For several years, Gould owned a majority share of the Erie Railroad, and Vanderbilt owned its rival, the New York Central. At one point, Vanderbilt reduced his cost of transporting cattle across New York State to a paltry $1 a head. The Erie was already cash-strapped, and Vanderbilt set its price at a predatory level in order to “bury the railroad and take Gould down with it.” Gould and his cocky buddy Jim Fisk retaliated by buying cows in Chicago and, in Steinmetz’s words, “shipping them to market at Vanderbilt’s bargain rates.” An aide to the commodore reported that when his boss “found he was transporting his enemies’ cattle at great expense to himself, he nearly lost his mind.” Vanderbilt reluctantly called Gould “the smartest man in America”.
I present this incident because its relative simplicity sets it apart from most of Gould’s other financial machinations, which ran the gamut from complicated to byzantine. His specialty was stock shorting, a transaction in which you agree to sell stocks you don’t yet own, at a specified price on a certain date, betting that the price will fall in the meantime. If so, you buy the shares at the new, lower price and deliver them to your buyer, who must pay the previously agreed higher price, earning you a profit. (If the stock is higher on the expiration date, however, you take a loss.) The waiting period can be painful, but not only would Gould have done his homework on this stock, he was willing to manipulate the market, legally or not. , to get the return he wanted.
Of English Puritan origin, he was the son of a farmer who earned his living in the Catskills. Gould was not physically impressive (Steinmetz describes him as “small—almost Elvish—and frail”), and his health was less than robust. But he was a bear for work, especially the work of learning, and precocious to boot. Asked to write a history of his native county, he delivered at the age of 18 a book that the New York Times described as “admirable”.
After doing well in the tanning business, Gould moved to Manhattan with a clear goal. “There are magicians’ skills to be learned on Wall Street,” he wrote to a friend in 1860, “and I mean learn them.”
Steinmetz, a partner in a fund management firm, devotes several gripping chapters to what happened when Gould applied his skills as a magician to gold, taking advantage of conflicting views within the Grant administration on the gold standard for US currency. It’s a saga with multiple players and ups and downs galore – historian Henry Adams has written that “the sheer danger and splendor of attempting [to make a killing] were the reasons for his fascination with Mr. Jay Gould.
Fascinating or not, the business culminated in a financial panic on September 24, 1869, known as Black Friday. Gould took advantage of this generously, but sideways; he “escaped from prison,” Steinmetz writes, “because of… his corruption, in collaboration with [William ‘Boss’] Tweed, of the New York justice.
Railroads became one of Gould’s passions – he collected them until in 1881 he owned or controlled 16,000 miles of track, “giving him 15% of the largest industry and most important in the country. He acquired the New York World newspaper and put it to work for his business.
In private life, Gould was a model of good conduct. He was loyal to his wife, adored his children, and crumbled upon learning that his frequent co-conspirator Fisk had been shot by a rival for Fisk’s current floozy favors. And Gould can hardly be faulted for taking advantage of the lightness with which stock markets were regulated in his day. Yet he engaged in insider trading and kickbacks on such a scale that few other financiers have defrauded the public more thoroughly.
In summary, Steinmetz writes that “Gould’s takeover of Manhattan Railway robbed small investors who naively believed in the fearmongering of [his] New York world. Taxpayers funded the dividends Gould took from Union Pacific [Railroad]. Farmers suffered the monopoly rates he demanded over short distances. … His adventure in gold nearly brought down a presidency.
Gould died of tuberculosis at age 56 without having used part of his fortune to establish an expiatory institution, such as the universities founded by fellow robber barons Leland Stanford and Vanderbilt. His punishment is to have slipped in near darkness. Yet he made a lasting contribution to the public good, if unwittingly. Gould wreaked financial havoc on such a monumental scale that he demonstrated how much US markets needed government police.
Dennis Drabelle, former editor of Book World, is the author of “The Great American Railroad War.”
How Jay Gould Built Wall Street’s Biggest Fortune
Simon & Schuster. 320 pages. $28.99.