CHAPTER SIX Innovation, Moral Economy, and the Postmaster General’s Peace

The new regime of mail fraud regulation ensnared hundreds of American businesses a year by the 1890s, including, as the opening passage of this book noted, Richard W. Sears. It is now time to return to his run-in with the Post Office, which extended from December 1894 into the summer of 1896.

Sears played a crucial role in transforming the world of American con­sumption, along with several other innovative retailers—department-store moguls such as Macy, Fields, and Wanamaker; the creators of discount stores such as Woolworth and Kress; the entrepreneurs who applied the logic of the chain store to supermarkets and pharmacies, such as Michael Cullen and Charles Walgreen; consumer goods manufacturers such as H. J. Heinz and James B. Duke; and advertising executives such as J. Walter Thompson. Over several decades, these businessmen and scores of managers in their companies focused collectively on realizing efficiencies, whether through cutting out mid­dlemen, adopting new technologies that would enhance productivity, or achieving economies of scale and scope. Even more importantly, they recog­nized the latent consumer demand created by America’s demographic growth. Their marketing practices helped to forge the mass consumption that became a defining characteristic of American life. In the process, this interlocking directorate of marketing innovations swept away older methods of distribu­tion, traditional lifestyles, and a great many firms stuck in old ways of doing business.¹

This chapter juxtaposes Sears and the mail-order behemoth he founded with a different and mostly far less well-known cast of entrepreneurial charac­ters from the late nineteenth and early twentieth centuries.

Most firms that attracted such scrutiny either ran prohibited lotteries or pursued out-and-out swindles with varying degrees of sophistication. When the proprietors of such enterprises received notice of pending or actual fraud orders, they typically closed up shop, though often only to change location and business name before relaunching similar schemes.

The encounters that these various firms had with the postal fraud order suggest the profound challenge that capitalist innovation offers to prevailing conceptions of commercial morality. Entrepreneurial experimentation raised new kinds of ethical and legal dilemmas for which entrenched standards of economic behavior offered only ambiguous answers. This pattern emerged far earlier than the late nineteenth century, and has hardly been confined to the United States. Nonetheless, American fraud order cases bring the conundrums that innovation posed for the definition of business fraud into especially clear view, at a time when the principles of caveat emptor confronted powerful new critiques.

Those cases further indicate that the federal government’s treatment of en­trepreneurial firms remained highly contingent, dependent on legal savvy, the ability to mobilize networks of social and political capital to vouch for integ­rity, and the extent of perceived threats to entrenched and politically influen­tial interests. In this realm of economic regulation, the American state retained a form of process that strikingly mirrored centuries-old mechanisms of keep­ing the peace, in which legal outcomes were structured by informal modes of investigation and personal methods of weighing reputation.

Sears, Roebuck at the Bar of the Post Office

Richard Sears’s enterprise ran afoul of the Post Office because of its promo­tions—chiefly offers of prizes to the first group of customers who ordered mer­chandise from a particular state, or to the first one hundred correspondents who furnished advice about how to reach customers in their neighborhoods.

you will favor us with an order at once. True, you may not get the $500.00 piano or even a $50.00 gold watch, yet considering the small number of these offers we are sending out, you ought at least to be in time for a gold watch if you answer at once. But, in case you do not get the piano, or a watch, you are sure to get some nice present. And the shoes we send you at $2.75 are worth nearly three times the price asked. If you will fill out the enclosed order blank and send it to us at once, with $2.75, for a pair of shoes described, we will see that you get a nice present, and if first, the piano; if not first of all, but first from your state, a $50.00 gold watch.²

Premiums of this ilk struck turn-of-the-century Midwestern postal inspectors and their superiors in Washington as thinly disguised, inherently deceptive lotteries. Having dealt serious blows to big gambling concerns, postal officials did not wish to see popular demand for games of chance receive new outlets. This way of thinking generated the fraud order against Sears, Roebuck.³

Flirting with prohibited lotteries, however, was not the only complaint that postal authorities received about Sears's business. In the months that followed the original fraud order, customers forwarded several additional grievances, mostly from small rural towns such as Eskridge, Kansas, and Pegram, Missis­sippi. Sears, Roebuck, these individuals alleged, had engaged in classic bait and switch tactics, promising merchandise of a given quality, such as a fourteen- carat gold chain, and delivering something decidedly inferior; or it had failed to send already paid-for goods.

Given Sears, Roebuck's business practices throughout the late 1880s and 1890s, one might have expected a deeper range of accusations. The mail-order house characterized its wares as “the best in the world” and frequently en­gaged in Barnum-like come-ons, such as an 1889 newspaper advertisement that offered, for a limited time, a sofa and pair of chairs for only ninety-five cents. Although the ad included the word “miniature” in tiny print, there was no explanation that Sears meant only doll furniture. Illustrations in the firm's ads often implied that pictured items were available at extremely low prices, when those sums rather constituted down payments or only fetched models of lesser quality. Sears slipped endorsements from the “Editor” into the text of his print advertisements. The firm sometimes shipped unsolicited goods to businessmen around the Midwest, priced at intentionally high figures, and then responded to refusals of delivery by trying to convince railroad-station managers or express agents to take over the goods, selling them at steep dis­counts from inflated initial prices. Beginning in 1896, Sears, Roebuck also ag­gressively marketed patent medicines and health devices on the basis of un­substantiated claims about efficacy. In addition, the company filled orders with substitutions whenever heavy demand for items swamped the firm's inventory.5

Nonetheless, it would have been hard in the 1890s to substantiate character­ization of Sears, Roebuck as nothing but “a nest of Swindlers,” no different from the worst fly-by-nighters preying on the credulous. The firm boasted tens of thousands of satisfied customers, all of whom could inspect goods before accepting delivery; it furnished guarantees of customer satisfaction backed up by a generous return policy; it often took advantage of economies of scale and speed to sell at prices well below its competition; it enjoyed the support of

leading Chicago banks and dozens of Midwestern manufacturers.

Richard Sears wasted little time in presenting such arguments to federal authorities. Within hours of learning about the fraud order, he boarded a train to Washington, DC, where he met with postal officials to inform them about his business and challenge the exclusion from the mails. Sears pledged to halt all objectionable promotions and pleaded for notice of any future complaints, so that the firm might rectify identified problems. On the basis of these prom­ises, the Post Office Department suspended its order on December 22, just eleven days after it had gone into effect.⁷ For the next year and a half, though, postal inspectors kept close tabs on the firm, assessing how it responded to customer complaints. Sears personally handled these matters to demonstrate that his business had cleaned up its act.

Like all mail-order retailers, Sears, Roebuck faced the challenge of how to take advantage of railroad expansion and the dramatic decline in manufactur­ing costs resulting from industrialization. Like his competitors, Sears em­braced contradictory commercial strategies. Drawing the attention of as many rural Americans as possible was essential, even if doing so sometimes required a healthy dose of “huckstering,” but so too was building a reputation for trust­worthiness. As the country’s commercial mores shifted around the turn of the century, and as the goal of fostering repeat business overtook the imperative of finding new customers, the company toned down its carnival barking. Instead, it opted for a more consistently straitlaced approach to advertising in cata­logues and newspapers alike, a shift ratified by Sears’s retirement from mana­gerial duties in 1908. In light of this progression, the significance of the mail fraud case would lie primarily as a powerful nudge toward that strategic shift, much like the adoption of stronger federal regulation of food and drugs, which led the company first to offer a disclaimer that it did not warrant that its patent medicines would achieve results promised by manufacturers, and then to dis­continue that line altogether in 1913.⁸

This way of framing the mail fraud investigation against Sears, Roebuck has much to be said for it. But it also misses some crucial dimensions of the inci­dent, which involve enduring linkages between processes of business innova­tion and the emergence of fraud. To appreciate these connections, we need to take a bit of a detour onto the ground of entrepreneurial experimentation and its implications for both outright swindling and the inclination of businesses to bend commercial truths.

