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    Easy Money: Oil Promoters and Investors in the Jazz Age
    Easy Money: Oil Promoters and Investors in the Jazz Age
    Easy Money: Oil Promoters and Investors in the Jazz Age
    Ebook343 pages5 hours

    Easy Money: Oil Promoters and Investors in the Jazz Age

    By Robert Silverberg and Diana Davids Hinton

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    About this ebook

    During the great oil speculations in the 1920s, both promoters and investors became victims of their common greed. Outlining the activities of several different promoters and drawing on business papers, federal court records, and local land records, the Oliens describe the legal and regulatory responses to fraud. Their fascinating story breaks new ground in American social and business history and offers new insight into the culture of American capitalism.

    LanguageEnglish
    PublisherThe University of North Carolina Press
    Release dateOct 1, 2017
    ISBN9781469639598
    Easy Money: Oil Promoters and Investors in the Jazz Age
    Author

    Robert Silverberg

    Robert Silverberg has written more than 160 science fiction novels and nonfiction books. In his spare time he has edited over 60 anthologies. He began submitting stories to science fiction magazines when he was just 13. His first published story, entitled "Gorgon Planet," appeared in 1954 when he was a sophomore at Columbia University. In 1956 he won his first Hugo Award, for Most Promising New Author, and he hasn't stopped writing since. Among his standouts: the bestselling Lord Valentine trilogy, set on the planet of Majipoor, and the timeless classics Dying Inside and A Time of Changes. Silverberg has won the prestigious Nebula Award an astonishing five times, and Hugo Awards on four separate occasions; he has been nominated for both awards more times that any other writer. In 2004, the Science Fiction and Fantasy Writers of America gave him their Grand Master award for career achievement, making him the only SF writer to win a major award in each of six consecutive decades.

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      Book preview

      Easy Money - Robert Silverberg

      EASY MONEY

      EASY MONEY

      OIL PROMOTERS AND INVESTORS IN THE JAZZ AGE

      ROGER M. OLIEN AND DIANA DAVIDS OLIEN

      The University of North Carolina Press

      Chapel Hill and London

      © 1990 The University of North Carolina Press

      All rights reserved

      Library of Congress Cataloging-in-Publication Data

      Olien, Roger M., 1938-

      Easy money : oil promoters and investors in the jazz age / by

      Roger M. Olien and Diana Davids Olien.

      p. cm.

      Includes bibliographical references.

      ISBN 978-0-8078-1928-x(alk. paper)—ISBN 978-0-8078-4291-1 (pbk.:

      alk. paper)

      1. Petroleum industry and trade—United States—Finance—Corrupt

      practices—History—20th century. 2. Speculation—United States

      —History—20th century. 3. Fraud—United States—History—20th

      century. 4. United States—Economic conditions—1918-1945.

      I. Olien, Diana Davids, 1943-    II. Title.

      HD9565.0647 1990

      364.1’68—dc20

      90-50017 CIP

      The paper in this book meets the guidelines for permanence and

      durability of the Committee on Production Guidelines for Book

      Longevity of the Council on Library Resources.

      Manufactured in the United States of America

      94 93 92 91 90 5 4 3 2 1

      THIS BOOK WAS DIGITALLY MANUFACTURED.

      In memory of

      John J. Redfern, Jr.,

      W. D. Noel,

      and E. E. Reigle

      CONTENTS

      A section of photographs follows page 72.

      Preface

      ONE

      Getting Rich Quick

      TWO

      The Black Gold Rush

      THREE

      Selling Shares in a Fortune

      FOUR

      Money in Trust

      FIVE

      The Napoleon of Promotion

      SIX

      Promotion on Trial

      SEVEN

      Adaptive Strategies

      Afterword

      Glossary

      Notes

      Index

      PREFACE

      The Lawyers, Doctors, Hatters, Clerks

      Industrious and lazy,

      Have put their money all in stocks:

      In fact, have gone oil crazy.¹

      THIS DITTY, as sung in New York, Philadelphia, and all the principal cities of the Union where ile fever abounds, describes one of the great speculative manias of nineteenth-century America. Others, in land and in canal and railroad shares, preceded it, and many more would follow it.

