Bacardi and the Long Fight for Cuba - Tom Gjelten (Penguin Books, 2008)

A well-written account of the history of Cuba - and its relations with the United States - as seen through the fortunes and travails of the Bacardi family and their rum.  [338.766359097491]

Perhaps by virtue of geography, Cuba's history since the 19th century has been linked to the history of the United States.  The island has been a lure for American interests for since at least the 1850s.  It was eyed as a prospect for expansion of the slave territories by some in the South before our Civil War.   The United States intervened in its revolt against Spain in the 1890s and inherited a global empire as a result.  Thereafter, the United States was uncertain about what it should do with its new dependent.

Tom Gjelten has chosen an innovative way to explain Cuba's recent history and its tangled relationship with the U.S. by following the fortunes of one of its premier families, the Bacardis.  Across several generations, members of the family had been important in commerce, in the revolution, in civil administration, and even in the Castro Revolution.  At the same time, the family was introducing new distillation processes and moving to become the leading rum distillers on the island.

Although rum was easily found throughout the Caribbean, there was no Cuban rum industry at the start of the 19th century.  Cubans produced a form of aguardiente from their sugar, but the molasses was refined into rum in New England and elsewhere.  Facundo Bacardi returned to Santiago de Cuba from Spain in the 1850s after several years' absence to find his local warehouses had been looted and that he faced a financial struggle.  Sugar had stopped rising in price and the demand for molasses from the United States was falling off.  He chose to develop a distillation process that improved on the rather rough local distilled products.  He experimented carefully with sugar concentrations, preparation, and distilling techniques until he achieved a satisfactory rum.  He then developed a brand and a market for his rum.

Emilio Bacardi became involved in the business with his father after his return from study in Spain.  He also became sensitive to the ills of slavery and to the rising aspirations of the Cuban people to be independent of Spain.  He became a patriot and eventually joined the rebellious forces.  The revolt ended after ten years, but soon Spain again began to neglect the rights of Cubans.  After the U.S. intervention, Emilio Bacardi had to adapt to working with the new government as a functionary.  It was still not complete independence.  The U.S. government imposed its own restrictions on the autonomy of the Cuban government.

The twentieth century brought a series of changes.  Prohibition in the United States encouraged American travel to Cuba.  The government, however, decayed into a corrupt dictatorship under Fulgencio Batista which provoked a new revolution in the 1950s.  The Bacardi Company was sympathetic to the Castro forces; Raul Castro even married a daughter of a senior Bacardi executive.  Perhaps that is why the company felt betrayed when the Castro government nationalized the Bacardi holdings in Cuba.  From that point forward, the Bacardi Company became a forceful member of the Cuban diaspora resistance.

With late twentieth century capitalism, the anti-Castro sentiment played out in rivalries among major liquor conglomerates such as Pernod Ricard, Diageo, and Bacardi Limited.  The struggle came down to trademarks, labels, and import licenses.  In this contest, once again American political considerations came into play.  That challenge for Cuba is the underlying theme of the book.

The book can be detailed in trivial aspects of the Bacardi family life.  It is, however, an engrossing history set against the history of one family.  With the warning that some sections focus more on individual lives rather than the larger tides of history, this book is recommended.  

Breakfast at Sotheby's - Phillip Hook (Overlook Press, 2014)

A witty look at the modern art market.  The book is formatted as a brief lexicography with entries on aspects of art presentation, history, and anecdotes.  From fakes and forgeries to the personal lives of artists, this book always leads to how the price of an art work is affected.  [707.5]

Phillip Hook served as a director at both Christie's and at Sotheby's.  From these experiences, he draws insights into the functioning of the art market as a response to aspects of the works that make each one more or less desirable. 

Although this book and the classic The Economics of Taste, which covered the variations of the art market from 1760 to 1960, each provide some analysis of the art market, the similarity ends there.  The approach taken by Hook is not an updated analysis of statistics of sales records by artist.  Hook instead presents a lexicon of key terms and names in five areas: the artist, subject and style, wall power, provenance, and market weather.  Within these categories, he presents brief essays on individual artists (such as Géricault or Breughel) which may deal with their biography, but also attempts to identify periods or subjects of the most auction  appeal, or he addresses concepts (such as Branding or Color) to note how it affects the salability of artists' works.

