Read an Excerpt From Michael Hiltzik’s Iron Empires

Chapter 16 : PEACOCK ALLEY

The 1800s drew to a close with an entire generation of stock manipulators and buccaneers having passed away. Fisk, Drew, and Vanderbilt had died within a few years of one another in the 1870s—Fisk in 1872, Vanderbilt in 1877, and Drew in 1879. Jay Gould lasted a decade or two longer, dying in his bed of tuberculosis at the age of fifty-six in 1892.

The old guard had disappeared but their methods survived, taken up by a new generation of operators, some of whom were every bit as flamboyant as their predecessors. Figures like John “Bet-a-Million” Gates and the master stock trader James R. Keene, who worked his magic on behalf of such eminences as Pierpont Morgan, received the most voluminous press, but they were merely the center-ring acts in a big circus. After every trading day ended at 3 p.m., a select group repaired uptown to the Waldorf-Astoria to continue trading and to enjoy after market conviviality. “To belong to the ‘Waldorf crowd’ meant that a man had arrived,” recalled Bernard Baruch, an up-and-coming broker who had earned admission to the elite group by orchestrating the takeover of the tobacco company Liggett & Myers for the financier Thomas Fortune Ryan.

The vast Waldorf-Astoria extended west from Fifth Avenue between Thirty-Third and Thirty-Fourth streets (today the site of the Empire State Building). An Astor family dispute had prompted two cousins to open their own hotel at opposite corners of the same block, but eventually they combined the original Waldorf Hotel, completed in 1893, with the Astoria, opened in 1897. The corridor connecting the two edifices became known as Peacock Alley, a thousand-foot-long promenade along which New York’s elite and aspiring elite paraded in their most ostentatious finery. At the Waldorf end was New York’s most exclusive restaurant, the Palm Room, where patrons were required to dine in full formal attire—men in white tie and tails, women in evening gowns.

The hotel’s real attraction, however, was the opportunity to encounter celebrities face-to-face: famous writers, actresses, prizefighters, and those reigning stars of New York society, financiers. “On an afternoon or two at the Waldorf, one might brush elbows with Richard Harding Davis, Mark Twain, Lillian Russell, Gentleman Jim Corbett, Admiral Dewey, Mark Hanna, Chauncey Depew, Diamond Jim Brady, Edwin Hawley, and countless presidents of banks and railroads,” Baruch reported. “Judge Elbert Gary, the head of U.S. Steel, lived there, as did Charley Schwab and James Keene. It was at a private dinner party in the Waldorf that I saw John W. Gates place a $1,000,000 bet on a game of baccarat.” For those whose purpose extended beyond spending an hour or two in proximity to the great and near-great, there was always the prospect of putting over a business deal in the louche, smoky atmosphere of a Waldorf suite. It was as if all of Wall Street had become a moveable feast, more than two decades before Ernest Hemingway coined the phrase and applied it to the Paris of the 1920s.

The Waldorf-Astoria’s ornate Palm Room, in which patrons<br>were required to wear formal attire,<br>was located at one end of the hotel’s legendary<br>“Peacock Alley.”
The Waldorf-Astoria’s ornate Palm Room, in which patrons
were required to wear formal attire,
was located at one end of the hotel’s legendary
“Peacock Alley.”

The Palm Room of the Waldorf-Astoria was the epitome of Gilded Age elegance, in which patrons were required to wear formal attire; the hotel, assembled from two competing, adjoining hotels built by feuding members of the Astor family, served as the after-hours uptown refuge of Wall Street traders in the 1890s.
The most important characteristic of Wall Street at the end of the 1890s was that it was awash in money—euphorically so—for the country finally had shaken off the torpor that followed the Panic of 1893. The reserves of capital built up during the lean years were clamoring to be deployed. In 1896 came the presidential election in which the Republican William McKinley defeated William Jennings Bryan in part by promising to uphold the gold standard, signaling his determination to keep inflation in check. That was positive news for bankers and investors, whose holdings could only be drained of value by a general rise in prices, but bad news for farmers, who counted on inflation to buoy their income. McKinley had placed his thumb decisively on the scale for industry over agriculture, the city over the country.

