Wall Street and the Politics of Technology
I recently picked up a popular history of Wall Street by John Steele Gordon called, The Great Game (2000). It's well written and has some interesting facts and stories. What's most valuable about the book is without really so much a thought about it, the author tells the story of how technology played a leading role in the development and eventual dominance of Wall Street as a finance and power center.
The Industrial Era, its institutions, processes, and culture, was created by technology. The foundation of what we consider modern business is technology. The book provides an essential insight into how the modern and our contemporary world values technology, simply, technology development is business. Its value measured almost solely by its ability to make money.
This is in great contrast to how technology is valued politically. With politics, technology is mostly considered incidental, with one exception. Industrialism as a whole is defined as development. The universal question for every 20th century political regime, with the exception of the Khmer Rouge, was how to develop, that is, how to industrialize.
Outside this extreme generalization, technology's role in shaping politics was largely ignored and dismissed. A great example of this is a lecture in the early 1960's by British historian Arnold Toynbee where he states, “In the field of human affairs technology is a neutral force and can be a plague or blessing depending on how we apply it in our relationships to one another.”
At the exact moment Toynbee was giving this lecture, history of technology thinkers such as Marshall McLuhan and Lewis Mumford, innumerable anthropologists, and the great French historian Fernand Braudel were focusing on the very long history of technology's not neutral, but defining role in human affairs. Yet still today, a politics of technology remains almost non-existent. So, it was both astonishing and tremendously revealing reading Gordon's book on Wall Street's establishment and ascent how matter-of-factly he describes the role various technologies played.
At the country's founding, Philadelphia was the nation's financial center, headquartering the first two National Banks of the United States. Over the next half-century, New York, with technology's help, became the center of US and eventually global capital. With the proliferation of state-chartered corporations' stocks and bonds, initial trading began with gatherings on the street itself, gradually evolving into the New York Stock Exchange, and then in recent decades, today's electronic swapping.
There were three important technologies leading to New York's financial dominance. First was the building of Erie Canal. Gordon claims, by no means controversially, the canal was the “most consequential public work in American history.” Opening in 1825, the canal transported the crops of the vast farmlands and plains of the American heartland more quickly and cheaply – 1/20th of the cost than crossing the Appalachians – to the East Coast and the rest of the world. Gordon writes, “In 1800, 9 percent of foreign commerce passed though NY, in 1860 62 percent.” In addition to the physical goods, came all the associated financial paper. The Erie Canal created Wall Street.
Secondly, over the next couple decades, railroads began to be constructed across the continent, greatly expanding the ability and decreasing the price of moving goods and people across the country. “In 1835, there were a thousand miles of tracks, by 1860, thirty-thousand, and by 1890, 164,000 miles of tracks crisscrossed the country.” Railroads provided the transportation infrastructure for industrialism in America, simultaneously producing bundles of trade-able paper, creating in equal measure both valuable and fraudulent capital that stoked the Street's activities.
The third leg of the technological triumvirate leading to Wall Street's financial dominance was the telegraph. Wall Street quickly adopted this first rendition of electric communication. One of Wall Street's earliest lessons learned was having information before others was extremely valuable. They quickly adopted the telegraph for their own uses, massively expanding the information infrastructure industrialism was reliant. A 19th century finance writer, James K. Medbery wrote, “In a very real sense, the development of the telegraph in the 1840s assured New York would become the financial center of the country.”
Gordon adds,
“Money (as all power) always has a tendency to concentrate itself. The greater the volume of floating wealth, the more conspicuous this peculiarity. Eminent before (the telegraph), this chief metropolis of the seaboard now assumed an absolute financial supremacy. Its alterations of buoyancy and depression produced corresponding perturbations in every state, city and village in the land.”
With the evolution of the industrial corporation, the development of stocks and bonds, and the beginnings of the great volumes of physical goods industrial technology produced, came a decisive mutation of an older technology – money. Most people don't think of money as a technology, but it's an old one, one of the first information technologies, maybe still the most crude and nebulous. With industrialization came banking, and banks created modern money based on bank-debt. Loans the banks made largely determined the money supply and its value. Good loans were good money, bad loans not so much.
America's founding distrust of centralized power, created an uneasy relation with banking, particularly national banks. Fifty years into the republic's history, two national banks were founded, then allowed to expire. In 1836 with the closing of the second bank, the growing American economy exploded with banks and bank money. Gordon writes,
“The federal government's contribution to the money supply was limited to gold... The nation's paper money was provided by thousands of state-chartered banks that ranged from unquestionably sound to totally fraudulent.”
