Erik Visits an American Grave, Part 689

This is the grave of Jay Cooke.

Born in 1821 in Sandusky, Ohio, Cooke grew up in a strong Whig household. His father was a Ohio state legislator and served a term in Congress in the early 1830s. The young Jay Cooke went to Philadelphia at the age of 17 and got a job in the banking firm of E.W. Clarke, one of the most successful firms in the city. He rose rapidly and was a partner by 1842, still only 21 years old. He stayed there until 1858 and then opened his own firm.

In 1861, Cooke convinced Secretary of the Treasury Salmon Chase to allow him to fund the war through his bank. To be fair, someone had to do this. The Union was hopelessly unprepared to fund fighting a war. Cooke can legitimately be called the unsung hero of the Civil War. He worked with bankers throughout the north to float loans to the government. He then hired salesmen to travel the nation convincing people to buy government bonds. Now, he was personally floating the bonds. And he got a cut of every single one. To be precise, he received 0.5% of the revenue from the first $10 million sold and 0.375% after that. He made a lot of money on the ultimate sweetheart deal. For Jay Cooke, patriotism and profit were one and the same. He ran ads in newspapers about how people should buy the bonds to help the nation and to promote their own self-interest. He soon believed that his personal financial interests were one and the same of the nation’s. At least for awhile, they were. In 1865, with the government efforts to sell more bonds failing, Cooke basically took it over and was the reason soldiers got paid in 1865. He knew how to sell bonds.

After the Civil War, Cooke wasn’t needed to fund the government any longer, but he was needed to fund the massive railroad expansion that the government wanted to connect the disparate parts of this gigantic nation, even though there were not yet valuable markets in at least half of it. This made sense to Cooke too. This was his next herculean effort. But the connection between patriotism and profit got real tenuous real fast. He relied on lobbying Treasury officials, Congress, and President Grant (who he only reluctantly supported for president in 1868 over his friend Chase). He got his team of investors back together and invested in the Northern Pacific starting in 1870. His basic strategy was his personal relationships with leading Republicans. He knew how to work them. Cooke was one of the rich guys that Grant really loved. Grant legitimately thought the rich were smarter than everyone else. They, including Cooke to some extent though less shamefully than Jay Gould, saw him as a mark who they could control. In fact, a big part of the reason that Grant created Yellowstone National Park in 1872 was to provide Cooke a good tourist attraction to make money on with the Northern Pacific.

Cooke wanted to build a transcontinental across the northern tier and he wanted it to end in Duluth. Even though Chicago was already well on its way to establishing itself as the hub of the Midwest (and America, arguably), Cooke decided on a northern competitor. He started buying up railroads left and right to build his own personal rail empire. In some ways, Cooke was too slow in his manipulations of leading Republicans. The Union Pacific’s absurd Credit Mobilier scandal, where the leading capitalists behind it decided they weren’t making enough money and thus created a shell company to steal the profits and pass shares of it out to their powerful political friends, ended any chance that the government would fully guarantee the Northern Pacific’s investments and it had other railroads. Was just too risky after the scandal broke. Cooke was in way over his head by this point, having overleverged himself buying all those little railroads.

By 1873, the house of cards was ready to fall. While the roots of the Panic of 1873 originated in Europe, in the U.S., it was Cooke’s fall that blew up the economy. With European bankers increasingly nervous about American railroads, he couldn’t get them to float his debt. He had also vastly overcapitalized the railroads, far beyond what he had told any of his investors. To be specific, he had publicly said that he wouldn’t advance more than $500,000 to the railroad. Instead, he advanced $7 million. Cooke wasn’t the only one in this boat, but he was the most prominent and the most in trouble. Through all of this, he continued to believe that his personal self-interest and that of the nation were one and the same, allowing him to justify any choice he made.

To make it all worse, he tried to save himself by raiding the Freedmen’s Bank. Established as part of the Reconstruction efforts to promote the economic self-sufficiency of freedpeople, it had started out pretty well. Although few Black people had much money, they saved quite a bit when taken together. In fact, this was an era when all people saved much more money than they do today, even though bank failures were by no means uncommon. Between 1865 and 1874, there was about $50 million invested in it. Henry Cooke, Jay’s brother, was on the board. His moral position on shepherding the money of the freedpeople was…not strong. This money was all invested in safe government bonds, Henry had the bank’s charter changed so that it could invest in railroad bonds. Henry, now working closely with Jay, also just gave away the money in what were basically bribes to powerful Republican friends who could lobby for them. And then the Freedmen’s Bank purchased the most valuable assets Jay Cooke owned, taking them off his hands and imperiling the savings of all the freed people who had invested in the bank for nearly a decade.

None of it worked. Cooke shut down the New York branch of his bank on September 18, 1873 and the Panic of 1873 was on. Fifty five railroads went bankrupt by the end of the year. The impact was severe for American workers. Unemployment jumped to approximately 8%. Now, that might not seem that high and compared to the Great Depression, it was not. But it had localized, severe impacts in trade-based cities such as New York. San Francisco and Chicago saw severe impacts, as did the silver mining town of Virginia City, Nevada. Moreover, remember that most of the economy was agricultural at this time and much of the rest was small-shop craftsmen who faced less of an impact from events such as this than factory workers. The Panic of 1873 turned into a full-fledged depression. Workers not only in the United States but in Europe were badly impacted by this crisis. Unemployment rose and so did discontent. Its impacts did not alleviate until 1878 and of course there was nothing like a social safety net at this time. The railroads became so hated that when the Great Railroad Strike broke out in 1877, far more non-railroad workers participated than did railroad workers. These were despised corporations. And Jay Cooke was a huge reason why.

Oh yeah, and the Freedmen’s Bank collapsed after Frederick Douglass personally tried to save it. All those freed people lost everything.

Of course, Cooke himself barely suffered. While he was never the influential capitalist he was between 1861 and 1873, a big investment in Utah silver mines recreated his fortune. He was less in the limelight after this, but died a very wealthy man in 1905, at the age of 83.

Jay Cooke is buried in St. Paul’s Episcopal Churchyard, Elkins Park, Pennsylvania.

This grave visit was sponsored by LGM reader donations. Many thanks! I actually have a professional reason to take a trip today and will be using your donations to spend an extra day extending this series into the future. If you would like me to visit more Gilded Age railroad scumbags, you can donate to cover the required expenses here. Charles Crocker is in Oakland and Edward Harriman is in Arden, New York. Previous posts in this series are archived here.