Jay Gould

Born May 27, 1836

Roxbury, New York

Died December 2, 1892

New York, New York

American financier

"I can hire one-half the working class to kill the other half."

Jay Gould earned his fortune by means of financial manipulation, using investments in western U.S. railroads to gain a virtual monopoly on rail traffic to the southwestern quarter of the United States, giving him almost exclusive control over the rails in this region. He was one of the Industrial Revolution's so-called robber barons—owners of businesses that stifled competition in industries while amassing enormous fortunes. His business tactics and unethical behavior in pursuit of wealth made him widely disliked, both personally and professionally. But Gould's fortune did not survive even one generation. His son George took over the business upon Jay Gould's death and, through an overly ambitious expansion plan, lost control of all the railroads by 1918.

The story of U.S. railroads includes a long list of rogues, people who are dishonest or mischievous, who made their fortunes through secret and unfair business dealings. Jay Gould's name has long been at the top of this list, along with his business partner Jim Fisk (1834–1872), among others. Gould earned his reputation as a rogue partly because he was a financier, meaning that he made money by buying and selling the inventions and property of others, not an inventor himself. Gould's purpose was limited to making money, rather than contributing to the practical achievements of the Industrial Revolution, a period of fast-paced economic change that began in Great Britain in the middle of the eighteenth century.

Starting out

Unlike his contemporary, the master financier J. P. Morgan (1837–1913; see entry), Jay Gould did not start out as a wealthy young man. To the contrary, his origins were modest. His father, Jason Gould, owned a farm and a small store in Roxbury, New York, in the Catskill Mountains, northwest of New York City. His son, Jason Jr. (sometimes spelled Jayson), called Jay, was an intelligent and strong-willed boy who was driven to succeed.

While attending school, Gould worked in his father's store. In his spare time, he learned math and also how to survey land. At age sixteen, he started his own land-surveying business, and by the time he was twenty Gould used the money he had saved to go into partnership with an experienced tanner (someone who converts animal hide, or skin, into leather) in eastern Pennsylvania. He brought in a New York leather merchant, C. M. Leupp, as a third partner. But not long after, Leupp killed himself—Gould's enemies blamed Gould and what they considered his dishonest business practices for the suicide—and Gould moved to New York City, where he began dealing in the financial markets.

Playing the stock market

In 1860 Gould opened a brokerage house, a business where owners of stocks can buy and sell their shares, on the eve of the U.S. Civil War (1861–65). Initially, he concentrated on gold and government bonds. (Bonds are a form of government or corporate IOUs in which the issuer promises to pay a fixed amount sometime in the future; buyers pay an amount less than the "face amount." For example, the government might sell a one hundred dollar bond for $90, with the promise of redeeming the bond for $100 in a few years. The difference, $10 in this example, is the effective interest paid on the face amount of the bond.)

Later, Gould focused his attention on railroad stocks. It was the era when the Industrial Revolution was getting into full swing. In particular, many small companies were being created with the purpose of building railroads to haul raw materials (iron ore or coal, for example) from a mining site to manufacturing towns or to waterways. Trains also were used as passenger transportation in the rapidly growing United States. Building a railroad required a large investment at the start, which was raised by selling shares in the company and using the cash to lay the track and buy locomotives and railroad cars. Railroad shares in the middle of the nineteenth century were somewhat similar to shares in high-technology companies during the 1990s in that buying and selling the shares became a business in and of itself.

While Gould had launched a career that led to a reputation as a slick dealer, his personal life was another story. In 1863 he married a woman named Helen Day Miller and eventually had six children. He was, by all accounts, a dedicated family man who preferred spending time with his children to any other pursuit.

A dim reputation

It did not take long for Gould to earn a reputation as untrustworthy. The reputations of Gould and his business partner, Jim Fisk, for unethical business practices began, in particular, in a financial battle over the Erie Railroad Company. The story became known as "the Erie War" and took place between 1867 and 1868 (see box above).

The Erie War, 1867–68

The railroad business in the 1800s had two aspects: 1) raising money to lay down tracks and establish a connection between two points (typically two cities); and 2) acquiring railroad companies, which usually owned the tracks between just two points, in order to build a network of rails and control the business of hauling freight over a wide region.

The Erie Railroad, by means of which Gould got a serious start in the business, is one example. The railroad originated in 1832 to connect the Hudson River with Lake Erie, creating an overland link between the Atlantic Ocean and the Great Lakes. Its western end was at Dunkirk, New York, southwest of Buffalo; it linked to the Hudson River at Piermont, New York, north of New York City.

Cornelius Vanderbilt's New York Central Railroad also linked these two points, via a different route, and Vanderbilt had an interest in dominating rail transport in the region.

Gould agreed to sell shares in the Erie to Vanderbilt, then proceeded to issue fifty thousand more shares of Erie stock, effectively diluting Vanderbilt's share of the company. A judge, possibly influenced by Vanderbilt's political friends, issued an order for Gould's arrest for violating a court order barring issuing of the shares, and Gould fled to nearby New Jersey. Gould made his way to the state capital in Albany,New York, and (it is alleged) bribed legislators to legalize his action after the fact.

It was part of a two-year battle with Vanderbilt over control of the Erie, and plans to extend the railroad westward to Chicago. Both men were intent on controlling a monopoly on rail traffic between the nation's two largest cities and business centers. In the case of Jay Gould, doubledealing and financial manipulation were tools he used to meet his goal.

Eventually Gould paid Vanderbilt $1 million to end their struggle, and Gould kept control of the Erie. He expanded the railroad westward to Chicago, accumulating a large corporate debt in the process. Gould continued to engage in questionable financial stock dealings (similar to today's "insider trading," in which owners or employees buy and sell stock based on information not known to others). Eventually, the company was forced into bankruptcy in 1875, but not before Gould had made a fortune.

The fact that Jay Gould got rich from a company that itself was bankrupt helps explain why his reputation suffered, both during his lifetime and long afterward. Other pioneers of the Industrial Revolution made fortunes from companies that, in some cases, are still in business. Others, like Gould, seemed to drive companies into the ground as a means of getting rich.

