The Man Who Saved the Union (80 page)

Grant invested heavily—for him—in upgrading the farm. An inventory taken in 1873 put the value of his horses at nearly $25,000, with equipment and other livestock amounting to $11,000. Yet the returns were disappointing. Bad luck didn’t help matters. “
I see by the morning papers that Elrod has been burned out, and no doubt without insurance,” Grant wrote Charles Ford in February 1873. Elrod wasn’t injured, and the fire didn’t disrupt the operations of the farm. “
No building has been burned which will have to be replaced,” Grant said. But the incident seemed an evil portent. The profitability of the farm grew more distant, till Grant felt obliged to let Elrod go. “
The receipts have steadily decreased,” Grant’s accountant explained, “and under Mr. Elrod’s management it has yielded less and less the longer he stayed.” Grant stopped paying Elrod that October but told him he could remain on the farm until he found a new position.

69

T
HE TIMING COULDN’T HAVE BEEN UNLUCKIER FOR
E
LROD, FOR AT
almost the moment Grant gave his manager notice, new positions grew hard to find. In September 1873, four years to the week after the gold crisis of 1869, another panic seized the financial markets. This one centered on the firm of
Jay Cooke, the man who had sold the bonds that kept the Union solvent during the Civil War. Cooke had diversified from government bonds to railroad securities, underwriting the
Northern Pacific Railroad and other roads. He contracted to sell $100 million in Northern Pacific construction bonds, and he pitched the securities with the same enthusiasm he had applied to the war bonds, albeit relying less on patriotism than on self-interest and imagination. He painted the route of the Northern Pacific, from Lake Superior to Puget Sound, as the Eden of the continent, with fertile fields, towering forests and scenic vistas in equal profusion. He might have completed the sale had the
Crédit Mobilier scandal and new raids on the
Erie Railroad not spoiled the market for railroad issues. As it was, he found himself with tens of millions of bonds he couldn’t dispose of, and on September 18 he closed the doors of the
Cooke & Company headquarters in Philadelphia.

The Cooke default triggered a series of failures. Financial houses long on railroad issues succumbed, followed by several national banks.
Oliver Morton, Grant’s Senate ally, who happened to be in New York, telegraphed the president in alarm. “
Results of today indicate imminent danger of general national bank panic,” Morton said. The Indiana Republican urged Grant to take emergency action. “Government funds now in hands of national banks should not be drawn upon but should be
increased.” In other words, the government should risk its own solvency to save the banks. “Without such action it is impossible to move western produce and we cannot hope to avoid universal panic throughout the country. Immediate action necessary. This dispatch is the result of consultation with the most prominent commercial men here who are not in stock. It is hard to see how the course suggested could do harm under any circumstances and it may avert a disaster too great to be comprehended.”
Thomas Murphy, the customs collector at New York, added his own dire forecast. “
Relief must come immediately or hundreds if not thousands of our best men will be ruined,” he wired Grant.

Grant responded cautiously. He directed
William Richardson, who had replaced
George Boutwell as Treasury secretary at the beginning of Grant’s second term, to purchase $10 million in bonds, thereby injecting that much cash into the system. But he declined to go further. He told Morton he lacked the legal authority to make large purchases and in any case wasn’t inclined to save the bankers from their own folly. “
All assistance of the government seems to go to people who do not need it but who avail themselves of the present depressed state of the stock market to buy dividend paying securities, thus absorbing all assistance without meeting the real wants of the country at large,” he said. The speculators and bankers would have to look to themselves. “This will necessarily go on until balances are settled in all former stock gambling operations either by settlements or the breaking of operators. Money will then begin to resume channels of legitimate trade.”

