Wheels of Fortune: The History of Speculation from Scandal to Respectability / Edition 1

by Charles R. Geisst

Overview

An intriguing history of the futures market and speculation
From Jay Gould's attempt to corner the gold market in the 1860s to the Hunt brothers' scandalous efforts to control the silver market in the 1980s, Wheels of Fortune traces the rich, colorful history of the futures market on its quest for respectability and profit. This comprehensive account shows readers why the markets have been grabbing headlines for over 100 years as both respectable economic institutions and hotbeds of gambling activity and scandal. Charles Geisst brings the personalities and strategies behind the futures market and speculation in general to life, against a backdrop of American life that begins prior to the Civil War.

Product Details

ISBN-13:	9780471479734
Publisher:	Wiley
Publication date:	12/22/2003
Pages:	368
Product dimensions:	5.53(w) x 8.80(h) x 1.04(d)

About the Author

CHARLES R. GEISST is the author of fourteen books, including the bestsellers Wall Street: A History and 100 Years of Wall Street, as well as The Last Partnerships and Monopolies in America. Previously, he worked as a capital markets analyst and investment banker at several investment banks in London and has taught both political science and finance. He has contributed to many journals and newspapers, including the International Herald Tribune, Neue Zurcher Zeitung, and The Wall Street Journal, and has appeared as a guest on many radio and television financial programs. Deals of the Century, also published by Wiley, is Geisst’s most recent book on financial history.

Read an Excerpt

from Chapter 1

A Tale of the Pits

The Civil War was a crucible for American attitudes toward life, liberty, and the pursuit of money. The wrenching conflict tore at the very fiber of American life and caused a rapid transformation in views about accumulating wealth. Before the war, in what later would seem like a halcyon period, savings and frugality were heralded as traditional American virtues. During the war, a wave of general speculation in gold and stocks swept the country as the news of bloody battles filled the daily newspapers.

Oddly, the speculation came at the same time that Americans were also doing sensible financial planning. Before the war, only about $5 million of life insurance was outstanding; by 1865, that amount jumped to about $700 million. Clearly, the risk of war, as well as the trend toward increasing urbanization, created a need to pass wealth to the next generation independent of the traditional method of willing land ownership. Americans had always been speculative, but before the war, their speculation had been confined to lottery tickets and real estate transactions. The war brought with it, however, an unprecedented speculative binge in commodities and gold. Bucket shops sprang up around the country, fueling the fire even more. These gambling parlors gave the average citizen the impression that he or she could speculate in stocks and commodities like a professional. The average person on the street was goaded by stories of wealth and fortune created on the exchanges, and professional traders, inspired by even grander notions, believed that they could actually corner the entire supply of grain or gold if theypossessed an iron will and enough speculative nerve. Clearly, the United States was on the verge of a great revolution in its attitudes and pastimes.

Lotteries proliferated after the war, especially in the South, where state legislatures were in desperate need of funds. Almost from the beginning, opponents of lotteries lobbied for abolishing them, calling them immoral and capable of debauching the average citizen. The futures markets, however, were on a slightly higher level. Their development during the nineteenth century in the shadow of Wall Street was a mixed blessing. These new markets had the dubious distinction of being equated with the tradition of manipulation and greed for which Wall Street was already well-known. Before the Civil War, dealing with stocks and other intangibles was not considered a respectable vocation; the traders themselves were considered to be on the edge of proper society. When the futures markets were developed, the public naturally looked askance at them and the people who traded them; however, it knew that if these new markets could succeed, their place in American economic life would be assured for generations to come.

