folklore attributes to the peculiar ingenuity of Americans had been invented long before New Yorkers got into the act. “Bulls,” trying to raise prices, and “bears,” trying to lower them, were known by those names in eighteenth-century London. So was short selling, the practice of contracting to sell shares at a fixed price for future delivery in the hope that meanwhile the price would go down so that the seller could buy and deliver at a profit. Another ancient maneuver, derived from commodities trading, was cornering the market. A group would buy up all the available stock of a certain company. Others who had sold short would then be forced to pay enormous sums to get the shares they had contracted to deliver.

American speculators were not necessarily aware of all the precedents; such ideas occur naturally to any inventive minds focused on stock trading. But New Yorkers seized the opportunities more often and with more gusto than their European counterparts. In 1835 Jacob Little engineered one of the first famous market corners, in the stock of the Morris Canal and Banking Company. It was a hybrid firm with so many troubles that its shares had no known value but merely served as convenient means of speculation. Such stocks were known as fancies. Little also became the first man to break a market corner by secretly acquiring convertible bonds and changing them for stock just when his opponents thought they had rounded up all the floating supply. Surviving two panics in his first years on the Street, Little took such a dim view of permanent prosperity that he became the first Great Bear.

To be a bear meant not only to expect a stock’s price to go down but also to help the process along by planting rumors that something was wrong with the company or by arranging for financial reporters to question its prospects in print. Bulls correspondingly puffed a stock by giving out favorable news, true or not, and whispering that the “big men” were buying. Part of the fun was to pretend to be a bear and encourage others to sell a stock short, all the while secretly buying it up. Then you could turn around and bull the stock. With your efforts and the buying of dismayed shorts trying to cover their contracts before the price got too high, the stock would certainly go up, and you could sell out at a nice profit.

Naturally, while the bulls or bears were staging a raid on the market someone had to lose money. These were the “lambs.” They ranged from small investors to petty speculators who hung around Wall Street, making a precarious existence following tips and rumors. “In common with others, Mr. Broker very properly regards them as sheep for the slaughter; and although not devoid of benevolence, makes no scruple of sacrificing a score of them at a time. Why should he? They will certainly be killed and eaten by somebody,”

a “reformed gambler” explained from bitter experience.

Little, the pure speculator, was the first of a breed that existed right up through 1929. He was not an organizer of companies like gruff Commodore Vanderbilt, the ferryboat captain who rose to rule a railroad empire. Though a crafty stock tactician, the Commodore also ran companies with some success. Even Jay Gould, as shrewd a man as the Street has ever known, and the famous plunger John (“Bet-a-Million“) Gates carried on corporate duties. But Little had no interest in business per se. “I care more for the game than the results, and winning or losing, I like to be in it,” he said.

In Little’s day it was not quite respectable to devote all one’s energies to playing the market, but the men who followed in his footsteps during and after the Civil War were socially prominent, frequented the Racquet and the Union League clubs, and patronized the arts. One of them was William R. Travers, a wit who kept Wall Street laughing even while heading a group of bears to drive prices down. Then there were Addison Jerome and his brother Leonard, the grandfather of Winston Churchill; German-born Charles F. Woerishoffer, known as the Baron, a Great Bear of the seventies and eighties; and James R. Keene, the Silver Fox, who named his son after his most successful racehorse. Even after he had made himself a millionaire, Keene continued to mastermind important pools for others. “The spirit of speculation is born in me,” he said.

In the nineteen-twenties boom, the Little tradition was carried on by men like Arthur Cutten, Jesse Livermore, and Michael Meehan, who ran multimillion-dollar operations with such shrewdness and nerve that their names became bywords, though by then market manipulators were showing more diffidence about public acclaim.

Some of the wizards of Wall Street have gone down in history because panics were named after them. Anthony Morse, who began as a penniless clerk, became such a dashing operator that crowds stood around outside his office, trying to pick up tips from the messenger boys. During the Civil War he loaded up on stocks as a hedge against the possible deflation of northern currency. When the Secretary of the Treasury moved to curb speculation by releasing gold and calling in greenbacks, stock prices broke, producing “Morse’s Panic,” in which the chief victim was Morse himself.