      Charles P. Kindleberger is one of the few scholars to examine speculative manias. In a pioneering work he explains what happens in booms in terms of investor irrationality Kindleberger describes mob psychology and the irrationality of the gullible and greedy over a vast expanse of European and American history. He concludes that, though they need a little help from government occasionally, capital markets work well: Modern excesses burn themselves out without damage.² Manias, thus, are aberrations, unrelated to the regular conduct of business or to the general health of the economy.

      We believe that this view is open to question when speculative booms and manias are viewed with greater attention to detail than Kindleberger’s broad overview permitted. A number of significant topics deserve further study, including the social and economic basis of speculative booms, the expectations and mentalities they reflect, the apparent difficulty of increasing assets during booms, the relation of fraudulent business activity to manias, and the effect of law enforcement on fraudulent boom-time activity.

      The literature on mining and securities speculation has addressed these subjects in piecemeal fashion. We believe that these topics can be delineated more sharply through examination of a single industry during a limited period of time. The best candidate for such scrutiny is the domestic petroleum industry during the era of World War I. The remarkable boom of this period exceeded even that of the 1860s, when the industry was young. The latter period, moreover, saw the scope of activity spread over the entire country, far beyond the financial communities of major eastern cities. The oil industry, given to volatile boom-to-bust cycles and to speculative high-risk activity, was the popular favorite of small investors during much of the postwar period. One can trace their motivations and fates most clearly in oil.

      The postwar period serves a scholar interested in speculation well because it was one of the most expansive and optimistic in our history. Jazz-age Americans from all income brackets believed they could make quick riches. Widespread prosperity, accentuated by striking booms in some sectors of the economy, encouraged investors and promoters alike to assume that there was never a better time to build fortunes. They did not expect to use special resources or expertise to do so; they agreed with industrial titan John J. Raskob that anyone can be rich. Investors looked to become wealthy by buying into glamorous new ventures in such areas as real estate, oil, and communications, while promoters expected to prosper either by using investor capital or by stealing it.

      The role of promoters in launching ventures in high-risk enterprises also deserves additional attention, especially with regard to their relations with investors. Again, oil is ideal as the focus of this investigation because capital formation in the independent sector of the industry has traditionally relied on promotion to fund exploratory activity. In oil, as in real estate and other businesses, promoters have raised capital for activities that are economically and socially useful. As we have shown in Wildcatters, promoters have long been a creative, vital, and constructive part of the American oil industry. During the twenties in particular, the vast expansion of domestic oil reserves was largely the accomplishment of promoters who risked their careers—and other people’s money. The antics of dishonest promoters notwithstanding, promotion of high-risk ventures is legitimate and important in an open economy.³

      It is particularly challenging to go beyond the general outline of promotional strategies and assess how well they functioned. The main problem for scholars is the relative absence of a paper trail for small businessmen. Small independent oilmen did not normally keep voluminous records on the day-to-day details of business, and when businesses ended in ruin, there was even less incentive to preserve their records. Similarly, Americans of all income brackets received huge quantities of mail promoting investments during the teens and twenties, but remarkably little of this material has found its way to archives. Many people simply discarded such junk mail when they received it; those who responded and lost money had little reason to keep the promotional literature as souvenirs of financial misjudgment. The fullest collections of materials come from ventures that landed promoters in trouble—with investors and often with the law. Thus the surviving record may produce a skewed view of promoters as a group.

      Fortunately, much evidence relating to promoters is now in the care of the National Archives and its branches. We are especially indebted to Barbara Rust of the Southwest Branch (Fort Worth) and to Aloha P. South of the Civil Division in Washington for highly efficient management of our requests for materials. Our work was also aided by Anita Voorhies at the University of Texas-Permian Basin, Richard Mason and Janet Neugebauer of the Southwest Collection at Texas Tech University, Dr. Bobby Weaver of the Panhandle-Plains Museum, and the staffs of the Barker Texas History Center at the University of Texas at Austin and of the Permian Basin Petroleum Museum, Library, and Hall of Fame, Midland, Texas. Mr. Clyde Barton provided valuable help in picking up the trails of promoters in local land records, while Rose Mary Malone and Arthur G. Randall secured important material for us in Wyoming.

