Writing's on the wall for US culture

Wall Street
April 8, 2005

Christopher Ondaatje investigates the capitalist symbol that started life as a way to keep cows in and Indians out

Thomas Jefferson, the third president of the US, once described New York City as "a cloacina of all the depravities of human nature".

Whether his smear was justified or not, there can be no doubt that the city's dubious business reputation goes right back to its origins as New Amsterdam, a remote outpost of the Dutch empire in the 17th century.

The Dutch, of course, pioneered the rudiments of modern finance; an early stock exchange was set up by dealers on a bridge over the Amstel River in (old) Amsterdam. New Amsterdam was created by the Dutch "avidity for trade and lucre", ignoring the scriptural preoccupations of Protestantism and trading in "a wide range of commodities including lumber, slaves, fur and flour", altogether "a most unprovincial Dutch province". Wall Street itself was of Dutch construction - at least the wall was. It was built "to keep the cows in and the Indians out", and then rebuilt more sturdily to discourage neighbouring British colonists "from casting covetous eyes on this frail Dutch colony with its marvellous harbour and outlet to lucrative trans-Atlantic commerce".

These quotations are from Steve Fraser's scholarly social history of Wall Street. His book differs from other historical and financial treatises on the same subject in that it deals with the multitude of ways in which the world's most powerful financial centre has infused itself into life and culture in the US over the past two or three centuries. Wall Street: A Cultural History can fairly be described as both expansive and comprehensive.

The book is cleverly divided into four main sections: "Buccaneers and confidence men on the financial frontier", "The Imperial age", "The age of ignominy" and "The world turned upside down".

In the first section, Fraser takes us through the early years of the new nation from the founding of the Republic by Jefferson et al to the mid 19th century. It deals with the financial titans of that pioneering age: Cornelius Vanderbilt, Daniel Drew, James Fisk and Jay Gould. There was continuous friction between them and the Government, especially during the War of 1812 (fought until 1815 by the US and Great Britain) and the American Civil War of 1861-65, after which an industrial revolution remade the nation at an unimaginable speed. Wall Street figured centrally in that transformation. Its financiers dominated the economic and political landscape, and were sometimes fiercely attacked for their ruthless methods.

"The imperial age" is almost totally dominated by the legendary J. P. Morgan, who was born in Hartford, Connecticut, in 1837. His father Junius Spencer Morgan was a prosperous financier, and taught his son how to manage the family assets. When the Civil War broke out, the younger Morgan joined his father's financial ventures. Between 1864 and 1871 he was an increasingly influential member of Dabney Morgan and Co. Then in 1871 he became a partner in Drexel Morgan and Co, which in 1895 became J. P. Morgan and Co, which was soon recognised as one of the most powerful institutions in the world.

Disdainful, secretive and imperious, Morgan was utterly lacking in anything resembling the common touch. Unlike the buccaneering Vanderbilt, Drew, Fisk and Gould, who had all risen from obscurity, Morgan was steeped in the elite sophistication of Knickerbocker New York. By rescuing an economy in which competitive capitalism had got somewhat out of control, Morgan and his confederates created a virtual economic command centre from which his influence spread into every key industrial sector. He had interests in railroads, shipping, coalmines, insurance and the communications industries. He even backed a $62 million dollar government bond issue in 1895 and secured a $50 million dollar American issue for the British war loan. In the early 1900s he also provided the backing that assisted the US Treasury in stemming a stock market panic. Morgan continued to be America's foremost financier until his death in 1913. Joseph Pulitzer's New York World described Morgan as having managed to "bestride the world like a Colossus". He also encouraged the trend of tycoons giving away substantial portions of their wealth to charities, churches, hospitals and schools.

Much of their huge art collection went to the Metropolitan Museum of Art.

