THE SECRET OF CAPITALISM Part Six

I can not imagine the shock and shame felt by William Ralston when Mr. Colton handed him the telegram from Professor King. His shock, and probably anger at this previously unknown (to him) interloper who was questioning his dream, must have been overwhelming. But this was quickly followed by reports from the London newspapers detailing the bizarre Americans who bought diamonds in bulk. Wrote the London Times, “The purchasers were evidently unacquainted with precious stones; they purchased without reference to size, weight or quality, the lot including diamonds, rubies, emeralds, etc. to the value of over $15,000.” Shortly there after King himself arrived in San Francisco, with full details of the salted claims. Ralston wasted no time in moving to minimize the damage to his reputation.

First he made arraignments to repay every investor in full. That million dollar hit to his personal finances was huge, but in the days before the Securities and Exchange Commission, and their meddlesome regulations, tens of millions of dollars in investments could vanish with a mere whiff of rumor against the reputation of one man. If the Bank of California was to have any future, then Ralston had to at once restore the full trust of men like the Baron Rothschild. It was at moments like these that it should be clear that a lack of government regulations is a severe hindrance to the trust which makes larger international investments possible.

Next Ralston moved to get his money back. He hired the best detective he could find, the long time San Francisco Captain of Detectives, Isaiah.W. Lees. Over thirty years of service, Lees had managed to avoid any taint of corruption while rising to the top of a department awash in payoffs and political favoritism. Lees had championed innovations such as photographing all arrested suspects, and originated the rouges gallery of their pictures. Lees was now granted a leave of absence from the department, and Ralston provided him with an expense account to find out everything he could about the Great Diamond Mountain con men.

Lees immediately set out for Europe and found, as he suspected, that there were many along Tulip Street who recognized the photographs of the two odd Americans from their 1870 expedition. And by tracking the aliases they had used in Amsterdam against shipping manifests Lees could confirm they had sailed – in both 1870 and 1872 – from the Canadian port of Halifax. A railroad had recently been completed, connecting the U.S. State of Maine with Nova Scotia, and that seemed the obvious path they had taken to avoid American ports.

Although John Slack was was nowhere to be found at the moment, the Pinkerton agency had easily tracked down Philip Arnold, living amongst the 2,000 residents in his home town of Elizabethtown, Kentucky. Far from hiding, Arnold had followed the example of William Ralston. He had invested his ill-gotten gains in an troubled bank run by Thomas Polk, now renamed the Arnold and Polk Bank. The move saved the small town from financial ruin. Arnold put the rest of his money into the safe in his two story brick Italiante home at 422 East Poplar street, in the hills on the north side of “E”town, along with 500 acres of farmland where he bred horses, hogs and sheep.

Arnold and Slack were both indicted for fraud in San Francisco, but Philip Arnold had no intention of giving himself up. His family connections in Hardin County, Kentucky, and his donations to local politicians were only reinforced by the interviews he gave to the “Louisville Courier”; “I have employed counsel, a good Henry Rifle” he announced. The feisty talk assured public opinion would materialized firmly behind the local boy who had outfoxed the robber barons, but Arnold also hired a real lawyer or two. Philip Arnold was dug in like a tick on a Kentucky mule, and Ralston was not going to get him out without an expensive, exhausting and embarrassing court fight. Rather than see himself mocked and derided in Kentucky courtrooms, the robber baron decided to cut a deal.

The details were never made public, but it seems the California banker settled for about a third of what he had lost, about $200,000. In exchange Ralston dropped all claims against the Kentucky con man.

But the bad news was just starting for the Magician of San Francisco.The capitalist sharks smelled blood in the water.  In August of 1875,fellow robber baron and close personal friend Senator William Sharon, broke a promise to Ralston and sparked the collapse of the Bank of California. Try as he might to avoid it, William Ralston ended up just like Henry Comestock, and he made the same exit The day after they took his bank away, William Ralston was found floating in San Francisco bay. His funeral was attended by 50,000 people. They loved him, they just weren't willing to lend him any more money.

Charles Lewis Tiffany, the man who had vouched for the value of worthless diamonds and sapphires, reestablished his reputation in 1878 by buying himself a French Legion of Honor Award. He died in 1902 at the age of 90. He left behind an estate valued at $35 million.