      We have also benefited greatly from critiques and suggestions at various stages of work, notably from Forrest McDonald, J. Conrad Dunagan, Betty and Leo Byerley, and Nicholas C. Taylor. Clyde Barton, Ford Chapman, J. Conrad Dunagan, John Hendrix, Robert Leibrock, Joe B. McShane, W. D. Noel, John J. Redfern, Jr., Ed Reigle, William Thams, and Oliver Wood provided valuable encouragement for our research. Drs. Duane M. Leach and H. Warren Gardner of the University of Texas-Permian Basin also gave us welcome support for its completion. Major funding was provided by the Communities Foundation of Texas. We have had complete control of the research and writing of this book, and thus we are solely responsible for its content.

      EASY MONEY

      ONE

      Getting Rich Quick

      A KLONDIKE on the Hudson River? A bonanza gold and platinum mine within a few miles of Manhattan? The hundreds of Russian immigrants who invested in the Iridium Gold and Platinum Company in 1921 believed so, and that their $1 investments would bring fast returns of $600! If investors hesitated, Iridium’s promoters, who included a former United States consul general to St. Petersburg and the editor of a Russian-language newspaper, even offered guided tours of their fantastic mining operations, complete with commentary and sales literature in Russian. A skeptic could see concrete evidence of the company’s vast mineral riches. All it took was a short train ride to Yonkers.

      The field trip was cleverly devised to erode peasant cunning with hope and greed. It began in a corner of an ordinary-looking potato farm, where the promoters threw several shovelfuls of topsoil into a rock-crushing machine. After churning and grinding the earth for a few seconds, the machine spat out a handful of bright gold nuggets at the feet of the astonished visitors. Seizing on the excitement of the moment, salesmen delivered a rousing forecast of vast wealth that would be drawn from mother earth. Then they hauled the noisy crusher to another comer of the field and repeated the demonstration, producing pea-sized nuggets of glistening platinum. If potential investors were still reluctant to part with their cash, the salesmen offered evidence of lucrative stray silver veins, directly under their feet. Few investors needed that reassurance: here was the chance of a lifetime! Caught up in the potato lot bonanza, neighboring farmers also took to their fields with shovels and buckets in feverish searches for Yonkers gold and platinum. Belief in the geological miracle thus spread beyond the community targeted by Iridium’s promoters.

      There were skeptics, especially in the office of the United States attorney, who caught on to the scheme when the gold rush in Yonkers potato fields became a matter for wider notice and humorous comment. The investigators did some digging of their own and discovered that the total assets of the company were a rock crusher, several gold nuggets, and $30 worth of platinum. Iridium did not even own the Yonkers farm. In due course the officers of the company were indicted in 1922 for the fraudulent sale of over 500,000 shares in their enterprise. To the end, however, Iridium’s president swore the company had a bonanza; he had prospected in Alaska, Montana, and California, and he knew pay dirt like that in Yonkers when he saw it.¹

      The Iridium Gold and Platinum Company was not one of the grander scams of its time, nor were its investors uniquely naive. In 1921 imaginative Chicago promoters did a lively trade in shares of the League of Nations; they claimed that they would be able to pay mammoth dividends, because of the great value of the League to humanity.

      Nova Adolphus Brown, who peddled shares in many enterprises, promoted the Lexington Chocolate Company. He foresaw great profits to be made by selling cod liver oil chocolate bars to people who wanted the nutritional benefits of cod liver oil without its rank taste.

      The directors of the Birmingham Motors Corporation of Jamestown, New York, offered their investors the unparalleled opportunity to own the manufacturer of the world’s first no-axle automobile.

      H. Kent Holmes promoted the American Aircraft Arms Company, a venture which would produce an antiaircraft gun with twenty-four barrels that could all be fired at once. He explained that the concentrated firepower would bring down enemy airplanes without the need to aim the gun.