Innovation, Puffing, and Moral Ambiguity

The ideas of the Austrian political economist Joseph Schumpeter offer a useful point of departure. For Schumpeter, capitalist societies were defined by the leeway they furnished to entrepreneurs, a small subset of the business owners and corporate managers who attempted to maximize profits. Most members of the business class, Schumpeter argued, were traditionalists, conservative in outlook and drawn to tried-and-true methods, however much they might strive for pecuniary gain or pursue speculative gambles. Even in the most dy­namic capitalist societies, small-scale proprietors and executives typically de­sired rents—predictable flows of income from stable structures of production and distribution. They shared the mindset of Adam Smith's “people of the same trade” who “seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some con­trivance to raise prices.”⁹

By contrast, Schumpeter contended, entrepreneurs viewed prevailing mar­kets, commercial networks, and economic institutions as stale and ripe for transformation. These venturesome souls envisioned untapped markets, novel products or services, new ways of organizing business activity. Then, often with obsessive focus, they set about trying to make that imagined reality come to pass, an endeavor that depended on access to significant investment capital. Entrepreneurs sought to rip up prevailing economic cultures and fashion new ones on the broken foundations of the old, a process that Schumpeter called “creative destruction.” This analytical framework has great salience for the his­torical study of American business fraud.¹⁰

Creativity in the worlds of manufacturing, commerce, and services has re­peatedly furnished swindlers with novel businesses and commercial practices to emulate. Deceit in business has a distribution across the sectors that make up a society's economy. Because misrepresentation and organizational fraud constitute illicit practices, there is no way to calculate this distribution with precision. No government has conducted a decennial census of marketing dis­tortions and unambiguous swindling. But scrutiny from the media and offi­cials charged with law enforcement offers clues, indicating that duplicitous business practices have disproportionately characterized economic sectors at the forefront of economic change. Modern processes of innovation attract schemes and scams.

Investment swindles stand out in this regard. When Americans have staked out some new terrain of economic activity, phony offerings have sprung up alongside legitimate enterprises. The early Republic's relentless efforts to open Western lands to settlement spawned endemic land frauds, just as the era's fer­vor for banking encouraged the creation of grossly undercapitalized wildcat banks. Mining and oil booms were notorious for attracting spurious ventures, from the goldfields of California and the Petrolia of western Pennsylvania on­ward. The emergence of transformative technologies has invariably generated bogus startups seeking to skim off some proportion of capital made available by the investing public.¹¹ Business opportunity scams have tracked commercial innovations just as much as schemes predicated on worthless securities, which in the mid-nineteenth century mostly involved sham agencies to sell patented manufactured goods.¹²

Deception in goods markets similarly tracked fundamental economic transformations. As soon as New York City importers fashioned an auction system to disburse a post-War of 1812 glut of British imports, for example, buyers had to contend with the “mock auctions” run by the likes of Zeno Burn­ham.¹³ The development of breakthrough financial services elicited parallel frauds. As life and fire insurance companies gained footholds in antebellum America, they confronted phony competitors.¹⁴ Around the turn of the twenti­eth century, Americans had to cope with fake deposit insurance for banks, pre­tend patent agents, and firms that masqueraded as investment banks, falsely promising to assist small firms with incorporation and the raising of capital on public securities markets.¹⁵

Several aspects of business innovation made it a magnet for hucksterism and swindling. Novel goods or ways of doing business attracted public interest from consumers and business owners, at least once initial prototypes seemed to deliver on early promises. The ethos of “Go-Aheadism” within the broad middle class encouraged an optimistic equation of invention and entrepre­neurial initiative with social improvement and individual opportunity. An ac­celerating pace of scientific and technological invention, moreover, intensified popular expectations that fabulous new means of consumption and investment would regularly present themselves. American investors have also long recog­nized that the most spectacular returns have accrued to enterprises that ex­ploited some new geographic or technological frontier. At the same time, new markets, products, or business practices almost always created marked asym­metries in information, a crucial prerequisite for most strategies of economic deceit. Almost by definition, novel commercial terrain lacked familiarity to many economic actors.

The career of the Arctic Refrigerating Company, a firm based in Cincinnati during the late 1890s, illustrates how fascination with technological progress created tempting incentives for deception. Touting a new system for household refrigeration, Arctic recruited selling agents through nationwide ads. Boasting hundreds of testimonials from its far-flung sales force, the company “guaran­teed” that its “Cooling Refrigerators,” which supposedly made use of a secret chemical compound, were “indestructible,” “75% cheaper than ice,” and able to “keep perishable articles indefinitely.”¹⁶ Such claims did not hold up to scru­tiny, such as that undertaken by the son of a man who had paid for an exclusive Arctic Refrigerating agency in northeastern Texas. After traveling to Cincin­nati, the son reported to his father that the firm was an obvious fake, with a tiny headquarters, no listing with major credit reporting firms, and office staff who refused to demonstrate the product. Eventually, the US Department of Agriculture’s Bureau of Chemistry confirmed this assessment, establishing that the “secret compound” was actually Glauber’s Salts, which alchemists had used for centuries in the attempt to turn base metals into gold. Rather than extend­ing the life of ice, Arctic Refrigerating’s product actually accelerated melting. And yet scores of Americans eagerly responded to the firm’s circulars, snap­ping up exclusive selling territories.¹⁷

Arctic’s grandiose promises resonated so widely because of the tremendous allure of refrigeration. From the 1870s onward, a phalanx of tinkerers in the United States and elsewhere experimented with ways to manufacture the cold. Hardly a season went by without news stories that marveled at an inventor’s new process or a company’s exploits in keeping perishable products fresh.¹⁸ By 1898, tens of thousands of Americans knew that firms were refining techniques for refrigeration through novel uses of chemical substances, such as pressur­ized liquid ammonia. Detailed grasp of the underlying science, however, was far less common. This gap between popular enthusiasm and technical compre­hension gave Arctic Refrigerating room to play fast and loose with the truth.

Economic deceit has thrived on America’s entrepreneurial margin because businesses such as Arctic Refrigerating did not hesitate to exploit limited fa­miliarity with new products and services. Indeed, the savviest practitioners of misrepresentation have shifted from scheme to scheme in tune with the latest developments in the American marketplace, sometimes over decades. The ca­reer of Charles H. Unverzagt exemplifies this chameleonic capacity. Unverzagt, whose last name appropriately means “unabashed” in German, danced his way across the US financial scene from the early 1880s into the 1920s, organizing a bewildering series of shady insurance, loan, and investment vehicles that left behind a trail of disgruntled investors. Operating from Baltimore, Chicago, and then New York, his first schemes took advantage of interest in new insur­ance products such as tontines and whole life. By the 1890s he was creating complex firms that mimicked building and loan societies. Over the subsequent decade and a half, he rode the upward trajectory of mining booms, especially in British Columbia. After gaining control of companies such as the Great Cariboo Gold Mining Corporation, he churned out circulars that falsely as­serted that the Canadian government had certified the promising nature of his mines. He also offered investors the chance to buy “gold futures” that would furnish fabulous returns just as soon as he had sufficient working capital to realize the potential of his mining claims.¹⁹

Regardless of whether the concocters of deceitful commercial strategies hewed so closely to novel industries and products, they were typically among the first Americans to appreciate the transformative implications of new com­munications technologies. This pattern has proven especially strong within the realm of financial fraud. In the postbellum decades, for instance, the peddlers of spurious stock offerings and the proprietors of bucket shops latched onto the telegraph and the stock ticker as essential tools for hoodwinking investors. The former offered a means of spreading rumors and imploring potential in­vestors to act before market prices moved away from them; the latter facilitated market manipulation by rapidly transmitting engineered price movements, a key element in the creation of market momentum that allowed insiders either to dump assets or buy them on the cheap.²⁰ In the 1910s and 1920s, the mar­keters of Texas or California oil leases quickly sensed the power of moving pictures, commissioning films that showcased the oil fields as part of high- pressure sales presentations.²¹

The Unverzagts of the American business world gravitated toward the newest developments in consumption, investment, or finance because such contexts offered the most favorable conditions for imposture. Similar calcula­tions drove less nimble merchants of deceit as they latched onto the latest mechanisms for reaching potential customers, clients, and investors. Herein lies a further explanation for the continual reappearance of so many standard forms of deception, such as the pump and dump investment scheme, or some marketing version of the bait and switch. As journalist Edward Smith pointed out in his 1923 Confessions of a Confidence Man, “every development of civili­zation, every social change, every notable invention brings to life a fresh man­ner of parting the sucker and his money. It may be and usually is only a dis­guised evolution of an older swindle, but it is new to the victim and therefore effective.”²²

Edward Smith's reflection about the tendency of business fraud to target commercial environments undergoing rapid change presupposed a distinct line between legitimate and duplicitous marketing practices. Indeed, the ex­amples in his Confessions represented clear-cut, intentional efforts at fraud, the kind that could plausibly convince a nineteenth-century jury to agree on a guilty verdict. But the uncertainties associated with new fields of economic endeavor complicated the already often-tangled question of how to distinguish commercial dishonesty from enthusiastic promotion or misjudged optimism.