Gould and Fisk, joined by a third partner, Daniel Drew (1788–1879), bought enough shares of the Erie Railroad on the stock exchange so that they were able to control the firm. Another pioneer in railroading, Cornelius Vanderbilt (1794–1877), owned the New York Central Railroad, which like the Erie also operated in New York State. Vanderbilt wanted to buy the Erie as a means of gaining control of railroad transportation over a broader area, and of eliminating a potential competitor for the lucrative business of hauling freight and passengers between New York City and Chicago.

Gould, gold, and the panic of 1869

As part of his plans to acquire wealth through railroads, Gould controlled the Wabash, a railroad linking Toledo, Ohio, in the east to Chicago, Illinois; St. Louis, Missouri; and Omaha, Nebraska (with branches to Detroit, Michigan, and Buffalo, New York) in the west. It was a major transportation link in the wheat-growing area of the Midwest.

In the summer of 1869, Gould hatched a complex financial scheme that he hoped would encourage more wheat sales to Europe—and thus, more wheat shipments on his railroad. Gould's plan involved buying significant quantities of gold in order to drive up its price. Initially, his scheme worked, and the price of gold rose from $135 per ounce to $160. Then, on September 24, 1869, the government suddenly started selling gold from its large stocks. Within three hours, the price plunged back down to $135. People who had borrowed money to buy gold at higher prices, thinking it would continue rising, were in a panic to cash in and started selling their gold. Other investors sold shares in companies to raise cash, and stock prices also plunged.

Many investors, including Gould, lost money that day. Eventually the collapse of stock prices led to a slowdown in business—what's known as a recession in modern terms. Gould was widely blamed for trying to manipulate the price of gold and wheat, and for the resulting "panic."

Railroading and telegraphy

Gould's effort to manipulate the price of the Wabash Railroad failed, but that did not drive him out of the railroad business. In 1873, when an economic downturn drove down stock prices, Gould bought enough shares of the Texas and Pacific Railroad and the Missouri Pacific to control them. He also acquired stocks in smaller companies whose tracks linked into the Missouri Pacific and the Union Pacific (a third railroad in which Gould also owned shares). When the stock market recovered toward the end of the 1870s, Gould was in a position to reap huge profits from the railroads he owned and controlled. (Often, when a shareholder owns a substantial part of a company, though not necessarily more than half the shares, that shareholder is able to control the company's actions since there is no other block of shares large enough to vote down proposals made by the major stockholder. Control can mean both the operations of the company, and also policies regarding sharing of profits, paying dividends, and acquiring assets, such as another railroad or more land for new tracks.)

In the early 1880s Gould concentrated his attention on the Missouri Pacific, becoming more involved with running the business than with merely trading its stock. He bought minor railroad lines that fed into the Missouri Pacific and turned it into a major economic force. He invested about $50 million in the company (equivalent to about $900 million in 2002 prices), drove down the cost of shipping freight (threatening the business of his competitors), and acquired other railroads to expand his network.

Railroads were not the only industries in which Gould was active. He created a monopoly of elevated trains in New York City, the centerpiece of today's New York mass transit system.

Gould also started buying telegraph companies, starting with the American Union Telegraph in 1879 and including Western Union in 1881 and the telegraph system owned by the Baltimore and Ohio Railroad a few years later. At the end of the 1880s Gould's consolidated companies dominated the national telegraph industry, which played a critical role in rapid communications for newspapers and railroads.

Early death

In the winter of 1892 Gould contracted pneumonia, a lung disease caused by an infection that is often fatal if not treated with antibiotics, which were unavailable at that time. Gould died on December 2, 1892, at the relatively young age of fifty-six. His estate was valued at $77 million (worth about $1.5 billion in 2002 dollars). Unlike some of his contemporaries, such as Andrew Carnegie (1835–1919) and John D. Rockefeller (1839–1937; see entries), Gould did not distribute his wealth to charitable causes, perhaps in part because his death came unexpectedly at an age when he was still concentrating on building a bigger fortune.

Instead, Gould's estate went to his children, and in his will he handed control of the management of his ongoing properties to his son, George Jay Gould (1864–1923).

George Jay Gould

The story of George Jay Gould is in some respects the opposite of his father's. Whereas Jay Gould had used a variety of tactics in the stock market to build a railroad empire, Gould's son, George, also called Jay, fell victim to business tactics that eventually led to the loss of all the railroad properties acquired by his father. In rough terms, the father spent thirty years building up an empire; the son spent thirty years watching it disappear.

A privileged youth

Unlike his father, George Gould grew up in highly privileged circumstances. He attended a private school, then entered his father's business rather than attend college. This did not stop George from becoming an avid sportsman, engaging in many pastimes that mark the wealthy. Although George, like his father, was not a large man, he enjoyed boxing, fencing, hunting, yachting, and tennis. In particular he loved the game of polo, which is a bit like soccer, except that players are equipped with mallets and chase the ball on horseback. He owned his own polo field, plus a string of ponies. George enjoyed hunting and fishing on his estate in North Carolina, and he owned a lodge in the Berkshire Mountains of western Massachusetts. He was active in the theater and helped finance new plays. His main country home, in Lakewood, New Jersey, was said at the time to be one of the most magnificent private homes in the country.

The inheritance

George Jay Gould worked for his father's growing network of railroads until he was twenty-eight, when his father died unexpectedly after falling ill. George inherited almost complete control of his father's complex business empire, which included several railroads in the American West as well as elevated trains in New York City and various other enterprises.

Although inheriting a fortune is usually a strong advantage in life, it is not without its complications. In George Gould's case, his father's network of railroads was one of several competing for dominance and control of the lucrative business of shipping freight from California to the East Coast and vice versa.

Besides owning the Manhattan Elevated Railroad in New York City and Western Union, the country's leading telegraph company (soon to lose business to Alexander Graham Bell's [1847–1922] telephone), the Gould fortune was based on four railroads: the Missouri Pacific, the Texas and Pacific, the International and Great Northern, and the Wabash.

