Genre: Business Professional’s Biographies
Author: Edward J. Renehan
Title: Dark Genius of Wall Street: The Misunderstood Life of Jay Gould, King of the Robber Barons (Buy the Book)
Summary
The quintessential robber baron of the 1800s may well be the least remembered, Jay Gould.
Throughout his life, Gould was not only the constant foil of Cornelius Vanderbilt but was perhaps one of the most despised men in American commerce. This reputation may not have been fully deserved, but it is one he fully embraced because he deemed it as giving him a “valuable weapon” which he used skillfully to his advantage. Simply mentioning Gould might be involved in a transaction often produced ripples of action that Gould would often take advantage of. Who was this supposedly dark character of Wall Street?
Gould was not only the constant foil of Cornelius Vanderbilt but was perhaps one of the most despised men in American commerce. This reputation may not have been fully deserved, but it is one he fully embraced because he deemed it as giving him a “valuable weapon” which he used skillfully to his advantage. Simply mentioning Gould might be involved in a transaction often produced ripples of action that Gould would often take advantage of. Who was this supposedly dark character of Wall Street?
Gould grew up in New York as the son of an alcoholic father and three deceased mothers. By the age of ten, he had demonstrated a propensity for both hard work and academics; by the age of 15, he left home. For the remainder of his life, he would see himself as an outsider in the world of finance and would despise those whom he felt had come from more privileged positions.
Gould’s empire went well beyond railroads and telegraphs systems. He also owned banks, newspapers, and investment houses; not to mention a seemingly large number of politicians, judges, and regulators. All were used to support his investment and business endeavors in whatever way made the most sense to him.
Partnering with Jim Fiske (and sometimes his early mentor, Daniel Drew), Gould made various investments and then quickly seemed to reach a conclusion regarding their long-term viability. For Gould, businesses could either be improved and made to produce traditional profits or they could not. Either way, he expected to make as much money as he could. However, his methods for achieving personal success varied greatly.
When Gould determined that he had purchased a business with a strong likelihood of being able to sustain a reasonable profit, his strategy was always to turn that operation into something as close to a monopoly as possible. If the business were new, he would offer significant discounts to grow the business. If the business were established but operating in a competitive market, Gould’s companies would beat the competitors’ prices by the slimmest margin possible. Then, once he had established a monopoly, Gould’s companies would charge the highest prices possible.
Just as often, Gould would determine that a purchased business was either not viable long term or he lacked sufficient control to use the methods just described. In these circumstances, Gould and Fiske excelled. Gould was as “master of stock watering, short selling, pooling, bear raids, and bear traps.”
He was also a “maestro of margins; able to create capital out of thin air using limited capital reflected in a hall of financial mirrors.” When Gould found the company limited on long-term investment value, he simply used it as a speculative device. Using his investment bank, Gould often took large short positions in his own enterprises and then used his newspapers and other resources to float false and negative rumors about the pending prospects of his companies.
As the rumors caused the stock price to fall, Gould actually made money. Then when the decline was steep enough, and his shareholders were insufficient emotional or financial distress, Gould would reverse his position and begin buying. When the entire operation was complete, not only had Gould made money, but he also increased his control of the enterprise itself. Although both seemed to satisfy him greatly, the effect was not the same on those who presumed that they had invested with him. It should be noted that essentially all of these activities were perfectly legal at the time.
During this period, this description of Jay Gould was offered by Wall Streeter James Keene; Jay Gould is “the worst man on earth since the beginning of the Christian era. He is treacherous, false, cowardly, and a despicable worm, incapable of a generous nature.” Not much of a legacy some would say, but Gould may have found it sufficiently exaggerated as to be useful.
Introduction
“The worst man on earth since the beginning of the Christian era. He is treacherous, false, cowardly and a despicable worm incapable of a generous nature.” This is Wall Street player James R. Keene describing Jason Gould. Gould is remembered as one of the evilest men ever to find success on Wall Street. Throughout his work, The Dark Genius of Wall Street, Edward Renehan tries to show both sides of Jay Gould’s legacy.
He states in his preface, “I intend to serve neither as his prosecutor nor his defense attorney, but to lay out the facts as we have them.”
