Wall Street from the Gilded Age to the Internet Age

The Great Game: The Emergence of Wall Street as a World Power 1653-2000 by John Steele Gordon

In the 80s, Wall Street was the villain, tempting lads from the heartland into a whirlwind of cocaine, supermodels, and securities fraud and leaving bankrupt savings and loans in its wake. In the 90s, Wall Street was the hero, a grandfatherly type who “measures success one investor at a time;” the guardian of the old and the infirm, not the looter of their pension funds. Which is the real Wall Street?

Both, argues historian John Steele Gordon in The Great Game: The Emergence of Wall Street as a World Power 1653-2000. Growing over the years from an exclusive cartel of brokers and financiers into a true mass market for small investors, Wall Street transformed itself in the popular mind from a sinister elite of fat cats and swindlers to the very embodiment of economic democracy.

Gordon’s account focuses primarily on Wall Street’s lurid side, its insatiable addiction to criminal conspiracies and violent mood swings between euphoria and panic that make it a case study in forensic psychiatry. His book is replete with tales of Wall Street’s Wild East in the 19th century, with Gilded Age stock-market scams filling up several raucous chapters. One clique of robber barons would corner the market in a stock. Another would retaliate by running off new share certificates on a cellar printing press. Soon the battle would move from the Street to the statehouse, to be fought between rival armies of bribed judges and legislators. Business is calmer today, but Wall Street still suffers from recurring bouts of cooked books, Ponzi schemes, boiler rooms and insider trading that regulators have tamed but not abolished.

In its spare time, Gordon says, Wall Street also financed the building of a continent, despite the best efforts of “leftists” (a conflated mishmash of Jeffersonian reactionaries, Roosevelt liberals and plain old socialists) to shackle its invisible hand. Yet much of the history Gordon recounts tells a different story. What saves Wall Street (and the rest of us) from its own excesses are institutions —  the Federal Reserve, the SEC, and the FDIC — all part of a safety net erected by the bureaucratic leftists Gordon can’t stand. The old Wall Street roller-coaster of bubble, crash, and depression — five such cataclysms in the century ending with the Great Depression — has given way to post-Keynesian cruise control, with government fiscal and monetary controls keeping the economy on an even keel.

Gordon, the author of 1997’s Hamilton’s Blessing: The Extraordinary Life and Times of Our National Debtfrets about the emergence of Wall Street as a global “Great Power” before which mere nations tremble. But in fact Wall Street is something of a success story in the ongoing “leftist” project of bringing capitalism under the heel of the state. After all, when world markets crash (or when, say, a dot-com bubble bursts), it’s the Fed that cleans up the mess.

“Gordon’s account focuses primarily on Wall Street’s lurid side, its insatiable addiction to criminal conspiracies and violent mood swings between euphoria and panic that make it a case study in forensic psychiatry.”

A case can be made for Wall Street’s usefulness, and Gordon makes it, especially during its heroic age in the 1890s when J. P. Morgan and a few other Wall Street titans forged the modern corporate economy out of the chaos of cutthroat competition. But as Wall Street has grown more democratized and well-behaved, its economic role has dwindled. As Doug Henwood points out in his book Wall Street, most investment capital comes not from financial markets, but from companies’ internal profits; these days Wall Street plays a marginal role in building the economy.

When you hear the bull market touted as a New Economy, remember that it’s built not on the savvy of investors but on the profitability of labor. Just like the old economy.

The Great Game: The Emergence of Wall Street as a World Power 1653-2000 by John Steele Gordon (Scribner; ISBN: 0684832879)

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