presidential staff member Orville Babcock indicated that Babcock also had a gold contract but lost $40,000 when he sold it. Contrary to his earlier denial, evidence from the same investigation suggested that Porter also held gold contracts during the corner attempt.

By 14 September Gould concluded it was necessary to inform Fisk of the scheme and admit him into the pool because Fisk’s resources could finance enough gold purchases to lift the market price. According to historian William Hesseltine, “Fisk, went to Corbin, who whisperingly assured him that Mrs. Grant was in on the scheme. Gould had purchased gold for her at 131 and sold it at 137. Corbin himself had about $2 million in the market. Five hundred thousand of that was Mrs. Grant’s and a like amount belonged to General Porter. Gould confirmed that he had recently given Corbin a check for $25,000 and Corbin asserted that he had sent the money to Washington.” Basically, Fisk was led to believe that some of the gold contracts Corbin held in his name were really for the benefit of Julia Grant and Horace Porter.

Fisk’s buying power was needed to carry out the scheme because short sellers had artificially increased the market supply significantly by offering “phantom” gold on the market. He started buying on 15 September. By 22 September gold reached a price of 141. Meanwhile, on 12 September Grant departed on a private railcar owned by Gould for another vacation, this time in western Pennsylvania. Before leaving he wrote additional instructions to Boutwell basically directing that the secretary make no change in policy involving gold sales “until the present struggle [between bulls and bears] is over.” A traveling companion on Grant’s trip also noted that the President told him that he had instructed Boutwell “to beware of Wall Street and sell no gold” without Grant’s approval.

After Grant arrived at his Pennsylvania vacation spot, Corbin sent him another letter emphasizing that the Treasury refrain from selling gold. While Julia was writing a letter to Corbin’s wife (Grant’s sister) the President asked her to tell the couple that they must promptly end all speculations in the gold market. When Julia’s letter arrived in New York on 22 September, Corbin asked Gould to pay him $100,000 in unrealized profits from the $1.5 million contact and assume ownership of the underlying gold. Gould declined. Instead he offered to give Corbin a $100,000 check, which Corbin declined because he did not want to retain ownership of the underlying gold.[4]

The next day (Thursday) Fisk and Gould went to the exchange together. While Fisk bought aggressively and drove the price to 144, Gould was secretly selling. On Friday September 24, 1869 Gould and Fisk again went to the exchange together. Gould was promptly informed that bank examiners were heading to investigate the bank that provided most of his credit. He knew they would discover that his bank had improperly issued certified checks exceeding the value of all deposits connected with Gould’s operation. Essentially Gould had been using at least some amount of phony money to buy gold all along. As a result, he redoubled his furtive selling throughout the day.

Fisk, however, was as ostentatious a buyer as on Thursday. Trading volume was enormous. As the clock hands approached noon, gold was at 164, when news arrived that the Treasury would be putting $4 million on the market. Within fifteen minutes the price was down to 133. Gould was safely divested at the collapse.

Everyone assumed that Fisk was bankrupted, which may have been true. Later, however, he produced a (possibly bogus) document stating that he had been merely the agent for a brokerage firm owned by William Belden. The Belden firm, he averred, was financially responsible for his purchases. Since Belden did not have enough money to honor the transactions, all but one trade was repudiated and the firm was bankrupted. The majority report of a later congressional investigating committee, however, concluded “the conspirators [Fisk and Gould]…either before or after the fact…bought Belden’s consent to this villainy” thereby implying that Belden was paid-off personally even though his firm was ruined.

The comparatively moderate 23% gold price movement (130-to-160) resulting from Gould scheme caused a financial panic for two reasons. First, speculators normally used margin loans to execute their transactions. Put simply, they commonly bought and sold gold contracts by borrowing most of the money. Since gold was itself a form of money, banks would readily lend ninety percent or so on its market value. Thus, for example, a buyer needed only $100,000 to purchase a $1 million gold contract. If the price went up 10% the buyer doubled his $100,000 equity. But if it went down 10%, his entire investment was wiped out because the banks would sell the underlying gold to recapture its $900,000 (90%) loan.

A second reason it caused a crisis was because all but one of the sellers who sold gold to Belden through Fisk were unable to force Belden to make good on the transactions. The sellers were caught in a position similar to a homeowner who contracted to sell his home at an above-market price only to have the buyer belatedly renege after housing prices had tumbled.

