American rascal, p.1
American Rascal, page 1
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For our children: Axel, Anya, Jasper, and Alta
INTRODUCTION
On a warm April afternoon in 1873, the financier Jay Gould took time off from counting his money to have lunch at Delmonico’s, the fanciest restaurant in town. While he was eating, a lawyer walked over to his table, cocked his fist, and punched him in the face.
A series of spectacular financial triumphs—some said swindles—had made Gould fabulously rich. Now, at age thirty-six, he was the most notorious businessperson in the country. Like others who tried to claw back money from Gould, the lawyer was getting nowhere in court. The laws were too weak, enforcement too lax, and the judges too crooked. Gould had them in his pocket.
Oysters and Veuve Cliquot were the rule at Delmonico’s. The biftek was served au naturel. For most people, a meal cost a week’s wages. For the rich, it was a place to enjoy their wealth, not pick fights. Joseph Marrin, the lawyer, didn’t care. Frustrated to the point of rage, he took justice into his own hands and clocked Gould in front of the lunch crowd. In a piece called “Gould’s Nose,” The New York Times declared Marrin a hero and worried about a pileup if others followed his lead. “The flattening of Gould’s nose,” it wrote, “would be an incidence of hourly occurrence.”1
This book seeks to explain Jay Gould and his underappreciated—and aggressively maligned—role in the country’s transformative economic expansion of the nineteenth century. But it is just as much an exploration of Wall Street during its Wild West era after the Civil War when, by the rough means on display at Delmonico’s, the seeds of our current financial system were planted. Stock and bond markets were hitting their stride. Only the strictures of conscience, rather than law and regulation, governed the participants. That left the unscrupulous free to self-deal, fix prices, trade on inside information, lie to investors, and manipulate stock prices. Out west, Jesse James and other train robbers stole your wallet. In New York, men in top hats, abetted by corrupt politicians, snatched your life savings.
The state of play was tolerated. It was an objectionable by-product of progress. Sure, there were cunning moneymen who abused the system. But that was a side effect, the price of opportunity. After all, it was Wall Street that raised the money to build railroads, to settle the plains, to create jobs, and to elevate living standards. The bankers and investors at the corner of Wall and Broad had their faults, but they were making America the most powerful nation on earth and its people the most prosperous.
A few people, the men the writer Matthew Josephson condemned as Robber Barons, amassed spectacular wealth. Cornelius Vanderbilt, John D. Rockefeller, and Andrew Carnegie come to mind. But they aren’t the focus of this book because they made their money in industry, not in finance. Vanderbilt toiled in steamships and railroads, Rockefeller in oil, and Carnegie in steel. Only the lesser-known figure of Jay Gould, as rich as any of them and another of Josephson’s “scoundrels,” was foremost a creature of Wall Street.
To the extent Gould is remembered, it is for Black Friday, the day he blew up the gold market and paralyzed the financial system. For this and other bold and sometimes undeniably felonious acts, lawyers swamped him with suits, prosecutors hit him with subpoenas, and Congress hauled him in for hearings. This was as far as things got. Arrested three times, Gould never spent a day in jail. In a better world, he would have. But these were raw times. Frustrated opponents, like the lawyer at Delmonico’s, turned to vigilante justice. One victim tossed Gould down a stairwell. Another pulled a gun on him. During the contested presidential election of 1884—an election in which Gould was believed to have interfered—a lynch mob marched on his Broadway office. As they waited in hope of spotting their prey, they riffed on the “Battle Hymn of the Republic.” Out went “Glory, Glory Hallelujah.” In came “Hang Jay Gould on the sour apple tree.” For them there was no doubt. Gould deserved the noose. “Jay Gould was the mightiest disaster which has ever befallen this country,” wrote Mark Twain. “The people had desired money before his day, but he taught them to fall down and worship it.”2
For Twain, Gould was the biggest robber of the barons. It was one thing to clean up at the poker table when you played by the rules. It was another to cheat. Gould, he argued, was a champion cheater. Even worse, he was an inspiration for others inclined to cheat. He showed that no act of financial villainy was too bold. The publisher Joseph Pulitzer saw Gould the same way as Twain. “Convicts will wonder,” wrote Pulitzer, “what mental defect robbed them of such a career as Gould’s.”3
Gould’s peers were more charitable. Gould stood not much over five feet tall. But to those who appreciated his gifts, the Little Wizard, as the newspapers called him, was a giant. Vanderbilt told a Syracuse newspaper that Gould was “the smartest man in America.”4 Rockefeller, when asked who he thought had the best head for business, answered “Jay Gould” without pausing to think.5 They recognized Gould as a master of his craft. Ruthless? Yes. A liar? Maybe. It depended on the definition. But no one disputed that he was an extraordinary problem solver, an unparalleled negotiator, an expert communicator, a lightning-fast thinker, and a masterful tactician with a staggering memory. He knew the numbers better than his accountants. He knew the law as well his lawyers. When it came to business, Gould had it all.
