ROBBER BARONS
CHAPTER NINEMEPHISTOPHELES
WHILE the productive labors of a society, the functioning of its ships and railroads, its mills and factories, give the effect of a beautiful order and discipline, of the rhythmic regularity of the days and seasons, its markets, by a strange contrast, seem to be in a continual state of anarchy. Here the same services and commodities, produced every day with perfect routine, go through a mad dance. The market, as Marx has pointed out in a striking passage, is like a “city without a plan.” Yet only in the market can the capitalist take his reward. Here he must move without a faltering step under pain of instant destruction. He must tell none what his plans are ; he must smile or remain impassive when he is in torment or danger. For his business is difficult, laborious and risky. He must show infinite resourcefulness, efficiency, sagacity. He must, as Marx states it,
have fine hearing and a thick skin ; must be simultaneously cautious and venturesome, a swashbuckler and a calculator, careless and prudent. He must, in fine, develop all the qualities of an experienced man of business.
By this definition of the man of the market, Jay Gould seems the capitalist par excellence. During all the heroic, turbulent period we review he seems the very soul of the movement of industrial revolution ; he shows the “purest” traits, if one may call them so, of the great entrepreneur.
Where certain of his rivals, intoxicated with power, learned to crave glory too, Jay Gould seemed to place himself above such human vanities. Nor did any social interest, or any sentimental consideration, as of the size or beauty of an enterprise, deflect him for a moment from his marvelously logical line of movement. No human instinct of justice or patriotism or pity caused him to deceive himself, or to waver in any perceptible degree from the steadfast pursuit of strategic power and liquid assets. Others, such as Rockefeller and Morgan, had their friendships, personal loyalties to colleagues or members of their class. Gould, who had only agents rather than confidants or allies, seemed to enjoy most the rôle of “the one against all”; self-contained, impassive to all pleas or reproaches, he seemed content with his loneliness. For most of his days he lived, as it has been said of Harriman, who resembled him so much, “in the necessary isolation of a ship’s commander when on sea duty.” At times he seemed to soar above the others like a destroying angel.
What would he have done, or rather what great works would he have undone, if his health had not failed him ? He lived in the agony of a consumptive, not daring to admit his infirmities for fear of the enemies always ranged against him. While plunged in his large designs, he would pass nights without sleeping, coughing blood in terrible spasms, walking the street outside his home until dawn. He died prematurely, in the midst of life, and his vast unknown plans foundered with him.
In all the things he did, he seemed pervaded with a demoniac pessimism, which in sober retrospect does him much honor. There were certain developments which must have filled him with an enduring mistrust of the very system which he exploited so brilliantly. At the height of his career, after the Civil War, the commodity markets of the world seemed to resume their prolonged downward trend, which they had shown ever since the Napoleonic wars. The earth, in these years, from its civilized states and wildest colonies seemed to belch forth a torrent of goods ; the armies of labor were constantly multiplied ; and new inventions, new machines appearing with bewildering rapidity added to abundance and cheapness incessantly, while making obsolete existing machinery and destroying fixed capital. Hence what appears to others a wanton destructiveness in Gould, his intermittent raids or attacks, were but testing operations carried on against a system he may have believed foredoomed. Thus possessed of terrible doubts, he was constantly turning his supposed advantages in securities, or goods, into ready money ; assumed gains, surplus value, in perpetually renewed campaigns must be turned into cash. He never deceived himself.
He was a small man, weak in physique, and he loved power—the realities of power rather than its vestments. “I did not care at that time about the mere making of money,” he said with reference to his sensational exploits in the Missouri Pacific Railroad. “It was more to show that I could make a combination and make it a success.”
The giant size of a project, the dangers it offered, the speed and skillful precision with which it must be carried out—all this stirred his strange imagination. Since his boyhood he had dreamed of making a transcontinental railroad ; and now in 1873, free of the Erie, he had begun to buy shares of the celebrated Union Pacific. Its stock of $100 par value had sunk to $30 after the Credit Mobilier scandal ; then even to $14. He continued buying.
“I found myself a very large owner in that property,” he admitted to a committee of United States Senators some years later. “Then . . . I found that there was ten millions of bonds that came due in a month or two. . . . It was rather a blue condition of things.”
When Daniel Drew had parted company with him in 1868, he had jeered : “ There ain’t nothing more in Erie.” But Gould and Fisk had shown him a trick or two. So with Union Pacific. Though looted, the tremendous line which took days to traverse suited perfectly the bold plans being formed by the Mephistopheles of Wall Street.
In accordance with his large designs, one broken railroad after another was quickly taken over by Gould throughout the Middle West and the Southwest. From Thomas Scott, whom he found “very much broken up, financially, physically and mentally,” he acquired a working interest in the Texas & Pacific, which had been chartered in 1871 to run between Galveston and San Diego, but was virtually unbuilt. From Scott also he purchased an important newspaper, the New York World. Then he reached for fragments of defunct railroads, franchises, land grants about to be forfeited. These included the ill-fated Kansas Pacific (which had gained great subsidies in land and money), now fallen into receivership ; the Denver Pacific, the Wabash, the Missouri Pacific, all of which, together with connecting and feeding lines, gridironed the West. Then, by effecting favorable transfer agreement with Collis Huntington, he would gain an outlet to the sea via California. In the meantime, the Pacific Mail Steamship Company was acquired by him in conjunction with Huntington to keep ocean carrying-rates by way of Panama from competing with the land crossing. To these properties he was to add, by systematic raids, the rich telegraph monopoly of the Western Union Company ; then the new rapid-transit lines being built in New York to carry her millions back and forth to their unremitting labor ; finally a series of coal mines ; and toward the end, railroads running to the Eastern seaboard, to round out an industrial empire which spread its crazy network from one shore of the continent to the other.