The book is a rich store of anecdotes, many from the author's own experiences (and mistakes), to illustrate the peculiarities of the market for art; that is, a market in which every item may be unique, a market which is driven by forces that defy analysis: status, emotions, and fleeting opportunities, and a market distorted by frequent rent-seeking behavior by some investors.  Along the way, the reader is introduced to factors that drive art prices.  One learns that blue skies over sunny landscapes with bright colors sell positively.  Hence, the Impressionists continue to enjoy a strong market.  The right frame becomes important, even though it isn't a fixed aspect of the work itself.  The public generally dislikes rain, muddy colors (even those of van Gogh's early work), religious themes, especially martyrdoms, and war.  Even individual artists' work may be affected by some non-aesthetic concerns: is it a Mondrian with any red in it? is it a Chagall with a blue background?

This book is recommended as a refreshing break from issues of policy or from quantitative analysis and offers a reason to rethink what economic behavior encompasses.

The Death of Expertise - Tom Nichols (Oxford University Press, 2016)

An extended critique of the shifts in American public discourse that have elevated the opinions of everyone regardless of their expertise and lowered the relative weight given to expert judgement.  The author reviews a number of aspects of modern American life where expertise has been eclipsed by an equality of opinion regardless of the basis for any single view.  Tom Nichols is a conservative intellectual.   [303.4833]

This is a book that, by its title, invites approval from professionals in public arenas and by educated individuals.  It is becoming clear to subject matter experts that public policy discussions often degenerate into exchanges of opinions by the masses with little weight given to the opinions of genuine experts.  This may be the book that we have awaited; it is at times, however, disappointing in its delivery.  The result is less of an analysis than an extended statement of informed opinion.  Comforting as such texts may be in reassuring policy professionals that the problem is real, they lack utility when they fail to highlight the underlying causes that must be addressed if the problem is to be solved.  The book grew out of an article of the same name that Mr. Nichols had published in The Federalist.  A journal article may be expected to limit its analysis to a clear statement of the problem; a book, however, deserves a deeper analysis.

The opening states the basic problem: that there is a distinction to be made between citizens and subject experts and citizens are becoming comfortable with disposing of the experts.  If experts are not needed, then each person may seek information on their own.  Unfortunately, we prefer hearing information if it matches our current biases.  Such confirmation bias provides an easy basis for sorting through the myriad hits that any internet search can yield.  And, those hits will include rumors and old-wives' tales as well as "junk" research.  When our discussions take a political aspect, such as questions of foreign affairs or economics, citizen's refusal to accept an authority whose well-founded views conflict with the unschooled views of the individual, the latter will hold final sway.  If no appeal to authority can be made, much of our conversation becomes a tedious re-hash of positions with no defensible justification.  This is tedious.  At their worst, our exchanges become nasty ad hominem rages at each other.

The author enters into the well-worn topic of the inadequacy of public education, particularly at the university.  The allegation, sadly, is not new and it is a waste of time to simply re-plow the same furrows.  In Richard Hofstadter's  book Anti-Intellectualism in American Life (1963), the last chapter cites studies and reports from the 1890s and the 1920s and later that report American students incapable of finding the Pacific Ocean on a map or similar instances of ignorance.  It would be more useful to inquire why universities and colleges (if there are any institutions that cling to that less grand title) have changed their focus.  Why has the change taken place?  An analysis, for example, that argued how the continuing cuts in aid to state schools has made them far more dependent upon tuition and that requires attracting and keeping students.  Small private colleges might need to follow suit since they are competing for the same market.  (It may also be that the absence of a draft has removed the incentive for students to please their schools.)  The issue of grade inflation, if it is a real phenomenon, at elite schools poses a different problem.  With the stagnation of most incomes and the widening distribution of wealth or incomes, a degree from an elite school may have significant market value.  Why then, does Harvard or Yale need to create satisfied customers?  Why has the gentleman's C been replaced by the gentleman's A-?  Here the text is silent; it only notes the problem.