George Gould's strategic vision for these companies was to establish a railroad network that ran ocean to ocean. Gould was not the only railroad owner with this vision, however, and to achieve it he needed to start expanding. The Wabash, one of his principal holdings, ended at Buffalo, New York, for example, and could not carry freight all the way to ports on the Atlantic. Andrew Carnegie, the owner of the largest steel manufacturing company at the time, encouraged Gould to compete with the Pennsylvania Railroad, the only rail that was currently servicing Carnegie's Pittsburgh steel company. Gould invested in a new route that led from Toledo, Ohio, to Baltimore, Maryland, traveling through Pittsburgh. The project resulted in intense competition with the Pennsylvania Railroad, which, to get back at Gould for taking its business, ripped down the telegraph poles of Gould's Western Union.

Growing too fast

At the same time, Gould had a similar problem in the West: his railroad, the Missouri Pacific, did not actually extend to the Pacific. At one stage, his father had owned the Union Pacific, which did go all the way to the coast, but it had gone bankrupt in 1893 (not unlike other Gould properties that were essentially looted by the older Gould and then abandoned). An unrelated business quarrel with the Union Pacific's subsequent owner, Edward Harriman (1848–1909), resulted in all-out competition between the Union Pacific and Missouri Pacific. In this battle for business, George Gould was at a disadvantage because his railroad did not stretch as far west as did the Union Pacific.

Gould bought the Denver and Rio Grande Railroad in 1900, which extended his line to Salt Lake City, Utah, where the Union Pacific also ended. In turn, Harriman in 1901 bought the Southern Pacific, which enabled him to compete with Gould's properties for freight headed both north and south. Gould's response was to charter the Western Pacific Railroad and begin building tracks all the way to San Francisco, California.

At last, George Gould had a transcontinental route that ran from Baltimore on the Atlantic to San Francisco on the Pacific, challenging Harriman's monopoly based on the Pennsylvania Railroad.

But Gould's time was running out. The financial toll from nearly ten years of building a railroad through Pittsburgh (to serve the Carnegie steel interests) and across California's Sierra Nevada mountain range was enormous. And in the meantime the Panama Canal had opened, enabling ships to haul transcontinental freight that previously had to be transported by rail. Another precipitous drop in stock prices in 1907 further weakened Gould's financial position.

In addition, his competitors were buying up smaller regional railroads, which meant these companies were no longer directing their transcontinental freight business to Gould, but rather to Harriman's competing lines.

Weakened by fallen stock prices, Gould soon was unable to compete effectively against Harriman, who had strong financial allies. Several of his railroads went bankrupt, meaning they could not pay their debts and were ordered by the courts to be sold. George Jay Gould's railroad empire started shrinking; in 1912, he lost financial control of most of the railroads he once owned. Six years later, in 1918, the last Gould property, the Denver and Rio Grande, went bankrupt.

A life falling apart

Competition was not the only problem facing George Gould. He was constantly being dragged into court. In 1916 members of his own family brought suit against him, wanting a full accounting of what George had done with his father's estate. Three years later, in 1919, the court removed George Gould as the chief executor and trustee of the estate, on grounds that he had mixed his personal money with the riches that were part of his father's estate and intended to be shared with other siblings. The suit dragged on for another eight years, until 1927. It was reputed to be the most expensive lawsuit of its time over the disposition of an inheritance.

George had problems in his personal life as well. In 1886 he married Edith Kingdon, with whom he had seven children. In 1913 he began an affair with an actress named Guinevere Jeanne Sinclair, with whom he had three children. George Gould acknowledged that he was the father of these children, and he married their mother in 1922, after his first wife died. About a year after their wedding, during a trip to France, George Gould came down with pneumonia and, like his father, died from the disease on May 16, 1923.

For More Information

Books

Hoyt, Edwin P. The Goulds: A Social History. New York: Weybright and Talley, 1969.

Klein, Maury. The Life and Legend of Jay Gould. Baltimore, MD: Johns Hopkins University Press, 1986.

Minnigerode, Meade. Certain Rich Men: Stephen Girard, John Jacob Astor,Jay Cooke, Daniel Drew, Cornelius Vanderbilt, Jay Gould, Jim Fisk. Freeport, NY: Books for Libraries Press, 1970.

Periodicals

Howard, Nat. "Fool's Gold." D & B Reports, July-August 1993, p. 46.

Lubar, Robert. "The Life and Legend of Jay Gould." Fortune, August 18, 1986, p. 96.

Web Sites

"Erie Railroad." Western New York Railroad Archive.http://wnyrails.railfan.net/erie_home.htm (accessed on February 10, 2003).

"Jay Gould Profile." HarpWeek Biography. http://elections.harpweek.com/2biographies/bio-1884-Full.asp?UniqueID=6&Year=1884 (accessed on February 10, 2003).

Troesken, Werner. "Monopolies in America: Empire Builders and Their Enemies from Jay Gould to Bill Gates." Economic History Services.http://www.eh.net/bookreviews/library/0280.shtml (accessed on February 13, 2003).

Jay Gould

BORN: May 27, 1836 • Roxbury, New York

DIED: December 2, 1892 • New York, New York

Financier

Jay Gould was a financier (someone who finances business ventures) during a time when business was largely unregulated by federal law. He earned a reputation as a corrupt businessman. His unethical dealings with the railroads made him one of the wealthiest men in America during the Gilded Age. The Gilded Age was the period in history following the Civil War and Reconstruction (roughly the final twenty-three years of the nineteenth century), characterized by a ruthless pursuit of profit, an exterior of showiness and grandeur, and immeasurable political corruption. Gould ruined the financial standing of thousands of people when a business scheme failed. He is remembered as one of the men responsible for the infamous economic failure known as Black Friday.

"I can hire one-half of the working class to kill the other half."

Born into a life of struggle

Jason "Jay" Gould was born on May 27, 1836, into a New York family of farmers. Gould watched his parents work themselves from dawn till dusk and still have very little to show for their efforts. By the age of thirteen, he knew he wanted more out of life than farming would ever bring him. He began taking odd jobs that would allow him to try out other careers. He learned blacksmithing and worked as a general store clerk. Gould discontinued his education at the age of sixteen, when he decided to work for his father, who had entered the hardware business. He would continue private study, however, with a particular interest in mathematics and surveying (measuring angles and distances for the purpose of mapping).