The railroads, the telegraph lines, the ships, the newspapers, all were part of an imperial plan to capture strategic sections of the country’s industrial system, and, by blocking it first at one point, then at another, to levy infinite toll upon it.
To understand the scope of the man’s tactics one must note that his domination was carried on by strategic “working controls” rather than by ponderous outright investments. He was an “absolute master,” as a shrewd investigator for President Cleveland reported, “of the art of creating coordinate boards of directors that had complete control of adverse interests.” Thus the ruin of certain properties which he controlled at slight expense might be turned to his own pecuniary gain. All his tactics, therefore, hinged upon what Thorstein Veblen has defined as “disturbance of the industrial system.” He would pursue a deliberate policy of mismanagement “as a matter of principle,” deriving his gains from the discrepancies between the real value of the affair and its supposed or transient value in the security markets. In good times he would give an appearance of gauntness and misery to his enterprise ; in bad times he would pretend affluence. Sin and weakness were simulated when he was buying control ; “prosperity,” when he longed to sell out. At all times, from his position of vantage, he would be as one who deals out marked cards in the game of buying and selling capital, since he would be fully able to foresee the “nature, magnitude and incidence” of all the risks he created. His system could no more fail than loaded dice.
Moreover, his analysis of the railroad prospects of the Great West was an uncommonly penetrating one. With his unsentimental eye he saw at once that it was useless to engage in a legitimate shipping and passenger business while waiting for the thinly settled prairies to fill up. Nothing justified the present building and operation of large railroad systems save that other entrepreneurs would do so if he did not. And though there would be no adequate volume of freights to support such ventures, one must be beforehand in seizing the strategic positions essential to a future monopoly. Thereafter, there were only two ways of making the operation pay : by owning an unchallenged monopoly of a given territory and “charging all the traffic would bear” (though this was not certainly profitable); or by manipulation of its capital in the markets—and none knew how to do this better than Jay Gould. When the structure collapsed, Jay would be somewhere else. Then it must be set up again. . . .
Students of these affairs have sometimes questioned the social value of Gould’s labors. Disappointed investors, the hard-pressed public which perforce patronized his lines, often cursed his name as that of an evil genius. But he would have answered : “We are not in business for our health !” Every tactical advantage must be translated quickly into cash, to be used again in new ventures. Those who did not imitate Jay Gould, or did not go as far as he did, probably learned to regret their error.
One becomes impersonal when at the head of mighty corporate enterprises ; one does not feel at close hand the disillusionment or ill-will of the customers, as one might in the days of guilds and mercantile capitalism ; one is even less sensitive when one regards the customers as an inferior class.
2
The failure of the European harvest in 1879 and the movement of bumper crops brought prosperity to the Western farmers and large profits to the Union Pacific Railroad. Once more, despite the staggering debts saddled upon it, the road was a “financial success,” Gould reported. Then at the time of the Granger agitation, there arose a clamor against Gould’s management “as though,” he comments softly, “it was a dangerous thing to have one man control a road.”
In this vein, before the Senators of the Pacific Railroad Commission on May 19, 1887, he related his exploits of 1875 to 1879 :
I thought it was better to bow to public opinion, so I took an opportunity, when I could, to place the stock in the hands of investors. In the course of a very few months instead of owning the road I was entirely out of it. . . . Instead of being thirty or forty stock holders there were between 6,000 and 7,000, representing the savings of widows and orphans . . . also a great many lady stockholders.
The magnanimous Jay ! Always innocent-minded gentle comments from him ! Let us watch, then, what really took place.
No sooner was he in command of the transcontinental road than Gould realized with his inside knowledge the potential threat of two connecting but dilapidated lines which had grown up out of the railway madness of the Southwest. These were the Kansas Pacific and the Denver Pacific, both endowed with land grants and both emptied of the state subsidies and local and foreign capital they had been able to command. Yet though their tracks were now mere “streaks of rust,” ending in the desert, they made a line toward the seacoast parallel to the Union Pacific. The knowledge of this possible source of mischief Gould kept to himself. He saw that if he bought the almost worthless stock of the Kansas Pacific, selling at between 10 cents and $3 a share toward 1874, and of the equally worthless Denver road, he could threaten the business of the Union Pacific—that is to say of his own railroad. Now if by means of such threats he could force the Union Pacific to purchase and consolidate with itself the Kansas and Denver roads, at favorable terms, this would have the effect of raising the price of the smaller roads far beyond the original cost to him.1
Soon Gould “suggested” to his fellow directors of the Union Pacific that it might be advisable to purchase the paralleling Kansas Pacific and Denver Pacific roads, the terms for these bankrupt lines being an even exchange of shares with the comparatively prosperous Union Pacific. This proposal was at first not taken very seriously, the Union Pacific feeling that “it had the situation under control,” and need not burden itself with two profitless lines. Gould then found himself for a time with two nearly worthless properties on his hands and little prospect of improvement for them in the future. But when Gould meant war, his contemporaries who knew him used to say, “He made a suggestion ; and if it was presented with special gentleness there was in it the greater scope for warfare.”
Several of the directors of the Union Pacific, Russell Sage, Sidney Dillon, and Cyrus Field, were the henchmen of Gould ; the others actually stood in awe of him. Artfully he played upon their hopes and fears, and as a rule, they hesitated to cross the uncanny man.