Although the markets did succeed, their development was subject to chance. Just as the price of wheat or corn was subject to demand as affected by factors beyond one's control--climate fluctuations and insect infestations, for example--the futures markets were subject to public skepticism, internal dissension, and various external factors, all beyond their control. Unlike the stock markets, the futures markets never commanded the widespread respect that the New York Stock Exchange (NYSE) begrudgingly earned over the years. To Easterners, the markets were the places where "hicks" traded agricultural commodities basic to everyday life. Even in their own backyards, the markets were seen as suspect places where predatory "city slicker" speculators took advantage of farmers who were not organized well enough to fight back. There were actually attempts made during the nineteenth century to outlaw futures trading at both the state and national level. The futures markets had crippling legislation passed against them, but they still managed to survive.

The introduction of futures markets in Chicago in the late 1840s certainly witnessed both the highs and lows of financial life. From the beginning, the economic value of futures was never seriously doubted, but those who traded them and their motives were constantly questioned. The nineteenth-century public vaguely understood what took place on the stock exchanges but had little time for the prima donnas who were their best known bulls and bears. Buying and selling railroad shares was a legitimate activity to most observers, but when a trader such as Jacob Little or Daniel Drew cornered stock by buying all of the available supply or plunged it by selling it short (forcing its price down, ruining the "longs" or buyers), the overtly speculative nature of the market rose to the surface. Adding insult to injury, the corners and the plungers both seemed to do quite well financially, while the average investor never seemed to get ahead of the game. The markets appeared rigged in favor of the professional trader.

However shoddy the NYSE's early reputation might have been, the Chicago Board of Trade would suffer an even worse opprobrium; it would endure legal challenges and hostile state legislatures that made the stock exchanges' problems pale by comparison. The futures markets had another unpredictable foe that did not trouble the stock exchanges, located mostly in the East. In the Midwest, dealing in futures markets inspired widespread cynicism even among believers because of that region's strong, ingrained Calvinistic work ethic. Profit gained by trading intangibles was considered immoral; only real sweat and labor should be rewarded. How could one claim to be working when that person only shouted orders for buying and selling wheat on an exchange? The one who should be rewarded was the farmer whose sweat and toil brought the wheat to market. There was something inherently wrong in dealing with contracts rather than the real commodity itself. That strong Midwestern ethic would dog the futures markets for years.

The irrepressible force of westward expansion would push futures markets into the spotlight. As the country continued to grow, farms and cities began to develop west of the Mississippi River. Chicago became the gateway to this vast area, almost entirely devoted to agriculture. The railroads made Chicago a central hub, and by the time the Civil War began, the city was the main food supplier for the Union army and, along with St. Louis, a major terminus. The agricultural industry developed quickly, embracing farmers, millers, processors, warehousemen, and the marketers. It was from this last group that the futures markets developed. Trading grain futures on the exchanges was seen as a step in the marketing process of getting grains into the hands of consumers. Like their eastern stock exchange counterparts, futures traders claimed that their trading served a valid economic function. Without it, the farmers would be left with unsold crops and, even worse, potential economic ruin if prices suddenly changed during a crop season.

Experience proved otherwise, at least as far as farmers were concerned. Their crop prices were out of their control because they were in the hands of a small group of professional traders who manipulated prices on the futures exchanges for their own benefit. Making matters worse were the railroads, which forced the farmers to pay high charges for getting their harvested crops to the markets. The noble profession of farming was being drained of its vitality by unscrupulous middlemen who capitalized on farmers' isolation and economic ignorance. The whole economic process of farming needed to be returned to its rural origins. City folk, schooled in the ways of speculation and exploitation, had the farmers in a vulnerable position, a situation which only legislation could redress. The country was moving westward too quickly, however, and the argument fell on deaf ears. America was on the move, and the markets were necessary for its economic development. The rural America so fondly recalled by Alexis de Tocqueville was rapidly giving way to the new America of the railroad baron and the grain plunger. But even progress could not halt the controversy surrounding the true nature of futures trading. When combined with the stridency of the antimonopolist movement and the reforms suggested by Populists and Grangers, the issue of futures trading proved to be one of the more combustible of the post-Civil War era.

