USA > California > San Francisco County > San Francisco > San Francisco, a history of the Pacific coast metropolis, Volume II > Part 5
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In 1873, on September 18th, the most extraordinary panic ever witnessed in the United States began. The first three-quarters of the year had been prosperous, but on the date mentioned Jay Cooke & Co., failed, and a financial storm followed which almost destroyed the banking system of the country. The panic endured an entire month, and did not spend itself until it had swept away the savings of the toiler, and the capital of those engaged in industrial pursuits. The depression that followed lasted until 1877, when more troubles were added by the extensive rail- road strikes of that year, and there were no signs of recovery until 1878. During the most exciting period of this financial storm San Francisco serenely pursued her way, scarcely affected by the disasters of the East. There is no evidence that the failure of the Bank of California and the subsequent depression in the City after that event were in any wise connected with the misfortunes of the people on the other side of the Rocky Mountains. They were purely local in their origin and were easily traced. No investigator of the subject has hesitated to assign the cause, but in framing the indictments against those responsible for the disaster the specifications have often been drawn up in such a fashion that the real culprits have escaped criticism.
The Bank of California closed its doors on the 26th of August, 1875. Almost up to the moment of failure the institution had been regarded as a Gibraltar of finance. It is said that there were persons who were aware of the condition of the bank on the morning of the 26th. That there were rumors of disaster is certain, but they did not shake the general confidence. A broker named Jones who had a deposit of $75,000, and Glazier & Co. with $400,000 to their credit despised the rumors, but Ed. F. Hall & Co., a large firm less confident, during the day with- drew $250,000. A broker, Maurice Schmitt, who had presented checks amounting to $14,000 and was told to wait awhile when he communicated the fact to his banker was advised not to speak of the matter as the Bank of California was as sound as any in the City. But distrust spreads with lightning rapidity. At two o'clock there was a small crowd at the teller's window, but not a number sufficient to attract attention ; at 2:15 P. M. it had swollen to proportions indicating a run ; at 2:30 the string extended to the curb of the sidewalk on California street; at 2:40 P. M., Ralston was seen walking from his office to the teller's desk, whom he directed to cease paying out any more money, and the porter was directed to close the iron doors. San Francisco's greatest financial institution had failed.
Career of Ralston
William C. Ralston, the manager of the Bank of California, was a remark- able man, and one of extraordinary ability. Before the failure there was no one in San Francisco whose popularity even remotely approached his, and it was
A Short Lived Boom
The Eastern Panle of 1873
Failure of Bank of California
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based on actions which always claim the esteem of a community. His enterprise was boundless and, apart from his operations in the speculative whirl, was always directed towards the promotion of industry. He was enthusiastically of the opinion that San Francisco could be made a great manufacturing center, and to help achieve that end he promoted and took a direct interest in the creation of several im- portant establishments. Among the manufacturing enterprises in which he was directly concerned were the Mission Woolen Mills, the Kimball Carriage Factory, the West Coast Furniture Company, the San Francisco Sugar Refinery and many others. His activities were by no means confined to manufacturing or to San Francisco. He was foremost among the contributors to the construction of the fine dry dock at Hunter's Point, and actively promoted the work of reclamation on Sherman island. He divined the future of irrigation, and took a substantial interest in the building of the San Joaquin irrigating canal. The desire to see San Francisco a great city was a mania with him, and at a time when the dry rot of the inaction produced by the too stringently economical Consolidation Act had hold of the City, he sought by individual initiative to bring about civic improve- ments which the people in their collective capacity shrunk from making. To this latter tendency he owed much of the harsh criticism which followed his death.
There was nothing that would contribute to the advancement of the City neg- lected by him. The Grand hotel, the pride of San Francisco in the opening years of the Seventies was largely built with capital provided by him, and it was he who projected and partly completed the Palace hotel, which for several years after its opening enjoyed the distinction of being spoken of as the largest and best appointed hotel in the world. In like fashion, and with the same object in view, that of making the City attractive, he was instrumental in causing the California theater, which surpassed any previous constructions of the kind in the City, to be constructed. The opening of New Montgomery street was due to his energy, and the far reaching scheme of securing a vast watershed which would develop a sufficient quantity of water to supply the needs of a great city is attributed to him by men who derided his acumen and persuaded the people to adopt a course which has ever since proved a shirt of Nessus to the community.