Shortly after paying Ralston to go away, Philip Arnold opened a hardware store at 58 public square in “E” town. It seems he had gotten considerably more than half of the money from the diamond hoax. Unfortunately, he would not live long to enjoy it. Just five years later, on Tuesday, August 20, 1878, Philip Arnold got into a bar fight with Henry Holdsworth, a clerk at a competing bank. In a story that would be familiar to anyone who watches the local news, Holdsworth left the bar and returned a few minutes later with a double barreled shotgun.

According to the Breckenridge News from Cloverdale, Kentucky, Arnold was just leaving the bar when he saw Holdsworth approaching. Arnold pulled his pistol and fired twice. He missed both times. Holdsworth fired one barrel, missing Arnold but hiting two innocent bystanders, one of them in the neck. Hodsworth then ducked behind a tree. From there he emptied the second barrel at Arnold, hitting him in the shoulder and “lacerating it terribly”. Not dissuaded, Arnold fired three more rounds, again missing Hodsworth, but this time hitting a local farmer named John Anderson, in the gut, and killing him. Since everybody was now empty, the gun fight was over, and the tally was seven rounds fired, one antagonists wounded, one innocent bystander killed and two more noncombatants injured - a typical gun fight.

Philip Arnold did not die quickly. The 49 year old lingered for almost a year, finally dieing of pneumonia on August 8, 1879. His funeral was one of the best attended in the history of “E” town, and his monument on the rolling slopes of the Elizabethtown Cemetery is one of the tallest. But over time memories of Philip Arnold have shifted and every October the residents of “E”town stage the “Philip Arnold Dead Man Rolling Bed Race”- to raise money for charity, of course. Contact the E-town Heritage Council for details. The final joke is that Arnold's hardware store has become a law office.

In a footnote - Arnold's nemesis, Henry Hardworths, was not satisfied with having mortally wounded Arnold. He also sued him for $7,600 for injuries suffered in the bar fight. He lost. But that figure came up again in August of 1884 when Henry was arrested in New Orleans for passing bad checks  in "E" town, totaling $7,000.

Arnold's partner in crime, John Slack was eventually tracked down in St. Louis, where he was working in the affiliated professions of cabinet and coffin maker. But he missed the mines of his youth and continued his profession in the silver strike boom town of White Oaks, where he became “one of the oldest and most universally respected citizens...” of Lincoln County, New Mexico. He died in 1896, at the age of seventy-six years, two months and six days, leaving an estate of $1,611.14.

The only conventional hero in our tale seems to have been the geologist and professor, Clarence King (above). He had uncovered the scam, and its fame had made him the first director of the United States Geological Survey. But there was, of course, another side to the rock hound, a human side. In 1888 he married Ada Copeland, an ex-slave who had moved from Georgia to New York. What was dark about this love story was that King hid his true identity from Ada, telling her that his name was actually James Todd, that he was a black,man and his profession was actually that of a Pullman Porter. For the next 13 years he continued this divided life, black man James Todd at home, and world renown geologist Clarence King while away from home. They had five children, and Clarence finally revealed his true identity to poor Ada and the children in a letter he wrote in December 1901, as he lay dying in Arizona.

If you want to see the Diamond Mountain that has no diamonds, find Diamond Wash Draw, in Moffat County, Coloardo, about one mile south of the Wyoming state line and a quarter mile east of the Utah state border. The flat topped mountain in front of you is Diamond Peak. And the square mile scrub brush plain to the north is the scene of the Great Diamond Hoax of 1872. If you can get there, you too can pull a diamond right out of the ground. And when you do you will understand why William Ralston had been so willing to believe, and why capitalism has always depended upon a mix of fantasy and a fraud to survive.

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THE SECRET LIFE OF CAPITALISM Part Five

I believe it was pure luck that Philip Arnold and John Slack, the co-conspirators in the Great Diamond Hoax, had arrived in Amsterdam at just the right moment in history. The supply of new uncut diamonds from India had slowly dried up begining after 1800, and output from the newer Brazilian mines had shrunk by 1860 to a mere 5,000 carats a year. But beginning in about 1867, the influx of 20,000 carats a year from South Africa had revived the market. By 1870, along Tulpstraat (Tulip Street) there were seventy companies employing some 12,000 people in the grading, polishing and cutting of diamonds from South Africa. There was so many diamonds about, that after grading, most of the lesser quality stones were sold at a discount in lots to the lesser talented cutters in Antwerp, Belgium and London, England. And it was at just at this propitious moment, in the fall of 1870, that the two Kentucky con men made their entrance upon the stage.

