THE GREAT DIAMOND MOUNTAIN Part Four

I would say that William Ralston (above) had scaled the summit of delusion. In order to stand atop the very precipice of his 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 fantasy phantasm. And he was now poised to come plummeting back 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 been forced to sell 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 of disaster was Mr. Clarence King (above). But then it was easy for Clarence to see the Diamond Mountain  for the fraud that it was because he had no money invested.

As a trained and thus geologist, Clarence King knew from the second he read those lurid headlines that the diamond mountain was a fraud. He knew that diamonds and sapphires (above) are never found together,  because diamonds are formed at temperatures and pressures which would crush and melt sapphires.  This was  common knowledge even in 1872.  Only later would it be established that diamonds were made of carbon while sapphires were corundum, a form of aluminum.  That would explain why you can cut a sapphire with a diamond, but not the reverse.  But more than all of that, Clarence King knew the area around the alleged diamond mountain as few other people in the world could know it.

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 the agentless railroad station of  Rawlings Springs, Wyoming.  King  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 2 November, 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 prospector came back holding a gem. He proudly announced, “Look, Mr. King. This diamond field not only produces diamonds,  but cuts them as well!”

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 6  November  1872  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 freight train, parting  company with the sharp eyed prospector. Along the way he composed a  cable addressed to William Ralston, which he dispatched from  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 that of a massive ego suddenly deflating. How had so many and such wise men been so completely duped?

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THE GREAT DIAMOND MOUNTAIN 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 to evaluate this claim. 

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 escrow 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, and having been  sentenced to ten years in prison for this,  Shortly there after President Lincoln pardoned Rubery and had him 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" of being a secret agent of the British government.

On 20 August, 1872, Arnold and Slack were 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, (and) 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 escrow was released. Jannin's report was made public on 3 September, 1872, in the Engineering and Mining Journal. The respected engineer claimed to have washed a ton and a-half of gravel off the plateau, which produced 1,648 carats of diamonds, and 7,200 carats of rubies “"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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THE GREAT DIAMOND MOUNTAIN Part Two

I don't suppose most people have ever heard of Henry Comestock (above). And the few who know he was the namesake of the 1859 Comestock Lode silver strike, probably do not know he had acquired his share of the richest silver strike in history not with a pick and shovel, but by trading a mining claim for an blind horse and a bottle of whiskey. But even fewer know that within 10 short years, in September of 1870,  Henry was flat broke and was forced to take advantage of the poor man's retirement plan. He shot himself.

William “Billy” Ralston (above), aka “The Magician of San Francisco”, founder and manager of the Bank of California, had no intention of suffering a similar fate. In 1864, almost by slight of hand, he had convinced twenty-two of California's Gold Rush millionaires to finance his new bank. He used their capital to make loans to miners in the Comestock Lode. And although Ralston did not invent the idea of giving his mining partners the shaft, he did practice it on an industrial scale. He carefully hid loopholes in his loan documents, and used them ruthlessly, to ensnare miner after miner, and to make himself one of the richest and most powerful men in California.

He invested his profits in wool mills, cigar factories, hotels and theaters. And he gave money to the needy so willingly that it seemed at times as if Ralston wasn't interested in money, so much as he had an insatiable hunger to be richer than he was. And that was why in the spring of 1872 he jumped on the diamond mountain with such enthusiasm. And having jumped, he wanted to quickly squeeze the original founders of the strike, Philip Arnold and John Slack, out of the deal completely.  But his problem in this case was that to properly exploit the diamond mountain Ralston figured he would need $50 million, far more cash than even he possessed.  He needed lots of investors, and lawmakers to protect the investment. Ralston sent his good friend and sometime business partner, the magically named Asbury Harpending to New York City via the transcontinental railroad,  with a bag of gems and instructions to get them valued by none other than the “King of Diamonds”, Charles Lewis Tiffany.

The truth was Charles Tiffany had never seen a raw diamond in his life. What he was, was a marketing genius. He had opened his stationary store in 1837 with $1,000 in capital borrowed from his father. Then, when P.T. Barnum had to shoot one of his elephants, Charles Tiffany bought the poor pachyderm's hide and had it sewn into cigar cases, diaries and wallets. When Barnum's Tom Thumb got married, the miniature pony and coach which carried the diminutive bride and groom away from the church, were provided by Tiffany, and beforehand displayed in his store. And when the the first Transatlantic Telegraph cable was completed in 1858, Tiffany bought several hundred yards of the excess wire, sliced it into sections and sold it mounted on plaques. On the first day of sales, the crowds were so large the police had to restore order – or so Tiffany claimed

But it was Gideon Reed from Boston who ran the firm's Paris store, and who invented the diamond engagement ring, to handle a glut of small stones from South Africa then swamping the market. And it was George McClure, the companies' head gemologist, who oversaw the army of designers who created the Tiffany jewelry style. But nobody outside of the diamond industry had ever heard about those guys. Charles Tiffany (above in his 5th Avenue shop) was the public personification of Tiffany and Company. And so when Asbury Harpending stepped off the train in Manhattan's Pennsylvania Station in the spring of 1872, it was Charles Tiffany's valuation of the gems that he was seeking.