At eighteen, Gould became a land surveyor in his home state of New York as well as in Ohio and Michigan. By the time he was twenty-one, he had mapped six counties and saved $5,000, an impressive sum in the mid-1800s. Having never enjoyed robust health, Gould was small in size but made up for any perceived physical deficiencies with his intense motivation to succeed in business. Even at that young age, he proved himself willing to do whatever it took—even if it meant crossing the line between right and wrong—to become a success.

Becomes a business partner

Using the money he had saved, twenty-two-year-old Gould joined forces with a New York politician named Zadock Pratt (1790–1871). The two men opened a tannery (a factory where animals hides, or skins, are made into leather) in Pennsylvania. Gould's approach to managing his new company was an indication of how he would conduct business for the rest of his life.

Without Pratt's consent, Gould stole small, unnoticeable amounts of his partner's share of business funds and stashed them in a bank in Stroudsburg, Pennsylvania. Pratt eventually discovered his partner's illegal activity and chose to sell his share of the business rather than prosecute Gould. Gould became a millionaire, but lost nearly all of it when the market for hides collapsed in 1857. By that time, Gould had a new partner, a New York leather merchant named Charles Leupp. Although the business was nearly bankrupt (without funds and near closing down), Gould used the tannery's funds illegally to speculate (to make risky investments while hoping for large profits as a result of ups and downs in the stock market) in other businesses. Leupp was dismayed at his partner's lack of ethics and willingness to risk Leupp's money. He committed suicide in 1859; at the time, Gould was blamed for contributing to Leupp's suicide, but some historians point to Leupp's history of depression as the cause of his death. As chaos erupted within the company, Gould took advantage of the situation and quietly took control. This sneaky move enraged some of the outside investors, who proceeded to file a lawsuit. As the case dragged on, Gould used that time to rid the company of most of its assets. He left it, and Pennsylvania, in 1859. He spent the next year in New York, selling leather.

While in New York City, Gould met Helen Day Miller, daughter of a local businessman. The two married in 1863, when Gould was twenty-seven years old. They would eventually have three sons and two daughters. Historians often remark that although Gould was ruthless as a businessman, he was a devoted husband and father who placed family high on his list of priorities.

Enters the railroad industry

Gould entered the railroad business when his father-in-law appointed him manager of the Rensselaer & Saratoga line. This particular railroad was not doing well, but Gould bought and skillfully reorganized the line. Encouraged by his success, he repeated the process with the Rutland & Washington railway. As soon as that railway was in good condition, he sold it and made a large profit.

In 1867, Gould made a business move that would officially put him in the ranks of the robber barons. He joined the board of directors of the Erie Railroad, one of the largest railways in the East. By becoming a director, he had more power than if he had simply remained an investor. As a director, he was privileged to information that would allow him to control more of the railroad. He used this information to fight with another robber baron, Cornelius Vanderbilt (1794–1877; see entry), for complete control of the Erie line.

Gould did not act alone. Daniel Drew (1797–1879) and James Fisk (1834–1872; see box), two other Erie directors, joined Gould in his scheme to keep Vanderbilt from taking control of the railroad. Vanderbilt owned the New York Central railway. His goal was to control as much of the railroad industry as possible. Gould found a loophole in the law that allowed him, Drew, and Fisk to convert newly printed bonds (certificates of debt) into stock, which they then sold to the public on the open market. In selling fifty thousand shares of illegal stock, they diluted Vanderbilt's power in the company.

Vanderbilt attempted to fight Gould and his men in court, but Gould and Fisk developed a relationship with William Marcy Tweed (1823–1878), a corrupt New York politician who used his power to influence politics and legislation. Tweed, also known as Boss Tweed, controlled most of the Democratic nominations in New York. He illegally placed his men in positions of great control in the state legislature and in judgeships, for example. Tweed changed the laws to benefit his friends Gould and Fisk. In return, he was made a director of the Erie Railroad and received cash payments as part of the deal. The men were soon known as the "Erie Ring." Their underhanded dealings became the subject of newspaper articles and political cartoons.

Jim Fisk: Man of Many Names

James Fisk was born on April 1, 1834, in Bennington, Vermont. Having little interest in education, Fisk attended school only periodically. While in his early teens, he ran away from home and joined the circus. From there, he held a series of odd jobs, including waiter and salesman. As a salesman, he was able to make some money; his shrewd business sense earned him stock in the company.

During the Civil War (1861–65), Fisk used his position as a salesman to smuggle Southern cotton across the Union (North) blockade. This brought him a small fortune, but he soon lost that money in failed speculation ventures.

Fisk, known by such nicknames as Big Jim, Diamond Jim, and Jubilee Jim, became a stockbroker in 1864. His boss was Daniel Drew. Through his association with Drew, he developed a relationship with Jay Gould. The friendship would last throughout Fisk's lifetime, but it did not make him popular in society. His attempt to corner the gold market with Gould in 1869 led to the financial ruin of thousands of people. The event became known as Black Friday.

As unlucky as he was in money, Fisk was even unluckier in love. Although married, he engaged in numerous extramarital affairs throughout his short life. His affair with showgirl Josie Mansfield led to his murder on January 6, 1872, when a jealous rival for Mansfield's affections shot Fisk.

Fisk's funeral was a major event and featured a 200-piece band. By all accounts, it was a fitting end for a man who lived his life with little care of what others thought of him. Fisk's life was the subject of a 1937 film titled "The Toast of New York."

Because of Tweed's influence and Gould's bribery of New York legislators, Vanderbilt lost his case. He sold Gould his shares in the Erie line for $9 million, an amount that nearly bankrupted the railroad. Through skill and illegal manipulation, Gould saved the railroad. But the board of directors had had enough of Gould's antics. They voted him out in 1872 and demanded he pay the line $7.5 million, the approximate amount he cost the company in fraudulent (fake) stock. The Erie Ring had been broken. Although the Erie did not ever become the most used line in the East, Gould did manage to expand it, and his own personal wealth increased in doing so.