The Civil War spelled the end of Jacob Little’s career. Having unwisely turned bullish just before the panic of 1857, he then went bearish just as the market took off into the wildest boom it had ever known. The Board of Brokers got a good deal less dignified during the war, and the several other exchanges that sprang up, to deal in gold, petroleum, and high-risk mining stocks, were often scenes of wild activity. When Wall Street closed down at the end of the day,

stock trading was continued in uptown hotel rooms. Enterprising men sent agents to accompany the armies and send back speedy news of victory or defeat; they even planted spies in military headquarters to find out about battle plans that might affect the market.

Before the war not many people outside the half-dozen major United States cities were interested in securities. When the firm of Jay Cooke of Philadelphia took over the marketing of northern war bonds, Cooke organized a campaign that financed the war, extolling the wisdom of investing all across the country. “A national debt is a national blessing” was oneof his mottos. The resulting widespread ownership of bonds stimulated an interest in the securities market that could be translated into buy and sell orders by means of the new network of telegraph lines. By the time the English statesman James Bryce took a hard look at the American commonwealth in 1888, he was impressed with “the prevalence of the habit of speculation.” “There are times,” he wrote, “when the whole community, not merely city people but also storekeepers in country towns, even farmers, even domestic servants, interest themselves actively in share speculations.”

The expanding network of railroads required capital from the public, either directly or indirectly through city- and state-endorsed bond issues. The men interested in railroad financing soon discovered the value of being insiders. Corporate officers in command of the voting stock could issue bonds for practically everything—stations, land damages, locomotives, and particularly track construction. Forming a separate construction company, railroad tycoons could award themselves the construction contract and pay themselves off with bonds and stock far beyond the value of the track mileage they built. They could then resell the securities to the public at a profit.

Constructing track across prairies and mountains was risky, and to a certain extent the railroad builders were justified in capitalizing expectations when commerce and industry were expanding. But many railways were built before there was enough traffic to pay the interest charges on their heavy debts. The stock was so far down the line of claims on the profits that it had no known value, merely serving as a vehicle for bull or bear operations and as the means by which control could be wrestled back and forth among contending groups. Jay Gould, presiding over the Erie Railroad, was once asked by a government investigating committee what the value of Erie common stock really was. He replied, “There is no intrinsic value to it probably; it is speculated in here and in London and it has that value.”

States and cities exerted considerable control over the railroads by the granting of charters and financial assistance. Legislators soon found out that this influence could be converted to cash. Railroad tycoons paid off and occasionally got the better of the legislators by tricks of their own. Commodore Vanderbilt scored twice. On the first occasion he wanted New York City’s permission to extend his Harlem Railway, which

in 1863 ran in to Union Square from the north, right on down Broadway to the Battery. The city councilmen figured that they would approve the idea, all the while taking short positions in Harlem stock. Then they would revoke the permit, the stock would plummet, and they would reap profits. They carried out the plan, but the Commodore was a hard man to beat. Tipped off, he began buying Harlem and finally cornered the stock. The distressed councilmen saw the price run up from seventy-five dollars to $179 and had to settle their contracts at a big loss. A year later the state legislators tried the same thing. Charging that the city did not have authority to grant the extension, they pretended to favor a bill introduced with the necessary permission. They then double-crossed Vanderbilt by defeating the bill after selling the stock short. Vanderbilt was furious. Buying up all the Harlem stock in sight, he ended up owning on paper 27,000 more shares than actually existed. He wanted to make the legislators pay a thousand dollars per share to cover their commitments, but was persuaded, for the sake of future relations, to allow them to settle at $285. He liked to say that he had forced them to flee Albany without paying their board bills.