Gould complemented his natural endowments with nerves of iron and a work ethic, even as a teenager, so strong that it damaged his health and, quite possibly, shortened his life. With his mix of brains and single-mindedness, he was suited to make the most of the moment. Gould’s friends thought he got attention for the wrong reasons. They cited his talents and wondered why he never seemed to win praise. “Why is Rockefeller held in so much higher esteem than Gould in the public mind?” asked the banker Jesse Seligman.6
Gould, of course, didn’t see himself as a crook. He bribed politicians because his competitors bribed politicians. Equally, he made his money not at gunpoint but by manipulating others to make bad decisions. They would pay him too much when he was selling or accept too little when he was buying. Gould would say his victims—those on the other side of his trades—had only themselves to blame. If someone was too lazy to read the fine print, too greedy to consider the downside, and too dumb to watch what Gould did rather than what he said, they deserved their fate. Gould feasted on other Wall Street professionals. They were trying to do to him what he did to them. Did that make him a crook?
* * *
GOULD WAS ONE of the most famous people of his time. During an 1886 labor dispute, his name appeared on the front page of The New York Times every day for a month. Such was Gould’s reputation that the public assumed, wrongly, that he could single-handedly move the market. Such was Gould’s notoriety that once, after a train robber picked clean every passenger on a Texas train, the crook told the onboard postal clerk that he would leave him alone, saying he wasn’t after the government’s money, “only Jay Gould’s.” 7
These days, Gould is all but forgotten. In 2019, USA Today published a ranking of rich Americans. Gould was there, smack between Marshall Field and Warren Buffett at No. 14. “Jay Gould 1836–1892.”8 The paper got that right. But it muffed the picture. It didn’t show Gould. It showed his grandson, Jay Gould II. Jay Gould II was prominent, too. He won a gold medal in tennis at the 1908 London Olympics. But he wasn’t the shadowy buccaneer who ransacked Wall Street.
Gould would have enjoyed the error. Obsessively secret, he talked to the press for strategic reasons, but never sat for a magazine profile nor gave thought to an autobiography. Like a camper determined to leave no trace behind, he ordered his papers burned upon his death and that his name appear nowhere on his burial site. Still, it is tantalizing to think how the Gould name would resonate if he had lived longer. Gould died when he was fifty-six and before he could decide how his money might build enduring institutions in his name. Rockefeller was sixty-two when he endowed Rockefeller University. He lived long enough to see his son build Rockefeller Center. Vanderbilt was seventy-nine when he financed Vanderbilt University. Gould gave some money to New York University and was negotiating a bigger gift and possible naming rights when he died. If the academic establishment sprawled over lower Manhattan was called Gould University instead of NYU, we’d see the name Gould on baseball caps and bumper stickers. Instead, about all he gets is the Florence Gould auditorium, a small concert venue in a 59th Street basement named for his daughter-in-law. It pales besides Carnegie Hall.