Ralston was born in Ohio in 1825, and began his career as a clerk on a Missis- sippi river steamboat. He started for California in 1850, but his journey was interrupted at Panama where he obtained a position as agent for Garrison & Morgan, from which he was promoted to the agency in San Francisco in 1853. While thus engaged the firm started a banking house and took him into partner- ship. He displayed remarkable business talent, and his tact and ability enabled the concern formed when Garrison & Morgan retired to weather the numerous financial storms of the early days. In 1858 he was in partnership with Donahoe, but the operations of the firm were too circumscribed to satisfy his ambition, and in 1864 he joined with Darius O. Mills and several other capitalists in founding the Bank of California, whose cashier he became, D. O. Mills being its first presi- dent, retiring in 1872 when the presidency was given to Ralston.
After the failure of the Bank of California in 1875, the management of Ralston was reflected upon by critics who sought to put on his shoulders the entire onus of the disaster. It was charged that the aid extended to many of the local enter- prises, the most of which proved unremunerative, were made without the knowl- edge of the other directors of the bank, but the history of the institution dis-
Projector of the Palace Hotel
Ralston's Rise from the Ranks
Canse of the Failure
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credits the criticism, and indeed shows that unprofitable as these enterprises were, the losses which they occasioned to Ralston and the bank could have been borne had there not occurred a tremendous shrinkage of stocks owned by, or upon which large sums had been loaned by the institution, undoubtedly with the full knowledge of the directory.
Career of William Sharon
The most prominent name connected with that of Ralston was that of William Sharon. He was a San Francisco broker whose abilities had attracted the atten- tion of capitalists connected with the Bank of California, and was sent by them to Nevada where he conducted a banking business which was chiefly confined to advancing money on stocks. Incidentally he acted as confidential agent of "the bank crowd." In addition to the pursuit of banking of a sort which it would be difficult to induce the present generation to regard as legitimate, Sharon engaged in promoting the construction of ore crushing mills which he was finally enabled to control by foreclosure or through other methods. Sharon and Ralston had early established close relations, and their connection undoubtedly furnished the oppor- tunities which the former availed himself of to make himself enormously rich. Sharon was commonly supposed to have the support of the Bank of California, and he soon became the most important man in Nevada. A corporation was formed known as the United Mill and Mining Company of which Sharon became president and manager, and it took over nearly all of the mills on the Comstock lode and secured a practical monopoly of the ore crushing, by which means the profits of mining were almost entirely absorbed. The monopoly thus acquired was strength- ened by obtaining possession of the principal water supply, and of the railroad which hauled the necessary timbers used in the mines.
During the period of prosperity Ralston essayed the role of Lorenzo the Mag- nificent. He caused to be built in the Cañada del Raimundo in San Mateo county a spacious and beautiful country residence which he called Belmont, and in which he entertained on a lavish scale. While the sun of prosperity shone on the banker there was nothing but praise and admiration of his hospitality, the magnificence of which was extolled as reflecting credit on San Francisco and California. But when the clouds of adversity closed about him and he was no longer here to defend himself, the practices which had made the bosoms of San Franciscans swell with pride were denounced as extravagances, and venomous critics intimated that the display was all a part of a scheme to bamboozle and confuse the people by its glitter.
When the doors of the Bank of California closed on the 26th of August, 1875, there were few who thought that they would be reopened and the institution rehabilitated, and when Ralston's career culminated the next day by drowning this conviction became general. On the day following the closing Ralston was deposed from his position of president and manager. Immediately after the meet- ing at which this action was taken he proceeded to Black Point where he was ac- customed to taking swimming baths. He swam out some distance and was seen struggling in the water. A boat put off to his assistance, but when taken aboard, although vigorous efforts were made it was impossible to resuscitate him. Many of the circumstances pointed to suicide but a large part of the community refused to believe that he had taken his own life because they felt assured, despite the shock given to confidence by the failure of the bank, that his abilities would be equal to the task of restoring the institution, and that he would have had the courage to
Death of Ralston
Ingratitude and Fickleness
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make the attempt when his associates called upon him to do so, as they would inevitably had he not been drowned.