One thing that is clear is that Gould was a genius speculator who used the financial tools of his day better than almost anyone. Although many of his practices would be illegal today, they were not at the time and were practiced widely throughout the Street.
Gould fostered a life-long rivalry with one of the great titans of his era, Commodore Cornelius Vanderbilt. Through his long career, Gould realized the importance of having influence in newspapers, courts, and the legislature, using all three to his advantage. Jay Gould was raised on a poor settler’s farm; and therefore, his natural allies were self-made men like himself.
He despised fools and disliked men with inherited wealth and connections. He was socially unrefined and had little use for the extravagant life enjoyed by most of his contemporaries. Work and family were the two constants throughout his life and were the things that gave him the most happiness.
Family
Jay Gould was born in 1836 in Roxbury, New York, a small new settlement in the Catskills, and was the youngest child of John Burr Gould and Mary Moore Gould. He had five older sisters: Sarah, Anna, Nancy, Mary, and Elizabeth. His father descended from a prominent family in Fairfield, Connecticut and therefore was well educated for a settler.
John Burr Gould was a complex man who knew all too well his shortcomings in life as a relatively poor farmer and drowned those feelings in alcohol and bitterness. Gould’s mother was the closest thing to aristocracy in the Catskills, but she died when he was four years old; and his only recollection of her was her affinity for flowers, which may explain Gould’s obsession with flowers later in life.
After Jay Gould’s mother died, John Gould married twice more; however, each ended in death shortly thereafter. Before Gould was ten, he had buried his mother, two stepmothers, and one older sister who died at the age of eleven. Despite the difficult life he endured as a farmer’s son, Gould was a relentless student who took his work seriously.
He would often hide from his father so he could read and work on schoolwork rather than do his chores on the farm.
His father’s alcoholism led Gould to shun alcohol as well as tobacco, gambling, swearing, and other vices. Gould never was a man of much faith but could occasionally be dragged along to church services.
Gould married Helen Day Miller, who he referred to as Ellie, on January 16, 1863. She, unlike him, was a flower of Murray Hill society and the daughter of a prominent Wall Street investor. Like him, she was unimpressive physically, liked quiet pleasures, and did not need the glitz and glamour of high-class society.
They were both devoted to their family and had six children, George, Edwin, Nellie, Howard, Anne, and Frank. Throughout his life, Gould would remain extremely devoted to his family and was by their side whenever his business activities would allow.
Early Endeavors
When Gould was fifteen, he had finished all the available education in Roxbury and taught himself how to use survey equipment. He took his first job surveying Ulster County under a man named Snyder. The man told Gould and two other young associates to go around the county surveying and to use his name as credit wherever they stayed.
Gould soon learned that his boss owed most everyone in the county, and therefore Gould had no way to pay for rent. Instead of quitting and heading home, Gould learned how to make noon marks, which allowed people to tell time, and charged a dollar a mark. In doing this, he was able to pay his rent and finish his portion of the surveying project.
When Snyder could not pay the three young surveyors, he was forced to give them the rights to the Ulster County map. Gould made a profit of $500 on his portion, and it was the first time he used his ingenuity to make a profit. This first successful project led to Gould taking on numerous surveying projects throughout the New York state.
Gould’s projects in surveying also brought him in contact with lobbyists at the state legislature for the first time, which would eventually be a tool he utilized throughout his financial life.
At the age of eighteen, Gould was offered a commission to draft a history of his home Delaware County. He did this while taking small surveying projects and working in his father’s tin store, which his father had acquired in exchange for the family’s homestead.
Gould worked himself so hard that he became deathly ill with typhoid fever and spent eighteen months around Roxbury working on the history of Delaware County while recovering. During this time, Gould was working in a general store owned by Edward Burhans, where he made a deal that many historians have highlighted as his first betrayal.
Gould was working in the store alone when a couple of men walked in looking for Burhans to offer him a land deal. Gould saw the value in the deal, bought it from the men himself, and quickly turned the land into a $5,000 profit. Shortly after that deal, Gould left Roxbury, never to call it home again.
Gould’s sister, Sarah, and her husband, George Northrop, had some success in leather manufacturing. Therefore, when Gould was on one of his many surveying jobs and met Zaddock Pratt, one of the most successful tanners in the country, he immediately began to call on Pratt for advice and work. Gould began writing Pratt’s speeches and doing small surveying work but eventually convinced him to enter a 50-50 partnership with Gould opening a tannery in Pennsylvania.