Why does Gould matter? There is an easy answer. While he made his money on Wall Street, he did as much as anyone, through his work with railroads, to build the country. Railroads changed America in the nineteenth century much as automobiles changed the country in the twentieth century and the internet has changed the twenty-first century. Gould built as much track as anyone, laying down the “thin lines of rust” that crossed the country’s interior and let Americans tap the economic potential of the country and make it the richest nation on earth. Gould’s contributions elevated St. Louis, Kansas City, Dallas, Denver, Omaha, and Memphis, not to mention the countless smaller settlements he literally put on the map. He was among the biggest employers, if not the biggest employer, in the country. The money he spent to stay competitive made the nation’s rail network faster, safer, and more comfortable. He reinvested his profits in a way that created more jobs and economic growth. America would have developed without Gould, only not as fast or efficiently.
Gould also changed the way we think about markets. America was founded on the idea that the best government was the one that governed least. Europeans crossed the Atlantic for freedom, to get away from kings, secret police, and censors. The freedom America offered to get rich went hand in hand with freedom to worship one’s own god and the freedom to march against the government. In business, laissez-faire was best. When it came to consumer protection, caveat emptor—buyer beware—sufficed. The invisible hand, the unseen power that governed the economy, was a benign force of good.
For decades, the approach worked miracles. It fostered rapid economic growth and, remarkably, a relatively even division of wealth. There were few rich people and few beggars at the time of the American Revolution. Benjamin Franklin saw wealth disparity up close as ambassador to France. He delighted in the social and economic equality back home. America wasn’t a place of rich and poor, he wrote. “It is, rather, a general happy mediocrity that prevails.”9
Faith in markets remained strong at the time of the Civil War when Gould started his Wall Street career. The “self-adjusting meter of supply and demand,” wrote the philosopher Ralph Waldo Emerson in 1860, solved for all. “Do not legislate,” he wrote. “Meddle and you snap the sinews.”10
By the time Gould died in 1892, everything had changed. The best-selling book in America after the Bible wasn’t one that celebrated liberty but Progress and Poverty by Henry George. Progress and Poverty ranks among the most influential works in American history. It served as the manifesto of the Progressive movement and was translated into dozens of languages. In muscular prose, George argued the rich received all the benefits of economic expansion while the poor, despite that growth, stayed poor. Unchecked capitalism lifted supremely gifted men like Gould and caused misery, despair, and hardship for everyone else. The market gave rise to “the shocking contrast between monstrous wealth and debasing want.”11 It was the job of government, George wrote, to correct the wrongs.
Gould, as much as anyone, catalyzed the call for change. His first great coup was the capture of the Erie Railroad in 1868. He did it with deception and bribery. A year later, Massachusetts, partly in reaction to Gould, created the Massachusetts Railroad Commission. It was the country’s first regulatory commission. Henry George himself made an example of Gould. Gould was his poster boy for economic inequality. “So boldly, so skillfully, so unscrupulously has he played the great game,” George wrote, “that he is likely to die the richest man in the country, probably the richest man in the world.”12
George didn’t have all the answers, but he was right about one thing: Gould knew how to play the game.
PART ONE
ONE
SCHOOL DAYS
In 1853 when Jay Gould was seventeen, he made an announcement to his friend Abel Crosby. “Crosby,” he declared, “I’m going to be rich. I’ve seen enough to realize what can be accomplished by means of riches, and I tell you I’m going to be rich.”1
Young men talk big. But Gould wasn’t one for loose talk. When he said something, he meant it. There was no doubt. He would succeed. Where did he get the confidence? And the impulse?
In a bit of delightful prefiguring, the first Gould in America was named Gold. Major Nathan Gold, a Puritan, came to Connecticut in search of religious freedom and lucre. He found both, practicing his nonconformist belief while striking it rich shipping beaver hides and deerskin back to England. His grandson Abraham served in the Revolutionary War as a lieutenant in George Washington’s Continental Army and died in the Battle of Ridgefield. Abraham’s son, another Abraham, preferred the name Gould to Gold. No one knows why. The Goulds went west to take up dairy farming in New York’s Catskill Mountains, settling in the town of Roxbury. They had ten children. The oldest was Jay Gould’s father, John Burr Gould. Burr was a family name. Aaron Burr, who killed Alexander Hamilton in a duel, was a distant cousin.