If you are going to create a diamond mine, the first thing you need are diamonds. Most of the Dutch dealers read the Kentuckians as stereotypical 'nouveaux riches' Americans with more money than taste. And by carefully picking through the stockpiles of discarded stones from dozens of different companies, Arnold and Slack were able to turn their carefully hoarded $25,000 life savings into enough rocks to impersonate a diamond mine - if no one who looked at them had any experience with diamonds in the  rough. And that was unlikely as the industry was almost completely operated by insular ultra conservative Hasidic Jews – another lucky break for Arnold and Slack. But, as insurance, the Americans picked up a few hundred trash-heaped sapphires as well.  Having completed their shopping trip, Arnold and Slack sailed for Halifax, Canada. By avoiding American ports they greatly reduced their chances of meeting anyone who might know them, now or in the future.

We know that the pair had worked mines in Arizona, and that Philip Arnold had examined other mining claims for Ralston's bank, mostly in California and Nevada. But either man could have heard about the odd “conical” shaped mountain overlooking a worthless claim along the Utah, Colorado and Wyoming border. During the long summer of 1871 Arnold and Slack carefully “salted” their claim with a heady selection of diamonds and sapphires. Then they waited for winter, when harsh weather in the Nevada fields forced prospectors to stay close to San Francisco. And in February of 1872, just when the rock hound's cabin fever would be reaching its height, the two con men floated to the surface and spread their rumors of a big find.

As the Kentuckians anticipated, Ralston (above) eagerly took the bait and insisted on having his own experts examine the claim. Arnold and Slack made a show of reluctantly agreeing to take David Colton and Major George Roberts to the claim, in exchange for a $50,000 cash investment. And with that they had broken even on the scam. Now they were going after a profit.

It was to be expected that neither expert on this March expedition knew anything about diamonds, since nobody in California did. And since both Colton and Roberts were also investors in the mine it was easy to convince them they were about to become fabulously wealthy. All they had to do waswant to believe. In Oakland, on the return from the claim, Arnold and Slack collected their payment and then hurried off again. Ralston was told they were returning to work on the claim. In fact the pair was headed back to Europe, to fetch more diamonds.

During the spring and early summer of 1872, while Asbury Harpending was in New York, receiving Charles Tiffany's glowing appraisal of the diamonds and sapphires salvaged from the disposal bins in Amsterdam, Philip Arnold and John Slack were in London, repeating their performance. Things went quicker this time because there was less of a language barrier, there were fewer cutters to chose from, and the Kentuckian con men were more knowledgeable about what they needed. Also, with their scam approaching its apex, there was less need for secrecy. Again they sailed from and to Canadian ports – a five day sail to and from Halifax.

But something held them up on this trip, and  they did not have time to salt the mines. Instead, carrying  about $35,000 worth of low grade diamonds and sapphires, they were forced to return directly for San Fransico. But there was no need to worry, for in their absence, “Billy” Ralston had been dreaming again. He thought that, as usual, his victims were playing by a different set of rules than he was. But this time the Kentucky con men were playing the same game Ralston was.  On their return, Ralston offered the two Kentucky con men $660,000 and a percentage of future profits for the precise location of the claim, and a quit claim, once the value was confirmed by yet another expert. Any concern Arnold or Slack may have initially felt on hearing about this additional inspection was dissipated when they learned the identity of the final expert who stood between them and a fabulous fortune. He was not some mysterious South African or Brazilian diamond expert. He was Henry Janin.

From the moment he boarded the train that August, Henry Janin was like a child being read to from his favorite story book. He wanted to believe. He knew the plot so well, he could almost say the lines before they were read to him. What he expected to see, Janin saw. Arnold must have known the man from their decades in San Francisco mining circles. Slack must have known the arrogance and self satisfied self assurance, and the amazing avarice that drove Janin. Once Janin was picked, both men must have known the $330,000 in escrow and the $330,000 promised upon revelation, was as good as theirs.