In a certain sense it was true that he had “improved the finances” of the Union Pacific. Timed with a very slight improvement in the rate of business between 1875 and 1879, the cash position had been built up, first, by withholding interest payments due on the mortgage debt to the federal government ; second, by charging a large portion of operating expenses to the construction account, thus capitalizing current disbursements as increased assets ! While the properties deteriorated, as Riegel in his painstaking history of the affair states with admirable underemphasis, Gould ordered high dividends, almost $12,000,000 being paid out in several years to the directors and stockholders. (Shortly afterward, when Charles F. Adams, Jr., became president of the Union Pacific, he found a mysterious floating debt of ten millions, the consequence of Jay’s little tricks.)
Yet in February, 1879, Gould had a pool in Wall Street, directed by the experts James Keene and Addison Cammack, drive the stock up toward 70. With exuberant reports of the company’s financial progress being circulated, widows and orphans and lady stockholders rushed to buy the stock. Then Gould, “bowing to public opinion,” as he termed it, quietly unloaded upon them some 200,000 shares at a profit of ten millions. Nevertheless, though he was out of the stock, he would still have a determining voice in the management of the Union Pacific during the interval before the election of new directors.2
But with certain of the larger stockholders refusing to comply with his plans for merging the Kansas and Denver systems into the Union Pacific, Gould had concluded that the trouble with his plan was that it did not carry a sufficient threat. He had then departed upon a swift tour of the West ; from an observation car his dark eye rolled about taking in everything, while his fertile brain shaped a beautiful conspiracy.
In a series of lightning-like transactions he bought the Wabash, the partly completed Missouri Pacific, the St. Joseph & Denver, the Missouri, Kansas & Texas, and certain other little lines. Thrown together with his previous holdings, they made a huge potential system, stretching across the continent in a somewhat longer line than the Union Pacific, but competing with it all the way to Cheyenne.
It was by no means easy to arrange this railroad system à la fantaisie. Throughout the campaign, corsairs or freebooters as unfeeling as Gould himself hung upon his flanks, lay in ambush, or threw up barricades in his way. Henry Clews in his “Fifty Years of Wall Street” gives the details of some of these affrays.
Presiding over the Missouri Pacific was a certain “Commodore” Garrison, formerly in the employ of the old Vanderbilt, himself a sea-dog of the Panama steamship lines in Gold Rush days. When Gould sent word to Garrison that he would pay $1,500,000 for control of his road, Garrison answered that the offer was $500,000 too low. Then Gould had rushed to confront him in person, gently smiling in his beard, and raising his offer, but Garrison only laughed uproariously, rubbed his hands, and said that his price was $2,800,000.
Gould observed that he could have bought the road on the previous day for $2,000,000. And the Commodore explained that the difference between yesterday and today was $800,000. Gould said nothing and retired. He made another effort on the following day. The Commodore too had been thinking. His thoughts cost Mr. Gould one million dollars, for his price on the third day of the negotiations was $3,800,000. Gould did not express his thoughts, but his speech demonstrated that he appreciated the danger of delay. He said : “ I’ll take it.”
In the case of the Denver Pacific, adjunct to the bankrupt Kansas Pacific, there had been similar vicious obstructions to Gould’s marching orders. Minority interests contested claims of ownership ; some of these counterclaims were in behalf of German bondholders who were represented here by Henry Villard. This also held up the bargain for the great consolidation with the Union Pacific. But by secret arrangement between Gould’s agents and a friendly receiver, a favoring decree from a complaisant judge was obtained in the nick of time, seven days before the final deal was made. When at last all this patchwork railroad system, embracing some 5,000 miles of broken-down or incompleted trunk and feeder lines, was rounded up, Gould delivered his ultimatum to those directors of the Union Pacific who held out against his demands. He intended, he said, “to build immediately to the Pacific Coast by way of Salt Lake City.”
Where the Union Pacific had enjoyed a thorough monopoly of interocean traffic up to that time it was now encircled by the inscrutable Mephistopheles of Wall Street. The pistol at their throats, there was plainly little for the Union Pacific men to do but surrender. A member of the opposing faction, consisting of Boston financial interests, has described the terror that gripped them.
The Union Pacific people were startled at the prospect of a parallel road and hurried to New York. A meeting was held at Jay Gould’s house. On half a sheet of note paper, which I saw, were written the terms of consolidation of the Kansas Pacific and the Union. By these terms not only, as was first proposed by Gould, was Kansas Pacific and Denver Pacific exchanged dollar for dollar for Union stock, but we agreed to take from Gould’s hands at the price he paid for them, the Kansas Central and other securities he had secured as his weapons.
Within a week, as rumors of the “merger” were cunningly spread among the public, Kansas Pacific and Denver Pacific stock rose from $3 toward par. In return for his stock in these enterprises Jay Gould was given some 200,000 shares of Union Pacific which he disposed of quickly—if he had not sold them short in anticipation. A crash was inevitable and when that came, “he wanted to be somewhere else.”
Henry Villard, the German émigré who had worked during the war as a Washington newspaper correspondent and as an immigration agent for Jay Cooke, looked on admiringly, commenting in his memoirs :
Gould having purposely let his intention to consolidate the Kansas Pacific with the Union Pacific be known, the stock of the former, which had sold as low as 3 less than four years before, was quickly quoted as high as the latter and followed it far above par. Gould, not long after the consolidation, sold all his stock. He was understood to have cleared more than ten millions of dollars by the operation, which was one of the principal episodes in that speculative time.
