Review
Review
Podcast
30.7.2021
According to legend, it was the evening of September 12, 1857 when the Central America finally sank. The 90-metre-long paddle steamer had been battling the meter-high waves in a hurricane for four days. Although the weather had calmed down somewhat by this time, too much water had already entered the ship. 426 people drowned at the time and it remains one of the biggest maritime disasters in history to this day. However, one thing is even more decisive for the course of history: a good 20 tons of gold sank 2,500 metres into the depths with the Central America - and this plunged the global economy into chaos.
There are a whole series of stories that can be told about this ship. On the one hand, there is the design flaw that probably caused the paddle steamer to sink in the first place. Secondly, there was the emerging banking crisis and subsequent economic crisis, which was fueled by the disaster and which Karl Marx and Friedrich Engels thought would mean the end of the rule of capital, as they had predicted. And then there were also years of legal disputes. In the end, one cannot do without the other. But why is that?
It was October 28, 1852, when the Central America was launched from the Webb shipyard in Greenport, construction number 71. During her service, she would spend the next few years commuting between New York and the then port of Aspinwall, now Colón, in Panama. It was the time of the Californian gold rush. Everyone in the USA was heading west, buying land to dig for the precious metal or at least to sell it at a high price to settlers or railroad companies.
The SS Central America is said to have transported a third of all the gold mined at the time over the years. One trip took up to 24 days, and the three-master had completed it 43 times before its accident.
On August 24, 1857, it was already clear that ride number 44 would be the most important of Central America. Charles Stetson announced the insolvency of his bank, the Ohio Life Insurance and Trust Company. His company was considered to be rock solid, and the bank was trusted like everyone else. Stetson's news spread throughout the USA within hours, made possible by the still new telegraph technology. Like many other financial institutions in the country, the bank had granted millions in loans that were not covered by equity. He and many others bet that the shiny metal from the west of the country would be enough as a reserve. An entire nation was in a gold rush - and a central bank controlling the money supply did not yet exist.
Bank after bank closed their branches, including many that had lent money to Ohio Life Insurance and Trust Company. Americans' confidence in their banks was shaken to the core and Central America may have had the bailout of the banking sector on board at the time. The 20 tons of gold coins and bars were intended to secure the speculation and loans of the weakening financial institutions and thus prevent the potential crash that Charles Stetson had provoked with his message.
When the Central America set sail with its important cargo on September 3, everything seemed to be going well. It was not until September 9, a Wednesday, that the weather apparently changed. By Friday, the storm had turned into a hurricane. The waves beat against the ship and in the morning the engineer reported a leak. The paddle steamer began to list, making it impossible to steer the ship.
This was because the Central America was constructed in such a way that the crew had to push the coal for the steam boiler through narrow corridors using wheelbarrows. This was no longer possible due to the ship's inclined position. The paddle wheels stood still and the ship was now helplessly exposed to the waves.
The Central America was able to stay afloat for a whole day, but the ship could no longer be saved. Captain William Lewis Herndon ordered the evacuation. He was able to save 30 women and all 26 children on board. The rest drowned with him about 175 miles from the coast.
The banking crash in the USA could no longer be stopped. Banks increased their lending rates in order to get money quickly, demanded the money they had lent back and citizens feared for their savings. The whole thing was still just a local banking crisis. Then the news reached Europe - and the markets in the old world reacted violently.
After all, the British had helped to finance the economic boom in the USA. The Europeans mainly shipped luxury goods across the Atlantic at the time, but steel was also included. When news of the banking crash reached Europe, investors feared for their shares and outstanding loans and withdrew their money from the USA.
It didn't help much. The first trading house in Glasgow was forced to close in October. Banks in Liverpool were also hit by the crisis. Ironworks in Wales even had to close because trade with the USA came to a standstill. In the United States, the first railroad companies went bankrupt. In total, around 5,000 companies in the USA were forced to close. As a result, goods piled up in department stores in Europe and prices were at an all-time low. Production came to a standstill due to the lack of demand. There were redundancies. Thousands of workers in Europe are said to have lost their jobs at the time. There were riots in the major cities of the USA during the winter, with workers demanding better protection.
