Anthony J. Pennings, PhD

WRITINGS ON DIGITAL STRATEGIES, ICT ECONOMICS, AND GLOBAL COMMUNICATIONS

Black Friday and Thomas Edison’s Stock Ticker

Posted on | April 22, 2016 | No Comments

This post continues the story about gold and the greenback dollar and how their trading dynamics led to the invention of some early electro-mechanical technology to indicate financial prices. During the height of speculative activity in 1869, a young telegrapher named Thomas Edison came to Wall Street and made a fortune. He didn’t make it on Wall Street, but rather he made it by helping to make “Wall Street,” the global financial phenomenon.

The early life of Thomas Alva Edison provides a useful index of the times. It can be argued that Edison would probably not have rose to prominence without the financial turmoil of the late 1860s. Edison happened to be in New York during the famous gold speculation of 1869 that resulted in the “Black Friday” crash. It was precipitated by the actions President Grant took to squash the attempts by two major speculators to corner the market for gold. Edison’s technical expertise as a skilled telegrapher and amateur electrical engineer proved timely during a financial crash, and he was given a job that would alter the course of his life.[1]

Edison was born on February 11th, 1847 in Milan, Ohio, one of the busiest ports in the world due to the wheat trade. This commerce also made it an important railroad center, and Edison soon obtained a job hawking candies and other foods on the Grand Trunk Railroad. When he by chance saved a young boy from a near-certain train death, the boy’s father taught him to be a telegraph operator. At the age of 15, he got his first telegraph job, primarily decoding the news. He even printed and sold his own newspaper for awhile.

Edison traveled to various cities working as a telegraph operator, making his way eventually to Boston, considered the hub of cultural and technological interchange at the time. Although working for Western Union, Edison “moonlighted” extensively and even attended lectures at Boston Tech, now known as MIT. He invented and patented a “vote-counter” for the Massachusetts legislature, but it interfered with the negotiating tactics of the minority and was never purchased. In 1869, after 17 months in Boston, Edison quit his job at Western Union, borrowed money from a friend, and took a steamship to New York City.[2]

At the time, New York City was buzzing with financial speculation, as the gold-greenback relationship was quite volatile. The Funding Act of 1866 had required pulling the paper money out of the US economy, but a recession in 1867 had dampened congressional enthusiasm for the move. The North still had a huge debt and wanted to pay off its war bonds in greenbacks that were not specified in gold. The former Union general and new president, Ulysses S. Grant, made his first act as national executive the promise to pay off U.S. bonds in “gold or its equivalent” and later redeem the greenbacks in gold. The precious metal’s value soon dropped to $130 an ounce, a low not seen since the beginning of the war.

Jay Gould, and later James Fisk, perhaps representing the worst of the “Robber Baron” era, were heavily involved in gold speculation leading up to the events of the infamous 1869 “Black Friday.” Jay Gould was a country-store clerk who took his savings of $5,000 and became a financial speculator, eventually defeating Cornelius Vanderbilt and taking control of the Erie Railroad, New York City’s railroads, and for a time, the telegraph giant Western Union. James Fisk worked for a circus in his youth, but made a fortune selling cotton from the South to Northern firms. He also sold Confederate war bonds to British during the Civil War. He teamed up with Gould and Daniel Drew to take control of the Erie Railroad, and then afterward manipulated the stock to the downfall of the gigantic railroad (and Cornelius Vanderbilt), but enriching his own bank account by millions. During the summer of 1869 Gould and Fisk set up their scam to corner the gold market.[3]

Edison was in quite a desperate situation when he searched for work in New York’s financial district. He applied almost immediately at the Western Union office but was forced to wait several days for a reply. While literally begging for food and sleeping in basements, he was also carefully surveying the new uses of the telegraph on Wall Street. It was the time of much speculation as the word was spreading that Jay Gould and James Fisk were attempting to rig the gold market. They were buying up gold and thereby reducing the supply available. Edison had acquaintances at the Gold and Stock Telegraph Company who let him sleep on a cot in the basement and watch the increasing financial trading and resultant expanding bubble.