Young firms attempting to construct a viable business on the outer fringes of economic change confronted a host of uncertainties—about the course of technological innovation, the evolution of consumer tastes, the effectiveness of marketing strategies, and modes of managerial coordination. Because they operated in an economic sector widely perceived as having enormous poten­tial, they almost always had significant entrepreneurial company. Thus, even though firms in immature markets did not have to worry about an entrenched set of leading companies, they nonetheless faced stiff competition and a lack of clarity about the strategies that would yield profits. Entrepreneurs develop­ing new business models have often had to feel their way, looking for sales pitches that appeal to would-be customers and assessing which product lines or marketing tactics find favor. And because their firms started with con­strained capital resources and access to credit, they had only limited time to achieve profitability.

Such circumstances encouraged entrepreneurs to push the bounds of their claims, whether about the advantageous nature of their services, the quality of their wares, or anticipated returns for investors. This tendency dovetailed with the psychological profile of American entrepreneurship. The proprietors of nineteenth- and early twentieth-century startups rarely lacked for self-belief, especially when staking out ground on new commercial terrain. Behavioral economists would be inclined to characterize these risk-takers as prone to overconfidence—a common predisposition to overrate one's capacities—and so inclined to presume that even though the great majority of business ven­tures failed, theirs would prosper.²³ Certainly, novel business sectors in the United States have never lacked for sanguine individuals willing to try their commercial luck with other people's capital.

One can see this dynamic in the early history of Richard Sears's domain, mail-order marketing. American firms had done at least some of their business by mail as far back as the eighteenth century. But this method of distribution only began to achieve a significant foothold with the dramatic postbellum ex­pansion of the national rail network, and only boomed after the 1890s, when the Post Office slashed first the cost of mailing catalogues, and then the charges for delivering goods to rural households.²⁴ Prospective mail-order firms could now envisage truly national markets for their goods. To tap the potential mass market, however, they had to worm their way into the consciousness of far- flung consumers, even as the advertisements of thousands of other businesses clamored for attention.

This challenge prompted all sorts of hullabaloo. Like Sears, Roebuck, mail­order businesses across the country offered free or heavily discounted mer­chandise to readers who distributed promotional material or who sold items to their friends and neighbors. These firms similarly offered the chance to win prizes and paid for testimonials and editorial squibs that touted extraordinary discounts, without disclosing the financial relationship that accounted for the endorsements. Their catalogues included deceptive illustrations and made fantastic claims for available goods, including false assertions that the low price of loss leaders resulted from savings associated with bulk purchasing.²⁵ Even relatively well-capitalized newcomers to the mail-order trade, such as the Chicago furniture company Spiegel House Furnishings, exhibited a pen­chant for exaggeration. Spiegel's early twentieth-century catalogues falsely boasted of millions of dollars in capital, factories of its own, an ability to com­pel suppliers to cut prices because of gargantuan buying power, and posses­sion of “twenty-five mammoth stores in the principal cities of the United States.” As the firm branched out into new product lines, its communications to customers invented jousting matches with monopolies such as the “Watch Trust,” all to convey the impression of a firm committed to the people's inter­ests.²⁶ The notoriety of deceptive marketing by mail-order firms led one early twentieth-century legal guide to comment that “the various offers which have converted advertising into means of fraud are past all reckoning, and it is quite beyond the purview of this volume to give illustrations of questionable an­nouncements in the mail-order field alone.”²⁷ The unequivocal falsehoods were mingled with half-truths, exaggerations, and other forms of puffery. In the struggle to become early movers amid American's transition to a thor­oughly integrated consumer society, almost every mail-order businesses en­gaged in some misrepresentations.

This reality reflects a more general relationship between highly competitive economic environments and reliance on deceptive marketing practices. The exaggerated boosting of mining areas, oil regions, and new agricultural ven­tures in places such as Arizona and Florida, for example, reflected efforts to stand out with international investors who had many options. Imported capital paid not only for the sinking of shafts and wells, the digging of desert canals, and the planting of groves, but also real-estate development in nearby towns and transportation infrastructure that linked them to outside markets. Many Westerners had no problem with the distortions and barefaced falsehoods broadcast by promoters, so long as they slaked voracious local thirst for capi­tal. Views might change once the sour taste of fraudulent bankruptcies lodged in distant investment markets, whether in San Francisco, New York, or Ant­werp. But amid the heady days of prospecting and town-founding, local resi­dents saw little harm in truth-stretching or even far more cynical promotional falsehoods.²⁸

In sectors characterized by numerous players and a lack of mutualism, such as the early twentieth-century apparel industry, the willingness of some firms to embrace deceptive strategies made it difficult for others to eschew such tac­tics. Facing intense competition, metropolitan clothing retailers regularly made false claims about the fiber content of their apparel and adopted mislead­ing trade names for furs.²⁹ In such environments, there was a Gresham's Law of marketing, as misdirection and deceit displaced candor.³⁰

At an even more fundamental level, processes of commercial and financial innovation could throw into question what counted as duplicity. The fashion­ing of new products and the development of novel marketing practices and accounting techniques often generated methods that struck many constituen­cies as unacceptably deceptive. In at least some cases, the resulting finger­pointing came to look like the foolish, unimaginative, or self-serving conserva­tism that frequently accompanies the emergence of disruptive economic innovation. One can see such an example from the early years of the US mail­order industry. In the fall of 1873, the Chicago Tribune, its editor perhaps egged on by concerned rural retailers, perhaps irked by a dearth of advertising place­ments, printed a stern caution about Montgomery, Ward & Co, which would soon become the largest retailer in the United States. This business, the Tribune confidently explained, was obviously a “swindling firm,” for no business could sell such a broad range of goods at such low prices. Such false accusations (which the Tribune soon retracted, prodded by threats of a libel suit) could muddy popular thinking about commercial deceit.³¹

Sometimes, moreover, prevailing legal rules and business customs fur­nished few guidelines about the permissibility of novel business practices. One can get a sense of this ambiguity by considering debates set off by the account­ing strategies of Gilded Age railroads. In addition to amassing unprecedented agglomerations of capital and fixed assets, railway corporations assembled complex financial structures that intermingled mortgage bonds with equity. Their managers had to devise ways of accounting for the depreciation of equip­ment, the differences between fixed costs and working capital, and the projec­tions of revenues from dispersed operations. The creation of regional systems through mergers and integration of branch lines raised additional perplexities about how to relate the assets, liabilities, and income of subsidiaries to those of the main line. Finally, railroads faced the task of communicating convoluted financial positions to stock- and bond-holders, as well as potential investors across North America and northwestern Europe.³² For several decades, rail­road managers encountered few clear-cut rules about how they should go about such tasks, beyond the insistence of the commercial press and European holders of American securities that they owed investors detailed, audited fi­nancial accountings.³³

Railroad insiders possessed huge informational advantages in this environ­ment, which many exploited, often through strategies of deception. Highly profitable lines sometimes characterized construction costs as recurrent ex­penses, so as to fend off pressures for rate cuts by reducing apparent profits; at other junctures, they inflated expenses to justify lower dividends, or held back word about a special dividend so that insiders might first buy up shares cheaply. Struggling railroads assigned operating costs to the construction account, so as to disguise ongoing financial difficulties. When managers wished to buttress bond and share prices despite a lack of profitability, they might withhold data about the full extent of indebtedness or refuse to account for depreciation of engines, cars, and track.³⁴ Such financial humbug led farming interests and journalists to raise the cry of imposition and deceit. “The temptations to fraud on the part of railway directors are now enormous,” the Merchants’ Magazine concluded in 1870, “and checks upon them are trifling.”³⁵ Some contested prac­tices within railroad accounting, however, represented novel approaches to problems that lacked obvious precursors. The treatment of depreciation and the handling of non-construction fixed costs were initially subject to such wide discretion because no one had previously confronted such issues.

The questions posed by accounting for the maintenance of gargantuan rail­road networks took economic actors onto terra incognita. There were more- and less-familiar features on those economic landscapes, with enough of the former that many counterparties and observers raised the hue and cry of mis­representation. But the strangeness of new economic worlds made it easier for entrepreneurial actors to contend that they lacked authoritative cultural or legal maps. To shift from a terrestrial metaphor to the seafaring language of behavioral economics, these novel situations lacked clearly established, unam­biguous moral anchors. Such contexts intensified incentives to profit from in­formation asymmetries, while offering individuals ample ground to argue, to themselves and others, that they had not transgressed any established norms.

