Black Friday: The Financial Conspiracy under Ulysses Grant Presidency

During the American Civil War, the United States government issued a large amount of money that was backed by nothing but credit. As his first presidential act, Grant signed a law promising that the federal government would pay holders of U.S. bonds in "gold or its equivalent" and would redeem the greenbacks as soon as practicable.

Grant's treasury secretary, George Boutwell, began selling the Treasury's surplus gold for greenbacks, and then used the paper currency to buy back government bonds. The administration's policy kept the money supply even, the price of gold low, and reduced the national debt $50 million by September 1869.

Because the gold market hovered around the relatively small figure of $15 million, the federal government was essentially able to set the price; selling more of the Treasury's gold reduced the price, while selling less raised it. Thus, gold investors could not try to make a profit based on economic indicators, but were hostage to unpredictable government actions in the market.

Soon, a group of speculators, headed by Jay Gould and James Fisk, realized that gaining inside information on the government's plans would allow them buy massive amounts of gold at a low price and then sell high, reaping enormous profits. They enlisted the help of Grant’s brother-in-law, Abel Corbin, to argue against government sale of gold.

It is not certain, whether Corbin actually knew the real plot or was just a pawn in the high-finance game but Corbin convinced Grant to appoint General Daniel Butterfield as assistant treasurer of the United States.

Gould then approached the assistant treasurer in New York, Daniel Butterfield, who was in charge of gold sales. The financier gave Butterfield $10,000 (his annual salary was $8000), which the federal agent later claimed was a no-interest loan. Butterfield agreed to tip the men off when the government intended to sell gold.

Furthermore, Gould offered twice to invest $500,000 in gold for Grant's personal secretary, Horace Porter, who refused. Finally, Gould brazenly offered to give Grant's wife, Julia, half-interest in $250,000 worth of bonds, but she, too, declined.

In the late summer of 1869 the group bought huge amounts of gold and gold futures, sending the price of the gold spiraling upward whereas the price of the stocks plummeted. They intended to sell everything at an enormous profit.

When Grant visited New York on several occasions, Corbin arranged for Gould and Fisk to be present, and the conspirators tried to persuade the president that a higher gold price (from reduced Treasury sales) would benefit the nation. As he usually did, Grant listened without comment. When Gould pointedly asked for a hint at the government's actions, the president resolutely refused. However, the financiers' visible access to Grant and those close to him enhanced the influence of Gould and Fisk in financial circles which also began buying millions of dollars worth of gold in early September 1869.

After conferring with leading bankers in New York, Treasury Secretary Boutwell realized what the speculators were up to, and that the federal government should increase its gold sales to stabilize the market, or risk devaluing greenbacks, government bonds, and American credit. Boutwell refused to see Corbin, who then alerted Gould that something was afoot and wrote a lengthy letter to Grant urgently requesting the president to stop his treasury secretary. Grant did not reply, but the telegram to Gould stating, "Letter delivered all right," was mistranslated at the New York telegraph office as "Letter delivered. All right." Gould intensified his gold buying spree, and the price continued climbing.

However, the suspicious letter and Porter's admission of Gould's bribery attempt made Grant realize that he had been used as cover for the financiers to corner the gold market. The president warned Corbin to cut his ties with Gould, and allowed Boutwell to proceed with his plans to increase the government's gold sales. Corbin, though, tipped off Gould, who began selling his gold without informing Fisk.

On September 24th the premium on a gold Double Eagle (representing one ounce of gold bullion at $20) was 30 percent higher than when Grant took office. The price of gold reached between $160 and $162, and Fisk, still buying, boasted that he would push it to $200. After a brief discussion with the president, Boutwell sent a telegram to Butterfield directing him to sell $4,000,000 in gold and buy the same amount in bonds. When the news reached the Gold Room, the price of the precious metal fell to $133 within a few minutes. Investors scrambled to sell their holdings, and many of them, including Corbin, were ruined.

The two-week frenzy on the gold market had virtually halted the country's foreign trade, which relied on gold as the medium of exchange. The economic fallout caused stock prices to fall 20%, export agricultural products (mainly grain crops) to plummet over 50%, several brokerages to go bankrupt, and severe disruption in the national economy for months.

Fisk and Gould escaped significant financial harm. A combination of expert legal counsel, led by David Dudley Field, and Tammany Hall judges also allowed them to escape legal punishment. Subsequent Congressional investigation into the scandal was limited because Virginia Corbin and First Lady Julia Grant were not permitted to testify.

However, Butterfield resigned from the U.S. Treasury. Henry Adams, who believed that President Grant had tolerated, encouraged, and perhaps even participated in corruption and swindles, attacked Grant in an 1870 article entitled, The New York Gold Conspiracy.