Black Friday (1869) was a pivotal moment in US financial history. It was triggered by a plot to corner the gold market, which led to a massive financial panic.
On September 24, 1869, Jay Gould and James Fisk attempted to corner the gold market by buying up as much gold as possible, hoping to drive up the price and make a huge profit. They were successful in the short term, but their scheme ultimately backfired.
The price of gold skyrocketed, but the government intervened by selling gold from the Treasury, which flooded the market and caused the price to plummet. This led to a massive financial panic, with many investors losing large sums of money.
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Causes and Conspiracies
The conspiracy behind Black Friday (1869) was a complex web of deceit and corruption. Notorious Wall Street speculators Jay Gould and James Fisk devised a plan to corner the gold market.
Their scheme involved several key elements, including recruiting President Ulysses S. Grant's brother-in-law, Abel Rathbone Corbin, to gain influence with the administration. They also attempted to persuade President Grant to limit the government's sale of gold, which would drive up prices.
The conspirators bribed officials, including the appointment of General Daniel Butterfield as assistant treasurer, to gain insider information on government gold sales. They accumulated large amounts of gold to artificially inflate its price.
The plan was to buy gold in early September 1869, driving the price from $132.50 to $141 per ounce by September 22. Their goal was to make a fortune by cornering the market.
Here are the key elements of the conspiracy:
- Recruiting Abel Rathbone Corbin to gain influence with the administration.
- Attempting to persuade President Grant to limit the government's sale of gold.
- Bribing officials, including the appointment of General Daniel Butterfield as assistant treasurer.
- Accumulating large amounts of gold to artificially inflate its price.
The Conspiracy
In 1869, two notorious Wall Street speculators, Jay Gould and James Fisk, devised a plan to corner the gold market. Their scheme involved recruiting Abel Rathbone Corbin, brother-in-law of President Ulysses S. Grant, to gain influence with the administration.
Gould and Fisk attempted to persuade President Grant to limit the government's sale of gold, which would drive up prices. They also bribed officials, including the appointment of General Daniel Butterfield as assistant treasurer, to gain insider information on government gold sales.
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To artificially inflate the price of gold, the conspirators began buying large amounts of gold in early September 1869. They drove the price from $132.50 to $141 per ounce by September 22.
Here are the key elements of their scheme:
- Recruiting Abel Rathbone Corbin to gain influence with the administration.
- Attempting to persuade President Grant to limit the government's sale of gold.
- Bribing officials to gain insider information on government gold sales.
- Accumulating large amounts of gold to artificially inflate its price.
The conspirators' plan ultimately unraveled on September 24, 1869, when President Grant ordered the Secretary of the U.S. Department of Treasury to sell $4 million in government gold.
Was Gould's Reasoning Valid?
Jay Gould's proposal to halt greenback purchases was actually a reasonable response to the economic conditions of the time.
The Contraction Act of 1866 had contracted the money supply by 20 percent between 1865 and 1867, triggering severe deflation.
This deflation fell particularly hard on farmers who were heavily indebted, increasing the real value of their debt burden.
Gould's perception of a "general business dullness" was correct, as the economy slipped into recession in June of 1869.
A more expansionary or neutral monetary policy would have likely led to currency devaluation and stimulated exports.
Easier money and devaluation are standard prescriptions for a contracting, deflationary economy.
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Impact and Aftermath
The Black Friday crisis had a profound impact on the country. A Congressional investigation was launched in response to the scandal, leading to the removal of General Butterfield from his post.
President Grant's reputation suffered as a result of the crisis, although he was not directly implicated in the scandal. The damage to his reputation was significant.
Jay Gould managed to escape major financial losses by selling his gold before the crash. James Fisk, on the other hand, was not so fortunate and was shot dead in an unrelated incident in 1872 by a romantic rival.
The crisis highlighted the need for greater regulation of financial markets. This need for regulation was a key takeaway from the Black Friday crisis.
The aftermath of Black Friday led to a renewed focus on financial market regulation. The event served as a wake-up call for policymakers and regulators to take action and prevent similar crises in the future.
Gold Volatility
Gold prices rose quickly over a matter of days, reaching alarming levels that caught the attention of President Grant.
President Grant suspected that Gould and Fisk's motives were not pure, and he worried that his brother-in-law, Abel Corbin, was involved in their speculations.
The President granted Secretary Boutwell permission to break the suspected corner by selling $4 million in gold, a considerable amount relative to the overall market of about $15 million.
This drastic measure was a clear indication of the President's concern about the rapid rise in gold prices and the potential for market instability.
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