The ill-starred Union Pacific Railroad had been looted when Jay Gould arrived to take over its control. Yet in a few years, as in the case of the Erie, he had been able to set it up nicely and extract from it altogether some twenty millions.
“His touch is death,” Daniel Drew had truly said of Gould long before.
3
Years of furious activity succeeded themselves ; though his hands were upon a thousand affairs at once, the unsleeping Gould devoted himself chiefly to the “upbuilding” of the Great West, in his usual manner. His manipulation of the chain of railroads broken up, resold, or joined to his principal systems, usually the Wabash and the Missouri Pacific, kept the Western states in a continual turmoil. There were destructive rate wars, which brought low tariffs to the populace, but were succeeded immediately after by pools, such as that of Omaha in 1870, into which Gould forced his way. Then, unwilling to limit his movements, or unable to hold peaceful agreements, or seeing glittering chances before him, Gould would break forth, fighting again with the other railroad barons.
Over the division of business between Nebraska and Denver, Colorado, Gould’s Wabash engaged in a cut-throat rate war with the rich Chicago, Burlington & Quincy, long established in the “middle” territory. The Burlington fought back aggressively. There resulted an extension of parallel lines by each company, strenuous and wasteful duplication of the railway service, and finally compromise or combination against the “common enemy,” those who traveled or shipped goods over the railways.
At one moment the citizens of Denver, hearing that Gould was approaching them with one of his roads, were thrown into terror, and set about building a branch line of their own to connect with another trunk system.
To the north, Gould had met with determined opposition, and found the field well occupied, especially by the Burlington. Therefore shifting his plans, as was his wont when he met with too stout defense in one quarter, he dismembered most of the Wabash line, sold parts of it to his rivals, and converged with all his energy and attention upon the unexploited Southwestern territory. Here he met with success in “building up” the Missouri Pacific and the allied Texas Pacific (which he had acquired from Scott) to a condition of monopoly over Kansas, Texas, and a vast empire which stretched from the Mississippi to the Sierra Nevadas.
The Missouri Pacific, upon which the State of Missouri once lavished $25,000,000 in subsidies, had fallen into the railroad baron’s hands for $3,800,000, as we have seen. This line he kept for himself. By diverting traffic to it, adding small connecting roads, building extensions, and “growing up with the country,” he soon erected a system that ran over 5,000 miles of track from St. Louis west to Omaha, and southwest to El Paso.
He was ever afterward proud of his “constructive labor” in the Missouri Pacific’s territory. The railroad’s receipts had risen twenty-fold during his management, he was apt to boast. “We,” he added passionately, boastfully, “have made the country rich, we have developed the country, coal mines and cattle raising, as well as cotton. . . . We have created this earning power by developing the system.” He believed this, as Harriman and other railroad monarchs after him believed that they built the country and its wealth, they had “made the Great West ! ”
Gould clung to the Missouri Pacific as to no other property, with a certain sentiment, it was to remain as a family heirloom down to quite recent years. But loving this railroad he could not help raping it occasionally, as he did the Wabash, and so many others. Under favorable reports, made by extraordinary accounting devices which none else might control, he would raise the value of his stocks, sell, depreciate, and repurchase them. So the Wabash, which had but little traffic or reason for existence at the time, and which was mismanaged with “trained incompetence,” as Thorstein Veblen would say, its treasury empty, its stock maintained by secret loans at a high price—the poor Wabash was to crash in a sensational debacle, in which it appeared afterward that Jay Gould was in no way involved. He was simply not there when it happened.
The Missouri Pacific too paid dividends “by curtailment of necessary repairs and replacements,” its stock price remaining high in the face of a mounting deficit. Wherever Gould moved or struck upon the map of the country, “the effects of his management never wore off entirely,” observes Riegel in his “History of the Western Railroads”:
There was never any effort to build up a strong, soundly managed group of roads . . . the one dominant note was speculation. Both in prosperity and depression he pursued his aim shrewdly and relentlessly. . . . The roads that he touched never quite recovered from his lack of knowledge and interest in sound railroading.
To the west, as he saw in his march to monopolistic power, his growing railroad system needed egress across the Sierra passes to the sea. Here, for a long time, only one railroad hurdled California, the Central Pacific, which, meeting the Union Pacific at Ogden, Utah, constituted the only land route to the sea. And at this point Jay Gould came into collision with the celebrated Huntington-Stanford ring which “owned” California, a group in every way as resourceful, as pitiless and treacherous as he.
Since 1873, we note that Gould had held a large interest, bought from the weakened Tom Scott, in the Texas & Pacific. Little of it had been built, though it was to have a right of way to the sea, forming with the Northern and the Union Pacific a third transcontinental line, along the 32nd parallel. This largely unbuilt line Gould intended to use as the western outlet of his Missouri Pacific system. It had a vast land grant—28,000,000 acres—part of it ultimately to be forfeited owing to non-construction. Gould and Scott promptly created a construction company, controlled by himself, with which alone the railroad could make building contracts this modeled of course after the Crédit Mobilier.
In the name of Gould Scott pushed forward the oceanward march of the little Texas & Pacific. Facing him the implacable Huntington, occupying the only two passes across the Colorado River canyon, barred the way to the sea. Thus during the late ’70s, amid the whirl of countless undertakings, we find Gould and his revived ally, Tom Scott, belaboring the government at Washington for help, for subsidies, for relief from the enemy interests. We read in the Huntington-Colton letters how on December 17, 1877 :
Jay Gould went to Washington about two weeks since, and I know, saw Mitchell, Senator from Oregon. Since which time money has been used very freely in Washington. . . . Gould has large amounts of cash and he pays it without stint to carry his points.