Two topics that the author enters into are noteworthy.  He points out that the metrics often used to assess expert opinion are the wrong ones.  Comparison of expert predictions against purely mechanical systems (throwing darts) or mass voting are the wrong measure.  Experts may be wrong, but the reasoning underlying their opinions is more valuable than random methods.  In short, being wrong may not be the real test.  The author proposes, instead, to keep track records of expert opinions and to include assessments of their work evaluated by other experts.

The book needed a better editor than the author got from his publisher.  A serious reader would have noted shifts in argument with a half-dozen pages or an overall lack of an argument.  The author at one point argues the phrase familiar to on-line comments that the United States is a republic, not a democracy.  Three pages later, the author uses democracy as it is generally used to describe our polity.  The text sometimes hints that a good outline might have tightened the presentation.

For summarizing the problem at its first level, the book may be recommended, if not warmly. 
For providing a sharper analysis of how we got there, the book fails.

The Panic of 1907 - Robert F Bruner and Sean D Carr (John Wiley & Sons, 2007)

This is a case study of a bank panic and the financial community's response to stem its consequences.  Because the incident predates the formation of the Federal Reserve System (and provided a motivation for doing so), preventing further contagion throughout the banking sector fell to the New York banks under the leadership of J. P. Morgan.  A review of the causes draws quick comparison the events of 2008.  [333.9730911]

With startlingly clear insight, or good luck, the authors published this book in 2007 on the centennial of the bank panic of 1907.  That panic threatened the banking system through insolvency exacerbated by runs on the banks.  brought the collapse of the Knickerbocker Bank and threatened to spread contagion throughout the banking system.  The risk to the banking system in this instance was similar to so many other bank crises: the interlacing lines of credit that could pull down several institutions even a second- or third-hand.  The bank run stresses the reserves of other banks as depositors act on precaution to withdraw their funds from even safe banks.  The result of drawing down reserves tightens short-term credit to paralyzing levels.  The collapse of the credit market carries knock-on effects for other institutions including those outside of the banking system.  When these events fall during a period in which the financial sector has already been battered - say, in insurance losses - or there is a slowdown in commerce, the impact can be devastating on the economy.  Saving the situation calls for the means to inject reserves without restraint into the banking system.

In hindsight, it is easy to see how the situation in 1907 paralleled that of 2008.  One might forget the effect of the San Francisco earthquake and fire had on insurance companies and the financial markets although losses from Hurricane Katrina may have played a similar role.  The first financial institutions to weaken lost their reserves in dodgy or highly speculative financial plays; in 1907, it was copper.  The network of financial relationships relayed that shock through the system  The challenge lay in the absence of a central bank or other means of injecting reserves into the system to steady it during bank runs.  Only by the grace of J.P. Morgan's intervention and action in commanding solvent banks to lend heavily to other banks that may be shaken but remained fundamentally sound was the crisis stemmed.  Banks had to follow Morgan's direction if they hoped to ever have relations with the Morgan community in the future.  It was the lesson of this panic that led to the establishment of a semi-private network of reserves available to member banks as a means of stopping contagion.  That network was the Federal Reserve system created by the Act of December 23, 1913.

This book is recommended.  The reader should be warned that the authors are not always as clear in laying out the full situation in 1907 and some of the narrative seems to wander until it is brought back sharply into focus.

Federal Taxation in America: a short history - W. Elliot Brownlee (Cambridge University Press, 1996)

A concise history of the several tax regimes used by the United States government from its founding to the late 1990s.  Usually, a war or other financial emergency was severe enough to provoke a rethinking of what should be taxed and how it was to be carried out.   The last chapter addresses the discussions about the tax system following the elections of 1994.  The topic has been popular for the last twenty-five years, although no substantial change in the system has taken place.  [336.200973]

The taxation issue has dominated much of American politics for the past half-century with opponents to the current system growing in volume and intensity and political power.  A system as core to government functions as taxation, however, deserves a long look at the what can be gained from the experience that has accrued since 1789.  This book provides just such a review.  It covers the several tax regimes that the national government has relied upon for revenues across its history.