FINE YOUNG CANNIBALS

As Chicago and other Midwest cities began to grow, they developed chambers of commerce and other local organizations to cater to the business community. Locals gathered at these places to dine, share contacts, conduct business, or simply socialize. As early as 1836, in St. Louis a merchants' exchange was developed where all of the sundry commodities that traded on the quay alongside the Mississippi River were organized into a central marketplace. In 1856, Kansas City merchants organized a board of trade to buy and sell commodities in an orderly fashion. In Chicago, a similar sort of meeting place known as the Chicago Board of Trade (CBOT) officially opened in 1848 to less-than-resounding popularity. In the same year, railroads and telegraphs reached the city, and the stockyards were opened. Not many in the business community showed much interest in the board; most were too busy contending with the city's explosive growth.

The farming business was in the throes of its own revolution that was quickly changing the face of the city. In the 1830s, Cyrus McCormick developed the reaper, the first device that could cut grain mechanically rather than by hand. After a trip to the Midwest, McCormick realized that his device was more suited to the wide, flat plains of the breadbasket states than it was to the rougher, hilly terrain of western Virginia, where he had been doing sporadic business with his new contraption. In 1848, he relocated his business to Chicago and started producing improved reapers. Within a couple of years, the time needed to harvest an acre of wheat was cut in half. When combined with the constant expansion of farmland, wheat and other grains flowed through Chicago at a rapid pace.

Although local businesspeople initially ignored the CBOT, the increased demand for wheat during the Civil War began to change their opinions about the organization. The CBOT quickly developed into the marketing arm of the wheat industry. Since Chicago was the nexus of this quickly emerging breadbasket, it seemed a natural location for a futures market, and the CBOT seemed the logical place to house it. Futures trading was an old form of arranging crops and other basic commodities for delayed, or future, delivery. It had been used in Japan and England with some degree of success, and the New York markets had traded some commodities futures as well. Originally, the trading was known as when-arrived trading, in which a buyer purchased a contract for a farmer's grain crop to be delivered at a date in the near future. The price was agreed to on a specific date, and the contract was binding. If the price subsequently declined, the buyer would still be obligated to make the purchase, and if the crop failed, the farmer would remain bound to make delivery of the grain at the agreed-to price even if it had to be purchased elsewhere.

In this simple market, the chain of supply and demand was relatively stable. However, without futures trading, significant price risk was present. Buyers and sellers would have to rely upon the cash (or physicals) market with all of its vagaries and price risk. In the futures markets, uncertainty was removed. Buyers would know the price ahead of time, and sellers could rest more easily than if they had to suffer market conditions at the time of harvest and shipment. But what seemed like an excellent idea for both farmers and users of their products was constantly shrouded in ambiguity and quarrelling about the proper role of futures in everyday American life. How was it possible that such a sound economic idea could invite such heated, disparate opinions?

Between 1854 and 1864, the amount of wheat shipped from the Midwest more than quadrupled, and beef and other grains developed rapidly as well, quickly becoming a source of contention among critics of the distributors, whom many labeled war profiteers. As a result, futures trading developed at a fast pace. Problems concerning standard contract size, quality of grains involved, and delivery procedures were ironed out quickly, and acceptable futures contracts, mostly for wheat, became part of the grain marketing system. Farmers could sell their crops at a standard date in the near future; buyers could decide which crops they needed and settle on a price that was made on the exchange--technically in the pits where the contracts traded. The CBOT built its first pits, octagonal in shape, after the Civil War to accommodate traders. The pits were slightly concave areas on the CBOT floor where traders congregated and traded, using an open-outcry system to be heard. The system was up and running quickly. One standard feature of the market was not adhered to, however, even from the beginning. To be a true futures market, the seller had to deliver the commodity and the buyer had to pay and take delivery. Yet, only a tiny fraction of contracts ever went through the delivery process. Most were traded actively before they expired and were then closed out, meaning that standard contracts were bought back that had been sold or contracts were sold that had been bought. These floor traders were not thinking of delivery; they were thinking only of speculating in the commodity.