Ever creative, Wall Street bankers figured out exactly the right mechanism to put their torrent of capital to work: the industrial amalgamation, or the “trust.” Notwithstanding the lessons provided by the collapse of the cordage trust in 1893, the years 1898 and 1899 saw new cartels founded in paper, copper, glue, elevators, and steel. Typically these assemblages involved issuing new securities well exceeding their industries’ underlying values, but like a sick patient suddenly returned to health, America’s economic prospects emitted a golden glow.

Some of these combinations and recombinations occurred at such a dizzying pace that their own promoters could not keep track of the money. That was the case with the series of mergers in the steel-wire industry masterminded by Gates, starting with the consolidation in 1897 of seven Illinois factories into one corporation, the Consolidated Steel and Wire Company. A year later, Consolidated was acquired and combined with seven more mills by Gates’s American Steel and Wire Company of Illinois, which issued $24 million in new stock. A year after that, Gates formed the American Steel and Wire Company of New Jersey, paid $33.6 million for the Illinois company’s stock, bought eleven more plants, and issued $90 million in shares to cover it all. Somewhere along the line, $26 million in stock went missing.

“What became of it?” Gates was asked on the stand by a lawyer for a shareholder who had sued for an accounting.
“I don’t know,” Gates said.
“Have you got any of it?”
“No, I never got a cent’s worth of it,” Gates insisted.
Despite this evidence that Steel and Wire stock was so thoroughly watered that nearly a third of it could disappear without detection, the public did not seem to care. Over the first two months following the stock’s issuance, its price more than doubled.

The clamor for stock and more stock fed and was fed by the bankers’ inventiveness. Financial journalist Alexander Dana Noyes detected the signs of a speculative mania on every sidewalk and street corner. Especially worrisome was the popular conviction that the stock market was destined for a permanent rise. This was a period, Noyes wrote, in which punters and promoters comforted themselves with “the assumption that we were living in a New Era; that old rules and principles and precedent of finance were obsolete; that things could safely be done to-day which had been dangerous or impossible in the past.” Such euphoria, the conviction that “this time it’s different,” is a familiar signpost of every major crash, right into the twenty-first century.

As the nation’s leading industry, the railroads were also susceptible to the frenzy for combination—though as the financial commentator James Grant has observed, its mergers “were typically the result of distress, not prosperity.” This is correct; Pierpont Morgan was working the magic of Morganization in part to wring from the railroads decades of stock watering, which had driven nearly two hundred rail lines into bankruptcy by 1894.

Some hardened veterans of Wall Street grew wary of the market’s unleashed animal spirits early in the boom. Among them was Jacob Schiff, who in September 1897 exchanged letters with a fellow banker, Robert Fleming, about the sudden upsurge in American economic fortunes after the McKinley election. “The revival which you and I have been looking for has come with a vengeance, and already at this early stage speculation is threatening to run away with good judgment,” Schiff wrote uneasily. “The time appears not to be distant when almost any printed certificate, no matter what it represents, will command a market, and for this reason I believe it is already necessary to exercise considerable caution.” Schiff was more right than he knew.

This was a time when the word of a single individual or a cunning campaign of buying and selling could drive a stock higher or lower. Wall Street broker Roswell Pettibone Flower, for example: A former New York governor described as “the bull market incarnate,” Flower turned around a strong bear movement in 1898 by declaring publicly that he was “a believer in American stocks and a buyer of American stocks.” Investors hung on his every word, buying on his say-so just as later generations would follow the investment choices of Warren Buffett. In 1899 Flower had driven up shares of the Brooklyn Rapid Transit Company by repeatedly declaring that the trolley line was bound to rise—placing the target price at $75 when it was trading at $20, at $125 when it had reached $50, and eventually at $135. At that moment, however, Flower was struck down by a heart attack while fishing. The air instantly rushed out of BRT and other “Flower stocks,” threatening to take down the entire market, until Morgan and other leading bankers stepped in with millions in capital to stem the downturn.