Two points stand out in this history.  First, that the country has implemented major changes in its tax regime only in the face of severe, nation-threatening crises.  These crises were the Civil War, World War I, the Depression, and World War II.  (Some mention is also merited for the Tax Reform Act of 1986 for its efforts to broaden the tax base and its bipartisan development.)  In each of these cases, the national government was faced with massive requirements for resources that could not be met by the regime still in place.  The regime of the 1790s was established partly to create the ability of the government to tax.  It sufficed with its protective tariffs and customs duties and, eventually, sales of government land to fund the government and even to pay off the debt by 1837.  The system was inadequate for the financing needs of the Federal government in putting down the rebellion of 1861-65.  That crisis even brought the first attempts to enact a mild income tax.  The First World War expanded the use of the new personal income tax, but it also expanded the taxes on business.  This included progressive taxes on business income (they are a flat rate today.)   The Depression and the Second World War saw further refinement of income identification.  In the 1930s, the challenge was to pay for public works and reconstruction while taxable incomes were reduced.  At the same time, FDR was wary of running deficits and often moved to balance the budget.  The demands of WWII were just enormous, but the Administration hoped to broaden the tax base to promote a patriotic effort.  Outside of the adjustments made in 1986, the country has faced no existential crisis and this is likely why there has been no agreement on the direction forward to a new tax regime.

The second key point is that redistribution of income has always played a role in designing tax regimes.  In its earliest years, the government would have considered property taxes as a means of addressing an "ability to pay" issue.  The Constitution's restriction on direct taxes was, according to the author, created to keep the national government from competing with state governments who relied on this same tax base rather than on some principle about even-handed taxation.  Part of Woodrow Wilson's plan for WWI financing was to redistribute wealth by encouraging the middle class to by government bonds which would be paid off in future years by taxation on the wealthy.  In fact, all income tax schedules have had some element of progressivity, although Secretary Mellon did his best in the 1920s to reduce that.  Although FDR was less interested in progressive tax rates during WWII, the Congress did keep them along with flat rate corporate taxes and the regressive payroll taxes.  Post-War inflation probably did contribute to easy finance through "bracket creep."  Finally, some note must be made of the Reagan Administration's tax reform of 1986 with its efforts to close loopholes and broaden the tax base.  Since then, there have been no radical reforms of the tax regime.  Further, the growing anti-government movement - as reflected in movements such as California's Proposition 13 - has contributed to the impediments to any such reform.

The shifting balance of the tax burden across income groups and between citizens and businesses  is the result of these processes.  And, it contains the motivation for future tax regime changes when the need presents itself.

(This book has been issued in two subsequent editions which may bring it up to date.)

This book is recommended for its brevity and the insight it provides on the topic.

The Seven Pillars of Statistical Wisdom - Stephen M. Stigler (Harvard University Press, 2016)

An eminent statistician and historian of the field examines the seven key concepts that form the basis of the modern theory of statistical inference and analysis.   [519.5]

Stephen Stigler of the University of Chicago has written extensively on the historical development of the discipline of statistics.  This book examines the history of the seven key concepts of statistical theory.  These are the concepts that underlie our understanding of what it is that we are doing when we accept statistics as the reflection of reality and when we use statistics to guide our judgements. 

For many of these concepts, Stigler finds their origins in the 17th century or earlier.  This should not be surprising: the intellectual questions that are addressed have, most likely, been at the core of our thinking about the world.  But, the full mathematical development and elaboration of the methods is surprisingly modern.  Most of these can be traced to sources such as Galton (1880s) or Laplace (1770s) for the first clear realization of what would be required.  The final development had to await the work of such moderns as Sir Ronald Fisher at the agricultural laboratory at Rothamsted (1920s) or Jerzy Neyman in the 1940s.  Suddenly, statistics, which likes to trace its lineage to the 18th century, is seen as an exceptionally new science.

The keys to statistics lie in these discoveries:

