Financial History 144 Winter 2023 - Page 42

American Rascal : How Jay Gould Built Wall Street ’ s Biggest Fortune By Greg Steinmetz Simon & Schuster ; 300 pages with notes and index ; $ 28.99
It is hard to imagine today the effect that railroads had on America in the second half of the 1800s . The Civil War had dramatically altered attitudes toward travel , culture , business and finance . The railroads quickly spread these changes and helped transform the United States from a collection of states to a continental powerhouse . Underpinned by huge government help , railroads promised even greater progress , speed , innovation — and untold riches for those brave enough and tough enough to build and control them . In short , railroads cast a spell that few people at the time could resist .
One who fell hard for railroads was Jay Gould , who , if we were keeping lists , would certainly earn a spot among the top “ robber barons ” of the railroad-building era . Author Greg Steinmetz , a reporterturned-fund manager , tells Gould ’ s story in American Rascal : How Jay Gould Built Wall Street ’ s Biggest Fortune . It is a short , straightforward biography focused on Gould ’ s repeated , brutal and breathtakingly audacious fights to seize control of several railroads and allied businesses from 1868 through 1892 .
Steinmetz sets up Gould ’ s life from his beginnings in upstate New York . He was a driven young man , studying hard and working hard . He had a capacity to impress elders , who entrusted him at a young age with more responsibility as he moved from surveying to running tannery businesses . It was on his tannery trips to New York City that Gould realized that brokers were making fortunes never setting foot inside a factory .
By the mid-1860s , Steinmetz writes , Gould was in NYC , smart and savvy enough to see he could make a killing during a nasty , complicated proxy fight between Cornelius Vanderbilt and Daniel Drew for the Erie Railroad . Using every means at his disposal — including insider trading , printing new shares and paying off judges — Gould and his larger-than-life partner , Jim Fisk , acted to manipulate share prices to their benefit . In the end , Gould outfoxed everyone , making a fortune and assuming leadership of the railroad .
The battle for Erie earned Gould his first notoriety , but it was his efforts in 1869 to manipulate the market for gold that cemented his reputation as a particularly nasty and hated Wall Street “ operator .” Seeing an opportunity to push gold prices up through relentless lobbying of the US Treasury ( and President Ulysses S . Grant ), Gould hoped to profit by front-running a change in government policy . When he realized that his attempts would fail , he went short before the market caught up to his scheme . Gould ’ s short trades on gold cleared ; others who traded too late were ruined . A Congressional investigation named Gould , Fisk and others as the prime movers in the plan , but with no laws regulating the securities business , public condemnation was the only punishment meted out . In 1872 , Fisk ’ s luck ran out when he was shot by a lover ’ s boyfriend .
At this point , according to Steinmetz , Gould ’ s focus shifted back to railroads and , more particularly , to a dream of creating a seamless coast-to-coast carrier . He focused his efforts in the 1870s on taking control of the Union Pacific and integrating it with his other rail acquisitions . Gould , yet again , used every tool at his disposal to weaken existing management by driving Union Pacific ’ s stock down .
By the 1880s , still a relatively young man , Gould ’ s health began to fail . He began to rachet back on his direct business involvement and bare-knuckle tactics , giving more leeway to his lieutenants . Of course , no story of a robber baron would be complete without a violent labor clash , and Steinmetz covers Gould ’ s duplicity in dealing with the Knights of Labor during an 1886 railroad strike .
Just months before his death in 1892 , weakened from tuberculosis , Gould ’ s fixation with railroads led him to take another run at the Union Pacific . He had left ownership a few years before , but he still dreamed of a truly continental rail company . Although he was successful in acquiring control , he was too sick and weak to see his plan through .
There are lots of interesting characters in the story . Gould allied with or fought with ( depending on the deal ) a colorful cast from “ Big ” Jim Fisk to Russell Sage to Charles Francis Adams . Steinmetz tries to soften Gould ’ s image a bit at the end of the book , but it doesn ’ t work . Imagining Jay Gould — short , skinny , studious , deliberate — running down to the Hudson River with phony Erie Railroad certificates in hand , one step ahead of the law , to grab a ferry to New Jersey is a picture that I won ’ t forget . And this was after a dinner at Delmonico ’ s .
American Rascal is a good story , but I still don ’ t know what made Gould so driven . It appears he left very little revealing his internal motivations . Thomas Edison , who sold Gould telegraph technology to compete with the Western Union Company , assessed Gould this way : “ His conscience seemed to be atrophied , but that may be due to the fact that he was contending with men who never had any to be atrophied .” My guess is that Gould just loved the “ action ,” and Wall Street was and is still the best game in town .
James P . Prout is a lawyer with more than 30 years of capital market experience . He is now a consultant to some of the world ’ s biggest public companies . He can be reached at jpprout @ gmail . com .
40 FINANCIAL HISTORY | Winter 2023 | www . MoAF . org