The mystery of the 36 hour train ride, the darkened “abandoned” station, the blindfolds, the almost biblical wandering four day journey across the desert, everything about the trip seemed to be calculated to inspire mystery and romance. It was a perfectly calculated performance, except for Philip Arnold's final trip to “get his barrings”. On that fourth morning he must have rode off in desperation, and spent a hurried few hours salting the claim. Perhaps this is why the second trip from the railroad to the diamond mountain took twice as long as the first. But Arnold need not have worried. Greed makes peole stupid. And even so obvious a slip in their veil of conspiracy failed to awaken the would be millionaires from their slumber. Arnold returned in time to lead his audience directly to a camp site at the foot of the diamond mountain, and any lingering doubts evaporated at the first glint of bling.

Ashbury Harpending (above) had almost blown their happy ending when he had heard the train whistle on the wind. Philip Arnold quickly assured him that the railroad was a hundred miles away, when in fact it was only twenty – just over the horizon. Lucky again, for the Kentuckians, that western trains were still burning wood to supply their steam. Wood smoke is white, and seen from a distance might be a cloud on the horizon. In another decade the tiny deserted station at Rawlings Springs, where the party had left the railroad, would be a very crowded place, the skies above it darkened with a constant pall of thick black smoke, as the transcontinental trains were switched to burning coal, found in great quantities by Professor King's 40^th Parallel Survey a mile or so north of the station.

It was Arnold and Slack who took over the panning duties for Janin. And this allowed them to magically  produce diamonds and sapphires with even a clumsy slight of hand. Half hour of dull unrewarding work would have discouraged any of the more zealous members of the party from panning themselves. And having been relieved of the real work, the robber baron want-a-bees could concentrate on the more enjoyable task of building castles in the air. They split up, each man wandering off to look for his own personal fortune, like Janin and his claim on the water rights. It was a storybook voyage to a fantasy island in a desert mirage. The only person who did not seem to enjoy the trip was John Slack. It appeared he was cursed with the confidence man's worst enemy – a conscious.

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THE SECRET LIFE OF CAPITALISM Part Four

I would say that William Ralston (above) had scaled the summit of delusion. In order to stand atop the very precipice of fallacy, this founder of the Bank of California, owner of much of the Comestock Silver Lode and respected member of the monetary elite, had sold $10 million in shares in his new diamond company in a single morning, and had then, with the ruthlessness efficiency he was respected for, had duped the two Kentucky country bumpkins into selling him their lucky find for little more than a half a million dollars. And having done all of that, he had now ascended his ultimate tower of phantasm. He was now poised to come plummeting to earth.

It is easy to see how Ralston had reached his precarious perch. The entire nation was tripping on inflated  dreams, even if they weren't their own. The Alta California newspaper reported, “We have seen a report written by Henry Janin, a mining engineer of an established reputation, who had visited the mines, examined them and reported favorably on them. He has accepted the position of superintendent and has expressed the opinion that with twenty-five men he will take out gems worth at least $1,000,000 a month...Most of the diamonds found by Mr. Janin are small, weighing a karat. One obtained previously weighed over 100 karats... Some of the sapphires are as large as pigeon eggs....The diamond mines are the property of the San Francisco and New York Mining and Commercial Company, which has...100,000 shares of stock and they have been selling at $40, making the present market value of the whole property $4,000,000.”

In fact there was no 100 karat diamond. Janin was not the new superintendent. In fact that gentleman had recently sold his 1,000 shares in the claim for $40,000, to maintain his expensive lifestyle. Still Janin had faith in the venture, so perhaps the first man to realize that Raliston was actually a man on the verge was Mr. Clarence King (above). But then it was easy for Clarence because he had no money invested in the mountain. As a trained and thus disinterested geologist, Clarence King knew from the second he saw those lurid headlines that the diamond mountain was a fraud. He knew that diamonds and sapphires are never found together, if for no other reason than that diamonds are formed at temperatures and pressures which would crush and melt sapphires. Proof of this, common knowledge even in 1872, was that you could cut a sapphire with a diamond, but not the reverse. Only later would it be established that diamonds were made of carbon while sapphires were corundum, a form of aluminum.  But more than that, Clarence King knew the area around the alledged diamond mountain as few other people in the world could.