At the same time, a war between Russia and the Ottoman Empire and its allies France and Great Britain ended. This had led to Europe being supplied with expensive wheat and grain from the USA. US agriculture was seen as a growth engine for the younger generation. Farmers bought more and more new agricultural machinery and demanded more and more luxury goods. The peace treaty led to Europe once again stocking up on wheat from Russia. The wheat market also collapsed.
For Karl Marx and Friedrich Engels, the financial crisis, which had long since turned into a global economic crisis and a crisis for farmers in the USA, was a confirmation of their theory. They believed that the end of capitalism had now come. They are said to have written to each other almost daily at the time. The crash would continue for a long time to come, they exulted in their correspondence.
However, the recovery of the global economy came faster than Marx and Engels could have wished for. Trade picked up again the following year. In retrospect, this phase is only seen as a brief interruption of a years-long upswing due to industrialization and in the long term, this period is only a marginal note. But at least the downfall of Central America still led to an arrest in 2015.
In the 1980s, deep-sea engineer Tommy Gregory Thompson decided to salvage the gold from the paddle steamer. After narrowing down the location of the sinking, he began to collect investors for his project. He managed to raise 13 million US dollars. In 1987, he found the wreck and a diving robot took the first photos of the sunken ship. The coveted gold was within reach on the seabed. However, the discovery marked the beginning of a legal dispute that lasted for years: who owned the gold: the salvage company or the investors in the project?
A court ruled that the investors should ultimately receive 92 percent. But Thompson kept finding new ways to deny them their share. He sold numerous finds himself. He is said to have made 52 million US dollars this way. When authorities tracked down the deep-sea engineer in Florida in 2015, all the money was gone. Thompson has now been in prison for over five years. As long as he does not reveal to the US court where another 500 Central America gold coins, which are said to be in his possession, are located, the now 69-year-old is likely to remain there.
Review
30.7.2021
Jan Schulte
The downfall of Central America in the 19th century plunged thousands of people into poverty, conjured up the first Great Depression - and still sent one man to prison over a hundred years later.
According to legend, it was the evening of September 12, 1857 when the Central America finally sank. The 90-metre-long paddle steamer had been battling the meter-high waves in a hurricane for four days. Although the weather had calmed down somewhat by this time, too much water had already entered the ship. 426 people drowned at the time and it remains one of the biggest maritime disasters in history to this day. However, one thing is even more decisive for the course of history: a good 20 tons of gold sank 2,500 metres into the depths with the Central America - and this plunged the global economy into chaos.
There are a whole series of stories that can be told about this ship. On the one hand, there is the design flaw that probably caused the paddle steamer to sink in the first place. Secondly, there was the emerging banking crisis and subsequent economic crisis, which was fueled by the disaster and which Karl Marx and Friedrich Engels thought would mean the end of the rule of capital, as they had predicted. And then there were also years of legal disputes. In the end, one cannot do without the other. But why is that?
It was October 28, 1852, when the Central America was launched from the Webb shipyard in Greenport, construction number 71. During her service, she would spend the next few years commuting between New York and the then port of Aspinwall, now Colón, in Panama. It was the time of the Californian gold rush. Everyone in the USA was heading west, buying land to dig for the precious metal or at least to sell it at a high price to settlers or railroad companies.
The SS Central America is said to have transported a third of all the gold mined at the time over the years. One trip took up to 24 days, and the three-master had completed it 43 times before its accident.
On August 24, 1857, it was already clear that ride number 44 would be the most important of Central America. Charles Stetson announced the insolvency of his bank, the Ohio Life Insurance and Trust Company. His company was considered to be rock solid, and the bank was trusted like everyone else. Stetson's news spread throughout the USA within hours, made possible by the still new telegraph technology. Like many other financial institutions in the country, the bank had granted millions in loans that were not covered by equity. He and many others bet that the shiny metal from the west of the country would be enough as a reserve. An entire nation was in a gold rush - and a central bank controlling the money supply did not yet exist.