John Gould took over the farm from his father. He made cheese to sell in Albany and New York City. A “churn dog,” hitched to a wheel to make butter, pitched in. John married a local woman named Mary More. After having six girls, Mary gave birth to a seventh child on May 27, 1836. The baby was premature. Not wanting to tempt fate, the Goulds waited before giving their small and ailing baby—a son they had longed for—a name. Several agonizing weeks later, they named him Jason. Jason gave way to Jay.
Another child of the backwoods, Andrew Jackson, was president. Ninety percent of the country’s population—a population that doubled every quarter century during this age of staggering growth—lived on farms. Westward migration was in swing. Saltbox houses were replacing log cabins in Ohio and Michigan. Illinois and Missouri were already states. Just weeks before Gould’s birth, Sam Houston’s army captured the prideful Mexican general Santa Anna and won freedom for Texas. The Catskills were hardly the frontier. But the roads were poor and travel was slow. New York City, already the biggest city in the country, was 150 miles away from Roxbury. It took a day to reach it.
The nation’s economy was healthy and its growth the envy of other countries. Trading on the New York Stock Exchange came to fewer than eight thousand shares a day, but volume grew every year and flag bearers stood atop hills, manning a semaphore line that sent price quotes from Manhattan to Boston. While most Americans were farmers, the biggest businesses in the country were banks. Railroads, the industry that would eventually consume Gould as well as dominate trading on the exchange, were just getting started. There was no income tax and, for the last time, the government was free of debt.
On a January morning when Jay was four, the girls were in school when their teacher dismissed them early. Mary was sick and wanted to see her children. Jay went with the girls to Mary’s room. He pulled himself up on her bed, bracing his feet on the frame, and kissed her lips. They were cold. Mary Gould was dead at age thirty-five, a victim of typhoid fever. At the funeral, Jay held sister Anna’s hand as the family buried Mary in the snowy ground of the Roxbury Baptist Church. Gould later said the only thing he remembered about his mother were her cold lips.
Mary was survived by her family and a legacy in the form of a magnificent garden. When she wasn’t cooking meals, milking cows, or making clothes, she tended to a fine collection of roses and hyacinths. As they bloomed anew each spring, they served as a beautiful reminder of the mother Gould barely knew. Mary was said to have a head for money along with an even temper. Gould inherited those traits. A more tangible link could be drawn to the flowers. After Gould made it big, he bought a country estate that came with the largest glass-enclosed conservatory in the country. He filled it with roses and hyacinths.
Family tragedy didn’t end there. John Gould, now fifty-one, immediately remarried. The new wife died less than a year later. Understandably anxious about raising the family on his own, he married a third time. The woman died within two years. Jay’s sister Nancy, age eleven, also fell ill and died. That made four deaths in four years. The Goulds seemed cursed. John Gould took to drink. The family cringed at a church picnic when he toppled over drunk.
John Gould could be cruel. Jay was once sent home from school for misbehaving. John locked him in the cellar. The girls returned from class and asked Jay’s whereabouts. John, who might have been drunk, said he didn’t know. Only later did he remember Jay was in the cellar. The girls hurried to liberate their brother. They found him in tears.
Jay had an impish streak, but not at the expense of his studies. He worked on math problems as long as it took to get an answer. He read whatever he could get his hands on. When John needed him for chores, Jay was often nowhere to be found. He was off hiding somewhere with his books. Jay left home when he was thirteen, explaining that the local school was too easy. He later said that his father, who had given up on his dream of Jay taking over the farm, didn’t care and told him, “I was not worth much at home and I might go ahead.”2
