Jay Cooke

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Jay Cooke (10 August 1821–16 February 1905) was an American financier and fund-raiser for the federal government during the American Civil War.

At 18 Cooke entered the Philadelphia banking house of E.W. Clark and Co., and three years later he became a member of the firm. In 1861 he opened his own banking house in Philadelphia and floated a war loan of $3,000,000 for the state of Pennsylvania. He was engaged by the United States Treasury Department in 1862 for the sale of $500,000,000 worth of bonds. His services were secured again in 1865, when he disposed of three series of notes totaling $830,000,000. In 1870 Cooke’s firm undertook to finance the construction of the Northern Pacific Railway but failed at the approach of the financial crisis of 1873. By 1880 he had discharged all his obligations and had again become wealthy.[1]


The Ohio-born Jay Cooke had joined the moderately successful Philadelphia investment banking firm of Clark and Dodge as a clerk at the age of 18. In a few years, Cooke worked himself up to the status of junior partner, and, in 1857, he left the firm to branch out on his own in canal and railroad promotion and other business ventures. There he doubtless would have remained, except for the lucky fact that he and his brother Henry, editor of the leading Republican newspaper in Ohio, the Ohio State Journal, were close friends of U.S. Senator Salmon P. Chase. Chase, a veteran leader of the antislavery movement, fought for and lost the Republican presidential nomination in 1860 to Abraham Lincoln. At that point, the Cookes determined to feather their nest by lobbying to make Salmon Chase secretary of the Treasury. After heavy lobbying by the Cookes, the Chase appointment was secured, so Jay Cooke quickly set up his own investment banking house of Jay Cooke and Company.

Everything was in place; it now remained to seize the opportunity. As the Cookes’ father wrote of Henry:

I took up my pen principally to say that H.S.’s [Henry’s] plan in getting Chase into the Cabinet and [John] Sherman into the Senate is accomplished, and that now is the time for making money, by honest contracts out of the government.

Now indeed was their time for making money, and Cooke lost no time in doing so. It did not take much persuasion, including wining and dining, for Cooke to induce his friend Chase to take an unprecedented step in the fall of 1862: granting the House of Cooke a monopoly on the underwriting of the public debt. With enormous energy, Cooke hurled himself into the task of persuading the mass of public to buy U.S. government bonds. In doing so, Cooke perhaps invented the art of public relations and of mass propaganda; certainly, he did so in the realm of selling bonds. As Kirkland writes:

With characteristic optimism, he [Cooke] flung himself into a bond crusade. He recruited a small army of 2,500 subagents among bankers, insurance men, and community leaders and kept them inspired and informed by mail and telegraph. He taught the American people to buy bonds, using lavish advertising in newspapers, broadsides, and posters. God, destiny, duty, courage, patriotism—all summoned “Farmers, Mechanics, and Capitalists” to invest in loans

—loans which of course they had to purchase from Jay Cooke.

And purchase the loans they did, for Cooke’s bond sales soon reached the enormous figure of $1 million to $2 million dollars a day. Perhaps $2 billion in bonds were bought and underwritten by Jay Cooke during the war. Cooke lost his monopoly in 1864, under pressure of rival bankers; but a year later he was reappointed to keep that highly lucrative post until the House of Cooke crashed in the panic of 1873. In the Civil War, Jay Cooke began as a moderately successful promoter; he emerged at war’s end a millionaire, a man who had spawned the popular motto, “as rich as Jay Cooke.” Surely he must have counted the $100,000 he had poured into Salmon Chase’s political fortunes by 1864 as one of the most lucrative investments he had ever made.

It is not surprising that Jay Cooke acquired enormous political influence in the Republican administration of the Civil War and after. Hugh McCulloch, secretary of the Treasury from 1865 to 1869, was a close friend of Cooke’s, and when McCulloch left office he assumed the post as head of Cooke’s London office. The Cooke brothers were also good friends of General Ulysses Grant, so they wielded great influence during the Grant administration.