Bank after bank closed their branches, including many that had lent money to Ohio Life Insurance and Trust Company. Americans' confidence in their banks was shaken to the core and Central America may have had the bailout of the banking sector on board at the time. The 20 tons of gold coins and bars were intended to secure the speculation and loans of the weakening financial institutions and thus prevent the potential crash that Charles Stetson had provoked with his message.
When the Central America set sail with its important cargo on September 3, everything seemed to be going well. It was not until September 9, a Wednesday, that the weather apparently changed. By Friday, the storm had turned into a hurricane. The waves beat against the ship and in the morning the engineer reported a leak. The paddle steamer began to list, making it impossible to steer the ship.
This was because the Central America was constructed in such a way that the crew had to push the coal for the steam boiler through narrow corridors using wheelbarrows. This was no longer possible due to the ship's inclined position. The paddle wheels stood still and the ship was now helplessly exposed to the waves.
The Central America was able to stay afloat for a whole day, but the ship could no longer be saved. Captain William Lewis Herndon ordered the evacuation. He was able to save 30 women and all 26 children on board. The rest drowned with him about 175 miles from the coast.
The banking crash in the USA could no longer be stopped. Banks increased their lending rates in order to get money quickly, demanded the money they had lent back and citizens feared for their savings. The whole thing was still just a local banking crisis. Then the news reached Europe - and the markets in the old world reacted violently.
After all, the British had helped to finance the economic boom in the USA. The Europeans mainly shipped luxury goods across the Atlantic at the time, but steel was also included. When news of the banking crash reached Europe, investors feared for their shares and outstanding loans and withdrew their money from the USA.
It didn't help much. The first trading house in Glasgow was forced to close in October. Banks in Liverpool were also hit by the crisis. Ironworks in Wales even had to close because trade with the USA came to a standstill. In the United States, the first railroad companies went bankrupt. In total, around 5,000 companies in the USA were forced to close. As a result, goods piled up in department stores in Europe and prices were at an all-time low. Production came to a standstill due to the lack of demand. There were redundancies. Thousands of workers in Europe are said to have lost their jobs at the time. There were riots in the major cities of the USA during the winter, with workers demanding better protection.
At the same time, a war between Russia and the Ottoman Empire and its allies France and Great Britain ended. This had led to Europe being supplied with expensive wheat and grain from the USA. US agriculture was seen as a growth engine for the younger generation. Farmers bought more and more new agricultural machinery and demanded more and more luxury goods. The peace treaty led to Europe once again stocking up on wheat from Russia. The wheat market also collapsed.
For Karl Marx and Friedrich Engels, the financial crisis, which had long since turned into a global economic crisis and a crisis for farmers in the USA, was a confirmation of their theory. They believed that the end of capitalism had now come. They are said to have written to each other almost daily at the time. The crash would continue for a long time to come, they exulted in their correspondence.
However, the recovery of the global economy came faster than Marx and Engels could have wished for. Trade picked up again the following year. In retrospect, this phase is only seen as a brief interruption of a years-long upswing due to industrialization and in the long term, this period is only a marginal note. But at least the downfall of Central America still led to an arrest in 2015.
In the 1980s, deep-sea engineer Tommy Gregory Thompson decided to salvage the gold from the paddle steamer. After narrowing down the location of the sinking, he began to collect investors for his project. He managed to raise 13 million US dollars. In 1987, he found the wreck and a diving robot took the first photos of the sunken ship. The coveted gold was within reach on the seabed. However, the discovery marked the beginning of a legal dispute that lasted for years: who owned the gold: the salvage company or the investors in the project?
A court ruled that the investors should ultimately receive 92 percent. But Thompson kept finding new ways to deny them their share. He sold numerous finds himself. He is said to have made 52 million US dollars this way. When authorities tracked down the deep-sea engineer in Florida in 2015, all the money was gone. Thompson has now been in prison for over five years. As long as he does not reveal to the US court where another 500 Central America gold coins, which are said to be in his possession, are located, the now 69-year-old is likely to remain there.
About the author
Jan Schulte
Jan Schulte writes about business and politics.