The Indeterminacy of Mail Fraud

Recognizing the perplexities of fraud at Schumpeter’s entrepreneurial margin helps to clarify the challenges confronted by turn-of-the-twentieth-century postal inspectors. Many of the businesses accused of violating the mail fraud statute, such as Sears, Roebuck, operated in relatively immature markets whose promise had attracted numerous entrants, but that had yet to develop leading firms, or clarity about the business strategies that would yield dependable prof­its. That is, they faced strong incentives for exaggeration, whether about dis­counts, quality of wares, or commissions earned by sales agents. For an enter­prise such as Modelle Miller's Indiana beauty company, extravagant assertions about the wonderful properties of its Oriental Curling Fluid, Famous Lily Bou­quet, or Meadow Leaf (a remedy for “Female Weakness”) were indispensable means to standing out among competing concerns. The same impulse lay be­hind the Walker Manufacturing Company's ebullient characterizations of its leading product, a “Hair Grower.” To break into the quickly evolving automo­bile market on the eve of World War I, a relatively undercapitalized entrepre­neur such as B. H. Lambert, the president of two short-lived Louisville car companies, had little choice but to promise potential dealers and investors that his factory would soon be churning out reliable vehicles, even if his design had encountered significant engineering problems.³⁶

The struggle to become an early mover amid America's transition to an in­tegrated consumer society often pushed businesses to flirt with misrepresenta­tion. The fashioning of new products and the development of novel marketing practices, in other words, frequently generated claims that struck observers as unacceptably misleading, even if those assertions were not necessarily pro­scribed by prevailing legal rules or business customs. As postal inspectors waded into mail fraud investigations, they found themselves trying to get their bearings amid the resulting legal ambiguities.

Consider the case of Charles Young, the Korean immigrant who built up a business wholesaling used clothing in post-World War I Chicago. After receiv­ing a secondary education in Hawaii and spending a few years in San Fran­cisco as a servant, Young traveled to the Midwest to pursue a college education. After receiving his degree from Indiana University, he worked for several years as a traveling salesman for a firm that manufactured a carpet-cleaning device. This employment alerted him to business opportunities within Chicago's used clothing trade, which he entered on his own account in 1924. At first, Young restricted his field of vision to the local market. He bought inventory at bank­ruptcy auctions, had his staff of native-born, white American women clean and repair individual items, and then resold the spruced-up goods to retailers on Chicago's South Side who catered to the city's burgeoning African Ameri­can population. Within a year of getting started, however, heightened urban competition led Young to seek out business from rural storekeepers in the Midwest and the South. A crucial dimension of his business model involved grading his inventory, as he offered clothing merchants various bundles of used goods, with so many items of No. 1, No. 2, or No. 3 quality. In the eyes of several retailers who complained to the Post Office, the Chicagoan did not ful­fill his promises. Instead, he foisted off shoddy garments as more valuable lightly worn attire and falsely promised that storekeepers could make as much as $75 a day from rummage sales.³⁷ But who was to determine what distin­guished one grade from another, either in theory or with regard to the day-to- day categorizing of repaired trousers and restitched dresses? And how was one to judge the plausibility of estimations about demand for secondhand clothes?

The challenge of building up distribution networks that skirted the nation's prevailing system of small-scale retailers prompted analogous conundrums. Mail-order firms dependent on local sales agents, for instance, often fashioned incentive structures similar to what would later come to be known as multi­level marketing. These schemes encouraged agents not only to sell a firm's products, but also to pitch the commercial opportunities presented by sales agencies, and furnished long-term payments to agents who recruited others to the sales network. In some cases, as with Modelle Miller's beauty company, the manufacturer focused as much on promoting agencies as goods, offering ex­tensive advice on how to tap social networks in order to sell the firm's prod­ucts.³⁸ To critics, including postal inspectors, these practices represented noth­ing more than duplicitous lotteries: they promised outsized returns to a small number of agents, with scant regard to the poor chances of success.³⁹

Yet such methods had ample precedents in American commercial culture. Life insurance companies had employed similar tactics for decades, enticing the purchasers of “tontine” policies with the possibility of especially large re­turns if they outlived a group of fellow policyholders, and compensating agents heavily on the basis of sales by their subagents. For all the bluster about the insidiousness of multilevel marketing, many Americans viewed it as an accept­able way to give individuals who lacked capital a chance to attain independent proprietorship. As one federal judge argued in striking down a 1925 fraud order against a New York City hosiery company's “chain” method of market­ing, the firm's “scheme... may or may not be a wise business proposition, but the Post Office Department is not the guardian of the people of the United States in the respect of what they shall go into in the way of business.” As this comment suggests, distinguishing permissible inducements from illicit haz­ards of chance was far from an obvious endeavor.⁴⁰

The heightened tempo of economic activity in industrializing America prompted further legal ambiguities, even in circumstances that might seem relatively straightforward, such as when firms allegedly did not deliver goods for which customers had made payment, or allegedly delivered unauthorized substitutes. Charles Young in 1927, like Sears, Roebuck in 1895, faced such charges. Both firms responded by noting that the complaints were not neces­sarily legitimate and that mistakes, on the part of both consumers and supplier, were inevitable once one attained a large scale of business. Thus Young main­tained that some disgruntled customers had either tried to return goods the firm had not sold, or fraudulently sent back rags, threatening to report him to postal inspectors if they did not receive full refunds. As Richard Sears argued in one letter to the postal authorities, it was “impossible to avoid complaints,” given the notorious impatience of farmers “restless” for their goods, and the fact that his company now filled orders worth “about $150,000 per month.”⁴¹ The key question, Sears and Young argued more than three decades apart, turned on the system that a business had created to evaluate and respond to customer grievances. But who was to say whether a given complaint system met the standards of mercantile fair dealing closely enough to sustain access to the postal network?

Within the financial markets, efforts to sell securities or investment advice to a mass market posed similarly vexing questions about appropriate norms of candor. Such dilemmas emerged especially clearly in the mail fraud proceed­ings brought against Colorado’s Orphan Boy Extension Mine in 1895, and the Newark, New Jersey-based Paine Statistical Corporation and its president, J. Overton Paine, in 1916. Promoters N. C. Merrill and Frank P. Arbuckle were the key figures behind Orphan Boy, which they boomed in Eastern newspapers as a potential silver and gold bonanza that had attracted prominent Coloradans to serve as company directors. In order to entice investors of modest means, Merrill and Arbuckle followed the practice of most late nineteenth-century mining corporations, pricing shares at $1. In recommending a fraud order against Orphan Boy, the Denver postal inspector, William McMechen, insisted that the government had to view such offerings with abiding skepticism. Every year, McMechen argued, more “so called Mining Companies” appeared, and it was nearly impossible to bring legal action against fraudulent promoters in Western jurisdictions because of “lax local laws in this regard” and the “loose custom” associated with selling mining securities. In light of the 25 percent commission going to Eastern agents who sold Orphan Boy’s shares and the sharp criticism that several experts had voiced about its prospects, the postal inspector viewed the mine as “Utopian” and its officers as undeserving of access to the mails.⁴² Exactly how, though, were federal officials supposed to distin­guish the hopelessly “Utopian” mine from the legitimately speculative one? And why should the opinion of unnamed experts keep a mining company from mailing circulars to Americans who might want to furnish it with capital?

The postal investigation of J. Overton Paine reflected a similar expression of paternalistic concern for “innocent” and easily “beguiled” investors. In the late 1890s, Paine became a leading New York City speculator who specialized in identifying and then profiting from the era's endemic attempts at market ma­nipulation. After parlaying killings in Rapid Transit and American Sugar into a large-scale brokerage firm, he absorbed big losses from investments in an automobile company and several inventions. Amid turn-of-the-century allega­tions that his brokerage was nothing but a high-toned bucket shop, he ceased to act as a securities broker. Instead, he began to provide financial analysis through market letters and alerts, offering subscribers evaluations of overall market conditions and specific stocks. In circulars that advertised his services, as well as the market letters and telegrams themselves, Paine characterized his expertise as resting on the accumulation of economic data, mostly purchased from new firms such as Roger Babson's Statistical Service, and the sophisti­cated assessment of those data. Paine pledged that his “advice” was not related to his own stock operations, warned that his commentary represented only opinion and was not guaranteed to generate positive returns, and recom­mended that subscribers trade only with reputable brokers. Should subscribers find themselves dissatisfied with his analysis, they had the right to ask for refunds.

