How the First Black Friday Nearly Destroyed the Economy

And how it became the shopping frenzy we know today.

ou know Black Friday as the day after Thanksgiving when you can get great deals on all kinds of consumer goods and there’s a non-zero chance you could get assaulted in the process. But the first Black Friday happened almost exactly 150 years ago and it had nothing to do with Thanksgiving or retail shopping (but it did inspire some violence).

While today’s Black Friday has anecdotally been the day businesses go from being in the red to in the black — hence Black Friday — the first Black Friday had nothing to do with the colors black or red. It was all about the color gold.

And it nearly destroyed the US economy.

1869, the US had two forms of currency — gold and greenbacks. Greenbacks were paper money — pretty much like we have today. But it only came into existence during the Civil War — which ended just 4 years earlier.

See, before the Civil War, all money was based upon gold and silver. Paper money didn’t really exist. All of US finances and the federal budget were tied to the amount of precious metals in circulation.

But the Civil War became too expensive to finance on gold alone. So the government went into debt and started printing paper money. Because they printed them with green ink, they earned the nickname “greenbacks.”

But even after the Civil War ended, millions of pieces of this green paper remained in circulation.

And newly-elected President Ulysses S. Grant wanted to get rid of them and return the US to a single currency based upon gold and silver. So the government began buying up wartime bonds with gold, paying down the national debt, and reducing the supply of greenbacks in circulation.

As a result, the amount of gold in circulation increased. This made it relatively cheap.

In the years since the Civil War, speculating on the price of gold had become a lucrative activity. There was an entire room in New York dedicated to the buying and selling of gold. Aptly called the Gold Room, it had a huge fountain with a cupid statue as its centerpiece. Where ever Cupid’s arrow pointed, that was the current price of gold.

Just like any other commodity, as you increase the supply of gold, its value decreases. So the government flooding the market with cheap gold, gave a shrewd investor the opportunity to buy up large amounts of it.

And corner the market.

That’s just what Jim Fisk and Jay Gould did.

Fisk was a stock broker who made much of his fortune through smuggling and war profiteering. Gould was a cutthroat railroad magnate and one of the richest men of his generation. So these two guys had the means and the appropriate lack of scruples to leverage the gold market.

Both Gould and Fisk worked for the Erie Railroad — one of the largest and busiest supply routes in the country at the time. Cheaper dollars drove down the price of commodities like grains. Cheaper prices incentivized foreign countries to purchase from the US. Since the US was largely an agricultural economy, much of its commodities came from the bountiful midwest. This meant all those cheap goods had to be transported to the coast to be shipped overseas. And the only way to do that back then was by railroad.

Gould and Fisk’s railroad, specifically.

If you own a significant percentage of any stock or product, you essentially decrease the available supply. Therefore, you can artificially increase the price. A rising price makes that product a valuable commodity to invest in, further inflating the price. In fact, if a commodity becomes too valuable, more people might be buying interest in said commodity than actually exists in the real world. At that point, a certain percentage of the commodity exists only in the imagination of the buyers. Nevertheless, the money is very real. This will continue to escalate until the corner is broken — either through the investors selling off their stake and making loads of money — or through the spontaneous and disastrous implosion of the financial markets. The latter happens much more often than the former.

But we’ll get to that later.

People have cornered the market in all kinds of products ranging from onions to tin to cattle to railroads.

But nobody had ever cornered the gold market.

Until Gould and Fisk.

But to successfully pull off their scheme, Gould and Fisk needed the cooperation of the federal government. Timing would be everything. Gould and Fisk had to buy up the gold when it was cheap — right after the government sold off its gold reserves. But they had to sell right before another gold dump.

Fortunately, the Grant Administration was famously corrupt.

Gould and Fisk wormed their way into the social circles of the Washington elite and even managing to land themselves a meeting with the President himself. They tried to convince him that releasing gold drove down the price of agricultural products and hurt farmers. Since farming was pretty much the only economic sector in the United States at the time, Grant’s gold policy actually hurt the overall economy. Grant politely listened to Gould and Fisk but didn’t heed their arguments.