After the September collapse, Congressman—later President—James A. Garfield headed the investigating committee noted above. The committee’s majority report concluded that Mrs. Grant never participated in the conspiracy. Fisk’s claim to the contrary was “denied by Corbin and unsupported by Gould.” Likewise, the majority report found that General Porter also never participated in the scheme, despite Fisk’s contrary statements.

Nonetheless, contemporary observer Henry Adams—grandson and great-grandson of two U. S. Presidents—concluded that Garfield led a whitewashed investigation, perhaps because he and other committee members were also vulnerable to criticism for low ethics. Garfield, it would later be disclosed, participated in the Crédit Mobilier corruption that emerged as the largest railroad finance scandal of the era. Years later Adams wrote:

The mystery that shrouded the famous, classical attempt of Jay Gould to corner gold in September 1869 has never been cleared up…

The Congressional Committee took…evidence, which it dared not probe and refused to analyze. Although the fault lay somewhere in the Administration…the trail always faded and died out at the point where any member of the Administration became visible.

At least one modern historian, Joseph Rose, shares Adams’s skepticism. In Grant Under Fire he notes several problems with the conventional Grant-was-a-naïve-victim interpretation.

First, Grant knowingly permitted the price of gold to rise and did nothing to prevent it until the financial markets were in crisis. Indeed, by blocking Treasury gold sales he assisted those driving the price up. Additional increases would have bankrupted the many short sellers and forced even more contract repudiations thereby even more severely disrupting commercial activities. Second, the committee did not permit testimony by a man who signed an Adams Express receipt ledger that he said showed Mrs. Grant had earlier received a $25,000 “money package” at the White House. Garfield, writes Rose, “concocted a phony explanation to hush this up.” Third, Grant persuaded Garfield not to subpoena Julia Grant or Virginia Corbin, his wife and sister respectively. Fourth, given the above circumstances, Grant’s post-report expression of his “good many obligations” to Garfield “for the Gold Panic investigation” suggests he was thanking the committee chairman for a whitewash.

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Southern State Constitutions After Reconstruction

(September 3, 2017) Popular interpreters revisionists of American history often erroneously assume that the Southern state governments that immediately replaced the Carpetbagger regimes focused on preventing blacks from voting and removing their civil rights. But actual comparisons of the Carpetbagger state constitutions with those that replaced them tell a different story. Consider the case in Arkansas where the Republican constitution was adopted in 1868, but replaced by a new one in 1874 after the state’s infant GOP fell from power.

In 1868 power was concentrated in the governor’s office. The first Republican governor, who was a former Union general, quickly used his expanded appointive powers and the Republican-dominated legislature to control politics throughout the state. In one county, for example, his appointees for judge, clerk, sheriff, treasurer, coroner, and assessor were all former Union soldiers. He immediately formed a new militia composed of blacks, and whites that were not former Rebels. His legislature promptly increased property taxes three fold. Within a year, annual state government spending rose to $2 million compared to less than $100,000 before the war and the state’s bond debt increased five fold.

In contrast, the 1874 constitution cut the governor’s term from four years to two and dramatically reduced his powers. His salary, along with those of other officials, was kept low. The legislature could override gubernatorial vetoes with a simple majority vote and most state offices were made elective instead of appointive. The state’s power to tax was severely limited. The legislature was permitted to meet only every other year, instead of annually. Significantly the document also provided for the civil and political rights of all citizens, regardless of race.

Black disfranchisement would, however, come later during the 1890s as the Populist Party split the white vote.

Sources: Carl Moneyhon, The Impact of the Civil War and Reconstruction in Arkansas; Thomas DeBlack, With Fire and Sword

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When Black Troops Fought Black Troops

(September 1, 2017) In one of the most bizarre episodes of Reconstruction, Arkansas Black Militia units fought each other at the Battle of New Gascony on April 30, 1874. They were on opposing sides of two Republican gubernatorial candidates engaged in an armed conflict known as the Brooks-Baxter War. It left as many two hundred killed on its battlefields. Like other incongruous events of the era, behind-the-scenes wrangling over money resulting from a falling out between Carpetbagger factions was to blame.

After the 1867 federal Reconstruction Acts required ten of the eleven former Confederate states to form new constitutions mandating universal black suffrage, seven of the ten had Carpetbag regimes in place for the 1868 presidential election. The other three remained under military rule. Arkansas was one of the seven.