Basically Pratt agreed to supply the capital while Gould would provide the energy and be responsible for all day-to-day operations. At the age of twenty, Gould moved to Pennsylvania and founded Gouldsboro in between the Lehigh and Delaware Rivers. At first, the relationship between Gould and Pratt was strong as Gould focused intently on the logistics of running the factory and left the tanning to his more experienced crew.
Gould’s first introduction to finance occurred when he traveled the “the swamp” in New York City which was where all the leather merchants had their shops.
Gould was fascinated by “the swamp” and realized quickly that the merchants held all the real power. 1857 was a tough year to try and establish the tannery with the start of the Mexican-American War and the financial panic.
Gould and Pratt began to butt heads as Gould became more independent and began to look for merchants on his own. It could not be argued that Gould had established an incredibly productive and efficient tannery at Goldsboro, but the tension between the two led to Pratt giving Gould an ultimatum. Pratt was going to buy Gould out for $10,000, or Gould could buy Pratt out for $60,000 (Pratt had invested $120,000), and he had ten days to decide.
Gould traveled to New York City and established a partnership with Charles M. Leupp and David W. Lee, two of the foremost brokers in “the swamp.” This allowed Gould to buy out Pratt and marked Gould’s first coup taking advantage of someone trying to take advantage of him. The partnership with Leupp and Weber fell apart when Leupp committed suicide, and the property was contested due to the complicated nature of the contract.
After going back to his sister Bettie’s wedding and seeing his father drunk and struggling, Gould decided to follow his dreams and start a career on Wall Street. Gould left Goldsboro in 1860 at the age of twenty-four to start over personally and financially in New York.
Beginnings on Wall Street
Gould began his time on the Street winning and losing, working on small deals and trying to learn from the best in the business such as Daniel Drew and others who would lend him an open ear. He spent every waking moment consumed by the Street and all its intricacies as he and other young players worked to establish themselves. As the Civil War began, Gould had no noted opinion, and he never wore a uniform.
Many assume he was too concerned with finance and Wall Street to be worried about such things. It was just a year or so into his Wall Street career that he met the woman who would become his wife, Helen “Ellie” Miller. For the next couple of years, Gould continued to study the workings of the Street. Edward Renehan discusses Gould’s progression, “In time, he became a master of stock watering, short selling, pooling, bear raids, bear traps, and other standard tricks of the Street, most of which would not be tolerated today but were standard practice in Gould’s time.
He developed, as well, into a maestro of margins, one of the many Wall Street wizards capable of creating capital out of thin air and gaining control of companies by using just a few dollars reflected in a hall of financial mirrors; funhouses of convertible bonds, proxies, and leveraged cash.”
Gould’s first opportunity to try his tricks on a large scale involved the Rutland & Washington (R&W) Railroad.
Gould was offered $5000 in first-mortgage bonds which he realized once converted to stock, would represent a controlling interest in the company. At the end of 1863, he bought the bonds with a combination of cash and speculative paper and on New Year’s Day became the president, secretary, treasurer, and superintendent of R&W Railroad.
Gould spent the next year and a half in Rutland or along the R&W line, returning to Ellie every weekend. He hired experienced managers and issued new bonds in order to make necessary repairs. In May of 1865, Gould received his first big payday when he merged the R&W with William T. Hart’s Rensselaer & Saratoga Railroad for a profit greater than $100,000. He and Hart then formed the Troy, Salem, & Rutland Railroad, a consolidation which was sure to dominate its market.
The monopolization was Gould’s first endeavor, and it thrilled him; he would spend the rest of his life trying to establish monopolies and dominate markets in the same way. Gould would spend the next year working for the railroad while also spending half his time “milking the Street from every tit.”
When Gould’s father died in 1866, their differences could not have been more pronounced. Gould was not yet 30 and while not a millionaire he had certainly acquired substantial wealth. In 1867 he helped form a new trading firm: Smith, Gould, & Martin, which set the stage for Gould’s launch to national prominence.