The examination of the condition of the bank after the death of Ralston dis- closed that its capital had been greatly impaired. Enemies of Ralston charged that he had misappropriated four or five millions of its funds. This may have been true, but not in the sense implied, for it is obvious that his associates must have been familiar with most of his undertakings, and that they approved of them. That there was laxity of management was admitted by friendly critics, but it was claimed by them that there was no turpitude. The fact is Ralston was the victim of a faulty system of banking and an unbounded ambition. There were no restraints on the methods of bankers, and no examinations. Practices which would now be denounced as grossly irregular, and result in the closing down of an insti- tution, were then freely engaged in by the most irreproachable bankers without inviting adverse comment.
The inevitable consequence of this looseness was the creation of a sense of power which made managers lose sight of their trust and caused them to regard the institutions with which they were connected as instruments for the attainment of their own ends. No one can escape this conclusion who will study the actions of those responsible for the conduct of the Bank of California on the day of its failure. They were engaged in a life and death struggle with men who were disputing their supremacy in the financial world and the result proved disastrous to them. Flood and O'Brien had become the great leaders in the stock market, and were ambitious to enter the field of finance. Sharon and his associates were determined to destroy them if possible. On the day of the failure of the Bank of California at the 11 o'clock session Sharon sent in a selling order which by comparison dwarfed any ever before given on the board. It was of such magni- tude and was executed with such swiftness that the broker scarcely looked at his book as a stock was called. He simply sold as long as there was a bid offered without making a record of his transactions. As the order developed itself buyers became shy and wary, and when the battle was over Flood and O'Brien were still masters of their position. The stocks of the mines they controlled had been badly hammered, but they had won out. California which had been sold at $59.50 @ $56 on August 25th, on the 26th was quoted at $56.50 and after the board sales on the street were made at $48; Con. Virginia was $290 @ $263 on the 25th, on the 26th $267.50 @ $250, and after the board $240; Ophir during the combat went from $54 to $55 @ $43 and the street bid was $36.
The only reasonable inference that can be drawn from the events of the day of the failure is that what was known as the bank crowd acted in unison, and that the harmony existing between them would not have been disturbed if the combat had turned out differently. The victory of Flood and O'Brien, so far as it concerned their banking aspirations was a barren one. That they hoped to utterly crush the Bank of California crowd and build a new bank on the ruins of that institution was generally believed, but the laws of California, lax as they were on the score of regulation, were efficacious enough to prevent the consumma- tion of the scheme of vengeance. It was at first contemplated by those who had taken over the control of the Bank of California after Ralston's deposition to declare the institution insolvent, but the liability of stockholders law compelled another course, and rehabilitation was decided upon which was chiefly accom- Vol. II-3
Victim of a Bad Banking System
"Bank Crowd" and Flood and O'Brien
Sharon Rehabilitates Bank of California
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plished through the efforts of William Sharon, who also undertook the comple- tion of the Palace hotel then in course of construction.
The Nevada Bank Started
Although the Bank of California was not destroyed, the ambition of Flood and O'Brien to figure in the financial world was realized. On the 4th of October, 1875, they opened a new bank, which they called the Nevada, and on the following day the rehabilitated Bank of California opened its doors. It is not without sig- nificance that the Stock Board, which had suspended operations when the Bank of California failed, opened and resumed business the same day that the Bank of California assumed its old time place which it succeeded in doing by paying dollar for dollar of its liabilities within six weeks of its reopening. The new Nevada bank took its place and became a factor in San Francisco finances, but it never realized the hope of its founders. It was a sound institution with abundance of capital, but it never became a real power, and when distrust of the mining stock game took possession of the community its influence waned and disappeared entirely.