Asbury Harpending (above) described Tiffany's dramatic performance, at his lawyer's home. “A number of distinguished men were present to see the gems displayed...General George B. McClellan, Horace Greeley, Mr. Duncan, of the banking house of Duncan, Sherman & Co....(and Congressman) General B. F. Butler...I opened the bag of diamonds....Mr. Tiffany viewed them gravely, sorted them into little heaps, held them up to the light, looking every whit the part of a great connoisseur. "Gentlemen," he said, "these are beyond question precious stones of enormous value”...In an official statement, still available, his valuation on the lot was $150,000....At that figure, we had diamonds enough already in stock to make up a total of $1,500,000 in hard cash, whenever we wanted to turn them into money....The news of the Tiffany appraisal ...soon became common property in New York and made a big stir in speculative circles.”

Thrilled at Tiffany's estimation of the value of the diamonds, back in San Francisco William Ralston officially incorporated the San Francisco and New York Mining and Commercial Company, with so many investors forcing money into his hands the new firm quickly had a million dollars in “working” capital, and 100,000 shares of stock, initially valued at $40 a share. William Lent was named as President, Ralston named himself as treasurer, and David Colton became the general manager. Even the Baron Rothschild bought stock in the new company.

As the addition of the word “Commercial” indicated, Ralston was dreaming big – very big. The board of directors of his new company were empowered not only to dig out the diamonds of Diamond Mountain – where ever that might be – but they were also empowered to cut and polish the stones, and develop the market for them. Less than six months after Allen and Slack had shared the existence of the Diamond Mountain with him, Ralston was planning on transplanting the entire Amsterdam (above) diamond market to San Francisco, replete with cutters, polishers, graders, wholesalers and, of course, customers. Anyone who could be helpful to Ralston's grand plan, including Congressman Butler, was granted shares in the new venture.

What the rotund Congressman Butler (above) from New York delivered were a few words added to the General Mining Act of 1872, approved in record time and with a minimum of debate in either the American House of Representatives or the Senate. The new law took effect almost immediately, ,on 9 July 1872.   This rushed bill established the price of a mining claim on federal land at between $2.50 and  $5.00 an acre, a figure which has ever since resisted all pressure for an increased benefit to the federal purse. Under this landmark legislation, mining claims on public lands were offered at those bargain prices to those seeking gold, silver, copper or, as Butler amended the act, “other valuable deposits”. In short, diamonds.

By the time this loose end had been tied down, Philip Allen and John Slack were back in San Francisco again, with another bag of diamonds and sapphires. By this time, however, William Ralston had managed to convince the Kentucky simpletons to sell their entire claim to him outright. Their price was $660,000.00; half up front and half upon a final examination by a third engineer, picked by Ralston,  and the revelation of the exact location of the claim.

The man Ralston picked for this final and most important appraisal of the diamond mountain was one of the most respected consulting mining engineer's in America, a man whose 600 previous appraisals had been so accurate his clients had never lost a dollar on his jobs; Henry Janin.  His fee was standard - $2,500 in cash, all expenses paid to and from the claim, as well as the price of chemicals required to confirm the quality of the claim, and the right to buy 1,000 shares in the enterprise at a nominal price. It was all boiler plate, industry standard arraignments.  Of course, contained within them were the seeds of destruction for the entire enterprise, and everyone associated with it. And at least one person had figured that out ahead of time.

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THE GREAT DIAMOND MOUNTAIN Part One

I would like to see every PhD.. candidate in economics at an American university required to make a pilgrimage to the Unita Mountains, about 100 miles due east of Salt Lake City, Utah and about the same distance north-north west of Golden, Colorado. There, looming over tributaries of the Green River stands a lonely, wind swept conical peak, and a 7,000 foot high mesa called Diamond Mountain Plateau (above). There are no diamonds in the Diamond Mountain, but amongst the scrub brush, gravel, and oppressive isolation there is a zircon of veracity for these academic acolytes to contemplate, one brilliant shinning baguette illuminating the fundamental and eternal truth behind capitalism – greed makes you stupid.

In 1846, the 17 year old Philip Arnold left his home in Elizabethtown, along with his cousin John Slack to join 4,700 of their fellow Kentuckians serving in the Mexican war.  Both men were mustered out in 1848 in Texas, and rather than returning east, they joined the California gold rush. Like the vast majority of prospectors, they found no gold. They both worked for a time at a mine in New Mexico. Philip eventually found employment in San Francisco at the new Bank of California - owned by William Ralston – as an appraiser of other prospector's gold claims. It was not the romantic life's adventure Philip had dreamed of,  but as the precipice of middle age yawned open before him, he found it less physically demanding than prospecting. He eventually found even more sedentary employment, as an assistant bookkeeper for “General” George D. Roberts, at his Diamond Drill Company. And it was there where Philip saw his first diamonds, in the diamond dust used in the rock drills. 