The Erie
The Erie Railroad was supposed to be the great link between New York Harbor and the Great Lakes. However, due to shifting politics and poor infrastructure, it became a line from Jersey City and Piermont to Dunkirk on Lake Erie. It was accident prone and in poor financial state when Daniel Drew stepped in as treasurer in 1854. Drew then spent six years raiding the company for his own financial profit, using the company purely as a speculative instrument.
In 1861, Nathaniel Marsh came in as president and began to shore up the Erie’s finances and infrastructure while increasing productivity in a war economy. He died suddenly in 1864, and when the war ended, the massive debt overhang was covered by Daniel Drew allowing him to reestablish some power. This led to a clash of titans because, in 1867, John C. Eldridge began attempts to take over the Erie in order to help his connecting railroad, Boston, Hartford, and Erie.
At the same time, Cornelius Vanderbilt, who had been involved in the Erie since 1857, began to make a serious run at taking it over. Vanderbilt’s intentions were simple; he already controlled a route from Manhattan to the Great Lakes within his rail system and did not want to endure rate competition from a strong Erie. Eldridge and Vanderbilt teamed up to control votes on the Erie Board. Into this situation stepped young Jay Gould. Gould’s representation of British investors through Smith, Gould, & Martin led Eldridge to approach him concerning his support in the ongoing Erie situation.
When the new board elections came around in late 1867, Eldridge, Drew, and Vanderbilt were all voted onto the board.
Eldridge was established as president and Drew as treasurer. Two other men were among the new board members: Jay Gould and the man who would be his partner from this time forward, James Fisk, Jr. What these men inherited was a financial and structural mess.
Vanderbilt’s complete control was challenged early on when an investment pool he suggested was rejected by the other board members. Vanderbilt then decided to try and corner the Erie market while obtaining injunctions prohibiting the rest of the Erie board from issuing new stocks, bonds or any other railroad stocks. Gould realized that nowhere in the injunction did Vanderbilt specifically prohibit the executive committee from issuing shares, so the Erie’s executive committee issued $5 million in convertible bonds and dumped the shares on the market.
Gould also had a court suspend all of Vanderbilt’s injunctions and remove his main ally from the board. The team of Drew, Gould, and Fisk had injunctions preventing them from issuing stock and injunctions preventing them from not issuing stock, so they continued to do whatever they wanted. Vanderbilt had a judge issue warrants for Gould’s, Fisk’s, and Drew’s arrests due to failure to comply with the injunction, so they packed up all the files in the Erie office, took all the money from the safe and escaped by boat to Jersey City.
At the Taylor Hotel in Jersey City, they kept the heat on Vanderbilt. Gould was the brains behind the battle they portrayed as good vs. evil, populist vs. monopoly. Gould lobbied for legislation to bring about a bill that would rule in favor of his team against Vanderbilt. Here he used his lobbying skills, as well as significant bribes, to get the bill passed. However, Drew and Eldridge made a secret pact with Vanderbilt that enabled him to step away without any real damage. Gould and Fisk were eventually left in complete control of the financial shell that was the Erie Railroad.
Jay Gould took over as president and treasurer of the Erie Railroad with James Fisk as the controller.
Gould wasted no time in issuing massive amounts of convertible bonds in order to shore up the treasury, costing the shareholders dearly. He politically dominated the new elections and therefore controlled the board. Shortly after shoring up the Erie, he decided to plan the ultimate bear trap.
His idea was to tighten the US money supply, causing interest rates to rise and therefore the price of stocks to fall. He then put together a pool of investors, which included Daniel Drew, to short the Erie stock that would inevitably plummet in a bear market. While the plan was in action Drew backed out and asked for his initial $4 million back. An agitated Gould only gave Drew $3 million saying it was a “function of market timing.” In turn, Drew went massively short the Erie, trying to get back his million and then some.
Seeing this and deciding to give Drew some of his own medicine, Gould and Fisk pulled their shorts the next day and released their cash reserves. The Erie rose almost $20 on the weekend, and by the time the dust settled the two young men had gotten the better of Drew for over a million dollars. This scheme cemented Gould as a financial mastermind even though it came at no benefit to the Erie and small benefit to Fisk and Gould.
Turning their attention back to the Erie, Fisk convinced Gould to go 50-50 with him on the acquisition of Pike’s Opera House at Twenty-third Street and Eighth Avenue. Above the theater, the partners established the offices of Erie Railroad, later to be named “Castle Erie,” which were regarded as the finest office buildings ever built.
