In November 1870, two weather-beaten men entered the Bank of California in San Francisco seeking to make a deposit. Their names were Philip Arnold and John Slack. Arnold, a Kentuckian, a Mexican War veteran and a Gold Rush ‘Forty-Niner’, had spent the intervening years working in mining operations in the West. Less was known about Slack other than that he was the cousin of Arnold.
The men’s deposit was a small quantity of rough diamonds, which they claimed to have discovered ‘in great store’ in the desert. Upon being given receipt of the deposit, nothing more was said and the men took their leave. But in an age of rampant speculation and post-Civil War optimism, Arnold and Slack’s modest deposit – still more the location of its discovery – was never going to remain a secret for very long in San Francisco. Soon, the Founder and President of the Bank of California, W.C. Ralston, was courting the pair in a bid to encourage them to enter negotiations and ultimately part with their rights.
Though initially coy, Arnold and Slack eventually agreed to a preliminary inspection of the field. Ralston, who by this point had partnered with two prominent California businessmen, George D. Roberts and William M. Lent, was permitted to select two inspectors who would make the trip blindfolded and satisfy themselves with the nature of the field. This they did, and quickly returned with a report that is said to have sent Ralston and his associates wild. More diamonds were found, and the genuineness of the field confirmed.
At this point, Arnold and Slack agreed to visit the field alone and return with approximately $2 million worth of diamonds as a guarantee of good faith. They came back with a buckskin package full of rough diamonds, which they estimated to be worth $1 million. They said they had lost an identical package making a river crossing, but the remaining package and their allegation that they had struck a spot enormously rich in diamonds (and other precious stones besides) while out in the field was more than sufficient to satisfy Ralston and his associates. By now, and according to Asbury Harpending, a financier and adventurer who later became General Manager of the enterprise, Ralston’s description of the field ‘made Sinbad look like a novice’. At a low estimate, Ralston valued it at $50 million – over a billion dollars in today’s money.
THE FIELD OF DREAMS
The next stage was for the stones to be expertly verified, for which purpose Charles Lewis Tiffany – ‘then, as now, the greatest American authority on precious stones,’ according to Harpending in The Great Diamond Hoax and Other Stirring Episodes in the Life of Asbury Harpending: An Epic of Early California– was sent a small sample. Tiffany’s immediate verdict upon eying the stones has gone down in history: ‘Gentlemen, these are beyond question precious stones of enormous value.’ The jeweller then submitted them to his lapidary and returned with further proof of their legitimacy, valuing the sample at no less than $150,000.
Before fully wiping out the interests of Arnold and Slack – who had already received cash payoffs totalling hundreds of thousands of dollars – Ralston and his associates organised for an independent mining engineer to conduct a full examination of the field. The engineer chosen was called Henry Janin, who, it was said, ‘had the record of having examining something over 600 mines, without once making a mistake, certainly without ever having caused his clients to lose a dollar by his bad judgement.’ With $100,000 placed in escrow for them pending Janin’s report, Arnold and Slack led the engineer, Ralston and a party of associates (including Harpending) to the field for the first time. The first diamond was found within minutes and, thereafter, Harpending claims the party ‘began having all kinds of luck’, finding rubies, sapphires and emeralds in addition to abundant diamonds, in the ground, on top of ant hills, everywhere. Rumours later circulated that stones had been found in the forks of trees, but Harpending dismissed them on account of the fact that there were no trees in the area. It was an egg hunt of inconceivable riches. The entire party, not least Arnold and Slack, were ecstatic – and they were only scraping the surface.
Slack agreed to stand guard at the field while the rest of the party returned to San Francisco to established the San Francisco and New York Mining and Commercial Company, with a capital stock of $10 million divided into 100,000 shares. Twenty-five men – ‘the cream of the crop of financial interests, men of national reputation and personal integrity,’ according to Harpending – were invited to subscribe for stock. As for Arnold and Slack, a final cash payment of $300,000, written out to Arnold, wiped out their interests. With winter approaching, no mining would take place for the rest of the year, but the 25 men of the San Francisco and New York Mining and Commercial Company were expecting to be made millionaires many times over in the spring of 1873.
THE HOAX IS REVEALED
In October 1872, almost two years after Arnold and Slack presented themselves at the Bank of California, Clarence King, a geologist and mining engineer in the service of the United States government, visited the field, which was now by rights owned by the San Francisco and New York Mining and Commercial Company. A German prospector accompanied him, and ‘every now and then pocket[ed] a sparkler that he valued at a small fortune’.
It was one of these so-called sparklers that ironically led to the collapse of the San Francisco and New York Mining and Commercial Company. King and his German associate found a half-cut diamond; that is to say, one that bore the marks of the lapidary’s art. ‘Look here, Mr King,’ the German supposedly said. ‘This is the bulliest field as never was. It not only produces diamonds but cuts them moreover also!’ Soon the pair had found several other half-cut specimens.
Diamonds, rubies, emeralds and sapphires are found under wildly different geological conditions, certainly not in the same field. This, according to Harpending, was ‘a fact that ought to have made a goat do some responsible thinking’.