Black Friday

Despite the amount of time Gould spent trying to swindle Erie Railroad funds into his own pockets, he managed to get himself involved in another financial disaster in 1869. As before, Fisk was his partner in crime.

The two schemers set their sights on the U.S. gold market. At the time, Ulysses S. Grant (1822–1885; served 1869–77) was America's president. During the Civil War, the government attempted to keep the economy steady by issuing a large sum of money backed by nothing but credit. The American public understood that the plan after the war was to have the government buy back the "greenbacks," as they were called, with gold. The greenbacks that the government would buy back would be replaced with currency backed by gold.

Fisk and Gould did not want the government to rid itself of the gold. They hoped to buy up as much gold as possible and hold onto it while its value rose. When they could sell it at a profit, they would. Grant's plan would ruin their scheme because it would put more gold on the market, which would force the value down.

Gould was smart enough to know he could not convince the president to do what he wanted on his own, so he and Fisk befriended financier Abel Rathbone Corbin (1808–1881), Grant's brother-in-law. Together, the three men approached the president, who gave no clear response to their proposal. Gould and Fisk were encouraged that the president even took time to speak with them, so they kept at their plan. Corbin knew the assistant treasurer of the United States, and he agreed to let Fisk and Gould know when the government was ready to sell gold.

All seemed to be going according to plan, when Grant became suspicious of his brother-in-law's unusual interest in the gold market. He happened upon a letter written by his sister to his wife, and in the letter was an explanation of Gould's scheme. Grant, furious that he had been conned by family, contacted Corbin and ordered him to stop the plan. He then ordered the sale of $4 million in government gold.

Gould and Fisk began buying as much gold as they could on September 20, 1869. They watched gleefully as the value soared. On September 24, the price of an ounce of gold peaked at $162.50. But when the $4 million worth of government gold hit the market, people panicked. Within fifteen minutes, the price of gold dropped to $133 per ounce. Investors could not get rid of their gold fast enough, and many men lost their fortunes in what became known as Black Friday. Railway stocks lost nearly all their value, and businesses across the nation were left paralyzed.

As perilous as Black Friday was for thousands of Americans, it had little effect on Jay Gould.

Takes his money west

After leaving the Erie Railroad under less-than-favorable circumstances, Gould set his sights on the new railroads running in the West. By 1874, he was director of the Union Pacific Railroad and took control of its operations. He drove up the value of the company's stock by lying to the public about the company's future. When stocks were at an all-time high in 1879, he sold his shares and used the money to buy out several smaller railroads in the West. By 1880, he owned 10,000 miles (16,000 kilometers) of railway, which was equal to roughly one-ninth of the country's railway mileage. It was, by far, more than any other one person owned in America.

Gould had expanded his investment interests beyond railroads by that time. He bought the New York World newspaper in 1879 and used it for his own purposes by publicly doubting the financial security of the Western Union Telegraph Company. He did the same to the Manhattan Elevated Rail Company. When the stock prices of both companies plummeted, Gould quickly bought them.

Great Southwest Strike

Gould was disliked not only by other businessmen but also by his employees. They both feared and despised him. Gould's attitude toward his workers was that he hired them to do a job and they should be grateful he did. Gould was against labor unions because they challenged his unfair work practices. For example, in 1885 Gould fired all the shopmen who belonged to the labor union known as the Knights of Labor (KOL). In response, workers on the Gould-owned Wabash Railroad walked off the job and went on strike (refused to work until specific conditions are agreed to between workers and management).

Without the Wabash line, trains could not run throughout the Southwest. Even Gould understood the financial loss involved in a strike of this magnitude, and he agreed to quit discriminating against KOL members. Gould's promise shocked everyone. The union victory led to an increase in membership the following year, from one hundred thousand to more than seven hundred thousand.

In 1886, Gould fired another KOL member who was an employee of his Texas & Pacific Railway company. Again, the Knights went on strike. This time, the conflict spread to other lines in the region, and soon violence occurred among the strikers. As reported on The Institute for Labor Web site, Gould hired scabs (strikebreakers), saying, "I can hire one-half of the workers to kill the other half." He also hired security services and successfully requested state militia (troops). It soon became apparent to the KOL that his agreement the prior year was nothing more than a way to get his employees back to work. It seemed he was now focused on dismantling the union.

Negotiations between the labor union and Gould were unsuccessful; he would not compromise with the workers on any level. Frustrated with this response, workers continued to commit acts of violence in the railyards by destroying property. Soon, public sentiment was against them.

Congress ordered an investigation into the strike, but the appointed committee made little progress. Management would not cooperate; the public had made up its collective mind that the strikers were in the wrong. Terence Powderly (1849–1929), head of the KOL, decided that the strike was hopeless.

The Great Southwest Strike was not so great after all for the workers. It was a dismal defeat. It showed America that powerful industrialists would beat the downtrodden worker at every opportunity.

Legacy

Altogether, Gould was a director of seventeen major railroad lines and president of five between 1873 and 1893. Although he had endured his share of failed business ventures, his worth upon his death of tuberculosis (lung disease) at the age of fifty-seven was estimated to be between $72 million and $77 million, all of which he left to his family.

His fortune allowed him to purchase an impressive estate known as Lyndhurst, along New York's Hudson River, in 1880. At the time of his acquisition, the estate's interior was falling apart, yet the exterior had remained managed and beautiful. Gould's money, along with his wife's interior decorating sense, allowed for the renovation and rejuvenation of the mansion's rooms. Lyndhurst is a national historic trust in the twenty-first century and hosts hundreds of thousands of tourists each year.

For More Information

BOOKS

"Jay Gould." Business Leader Profiles for Students. Vol. 1. Detroit: Gale, 1999.

Klein, Maury. The Life and Legend of Jay Gould. Baltimore: Johns Hopkins University Press, 1997.

Morris, Charles R. The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supereconomy. New York: Holt and Co., 2005.

Renehan, Edward J. Jr. The Dark Genius of Wall Street: The Misunderstood Life of Jay Gould, King of the Robber Barons. New York: Basic Books, 2005.

WEB SITES

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"James Fisk." U-S-History.com.http://www.u-s-history.com/pages/h865.html (accessed on September 2, 2006).

