The Man Who Bankrupted a Legislature

The Man Who Bankrupted a Legislature

by Lawrence W. Reed

My first choice for a headline for this article was “The Scoundrel Who Bankrupted a Legislature” but upon reflection, I think the legislature had it coming. So I changed “scoundrel” to a more neutral term.

The name “William Sharon” meant nothing to me until I recently read Irving Stone’s 1956 masterpiece, Men to Match My Mountains: The Opening of the Far West, 1840-1900. The book has been appropriately lauded as “an unforgettable pageant of giants”—men who scaled the Rockies, made deserts bloom, dug deep for gold and silver and surveyed territories west of the Mississippi into 22 states in the continental U.S. Those men (and yes, the women too) weren’t all saints; Stone recounts the exploits of more than a few rascals.

The tale of William Sharon comprises but a few pages of Stone’s book but it was enough for me to search additional sources. It turns out that Sharon was the quintessential “crony capitalist.” Perhaps his one saving grace was that he taught a painful lesson to his cronies in government.

Sharon was born in Smithfield, Ohio in 1821. After studying law and gaining admittance to the bar, he moved to California just as the 1849 Gold Rush commenced. He made a small fortune in real estate as land values soared, then moved to Nevada to pursue a growing interest in silver mining. He was in the right place at the right time when the Comstock Lode was found in 1859, the first major discovery of silver ore in American history.

As owner of the Virginia City branch of the Bank of California, Sharon specialized in cheap loans to struggling mines and mills. When the undercapitalized or inefficient ones failed, Sharon foreclosed and took them over. He was a shrewd wheeler-dealer but I can find no fault in that. It was when he turned his eye to politics that the dirtbag in him came out.

William Sharon proved himself a smart investor and a capable banker but that wasn’t enough. He wanted to be a United States Senator from the newly-minted state of Nevada, which had entered the Union in 1864. In those days, legislators chose who would represent the state in the U.S. Senate. If you could get their attention, you might get yourself a coveted seat in Washington. So Sharon went to work on it.

To curry favor with Nevada legislators, he offered them confidential and convincing financial advice: Buy stock in the Ophir silver company because it was heading to $300 a share. The year was 1875. Stone writes,

Most of the legislators sank their life savings in Ophir, and started a speculative frenzy on the San Francisco Exchange which observers called maniacal.

With the Ophir stock only a few dollars below $300 a share, the Nevada legislature elected William Sharon to the United States Senate. When his election had been certified to the federal government, Sharon secretly sold all of his own Ophir stock; he also sold it short. The sale of his large block on the San Francisco Exchange plummeted the Ophir shares to their real value, which was almost nothing….

The Nevada legislature was wiped out, which some people said was little more than it deserved. The $500,000 Sharon had spent to get himself elected he earned back on his short sales. No one got the better of William Sharon.

For the next six years, the man who swindled his way into politics “served” his single term in the Senate. His cronies back in Nevada seethed in anger. It didn’t matter much to Sharon because he was 2,500 miles and a long stage-coach ride away.

He wasn’t done making money in either silver or politics, either. In 1878, Congress passed the Bland-Allison Act at the behest of inflation advocates and silver-state senators like Sharon. He was one of the Act’s most prominent cheerleaders because with his extensive financial interests in silver mines, he stood to profit hugely. Bland-Allison was a blatant subsidy to silver, sold publicly as a monetary measure that would help the country by increasing the money supply. As I wrote in The Silver Panic:

The Act provided for the purchase by the Treasury of not less than two, nor more than four, million dollars’ worth of silver bullion per month, to be coined into dollars each containing 371¼ grains of pure silver (which coincided with the lawful ratio of 16 to 1, since the gold dollar still contained 23.22 grains of pure gold). These dollars were to be legal tender at their nominal value for all debts and dues, public and private. Paper silver certificates were to be issued upon deposit of the bulky silver dollars in the Treasury.

Get the suckers in government to use taxpayer money to buy your product at a price well above market value. Now that’s cronyism for you! Incidentally, but not surprisingly, Senator Sharon “served” as the chairman of the Committee on Mines and Mining. Try not to laugh.

After his time in the Senate, a very wealthy Senator Sharon moved to San Francisco, where he died four years later at the age of 64 in 1885.

As for all those legislators in Nevada who sent Sharon to the Senate and were burned by him—well, you know what they say about playing with fire.

(Lawrence W. Reed is President Emeritus, Humphreys Family Senior Fellow, and Ron Manners Global Ambassador for Liberty at the Foundation for Economic Education in Atlanta, Georgia.)