The Infamous King Of The Comstock: William Sharon And The Gilded Age In The West

Chapter Seven: The Ophir Debacle

 Chapter Seven THE OPHIR DEBACLE E    debunked American laissez faire as myth. Jefferson’s colonial Virginia philosophy proposed a wise, frugal government that, while preventing men from injuring one another, left them free to regulate their own pursuit of industry. He advocated keeping economic affairs free from government regulations in part to protect Congress from coming under the control of stockjobbers. But the vast resources in America could not be harnessed by private capital. Enterprise became “mixed” as state and federal governments contributed direct aid to assist corporations.States provided funding for plank roads,turnpikes, railroads, and bridges. The federal government donated land, built roads (the Cumberland Road being a prime example), used the Army Corps of Engineers to produce engineering surveys, and protected industry with tariff rebates.1 Legislative involvement came full circle when groups that gained the upper hand with government assistance dragged representatives into jobbery to protect what they built. Throughout the nineteenth century, the tradition of utilizing the public treasury as a major source of venture capital grew. The Internal Improvements Act of ,the Swamplands Act and the Illinois Land Grant Bill of , and the railway acts of the s included giveaways that made magnates of speculators and their corporate associates.2 As well as the general public, Ralston’s bank clients included the wealthiest businessmen,the most profitable Comstock mining companies,     and the U.S. Internal Revenue Service. Ralston used their deposits and his influence to promote his interests: industry and growth in the West.At times his policy benefited himself and his partners, as in blocking the Sutro tunnel and building the Virginia & Truckee Railroad; more often it benefited the populace, developing resources and jobs. In the early years Ralston was cautious regarding examinations of loan applications and proffered collateral.3 As time passed, he became less prudent. In  financial institutions east of the Mississippi suffered the greenback panic that culminated on Black Thursday, September . Jay Cooke and Company, the most influential of U.S. financiers, failed. Banks collapsed , European investors lost  million, the New York Stock Exchange closed for ten days (its first closure since its formation in ),and America was plunged into recession. Earlier that year, tight money had combined with Ralston’s extravagances to cause the Bank of California to reel. On February , , Ralston announced that companies he financed could pay neither interest nor anything on the principal of their loans. George P. Kimball and Company owed ,; the New Montgomery Street Real Estate Company owed ,,; the Pacific Woolen Mills Company owed ,. Private funds eased the crisis. John D. Fry and the Bank of California entered an agreement: Fry advanced the bank ,, in return for the securities indemnifying the debt.4 Such was the faith in Ralston’s capacity that the directors issued no call for censure and no request for restraint in future dealings. The exception was bank president D. O. Mills. He resigned in July, and Ralston succeeded him. In a confidential statement, fellow banker Henry D. Bacon said: “The general information at the time Mr. Mills resigned the presidency of the Bank,is the Bank was insolvent & that he knew it to be insolvent & he retired because he wanted to get out before it went by the board.”Bank director Thomas Bell’s assessment of the situation was similar .Bell said that Mills had advised Ralston to rein in his speculations,but instead Ralston had made things worse by beginning to build the Palace Hotel. Unbeknownst to Mills, Ralston kept two hundred and fifty bank shares in his name to retain the Mills association.5     Ralston often referred schemes to associates and would offer them financial backing if they wished to become involved. No one knew how many such ventures Ralston engaged in, but one involved a mine at Candelaria . Ralston sent a man needing financing to a friend, George S. Dodge: “In a day or two Dodge had bought and paid for the mine and proceeded at once to erect a great mill, though before that he was not known to have any money.He made a great fortune from it in the succeeding three years and passed for a shrewd operator, while Ralston’s name was not mentioned in connection with the enterprise.”6 In his bookkeeping Ralston used names of associates to head ledger accounts, wholly controlled by him. An attorney, Charles Lee Tilden, did an accounting of Ralston’s Bank of California books after the...