Klein, Maury. "The Robber Barons' Bum Rap." City Journal.http://www.cityjournal.org/html/5_1_a2.html (accessed on September 2, 2006).

Lyndhurst: A National Trust Historic Site.http://www.lyndhurst.org/home.html (accessed on September 2, 2006).

Maroney, James C. "Great Southwest Strike." The Handbook of Texas Online.http://www.tsha.utexas.edu/handbook/online/articles/GG/oeg1.html (accessed on September 2, 2006).

PBS. "People & Events: Black Friday, September 24, 1869." American Experience: Ulysses S. Grant.http://www.pbs.org/wgbh/amex/grant/peopleevents/e_friday.html (accessed on September 2, 2006).

Trumbore, Brian. "Homestake Gold Mine, Part 3." BUYandHOLD.http://www.buyandhold.com/bh/en/education/history/2001/homestake3.html (accessed on September 2, 2006).

Gould, Jay

(1836-1892)
Entreprenuer

Overview

Jay Gould worked his way from poverty to great wealth in nineteenth-century America by exploiting the worst aspects of laissez-faire capitalism, a doctrine that maintains the economy should be allowed to operate with minimal government interference. He came to prominence at a time when the U.S. business community was largely unformed and virtually unregulated. Bold, cunning, and often unethical in his dealings, Gould developed a reputation as one of the most notorious of the socalled "robber barons," a derogatory term used to describe the businessmen of his era who were prepared to do just about anything in the quest for personal wealth and power.

Personal Life

A native of Roxbury, New York, Jay Gould was born May 27, 1836, on a small farm operated by his parents, John Burr Gould and Mary (More) Gould. Life for the family was difficult, and from an early age Gould resisted the idea of following his father into a profession that he found neither lucrative nor attractive. Thus, at the age of 13, he began working at a series of menial jobs, including stints as a clerk and as a blacksmith.

Despite his lack of formal education, Gould achieved a measure of success rather quickly by drawing upon his tremendous personal energy and burning desire to make something of himself. By the age of 18, he had become a land surveyor in New York, Ohio, and Michigan, earning a great deal of money in the process and spending little. Within three years, he had saved $5000, a rather large sum for such a young man in mid-nineteenth-century America. Gould then invested in a leather tannery in Pennsylvania, thus launching his career as a speculator.

Gould eventually grew tired of the leather business and left Pennsylvania for New York City. There he met Helen Day Miller, the daughter of a local businessman. The couple married on January 22, 1863, when Gould was 27. Despite his growing reputation for ruthlessness in business affairs, Gould was deeply devoted to his wife and the four children they eventually had together. In fact, throughout the rest of his life he rarely took time off from work except to be with his family and occasionally indulge in his hobbies of reading and gardening.

Gould was only in his forties when his health began to deteriorate. He died of tuberculosis at the age of 57 on December 2, 1892, leaving behind $77 million (which represented the bulk of his estate) for his eldest son, George, to manage. Within 25 years, however, George Gould had lost all the money in bad business deals.

Career Details

Gould's first foray into the world of business came in 1858, when he was a mere 22 years old. His method of handling the Pennsylvania leather tannery he invested in with his partner, Zadock Pratt, foreshadowed many of his future strategies. Moving quickly to seize control of the firm, he brought in outside investors who bought out Pratt. Gould then began using the company's money to speculate on other business ventures (an illegal practice), which immediately earned him the distrust of his new partners. When one of them committed suicide in 1859, chaos erupted and Gould used the opportunity to take over the tannery, touching off a battle for control that eventually ended up in court. While the case dragged on, Gould used the delay to strip the company of many of its assets.

In 1860 Gould abruptly abandoned the tannery business (by that time, his money was largely invested elsewhere) and began speculating heavily on small railroad companies. He established himself as a major player in 1867 by becoming a director of the Erie Railroad, one of the largest on the East coast. In doing so, he assumed the role of insider rather than just an investor. This made it easier to gain access to information that allowed him to control more and more of the Erie Railroad.

At one point, in an effort to stop fellow speculator Cornelius Vanderbilt from taking over the company, Gould illegally issued 100,000 new shares of stock. This diluted Vanderbilt's stake of ownership in the railroad and made it far more difficult for him to gain a controlling interest. Gould and two of his partners earned millions of dollars as a result of the scheme, but their dubious methods landed them in trouble with the law and forced them to flee to New Jersey with the company records.

Gould then headed to Albany, New York, where he bribed state legislators to pass a law that could be applied retroactively to make what he had done to thwart Vanderbilt's attempted takeover completely legal. After reaching a financial settlement with Vanderbilt, Gould found himself back at the helm of the Erie Railroad, which by that time was burdened with heavy debts.

Once again, Gould resorted to underhanded means to enhance his own position. He bribed politicians to gain favorable treatment and spread false rumors to drive up the price of existing railroad stocks so that he could sell his holdings and post a quick profit. He also persisted in fraudulently issuing new shares of stock. Finally, the board of directors of the Erie Railroad grew weary of Gould's manipulations and ousted him in 1872. While he left the company in much worse shape that it had been when he first appeared on the scene, he had seen his personal fortune increase substantially.

Gould then turned his attention to the rapidly expanding rail systems serving the American West. In 1874, he became a director of the Union Pacific Railroad and soon took control of their operations. By issuing false claims about the company's prospects, Gould drove up the value of its stock and earned an enormous profit when he sold his shares in 1879. He then used part of the money to buy up a number of other smaller railroad companies operating in the region. As of 1881, his holdings included more rail mileage than anyone else in the United States.

By that time, Gould had already begun to expand into other areas. In 1879, for example, he bought the NewYork World newspaper, which he did not hesitate to use to advance his own agenda. In its pages, he cast doubt first on the financial well-being of the Western Union Telegraph Company and then on the Manhattan Elevated Rail Company. When their stock prices tumbled, Gould acted quickly to acquire both companies.

Though he experienced various ups and downs in business throughout the 1880s, including a brush with bankruptcy around the middle of the decade, Gould always managed to rebound and make up for any losses he had sustained. By 1890, he had rebuilt his railroad empire and presided over a number of other firms.