Not Cured by Experience
The events which led to the destruction of confidence and its effects have been variously described, but the evidence is not convincing that the speculative ten- dencies of San Franciscans were wholly responsible for their troubles, or that they were cured by awful examples or repeated deceptions. They were occasion- ally staggered by disclosures, but they did not cease playing the role of dupe until the vitality of the community had become sapped to such an extent that a dry sea- son, by cutting down the productions of the state, had so lessened its consuming powers that business of all kinds was adversely affected. When the hour of ad- versity came the resources that should have been a mainstay were not developed, and the earnings of the people and nearly all the wealth extracted from the mines had passed into the hands of a few men whose vast fortunes mocked the condition of the reckless who had plunged themselves into poverty in their efforts to get rich quick.
The Desire to Get Rich Quickly
To get rich quick was the general desire, and the besetting sin of the commu- nity was its cheerful surrender of ordinary perception while thus obsessed. It was not alone the poor and the ignorant who yielded to the temptation, and substituted credulousness for common sense. Sometimes even the biters were bit. In 1872 when the mining stock speculation was at its height a pair of smooth rascals mapped out a scheme which was worked up in such detail, and so ingeniously, that the most suspicious of those who were permitted the privilege of victimizing them- selves fell into the trap as easily as if they were mere lambs. Philip Arnold and John Slack received the credit of originating the swindle, but it is more than prob- able that Asbury Harpending, whose name was made familiar to the reader in another connection, was the genius by whom it was evolved and elaborated.
The Great Diamond Mine Swindle
Arnold and Slack made their appearance in San Francisco in the year men- tioned in the guise of honest miners. They brought with them a bag of stones which they had run across in their prospecting rambles. They were not quite sure that they were what they appeared to be, but they suspected that they were dia- monds. Merely by chance they strayed into Harpending's office and left the bag in his care cautioning him against speaking about the find until they could satisfy themselves of its value. Harpending incautiously, of course, made reference to the deposit in his care, and incidentally expressed the belief that the suspicions of Arnold and Slack were well founded and that the stones were real diamonds. His methods were so adroit that a number of capitalists had their attention en-
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listed. Pending a thorough investigation of the stones which these sage men insisted must be pronounced genuine by experts, enough concerning the wonderful find leaked out to start several parties searching Arizona and Nevada for the new diamond fields.
Meanwhile, after some objections on the part of the owners of the stones, they were sent to New York where they were examined by Tiffany & Co., and pro- nounced genuine by that firm, and the lot valued at about $150,000. When this report was received the persons whom Harpending had continued to interest pro- posed to send an expert named Janin to the field. At first Arnold and Slack de- murred, but were finally persuaded that the expert would deal fairly. Janin was authorized in the event of his investigations proving satisfactory to obtain an op- tion from the owners.
When these arrangements were concluded Janin with one or two others pro- ceeded to the locality where Arnold and Slack had found the stones. The spot where the gems were discovered by them was pointed out, and the expert at once noted other places in the neighborhood resembling it which were searched and more diamonds were discovered. Janin's report and the exhibition of a fresh lot of gems settled the matter. A big company was to be formed which Harpending insisted should be organized in New York in order to give its operations a wider scope, but the San Francisco capitalists were too eager to retain control to permit anything of the sort, and succeeded in nearly monopolizing the affair, only a few New Yorkers being allowed to share in the "good thing."