One can only begin to guess what went through the minds of the men behind the San Francisco and New York Mining and Commercial Company when they received King’s telegram denouncing the field as ‘fraudulent and plainly salted’, and stating that a ‘wholesale fraud’ had been committed. And as if the half-cut diamonds weren’t evidence enough, King ventured to inform them that the ant hills upon which stones were found were clearly handmade; that stones were found down holes clearly poked with instruments; and that stones were found clearly lodged into gaps in rock formations. Perhaps King’s most enlightening revelation was his assertion that diamonds, rubies, emeralds and sapphires are found under wildly different geological conditions, certainly not in the same field. This, according to Harpending, was ‘a fact that ought to have made a goat do some responsible thinking’.
So what of Henry Janin? It appears that even the mining engineer ‘without peer in the United States, and maybe even the world,’ wasn’t infallible. Harpending notes that it was Tiffany’s valuation of the diamonds that disarmed Janin, and that Janin more than once admitted his mission in visiting the field was merely to verify its true extent. As for Tiffany’s valuation itself, Harpending considers it hard to comprehend, ‘unless regarded in connection with another fact – that valuing cut stones and valuing stones in the rough are wildly different matters.’ While Tiffany was indeed an expert in the former, it’s doubtful whether a single real expert evaluator of rough diamonds was to be found in the United States at the time. And at a time when the entire civilized world had its eyes on the promised find, Tiffany had his reputation to uphold.
And then there were Arnold and Slack, the purported locators of the field. Their original deposit in the Bank of California consisted of rough diamonds and other gems they had procured during their years of prospecting. It had ‘[sunk] the hook deep’, according to an article in Smithsonian, and the incremental payoffs the pair had received are believed to have been used to fund three separate trips to Europe to purchase cheap rough diamonds with which they salted the field. One dealer in London later told the press that a ‘rather rough-looking American appeared at his place of business and asked to be shown what they had in the way of undergrade or rather refuse diamonds. He was shown a large stock of South African stones […] handsome enough, but of very small commercial value.’ Arnold – for it was almost certainly him – apparently pawed the stones over without the least regard for size or quality, before asking indifferently, ‘How much for the lot?’ It’s reckoned that about $35,000 was invested in the salting claims, leaving Arnold with an estimated $600,000 profit.
How much, if any, of this money made it into Slack’s pocket is not certain. The last time he was seen by any member of the party was when he agreed to remain at the field following Janin’s survey. He was assumed to have either fled the country or died soon afterwards, although there is evidence that he moved to New Mexico where he became an undertaker. Arnold, for his part, moved to Kentucky where he purchased a house and some 500 acres of land, and placed the lot in his wife’s name. Private detectives located him, and a grand jury in San Francisco indicted him for fraud, but it’s suspected that the duped investors quashed the indictment to avoid further negative publicity. He eventually agreed an out-of-court settlement with Lent to the tune of $150,000 – ‘his only acknowledgement, though tacit, that he had planted any diamonds,’ according to Smithsonian. In 1873, Arnold became a banker. His prosperity was short lived; he died of pneumonia whilst recovering from shotgun blast to the shoulder during a quarrel in 1878.
Despite Ralston and his associates having ultimately made good on the debts to investors, the banker’s body was pulled from the San Francisco Bay in 1875 in an apparent suicide.
ROUGH DIAMONDS ARE FOREVER?
Greed is a bottomless pit which exhausts the person in an endless effort to satisfy the need without ever reaching satisfaction.”– Erich Fromm
While mining hoaxes were commonplace in America’s West, particularly during the Gold Rush, the Great Diamond Hoax of 1872 was a tragedy of Shakespearean proportions unrivalled in its potential fallout. Had the San Francisco and New York Mining and Commercial Company been placed in any considerable quantity on the market, Harpending believes it would have caused, in just one month, ‘a catastrophe almost without parallel in the civilised world’.
One wonders what Harpending – and Ralston and the other members of the San Francisco and New York Mining and Commercial Company – would have made of the Wall Street crash, more than half a century later, or indeed every financial crash since, or the Watergate scandal, or the Cambridge Analytica files or the Bitcoin explosion.
It’s not difficult to draw parallels throughout history, nor unreasonable to suggest that, since its inception, money has always been a physical manifestation of greed that shackles us to make irrational decisions – the kind of decisions made by Ralston, Tiffany and Janin. But surely there exists a flip side to the coin. Surely there are ways to understand our interactions with money that don’t point to some inherent and irreversible sense of greed within us.
Well, we certainly think so. We’ve worked with brands in the financial services sector long enough to know that tarring everyone involved in the business of money with the same brush as bogeymen like Fred Goodwin (or Philip Arnold, for that matter) is far from fair. And so we dedicate this, the next edition of White Light’s Got Issues, to money – the good, the bad and the ugly. Over the coming weeks we’ll be taking a look at, amongst other things, the history of money and its evermore complex reliance on promise; money’s place in the pursuit of brand purpose; some of the world’s most unhappy billionaires; and whether or not we’re forever destined to lurch from one crisis to another in the world of finance.
In the meantime, we hope you’ve enjoyed the cautionary tale of the Great Diamond Hoax of 1872. And if you’re ever in Moffat County in Colorado, follow Road 167 three miles west to Diamond Wash Draw. There’s a flat-topped mountain to the south called Diamond Peak, and in a one-square-mile plain to the north you can still find salted gemstones. Not that you’d let greed get the better of you…