• Aggregation. What is necessary to summarize a collection of observations?  What may now be called sufficient statistics, think of the mean and variance, pose a puzzle; this reduced set of information may reveal as much about the parent population as the full record of observations. 
• Information.  How much do additional observations add to our knowledge?  A critical rule in statistics, under standard assumptions, is that doubling the sample size does not double the information content.  Information is found to increase with the square root of the number of observations; to double the information in a sample, one must quadruple the size.  This situation means that sampling must balance economy with information.
• Likelihood.  What do the observations tell us about the underlying probability distribution, among all possible distributions, that was most likely to be the source of the data?  Likelihood methods become our tool for making inferences about how the world works.
• Intercomparison.  How can observations be meaningful without reference to an external standard?  The variability within the samples can provide a basis for judging whether subsamples are from the same parent or not.   
• Regression.  How does one explain the tendency of populations to remain clustered around central values rather than spreading out continuously?  The issues were critical for the survival of Darwin's theory of evolution; they are the basis of our model building today. 
• Design.  How can experiments be planned to yield the sharpest distinction among factors influencing the outcome?  How can randomization strengthen our conclusions?  The pioneer work of Sir Ronald Fisher in agricultural experiments blossomed into the field of experimental design that guides marketing and medical research.  
• Residual.  How are complicated phenomena sorted to reveal relationships when some factors are stripped away?  

This may be a particularly difficult book to read.  Although Stigler tries to make the argument accessible to non-specialists, he is still limited in how much he can reduce the mathematics or the logic of the arguments to everyday speech.  The author also assumes that the reader may be familiar with the pioneers of statistical logic.  Still, for the reader with a basic background in statistics and probability, this may be an intriguing book.

With that qualification, the book is highly recommended.

Once in Golconda: a true drama of Wall Street 1920-1938 - John Brooks (W W Norton & Co, 1969)

A very talented writer describes the mood and the events of the 1920s boom, the crash, and the aftermath.  Brooks wrote with great clarity.  Each of his business history books deserves a look.  [332.64273]

The Wall Street crash of October 1929 stands as a milestone in American financial history that surpasses all others.  The panics and crashes that preceded it are lost in popular history; those that have followed it are constantly compared against it the way geologic events are compared with the August 1883 Krakatoa eruption or the April 1906 San Francisco earthquake.

In a similar manner, the books written about the 1929 Crash all spend some time examining the popular culture of the age.  The sense of easy money is a frequent topic; what review of the age doesn't mention John J. Raskob's "Everybody Ought to be Rich" magazine article?  The day-by-day events of that October are also popular material for these histories.   These are offered as a means of contrast with our own less frenzied or more sophisticated age.  When the 'twenties are contrasted too strongly with the present, it can lure us into a complacency; we can see how the sins of the past led to the downfall, but, as we are not guilty of such greed and passion, no such calamity awaits us.  History has proved this wrong many times.

John Brooks, however, has a more subtle eye.  His narrative does not stress the extraordinary nature of that age, although he discusses some of the major figures of the era.  His narrative encompasses the economic forces that imposed changes on the nation and the social changes that marked a permanent turning in the society's mores and viewpoint.  Further, Brooks covers the period more fully: from the 1920 bomb that exploded at lunchtime on Wall Street to the Pecora hearings and Richard Whitney entering Sing Sing in 1938.  In fact, Whitney becomes the central character in the history and his personal fall chronicles the falling away of the old elite and its replacement by a new generation.  When seen from this view, the 1920s are not extraordinary or distinct from later years, they are the time when the attitudes of our era first emerged. 

This book is very highly recommended.

The Money Game - 'Adam Smith' (Random House, 1967)

A witty exploration of the psychology of Wall Street - why people play the game and how they do it.  This is not another investment guide; it is brilliant sociology.  [332.678]

How is the investment world of 50 years ago different from today?  Maybe there are fewer brokers that the client calls to see how the market is doing.  There are fewer old-line investment houses functioning as banks for wealthy clients.  Along with that, the old fixed commission system is gone that supported so many of those old houses.  There are more investment products available, even as some industries (e.g., aluminum) offer fewer companies to choose among.  Certainly, there is more information about prices and markets within easy reach.  The author would argue, however, that one thing has not changed: the underlying motivation for many participants in the market.  Taking a comment from Lord Keynes, the author argues that it is the game aspect itself of speculative investment that draws many players.  Yes, money is useful for keeping score, but it may not be the end in itself that is being pursued.   

George J. W. Goodman, writing under the pseudonym Adam Smith, draws a series of portraits of the players and in sketching them highlights their inner workings.  The cast includes Odd-Lot Robert who is the small investor who always thinks the "Big Boys" are planning something; Charley and Poor Grenville, and the Kids, all fund managers; the professional gang hanging around Oscar's who could have walked off the set for Mad Men; several investors who are patients of Harold the Psychiatrist who reveal all the ways in which money and the market fit into their lives and it usually isn't in the ways economists assume money fits into a rational individual.  They are Chartists, analysts, small investors (in odd lots), irredeemable speculators, and guys who just like to trade information.   One key that the author finds is how many players just want to be in on the game; they want to be where there is action.