Basically bank notes based on loans, most promising bearers payment in US minted gold coins, became the money supply. For decades, the money supply of America was largely private. Today's crypto-currencies are nothing new, though the banks' paper was at least somewhat based on real economic activity, not trillions of exogenous, electronically produced 1s and 0s stored on hard drives. Just like today's crypto-scam madness, the early American bank-debt money system was in constant turmoil. However, basing the money system on debt was a significant technological innovation, directly tying, no matter how crudely, the money system to the economy. At the beginning of 20th century, with the creation of the Federal Reserve, bank-debt money was designated the government's official currency, creating a greater, though by no means complete degree of stability.
The growth of banks provided Wall Street a lot more paper to trade. Bank stocks and bonds doubled, tripled, or place a number on it, the money supply. All new notes based, in theory, on the banks' loans.
Banking and Wall Street grew together. Gordon writes,
“By 1856, 360 railroad stocks, 985 bank stocks, 75 insurance stocks, plus corporate, local state and federal bonds traded on the Street. As late as 1878, not a single industrial company, a company principally engaged in manufacture rather than, say transportation or communications was listed on the New York Stock exchange.”
He then adds,
“But by 1900 “industrials” were rapidly becoming the dominant stock group on Wall Street, the US which had imported virtually all of its steel as recently as 1860, by 1900 was producing more steel than all of Europe. Carnegie produced more than all of Britain.”
With the growth of industry, Wall Street grew ever more rapidly. Both completely changed the underlying agrarian economy from which they sprouted. For two decades, beginning in the 1870's, the Populists, the republic's yeoman farmers, organized and fought a losing battle to keep their independence. Fighting Wall Street, the railroads, and their own government, the Populists sought democratic control of the burgeoning new era. They lost. Power in America became ever more centralized. The railroads and banks consolidated formerly distributed crop markets, controlling prices, bankrupting an ever greater number of independent small farmers. Their government representatives culpable in sealing their demise.
Maybe the least understood impact of industrialization and Wall Street's money dominance was on the government of the agrarian republic. It's more than a bit ironic that many of the initial industrial pillars came into being through the government, such as the Erie Canal and railroads, providing Wall Street's paper, so feverishly and much of the time fraudulently traded.
Such ties to government along with great piles of cash, made the republic's representatives active participants and profiteers. From it's inception, industrialization corrupted the republic's agrarian institutions, over matched and in many ways instantly archaic to the encountered change. Industrial technology consolidated power, erasing territorial boundaries – two essential elements of power distribution lost to a republic based on county and state governments. The republic's representatives were increasingly helpless or culpable in the agrarian republic's demise.
In this regards, Gordon offers the most disingenuous statement of the book writing,
“The businessmen who came of age in the utter governmental corruption of the post-Civil era, such as Andrew Carnegie, John D. Rockefeller, and J.P. Morgan, would always, and entirely understandably, look upon government as part of the problem of regulating the market effectively, not part of the solution to it. They would always seek to rely on their own resources to prevent chaos in the marketplace rather than attempt to utilize what was, in fact, the most venal institution in the country. Liberal historians of a later era have almost universally failed to note this fact when discussing the 'robber barons.'”
The most “venal institution” of the country was made that way by business. It is remarkable with all the talk about government corruption, who is giving the money is always ignored. Today, the corruption developed with industrialization is institutionalized. Money provided by business writes the legislation, controls the election processes, and controls public discourse, if in anyway it can be called discourse. In the end, this hasn't been good for government, business, or the citizenry.
Gordon's book is in no way a meditation on any of these issues, they're simply given as part of the narrative on the birth and evolution of Wall Street. Most of the book concerns stories of the manipulation of price and ownership of stocks and bonds, much of it fraudulent, all of it based on the real or perceived power of individuals.
From the Erie Canal bonds to most recently Mortgage Backed Securities, the great story of Wall Street is the endless manipulation of price and ownership, not for any greater good, but solely for the greed of an individual or exclusive group of individuals. Today, financial power dominates America to a degree greater than any time in history. It is no mistake that much of the paper, or more accurately electronic notations this domination is based on are more worthless today than any time in the nation's history.
Finishing Gordon's work, the great question is, “Has Wall Street ever provided any real service to the economy?” Does the perpetual trading of stocks and bonds provide any real value except to the traders themselves? You certainly can't claim with the Fed pumping in trillions in the last decades Wall Street provides any sort value discovery.
The head of Norway's massive sovereign wealth fund, Nicolai Tangen, said of the Street's recent summer rally machinations, “The market has got one function, and that is trying to steal your money every day. The best way the market could steal your money in July was to rally, so that’s what it did.”
While Gordon is certainly enamored of Wall Street's history, at very best, his book provides an extremely dubious proposition for its value. As a short study of the politics of technology, it's invaluable.