A few months later, May 3, 1878, Huntington writes privately that the Gould faction “offered one member of Congress $1,000 cash down, $5,000 when the bill was passed, and $10,000 of the bonds.” “ The greatest mistake was in Gould coming to Washington,” Huntington said, for prices rose in measure with the competition in bribery. But wary after recent trials, the Congressmen accepted favors from both sides and granted nothing to either. This curious conflict, to which we shall revert later in reviewing the further activities of Huntington, was soon amicably settled between the two masterful financiers who had so many points in common, and who were subject to common dangers from without. The contestants—presumably competing with each other for “the life of trade”—were like mercenary feudal captains who fought only for hire, and after a season’s campaign easily came to terms with each other. While pretending before Congress and all the world to be hurling defiance at each other forever, the two were agreeing that Huntington’s Southern Pacific system should become Gould’s railroad link with the sea. Then, for a yearly subsidy, Gould’s Pacific Mail Steamship Line raised its tariff sufficiently to leave the California railroad monopolists undisturbed and supreme in their possessions.
Thus Gould and Huntington had arrived secretly at an amazing pact for their mutual interest and self-defense, giving virtual monopoly over the traffic of nearly half the United States. But the little, soft-spoken railroad chieftain had many other large undertakings to absorb all his attention. For elsewhere, in the East, he was pushing invincibly into new industrial domains.
4
The magnetic telegraph after the Civil War captured everyone’s imagination by its magic and speed. In this field one of the earliest and richest monopolies had been created through the amalgamation of various small companies during the 1850s into the Western Union Telegraph Company. On its board were such dignitaries as John Jacob Astor and William H. Vanderbilt. In Wall Street Jay Gould for some time had been eyeing the stock of this company covetously. His motives, he himself explains :
The telegraph and the railroad systems go hand in hand, as it were, integral parts of a great civilization. I naturally became acquainted with the telegraph business and gradually became interested in it. I thought well of it as an investment, and I kept increasing my interests.
But when Gould adored some object, he must, like the gods, “render it mad.” The Western Union directors would have nothing of Gould on their board, just as the New York Yacht Club would not admit him as a member of their exclusive society, and just as Mrs. William B. Astor never invited the Goulds to her quadrilles.
Forming an alliance with the stock-market “wizard,” James Keene, and other speculators, Gould began “shorting” Western Union ; and soon the bears won a million apiece at this destructive operation, while the owners grew consternated. But as if this were not enough, the wily little man, with the advice of a technician, a certain General Eckert, set about building a telegraph line of his own along the tracks of his railroads, which he named the “Atlantic and Pacific Company.” Once more in his campaign for power Gould set up the cry of “monopoly” at his antagonists, declaring that he alone would restore “competition”; and this time the New York World, which he had owned since 1873, aided him powerfully in molding public opinion. Soon he had cut heavily into his opponents’ business, which declined $2,000,000 in one year. Blackmailed, the Western Union had either to buy or to sell ; it capitulated at length and bought Gould’s company for a large sum, reputed to be ten millions.
But no sooner had he sold, and all were heaving a sigh of relief, than Jay Gould struck again, tirelessly. He complained that his friend General Eckert had not been given a job in the consolidated telegraph system, and that his own interest was not represented ; and so like a prestidigitator he soon evoked another telegraph company, “as good a company as I had taken him from.” Once more, his biographer relates, he competed bitterly with the two other telegraph companies. After confusing rate wars, which baffled the public, came renewed capitulation. The newly born “American Union” was also bought in ; Gould’s man was given a place in it ; and in return Gould pledged himself to create no more telegraph companies ; and his adversaries breathed more easily at the thought that they were at least well rid of him.
But no ! they were to have only brief respite. Calling Jim Keene, Addison Cammack, and Sage, shrewdest of stock traders, Gould organized a third and final campaign to “break” the Western Union stock and take possession of the whole enterprise. His newspaper attacked the credit of the company ; “by every trick and art of Stock Exchange manipulation, Gould forced down the price of Western Union stock,” taking millions of profits on the short side. Then as the plunging bear, Keene, went mad over his gains, it soon appeared “that the stock was absorbed by some party or parties as fast as it was thrown out.” The bears were trapped on the recovery, when it was realized that quantities of the stock disappeared from the market rapidly at low prices. But worse, to Vanderbilt’s complete surprise and extreme mortification, the unfathomable Gould turned up in 1881 with control not only of Western Union, but also of the American Union Telegraph Company, which he had sold to Vanderbilt a short time previously.3
Making his peace with the distinguished confraternity of Astor, Morgan, Huntington, and Vanderbilt the younger, he now brought his work to its flowery and watery culmination—the others complaisantly sharing the spoils with him. And soon one could see his hand at the helm of the great telegraph monopoly, by the process of “watering” capital that followed in 1881 ; a huge stock dividend of 38¼ per cent was declared, the capitalization was raised to $80,00o,000, and all the three companies amalgamated into Western Union.
Gould’s private offices were now removed to the fifth floor of the massive, bomb-proof citadel of the Western Union Company, a gloomy pile, six stories high, costing $2,200,000 and considered by Clews one of the wonders of the time, for its greatness, height, width, breadth, and modern elevators. Here Gould’s person at least was safe. For the pitiless tactics he pursued were not such as to make him immune from physical danger.