From this reasonably secure pedestal Philip watched as the pattern established in California in the 1850's was repeated in the gold and silver strikes in Nevada of the 1860's. Out of the thousands of prospectors who rushed in, a mere handful of the early arrivals actually found gold, and they were quickly bought out or squeezed out by the banker run mining conglomerates which followed.  In 1869, when word spread of an 83 carat diamond picked up in plain sight on the ground by a sheep herder in South Africa, hundreds of aging desperate 49'ers  boarded ship for Capetown,  knowing nothing about diamonds, and aware they would arrive months too late to strike it rich.  So it was no wonder  that in 1870, at forty years of age, Philip Arnold gathered his life savings, quit his job and along with his cousin John Slack, went prospecting for diamonds in America. Amazingly they found them.

In early February of 1872, two dusty unshaven prospectors carrying a battered raw hide bag walked into a San Francisco saloon, ordered drinks and sat alone. Their furtive arguments  and their sheltering of the tattered bag, immediately drew attention. Many of the denizens recognized them as  the long missing John Slack and Philip Arnold.  After several minutes, the pair paid their bill and left. But they repeated their argument at several saloons before finally presenting themselves, dusty and unshaven and now reeking of whiskey, at the main office of the Bank of California - Phillip Arnold's old firm.  Without a word of explanation, they presented their bag for deposit. It was accepted and recorded by the bank manager as filled with diamonds, rubies and other sapphires. It took about twenty minutes for the whole town to assemble the story and to be set afire with rumors.

The bank manager immediately notified his boss, William Ralston. And after Ralston made inquires about the  two men, he then urged Major George Roberts to contact his old “friend” Philip Arnold. But Philip was reluctant to talk, and John Slack was virtually mute. After plying the prospectors with whiskey for hours, Philip finally admitted that some where in the great desert wilderness of Utah territory, just before winter drove them back to civilization, they had found a mountain literally peppered with diamonds and sapphires. The bag deposited in Ralston's bank was just a sample of what they had picked up in a few hours. Arnold explained, they had filed on the claim and were now the legal owners of a diamond mountain.

It was an unbelievable story. But Ralston (above) and Roberts both knew Philip Arnold as a trustworthy and honest employee. And John Slack was also know around town as a dull but hard working man. And there was a logic to finding yet another massive, rich deposit of wealth in the American west, where everything was possible. The biggest problem at this point was getting information out of the two prospectors. Over the next few weeks banker Ralston and a small group of close investors managed to convince the pair to allow two local jewelers to examine the diamonds. They pronounced the contents as worth $125,000. This inspired Ralston to offer $50,000 for one half of one percent interest in the claim, if it were first examined by two experts, one being David Colton, part owner of the successful Amador gold mine, and the other expert was General Roberts. Reluctantly, Philip Arnold and John Slack agreed to take these experts to their claim.

In early March they traveled by railroad from San Francisco to Sacramento. There the two prospectors and their charges boarded the Central Pacific Transcontinental Railroad line, climbing over the Donner Pass, down into the Nevada basin and across the Utah desert. After 36 hours on the train, and in the middle of the night, Philip insisted the two experts put on blindfolds, and they meekly complied. They continued their train ride across the desert with their eyes covered, and then just before dawn, at a small seemingly abandoned station, the train pulled to a stop.

Philip and John helped the two men, still blindfolded, off the train and onto horseback. Immediately they continued their journey. For the next two days the experts, softened by life in San Francisco, suffered on horseback in the oppressive heat of the sun, and endured freezing temperatures each night. They were allowed to remove their blindfolds only after sunset. And starting before sunrise each morning, they were required to replace their blinders. And then, just as they had grown so frustrated they were on the verge of ripping off their blindfolds, the horses were brought to a stop, and their blindfolds were removed.

What was revealed was a flat desert mesa, covered in scrub brush and gravel, with an odd thurst of a mountain at it's foot. Colton and Roberts wandered about, staring at and kicking the nondescript terrain until, suddenly, Colton reached into what appeared to be an ant mound and pulled out a small hard brilliant crystal. In an instant the two excited experts agreed. The Great Diamond Mountain was real!

They spent several hours collecting gems – diamonds and sapphires – before Philip Arnold and John Slack re-blindfolded the men and led their horses back off the mesa. It was a two day journey back across the horrible desert until they flagged down the west bound transcontinental passenger train in the dark, Colton and Roberts were accompanied by Arnold and Slack as far west as Oakland. There they collected their $50,000 down payment and returned to their "diggings". But the two experts continued on to San Francisco with the two bags of jewels they had collected.

With those jewels in hand it seemed obvious to William Ralston (above) that the Diamond Mountain Claim was going to make him and his friends (such as Colton and Roberts) even richer than they were already.  It was the usual two step plan for these masters of high finance, one they had already perfected in California and Nevada.  First they had to squeeze Philip Arnold and John Slack out of the deal as quickly and as inexpensively as possible. Then it would be just a matter of piling up the riches in their bank accounts. And you know, Mr. Ralston was half right.

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