For a light diversion, there is a chapter on The Cocoa Game to warn against the very different world of commodity trading.  For a darker chapter, the Gnome of Zurich appears to present speculations about the dollar and trade and gold that a dozen years later would all prove true. 

The writing is bright and clever.  The humor is subtle yet rich like the clubs that Goodman describes.  This is a book to read when one wants to be reminded that the world continues in a great cycle of rising markets, hot prospects, disillusionment, and gloom...and that it always has been that way.

This book is highly recommended.   

Military Misfortunes: The Anatomy of Failure in War - Eliot A Cohen and John Gooch (Vintage Books, 1991)

An insightful analysis of the sources of failure in wars, although the approach holds promise for more general application to management in business.  [355.480904]

Forget for the moment all the business literature that tried to appear deep and subtle by applying writings of Sun Tzu or Alexander the Great to business management.  Their focus on the enemy - that is, the competition - and exploiting his weaknesses to gain victory seemed to appeal to business fantasy  rather than the mundane challenges of keeping everything running smoothly.  Is military strategy even appropriate to apply to business?  It is clear that war and military management present great challenges because the risk of failure involves much more than simply the financial health of the enterprise itself.  At the same time, military management can, or should be able to, rely on tighter chains of command and an ability to marshal resources if they are needed.

Yet, business does present questions that need some innovative answers.  How, for example, could the Edsel be explained? or New Coke? why did money center banks allow themselves to be stuck in the collapse of the market for CDOs? why did the domestic auto industry nearly die?  Not all of these can be explained by costs structures or market forces.  At times, it is necessary to look at the decision-making style of the people leading the organization.  

The authors analyze military collapses form the last 75 years.  After first rejecting analyses based on the psychological or temperamental profile of the man in charge (a variation of the Great Man approach), analysis of the institutional culture, or even the society that failed, they present three principal sources of failure.  These are:

 - Failure to learn.  This is the refusal to look at lessons learned in analogous situations.  Their example is American antisubmarine warfare in 1942.  The horrific losses within the U.S. Merchant Marine fleet in the Battle for the Atlantic were costly in lives and materiel.  The British had developed an effective strategy for convoys and for antisubmarine warfare during their years in the war.  Their success, the authors contend, was not the result of new technology, but of developing an organizational structure that allowed the RAF to make use of all intelligence available and to disseminate it immediately to units that needed it.  It would take some months before the U.S. could do the same with its antisubmarine air patrols.

 - Failure to anticipate.  This is not failure to foresee an unknown future, but the failure to take reasonable precautions against a known hazard.  The authors analyze the failure of Israeli forces to anticipate the Yom Kippur War.  This was not a failure alone of intelligence, that is, a misreading of the facts at hand and a lack of curiosity among Israeli senior officers concerning the data available, but also a failure to comprehend the strategic views of the adversaries.  It could be summarized as overconfidence in understanding the situation confronting the IDF.

 - Failure to adapt.  As events unfold, little can be expected to continue as planned; opportunities present themselves or new information becomes available.  The authors analyze the British generals' failure to adjust their plans in the terrible Gallipoli campaign of 1915.  In the landings on Suvla Bay on April 25, British command failed to recognize a critical opportunity of light resistance on one of the three beaches in comparison to that on the other two.  There was no command to press forward in the area of no resistance.  Troops eventually drifted back to the beach.  The British forces on "Y" beach at Suvla Bay failed to exploit the situation and became part of the forces pinned down in their trenches above the beach.  A similar opportunity would not come again.  Compare this with the landing on Utah beach in 1944, when it became clear that U.S. forces had landed at the wrong place on a lightly defended area.  To quote their commanding officer, BG Theodore Roosevelt, Jr., the opportunity meant that they would "start the war from right here."

There is nothing to prevent combinations of these three failures and the authors examine two cases of such catastrophic failure: the rout of the Eighth Army in Korea in 1950 and the fall of France in 1940.