In the Western Union affair, a certain Major Selover who had joined with Gould in the supposed short-selling operations, had found himself deceived and trapped, like the others. Major Selover brooded over the matter so long that his suspicions began to take tangible form and to body themselves forth in violence, according to Henry Clews’s relation :
The Major and Keene met one morning at the rear entrance of the Stock Exchange in New Street and interchanged intelligent glances on the subject, after the fashion of those passed between Bill Bye and his companion at the card table with the Heathen Chinee. Selover walked down the street with blood in his eye, and meeting Mr. Gould on the corner of New Street and Exchange Place, caught him up by the collar of the coat and a part of his pants and dropped him in the areaway of a barber shop.
The little man promptly picked himself up, went quietly to his office, and made a transaction by which Selover lost $15,000 more. This was his method of retaliation.
Jay Gould could scarcely venture safely into the street these days. Like the condottieri of the old Italian cities, he must be followed by bravos at his heels. A detail of plain-clothes policemen headed by a Captain Byrnes guarded his movements night and day.
Alone in his citadel in the Western Union building, while managing the great telegraph combination and also extending his network of railroads through the heart of the United States, Jay Gould, for his own restless soul’s comfort, took part in many minor forays. His fine hand was always at the pulse of the market ; he was aware of its slightest vibrations. He exercised a remarkable control over the press in general through the Associated Press ; the New York World he owned, and it published news and opinions as he wished.4 He scanned the telegraph, or manipulated it, as an open book to the secrets of all the marts ; he was a director of scores of corporations. He had spies and agents everywhere. Thus, he could turn from his larger campaigns to bag small game too. One day the broker Addison Cammack came to him, and hinted that James Keene (who was now his enemy) must be far overextended. Keene, who had won his first stake in the mining stock market of San Francisco, gambled in everything, Bonanza mines, railroad stocks, lard, opium, and fast horses. At the moment he was engaged in an attempt to corner the whole national wheat supply. Now, in a sudden devastating bear raid, Cammack and Gould fell upon Keene when his guard was down, and began selling everything he held. Bankers became timid, brokers began demanding more margin, loans were called, prices crashed. In the jungle of the stock market one beast of prey was tearing another to pieces. Keene, who had grown to believe himself infallible, was shorn, like the veriest lamb, of seven millions and turned adrift, a bankrupt. It was a grievous lesson.
At the time of his failure [Clews relates] he was chief of a syndicate which had purchased 25,000,000 bushels of wheat, which would soon have netted many millions of profit. . . . The syndicate went to pieces, and both profits and capital vanished.
Yet Keene, the Silver Fox, was to return again and again from the no man’s land of bankruptcy, so miraculous was his gambling sense, and do battle with all comers anew.
In the immediate vicinage the roving dark eyes of Gould soon distinguished toward 1881 a new and golden opportunity, a new prize to contest for. The City of New York was having its first rapid-transit system developed, in the shape of the steam-driven elevated railways ; and two companies, the Manhattan Elevated and the New York Elevated Railway Company, were in the field. He saw the future of this property and in 1881, after he had seized the telegraph combination, determined to have possession of it. Here is one of his most famous financial exploits, one that may be regarded as the most brilliant of his last period.
After studying the problem for some time he concluded that in order to buy the properties cheaply for himself, as in the Western Union case, he must harass and block the present management at every turn, he must make them wretched in mind and body, he must convince the owners that their investment was a ruinous one.
At first he attacked the Manhattan Elevated through the courts, and his procedure may be followed day by day in the newspaper he controlled. On May 18, 1881, Attorney General Ward, acting upon information he possessed, appeared before a justice of the New York State Supreme Court and asked leave to begin suit on behalf of the people to annul the charter granted to the Manhattan Elevated Railway. At the same time, the New York World, in its editorial and financial columns, carried on a tirade against the existing owners, suggesting that the company was insolvent and that its directors were guilty of conspiracy. In the meantime, over the telegraph wires which Gould owned, garbled despatches and strange rumors were circulated in all directions.
From a level of 57 the stock of Manhattan Elevated soon fell to 29, although the condition of the company appeared actually most promising. Now Gould and Sage began buying the stock while the attacks of the World and a battle of writs and injunctions kept the price at weak or “reasonable” levels. In Gould’s office at the Western Union Building, Judge Westbrook of the Supreme Court (formerly Gould’s legal counsel) prepared a petition in bankruptcy for the unhappy traction company. But once Gould’s party had taken over a major share of the stock, the price of Manhattan Elevated advanced, smiles spread everywhere and, miracle of miracles, the company was found to be sound and solvent. The New York World, after a five months’ campaign, seemed appeased. It reported on October 18, 1881 :
Manhattan Elevated opened today at 45, sold down to 37, and closed at 43, the recovery following the announcement of an agreement between the elevated companies . . . [we have] never believed but that Manhattan would be rescued by men who have the brains and the means to make the most of it.
Jay Gould was now in charge of the company which owned the first two elevated railways in New York. Among those who helped him reach this point was Cyrus Field, one of the original stockholders, who had conspired with him ever since the Erie days, 1871. But Field was a distinguished man, originator of the submarine cables ; he was socially prominent and known as a powerful, enthusiastic leader in speculations and investments. He thought at first that it would he well to work closely with Gould, rather than otherwise ; he made a good front, and became titular head of the Manhattan Elevated Railways.