Gould tried to make the Erie more profitable and was successful, but he soon realized that Erie’s incredibly poor infrastructure would never allow it to flourish as a railroad company. Therefore, he continued to use it simply as a speculative device to make a profit for himself and his circle of allies. His control of the courts and legislature allowed him to continue without concern for his shareholders.
Eventually, investors began to stay away from the Erie altogether, and its use as a speculative tool began to disappear. James McHenry, who Gould disagreed with over an Erie connection to McHenry’s railroad, began to look for ways to undermine Gould. He teamed with British investors and the newly reforming New York politicians and judges to go after the Erie. Gould realized his control was slipping.
His shareholders were in revolt, and his control of courts was not what it used to be. In March of 1872, the board held a meeting and ousted Gould from the Erie forever, replacing him and his allies with McHenry’s men. On the report that Gould was officially removed from the Erie, the stock shot up, making Gould, the largest shareholder, a fortune.
He continued to speculate in the Erie and other stocks through his different partnerships and various brokers, always anonymous but always present. At the close of the final lawsuits relating to the Erie, Gould remained a financial rock, waiting on his next big opportunity.
Jim Fisk
James Fisk, Jr. was the only long-lasting business partner that Gould had throughout his life. They were partners from their election to the Erie board and the ensuing conflict until Fisk’s murder on January 7, 1872. The two could not have been more different. Robert Fuller described their relationship, “The contrast between Jim and Gould was complete.
Jim was florid and fond of the table, a weakness that was beginning to show in his figure. Gould was abstemious. Jim was loud and self-confident; Gould was silent and seemed diffident. Jim was bold; Gould was cautious. Jim said what he thought; Gould kept his mouth shut. Jim liked to spend his money; Gould kept his. Jim was generous and open-handed; Gould wasn’t.”
However, their partnership was united on their intelligence and work ethic. Both loved the games of Wall Street and had taught themselves the tricks of the trade by winning some and losing some, eventually becoming the most feared minds on the street.
As a general rule, the calculating Gould was usually the planner and executer while Fisk was the mouth of the operation, drumming up support.
They worked together well, not just while controlling the Erie but in multiple speculative plots. Fisk’s murder was brought on by one of his many vices, Josie Mansfield. Ms. Mansfield was Fisk’s longtime mistress who began seeing a younger man, Edward Stokes. Stokes eventually shot and killed Fisk at the Grand Central Hotel.
Gould was heartbroken by Fisk’s murder and openly wept at his deathbed. Although he would form numerous partnerships during the rest of his days on Wall Street, he never had one that lasted or was as amicable as his relationship with Jim Fisk.
Gold Corner
Jay Gould’s most famous speculation on Wall Street was his attempted corner of the gold market in the summer of 1869. The Gold Exchange on Wall Street was set up in response to the United States abandonment of the gold standard during the Civil War and the slow process of getting back to a firm gold standard. Because the rest of the world had never left the gold standard, American merchants used the Gold Exchange as a way of protecting themselves against the fluctuating greenbacks.
The legitimate business of the Gold Exchange was lending gold to merchants. Because merchants who borrowed in this way were essentially short gold, there were ripe prospects for speculation. If the amount of gold in supply could be controlled, then the speculator could use the buying of the merchants to run up the price.
Jay Gould started playing with the gold market in early 1869.
After bulling the price up for a couple of weeks, he then sold off and watched as the Treasury released more gold to bring the price down. He quickly realized how much power the Treasury had to control the actions of the gold market. By the summer of 1869, Gould began to think seriously about attempting to corner the gold market. Not only did he know that he could make a speculative fortune, but it would also stimulate exports as the value of the greenbacks dropped against gold.
Abel Corbin was a sixty-seven-year-old part-time lawyer, speculator, and lobbyist who knew Gould through some New Jersey land deals. Since he had recently become current President Ulysses S. Grant’s brother-in-law, he was Gould’s inside man to the thoughts of Washington, D.C., regarding the gold market. Gould set Corbin up with an account worth $1.5 million in gold, without margin.