What made the 30 year old Professor King such an expert was that he had just completed (pun alert!) his groundbreaking work on the 40^th Parallel Survey. This massive seven volume catalog of the natural resources made accessible by the transcontinental railroad, had only been completed in September of 1872. As its centerpiece it produced a topographical geological map centered on the 40^th east /west parallel, and covering 50 miles on either side, on a scale of four miles to an inch. And nowhere on this map or in its thousands of pages of supporting geological and biological compendiums, was there even a hint of such a place as Ralston's diamond mountain.

Over dinner at the Pacific Union Club in San Francisco (above), King carefully grilled Henry Janin about the claim. He was stunned to discover that even now Janin was not sure of the exact location of the mine. “I was taken a long distance on a train, about 36 hours. Then we left the railroad at some small station where there was no attendant. We were brought out of the station blindfolded and put on horses” For two days, explained Janin, they had ridden with the sun in their faces.

The consulting mining engineer described the claim itself as a curious place, “...a desert with a conical but flat topped mountain rising right out of it, and on the mountain you find everything from garnets to diamonds!” Familiar with the country, King realized that 36 hours on the train would have taken Janin into eastern Utah territory or Western Wyoming territory. And the sun in his face for two days, meant Janin had been ridding south from the railroad. After lunch, King consulted his maps.

And 36 hours later he arrived at Rawlings Springs, Wyoming. He hired an aging German emigrant prospector and together they set off for a mountain he had surveyed just the year before, in what is today northwestern Colorado. On November 2, 1872 they crossed a creek with a sign marked, “Water Rights – Henry Janin”. Immediately, King began to set up camp while the prospector went off exploring. King was hardly finished pitching the tents when the old man came back holding a gem. He proudly announced, “Look, Mr. King. This diamond field not only produces diamonds but cuts them also!”

The two men working together quickly became adept at finding gems. They had only to look for tool marks on the surface, to find a diamond pushed into the ground, or a sapphire jammed into a crevice in the rocks. And indeed, many of the gems showed signs of having been worked over by lapidary tools. It appeared that the great diamond mine had been “salted”.

The term was an invention of the colonial American frontier. At a time when salt was vital in the preservation of food, poor farmland could still be sold at a premium if the seller poured salt down a well on the property, to give the impression of a “salt lick” or mineral deposits just below ground level. Gold and silver claims were even more easily salted, with a shot gun loaded with the appropriate mineral dust. But salting this diamond mine had required a more labor intensive approach.

A week of examining the property provided King with all the evidence he would need. On the the sixth of November the two men headed back toward the railroad, barely 20 miles away. (It seemed Mr. Harpending had actually heard the Union Pacific engine's whistle, after all!) King did not wait for a scheduled stop at Rawlings Spring, but flagged down a passing train, parted company with the sharp eyed prospector and composed a quick cable to William Ralston, which he dispatched at the next station. The message was short and sour. The great North American Diamond Mine was a hoax.

The sound reverberating out of San Francisco that day was of a hundred egos suddenly deflating - one in particular. How had such wise men been so completly dupped?

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THE SECRET LIFE OF CAPITALISM Part Three

I suppose the simplest way to describe Henry Janin (above - not him) would be to call him a “hale fellow, well met.” His fellow mining engineers described him as “Cool as a cucumber...self-reliant, determined, and confident”. However the same publication hastened to point out, “He is not a stayer...his brilliant work, genial temperament and brilliant wit made him the “spoiled child” of many a social circle...with his extraordinary talents and accomplishments he might have been great; but at least he always remained dear.”.

Said another publication, “He accommodates himself gracefully to a given situation; lives well...drinks only the best of wines, and smokes only the best of cigars. Aristocratic in his tastes, gentlemanly in demeanor, and careless of the opinions of those he does not esteem, Mr. Janin (above - still not him) enjoys the confidence of those who appreciate merit and worth “ Still, somehow, amongst all that praise, it is difficult to find either profile as positive toward his talents in his life's work. That ambivalence seems to stem at least in part from his work at Diamond Mountain. He was, all things considered, the worst possible man for this job.