One manifestation of popular mania that brokers remarked on was the increasing presence of women among the investing class. Traditional club rooms and trading offices—not to mention the trading floor itself—were closed to women, but there was no dearth of entrepreneurs willing to give them access to the ticker in their own specialized rooms and to take their orders at the standard commission of twelve and a half cents per share. Condescension dripped from newspaper accounts of female trading habits. According to the New York Sun, women made money in the roaring bull market because they were always long (that is, they were exclusively buyers): “All she has to do is buy and the average woman who speculates in stocks can do that with as much éclat as she displays in dancing a cotillion or buying a spring bonnet.” Many male bankers and traders were unsure what to make of the new customers. Investment banker Henry Clews regarded them with distaste and pity. “As speculators,” he wrote, “women hitherto have been utter failures. They do not thrive in the atmosphere of Wall Street, for they do not seem to have the mental qualities required to take in the varied points of the situation upon which success in speculation depends. They are, by nature, parasites as speculators, and, when thrown upon their own resources, are comparatively helpless . . . They have no ballast apart from men, and are liable to perish when adversity arises.”

Clews’s contemporary William Worthington Fowler had the exact opposite impression. “The female character is, in many respects, suited to a life of speculation,” he wrote.

“Speculation requires patience and fortitude, which are, or should be, both womanly virtues. Speculation derives its food from excitement, and women often feed on excitement.” Fowler’s conclusion was that women “are not only frequent, but daring speculators. They encounter risks that would appall the stoutest Wall Street veteran, and rush boldly into places where even a Vanderbilt would fear to tread.”

The American public eyed the ostentation and excess of the late Gilded Age with a combination of disgust, fascination, and envy. Nothing brought those sentiments together in a bubbling emotional cauldron like the Bradley Martin Ball, almost literally a fin de siècle gala, held at the Waldorf on February 10, 1897, a snowy Wednesday evening in Manhattan.

The Bradley Martin Ball was, the newspapers said, a “once in a generation” affair, “an entertainment so stupendous in scope and sumptuous in detail that it makes an epoch in the history of society.” Somewhere between six hundred and nine hundred guests attended, in costumes based on the garb of the European aristocracy dating back to the seventeenth century. Paintings by the old masters had been consulted to ensure that certain ladies were attired accurately, including one as “The Honorable Mrs. Thomas Graham,” after a by portrait by Gainsborough in 1777, and a debutante as the Infanta Margarita, princess of Spain, after a Velázquez work produced in 1659.

For fifteen years, Mr. and Mrs. Bradley Martin had been shouldering their way to the forefront of New York society via events such as this. Their wealth had come not from their own industriousness but in a bequest from Mrs. Martin’s father, a merchant who had been thought to be modestly well-off but left his only child a fortune estimated at a robust $6 million. Mrs. Martin put the money to work by staging a series of increasingly notable society affairs. This would be the couple’s most fabulous—and also their last. And it marked the very peak of Gilded Age society.

The timing of the Bradley Martin Ball was inauspicious, for the ostentation of the Gilded Age had already come into disrepute. The Panic of 1893 had ruined thousands of businesses and put tens of thousands of workers out on the street. Labor unrest was spreading, much of it aimed at that largest American industry, the railroads, and their barons, the Jay Goulds and George Pullmans of the world. The Bradley Martins may not have been tied up in the railroads, themselves—but before long, they would find themselves tarred with the same brush.

