wasted on those who failed, he learned its
lessons well, showing himself willing to
employ bribery and other shady tactics to
gain his objective.
As an outsider who relied on trading as
his only source of capital, Gould recognized the game of business for what it was
at the time and played with few illusions
or pretenses. He entered Wall Street on
the eve of the Civil War, a time when the
rules soon became unsettled and malleable
amid the opportunities afforded by wartime. Since the Panic of 1857 a younger,
brasher, more aggressive breed of brokers
had come to dominate the Street, and
Gould adapted quickly to their coarser
form of financial combat. In time, he
proved himself to be superior to them all.
Two episodes that became Wall Street
legends catapulted Gould from obscurity to
notoriety. During 1867 and 1868, he joined
forces with Daniel Drew and Jim Fisk to
outmaneuver Cornelius Vanderbilt in the
“Erie War” that ended with Gould and
Fisk in control of that railroad. In 1869, he
conceived an audacious scheme to corner
the nation’s gold supply that culminated
in the “Black Friday” panic on the Street.
Together these episodes both enhanced and
blackened Gould’s reputation, elevating
him to the status of one whose words and
deeds were always to be watched and never
to be trusted. From them also emerged the
steady stream of abuse from the press that
would do so much to shape his reputation
in the coming years as the most hated man
on Wall Street.
To a greater extent than anyone realized, that reputation was undeserved.
Unlike many, if not most, Wall Street
men (then and since), Gould lived a quiet,
extremely private life unmarred by any
form of personal excess. He shunned the
trappings of high society, was devoted
to his wife and six children, created an
extensive personal library of books he
actually read and loved flowers so much
that he built the largest privately-owned
greenhouse in the nation.
Contrary to the image of him as a lone
wolf, he formed close associations with
colleagues that lasted throughout his life
and rarely worked any large operation
alone. Collis Huntington, one of Gould’s
bitterest rivals, was not alone in praising
Gould’s reliability. I (Klein) quoted him as
follows in my earlier biography of Gould:
“I know there are many people who do not
like him… I will say that I always found
that he would do just as he agreed to do.”
Having earned a formidable reputation as a speculator/trader on Wall Street,
Gould longed above all else to excel as a
businessman. From his first encounter
with railroads he applied his uncanny
grasp of finance to the problems posed
by running a large enterprise. Even as the
public dismissed the Erie War as a financial circus, Gould devised a competitive
strategy so bold and original that it forced
Commodore Vanderbilt to revise his handling of the New York Central Railroad.
Confronted by Gould’s policy of making
alliances with other roads to outflank the
New York Central, Vanderbilt abandoned
his conservative approach and expanded
his rail empire westward to Chicago and
elsewhere. Gould lacked the financial
resources to compete with Vanderbilt on
this widened battlefield, but his daring
changed the course of railroad history.
After being ousted from the Erie in 1872,
Gould pursued his career on Wall Street
while awaiting a suitable opportunity to
take hold of another railroad. It came at
the end of 1873, when Gould bought heavily into the UP. Part of the first transcontinental road completed in May 1869, the
Union Pacific-Central Pacific remained
the only rail line from the Missouri River
to the Pacific Coast. Like the Erie, it
was a grandiose, oversold property with
a tarnished past tainted by the Credit
Mobilier scandal of 1873 and a history of
inept management that culminated in 1871
when Oliver Ames left the presidency.
Tom Scott of the Pennsylvania Railroad
gained control but left after a year. In 1872,
Horace Clark, Vanderbilt’s son-in-law,
became president and the road seemed
firmly connected to the Vanderbilt system. But Clark died suddenly in June 1873,
leaving the road once again in managerial
and financial limbo.
In winning the trust of the suspicious
major stockholders of the UP, Gould
promised that he would restore the road’s
financial credibility, improve its operations, formulate its strategy and boost its
stock price. To their astonishment, he
did all this and more. Within a year, having rescued its finances from the brink of
disaster, he cleared up the floating debt
and refunded its income bonds.
26 FINANCIAL HISTORY | Fall 2016 | www.MoAF.org
Observers had expected him to milk the
UP for all it was worth and depart, leaving
a financial wreck in his wake. Instead, he
turned it into a stable, profitable enterprise through close attention to the details
of every aspect of its operation. The former speculator/trader had become a successful businessman, and he remained one
for the rest of his career.
Gould stayed with the UP for six years,
leaving only when it became clear that he
could not solve one financial albatross:
the government debt. Contrary to popular
belief, the government bonds issued to
help construct the road were not a subsidy
but a loan. To make matters worse, the UP
was one of a very few railroads with a federal, rather than state, charter. This made
it something of a plaything of Congress.
The task of trying to reach a settlement on
the debt with venal Congressmen taxed
even Gould’s patience. Through a series of
brilliant maneuvers, he sold his UP shares.
To illustrate the value creating impact of
Gould’s activities while he controlled the
UP, consider Exhibit 1.
The compound annual growth rate of
the UP’s stock price from December 24,
1874 to December 24, 1880 (Jay Gould controlled the UP from 1874 to 1880) is 19%,
which is impressive in-and-of-itself, but all
the more so relative to the 7.5% compound
annual growth rate (price-weighted) of the
New York Stock Exchange over the same
general time period. It is important to note
that the US economy was both in a major
depression and generally deflationary from
October 1873 — following the infamous
financial panic — to March 1879.
Gould used the proceeds from the sale
of his UP stock to put together a new
southwestern rail system built around the
Missouri Pacific Railroad, which ran from
St. Louis to Kansas City. This new system
played a major role in the economic development of the Southwest. He stayed with
that work, expanding the system and its
territory through construction and acquisitions, until his death in 1892. During the
1880s he also gained control of two other
major properties, Western Union and
Manhattan Elevated. Domination of them
put Gould astride the two most significant
industries in late 19th century America:
transportation and communications. That
fact alone rendered him one of the most
important business figures of his era.