The ethics of Wall Street made a distinction between unscrupulous deals that could be draped with some legality and those that their perpetrators couldn’t or didn’t bother to legitimatize. Vanderbilt and Gould could always find a judge willing to grant an injunction or issue a restraining order, even in the middle of the night. When they wanted a law legalizing some trick, such as an overissue of stock, they simply went up to Albany loaded with cash, and legislators stood around the halls arguing about how much to hold out for. When the matter was settled, everyone got another chance at the pot. But decamping to Canada with funds fleeced from the public was considered as disgraceful as quitting a poker game while you were ahead.

While Commodore Vanderbilt had his eccentricities—he was a believer in spiritualism and set two spiritualist sisters up as Wall Street brokers —he was not a lovable character. He had a terrible temper. “Jubilee Jim” Fisk, however, another famous market operator of the sixties, delighted all New York. Fat, good-natured, freehanded, he was more like a character out of comic opera than a master of capital. After he bought the Narragansett Steamship Company and refurbished its vessels with a canary in every stateroom, he felt entitled to wear a gaudy “admiral’s” uniform. As a colonel in the National Guard he paraded around the streets in a gorgeous military costume—“the Mushroom Mars,” one newspaper called him.

When Fisk and Jay Gould got control of the Erie Railroad, Fisk had the company’s headquarters moved into the upper floors of an opera house at Eighth Avenue and Twenty-third Street. Music, laughter, and an occasional showgirl drifted up

to lighten office routine. “Castle Erie,” as it was called, was also equipped with a printing press in the basement, since the “Prince of Erie” had already discovered it was a good thing to be able to print up convertible bonds at will. He had stood off an attempt by Commodore Vanderbilt to corner Erie by printing the bonds, converting them into stock, and throwing the stock on the market. The maneuver was successful, even though the Exchange threw out the stock afterward and adopted the “Erie Rule” requiring companies to register new stock before selling it.

Even George Templeton Strong, a New York lawyer who viewed his nineteenth-century contemporaries with a cynical eye, was fascinated by Fisk, whom he considered a “scientifically interesting scamp.” “Illiterate, vulgar, unprincipled, profligate, always making himself conspicuously ridiculous by some piece of flagrant ostentation, he was, nevertheless, freehanded with his stolen money, and possessed, moreover, a certain magnetism of geniality. …” Thus Strong wrote when Fisk died, shot by his mistress’ other boy friend.

Daniel Drew, a generation older than Fisk but a fellow plotter on the Street, had foibles of the opposite sort. He went around in clothes of the style he had worn when he was a cattle drover and carried a broken umbrella. “I got to be a millionaire before I knowed it, hardly,” he would say disarmingly. “Uncle Daniel” was an expert at the little tricks of deception that made things interesting in Wall Street. While pulling out his handkerchief he would let fall a scrap of paper with the name of some stock on it. Soon the news would be all over the Street. The lambs would rush in to buy or sell short according to the old man’s tip while he did just the opposite. Drew is supposed to have been responsible for the figurative use of the term “watered stock” because early in his career he used to keep his cattle thirsty while driving them to market, then letting themfill up with water just before they were weighed. On the Exchange “water” meant the same sort of artificial value in securities.

Jay Gould has come down in history as the incarnation of all the evils of the stock market. He did what other men did, but he did it bigger, outplaying others in the game of double-cross. Gould was made famous by his milking of the Erie Railroad in the 1860’s, an exploit carefully detailed for the public by Charles Francis Adams, Jr., in the North American Review , and for a notorious attempt to corner gold that ended on Black Friday, September 24, 1869. When he saw that the cornering attempt was doomed, Gould secretlysold his holdings, leaving hundreds of his followers to be ruined and bringing on a stock-market panic too.

Those were exploits of his youth. But Gould went on for another twenty years, building a railroad empire in the Southwest, capturing control of Western Union, confounding

his enemies time and time again. Men like Russell Sage, Cyrus Field, and J. P. Morgan did not mind associating themselves with him. Henry Clews considered him a great executive. Yet somehow his caricature looms larger than life. Unlike many of the bulls and bears who were known as convivial good fellows even when ruining each other, Gould was never chummy. He appeared mean and conniving. So while few remember that E. H. Harriman once made ten million dollars by declaring an extraordinary dividend on two of his railways and delaying the public announcement so he and associates could load up on stock, or that Charlie Woerishofferand Addison Cammack, a fellow bear, took advantage of President Garfield’s assassination to stage a sensational raid on the market, Gould’s name still strikes such a discordant note that when in 1964 the National Trust for Historic Restoration wanted to open his baronial estate at Tarrytown, New York, as a museum, there was a public outcry. [See “The Realms of Gould,” A MERICAN H ERITAGE , April, 1970.]