      The George Alot Land Company peddled farmland that was located in the bed of the Mississippi River, admitting that the property was unimproved except for running water.²

      Compared to these colorful lures to the hapless investor, the scheme of Boston’s Carlo Ponzi, the most notorious swindler of the 1920s, was a model of sober rationality. Ponzi merely promised his investors a 50 percent dividend in ninety days, through his purchases of international postal exchange coupons and exploitation of differing exchange rates. When the ninety days were up, Ponzi offered to pay both the original investment and the handsome dividend, and during the early months of his promotion, he actually did so. In most instances, however, he persuaded his clients to reinvest both the capital and the proceeds, thus leaving him with the funds for the time being and postponing a final reckoning of accounts.

      In the meantime, Ponzi paid dividends out of capital paid in, because the whole postal coupon scheme was bogus. His get-rich-quick clientele grew with dizzying speed, and long lines of investors crowded the doors of his office. In one month alone he took in about $2.5 million. The scale of his operations made him a byword for fraudulent promotion and gave Ponzi, who went to jail, immortality in the annals of easy money.³

      Many promotions enjoyed the initial success of Ponzi and Iridium because faith in getting rich quick was more pervasive in America following World War I than jazz, flappers, and bathtub gin. Wartime prosperity created an expansive, optimistic mentality in much of the nation and helped launch genuine booms in real estate, the stock market, and oil. Some luck, some hustle, or a combination of both would seemingly yield windfall wealth, both for investors and for those with whom they trusted their money. So wonderful were opportunities that neither capital nor experience was necessary. The humblest investor would turn a few dollars into a fortune. The rawest promoter would build a business empire on a shoestring. Everyone would get in on the ground floor, everyone would see dollars multiply, and every proposition was can’t lose. In short, anybody who really wanted to would land on Easy Street. Only the great stock market crash marked Easy Street as a dead-end road.

      It is far easier to identify the end of the great jazz-age speculative mania than to account for either its mentality or its duration. What brought so many Americans to try their luck as investors that sales of securities doubled between 1912 and 1922? What encouraged so many persons to look for easy money? Why, as one observer wryly noted, did it seem that the man who said that a sucker is born every minute underestimated the supply? Most of all, out of all the speculation, why did so few speculators get rich? Why was it so hard to succeed when it looked as though success had never been so certain?⁴

      Any explanation of frenzied speculation must start with money in speculators’ hands. Simply put, as the result of wartime conditions, Americans had more money to invest. Between 1914 and 1918 the number of persons reporting incomes in the $50,000 to $100,000 range rose from approximately 5,000 to 13,000, and the number whose incomes were in the $30,000 to $40,000 range rose from about 6,000 to over 15,000. Despite a brief postwar recession, the number of persons who made more than $5,000 a year trebled from 1910 to 1929. For an increasing number of affluent Americans, after the bare costs of living were met there was money to spare for vacations, commercial amusements, luxuries, and investment.⁵

      Farther down the income pyramid, many people who were not affluent enjoyed wartime prosperity. Excepting a few areas such as home building and construction, most industries had more jobs. Seven hundred thousand persons joined the work force in 1916-17, and 600,000 the following year. These war workers included women and blacks, entering jobs previously closed to them. Generally sympathetic to workers’ demands, wartime wage boards permitted wage hikes in most industries. Coal miners, for example, won large increases in May and December 1917, with a further raise in 1918. Not all workers did so well, but by 1918 the average wage earner’s income was nonetheless estimated at 63 percent higher than in 1914. Inflation eroded some of the benefit from the increase: the cost of a quart of milk or a dozen eggs, for example, doubled during the war. But with more family members able to find work and with pay envelopes fatter than ever, the working household was still likely to have gained economically as a result of the war.⁶

      Farmers fared even better than workers. War brought soaring prices for farm products. Between August 1915 and August 1918, for example, prices of corn and oats doubled. In May 1917 wheat futures hit $3.25 per bushel, a record high at the Chicago Board of Trade. Cotton brought thirteen cents a pound in 1913; at the end of August 1918 its price leaped to thirty-seven cents, the highest in fifty-two years. Even if what they bought rose in price, as farmers complained, their net income rose from $4 billion to $10 billion during the war years. Many a farmer took profits and bought an automobile; the appearance of the automobile as a regular feature of American rural life was a result of wartime prosperity. Some farmers cannily reasoned that they would never see farm prices equal wartime levels, sold out at war’s end, and moved to town or California. Others less farsighted and more prone to speculate plowed their capital into more farmland and equipment, bought at highly inflated prices. Making a losing bet on continued high prices, they would be sorely pressed after 1920 to make payments on mortgages and notes. If hopes for a farm bonanza in the twenties proved illusory, however, wartime gains down on the farm were real. In 1919 farmers had an ample supply of spare cash.⁷