Chronology: Jay Gould

1836: Born.

1858: Invested in leather tannery in northern Pennsylvania.

1860: Began speculating on small railroad companies.

1867: Became director of Erie Railroad.

1872: Ousted by Erie Railroad board of directors.

1874: Became a director of Union Pacific Railroad.

1879: Purchased New York World newspaper.

1881: Controlled more rail mileage than anyone else in the United States.

1892: Died.

Social and Economic Impact

The opportunistic tactics and sometimes criminal abuses of Gould and his fellow speculators during the late nineteenth century eventually prompted the United States government to become involved in overseeing and regulating big business. Until then, challenges to such illegal behaviors were rare. The rules of business were mostly self-imposed, and court action was agonizingly slow. In short, it took the blatantly outrageous activities of someone like Gould to underscore the need for government intervention to prevent any one person or groups of people from dominating a particular business and wielding excessive economic power.

Sources of Information

Bibliography

Ackerman, Kenneth D. The Gold Ring: Jim Fisk, Jay Gould and Black Friday 1869. New York: Dodd Mead and Co., 1988.

Encyclopedia Americana, International Ed. "Jay Gould."

Fuller, Robert H. Jubilee Jim: The Life of Colonel James Fisk Jr. New York: Macmillan, 1928.

Johnson, A. and Dumas Malone, eds. Dictionary of American Biography,"Jay Gould."

Klein, Maury. The Life and Legend of Jay Gould. Baltimore: The John Hopkins University Press, 1984.

Jay Gould

Born: May 27, 1836
Roxbury, New York
Died: December 2, 1892
New York, New York
American financier and businessman

American financier and railroad builder Jay Gould made a fortune by controlling the price of the stocks he bought as well as the stock market itself. He later became one of the shrewdest businessmen in American industry.

Early life

Jayson Gould was born in Roxbury, New York, on May 27, 1836, the son of John Gould and Mary More. His father was a farmer and a storekeeper, and Jay, as a small boy, grew up on a farm. He realized at a young age, however, that farm work was not to his liking. He received some education in a local school. Later, while working in his father's store, he taught himself surveying (mapping land) and mathematics at night. When he was just sixteen he started a survey business. Between the ages of eighteen and twenty-one he helped prepare maps of New York's southern counties. At twenty-one Gould invested five thousand dollars, and he and a partner opened a business tanning leather in northern Pennsylvania.

Gould then moved to New York City, where he became a leather merchant in 1860. Before long, however, he found his place on Wall Street, the financial center of the United States. In name he was a stockbroker (a person who buys and sells stocks for others), but really he was a speculator (a person who buys and sells stocks in hopes of profiting by correctly guessing their future prices). Gould quickly mastered the art of managing a business, of stock trading, and of manipulation (causing the price of a stock to change for personal gain). He traded in the stocks of his own companies, using banks he was associated with to finance his speculations, all the while bribing legislators and judges. From 1867 to 1872 he was a power and a terror on Wall Street.

Erie war

In 1867 Gould was already on the board of directors (the controlling committee of a company) of the Erie Railroad, which was having financial difficulties. He set out to control the railroad and to push its lines westward as far as Chicago, Illinois, and to defeat industrialist Cornelius Vanderbilt's (1794–1877) effort to acquire this potential competitor. In the "Erie war" with Vanderbilt in 1868, Gould issued one hundred thousand shares of new Erie stock, using illegal means. He then went to Albany, New York, to bribe legislators to "legalize" the action. Vanderbilt discovered he had met his match and settled, receiving $1 million and leaving the Erie Railroad to Gould.

Gould then began to expand the Erie, which vastly increased its debt. Meanwhile, he traded in Erie stock and skillfully made a lot of money before the railroad had to go out of business because of financial problems in 1875.

Buying gold to sell wheat

As part of the Erie's move westward, Gould obtained control of the Wabash, a railroad that carried wheat. To improve the fortunes of the Wabash, Gould hit on the scheme of pushing up the price of gold, thus weakening the value of the U.S. dollar, and thereby encouraging foreign merchants to buy more wheat.

In the summer of 1869 Gould secretly began buying gold on the free market—hoping the U.S. Treasury (the main financial institution of the federal government) would not sell its gold. He ran the price up to where it was on September 24, 1869, now known as Black Friday because it was a day that saw a serious financial emergency. Then the U.S. Treasury, realizing that Gould had tricked it, started selling gold, and the price dropped significantly. A panic hit Wall Street, sending the price of all stocks down. Gould had speculated not only in gold but also in stocks and he lost a fortune. In 1871 and 1872, however, he made another.

Once again a man of money, Gould moved his operations westward into the Wabash, the Texas and Pacific, the Missouri Pacific, and the Union Pacific Railroads. His operations in the last two railroads demonstrate his methods well. He bought their stocks when their prices were low during the depression (a time when a country's economy is unhealthy) of 1873, obtaining control of both railroads. He also acquired the stocks of other, smaller railroads he wanted to add to the two main systems. Then he forced up the prices of the two main railroads. When the stock market recovered from 1879 to 1884, he sold the railroad stocks at prices far greater than what he had paid for them, making yet another large fortune.

Manipulator turned businessman

Gould was forced out of the Wabash and the Union Pacific Railroads in the early 1880s. He then turned his complete attention to the Missouri Pacific Railroad (of which he had gained control in 1879) and built it into a great power. He acquired new railroad lines and independent companies, used stock-market profits for financing, and waged a relentless war on competitors. His biographer, Julius Grodinsky, wrote that Gould was changed "from a trader into a business leader of national proportions." From 1879 to 1882 Gould added twenty-five hundred miles to the railroad at a cost of about $50 million. Between 1885 and 1889 he again gained control of the Wabash and the Texas and Pacific Railroads, changed how they were organized, and tied them into his Missouri Pacific system.