And yet Paine's advertising simultaneously embraced aspects of America's “Get Rich Quick” tradition. His literature expressed confidence in the capacity of ordinary people to make a “FORTUNE IN THE STOCK AND WHEAT MARKETS,” while touting a track record of incisive advice that had enabled “thousands” to “profit from my daily market letter.” He also frequently dangled “a VERY SPECIAL piece of information” about a stock or commodity, imply­ing that he possessed inside dope about the operations of some investment pool.⁴3 Did Paine's mode of operation represent sanguine puffery by an aggres­sive businessman trying to fashion a new form of financial services, which open-eyed American investors should know to take with a grain of salt, espe­cially in light of the rampant rumor-based manipulation in US securities and commodity markets? Or did it rather constitute cleverly braided misrepresen­tations that would lead unsophisticated investors to incur substantial losses?

From the 1890s into the 1920s, such questions forced postal authorities to grapple with the moral economy of marketing in an industrializing economy, and so to reconsider the difficult balance between respecting entrepreneurial freedom and sustaining the state's responsibility to protect the American mar­ketplace from sharpers. The effort of federal officials to strike this balance was complicated by the tendency of sectors at the forefront of economic change to attract a disproportionate share of outright scams. In light of the way that capi­talist innovation attracted sophisticated swindlers, Post Office officials had ample reason to emphasize consumer and investor protection and the safe­guarding of public confidence in commercial speech. The religious and ideo­logical predispositions of postal inspectors who had joint appointments with metropolitan antivice societies, such as Anthony Comstock, reinforced this line of thinking. In light of their profound commitment to late nineteenth­century Protestant moralism, and the resulting intensity of their opposition to liquor, gambling, and prostitution, these officials were alarmed by marketing strategies that remotely resembled lotteries, including “chain” methods of re­cruiting agents.⁴⁴

The depth of the resulting bureaucratic paternalism is nicely encapsulated by an 1894 memo from a Keokuk, Iowa, postal inspector who recommended a fraud order against the State Mutual Life Insurance Company of Illinois. This corporation was one of many bond-investment schemes that sought to fill the vacuum created by the Post Office's successful war against the Louisiana Lot­tery. These companies operated much like tontines and pyramid schemes. They promised immediate large payouts to investors who received low serial numbers on their bonds, and provided significant returns to other purchasers only if a large number of bondholders who bought on installments did not complete their purchases. The inspector, WG.D. Mercer, argued that the State Mutual Life's bonds were predicated on fraudulent promises of randomly gen­erated bonus payments. Characterizing the company's product as a newfangled lottery scheme that cheated Americans out of hard-earned savings, Mercer evinced “great pride in stepping in between these sharks and the unsuspecting victims who have been tempted to risk their little all in the vain hopes of ob­taining the price of a house.”⁴⁵

In some contexts, the moralism of postal officials encouraged striking ex­pansions of “fraud” as a legal concept, something the Iowa publisher A. S. Burrell discovered in 1896. Burrell had developed an integrated set of business services for regional storekeepers. Those merchants could keep abreast of credit conditions by subscribing to his Interstate Tracer, a newsletter that com­bined regional economic news and listings of deadbeat consumers. Retailers could also turn to Burrell's Credit Rating System, a proprietary service that offered confidential assessments of individual creditworthiness through a “Commercial Reporter,” and to a companion debt-collection service, the Iowa State Businessmen's Association. When firms forwarded a notice of a delin­quent debtor, the Businessmen's Association would send that debtor a letter, explaining that failure to pay would trigger circulation of a poor credit rating through the Interstate Tracer and Burrell's confidential credit bulletin. Several debtors complained about this arrangement to postal authorities, who issued a fraud order on the grounds that the collection letters represented blackmail. Fraud, in this and related cases, encompassed not just misrepresentation, but also economic communication that smacked of coercion.⁴⁶

Antagonism to marketing practices with the slightest tinge of gambling or to coercive tactics in debt collection nonetheless left a considerable area of fuzziness over which transgressions truly merited loss of access to the mail. Individuals and firms confronting fraud order proceedings magnified the stakes associated with this administrative action, because it threatened their ability to pursue entrepreneurial livelihoods. Lawyers for one small Ohio cos­metics firm informed Washington officials in 1896 that the Post Office was threatening to “crush the life” out of their client. J. Overton Paine characterized the matter even more dramatically twenty years later: “Issuing a fraud order against any man of standing,” he insisted, “is a thousand times worse than a sentence of death,” portending “absolute ruin and disgrace forever.”⁴⁷ The resi­dents of early twentieth-century American prisons would have surely dis­agreed with this sentiment; but fraud orders did severely threaten commercial reputations and business prospects.

The Sears case suggests how action by the Post Office could reverberate, multiplying the contexts in which a firm had to defend itself from allegations of misrepresentation, and turning an initial determination of fraud into a self­fulfilling prophecy. Most immediately, the fraud order against Sears, Roebuck kept some customers from receiving orders, prompting a new round of com­plaints. Even after the order's revocation, it still influenced assessments of commercial probity, much like a later newspaper retraction not seen by many readers of the original story. Toward the end of 1895, one elected official who had previously vouched for Sears, Roebuck wrote to inform postal authorities that “the firm's methods are of such a character at the present time that I do not feel warranted in allowing anything that could be construed as an endorse­ment of them to remain a matter of record.” More worryingly, lingering news of the initial order led a prominent rural periodical to warn its readers that Sears, Roebuck's promotions were “absurd” promises that “simply can't be car­ried out,” and that the Post Office had branded the outfit as a fraud. Here was a powerful instance in which a legal category had profound implications for eco­nomic reputation and identity, channeled through the nation's journalistic fraud monitors.⁴⁸

Mindful of that stark reality, the Post Office frequently accepted settlements with businesses that possessed many of the characteristics of upstanding firms, but had adopted arguably deceptive tactics. When “legitimate enterprises are so advertised as to mislead the public,” but “without intention to defraud,” the postal department declared that its policy was to allow “adjustment of the mat­ters complained of,” either through settlements with aggrieved customers or, more commonly, formal assurances that firms would “eliminate” objectionable marketing practices. Hundreds of adjustments occurred in the late nineteenth and early twentieth centuries, often, as in the case of Sears, Roebuck, through revocation of an existing order.⁴⁹ And yet, compromise was by no means inevi­table, as the experience of two prominent American businessmen, Edward Gardner Lewis and George Graham Rice, attests.

Both of these promoters and inveterate salesmen could lay claim to signifi­cant entrepreneurialism. Lewis, like Sears, spotted the potential of the rural market. Born and educated in Hartford, Connecticut, he had several sales po­sitions before starting his first large-scale enterprise, based in St. Louis, which involved heavily promoted and deeply discounted magazines. Relying on ad­vertising for revenue and catering especially to rural women, these periodicals achieved circulations that rivaled those of the country's leading magazines, with Lewis's flagship Womans Magazine attaining a peak circulation of well over one million. By 1905, growing awareness of rural frustrations with limited financial options led him to found the nation's first mail-order banking institu­tion, the People's United States Bank. This institution offered savings accounts, small loans, and inexpensive money transfers. A similar recognition of rural educational aspirations prompted the creation of the People's University, which offered correspondence classes. Lewis sought to integrate these endeavors through local real-estate development in suburban St. Louis, as he directed the construction of University City, a planned community that became home to his printing establishment, bank, college, and later, the American Woman's League, an umbrella organization for woman's clubs that coordinated the mar­keting of magazine subscriptions.

George Graham Rice had experience as a journalist for New York City newspapers and as a horse-racing tipster in New Orleans around the turn of the century, useful apprenticeships for later attempts to bring investing to the masses. Between 1905 and 1908, Rice promoted Nevada mining companies through a news service that supplied Eastern papers with coverage of the Western mining scene. In 1908, he moved back to New York City. Over the next quarter-century, he became the dominant force in several brokerage houses that specialized in mining and oil stocks and used discounted commis­sions to attract far-flung investors of modest means. He simultaneously helped to popularize finance through a succession of investing dailies—the Mining Financial News, the Industrial and Mining Age, the Wall Street Iconoclast, and the Financial Watchtower—some of which reached hundreds of thousands of subscribers.