Corbin arranged multiple audiences for Gould with the President where Gould discussed his views in favor of tightening the gold market and listened as Grant spoke of sound money and the return to a gold standard. However, Gould was not going to be denied and continued to pester the President at every chance about the need to raise the price of gold.
At the same time, he ensured that Brigadier General Daniel Butterfield was appointed Assistant Federal Treasurer for New York. Butterfield would be the next in command, after the Treasury Secretary, to be aware of any federal moves on gold, so Gould set him up with a gold account as well. He also bought a controlling interest in the Tenth National Bank so that he could have unsecured credit for his gold purchases.
With the price of gold falling, Gould formed a pool with a number of Wall Street investors and began his play. Surprisingly, Fisk originally stayed out of the pool because he was unsure of Grant’s feelings regarding gold policy. Renehan makes the case that because of the uncertainty and multiple wild cards surrounding the gold corner, it does not give off the feel of a typical Gould deal.
However, by mid-August, Gould and his pool were ramping up their buying while Gould was up to his typical tricks of fake editorials presenting the President’s views on the gold market and public demonstrations of friendship with President Grant. The Gould pool continued to ramp buying as a large harvest in the West seemed to support raising gold prices. By mid-September, Gould held a 25 million dollar position on his own and the other members of his pool held a combined $60 million.
However, the pool started unraveling as a number of players broke off and began to take short positions in the gold market. Gould began to get nervous and had Corbin write Grant a letter which was delivered by a Gould-employed courier to the President’s retreat in rural Pennsylvania. When the courier delivered the letter he wired back that all was well. On the contrary, when Grant read the letter, he realized his brother-in-law was in on the gold play and was outraged.
At this point, Fisk jumped in on the courier’s news that all was well. Gold became front page news, and the Gould pool had to continue to ramp up buying in order to fight off the bears. On Wednesday, September 22, gold was at 141 1⁄2 and Fisk held $50-$60 million. Later that day Gould talked to Corbin who had received word of Grant’s outrage and was frantic. On Thursday, Gould did not tell Fisk what Corbin had said but simply became a silent bear while buying just enough to keep appearances.
That day Fisk bought $14 million in contracts in four hours. Gold rose to 143 1⁄4 as a number of bears went broke trying to cover their short positions. Gould then told Fisk all that was going on with the situation and Fisk agreed to continue as a bull for show.
On Black Friday, September 24, 1969, gold hit 162 as hundreds of bears had to pull out of the market.
Around noon, the Treasury released $4 million in government gold and the price fell to 135. Because of the scarcity of credit and high-interest rates throughout the week, the stock and bond markets crashed.
Therefore, the net result of the gold corner for Jay Gould was a loss as he had many margin calls on his securities. Gould and Fisk spent the weekend holed up in Castle Erie protected by guards. On Monday they obtained several injunctions to protect the financial position of Fisk.
The final lawsuits relating to the attempted gold corner were not settled until 1877, a full eight years later. The damage to Jay Gould’s reputation was permanent. At the age of thirty-three, he had cemented his reputation as the greatest villain in the history of Wall Street.
Reputation
The events of Black Friday took Jay Gould’s reputation from a financial genius and typical Wall Street assassin to a demon-like figure that ruined men. His previous business transactions were re-written to better display this demonic form.
The general public believed the idea that Gould must have made a fortune because so many people had lost so much due to Black Friday and the gold corner. Gould did himself no favors in the ensuing congressional investigations where he was evasive in answering questions. Gould used this reputation to his advantage.
He adopted the Machiavellian principle “it is better to be feared than to be loved.”
He claimed that the popular image of him as a cold, calculating financial genius was his most valuable weapon. Just the rumor that he was involved in a stock could send it swinging one way or another. It was for this reason, according to those closest to him, that he kept his charitable donations secret. Although people that dealt with him claim he was always willing to help any deserving charity and was constantly giving, it was never publicized.
He continually supported all men who were categorized as bootstrappers, men who pulled themselves up by nothing but their own hard work and intuition. Despite all this, after Black Friday the press never gave him much positive reporting. This was quite evident after the murder of Jim Fisk when many editorials flatly came out and said that the wrong man within the partnership had been shot.