The nascent futures markets attracted speculators to the pits, where a seat could be bought quite reasonably in the years prior to the Civil War. These traders wanted no part of a physical commodity; they were interested only in selling at a price higher than that at which they had purchased contracts. Equally, they were also avid short sellers: They would sell contracts and later purchase them back at a lower price, profiting from the price drop. These floor traders became the backbone--and the bane--of the CBOT. Its rules and guidelines were written only for serious hedging purposes. Farmers sold and buyers, usually food processors, purchased grains and produce. The CBOT's bylaws and organization did not admit to speculative traders operating in the pits, although there was no way to actually prohibit their actions. Being recognized by the laws of Illinois as a "board" gave the CBOT the unique ability to set its own regulations and adjudicate its own internal problems, its decisions having the same weight as a court of law. Clearly, the CBOT could have expelled these traders, but what would have been the point? In futures parlance, these traders were the "locals" and added needed liquidity to the exchange floor, but their activities were not officially recognized.

Without the speculators, the exchange would have been a sleepy place. The traders, however, gave it verve and a somewhat tawdry reputation that became an integral part of Chicago folklore. While clearly quick on their feet, the traders were not the most serious-minded businesspeople; in fact, they would not even be regarded as businesspeople in the conventional sense. They shared a reputation for bloody-mindedness, for conniving, and for a robust sense of humor that matched their counterparts on the NYSE, with whom they were often compared. They clearly were not ambassadors for their profession. In 1875, the CBOT played host to the king of Hawaii, who visited the exchange floor during a tour of the city. As the king was introduced, the traders cheered him wildly, but before he could speak, they broke out with a rendition of "The King of the Cannibals," a popular song of the day. The mayor then attempted to introduce him, but flubbed it when he began the introduction by saying, "I have the honor of escorting into your midst the king of the Can ..." Obviously, the king did not appreciate the humor and stalked out of the exchange; meanwhile, the traders continued by staging a "native" dance on the floor. Their reputation was already building.

Other exchanges developed in New York as the CBOT was enduring its growing pains. One was the New York Produce Exchange, which opened in 1862 to help supply Union army forces. Another was the New York Cotton Exchange, which opened in 1870 and started taking business away from New Orleans, the traditional home of cotton along with Charleston. As a result, New Orleans opened its own cotton exchange a few years later. New York's exchange attracted many Southern merchants who previously dealt cotton in New Orleans and other cities in the South. Some of these merchants, including Lehman Brothers, later became well-known Wall Street investment banks. New York and New Orleans would compete with Liverpool, in Britain, where a cotton exchange for both physicals and futures had been established in the early 1830s. The exchange played a vital role in Britain's development during the Industrial Revolution and provided jobs in manufacturing and in importing and trading. The Liverpool exchange also was seen as a place where young traders could make a quick killing. Americans were attracted to this exchange, as the magazine Harper's noted, "each keeping a keen eye to the requirements of his own particular mercantile connection." The Liverpool exchange tried to imbue into merchants the longstanding motto of the London Stock Exchange: that a man's word was his bond. "A sense of honor which is derived wholly from social considerations of their common interest will prevent even an individual rogue from breaking his word on the Exchange Flags," the magazine added. "They are unanimous at least in this." The American exchanges were a bit more liberal in their interpretation.

Throughout their early years, all of the exchanges emphasized their economic functions over the speculative. Futures traders tried, unsuccessfully, to contrast themselves favorably with the odious traders whom they claimed inhabited the NYSE--the notorious short sellers and large buyers who arranged corners to capture most of the existing supply of a particular stock. These sharp operators had already become part of American stock market legend; their antics were known to a good part of the reading public through the newspapers and the occasional book chronicling their activities. They and many other traders made their reputations on the floor of the NYSE. They were both admired and hated by commentators, as well as by other traders. It did not take long for the CBOT to develop its own legendary trader, Benjamin P. Hutchinson, who equaled any of the short sellers and large buyers in their techniques and ruthlessness.