Once in command of the city’s elevated railroads, Gould, Sage and Field issued more capital, manipulated their shares upward, raised the passenger fares, and harvested rich profits. However, all was not as well as it seemed. In portions of the press, especially in the then crusading New York Times, Gould was subjected to heavy bombardment ; he was a “scourge,” a “pirate,” a “corrupter of public servants,” the Devil in human guise. The Times declared :
There is no more disgraceful chapter in the history of stock jobbing than that which records the operations of Jay Gould, Russell Sage, Cyrus W. Field and their associates in securing control of the system of elevated railroads in New York City.
Such animadversions would have mattered little to the deep little man, as accustomed to the malice of his rivals as to the envy of those whom he defeated in the race. Mr. Field, however, the tall, whitebearded social lion among the trio, who had been the willing instrument of Gould, was nettled by the attacks. He showed curious symptoms of a public conscience ; he sought to defend himself or make amends in some form. To the great vexation and disgust of Gould, Field, as the titular head of the Manhattan Elevated, determined to lower the passenger fares from ten to five cents, announced that he considered his company an institution for the public service and the development of his city—not to speak of his own large landholdings—and carried a faction among the stockholders over to his side.
To Gould’s mind—as a pure tactician of capitalism—nothing could have been more insane and wasteful than such a policy, which conflicted seriously with his own ingenious plans for the treatment of New York’s transportation system. It ran counter to all his usual schemes for planned mismanagement or derangement, such as opened the way to the pecuniary results he desired. And when Field used his resources to buy large blocks of stock in his railroad and reenforce his control, Gould determined to be rid of the “reformer” in their midst.
Together with Sage, he laid his snares stealthily. They waited for the good moment to strike—as the bravo with his stiletto waits for his victim to turn his back. They encouraged Field to buy, while they sold him their stock. When, by all their vehicles of information, they knew that Field was “overloaded,” they fell upon the market in one of their catastrophic raids. Field’s credit collapsed and the price of Manhattan Elevated broke almost in half. He was ruined but Gould “rescued” him, by consenting to take over his encumbered securities at a sacrifice to Field of many millions, “a state of things which Gould was generally accused of having produced.”
The circumstances of this affray were unusually pathetic and lingered long in the public mind through rumor and report. Mr. Field, previous to his association with Gould, had been of high moral repute, a popular citizen engaged apparently in some public-spirited enterprises which happened to be useful to land and building developments. He was, moreover, the father of several beautiful and gifted daughters, one of whom, in her memoirs, described the sad chute of their gorgeous household, which came at a time when Mr. Field’s health was sinking. So destitute did he become in the end that money was raised for him by sympathetic friends such as J.P. Morgan, and his last years seem to have been passed in long mental and physical anguish.
The successful outcome of this business with Manhattan Elevated and Field enhanced for Gould a reputation which in certain aspects was awkward. He was at the height of his temporal power ; buying and selling, building and tearing down great railway systems, over a territory between the Mississippi, Missouri and Colorado rivers. He operated in a country which exceeded in dimensions Germany, Italy, France and Spain combined ; he employed directly every day more than one hundred thousand men ; while as an early biographer admiringly reports, “his word was law throughout the vast interest in his control established in many states and territories—almost from ocean to ocean.” No man in the United States possessed more power than Mr. Gould, it was said ; and none enjoyed more luxury than he, whether upon his yacht, the Atalanta, with its carved furniture and rare tapestries, or in his queer gingerbread Gothic castle outside of the city, at Irvington-on-Hudson.
Among the masses themselves, awe and terror spread of his power. What could be done with a man who controlled the press service and the telegraph system as well as railroads, a man who could read all minds, scan all secrets, form opinion and rumor, hasten or delay events ? In 1884, during the stormy contest for the presidency between Blaine and Cleveland, it was charged that Gould was holding back the election returns which passed over Western Union wires, either in the interests of Blaine, or to secure himself from loss in the market in the event of Cleveland’s success. A mad crowd filled the streets, threatened to sack the Tribune Building, and then surged before the massive Western Union Building, singing :
Hang Jay Gould to a sour-apple tree !
It was strange music. Imperturbable as ever, Gould reported the next day, on being questioned, that he had been at his country home nursing a cold and consoling himself in his greenhouse among the thousands of the largest orchids in the world, which he cultivated as his chief hobby.
The workers themselves combined against him in 1884 and 1885 under the belligerent and somewhat ritualistic banner of the Knights of Labor ; their strikes, attended with unprecedented destruction and bloodshed, were heavy blows. Yet even such assembled might, such collective force, was vain to overcome him.
On the whole he retained his extraordinary composure through these trying events. His face was a mask, his eyes, “glowing like coals” but even and calm of glance, seldom revealed the fearful tension under which he labored, the agonized nights, the fatigue, the racking illness and pain borne successfully by his supremely vigorous spirit, which in another time would have been equal to the most heroic exploits. Always he must remain unhurried, softspoken. None must know and none knew his ways and movements. Only one instance was generally heard of when his guard was lowered. He was ill, but appeared with his doctor at a directors’ meeting. Here the unexpected opposition of his old partner Russell Sage caused his nerves suddenly to snap, and precipitated a scene of hysteria, from which his doctor led him raving to his bed.
It was at this time that the hosts of enemies he had gained began to gather together to plot his downfall, modeling their tactics and general procedure after the methods of the great money-master himself. In the ceaselessly troubled precincts of Wall Street, these mercenary soldiers, who could seldom trust each other with their backs turned, were all united against him. Their repeated conspiaacies against Gould formed some of the most romantic legends of the Street. In 1881 a great storm blew down the wires of his telegraph companies. Gould was at this time compelled to use a messenger-boy service and the brokers, Cammack and Travers, kidnaped his boy and replaced him with a spy who resembled him. For days the spy brought Gould’s most secret communications to the enemy headquarters at the Windsor Hotel, where they were opened and then sent on to their proper destinations. Grievous losses came to Gould in this manner before he discovered the ruse.