No sooner had Cooke secured the monopoly of government bond underwriting than he teamed up with his associates, Secretary of the Treasury Chase and Ohio’s Senator John Sherman, to drive through a measure which was destined to have far more fateful effects than greenbacks on the American monetary system: the national banking system. The National Banking Acts destroyed the previously decentralized and fairly successful state banking system, and substituted a new, centralized, and far more inflationary banking system under the aegis of Washington and a handful of Wall Street banks. Whereas the effects of the greenbacks were finally eliminated by the resumption of specie payments in 1879, the effects of the national banking system were lasting.

While many state bankers, especially the conservative oldline New York bankers, opposed the national banking system, Jay Cooke, once the system was in place, plunged in with a will. Not only did he sell the national banks their required bonds, he also set up new national banks which would have to buy his government securities. His agents formed national banks in the smaller towns of the south and west. Furthermore, he set up two large national banks, the First National Bank of Philadelphia and the First National Bank of Washington, D.C.

But the national banking system was in great need of a mighty bank in New York City to serve as the base of the inflationary pyramid for a host of country and reserve city banks. Shortly after the inception of the system, three national banks had been organized in New York, but none of them were large enough or prestigious enough to serve as the key fulcrum of the new banking structure. Jay Cooke, however, was happy to oblige, and he quickly established the Fourth National Bank of New York, capitalized at a huge $5 million. After the war, Jay Cooke favored resumption of specie payments, but only if greenbacks could be replaced one-to-one by new national bank notes. In his unbounded enthusiasm for national bank notes and their dependence on the federal debt, Cooke urged repeal of the $300 million legal limit on national bank note issue. In 1865, he published a pamphlet proclaiming that in less than 20 years national bank note circulation would total $1 billion.

The title of the pamphlet Cooke published is revealing: How Our National Debt May Be A National Blessing. The Debt is Public Wealth, Political Union, Protection of Industry, Secure Basis for National Currency.[2]

Northern Pacific

It might well be that the major effect of the panic of 1873 was, not to initiate a great depression, but to cause bankruptcies in overinflated banks and in railroads riding on the tide of vast government subsidy and bank speculation. In 1866, Jay Cooke favored contraction of the greenbacks and early resumption because he feared that inflation would destroy the value of government bonds. By the late 1860s, however, the House of Cooke was expanding everywhere, and in particular, had gotten control of the new Northern Pacific Railroad. Northern Pacific had been the recipient of the biggest federal largesse to railroads during the 1860s: a land grant of no less than 47 million acres.

Cooke sold Northern Pacific bonds as he had learned to sell government securities: hiring pamphleteers to write propaganda about the alleged Mediterranean climate of the Northwest. Many leading government officials and politicians were on the Cooke–Northern Pacific payroll, including President Grant’s private secretary, General Horace Porter. In 1869, Cooke expressed his monetary philosophy in keeping with his enlarged sphere of activity:

Why should this Grand and Glorious Country be stunted and dwarfed—its activities chilled and its very life blood curdled by these miserable “hard coin” theories—the musty theories of a by gone age—These men who are urging on premature resumption know nothing of the great growing west which would grow twice as fast if it was not cramped

for the means necessary to build RailRoads and improve farms and convey the produce to market.


But Cooke and his associates built recklessly; the government's subsidies and land grants were issued on a per-mile-of-track basis, so they had strong incentives to build as quickly as possible, which only encouraged shoddy work. Consequently, by 1873 the NP developers had fallen into bankruptcy. The people of Minnesota and the Dakotas, where the railroad was being built, considered Cooke and his business associates to be "derelicts at best and thieves at worst."[3]

The overbuilt Northern Pacific was crumbling, and a Cooke government bond operation provided a failure. So the mighty House of Cooke crashed and went bankrupt, touching off the panic.[2]


  1. Encyclopædia Britannica Online. "Jay Cooke", referenced 2013-05-21.
  2. 2.0 2.1 2.2 Murray N. Rothbard. "A History of Money and Banking in the United States: The Colonial Era to World War II" (pdf), The War of 1812 and its Aftermath, p.145, 153-156. Referenced 2011-01-15.
  3. Thomas J. DiLorenzo. "The Truth About the "Robber Barons"", excerpted from chapter 7 of How Capitalism Saved America. Referenced 2013-04-05.