A Nation Without Borders by Steven Hahn

Author:Steven Hahn
Language: eng
Format: epub
Publisher: Penguin Publishing Group
Published: 2016-10-14T10:34:25+00:00

CHAPTER NINE

Capitalism

A formidable armory constructed in New York City for the Seventh Regiment after the War of the Rebellion, 1868.

Wheels of Capital

Among the economic beneficiaries of the War of the Rebellion, perhaps none stood out more prominently than Jay Cooke. A Philadelphia banker with a modest portfolio in 1861, Cooke used his powerful connections and creative instincts to make a fortune marketing the federal bonds that paid for much of the U.S. war effort. By the late 1860s, with his coffers overflowing, he presided over the formidable Philadelphia banking house of Jay Cooke and Company, with more than three hundred employees, branches in New York and Washington, D.C., and profits exceeding $1 million annually, all the while maintaining close ties to the Republican state.

Indeed, Cooke nearly became Ulysses S. Grant’s secretary of the Treasury, a disappointment that stung him. But on September 18, 1873, to the shock of the financial community in the United States, Cooke and Company closed its doors in disgrace, unable to meet its credit obligations, and declared bankruptcy. Almost instantaneously, the New York Stock Exchange was shaken to its core, briefly closing its own doors, and a domino effect of bank failures quickly spread across the country, ushering in a deep and prolonged depression the likes of which had not been seen before.

The immediate source of Cooke’s woes was his gamble on investing in the Northern Pacific Railway, meant to link Duluth, Minnesota, and Puget Sound, which Congress had chartered in 1864 as a second transcontinental. Although Cooke initially regarded the investment as “a mere bagatelle,” he soon imagined being at the helm of a great northwestern rail corridor, possibly involving the annexation of western Canada, which, to him, “could be done without any violation of treaties” simply by encouraging the “quiet emigration over the border of trustworthy men with families.” That the European market for American railroad bonds was drying up did not appear too worrisome to Cooke, for he had shown his genius at marketing bonds to small investors in the United States during the late war.

But in truth, the changing European bond market was a sign of significant troubles in the world of international finance. Capital flows on the Continent had become increasingly interwoven and robust owing to the great economic boom of the 1850s. Germany, the Low Countries, and France saw important industrial gains, while Britain solidified its position not only as the leading industrial power but also as the organizing center of finance capital. Circuits of trade in agricultural commodities—wheat in particular—intensified, especially during and immediately after the American War of the Rebellion, and drew Russia and the Austro-Hungarian Empire into close embrace with neighbors to the west, notably with Paris, which stood second only to London as a source of banking and investment capital. Then, almost at once, cheap American wheat flooded the European grain market, and the settlement of the Franco-Prussian War (a humiliating defeat for France) required large transfers of gold from Paris to Berlin. Grain

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