Anthony J. Pennings, PhD

WRITINGS ON DIGITAL ECONOMICS, ENERGY STRATEGIES, AND GLOBAL COMMUNICATIONS

Gold, Greenbacks and Invention of Electric Indicators for Financial News

Posted on | January 26, 2015 | No Comments

The “Gold Rush” was a huge boon to the economy and in many ways, it made the US a world economic and technological power. The discovery of gold in 1849 allowed the money supply, and subsequently, the US economy, to grow significantly. Discovered first at Sutter Creek, California, the precious metal introduced a new flow of currency and capital into the US economy. The challenges brought on by the new wealth set in motion technological changes as well. The telegraph was bringing in a new age of electrical innovation, and one of its first offshoots was the gold indicator.

Currency liquidity increased during the 1850s with major Nevada silver claims in 1859 and the Pike’s Peak gold rush the next year in Colorado. These metals strengthened the economy and provided an important source of funds for America’s industrial revolution, which was occurring primarily in the Northern states. Although gold and silver significantly increased the money supply, they were inadequate to meet to challenges of the next decade.

As tensions increased between the industrial northern and agrarian southern states, the demand for currency increased. When the Civil War erupted in 1861, the governments of the North and South started to borrow gold from the banks, further reducing their metal reserves. Both governments needed to raise large amounts of money to pay for their war effort. Borrowing gold from banks weakened the banking and monetary system, which was based on private banks printing money that was redeemable for gold. Subsequently, the North, lead by US Congressman Elbridge Spaulding devised a plan for a new currency, the “greenback,” which was not based on gold. It was nicknamed so because it was said to not be based on anything except the green ink printed on it.

Greenbacks were the creation of the Legal Tender Note Act of 1862, legislated with support from President Lincoln. This fiat money was not backed by gold but only the government’s support and confidence in the system. This Act established a more stable and widespread currency so as to raise money for the Civil War. Green ink was chosen because it could not be duplicated with black and white photography. The Treasury used rags and cotton to make the paper and the currency’s value fluctuated, depending on who was winning the latest battles.

During the war, the currency price fluctuated according to location and to a large extent, who was winning the war. The greenback currency was valued at par in 1862 but by 1864 they were generally worth about 38 cents. Jefferson Davis, the Confederate leader, also printed money and the two currencies were in competition as well. California meanwhile rejected the greenback as well as the South’s money and chose to stay with gold coins. By the end of the war over $400 million in greenbacks had been printed.

After the war, a “Gold Room” was set up on Wall Street to reconcile the price relationship between greenbacks and gold.[1] At first, a simple blackboard was used to notate the prices, but soon mechanical and electro-mechanical devices were concocted to provide a better, more efficient method to track and display prices. Dr. S. S. Laws, the presiding officer of the Gold Exchange, invented an electro-mechanical ‘gold indicator” that displayed prices almost instantaneously. It was set up so one indicator faced inside the Gold Room and another could be viewed from the street where messengers and others could view the prices.

Many firms kept an office near the stock exchange and used young boys and teenagers called “pad shovers” who ran the latest quotes from the exchange floor back to their broker’s office. Consequently, office space nearest the stock exchange was at a premium as it reduced the time needed to move the price information back to the brokers. The gold indicator was the prototype of most of the printing telegraphs or stock “tickers” that distributed financial news over the next several decades, including one developed by Thomas Edison that would fund his inventive endeavors.

Soon, Dr. Laws resigned his position at the Gold Exchange to pursue the commercial opportunities associated with the use of technology for the financial industry. In 1866, Dr. Laws devised a “Gold Reporting Telegraph” that he quickly patented. It could transmit the gold prices to more distant points and by the end of the year had 50 subscribers.

    His indicators were small oblong boxes, in the front of which was a long slot, allowing the dials as they traveled past, inside, to show the numerals constituting the quotation; the dials or wheels being arranged in a row horizontally, overlapping each other, as in modern fare registers which are now seen on most trolley cars.[2]

It was not long before they soon signed up some 300 subscribers. The hundreds of boys who ran quotes from the Gold Exchange to their respective brokerage employers were slowly being put out of work. They were said to be a particular target of Laws, having once been thrown into a muddy street by a group of these boys struggling to place themselves for the latest gold quotes. But it also brought competition as others saw the financial industry as a market ripe for innovations in communications technology.[3]

The tensions between gold and the greenback dollar came to a head in autumn of 1869 when speculators rigged a scheme to corner the market.

A couple of years later, Thomas Edison would arrive in New York and it was the dynamic Wall Street environment and its desire for technology that would turn him from just a fast telegrapher to a famous inventor.

Notes

[1] At the end of the war, nearly $500 million in paper dollars were in circulation. The Funding Act of 1866 ordered the Treasury to retire them but Congress rescinded the order after complaints from farmers looking to pay off debts.
[2] This quote about the Laws gold telegraph is from Edison: His Life and Inventions (1929) was written by Frank Lewis Dyer and Thomas Commerford Martin and published in New York by Harper Brothers. It was accessed from http://www.jhalpin.com/metuchen/tae/ehlai8.htm.
[3] I was lucky enough to find an older biography about Thomas Edison that described in some detail the beginnings of the gold indicator and the stock ticker. Edison: His Life and Inventions (1929) was written by Frank Lewis Dyer and Thomas Commerford Martin and published in New York by Harper Brothers. It was accessed from http://www.jhalpin.com/metuchen/tae/ehlai8.htm.

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AnthonybwAnthony J. Pennings, PhD is the Professor of Global Media at Hannam University in South Korea. Previously, he taught at St. Edwards University in Austin, Texas and was on the faculty of New York University from 2002-2012. He also taught at Victoria University in Wellington, New Zealand and was a Fellow at the East-West Center in Honolulu, Hawaii during the 1990s.

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    Professor at State University of New York (SUNY) Korea since 2016. 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, digital economics, and strategic communications.

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