Since many former Arkansas Confederates were not permitted to vote, the Republican Party gained firm control of the state government when Carpetbagger Powell Clayton was inaugurated in July 1868. In order to enforce his authority, he immediately formed a state militia. Since the force was only permitted to include voters, former Confederates were barred. As in other Southern states it was, therefore, commonly labeled a Black Militia, even though it also included whites that had not supported the Confederacy.

In 1871 the Carpetbag legislature elected Clayton to the U. S. Senate and sent former Vermonter, Stephen Dorsey, to join him in 1873. Both Clayton and Dorsey had become wealthy in Reconstruction-era Arkansas. Dorsey’s path to prosperity had been railroad finance manipulation. He would later become Secretary of the National Republican Committee. But he would also get implicated in a national U. S. Post Office scandal for rigged bidding of rural delivery routes, which were allocated to private companies at the time under lucrative contracts.

Clayton also profited from taxpayer-funded railroads but a total of 40,000 acres in cotton farms was the second pillar to his wealth. Many post-war, impoverished farmers across the state lost their lands due to inability to pay property taxes. Buyers were often Northern Carpetbaggers that were politically well connected to the new Republican regime, like Powell.

Disfranchisement of former Confederates left the state’s Democratic Party so weak that it did not even field a gubernatorial candidate in the 1872 election. The contest, therefore, was between two Republicans; one from the liberal wing and the other from the regular (stalwart) wing. Elisha Baxter represented the stalwarts and Joseph Brooks the liberals. Powell and Dorsey backed the stalwarts. Since that faction controlled the election machinery, Baxter won. Brooks, nonetheless, filed a couple of lawsuits charging fraud. He promptly lost the higher-profile suit while the second one languished in a lower county court.

After Baxter took office, however, he angered Powell and Dorsey by attacking rail promoters for recklessly issuing too many state-guaranteed bonds to finance the construction of their railroads. Attempts by the companies to force the state to accept stock, instead of cash, for repayment of the bonds triggered Baxter’s assault. Ultimately every Reconstruction-era railroad in Arkansas financed in this manner defaulted on its interest payments. Construction costs were unaccountably high as were the bond sales commissions. There can be little doubt that much of the excess went into the pockets of the promoters.

Powell and Dorsey quickly switched sides in the governor dispute. They got the obscure county court to declare Brooks the winner. Accompanied by ten armed men on April 15, 1874, Brooks physically ousted Baxter from the governor’s office in a coup d’état.

From a nearby hotel, Baxter put out a call for militia to put him back in office. Brooks sent out a separate call to defend his occupation of the state house. Thousands of white and black men showed up in in the state capital of Little Rock to support their candidate. Federal troops from a nearby arsenal temporarily kept them apart. Eventually, however, the forces clashed at four sites, including New Gascony where armed black men fought on each side.

Meanwhile Baxter and Brooks each maneuvered for support from the many disfranchised white males of voting age. Each promised to promote amendments to the state constitution that would give former Confederates the right to vote. In the end, leaders for this “silent majority”* lobbied President Grant to simply choose a winner. Since they expected that either candidate would return their voting privileges, they merely wanted a temporary “placeholder” in the governor’s office until re-enfranchisement would permit the Democratic Party to take control of the state. Grant chose Baxter on 15 May but appointed Brooks as the Little Rock postmaster, a job he held for decades thereafter. The Democrats rose to power in the autumn 1874 elections on the strength of their new voting rights.

***

*Among the “silent majority” was Uriah Rose who founded the Little Rock law firm were Hillary Clinton worked a century later.

Sources: Thomas DeBlack, With Fire and Sword; Carl Moneyhon, The Impact of Civil War and Reconstruction in Arkansas; Thomas DeBlack, YouTube Lecture; John Mooney, YouTube Lecture

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New book ponders long-lasting effects of Reconstruction

The Cotton Boll Conspiracy

If social media has a redeeming quality, it may be the ability to learn the unvarnished truth regarding the true feelings of others.

Within the past month I’ve come across numerous comments in the middle of Facebook conversations that were startlingly narrow-minded, yet because they singled out a group deemed OK to bash, no one uttered a peep.

The first came in early July, amid debates concerning the South’s ongoing educational deficiencies, specifically the overall low ranking many Southern states register on nationalized tests. Within a short time, the cause was identified solely as “Jim Crow.” Finally, one individual, located in the Northeast, stated bluntly, “I hate Southern white males.”

A second conversation dealt with the threat of radical Islam within the US. One individual countered that he had been to Islamic countries and that the Deep South, for example, was “way scarier” than Indonesia “in his experience.”

This individual…

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