So Gould and Fisk bribed members of the government to tip them off to the next gold release.

Gould and Fisk put their scheme into effect on Sept 1st, 1869. That day, they bought up $1.5 million worth of gold, forcing the price up $4.50. That might not seem like much, but but for every dollar in price rise, Gould and Fisk stood to make about 15 grand. Today, that’d be over a quarter of a million dollars.

Soon Gould and Fisk began hoarding their gold, ensuring their corner on the gold market. By market close on September 22, they would have somewhere between $50 and $60 million dollars worth of gold. About 3 times the amount of gold that actually resided in the vaults of New York City. Thereafter, the price of gold continued to rise, provoking a frenzy of unbridled gold buying.

President Grant eventually became aware of Gould and Fisk’s scheme. But since he was a big believer in small government, he expected the invisible hand of the free market to to slap some sense into them. So he did nothing about it.

On the morning of Friday, September 24 — the day that would become Black Friday — the price jumped 10 points, eventually hitting $162 an ounce. Fisk, an unapologetic showman and braggart, claimed he could make it hit $200, stirring up another round of frenzied buying.

But it would never make it that far.

After two weeks of frantic gold speculation, and the invisible hand of the free market nowhere to be seen, Grant brought down the invisible boot of the federal government, dropping $4 million dollars of gold into the market and squashing the price of gold.

So on Friday, September 24th, 1869, Gould and Fisk’s corner on the gold market was broken, taking the rest of the economy with it. Investors panicked, pulling their money out of the plummeting stock market. Over the next few months, the nation’s finances were in turmoil. Brokerages went bankrupt. The price of agricultural products were cut in half, devastating the farm sector (which was pretty much the entire economy back then). Most of all, people couldn’t pay their taxes. At the time, taxes had to be paid in gold. With the price of gold in the basement, many people didn’t have enough money anymore to cover their taxes — which wasn’t great for the federal budget. It would be years before the US economy fully recovered.

On the day of the crash, Gould and Fisk were nearly rundown by an angry mob of gold speculators. They barely escaped by taking shelter in an opera house and calling in security from their railroad to keep the angry mob at bay. They again escaped any significant retribution when, after an investigation and trial, Gould and Fisk got off scot-free.

So for years afterward, September 24th, 1869 would be known as Black Friday.

Sometime in the 20th century, the meaning of it mutated and Black Friday migrated to the day after Thanksgiving. This became the unofficial start of the Christmas shopping season but the “Black” in Black Friday did not originally refer to the account ledgers of retail companies. It referred to the unusual number of employees who called in sick after Thanksgiving in order to gain a four day weekend. So that Friday was “Black” as in “The Black Death” like the Bubonic Plague. Retailers didn’t appreciate the association with the plague so sometime in 1980s they began spinning it as the day when they ceased operating at a loss and began making a profit. Since it was a common accounting practice to record losses in red ink, and profits were recorded in black ink, Black Friday became the day the ink in the financial ledgers of these retail companies ran black.

But that’s all advertising spin.

Black Friday didn’t become the busiest shopping day of the year until 2005 — yet for many decades before, it was touted as such. Just as Fisk and Gould were able to bid up the price of gold, retailers and savvy advertisers sold Black Friday as the busiest shopping day of the year well before it was anything of a reality. Slowly over the decades, shoppers bought into the promotion. In that sense, today’s Black Friday is just as much a scheme as the first Black Friday.

Even so, the sales on the Friday after Thanksgiving don’t have much of an impact on retailer’s total holiday sales. In fact, some studies show a negative correlation between the amount of sales on Black Friday and yearly profit margins. Now Cyber Monday and Amazon’s Prime Day threaten to break Black Friday’s corner on the retail sales market. But businesses aren’t going give up on Black Friday just yet. The media attention and free advertising that long lines and the occasional stampede drum up are more than worth their weight in gold.

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