June 7 (Bloomberg) -- On Saturday, many Americans will tune in for the 145th running of the Belmont Stakes, the final and most grueling leg of the Triple Crown. Few of us, however, know that the namesake of the race, August Belmont, was a dominant financial figure of the 19th century.
Belmont began his career as an agent for the Rothschild banking house. He was first assigned the Cuban portfolio. As he left Europe off for his posting in 1837, he stopped in the U.S., which was in the midst of a major financial panic and where the Rothschilds’ operations were in disarray. He quickly declared the U.S. his new base of operations.
Belmont (and the Rothschild banking house with him) made a killing in the subsequent recovery, particularly in the cotton and tobacco booms, and he consistently aligned himself with the Democrats, who backed the interests of cotton producers in the South. In 1860, Belmont managed the unsuccessful presidential campaign of the Democratic candidate, Stephen Douglas, who seemed to offer the best chance of preventing the Civil War and thus keep profits flowing.
Still, once war was declared, Belmont saw that the Confederacy, or the “cotton states” as he described them, was a bad bet. Cotton was valuable, and the Confederacy could win, but the rebels’ financial infrastructure was so undeveloped and untrustworthy that even victory would be bad for business. Belmont rebuffed a request from the Confederate President Jefferson Davis for a $50 million loan. Four Southern states had repudiated their debts to the Rothschild banking house in the antebellum period.
“Under the leadership of the most reckless and unprincipled set of politicians,” Belmont said in 1863, on the eve of the battle of Gettysburg, “the new Confederacy has no principle of vitality in her and is sure to fall to pieces again.”
Belmont was more bullish on the Union. “The knowledge that the war is to be prosecuted with energy and vigor has inspired confidence and stocks have improved,” he said. In the summer of 1861, Belmont traveled to Europe as an unofficial representative of the U.S. government at the behest of President Abraham Lincoln and Secretary of State William Seward. Belmont couldn’t convince the Rothschilds to buy Union bonds, but he was able to convince them that the Confederacy would be a bad investment.
Despite his service to the Union, Belmont remained wary of fiscal policy emanating from Washington, particularly an increase in tariffs and the passage of the Legal Tender Act and the National Banking Act. Belmont deplored the decision by the Lincoln government to issue the fiat currency known as greenbacks to help pay for the war, but recognized that there was little choice. Printing money might lead to inflation, but borrowing from New York banks was laborious and slow. Belmont worried far more about the rampant wartime speculation, particularly in railroads, coal and gold.
“Millions are realized by the stockgamblers,” Belmont said, “while the poor victims will find themselves in the end with a worthless property on hand.”
He issued a dire warning that anticipated the Panic of 1873, which particularly affected investors in the railroads. “When the crash comes, we fear, it will be a terrible one,” he said.
Since his arrival in the U.S., Belmont had shown a gift for predicting the direction of the wind. Having made money in cotton, he was able make even more backing the war against the cotton states. Unlike the Rothschilds, who mostly avoided government securities during the war, Belmont made a large investment in Union bonds that made him quite wealthy.
In 1866, he used part of his fortune to finance the Jerome Park Racetrack in the Bronx, which hosted the inaugural Belmont Stakes in 1867.
(David K. Thomson is a doctoral student in history at the University of Georgia. The opinions expressed are his own.)
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