Though he disappointed the bankers, Grant agreed to travel to New York to register his concern and be available if things got worse. He arrived on the afternoon of Saturday, September 20, and took a suite at the Fifth Avenue Hotel, the headquarters of the effort to halt the panic. “
The presence of President Grant, Secretary Richardson, and
Reverdy Johnson”—formerly U.S. minister to Britain and currently thought to know the mind of London’s financial community—“in this city was regarded as full of good omen,” the
New York Times
reported, adding a plea that suggested a certain lack of faith in the efficacy of the omen: “If only through them some means might be devised for averting the almost universal ruin expected today.” The paper on Monday morning described the Sunday efforts of the financial sector to stem the bleeding: “While the city was at prayer its financiers were striving to save its credit. The stairways, portico, and side halls of the hotel were crowded by men whose careworn faces told of anxious, sleepless nights. The clerks inside
the desks were besieged by merchants, bankers, and brokers, inquiring whether the President could be seen or was in communication with any of the leading financiers. Nearly everybody wanted to see him and personally give him the benefit of their views.” A committee of bankers arrived. “On hearing that these gentlemen were in conference with the President, the dense crowd of persons on the floor of the hotel grew restive and impatient, and eagerly devoured every rumor, no matter how ridiculous, that was circulated.”
Jay Gould, the gold conspirator and railroad man, came to the hotel. “It was whispered through the corridors that he was going to meet the President and discuss the crisis with him. Preposterous as this was declared to be, yet it was credited by many.”

Grant told the bankers that he would neither bend the law to provide them aid nor ask Congress for extraordinary rescue powers. “
The Government is desirous of doing all in its power to relieve the present unsettled condition of business affairs, which is holding back the immense resources of the country now awaiting transportation to the seaboard and a market,” he explained in a letter that was immediately and widely published. “Confidence on the part of the people is the first thing needed to relieve this condition of affairs and to avert the threatened destruction of business with its accompanying disasters to all classes of people. To re-establish this feeling the Government is willing to take all legal measures at its command.” But the bankers would have to do the heavy work. “It is evident that no Government efforts will avail without the active cooperation of the banks and moneyed corporations of the country.” The liquidity the government had already provided ought to be sufficient. “The banks are now strong enough to adopt a liberal policy on their part, and by a generous system of discounts to sustain the business interests of the country.”

After two weeks the panic showed signs of being contained. Grant gave an interview to the
Associated Press. He registered the puzzlement many felt at this particular panic, considering its context. “
Panics generally occur when the country lacks prosperity, such as from the failure of crops, over-purchases from abroad, and such causes,” he said. “In this instance the panic has occurred in the midst of the greatest general prosperity.” Exports were up; the balance of payments was in America’s favor. “Everything we produce is in great abundance, and the demand for it abroad is beyond the supply we have to spare. Our manufactories are prosperous, and many articles which have been imported are, to a large extent, not only being produced at home, but we are actually competing
in the supply of foreign markets.” The panic was primarily a psychological phenomenon, Grant said. “The fact is, the money corporations have become stampeded, and in turn startled and stampeded the whole country.” The administration’s response reflected this perception. The modest extra liquidity the Treasury provided was “not so much real as moral,” he said. This was as it should be, for some good might come out of these harsh developments. Grant chose his words with care, not wishing to seem callous. “The effect is going to be beneficial in many ways to the country at large, though the cost to some individuals, deserving of a better fate, may be severe.” The country was still paying for the Civil War, not simply in its bonded debt but in the excess money represented by the
greenbacks. Until the nation resumed support of all its
currency in specie—gold or silver—the money system would be unstable; the present crisis, with its sudden demand for money of any kind, brought resumption closer by lifting the greenbacks nearly to par with specie. “Return to a specie basis can never be effected except by a shrinkage of values,” Grant said. “This always works hard to a large class of people who keep all they are worth in margins. This shrinkage has now taken place.”

Grant’s view reflected conventional wisdom. “
Pure fright more than any real danger to our industry produced the panic from whose effects we are rapidly recovering,” the
New York Times
editorialized in October. The paper cited statistics demonstrating that the productive part of the economy, as distinct from the financial part, had been thriving at the time of the panic. The crisis was a bankers’ crisis. The paper likewise applauded Grant’s measured response. The bankers should work things out among themselves. “It is well that Government should not be mixed up with the matter.”