This continued after Gould’s own death, when it was hard to find a report that did not celebrate his death as a positive for humanity. Edward Renehan summed it up perfectly when discussing the finality of Gould’s reputation after Black Friday. “In the end, no degree of managerial success (and no amount of hard-won profits built up for shareholders over dozens upon dozens of quarters) would ever be enough to mitigate the easy stereotype of the thieving manipulator out to glut himself on spoils flimflammed from unwitting innocents. The presumption of guilt was to go with Gould to his tomb.”
Railroad Empire
“I have been interested in railroads ever since I was a boy. I now think a railroad train is one of the grandest sights in the world. I like to see the great driving-wheels fly around.” Jay Gould spoke these words in 1887, so it comes as no surprise that as Gould began to look for an opportunity after his removal from the Erie, the Union Pacific Railroad presented itself as an intriguing prospect.
The founding of the Union Pacific was similar to the Erie, with government contract issues, hidden agendas, and poorly run construction. The Union Pacific started at the Missouri River and met the Central Pacific Railroad in Promontory, Utah. Into this fray stepped Cornelius Vanderbilt, who took control of the railroad and placed his son-in-law, Horace Clark, into the presidency.
Clark was close to Gould and regardless of what his father-in-law’s opinion might be, invited him to invest in the stock. As the stock went down due to looming government action and a general market trend, Gould began to buy it in bunches. When Clark died suddenly in June of 1873, Gould owned almost one-third of all available Union Pacific shares on the market. After initial skepticism by the board, Gould was able to make peace and obtain some influence.
Gould was able to take complete control of the railroad during the financial crisis before and after the “Gould Cooke Black Thursday.”
So once again Gould was buying a company of value at a sliver of its actual value. Through the crisis, Gould propped up the UP at a significant personal loss, but he was able to keep the Union Pacific from going under, avoiding the fate of a number of the nation’s railroads. Transformed the debt of the railroad, sued the federal government for withholding funds and sold off his smaller railroad interests to focus solely on the Union Pacific.
Gould realized the only competition for the Union Pacific/Central Pacific interchange on a continental scale was the Pacific Mail steamship company, which brought goods down the California coast to the Isthmus of Panama. There was a massive price war between the two which was killing the Union Pacific profits and its stock price. Gould leaked news that members of the Pacific Mail board, as well as Gould, were short the stock which sent the market into a panic.
Gould continued to appear as a bear but bought substantial amounts of stock and took control of Pacific Mail. He joined the board and installed Sidney Dillon, who was already the president of the Union Pacific, as president of Pacific Mail. They ended the price wars and established a monopoly.
By the spring of 1874, Gould had put all of his focus into the Union Pacific and had ceased his focus in stock speculation. Although he was the supreme ruler of the Union Pacific, he preferred anonymity and simply held seats on the board and executive committee. Twice a year he rode the length of the Union Pacific’s tracks with his executive committee.
He believed in strong business fundamentals and essential basics of economy. His general policy was based on three fundamental tenants: charge the highest possible rates where they held a monopoly, beat prices by the slimmest margin possible in competitive areas, and offer discounts in order to grow new business. At the same time, he used his financial wizardry to restructure and keep firm the company’s finances.
Gould continued to work to consolidate railroads in the West. Through financial devices, he was able to take control of the Kansas Pacific, Denver Pacific, and Missouri Pacific; all of which had connections to the Union Pacific. None of these were acquired as subsidies to the Union Pacific, but rather, Gould and his allies acquired them as individual investors in order to enact change that benefitted both the roads and the Union Pacific.
In 1879 at the age of forty-three Gould, combined the Kansas and Denver Pacific with the Union Pacific. He made close to 40 million dollars personally on this one transaction. Gould continued to expand his rail empire in the West. Eventually, Gould controlled 15,854 miles of track which accounted for a ninth of the entire rail network in the United States.
Telegraph
When Gould took over control of the Union Pacific, the company had a controlling interest in a small telegraph company, the Atlanta and Pacific (A&P). At this point, Cornelius Vanderbilt controlled Western Union, which was the dominant player in the telegraph industry.
Telegraphs relied on railroads; their offices were in railroad depots, and their lines ran along railroad tracks.
Western Union had 154,472 miles of telegraph line while the A&P had only 7,460 miles. Jay Gould saw the A&P as a way to leverage influence in Western Union, so he shored up its physical condition and broke the non-compete agreement with Western. He offered the A&P presidency to a Western superintendent, opened a massive rate war with Western Union, and convinced railroads to switch providers.