Henry Jannin took William Ralston's (above) job offer at his standard salary, ($2,500), and an option to buy 1,000 shares in the venture at a greatly reduced fee. As soon as half of the final sale price ($660,000) had been deposited in an eschrow account, Philip Arnold and John Slack agreed to lead Jannin to the claim, along with Asbury Harpending, General Dodge, one of the builders of the transcontinental Railroad, and...

...for some reason, a gadabout Englishman named Alfred Rubery (above), whose only claim to fame up to this time was having been convicted of outfitting a raider for the Confederacy in a San Francisco, having been  sentenced to ten years in prison for this,  but then having been pardoned by President Lincoln and expelled from America. He had come back after the Civil War, and now claimed to be "on vacation". But if this were another time and place, I would suspect "Ruby" was a secret agent of the British government.

August 20, 1872, found Arnold and Slack once again on a train bound for their Diamond Mountain, this time leading the party of investors and Henry Jannin. At Rawlings Springs station they left the railroad, hired horses and pack mules, and headed out across “ a mass of clay or sand and alkali--a horrible and irreclaimable desert”. According to Harpending (above) their four day journey was hindered, because “At times our leaders seemed to be perplexed, to have lost their way. At times they climbed high peaks, apparently in search of landmarks....The party became cross and quarrelsome. At last, on the fourth day, early in the morning, Arnold set out alone, to get his bearings, as he said. He returned about noon, said everything was all right, and we set out again with high hopes. By four o'clock we pitched camp on the famous diamond fields.”

It was, said Asbury Harpending, “...a small mesa...littered here and there with rocks comprising about thirty or forty acres (above), through which a small stream of water ran. It was located in one of the most unfrequented parts of the United States....once...on a very still day, I thought I heard something in the far distance that sounded like the ghost of a whistle. When I mentioned this to Arnold, he merely smiled. The railroad was at least a hundred miles away, he said.”

The party could barely contain their greed, and wasted little time making camp before they began their search for jewels. “We all went to work with our primitive mining implements- picks, shovels and pans. Everyone wanted to find the first diamond. After a few minutes Rubery gave a yell. He held up something glittering in his hand. It was a diamond, fast enough. Any fool could see that much. Then we began to have all kinds of luck. For more than an hour, diamonds were being found in profusion, together with occasional rubies, emeralds and sapphires.”

“There wasn't the usual row over who should cook supper, who should wash the dishes, who should care for the stock, which little incidents of camp life had brought us to the verge of bloodshed during the three previous days. On the contrary, good will and benevolence were slopping over...Mr. Janin was exultant that his name should be associated with the most momentous discovery of the age, to say nothing of the increased value of his 1,000 shares; while General Dodge, Rubery and myself experienced the intoxication that comes with sudden accession of boundless wealth.”

“Everywhere we found precious stones - principally diamonds - although a few sparklers of other kinds were interspersed. It was quite wonderful how generally the gems were scattered over a territory about a quarter of a mile square and of course we were only doing surface examination. No one could tell what depth might produce...Two days' work satisfied Janin...The important thing (he said) was to determine how much similar land was in the neighborhood...this new field would certainly control the gem market of the world and (it was)...all-essential...for one great corporation to have absolute control. So we started on a widely extended prospecting trip. We staked off in a rough way an enormous stretch of the country, set up notices of claims....”

Unnoticed by the civilians, Henry Jannin managed to stake a private claim to one of the few water ways which bisected the incredible diamond Mountain, a feat which, if upheld in a court of law, might have given the engineer a strangle hold over the entire operation. He was probably not alone, but with his favorable report, the second half of the $660,000 was paid to Slack and Allen, and the first half held in eschrow was released. Jannin's report, made public on September 3, 1872, in the Engineering and Mining Journal. The respected endgineer claimed to have washed a ton and a-half of gravel off the platau, which produced 1,648 carats of diamonds, and 7,200 carats of ruby. “"I do not doubt that further prospecting will result in finding diamonds over a greater area...and that I consider any investment at the rate of $4,000,000 for the whole property a safe and attractive one".

What Jannin neglected to mention was that he had no practical experience at panning, either for diamonds, sapphires or gold. So he had left that back breaking, tedious work to the only practical miners in the group - Philip Arnold and John Slack.

In retrospect it seemed the investors were so busy trying to cheat each other, they made it easy for the professionals.

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