He was hanging out at the office when a panic struck due to equipment failure. Hundreds of “pad shovers” converged on the office complaining that their broker office’s gold ticker had stopped working. Within a few minutes, over three hundred boys crowded the office. The man in charge panicked and lost his concentration, especially after Dr. S.S. Laws appeared. Laws was President of the Gold Exchange and had also invented the device that displayed the price of gold. Edison made his way to the situation and announced that he could solve the problem, having studied the machine over the previous few days. Edison later claimed that Laws shouted, “Fix it, Fix it, be quick!” [4]

Edison soon discovered that one of the contact springs had fallen and lodged itself within two gears. He removed the spring, “set the contact wheels to zero” and sent out the company’s repairmen to reset each subscriber’s ticker. Within a few hours, the system was running normally again. As a reward, Dr. Laws offered him a job managing the entire plant for $300 a month, about twice the salary of a good electrical mechanic at the time. Edison took the job and continued to tinker with several technologies, particularly the stock ticker and a “quadruplex transmitter” for telegraphy that could send two messages each way at the same time.

While Edison was in New York, gold speculation increased. A crucial detail was whether the government was going release their gold holdings and drive the price down. The Federal government was a big holder of gold relative to the total market, and it was crucial to the speculating duo’s plan that the government not sell off a significant amount of their reserves. General U.S. Grant, the North’s Civil War hero, had run for the Republican nomination and the Presidency on a hard money stance. After his election in March of 1869, he continued to indicate he was not likely to sell off the nation’s gold. The President Grant’s brother-in-law, Abel Rathbone Corbin, arranged a meeting for Gould and Fisk with the President during one of his visits to New York. (Corbin may have been involved earlier in the scheme. Grant expert Joe Rose believes he may even have approached Gould very early) They tried to convince Grant that higher gold prices would benefit the country. Although Grant refused to indicate his plans, the scheming duo told the press that the President was not planning on selling any gold. In early September, they began to increase their sales substantially.

The infamous Black Friday came on September 24, 1869. Edison was operating a Laws Gold Indicator in a booth overlooking the Gold Exchange floor as prices fluctuated and the volume of trades grew heavy. The price of gold hovered between US$160 and $162 during the early hours of the day. Fisk was working the floor, claiming to reach $200 by the day’s end. At noon, Grant allowed his Secretary of the Treasury, George Sewell Boutwell to sell $4 million in federal gold reserves to undermine the scheme of Gould and Fisk. When the news hit the Gold Room, the price fell within minutes to $133. They desperately tried to keep the indicator’s wheels moving, as it acted much like a modern automobile’s odometer. They even added a weight to it, but the technology could not keep up as panic hit the streets, and many people were wiped out financially.

Edison of course, benefitted from the whole affair. Besides his $300 a month job he was also encouraged and supported in making improvements to a stock ticker and related telegraph transmission equipment. He rose from near starvation to being able to send money home to his parents and begin to build his invention empire. Edison would often recount the time as the most euphoric in his life because he “had been suddenly delivered from abject poverty to prosperity.”

Notes

[1] Edison’s timely circumstances on Wall Street from Edison: His Life and Inventions by Frank Lewis Dyer and Thomas Commerford Martin.
[2] According to an article published in 1901 in the Electrical World and Engineer, by Edward A. Calahan, Edison’s cotton ticker was only a partial success. It was often replaced by one invented by G.M. Phelps with superior workmanship, speed, and accuracy. It’s sales suffered from it being more expensive and delicate, which may account for its limited use. The article was written by the original inventor of the stock ticker and may not have been unbiased.
[3] A good account of Black Friday events appears on the New York Times website section “On This Day”. See http://www.nytimes.com/learning/general/onthisday/harp/1016.htm. Accessed on 2/27/15.
[4] For some background and an overview of related technology, see Introduction to Financial Technology by Roy S. Freedman
[5] The stocktickercompany website is a useful source for the history of the stock indicators and ticker-tape machines.
[6] Information on Gould, Eckert and Edison from Conot’s Thomas A. Edison: A Streak of Luck. pp. 65-69.
[7] It has been difficult to trace the exact timing of Edison’s activities at the time. Ultimately, I decided to follow the patents.
[8] http://heartbeatofwallstreet.com/PDF-Documentation/TheIllustratedHistoryofStockTickers.pdf

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AnthonybwAnthony J. Pennings, PhD is Professor and Associate Chair of the Department of Technology and Society, State University of New York, Korea. Before joining SUNY, he taught at Hannam University in South Korea and from 2002-2012 was on the faculty of New York University. Previously, he taught at St. Edwards University in Austin, Texas, Marist College in New York, and Victoria University in New Zealand. He has also spent time as a Fellow at the East-West Center in Honolulu, Hawaii.

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    Professor and Associate Chair at State University of New York (SUNY) Korea. Recently taught at Hannam University in Daejeon, South Korea. Moved to Austin, Texas in August 2012 to join the Digital Media Management program at St. Edwards University. Spent the previous decade on the faculty at New York University teaching and researching information systems, media economics, and strategic communications.

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