U
nfortunately for all concerned, though the panic proper subsided, the effects of the currency contraction spread throughout the country. The overextended
railroad sector took the most damaging blows, with dozens of lines folding and spreading attendant misery to their employees, vendors and customers. The bankers’ panic, the first since the full onset of the industrial revolution, became the nation’s first industrial depression. The transition from agriculture to industry leveraged worker productivity in good times, but the leverage reversed wickedly in bad times. Industrial workers lacked the garden plots and farmhouses that had long sheltered farmers from the worst effects of financial panics.
Industrial workers lived in a cash economy, having to buy food and rent homes. When demand fell for their products and they lost their jobs, they soon went hungry and homeless. Industrial failures fed on themselves; the suppliers to a failed company often failed too, as did the bakeries, butcher shops, clothing stores, transit lines and myriad other businesses that had furnished goods and services to now jobless workers.

No one knew it in the autumn of 1873, but the depression would last the rest of the decade. Tens of thousands of businesses would close their doors; millions of workers would lose their jobs. The homeless and hungry would haunt the land; workers would strike for higher wages and riot when their wages fell. Angry and fearful voters would punish incumbent politicians. The last crisis of the slavery era—the crisis of the Civil War and Reconstruction—would end amid the first crisis of America’s industrial age.

70

U
NDER THE CIRCUMSTANCES
G
RANT ALMOST WELCOMED A WAR
scare. The
Virginius
was a British-built blockade runner employed by the Confederates until its capture by the Union navy in 1865. Subsequently auctioned, it was put into service on behalf of the Cuban insurgency against
Spanish rule and was captured again, in October 1873, by the Spanish navy. The Spanish government, declaring the ship a pirate, ordered it taken to Santiago de Cuba, where Spanish officials summarily executed more than fifty of its crew and passengers, including several Americans.

The news reached the United States in early November and immediately sparked an uproar. Individuals and groups already inclined toward intervention in the Cuban conflict shouted that the American government must defend America’s citizens. Protest meetings were held in several cities; even Wall Street, craving distraction from its troubles, grew patriotically vehement. Governor
Horace Austin of Minnesota was one of many who prayed for war. “
Minnesota will furnish you as many regiments of troops as she may be permitted to raise,” Austin promised Grant. “They will respond on short notice and many of them will be veterans.”

More poignant were the plaints of those personally touched by the affair. “
I appeal to you, in behalf of my daughter, the betrothed of General
W. A. C. Ryan, who so bravely met his death at the horrible massacre at Santiago de Cuba, in the
noble cause of Liberty
,” a distraught
Mrs. J. G. Gebhard wrote Grant. “Mr. President, I have confidence in you that our
martyred dead
are
not to be forgotten
.… The days are long, and the nights sleepless, until
every satisfaction
that
remains is given
.” Most moving
were words from beyond the grave written by the American captain of the
Virginius
before his execution.
Joseph Fry’s call for a nationalistic response was complicated by the fact that upon Southern secession he had abandoned the U.S. Navy for that of the Confederacy. But with death impending he wrote to Grant as a fellow officer. “
The United States are weak,” he chided the president, “when a vessel can be captured on the high seas, with perfectly regular papers, and her captain, crew, and passengers shot without appeal to the protection of the United States.”

In fact the vessel’s papers were
not
perfectly regular. Doubts surrounded the ownership and registry of the
Virginius
, which proved, upon examination, to be the property not of the professed owner, an American, but of Cubans linked to the New York junta. Consequently the American papers the ship carried were invalid.

Grant didn’t mind the war talk, but he had no more desire for actual war with Spain than previously, and less reason. Roughly coincident with Grant’s reinauguration, Spain’s monarchy had given way to a republic. The new government was well meaning but weak, and it lost control of the Spanish regime in Cuba. The Cuban Spaniards were the ones behind the
Virginius
executions, but Grant could deal with them only indirectly, through Madrid.