      Not everyone made out as well. Amid all this prosperity, there were groups of Americans who fell behind economically as they watched their neighbors get ahead. Persons living on limited capital and fixed incomes found that wartime inflation destroyed their economic security. The minor bureaucrat, the retired schoolteacher, and the military pensioner alike had to prune their budgets. They could see prosperity all around them, but it was beyond their reach. Desperate to halt the alarming erosion of their financial positions, these people were easily tempted to stake their dwindling capital on long-shot gambles for riches. Failing lucky windfalls, their economic prospects were grim: if they missed Easy Street, they were on the road to the poor farm.⁸

      The atmosphere of patriotic frugality generated by government policymakers during the war, however, tended to obscure the difference between voluntary and involuntary thrift. No matter how much money Americans made, from 1917 to the end of the war economic mobilization and government anxiety over scarcity of wartime supplies made it increasingly hard to spend. Those who might have bought a bungalow in the suburbs or built a larger barn had to postpone plans when Priority Circular No. 21 put a lid on nonwar construction. Homeowners who wanted to redecorate found they could not buy dining room armchairs or sideboards with mirrors, while brass bedsteads had fewer rods and smaller head and foot pieces. There were half as many electric heating appliances, oil stoves, and sewing machines available, and government authorities ordered production of waffle irons, peanut roasters, and soup kettles stopped. Genteel shabbiness was enforced at Uncle Sam’s direction.⁹

      Consumers who liked to put much of what they earned on their backs faced frustrations in the form of policy directives amounting to sumptuary laws. The War Industries Board decided that Americans could survive with shoes in a color range limited to white, black, and two shades of tan. Bedroom slippers were a forbidden luxury. Feminine modesty notwithstanding, manufacturers had to shorten the tops of ladies’ shoes. Men could no long buy double-breasted coats, and the styles, heights, trim, and brim-widths of their straw hats came under government regulation. Beginning with limitation of consumer choices, policymakers moved by autumn 1918 to deciding that there would be no new styles whatever in shoes, ladies’ hats, and fountain pens for at least six months. Even time was brought under control; after October 1, 1918, manufacturers were forced to cut watch production by 70 percent.¹⁰

      The appeal to the patriot’s heart also reached his stomach. America’s tireless food administrator, Herbert Hoover, told the public it must accept wheatless Mondays, meatless Tuesdays, porkless Tuesdays and Saturdays, and one meatless meal a day—but that was only the beginning. Americans were urged to use Victory bread, made with 20 percent nonwheat flours. To conserve sugar, bakers had to cut back making cookies, cakes, pies, and pastries by 30 percent, while ice cream manufacturers had to cut their production by a quarter. Nor could a hungry diner evade the rules by eating out. Not only were restaurants held to the same guidelines as homemakers, but they could not serve bread unless requested, bacon or bread as a garnish to food, butter in greater than one-ounce servings, roast beef or steak more than once a week, or sugar in sugar bowls. In compensation, Hoover urged Americans to grow vegetable gardens, and he allowed the price of prunes to rise to 8 1/2 cents a pound to head off shortages in 1918.¹¹

      In this wartime environment of forced frugality, Americans saved an unprecedented proportion of their incomes. The rate of saving reached 9.1 percent by 1917-19, a rate not again attained until 1944. As pockets filled with dollars unspent on consumer goods, the federal government urged patriotic Americans to put their money into war bonds. Newspaper and magazine advertisements, posters, and George Creel’s ubiquitous Four-Minute Men all admonished citizens to Win the War—Buy a Bond! Over 22 million persons did so. That number included experienced investors, but there were many other bond buyers, prodded by peer pressure and stimulated by patriotism, who would not ordinarily have saved money at all. Nearly one-third of all Liberty Bonds were bought by persons with annual incomes of $2,000 or less, people more likely to put their money into groceries and clothing in normal times.¹²

      The war bond campaign succeeded in all income brackets and reached citizens in the largest cities and smallest hamlets alike. Its message swayed Americans who had never before had easy access to investments outside their immediate neighborhoods, persons who had never seen a securities broker, let alone done business with one. No securities sales effort of the past could compare with the massive sales campaign for war bonds. It was a brilliantly successful promotion, and in the end more than 18 million Americans became securities owners for the first time. Thanks to Uncle Sam, they flooded the pool of potential small investors.