The analysis is greatly enhanced by the inclusion of an accountability matrix for each discussion.  The matrix cells are defined by columns such as control and coordination, identification of goals, supply or means and rows are defined by levels within the organization from high command to units.  Cell entries list errors or weaknesses with critical or serious failures marked.  The tool itself should be adopted by others tasked with post hoc analyses of events.    

This book will carry additional interest for anyone interested in military history, but it is recommended as an innovative approach to nonmilitary matters. 

The Gold Ring: Jim Fisk, Jay Gould, and Black Friday, 1869 - Kenneth D Ackerman (Harper & Row, 1988)

An account of the attempt to corner the gold market in the early Grant Administration.  The book's portraits of dishonor and double cross are staggering.  Taken as historic evidence, the story contains valuable warnings about markets and regulation.  [332.645]

"A fellow can't have a little innocent fun without everybody raising a halloo and going wild"  - Jim Fisk

It is difficult to conceive of how financial markets operated in an era of no regulation.  The picture drawn in this book is one of stunningly corrupt institutions dominated by wholesale fraud; in fact, perhaps either the term "markets" or "operated' is the wrong word to describe these money exchange forums.  The two of note in this book are the New York Stock Exchange and the Gold Exchange. 

The narrative revolves around seven people.  Jay Gould and his sometime business partner Jim Fisk engaged in market manipulation while using the treasury of the Erie Railroad as their personal cash source.  Cornelius Vanderbilt, with his New York Central railroad, was a constant competitor of Gould and Fisk.  William Marcy "Boss" Tweed supported Gould and Fisk with lawyers and pliable judges whose injunctions could be used to limit liability or to award custodianship of disputed assets.  Abel Corbin became a partner with Fisk and Gould because he offered a valuable connection - he was the President's brother-in-law.  President Ulysses Grant had been in office only a few months as he and his Treasury Secretary, George Boutwell, worked to move the country back to hard currency after the issuance of Greenbacks during the Civil War.

The author establishes the characters of several of these persons by describing the "Erie Wars" in which Gould and Fisk struggled with Vanderbilt over control of the Erie railroad and on securing a right-of-way to link with Midwestern railheads.  Although both sides were willing to use gangs of toughs on the rail lines and bribery in Albany to get the rights they sought, a novel scene on the stock exchange is more effective.  Once Vanderbilt decided to simply buy a controlling interest in the Erie, Gould and Fisk set up a printing press and simply kept printing stock shares to sell him.  (No regulations regarding registering shares or provisions against watering stock existed.)  When the Erie Wars became too notorious, Gould and Fisk simply holed up in New Jersey while both sides used the courts to get the outcome they wanted.

The central story, however, involves an attempt to corner the gold market.  Gould and Fisk might be able to lock up all the free gold immediately available in New York, but they could not hold out long if the Treasury decided the action on the Gold Exchange was affecting commerce.  Their answer was to recruit Corbin to introduce them to the President and to convince him that higher gold prices would help farmers as they were selling the crops. This would convince Grant to stop Boutwell from his monthly repurchases of outstanding Treasury debt with gold that would enter the market.  As Gould and Fisk began their bull run (lending out to the bears gold as they bought it), the Treasury stayed out of the way, although this may have been because Grant was on extended vacation.  Grant, however, became suspicious when the schemers tried too hard to keep him in by sending a letter from his brother-in-law to him by special messenger at his vacation spot.  He had his wife write back to her sister, Corbin's wife, warning them to stay out of any market schemes.  (How Gould used this response is even more revealing of character.)

Immediately upon his return to Washington, Grant authorized the sale of gold for bonds.  This broke the ring in the infamous September 24, 1869, "Black Friday" collapse of prices.  The issue then was to untangle accounts from the furious trading and to reach net settlement.  At this point, Gould and Fisk decided to repudiate all their trades or to use Boss Tweed's judges to help them do so.  The settlement process itself became corrupt with brokerages favoring their own accounts and not settling with outside parties.  Money was lost, some houses were ruined, and many reputations went with them.  Reforms would still wait 60 years in the future before markets could actually be counted on to act as markets.

This amusing history of unbelievable corruption and its audacity is highly recommended.