Hutchinson, born in Massachusetts in 1829, went to work while in his mid-teens as an apprentice in a shoe store, earning a salary of $20 per year. An ambitious young man who grew to be six-and-a-half-feet tall, he hated his first experience working for someone else and waited for the opportunity to strike out on his own. Within a year, he opened his own shoe store next to his former employer and began to prosper, soon moving his operation to a larger town with better prospects. At the age of 20, he appeared poised for reasonable success as a local merchant. He soon married, and in 1857, as he was on his way toward becoming a successful manufacturer and seller of boots and shoes, the financial crisis called the "Western blizzard" struck with full force. The crisis began with Western banks and then blew east; the NYSE suffered badly. The economic depression that soon followed ruined Hutchinson's business, forcing him to reconsider his prospects. At age 28, he made a fateful decision. He packed his wife and his belongings and moved to the Midwest, heeding the traditional Horace Greeley advice. The reputation of the CBOT was about to change, because the migrant brought with him certain skills that the CBOT traders did not possess.

After setting himself up in his adopted city of Chicago, Hutchinson naturally gravitated toward the CBOT and the wheat pits. The heavy war demand for wheat would ensure the future of the pits. Hutchinson, however, was not attracted to the marketing of wheat, only to speculation. In keeping with its original charter, the CBOT itself discouraged speculation, but discouraging frequent buying and selling in the pits was risky for the overall market because it did provide liquidity for true hedgers. As a result, speculators flourished. They bought and sold contracts constantly, attempting to make a few pennies per bushel. This activity became known as scalping and was something for which the exchanges became renowned. The floor traders began a cycle of trading patterns that the public could not understand. Instead of marketing wheat, they appeared to be gambling, attempting to anticipate short-term price movements or even to create them. Critics failed to make the distinction that what the buyer of a futures contract did purchase was an asset--albeit a short-term one--that allowed the buyer to take possession of a commodity if desired. Gambling was simply rolling the dice for a potential payout or loss. Ordinarily, hedgers who sold or bought represented the opposite ends of a trade; now, however, they were nowhere to be seen. Trading patterns appeared to be going in "rings," disappearing into the ether rather than resulting in a single contract between the two end parties.

Speculation became the bane of the early futures markets. The basic notion of exactly how futures markets were able to help producers and processors was not totally clear in the minds of many in the agrarian Midwest. As far as the agrarians were concerned, anyone other than a real producer or user was a gambler. Cries of speculation and gambling were leveled at the dozens of exchanges--large and small--that were growing up not only in Chicago but in St. Louis, Minneapolis, New Orleans, Milwaukee, New York, and Kansas City. They were not idle cries but set off a wave of antifutures emotions that continued until the end of the nineteenth century. The Chicago Tribune lamented that the CBOT was not training young men with useful skills, that "business as at present conducted is training our young men to be gamblers rather than merchants." Most commentators hoped that speculation in the pits would be only a phase in the city's development.

WHISTLING DIXIE

As the CBOT developed, the market for gold futures in New York became the speculator's market of choice. The price of gold reflected the fortunes of the Civil War and became the most speculative market yet witnessed in the nineteenth century. The traders' behavior became so repugnant to politicians and commentators that many began to doubt the patriotism of the marketplace in general. The reaction led to the first futures legislation ever passed.

In late December 1861, New York banks suspended specie payments, eliminating the gold standard in favor of newly created greenbacks. Two weeks later, in January 1862, the Gold Room at the NYSE was established. The standard for gold trading was the $20 Double Eagle gold coin, and it was quoted as a premium of its face value. At first glance, the market appeared of be a true commodity market, for gold was the only item traded and was quoted for next-day delivery. Almost immediately, however, a market for delayed delivery sprang up. Prices were made either for cash or for a specific time period. For instance, buyer or seller three meant the number of days that the trader had to deliver. The organized gold market looked like a legitimate investors' market, but margin trading and delayed deliveries appeared almost immediately, as they had in Chicago. In the event that the exchange could not handle a special order, it could be taken to the Coal Hole at 23 William Street. This was an unofficial exchange, established by traders who did not join the NYSE. True to its name, it was a dark, dingy basement where traders carried out slick deals that even the new exchange would not countenance.