The enterprises of these two innovators attracted the Post Office's sustained enmity, in each case for over two decades. Lewis received a fraud order in 1905 that threw his bank into turmoil and eventually led to its demise. Over the subsequent seven years, he faced a series of criminal indictments and trials for mail fraud. Although he avoided conviction, the financial and reputational costs associated with these prosecutions crippled his publishing, educational, and real-estate ventures in greater St. Louis. In 1912, Lewis moved to Califor­nia, where he turned again to magazine publishing and real-estate develop­ment in the town of Atascadero, mixed in with several mining, transporta­tion, and oil ventures. His appeals to investors for these endeavors once again came under postal scrutiny, which led not only to another fraud order, but also a criminal conviction for mail fraud. Rice found himself under fraud in­vestigations by postal authorities even more consistently. He received a fraud order in 1903, then faced criminal mail fraud indictments in 1909, 1918, and 1927. The indictments, alleging either fraudulent treatment of brokerage cli­ents or misrepresentations in securities promotions, resulted in three succes­sive convictions.⁵⁰

Lewis and Rice would never have been mistaken for paragons of business ethics. Before building his St. Louis empire, Lewis had a checkered career working for companies that sold patent medicines and insecticides, experi­ences that alerted him to the power of advertising and led him to enter the publishing business. Thereafter, he faced recurring accusations that he had in­flated circulation numbers for the Womans Magazine. In order to persuade his rural subscribers to purchase stock in the People's United States Bank, which they did in the thousands, he solemnly pledged that the new financial institu­tion would be overseen by outside directors with substantial banking experi­ence, that he would invest one million dollars of his own funds, and that nei­ther the bank's capital nor deposits would be loaned to Lewis's other businesses. After launching the bank, Lewis violated each of these promises. In subsequent years, he repeatedly milked a core group of loyal investors, always pleading for one last injection of capital to keep their joint dreams of riches afloat.⁵¹ Rice specialized in touting Western mining and oil stocks in which he had acquired a controlling stake. His mode of operation included relentless puffing about his companies' prospects, as well as sophisticated market manipulation to generate upward price movements that encouraged momentum-oriented speculators to purchase his securities. In addition, his brokerage firms repeatedly faced ac­cusations from clients about bucketing of orders, nondelivery of shares, and misappropriation of securities deposited as collateral for margin purchases. By the early 1920s, Rice had earned a reputation as a preeminent “Pirate of Pro­motion,” the “king of the tipsters.”⁵²

Yet both men could point to exculpatory dimensions of their businesses similar to those highlighted by Sears, Roebuck and other enterprises that set­tled mail fraud allegations. Lewis's Womans Magazine was one of the first pub­lications in the country to guarantee protection to its subscribers against frauds committed by its advertisers. In court and in print, Lewis insisted that he had scrupulously avoided paying dividends on any of his companies’ stock, prefer­ring to reinvest profits, and that he resolutely intended to fulfill the pledges that he made regarding the People’s Bank. His ability to make good on those promises, he maintained, had been delayed by unexpected hitches in the ap­pointment of outside directors, and an unanticipated liquidity shortfall pre­cipitated by news of the mail fraud investigation, which necessitated bridge loans to other holdings so as to sustain the financial integrity of interlocked enterprises. Those loans, he observed, were backed by excellent collateral and were financing extensive and valuable real-estate development. Finally, he stressed his bank’s record of prudent management, confirmed in 1906 by an independent assessment. Even in liquidation, the institution met all of its obligations to depositors and 87 percent of those to stockholders, despite the extraordinary damage caused by the fraud order and a subsequent state receivership.⁵³

In Rice’s earliest run-ins with the Post Office, he emphasized the small number of complaints relative to his firm’s overall business, as well as its efforts to redress grievances. He further portrayed many complaints as sour grapes from investors who did not follow instructions to take profits, and insisted that any printed falsehoods did not reflect fraudulent intent. As he argued in a con­fessional 1911 memoir, no one should assume that

because a promoter represents the chances of profit-making in a mining enter­prise to be enormous, and you later find his expectations are not realized, that the promoter is ipso facto a crook. Big financiers are apt to make mistakes and so are little ones. Undoubtedly grave misrepresentations are made every day, and in­sidious methods are used to beguile you into forming a higher opinion regarding the merit of various securities than is warranted by the facts. But mine promoters are only human, and honest ones not infrequently are carried away by their own enthusiasm.

In both this memoir and later financial publications, Rice consistently offered an insider’s view of how the financial markets actually operated, revealing the manipulations and conflicts of interest so common in that era. From his earli­est ventures, he warned investors that he held stakes in the firms that he touted; he also reminded them that they put down money at their own risk. Rice fur­ther denied that he engaged in pump and dump schemes, noting that he al­ways used profits to support share values once boom turned to bust; and he vigorously maintained that his tactics of manipulating share prices, whether through the dissemination of news stories or market operations, did not differ a whit from the typical methods of Wall Street.⁵⁴

The marketing practices of E. G. Lewis and George Graham Rice, then, ar­guably fell within a zone of legal ambiguity. They had constructed substantial, innovative enterprises, while simultaneously manifesting less-than-punctilious regard for candor in commercial speech and behavior. Their treatment by the federal government was contingent, not foreordained by business conduct. But a stress on legal contingency suggests an intriguing historical puzzle. How can we explain the willingness of postal officials to forge settlements with firms such as Sears, Roebuck, Modelle Miller's beauty concern, and Paine Statistical Corporation, given the tenacious enforcement actions against Lewis's bank and Rice's brokerage firms?

A savvy legal posture certainly helped in fending off mail fraud allegations. The ability to contextualize grievances that had prompted official inquiries rep­resented one way to convince postal authorities to hold off issuance of a fraud order or to suspend one already in force. Sears, Roebuck and Charles Young effectively took this tack in their interactions with the Post Office, both by em­phasizing that high volume made some degree of customer dissatisfaction in­evitable and by explaining their systems of redress. Such arguments worked best when accompanied by expressions of contrition and deference to federal authorities. Those officials typically expected some form of apology for putting out “florid” newspaper ads, disseminating “excessively alluring circulars,” rely­ing on chain marketing, or otherwise crossing into what the Post Office ad­judged to be deceptive commercial speech.⁵⁵ They similarly assumed that firms would respond assiduously to customer complaints, as Richard Sears did throughout 1895 and 1896. Tellingly, Sears took care to voice his appreciation for being “afforded this opportunity of showing your department that we are willing and anxious to carry out any suggestion emanating from that source.”⁵⁶ Most importantly, prosecutors required that firms enter into stipulations that they would discontinue objectionable practices—the combination by A. S. Burrell of credit reporting and debt collection; claims by the Walker Manufac­turing Company that its Hair Grower actually caused hair growth; the Crown Motor Car Company's solicitation of additional agents in advance of actual car production; J. Overton Paine's incantation that financial riches were within any man's reach.

Business owners on the mail fraud docket who wished the Post Office to cut them some slack also did well to rely on influential legal representatives, even if, as was often the case, they did not possess detailed knowledge of mail fraud proceedings. Several of the entrepreneurs who arranged settlements secured prominent lawyers to represent them: Richard Sears retained a leading Wash­ington, DC, attorney; J. Overton Paine hired a former United States Attorney for New Jersey; the estate of C. J. Walker relied on a former governor of Indi­ana. These individuals brought the weight of their own social and political standing to bear on the scales of postal justice, lending credence to assurances of reformed marketing practices.