In 1882, at the time of the spectacular collapse of his Southwestern railroads, his credit was attacked ; rumors were spread that he was heavily in debt to banks and must soon unload masses of securities he held upon a declining market. Calling witnesses to his office, he had his private secretary bring bundles of bonds and stock from his vault and displayed them. There were $53,000,000 of securities which he possessed outright, and much more elsewhere, he declared. Thus it was seen that he had been mysteriously forewarned and had completely escaped the ruin of his own railroad enterprises.
Two years later renewed attacks, timed with the general financial depression, undoubtedly brought him to the edge of danger. Men whose financial life he had apparently taken years before revived to fill the ranks of his enemies ; James Keene, his former partner, Henry N. Smith, Charles Woerishoffer, a celebrated plunger who died young, and many other Wall Street leaders united to “break” Gould at the time of the Grant and Ward panic in 1884, when his railroads were falling in ruins and he was thought to be heavily laden. He attempted to support the market against heavy onslaughts. But day by day he was brought lower ; his Missouri Pacific, his Western Union, everything he owned was hammered down to bankruptcy levels. The unbelievable thing happened. Jay Gould was beaten. Halstead relates :
One morning he had his lawyer execute an assignment of his property, and on the following day—a beautiful Sunday morning—his yacht went down to Long Branch where the bear operators were summering. Gould’s emissaries landed and held a conference with his foes. They bore his ultimatum—a copy of the assignment and a statement that unless the bears made terms with him he would on the following morning . . . give public notice that he was unable to meet his engagements.
According to the obscure allusions of his biographer, he had assigned a portion of his unencumbered holdings so that it would remain to his heirs. Officially he, in person, would descend into bankruptcy to the extent of millions. And his failure would create a far greater panic than that which was now raging, one in which the very concerns with which the bears had contracts would founder in the universal crash, making them, too, heavy losers. Thus, like Samson, he stood ready to tear down the house in which they all lived. The bears after long conference agreed to “let up” on terms of receiving 50,000 shares of Western Union at 50, which they had sold much higher. They expected him to fail in any event soon after.
But Gould now used the very money they released in order to turn upon them and smite them hip and thigh. He cornered his Missouri Pacific and other stocks in which his adversaries were short, trapped them and forced them to stand and deliver. Once more he had miraculously escaped from the fate he prepared for so many others.
Nevertheless he was deeply alarmed by the near-catastrophes of 1884-85. More prudent in his last years, he husbanded his reserves until his war chest was ample once more. Then after several years of comparative armistice, he would assume the offensive again. At the very hour of his death in 1892 he would be bent upon new campaigns of conquest, as vast, as impenetrable as ever.
1 Q. Why should Gould wish to injure his own property ?
A. Because in general he stood to gain more profit through being the agency which did the injury than he lost as part owner of the Union Pacific’s property.
Q. But he was selling his own Union Pacific a “gold brick”? And to that extent lessened the value of the Union Pacific ?
A. True. But he had invested in only 10 per cent of the capital stock of the Union Pacific, costing him $1,000,000, let us say. Thus by forcing worthless railroad iron upon it, he would with his left hand cause its capital to shrink by 10 per cent ; this would represent in the property which he held in his right hand, a loss of $100,000. But with his left hand he gained $10,000,000 by the sale of the said “gold brick,” leaving him a net profit of $9,900,000.
2 To the surprisingly ill-informed Senators who questioned him in 1887, Gould related “with face perfectly controlled, his words chosen with great gentleness,” according to the New York Times of May 19, 1887, that, on moral grounds, he had resolved to liquidate his Union Pacific stock and withdraw from its management. It was high time !
“ Senators : According to the ethics of Wall Street, do you consider it within the limits of your duty while a director of the Union Pacific to purchase another property and to design an extension of the road which would perhaps ruin the Union Pacific ?
“Gould : I don’t think it would have been proper. That’s the reason I let it go.
“Senators : Did you consider your duty to the government ? How would the government claim ($27,000,000) have been affected by building a parallel line ?
“Gould : It would have been wiped out.”
3 In a legislative investigation, one of Gould’s allies in the “telegraphic war” related :
. . . In the continued depression of our stock [Western Union], a number of speculators confidently expecting a further decline sold large blocks of borrowed stock, anticipating an opportunity to buy back very low. They imagined themselves following an experienced leader ; but who instead of selling was buying, and who was, perhaps, not unwilling that these gentlemen should make it easy for him. He had proposed to himself to end telegraphic war by purchasing control. When he had purchased ten millions or more of the stock thus thrown on the market, he agreed to terms of peace. The stock at once rose with great rapidity. Then was heard a howl great and long. These speculators had to buy in their stock, and at every bid for it the market bounded up. Take the matter of speculation out of the case, and what is left ? Absolutely nothing.”
4 “And just as Buckingham’s creatures, under authority of the gold thread patent (in the time of King James II) searched private houses, and seized papers and persons for purposes of lust and extortion, so does the great telegraph company which, by the power of associated capital, deprives the people of the United States of the full benefits of a beneficent invention, tamper with correspondence and crush out newspapers which offend it.” Henry George, “Progress and Poverty,” p. 193.