Self-conscious about its history, the Exchange today likes to point out that many of the colorful market operators of the past were not actually members of the Exchange. Commodore Vanderbilt was not, nor were Drew, Fisk, and Gould, although they were partners at one time or another in brokerage firms. But in any case no big operator could have carried on his activities in his own name alone. Secrecy was important; several different brokers were used for camouflage. Of Charles Woerishoffer, who was an Exchange member, Henry Clews wrote: “The great bear had wonderful skill in putting other operators off the track of his operations by employing a large number of brokers, and by changing his brokers and his base of action so often that speculators were all at sea regarding what he was going to do.”

True, many of the wildest schemes in which the public lost money were conducted on the various open exchanges that did not even insist, as the Stock Exchange did, that their members prove their solvency. The watering of stock was not done by the Exchange. Insiders’ plots to bull their own companies’ shares or sell short were not concocted by Exchange members, generally speaking. The Exchange was only the means by which such actions were carried out in perfectly legal ways. It was a necessary machine for funnelling capital into growing American enterprise. The manipulation of prices that went on was considered an intrinsic part of the system.

From time to time the Exchange made attempts to protect the customers. When the listed firms were first asked to file regular financial reports, some of the presidents got indignant. “The leading corporations declined, on various pretexts, to comply with our request,” a Stock Ex- change committee reported in 1877. “We found that reports even when signed or sanctioned by men of wealth and repute were often utterly untrustworthy.” By

1895 the Exchange had succeeded in getting annual reports from listed companies and in 1900 decided to demand financial information before listing a new company, though the values assigned to assets were not seriously questioned.

The fast pace, the pressure of making expensive decisions in an instant, demanded some outlet for tensions in the brokers who spent their daytime hours on the Exchange floor. Sometimes the president’s gavel would be stolen, rowdy songs sung, quotations chalked on the back of suits, hats smashed. At Christmas, brokers brought in horns and bugles or pelted each other with snowballs. During election campaigns spurious election tickets were circulated, and fake promotion circulars extolling the Great Bric-a-brac Company could always start guffaws. New members were hazed like fraternity pledges on their first day. Even the magnificence of the Exchange’s new building, designed by James Renfrew and opened in 1903, did not quell such in-group fun. And stockbrokers, with their peculiar working hours, have always been good customers for call girls and the more elegant houses of ill repute.

Toward the end of the nineteenth century a new dimension was added to Stock Exchange activity by the appearance of the trusts. J. P. Morgan’s banking firm of Drexel, Morgan had once been a rival of Jay Cooke’s for government bond business; but while Cooke’s firm failed, precipitating the panic of 1873, Morgan’s went on to greater glory. Beginning with railroads, Morgan made a specialty of reorganizations. The murderous competition he had observed in railroads seemed to call for restraint; much better to weld small units of an industry into one big combine, theoretically more economical to operate. On the basis that the whole was greater than the sum of its parts, the new amalgamations were capitalized at much more than the combined property value of the merged firms.

The new trusts brought a flood of industrial securities into the market to replace railroad shares as the prime interest of investors. The crown jewel of the trusts was the U.S. Steel Company, put together by Morgan in 1901. James R. Keene masterminded the marketing of the first batch of its $1.4 billion worth of securities.

Morgan had another brilliant idea—to develop control over sources of capital, such as commercial banks and insurance companies, and persuade them to supply funds for the new combinations. Since Morgan’s firm always got a share of the new securities in return for handling the mergers and had directors in the institutions that bought the securities, he had a double reason for supporting, if not bulling, the stock market. That is partly why the period he dominated was by and large a bullish one.