Speculation ran rampant during the Civil War. All sorts of investors began trading in gold, and not all were professionals. Tradespeople, shop clerks, and businesspeople were all buying and selling with great abandon, often for as little as 10 percent down on the full price. Soon, actual users of gold were joined by the speculating public. The game became the same one that was developing in Chicago: "longs" would watch the price rise and then settle with the "shorts" who could not cover their positions for delivery. Vast amounts of cash changed hands; brokers charged $12.50 commission for each $10,000 traded and could easily earn several thousand dollars per day simply by brokering orders. As the war progressed, the price continued to rise.

In 1862, when the Gold Room opened, the price was quoted between 102 and 133 (2 to 33 percent of $20 par, meaning $20.40 to $26.60). By 1864, the price spiraled to 220 from about 157. The price rose and fell on news from the war front. Union victories raised the price; Confederate victories drove it down. But it only took about a month for the NYSE to recognize that the Gold Room was so speculative that its traders could be described as lacking patriotism. In a typical display of solidarity with the Union cause, traders would whistle "John Brown's Body" when Union forces scored a victory but switch to "Dixie" when Confederate forces emerged victorious. News of the traders' behavior infuriated Abraham Lincoln, who asked a colleague, "What do you think of those fellows in Wall Street who are gambling in gold at such a time as this? For my part I wish every one of them had his devilish head shot off."

The NYSE obliged by banishing the traders a month later, in February 1862. The outcasts resumed trading at the Coal Hole, where they remained for a year before moving to and occupying Gilpin's News Room at the corner of William Street and Exchange Place. A board was placed outside on the sidewalk so that passersby could see the posted price of gold. For $25, a trader would be admitted to the floor of the exchange, which one contemporary kindly described as pandemonium at its best. Prices ran up and down on a daily basis, and the price of the commodity became even more volatile. Gilpin's News Room became the new Gold Room, and speculation was as rampant as before. Salmon Chase, Lincoln's treasury secretary, visited the room and was so infuriated by what he saw that he urged Congress to pass a new bill in June 1864 called the Gold Bill. This bill made delayed deliveries unlawful; all trades had to be settled within 24 hours. As soon as the bill became law, Gilpin's News Room was closed and the market moved to traders' offices and street corners.

There was the matter of settling claims. Once a trade was done, certificates were transferred from sellers to buyers. Lacking a clearinghouse of any sort, the details of transactions, along with certificates of ownership, were put into large canvas bags and carried around town by boys acting as deliverymen. Often, these messengers were attacked and robbed on the street. Running became a more effective way of making deliveries; hence "runner" became a popular nickname for the messengers. More than one of these messengers occasionally disappeared with the bag, for the certificates could be redeemed by anyone. The integrity of the unofficial market was now clearly in doubt.

The reputation of Gilpin's News Room became so bad that traders organized to form the New York Gold Exchange in October 1864. Trading became more orderly and improved over the older system. The Bank of New York lent a hand and its long-established credibility by creating a clearinghouse system in which gold would not have to be delivered against a purchase or sale. Gold certificates, similar to the older, "hotter" variety, were established, each bearing the bank's imprint. By now, the market had clearly become more organized, but its speculative nature shadowed it nevertheless. Congress soon landed a bombshell that for years would reverberate over the markets: It proposed a tax on all sales of gold, leveling half of 1 percent as a form of sales tax. Traders objected vehemently, and the tax was abolished after several years, but its point had been made. Tax on commodities trading proved sobering for the markets.