Plausible legal arguments, willingness to adapt business practices to direc­tives from federal officials, and august legal representation, however, did not always produce settlements with the Post Office. Both E. G. Lewis and George Graham Rice were able to make strong legal cases, especially regarding the question of fraudulent intent. Both men also cooperated with authorities, at least initially, giving postal inspectors extensive access to their books and man­ifesting some willingness to adjust business practices. Lewis discontinued a magazine's multilevel marketing promotion, and in the wake of the 1905 fraud order, followed through on promises to attract outside financiers to his bank's board. Rice became increasingly explicit about alerting the readers of his tip sheets to his interest in the stocks that he puffed. The two promoters also de­pended on legal heavyweights for representation. In 1910, Rice's legal team was headed by a former New York City district attorney; in the 1920s, his counsel included a former New York governor and a one-time United States Attorney. Lewis retained several leading lawyers, including one former high-ranking postal official intimately involved with the case against him.⁵⁷

Another likely possibility is that social identities influenced how postal in­vestigators assessed allegations against firms. In light of the comparatively short legal shrift given to members of marginal groups during this period, one might expect that nonwhites, immigrants, and non-Protestants would face tougher scrutiny from postal inspectors. Indeed, the tenor of mail fraud pro­ceedings suggests heightened suspicions about firms not run by native-born Protestant white males. The Chicago postal inspector who probed the affairs of Charles H. Young, for example, ignored repeated invitations to visit his sec­ondhand clothing business, see the wholesaler's system of quality control, and interview the employee who handled dissatisfied customers. Instead, the in­spector recommended a fraud order solely on the basis of complaints from white shopkeepers, along with a brief interview that he conducted with the Korean merchant at the Chicago Post Office. As an Asian businessman, Young almost certainly received less benefit of the doubt than similarly situated white wholesalers. By the same token, George Graham Rice confronted close scru­tiny in part because of his social origins and a history of criminal behavior. Originally named Simon Jacob Herzig, Rice was the son of a Jewish immi­grant, albeit a wealthy furrier. The promoter extraordinaire changed his name after serving jail sentences for forgery and theft in the 1890s.⁵⁸

But Young's case also reveals that individuals who faced allegations of mail fraud could rebut the Post Office's assumptions about commercial integrity, or the lack thereof. At his hearing, Young offered extensive evidence of his re­spectability through testimony by the Washington, DC, Commissioner for the government of Korea, and through affidavits from his native-born white fe­male employees. Young additionally underscored his reliance on a leading Chicago advertising firm in developing the circulars that he sent to rural storekeepers.⁵⁹

Indeed, a common theme running through the firms that came to some sort of settlement with the Post Office was their ability to mobilize a set of eco­nomic and political patrons to vouch for their legitimacy. Richard Sears took care to document an extensive list of manufacturers, wholesalers, and bankers who placed their trust in him. Modelle Miller not only persuaded her former employer, the New Carlisle postmaster, to send a character reference to the postal officials in charge of her case, but also circulated a petition among local businessmen calling for a suspension of her fraud order and successfully or­chestrated a letter on her behalf from a former congressman. A. S. Burrell went so far as to organize correspondence by Iowa businessmen to the state's mem­bers of Congress, who then wrote to the Post Office Department to explain that Burrell enjoyed the confidence of upstanding citizens in his region.⁶⁰

The salience of social contacts in mail fraud proceedings underlines the crucial role that access to such networks played for entrepreneurs who wished to seize the opportunities and sidestep the risks posed by an industrializing and ever more integrated national economy. In addition to easing access to credit, commercial intelligence, and sources of new business, social networks also constituted a handy bit of insurance if one ran afoul of the law. Mail fraud investigations thus mirrored the handling of pardon applications in nineteenth­century America, or the efforts of that era's insolvent business owners to get back on their feet. Like prisoners seeking pardons or bankrupts trying to re­start careers, the goal of entrepreneurs who faced allegations of mail fraud was a second chance, a reprieve from punishment and stigma, an opportunity to reclaim or shore up a more honorable social identity. In all these contexts, the route to a fresh start involved the marshalling of personal expressions of support from relevant elites, whether through petitions or commercial endorsements.⁶¹

For a company such as the State Mutual Life Insurance Company of Illinois, the high standing and connections of its officers and directors led to a revoca­tion of an 1894 postal fraud order even though the company sold savings ve­hicles that closely resembled lotteries. Through its attorney, the firm fired off an indignant protest about the federal government's willingness to “blacken the character and business of honest, respectable citizens of this state,” includ­ing a former governor, while simultaneously pledging to desist from any mar­keting practices that the government adjudged problematic. In this case, the Post Office quickly relented. By contrast, the owners of small-scale businesses who lacked sufficient pull to persuade local notables to speak up on their be­half struggled to reverse the loss of mail privileges. Such was the experience of Laura Thomas, the operator of a mail-order cosmetics firm in Elkhart, Indiana, whose business practices greatly resembled Modelle Miller's. Unlike Miller, however, Thomas had no blizzard of testimonials to point to, and her plaintive appeals during the winter of 1895 fell on deaf ears.⁶²

And yet, like the turn to seasoned legal advice, the mobilization of accumu­lated social and political capital also had limits. George Graham Rice and E. G. Lewis both played this card. Despite his criminal record, Rice attracted well- regarded individuals to serve as company directors, and was able in 1920 to convince highly regarded journalists and a former Comptroller of the Cur­rency to join his managerial staff. These maneuvers lent his operation a greater patina of respectability, but not immunity from prosecution.⁶³ After receiving the fraud order against his bank in 1905, Lewis garnered full-throated en­dorsements from two former Missouri governors, leading lights of the St. Louis business community, thousands of subscribers and investors, and several members of Congress, who took pains to emphasize the promoter's longstand­ing Republican Party credentials. Over fifteen thousand people and “twenty- one manufacturing, mercantile, and civic organizations” signed one petition on his behalf, but such efforts did not persuade the Post Office to lift its fraud order.⁶⁴ Effectively deploying one's business networks was another crucial re­sponse to charges of commercial duplicity by the Post Office Department; but again did not, by itself, always diffuse the threat of a fraud order or mail fraud prosecution.

For Lewis and Rice, the path to some sort of legal settlement turned out to be particularly arduous because of the nature of their competition. Lewis, as he and his many supporters never tired of arguing, worried numerous entrenched interests—Midwestern publishers, including, most importantly, the owners of the St. Louis Post-Dispatch and the St. Louis Mirror, who were threatened by Lewis's intention to start a competing newspaper; the country's major express companies and banks, who did a substantial money transfer business; and the Post Office itself, which sold money orders and was planning its own foray into postal banking. Rice stepped heavily on the toes of leading Western mining syndicates, respectable Eastern brokerage houses, mining journals, and invest­ment banks. He repeatedly castigated these bastions of the country's economic establishment in print, and his recurrent efforts to manipulate stock markets, along with his exposes of similar activities by financial elites, made him many enemies.⁶⁵

One need not presume that postal officials slavishly did the bidding of se­cret corporate paymasters to conclude that determined competitors tipped the scales of postal justice. Lewis's troubles began with exposes in the local papers, drawn largely on information provided by a disgruntled former partner, which led to a full-scale federal investigation. His budding commercial empire then received an enormous jolt even in advance of the issuance of the fraud order against him: another St. Louis daily printed a leaked postal inspector's report about his activities, which stoked a crisis of confidence in his concerns and drastically curtailed his access to credit, complicating his ability to make prom­ised investments in his mail-order bank.⁶⁶ In 1909, rival promoters, the Engi­neering and Mining Journal, which faced a libel suit by Rice's brokerage firm, and a private detective working for the NYSE all funneled information about Rice to postal inspectors. During the 1920s and 1930s, evidence provided by the financial establishment again enabled federal prosecutors to move against the mining promoter.⁶⁷

The key dynamic here was a combination of intense persistence by com­mercial antagonists, knowledge of the regulatory preoccupations of postal au­thorities, and a capacity to amass or broadcast incriminating evidence. In the right circumstances, even relatively small firms could make significant inter­ventions into mail fraud deliberations. Indeed, recipients of fraud orders who arranged settlements with the Post Office sometimes played this role. After his experience with a fraud order, the retail credit reporter A. S. Burrell took it upon himself to become a postal sentinel, apprising officials in Washington about every other credit reporting firm in his region that threatened to publi­cize nonpayment as a debt collection tactic. Burrell had the satisfaction of prompting several fraud orders against competitors. A northern Indiana cos­metics maker who received a fraud order in the early 1890s similarly became the chief conduit for evidence about deceptive behavior by other firms in the industry. Ironically, running the gauntlet of mail fraud proceedings gave some business owners the capacity to become de facto postal policemen for their corners of the American marketplace.⁶⁸

Pressure from competitors by no means ensured that the postal authorities would produce or maintain a fraud order. Businesses under investigation fre­quently tried to undercut accusations against them by noting that they had been instigated by commercial rivals. And even influential complainants might find the Post Office unmoved by calls for action if enterprises had sufficient commercial standing. Such was the result of a 1907 attempt by a Southern member of Congress to prod the Post Office into a fraud investigation of the New York Cotton Exchange (NYCE). Southern agricultural and commercial interests argued that the Exchange was allowing its members to settle futures contracts on high-quality cotton by substituting inferior grades, a deceptive practice that depressed prices. This charge closely paralleled the attacks against Chicago grain elevator operators that had culminated in a new state inspection regime. But the NYCE’s president haughtily brushed off this broadside against his organization. “It is deplorable,” he declared in a public letter, “that such as­sault upon... a chartered institution of over thirty-five years standing, founded by merchants of this city, or that such implication as to the integrity of its members, should be made under any pretext or for any purpose whatso­ever.” Postal officials agreed, finding no wrongdoing. For members of the busi­ness establishment, barriers to a fraud order could be quite high.⁶⁹

