Double Your Money – Part Forty One
The Civil War gold hoax of 1864
Share prices are, and always have been, sensitive to news, good or bad. One way to make a fortune is to generate stock market panic by issuing a piece of fake news. With the outcome of the Civil War still in the balance, a perfect opportunity presented itself to cause a collapse in share prices and a consequent rise in gold prices, or so two journalists, Joseph Howard Jnr, city editor of the Brooklyn Eagle, and one of his colleagues, Francis A Mallison, thought.
On May 18th 1864 two New York papers, the New York World and the Journal of Commerce, ran a sensational story to the effect that President Lincoln was conscripting an extra 400,000 troops because of “the situation in Virginia, the disaster at Red River, the delay at Charleston, and the general state of the country.” This seemed contrary to the widely held belief that the Union was slowly getting on top of their opponents and that the war would soon be over. If the announcement was to be believed, it looked as though hostilities would drag on for some time and the outcome was still uncertain.
And believed it was.
Panic broke out, share prices plummeted and investors switched to gold, whose price immediately rose by 10%. Howard, who the day before had invested heavily in gold, was able to sell his holding at the top of the market and make his pile. A good morning’s work.
It did not take long for the deception to be revealed. More circumspect investors wondered why only two of New York’s papers had run a story of such import. The Journal of Commerce insisted that they had got the story from their usual source, the Associated Press. The Associated Press issued a denial by 11.00 am that they were the originators of the story and a telegram from William Seward, the Secretary of State, declaring the announcement to be “an absolute forgery”, received at 12.30 that day restored calm.
But the repercussions of the scare rumbled on. Lincoln ordered that the papers that had printed the story be closed down and that their proprietors be arrested, a move on press freedom that was to blight his presidency. Detectives, meanwhile, were on the hunt for the real culprits and on May 21st had enough evidence to arrest Mallison who, in turn, implicated Howard. When arrested at his home in Brooklyn, Howard made a full confession.
How were they able to pull off the hoax and manipulate the market?
As newspapermen, they knew that newspapers were at their most vulnerable at around 3.30 am when the night readers and copyreaders had gone home and the day shift had yet to arrive, leaving just a solitary night foreman to review incoming news items. The story, purporting to have come from the reliable source that was Associated Press, was received by the World and the Journal just at that moment and their foremen fell for it hook, line and sinker.
Other papers were not so gullible. They sent out messengers to their rivals to see whether they too had received the same story. Not all had and smelling a rat, they did not print it. The two papers that did were geographically a bit out on a limb and it may not have been possible for them to verify the story with other papers, even if they had doubted its seemingly impeccable source. But two papers carrying the story was enough for Howard’s purpose.
Howard, whose defendants claimed him to be only guilty of “the hope of making money”, spent less than three months in jail before being released on the orders of the President himself in August 1864. By then, on July 18th, Lincoln had issued a call for more men, half a million rather than the 400,000 that Howard had intimated.
The news was not so fake after all.
If you enjoyed this, check out Fifty Scams and Hoaxes by Martin Fone
https://www.troubador.co.uk/bookshop/business/fifty-scams-and-hoaxes/