In summer 1865, the gold certificates of the Bank of New York fell under a cloud when it was discovered that many of them delivered in the months after the Civil War ended were forged. As a result, the exchange established the New York Gold Exchange Bank to act as its clearinghouse, replacing the certificate system and giving the market a new credibility that had been seriously lacking. However, an unforeseen element would surface several years later when Jay Gould and his cohorts began to manipulate the price of gold. With the new markets and clearinghouse system in place, it was now easier to speculate on a large scale because of the relative ease to trade and settle gold. Organized attempts to run the price up or down actually were simplified. Even apparent reforms could not cure the exchange's reputation for wild gambling and speculation.

Nevertheless, the Gold Exchange made its debut under the auspices of the NYSE. The gold traders fell under the watchful eye of the gold committee, which oversaw their actions. Several of the committee members were well-known exchange members and had well-established names; among them were Henry Clews, Dunning Duer, and E.B. Ketchum, who traded gold with the young Pierpont Morgan for his family bank's overseas accounts. The organizational changes put the Gold Exchange on a par with the CBOT, which during the Civil War moved ahead rapidly with its own internal developments.

The gold corner mounted by Jay Gould and his cohorts in 1869 became the best known market operation of its day. It also served as a model for others to follow in Chicago. Cornering operations were nothing new on the stock exchange, but an attempt to run up the price of gold, the precious metal serving as the basis of the nation's money, was the most audacious operation ever attempted. At the time, Gould's firm on Wall Street--Smith, Gould & Martin--began to buy gold at increasing prices in an obvious attempt to run its price. Part of the strategy involved the lack of government intervention. If the Treasury released any of the gold stock from Fort Knox, the price would fall immediately. Gould, however, seemed sure that intervention would not take place, and the price rose to almost 160. One of his cohorts in the operation was Abel Corbin, President Ulysses S. Grant's son-in-law. Most insiders assumed that Gould used Corbin to keep Grant from ordering an intervention. Finally, the president was persuaded to intervene, and a selling panic quickly followed. Gould already was in the process of liquidating his positions, however, and when the smoke cleared, he was rumored to have netted over $10 million on the operation.

The gold corner enhanced Gould's already slick reputation for audacity, but it did little for Grant's developing reputation for venality. In 1870, Congress convened the gold panic investigation, hearing testimony from all the principals involved. In 1871, Charles Francis Adams and his brother Henry also joined the fray with a muckraking book entitled Chapters of Erie and Other Essays, which discussed the gold corner and other Gould operations. The Gold Exchange closed in 1879, when the government authorized specie payments to resume. Despite all the publicity and economic repercussions of the gold corner, the technique was still viewed as a legitimate market operation to be employed by anyone with enough nerve and available resources. The Chicago traders proved that they had ample supplies of both.

Table of Contents

Acknowledgments vi

Introduction vii

Chapter 1 A Tale of the Pits 1

Chapter 2 Futures and 'Wild Jackasses' 49

Chapter 3 The Great Bear Hunt 99

Chapter 4 Expanding the Menu 143

Chapter 5 Metals and Money 187

Chapter 6 Chicago Follies 243

Chapter 7 Rogues' Gallery 297

Postscript 353

Bibliography 355

Index 360

Editorial Reviews

Futures trading has always represented the best and worst sides of the economy. On the one hand, it is the epitome of commercial progress: Property rights have become so secure and technology so advanced that traders can confidently risk huge sums on small changes in commodity prices. The hedge against risk these creative traders provide allows companies to fine-tune their own products in ways that maximize the benefits to consumers.
On the other hand, traders face extraordinary temptations to manipulate their markets, because what they buy and sell is information, far removed from the products it represents and yet easily converted into real cash. The result, as charted in this detailed but nonanalytical history, has been an ongoing seesaw between self-regulation and government intervention. The maturing economy has tamed the "cowboy" proclivities of traders a bit; still, corrupt traders now have the potential to disrupt the broad economy in ways undreamed of in earlier decades. The entrepreneurial drama continues. (Harvard Business Review, December 2002)

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