At the same time Gould strengthened the other two elements that made up his wealth. One was the Manhattan Elevated Railroad of New York, which he created as a monopoly of New York City's rapid transit system. The second was the Western Union Telegraph Company. Gould had bought the insignificant American Union Telegraph Company in 1879, joined it with Western Union in 1881, and seven years later added the telegraph network of the Baltimore and Ohio Railroad. By the end of the 1880s Western Union had no real competitor in the two important businesses of railroad telegraphy and sending Associated Press stories to member newspapers. Western Union was one of the most profitable companies in the country. Gould died in New York on December 2, 1892, leaving the management of his properties to his son George Jay Gould.

For More Information

Geisst, Charles R. Monopolies in America: Empire Builders and Their Enemies, from Jay Gould to Bill Gates. New York: Oxford University Press, 2000.

Grodinsky, Julius. Jay Gould: His Business Career, 1867–1892. Philadelphia: University of Pennsylvania Press, 1957. Reprint, New York: Arno Press, 1981.

Hoyt, Edwin P. The Goulds: A Social History. New York: Weybright and Talley, 1969.

Klein, Maury. The Life and Legend of Jay Gould. Baltimore, MD: Johns Hopkins University Press, 1986.

Jay Gould

American financier and railroad builder Jay Gould (1836-1892) began as an unprincipled stock manipulator and became one of the most acute businessmen in America's age of industrial capitalism. He operated in an era when speculative capital could play a constructive role.

Jay Gould, christened Jayson, was born in Roxbury, N.Y., on May 27, 1836, a farmer's son. He obtained some education in a local academy and also learned surveying. Between the ages of 18 and 21 he helped prepare maps of New York's southern counties. By 21, with a stake of $5,000, he and a partner opened a leather tannery in northern Pennsylvania.

Gould then moved to New York City, where he set up as a leather merchant in 1860. Before long, however, he found his forte in Wall Street, ostensibly as a stockbroker but really as a speculator. In that period of unregulated finance Gould quickly mastered the intricacies of corporate management and of security trading and manipulation. He traded in the securities of his own companies, manipulating banks he was associated with to finance his speculations and corrupting legislators and judges. From 1867 to 1872 he was a power and a terror in Wall Street.

Erie War

In 1867 Gould was already on the board of directors of the Erie Railroad, which was in financial difficulties. He set out to control it, push its expansion westward as far as Chicago, and defeat Cornelius Vanderbilt's efforts to acquire this potential competitor. Gould was the behind-the-scenes strategist (using Daniel Drew and James Fisk as his fronts) in the "Erie war" with Vanderbilt in 1868. To check Vanderbilt, Gould issued 100,000 shares of new Erie stock by illegally converting debentures and then went to Albany, where, with the Erie's money, he bribed legislators to legalize the conversion. Vanderbilt discovered he had met his match and settled with Gould, receiving $1 million as a sweetener and leaving the Erie to Gould.

Gould launched the Erie on an expansion campaign that vastly increased its capital debt. Meanwhile, he traded in Erie stock, sold it short, and made a killing before the road went bankrupt in 1875.

Buying Gold to Sell Wheat

As part of the Erie's move westward, Gould obtained control of the Wabash, a wheat-carrying railroad. To improve the fortunes of the Wabash, Gould hit on the scheme of pushing up the price of gold, thus weakening the dollar, and thereby encouraging foreign merchants to buy more wheat.

Using Fisk's brokerage house as a cover, in the summer of 1869 Gould began buying gold secretly in the free market—hoping the U.S. Treasury would not sell—and ran the price up from 135 to 160, where it was on the "Black Friday" of Sept. 24, 1869. By that time Gould had created a short interest in gold of $200 million with only a fraction of that amount available to the short sellers. Then the U.S. Treasury, realizing it had been duped by Gould, sold gold, and the price dropped to 140 and then to 133. A panic hit Wall Street, depressing all stocks. Gould had speculated not only in gold but in stocks and lost a fortune. However, in 1871-1872 he made another.

Well-heeled again, Gould moved his operations westward into the Wabash, the Texas and Pacific, the Missouri Pacific, and the Union Pacific railroads. His operations in the last two exemplify his methods. He bought their securities when they were low during the depression of 1873, obtaining control of both; he also acquired securities of independent lines and feeder lines he wished to add the two trunk systems. Then he forced up the prices of the two amplified major companies. When the stock market recovered during 1879-1884, he sold, making a large fortune out of capital gains.

Manipulator Turned Businessman

Gould was pushed out of the Wabash and the Union Pacific in the early 1880s. He then turned his complete attention to the Missouri Pacific (of which he had gained control in 1879) and built it into a great power. He acquired feeder lines and independent companies; he used stock market profits and capital gains for financing; and he waged a relentless war on competitors, breaking up traffic pools and forcing rates down sharply. His biographer Julius Grodinsky wrote that Gould was "transformed from a trader into a business leader of national proportions." From 1879 to 1882 Gould added 2,500 miles to the road, making a capital addition of about $50 million. And between 1885 and 1889 he reentered the Wabash and the Texas and Pacific railroads, reorganized them, and tied them into his Missouri Pacific system.

At the same time Gould strengthened the other two elements in the triad that constituted his estate. One was the Manhattan Elevated Railroad of New York, which he created as a monopoly of Manhattan's rapid transit system. The second was the Western Union Telegraph Company. Gould had bought the unimportant American Union Telegraph in 1879, consolidated it with the Western Union in 1881, and 7 years later added the influential telegraph network of the Baltimore and Ohio Railroad. By the end of the 1880s Western Union, now the parent company, had no real competitor in the two important businesses of railroad telegraphy and the transmission of Associated Press stories to member newspapers. It was one of the most profitable companies in the country. Gould died in New York on Dec. 2, 1892, leaving the management of his properties to his son George Jay Gould.

Further Reading

An excellent biography and railroad history of the period is Julius Grodinsky, Jay Gould: His Business Career, 1867-1892 (1957). A lively study of the family is Edwin P. Hoyt, The Goulds: A Social History (1969). The story of the "Erie war" is in Charles F. Adams, Jr., and Henry Adams, Chapters of Erie (1871). For a broad understanding of the era that made the emergence of industrial capitalists like Gould possible, see Louis M. Hacker, The World of Andrew Carnegie, 1865-1901 (1968). Gustavus Meyers, History of the Great American Fortunes (1907), portrays Gould as the "robber baron" par excellence. □