When confronted with a hard case at the margins of economic change, then, postal authorities often responded vigorously to compelling evidence as­sembled in part by business interests, especially if those interests were well connected and the accused enterprises lacked strong links to commercial elites. This way of conceptualizing the Department’s handling of mail fraud helps to account for its treatment of Sears, Roebuck. The Chicago mail-order house did encounter at least one legal objection from a retail storekeeper whose business it substantially threatened. Surviving 1895 complaints about the burgeoning company included several from a Leavenworth, Kansas, bicy­cle dealer, whose business had felt the impact of Sears’s cut-rate offerings, and who insisted that Sears passed off shoddy merchandise as quality goods.⁷⁰

But this isolated intervention proved little more than an annoyance, given Sears’s ability to point to the quality guarantees that his company demanded from its suppliers and, even more crucially, his cultivation of personal relation­ships with officialdom. After arranging a revocation of the fraud order against his firm, the former railroad stationmaster took great care to satisfy any con­cerns that the federal government raised about his business. He paid regular visits to Chicago’s chief postal inspector, inquiring about any new complaints from customers and personally handling disputes as they arose, even if they involved as little as one dollar’s worth of merchandise. At the same time, he maintained close contact with officials in Washington, on at least one occasion sending them copy of a proposed promotion to make sure that it did not cross any legal lines. (Several other firms similarly responded to mail fraud investi­gations by asking the Post Office to vet marketing materials.) Richard Sears responded to the mail fraud investigation by extending the reach of his net­works into the bureaucracy of the federal government. Rural storekeepers may have groused about Sears, Roebuck, but in its early, most vulnerable years, they lacked the kind of national trade organization that might have mounted a more substantial legal campaign against the mail-order concern’s more duplic­itous forms of marketing.⁷¹

For all the legal arguments and connections that Lewis and Rice could place on one side of the Post Office's scales of justice, they could not stop their well- established commercial antagonists from exerting pressure on the other one. The resulting suspicion among postal officials decreased the likelihood of set­tlements, premised as they were on the establishment of trust. Furthermore, neither man managed to pull off the attentive ingratiation of postal officials expected of defendants who asked for revocations of fraud orders. In light of the shadier aspects of Rice's and Lewis's business practices, the sustained legal pressure from commercial antagonists and a brashness of manner precluded compromise.

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In the end, should we view E. G. Lewis and George Graham Rice as prototypi­cal scoundrels, forever adjusting their pitches to keep the suckers interested, constantly striving to stay a few steps ahead of the law, taking cynical advan­tage of the rights accorded to criminal defendants? Or should we rather see them as not so different from other aggressive Americans in the marketplace of their time—but as picking enemies poorly and reaping the consequences? Had the postal authorities given them a bit more slack, might they, like Rich­ard Sears, have toned down their tactics and prospered, perhaps eventually joining the upper tiers of the business class? These are difficult questions with­out obvious answers; they underscore the complex moral and legal issues raised by entrepreneurial innovation.⁷²

A New York Times reporter observed toward the end of a 1912 article on mail fraud enforcement that “It's hard to draw the lines between the knaves and the enthusiasts.” Edward G. Lewis pushed this point even further in 1911, suggesting that even in a country such as the United States, which had so wel­comed inventions of all sorts, truly innovative commercial ideas often encoun­tered profound antagonism. “If something is new,” Lewis suggested as part of an explanation for the government's assault on his business career, “it is pro­nounced impossible, a fake, a fraud, and everything in the dictionary of the human barker.”⁷³

The preceding tales of mail fraud on the entrepreneurial margins, in which postal officials had to draw such barely visible lines and attempt to distinguish the knavish barkers from the enthusiastic seekers of commercial grails, have implications for historical understandings of both American law and Ameri­can business. Before the twentieth century, criminal process in the United States often turned out to be as much about assessing reputation as it was about sifting evidence and evaluating its legal import, and the point of criminal pro­ceedings was frequently to adjust personal disputes informally rather than to assign guilt or innocence. Such patterns held in the rural South and the teem­ing neighborhoods of Northeastern cities. When the son of a North Carolina farmer faced an allegation of theft in the 1830s, or an Irish immigrant woman sought out a Philadelphia alderman in the 1850s to lay an assault charge against her husband, the key questions involved who the protagonists were, how the relevant legal authorities saw them as related to the larger social order, whether they evinced the right kind of deference to those authorities, and how those authorities thought they could best maintain a degree of social equilibrium, reintegrating legal protagonists into their communities.⁷⁴

Up into the early twentieth century, mail fraud enforcement had a similar character, especially when investigated firms inhabited the ambiguous moral terrain that surrounded so many business innovations. In cases that did not involve unalloyed gambling or obvious scams, postal inspectors and prosecu­tors wanted economic peace between distributors and consumers, wholesalers and retailers, and promoters and investors. These officials relied first on infor­mal assessments of the behavior and social standing of the firms that faced complaints. When confronted with vigorous objections to initial judgments, they considered not only the persuasiveness of legal arguments, but also the social and political pull of the accused business owners and complainants. The key questions involved who the business owners were, how they related to the larger economic and political order, whether they showed the right kind of respect toward authority, and how officials thought they could maintain com­mercial equilibrium. As Postmaster General George Cortelyou explained in 1907, when disputes over marketing practices involved firms with “integrity,” the Post Office would serve as “peacemaker” and “adjust the difficulty”⁷⁵ Even within the heart of America's industrializing economy, the legal system some­times accommodated the values of social reintegration and personalized jus­tice so often associated with premodern and non-Western legal mores.⁷⁶

Sears's dexterity in convincing postal officials that he met this standard for restoring commercial harmony suggests an additional dimension to his entre­preneurial success. Sears struggled to lead his company after it achieved gar­gantuan scale; indeed, only with the 1895 entry of the clothing manufacturer Julius Rosenwald into the firm did Sears, Roebuck shore up its capital base and managerial capacity, enabling it to handle the strains of extraordinary growth.⁷⁷ But it was Sears who oversaw relations with the Post Office during that pivotal period in the company's expansion. His knack for reading the aspirations and fears of customers was paralleled by an instinctive grasp of postal officials' con­cerns. Sears, Roebuck dodged the bullet of the fraud order because its founder convinced postal attorneys that he was a trustworthy merchant who would adjust business methods to accord with their sensibilities.

As it happens, 1896 did not mark the end of Sears, Roebuck's troubles with the federal government over marketing methods. In 1907, the company was hit with a mail fraud indictment in Des Moines, Iowa, related to allegations of misleading catalogue descriptions. Eleven years later, well after the Bar- numesque showman Richard W. Sears had relinquished managerial duties, the firm faced complaints about exaggerated claims concerning the quality of its coffees and teas, as well as deceptive marketing of loss leaders, which they falsely claimed reflected volume discounts. From the mid-1 900s onward, moreover, Sears, Roebuck confronted coordinated hostility from rural retail­ers, whose antagonism was now expressed by the Home Trade League of America, an umbrella organization for the countryside's commercial associa­tions.⁷⁸ By this point, however, the “Great Firm” brushed off such legal attacks with ease, adapting to more stringent standards in the event that its formidable legal department lost cases before administrative agencies or in court.

One can measure this process through a telling moment in a mail fraud proceeding some years later, when the attorney for Korean immigrant Charles Young unknowingly emulated Richard Sears's performance at the bar of the Post Office. As the lawyer cross-examined the Chicago postal inspector who had investigated the used-clothing wholesaler, he stressed that leading firms such as “Montgomery Ward, Sears, Roebuck, National Cloak and Suit Co. all receive complaints” like the ones leveled at his client, and then asked, “that does not necessarily show that their business is fraudulent, does it?” The In­spector's answer was emphatic—“Oh, no, no.”⁷⁹ Transmuted by sustained ex­pansion and internal transformation into a landmark of commercial rectitude, Sears, Roebuck had become the standard by which to judge where other enter­prises resided within the moral economy of modern America.