Meantime the news of the diamond discovery had spread throughout the world. Naturally it attracted the attention of Clarence King, of the United States geolog- ical survey, who had been over the region in which the find was said to have been made without discovering any signs of a diamond formation. He at once revisited the locality, and in searching around he found some of the stones in crevices, where they had been carelessly dropped by the "salters," and under such circumstances that he instantly detected the imposition. About the same time some of the stones sent to London by Harpending were identified as African diamonds, and it was soon ascertained that a short time before the alleged discovery by Arnold and Slack a large purchase of gems in the rough had been made in that city, which were carried to America by the purchasers. King's report, and the revelation of the London diamond dealers, put an end to the scheme, which was arrested before it had reached the popular stage, and consequently the common people were not caught in the skillfully laid trap. The "honest miners" who had made the discov- ery managed to keep away from California, and the courts of this state were not called upon to deal with them. Later the aggrieved San Francisco capitalists brought suit against Arnold and Slack in the courts of New Jersey for the sum of $350,000, but nothing ever came of the proceedings. How much the swindlers gained by the transaction no one ever learned, for the victims insisted upon pre- serving a dignified reticence concerning the subject and bore their losses philo- sophically.
A perfectly sequential narrative might demand in this place the continuance of the story of the mining stock craze down to its culmination in 1879, when a big deal revived interest in speculation, which had been seriously interrupted by the collapse which followed the Bank of California. But it is desirable to, anticipate the account of the concluding act in the speculative tragedy by a resume of busi-
Putting Up the Job
A Duped Expert
Swindle Exposed by Clarence King
Speculation Impedes Industria] Development
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ness conditions in San Francisco after the almost total failure of crops in the seasonal year 1876-7, and to take a general survey of the development of the state's resources in order to make perfectly clear the causes which brought about the so-called sand lot uprising a year later, and to show its connection with the retardment of industrial development which was largely brought about by the City's absorption in speculative pursuits.
It is difficult to state with precision when the manufacturing industries of San Francisco promoted by Ralston ceased paying, if they ever did return dividends to those interested in them. On the surface they appeared to prosper. The em- ployes were paid regularly, and the number was considerable enough to be a fac- tor in the work of circulating some of the riches derived from the Nevada mines. If it is true that Ralston put into these industries a large part of the money de- rived from his operations in the mines, he merely diverted the stream which was flowing into the coffers of a few cunning manipulators into the pockets of work- ingmen and through them into the tills of the merchants and others who provide the necessaries, conveniences and amusements for urban residents. But, however the results were produced, when the assessor of San Francisco in 1876 made his report of the condition of the manufacturing industry of the City, he dwelt on some of its features with pride, and the presentation was one apparently warrant- ing the feeling, for on its face it indicated that experience was triumphantly dis- proving the pessimistic assumption that factories could not be profitably operated in a high wage country subject to competition with manufacturers who were pro- ducing in places where the level of remuneration was much lower.
It showed that San Francisco had seventeen concerns engaged in the metal industry, employing 1,705 men, who produced to the value of $4,700,000. This, so far as the number employed was concerned, was the leading factory occupation in 1876, but the output of the sugar refineries, which gave work to 280 men, was $5,155,000. The output of the furniture factories was $2,135,700, and 760 men were employed, and 930 were engaged in the specialized industry of making bed- steads, the value of the product being $1,197,200, while 20 found it profitable to devote themselves exclusively to the manufacture of bed springs, the output of which was $130,000 in 1876. There were glass works and glass cutting establish- ments. Jewelry was produced to the value of $1,240,000 and silver plate to the amount of $260,000, these two occupations giving employment to 525 persons. Seven hundred men were employed in woolen mills, which turned out 120,000 pairs of blankets, 15,000 dozens of underwear, 8,000 dozens of hosiery, 450,000 yards of cloth and tweeds and 500 yards of flannels valued at $1,800,000, over 2,500,000 pounds of California raw wool being consumed in their production. Tan- neries gave employment to 325 men, producing leather valued at $1,345,000. Har- ness factories worked 300 and produced $330,000 worth of their specialty. The domestic consumption of shirts was largely met by a product of $650,000, turned out by 640 workers, and 147 were engaged in making hats and caps, the annual output of which was $413,000. Slippers to the value of $310,000 were produced by 370, and a half a million dollars worth of cordage and rope helped to swell the list of products. The coffee and spice mills gave employment to 124 and the flouring mills to 128 workers. Over a half a million barrels of flour were produced and the product of the coffee and spice mills was worth $1,327,170. In addition to these we find enumerated among the manufacturing industries that of amalgamat-
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