Two crises tested the skill of this autocratic genius. After the panic of 1893 he had to come to the aid of the United States government to halt the flow of gold out of the country. And when the panic of 1907 began, the forceful old man, then over seventy, departed from

an Episcopal Church convention to head a rescue party for banks about to go under. Prices were falling so fast on the Exchange that its president wanted to close down. Morgan said No. He commandeered $27 million to loan to the member firms in trouble. To leave no stone unturned, Morgan arranged for the leading New York churches to put forth encouraging sermons the following Sunday. When Morgan died in 1913, the Exchange suspended trading for two hours in his honor.

The Exchange shut its doors for a longer period at the start of World War I. Europeans were rushing to convert their investments into cash, and a panic threatened. After a few months it was clear that the United States was going to prosper by supplying the Allies with arms and food. The Exchange reopened to find itself at the start of a bull market. Not only Liberty Bonds but also a wide spectrum of stocks sold well. There was a recession after the war, but since American business held on to many of the foreign markets it had acquired during the war, there was no stagnation. The stock market, after some faltering, took off at a gallop into the great days of the twenties.

Not everybody was in the market in the twenties; it just looked that way. Only half a million margin accounts were discovered on Exchange brokers’ books in 1929, out of about a million and a half Exchange customers. Another million and a half people may have been dealing on the Curb Exchange or over the counter, where many of the newly formed investment trusts were traded. The three million included upper- and middle-income businessmen, doctors, professors, plus a smattering of clerks, waiters, domestics, mechanics, and even factory workers—one plant used to post stock prices hourly on a blackboard so the men wouldn’t lose working time trying to find out how their stocks were doing.

Some people had been sold dubious stocks by fast-talking “boiler-room” salesmen operating through highpressure phone calls. Others picked up cheap “cats and dogs” the Exchange had ruled out. Everyone believed in a new and permanent era of good times, in which anybody with a little money to invest could make himself a pile.

Tales of fabulous profits in the market, some of them true, were avidly circulated. There was such a demand for new issues of stock, which always jumped in value just after being listed, that J. P. Morgan & Company, Dillon, Read & Company, and others had “preferred lists” reserving part of their new issues for high-powered friends and government officials. Elegant rooms were set aside in some brokerage houses for women customers, who talked about “Big Steel,” RCA , and Wright Aeronautical as well as about each other.

By far the bulk of the stock, in terms of value, was owned by a relatively few wealthy people. A later investigation showed that 51,000 people reaped half the value

of the cash dividends paid in 1929. Many of these were wealthy old families who kept their securities in the vault, but there were some spectacular plungers who livened up the Wall Street scene. William C. Durant, who had lost ninety million dollars and control of General Motors in 1920, reappeared in the chips, always the optimist, a daring speculator with a big following. The seven Fisher brothers, loaded with cash and General Motors stock, Harry F. Sinclair, a major figure in the oil industry, and Bernard Baruch, who dated back to the bull market of the nineties, spurred activity in the so-called rich men’s stocks, priced at several hundred dollars per share, like General Electric and Aluminum Company of America. They and their companions were behind the powerful pools that manipulated at least a hundred leading stocks in 1929.

Of course it all had to end. After some minor dips that unsettled investors, the market began a catastrophic slide on October 24, 1929. Shares held on margin, shored up by more collateral once or twice in response to frantic calls from brokers, finally had to be dumped. The Exchange floor was a roaring battleground as frenzied brokers, dazed but game, rushed about trying to sell for their customers. A crowd gathered outside the building after the visitors’ gallery was closed to keep the unseemly view from the public. In brokers’ rooms clients sat stunned as the ticker, running hours behind, unfolded the grim news. The first part of the panic ended with 16,410,000 shares changing hands on October 29. Disillusionment was so severe that U.S. Steel’s announcement of a higher backlog of orders only caused the stock to decline another eleven points.