Mrs. Bradley Martin was not insensitive to the optics of staging the most lavish society ball in American history while in the real economy craftsmen and tradespeople were starving. She put it out that her true purpose was to provide an “an impetus to trade.” For that reason, she explained, the invitations had gone out on short three weeks’ notice—so the guests would not have time to order their costumes and finery from Paris and London but would be forced to patronize local couturiers and bijouteries instead. That seemed reasonable enough to some commentators. Dr. George Gunton, the president of the School of Social Economics on Union Square, sermonized against “the present state of the public mind, which is in a fever akin to an epidemic against wealth . . . It is much better for the laboring people if the wealthy spend their money here instead of taking it to Europe.” The Bradley Martins’ spending “is bound to percolate down . . . to the humblest laborer,” he concluded, voicing an early version of the “trickle down” economic theory. “I don’t want the man who is above me to get down to my level of living,” Gunton declared. “I want to be helped up to his level.”

This rosy view was not universally shared, however. Dr. William S. Rainsford, the rector of St. George’s Episcopal Church, declared days before the ball that “lavish entertainments at this time by the rich are politically, socially, and ethically unwise.” This was perilous ground for the rector of J. Pierpont Morgan’s own church, and under pressure from his colleagues in the high-society pastorate, Rainsford backed down, assuring his flock that he had not been referring to any “entertainments” in particular. But his moment of candor triggered a debate in the press and pulpits across the city about what the social harvest might be from the accumulation of wealth in so few hands. “With all the people who have to lie awake nights contriving to spend their time and their money, and all the others who lie awake wondering how they may get food, there is danger in the air,” remarked the Reverend Madison C. Peters. “All history teaches us that the concentration of wealth is the forerunner of social upheaval.”

Such sermonizing failed to cause the Bradley Martins to cancel the ball or moderate its flamboyance. Sixty cases of French champagne were delivered to the Waldorf, and six thousand mauve orchids. The New York Times sniffed at the ostentation and scoffed at the turnout, which it judged to be disappointing. (“Twelve hundred invitations had been issued for the event, but little more than half the number of those invited were in attendance,” the newspaper reported the following morning. “Of those that came, also, quite a number left early.”) The Times might have reminded its readers that on almost every day the previous week it had published at least one article about the ball, and often two or more. On February 7, for example, the newspaper had devoted a full page to listing the most celebrated guests expected—Astors, Beekmans, Delafields, Harrimans, Rhinelanders, Van Cortlandts, Winthrops—along with detailed descriptions of their period costumes. This was accompanied in print by a Bradley Martin family biography and accounts of the couple’s previous balls and cotillions.

Over the following week, the Times continued to mine the event for gossipy articles, including an account of the security precautions, which involved the stationing of two hundred policemen outside the hotel under the personal supervision of New York’s police commissioner, Theodore Roosevelt. After the ball, mortified by the obloquy showered upon them for hosting an event that was not much different from any other during that season except in its scale, the Bradley Martins fled New York for their estates in Britain; they would never return to the United States.

Discontent over the conspicuous spending of the nation’s new industrial plutocrats had been building for years. For the time being, however, the “irrational exuberance” of that era persisted. It would continue for another four years after the 1897 ball. But Jacob Schiff never fully shed his disquiet, writing in March 1901 to Ernest Cassel, another European acquaintance: “To the cautious observer . . . it is almost terrifying to contemplate the way in which the market has risen, by leaps and bounds. The reaction must come; it is only a question of time.”

During the first four months of 1901, the mania for stocks continued unabated. “Buying orders seemed to come from everywhere,” Noyes reported. “Everyday conversation in clubs, business offices, social gatherings, trains, and ferryboats was largely made up of the ‘good things’ in the market, of successful ‘turns in the market’ which this or that individual had made, of ‘tips’ which acquaintances on the inside had privately communicated. The newspapers told of bootblacks, barbers, and hotel waiters who had got rich by following such pointers from an accommodating Wall Street patron.”

It was the euphoria before the crash. Pierpont Morgan and Ned Harriman were about to knock this market for a loop. Years later, Bernard Baruch would recall the night “panic struck the Waldorf . . . and transformed it from the preening ground of all that was fashionable to a lair of frightened animals.”
On April 30—a few days before Baruch witnessed his first market panic—volume on the New York Stock Exchange reached a once-unimaginable 3,303,017 shares. That would be the high-water mark of an age. The market would not touch that record again for twenty-seven years.