      Once the war ended, therefore, many Americans found themselves not only with some savings but also with a start on investment, the fruit of prosperity and frugality. But as they rejoiced in peace, they celebrated the end of wartime austerity; they were tired of thrift and ready for hedonistic extravagance. As one proponent of the simple life lamented, Reckless spending takes the place of saving, waste replaces conservation. The National Prosperity Bureau, organized by businessmen, told Americans in 1919, Buy what you need now!¹³ After months of having their shoe colors, furniture designs, and daily diets dictated to them, Americans were entirely willing to do so. They found, moreover, that higher paychecks and the device of installment payments opened a cornucopia of consumer options to them, ranging from automobiles and radios to color-coordinated bed linens and mouthwash. The average person not only could aspire to own more things but was also inclined to admire those who had the means to do so. Thus a journalist told the readers of Nation’s Business that his ideal American was rich, fat, arrogant, and superior.¹⁴

      Getting rich, being rich, and enjoying riches became dominant themes in American culture during the jazz age. Advertisers were quick to exploit the public’s preoccupation with riches. They presented their products as the ones the rich lived with; by using advertised products, they implied, the ordinary consumer could share the experiences of the wealthy.¹⁵ Politicians knew voters wanted to be rich; Calvin Coolidge solemnly proclaimed, Brains are wealth, and wealth is the chief end of man.¹⁶ Clergymen and evangelists recast their message in terms of material gain. The dean of the University of Chicago Divinity School, for one, told the press a man could make more money if he prayed about his business, while Bruce Barton portrayed Jesus as an ace businessman whose parables were the best advertising of all time. As William Leuchtenburg has noted, Religion was valued not as a path to personal salvation or a key to the riddle of the universe but because it paid off in dollars and cents.¹⁷

      But so were many other aspects of life. When Robert and Helen Lynd asked the inhabitants of Middletown why they worked so hard, they were told that money was the main goal. Money, in Middletown as elsewhere, was the basis of social status. As one Middletowner remarked on how old-timers placed newcomers in terms of where and how they lived, You see, they know money, and they don’t know you. Money and material possessions defined one’s place in that community; money was the antidote to social insecurity. Most Americans knew, however, that they would have to do more than work hard to reach beyond simple comfort to riches. Their money would also have to work for them: they would need to invest it.¹⁸

      Though they began investing in war bonds, the 3 1/2 to 4 1/2 percent interest these instruments offered would not make small investors wealthy. Bondholders quickly learned that bonds could be put to creative uses, with a view to a better return than from holding them to maturity. Banks, for example, accepted war bonds as collateral for loans. Securities peddlers accepted bonds at full value, rather than the lower redemption value of bonds that were not held to maturity. Many novice investors learned that from Liberty Bonds they could move into more exciting and speculative activities and make more money than Uncle Sam offered: all they needed was opportunity.

      When aspiring investors studied local opportunities for placing their money, they found few appealing prospects. Farmland and farm loans ceased to be attractive when farm product prices plunged in the early 1920s; nor was slow-moving stock in a local savings and loan association alluring. Another traditional conservative investment, local real estate, was unattractive because outside major cities or booming areas like Florida and California most prices were flat. None of the local opportunities was likely to make anyone rich quick.

      Depositing money in the bank was equally unattractive. Even those who did not seek instant riches were under pressure to invest their money rather than save it, because the rate of inflation exceeded prevailing interest rates. Money placed in the bank shrank a little every year. This was common knowledge, but anyone who lacked it could read it in the form of expert advice printed in mass circulation magazines. John J. Raskob, financier and one-time president of General Motors, told readers of the Ladies’ Home Journal as much: "No one can be rich merely by saving. Putting aside a sum each week or month in a

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