Various financiers attempted to halt the panic. The John D. Rockefellers, senior and junior, announced that they were buying. Julius Rosenwald and Samuel Insull offered to guarantee the margin accounts of their employees. A group of bankers headed by the House of Morgan formed a pool and sent a popular broker named Richard F. Whitney onto the Exchange floor to try to turn around U.S. Steel, bellwether of the market. He succeeded only in bringing about a temporary pause in the panic.

The reassurance from on high was reminiscent of previous panics. In 1893 it was announced that Russell Sage was buying, the Rockefeller crowd was planning something, James R. Keene was rumored to be getting up a magnificent bull pool. In 1907 Rockefeller had said that “the existing alarm among investors is not warranted,” and others echoed him. It didn’t work on those occasions, and it didn’t work in 1929.

Contrary to legend, men who were wiped out did not leap immediately from tall buildings. The suicide rate did go up in the Depression; but at first, of course, no one realized that the Great Crash was the Great Crash. For all the selling, there was buying as people looked for bargains. In fact, the market recovered 50 per cent of

its loss in a postpanic rally that carried into early 1930.

Speculation went on; there were bull pools and bear raids still. Everyone was expecting business to “turn the corner.” But after the rally, prices drifted lower and lower, and business failures multiplied. In 1931 Moody’s Investors Service sadly told its readers it couldn’t recommend any common stocks until things looked brighter.

Moody’s was right. The low-water point was reached in 1932. Pennsylvania Railroad, for instance, which had declined from 110 to 74 in the panic, went to 6½ in 1932 ; Montgomery Ward, from 1567/8 to 49 ½ to 3 ½; Du Pont from 231 to 80 to 22; U.S. Steel from 261 ¾ to 150 to 21 ¼.

Thirty billion dollars’ worth of wealth was erased almost overnight in the crash. A decline of forty-seven billions of national income ensued in 1930-31 and the unemployment of over twelve million Americans. The dream of permanent prosperity was down the drain. The suddenness and the unexpectedness of it all had a profound psychological effect on the country. Great financial leaders were demoted from heroes to villains as government investigations began to expose stock-market practice. The public had only dimly realized the extent of insider profits or pool manipulations; short selling during the decline looked positively immoral.

Blame that was liberally distributed around among tycoons and bankers rubbed off on the system itself. The New York Stock Exchange found itself regarded as the evil genie of the whole affair. A stiff dose of legislative castor oil was prescribed.

The Securities Act of 1933—the “Truth in Securities Act”—required companies issuing stock to disclose all sorts of information about control, salaries, and connections so that the buyer would know what he was getting into. That was not regarded as too radical. The Exchange itself had rules of a similar nature, although it didn’t want to see the rules translated into laws. The control over traditional trading practices embodied in the Securities Exchange Act of 1934, which seemed to put the Exchange on a leash to the Securities and Exchange Commission, was quite another thing. The Exchange fought it, feeling that it could regulate itself.

Some reforms were made, but the Securities and Exchange Commission was still prodding for more when the Exchange itself uncovered the fact that Richard Whitney, five times its president, had committed grand larceny over a period of years. The Exchange went into a state of shock. More reforms and more legislation were not long in coming forth.

After the Great Crash and the Great Reform, some said the stock market was dead. Everything on Wall Street would be tame and dull. Grass would grow in the streets.

Things didn’t work out quite that way. There were years of relative quiescence, but in the post-World War n bull market twenty-two million individuals came to own shares, and institutions—pension funds and the like—came to account for onethird of the trading. American ingenuity

adapted to the new set of rules. Imaginative frauds were and are still possible, though rare. War scares, peace scares, tax scares, Presidential health, and national elections can still bring the excitement of sudden ups and downs.

It isn’t quite as good form today to break a paper bag full of water over another broker’s head, but the floor of the Exchange is still lively. It purrs, buzzes, or roars. Every once in a while, disgruntled by New York City taxes, the Exchange threatens to move somewhere else. Since most of the business comes in by phone and is processed by computers, there is no reason why its members couldn’t set up shop in Dubuque, where little old ladies are said to be hoarding blue chips. But the prevailing opinion still is that New York City and the New York Stock Exchange were made for each other.