As always, his goal was consolidation of the two lines, allowing him influence in the Western Union board room. When Vanderbilt died and turned the company over to William H. Vanderbilt, Gould turned the heat up with bear raids on Western stock and publicized negotiations with even more railroads. Gould then acquired seats on two railroad boards that were in direct competition with one of Vanderbilt’s main lines.
He leveraged these for an 1877 merger between A&P and Western Union that, in turn, made him a good bit of money. However, William Vanderbilt refused to give Gould a seat on the Western Union board, closing him out of the expanding and profitable telegraph business.
Two years later, Gould founded the American Union with an eye towards an eventual takeover of Western Union. He brought in former associates from the A&P and other ventures and capitalized it with $10 million. He painted American Union as a fighter for democracy and against monopolies, the irony that was not lost on the press.
Gould used his railroad empire to establish American Union on rails throughout the country, and after one year it had two thousand offices and fifty thousand miles of line.
In that same year, Western Union’s gross business dropped $2 million as Gould not only competed directly with American but also mounted bear raids on the stock. By the end of 1880, Western stock dropped below 80 for the first time in its history. Vanderbilt surrendered in early 1881 with the stock at 78 and Gould in control of more than $7 million in Western Union stock. In the year and a half since Gould had founded American Union, Western had lost twenty-five percent of its value on paper.
In the merger between the Western and American, Gould made almost $30 million in personal profits and gained complete control of the corporation. He consolidated the country’s telegraphs and now had a pure monopoly. He had succeeded in acquiring complete control of the telegraph industry in the United States.
Elevated Lines
Elevated rail lines in New York City began with two early attempts: the New York Elevated and the Metropolitan Elevated. After the panic of 1873, the lines were half-finished and in poor financial shape. In 1875, the state government commissioned a new line, Manhattan Elevated, to finish both the New York and Metropolitan lines if they were not complete by a future specified date.
The New York and Metropolitan teamed up for financing and construction and finished their lines on time.
They desired consolidation, but New York legislation forbid it. Therefore, they used the Manhattan as a vehicle for consolidation. Each company leased its lines to the Manhattan on a 999-year basis, and they were given an equal amount of stock in the Manhattan Elevated. Problems began when the New York Elevated proved much more profitable, and its executives were unhappy about pulling all the weight.
They dropped their Manhattan stock on the market at the same time legislative rulings began hurting the elevated lines. Jay Gould saw opportunity in the depressed stock prices that followed. He used his newspaper to print negative stories, and stock prices continued to fall. He and his associates started quietly buying into the Manhattan while performing bear raids on the New York and Metropolitan.
Gould was able to gain a board position on the Metropolitan and significant influence within the New York. The Manhattan went into receivership, and Gould placed two allies as the receivers. In October of 1881, Gould, who had been ruthless in his attack on the Manhattan in the press, took control of the Manhattan and became president of the company.
Shortly thereafter, he gained majority positions in both the Metropolitan and the New York against opposition from their executives. He then watered down the stock, made key operating moves, eased tax burdens that had been weighing down the lines, and restructured the leases in favor of the Manhattan. In a short time, he was able to make the elevated lines profitable, and they became a key pillar of his empire.
Legacy
By the end of his battle for the elevated lines in 1881, Gould was virtually finished with aggressive business tactics and resorted to defending the great empire he had built. He successfully defended his empire against corporate raiders and the unions, which Gould despised like all capitalists of his day.
His highly focused mind had always seemed to carry his body out of necessity, and the 1880s found him frequently physically exhausted.
His great country estate, Lyndhurst, became his place of peace. On January 13, 1889, his wife Ellie died. After that, it was simply a matter of time for Gould, who now was so ill he had a doctor with him at all times. Jay Gould died on Thursday, December 1, 1891, at the age of 55. He left behind an empire built on three pillars: the western railroads, Western Union Telegraph, and the Manhattan Elevated.
An infamous career that began and is famous for stock speculation ended with control of three strong and profitable businesses that represented the new economy in the Gilded Age. In 1892 Gould’s friend, banker Jesse Seligman, described him as “the most misunderstood, most important, and most complex entrepreneur of this century.”
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