And then came the Roaring Twenties, the Jazz Age and the 1929 stock market crash. They appear under Fraser's "Age of Ignominy". Just as the Civil War had called into question the legitimacy of the US as a nation in the 1860s, so the crash and the Depression that followed it posed a similar challenge to capitalism in the Twenties and Thirties. Both the Civil War and now the Great Depression made an indelible impression on the American national memory. "Wall Street was not merely accountable for the country's dilemma; it was its perpetrator, the principal villain in a saga of guilt, revenge, and redemption... White shoe Wall Street suddenly seemed no better than a gang of common criminals, skimmers, double-dealers, and confidence men, stripped of every last vestige of moral authority and heroism to which they had once laid claim."

Enter Franklin Delano Roosevelt, a president personally familiar with Wall Street. He realised, as few presidents before him had, that a handful of men ran most of the country's industry, and that their abuses had reached epidemic proportions in the Twenties. Everyone was now suffering from them.

"Unrestrained financial exploitations which created fictitious values never justified by earnings have been one of the great causes of our present tragic conditions," said Roosevelt. Wall Street's hostility to him was raw and unconcealed, but he succeeded in introducing increasingly strong securities and banking regulations, as well as social security and unemployment insurance. Richard Whitney, the autocratic president of the New York Stock Exchange, was sent to prison for embezzlement. Roosevelt's New Deal unquestionably put a stop to US capitalism's excesses. But after his death in 1945, his successor, Harry Truman, was the last president to adopt an adversarial position towards Wall Street.

In the Sixties, Wall Street roared back again. "The world turned upside down", the title of Fraser's final section, captures what happened. Wall Street inverted the political and social revolutions of the Sixties and turned them into massive growth. "It seemed to cut adrift. Somehow it boomed through the second half of the decade, unfazed by urban riots and insurrections, the Tet offensive, the thundering herds of anti-war demonstrators, the assassinations of Robert Kennedy and Martin Luther King, the debacle in Chicago at the Democratic Party convention; it shrugged off the ominous portents that the dollar's pre-eminence in international trade and investment would no longer be taken for granted."

Charles Merrill founded what eventually became Merrill Lynch, Pierce, Fenner & Smith, and was the first to evangelise the stock market to the "thundering herd". This was in the early Forties. From the Fifties onwards, stock prices increased and Wall Street played a major role in providing new capital. This was followed by the great conglomerate movement of the early Sixties (Ling Temco Vought, Litton Industries, Texetron and Gulf and Western); and the rise of the institutional investor in the late Sixties (in other words, more and more money being handled by fewer and fewer people). In between these two changes, there was abuse and scandal. The President, Lyndon Johnson, signing a bill in 1964 to control the abuse by amending the Securities and Exchange Act, poked fun at Soviet denunciation of American capitalism.

The bull market of the Reagan years saw Wall Street once again fuelling the public frenzy to invest. Bill Clinton got in on the act by overturning some New Deal legislation, notably the Glass-Steagall Banking Act of 1933, which had stopped banks from becoming brokers. This opened up a whole new arena for abuse, culminating in the zany dot-commery that gripped the public imagination. America had become a "shareholder nation", with at least half of householders owning stocks either directly or indirectly.

Fraser has drawn on histories, novels, cartoons, songs and hearsay to catch Wall Street in its roller-coaster ride in public acceptance. Nothing important has been omitted, except perhaps a fuller explanation of the "paper economy" introduced in the late 19th century, which we still use today. Although there are 7 trillion dollars in the world today - most of which exist electronically - 14 billion of them are paper dollars, which means that there are more dollar bills in existence than any other branded object, including Coke cans. The story of the dollar is in many ways the story of America. Today's Federal Reserve notes are backed only by people's faith in the US Government. This is why changes in the currency usually come about during times of crisis such as the American Civil War. Paper money depends on a belief that has to be shared. Like Wall Street, it works only if enough people have confidence in it and are willing to trust the system.

Christopher Ondaatje is a retired investment banker, author and trustee of the National Portrait Gallery.

Wall Street: A Cultural History

Author - Steve Fraser
Publisher - Faber
Pages - 632
Price - £25.00
ISBN - 0 571 21828 8

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