Financial History Issue 119 (Fall 2016) - Page 27

Jay Gould , the Union Pacific Railroad and Value Creation

By Maury Klein and Joseph Calandro , Jr .
During a recent financial history presentation , the name Jay Gould was mentioned . It was immediately followed by a discernable “ gasp ” from the audience . This apparently was the reaction the presenter was looking for as he proceeded to deride Gould ’ s memory ( Gould passed away in 1892 ). This presenter ’ s criticisms were very broad and culminated with a reference to Gould as an “ infamous speculator .” The criticisms and comments were generally inaccurate , but nevertheless in accord with many of the things that were written about Gould during his lifetime , which have been carried over into the present .
No one in United States financial and business history is as misunderstood , and under-appreciated , as Jay Gould . There are a number of reasons for this : First and foremost , Gould earned a reputation as the most hated man in America . Two early episodes , the Erie Railroad War and Black Friday , when he conceived an audacious scheme to corner the nation ’ s gold supply in 1869 , did much to create the image of him as a ruthless , unprincipled Wall Street renegade who seemed always to skirt the letter of the law . Hardly anyone recognized the breadth of his talents or viewed him as anything more than a stock manipulator who played the game better than most .
Second , Gould was an intensely private man who did not speak with the press unless he wanted something specific out of such interactions . Predictably , his desired ends were not always what members of the press supposed ; in other words , Gould used the press to achieve his ends , not to advance theirs .
Financier Jay Gould ’ s control of the Union Pacific Railroad from 1874 – 1880 helped give rise to modern financial strategy .
Third , Gould was uncommonly successful in investment , speculation / trading and business due to a variety of strategic moves frequently so audacious and complex that few , if any , of his contemporaries understood what he was doing , or why . Moreover , Gould did not socialize with the elite of his day , preferring instead to spend his non-working hours with his family and his books . Over time , factors such as these resulted in an information vacuum . As the press , like nature , abhors a vacuum , information was generated to fill it whether it was factually accurate or not .
More important than historical misunderstanding for our purposes here are the lessons that can be learned from the years that Gould controlled the Union Pacific Railroad ( UP ). By “ control ” we mean set the direction of the firm rather than own a majority interest in it . To explain , Gould exercised control by dominating the UP governance structure as a major , albeit not majority , shareholder . His activities at the UP helped give rise to modern financial strategy , which is an integrated and interactive discipline encompassing strategy , investment , finance and operational management .
We profile our reasoning in this article noting that it is an all too brief profile . Maury Klein ’ s biography demonstrates in detail how Gould ’ s entry into the management of the floundering UP marked the beginning of his emergence as a businessman and economic developer of the first rank , who went on to create his own railroad system around the modest Missouri Pacific Railroad .
Few men embody that most cherished of American myths , the rags-to-riches saga , better than Jay Gould . Born in 1836 on a farm near Roxbury , New York , he inherited his father ’ s passion for education . Small , frail and somewhat sickly , he hated farm work , but he worked to improve himself whenever an opportunity arose . Shortly before his 16th birthday he left home to work for a surveyor . Already he had learned to push his stamina to the limit and to master any skill that came his way . He taught himself surveying , wrote an impressive history of Delaware County and learned how to cultivate the confidence of those older than himself . He won the trust of a prominent tanner and at age 20 was sent into the woods of Pennsylvania to build and run a tannery from scratch . Despite his youth , older workers respected him well enough that the settlement was named Gouldsboro .
Tanning occupied him until 1860 , when an unfortunate partnership with the prominent firm of Charles M . Leupp unraveled as Leupp succumbed to mental illness and committed suicide . At the age of 24 , Gould turned his attention to Wall Street . Despite being an unknown outsider in a world where being an insider counted for nearly everything , he not only survived but gradually mastered the intricacies of finance . His fertile intellect seemed capable of absorbing everything it touched , and his capacity for growth seemed unlimited . Unlike many Wall Street denizens , his approach was quiet , subtle and self-deprecating . He learned well the art of being underestimated .
For seven years Gould gradually improved his fortunes in the sharkinfested waters of 19th century Wall Street . The business style that emerged was an astringent one , as lean and compact as Gould himself . It was both stealthy and secretive , the silent running of a loner forging his own way through dangerous territory . He formed the habit of telling no one about an operation except those directly involved , and then only as much as he wanted them to know .
To this passion for secrecy he added a view of ethical and legal niceties that , at times , bordered on amorality , which was common at the time . In struggling to survive in an arena where no mercy was
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Jay Gould, the Union Pacific Railroad and Value Creation By Maury Klein and Joseph Calandro, Jr. During a recent financial history presentation, the name Jay Gould was mentioned. It was immediately followed by a discernable “gasp” from the audience. This apparently was the reaction the presenter was looking for as he proceeded to deride Gould’s memory (Gould passed away in 1892). This presenter’s criticisms were very broad and culminated with a reference to Gould as an “infamous speculator.” The criticisms and comments were generally inaccurate, but nevertheless in accord with many of the things that were written about Gould during his lifetime, which have been carried over into the present. No one in United States financial and business history is as misunderstood, and under-appreciated, as Jay Gould. There are a number of reasons for this: First and foremost, Gould earned a reputation as the most hated man in America. Two early episodes, the Erie Railroad War and Black Friday, when he conceived an audacious scheme to corner the nation’s gold supply in 1869, did much to create the image of him as a ruthless, unprincipled Wall Street renegade who seemed always to skirt the letter of the law. Hardly anyone recognized the breadth of his talents or viewed him as anything more than a stock manipulator who played the game better than most. Second, Gould was an intensely private man who did not speak with the press unless he wanted something specific out of such interactions. Predictably, his desired ends were not al ݅́ݡЁ́)ѡɕ͕́쁥ѡȁݽɑ̰ձ)͕ѡɕ́Ѽ̰ٔ́ЁѼ)مѡ̸()ȁ)ձéɽѡU)AIɽɽӊLٔ)ɥ͔ѼɸɅѕ()Qɐձ݅́չՍ͙հٕѵаձѥɅ)ͥ́ՔѼمɥ䁽Ʌѕ)ٕ́ɕՕѱͼՑ́ѡЁܰ䰁́ѕɅɥ)չѽݡЁ݅́ȁݡ)5ɕٕȰձЁͽ锁ݥѠ)ѡє́䰁ɕɥѕѼ)́ݽɭ́ݥѠ)䁅̸́=ٕȁѥѽ)Ս́ѡ͔ɕձѕɵѥ)مմ́ѡɕ̰ɔ́)مմɵѥ݅́ɅѕѼ)ЁݡѡȁЁ݅́Յ䁅Ʌєȁи)5ɔхЁѡѽɥչхȁȁ͕́ɔɔѡͽ́ѡЁɹɽѡ啅́ѡ)ձɽѡUAIɽ(U@ 䃊qɽtݔ͕ЁѡɕѥѡɴɅѡȁѡݸɥ)ѕɕЁиQձɍ͕)ɽ䁑ѥѡU@ٕɹ)Սɔ́ȰЁЁɥ)͡ɕȸ!́ѥ٥ѥ́ЁѡU@)ٔɥ͔ѼɸɅѕ䰁ݡ)́ѕɅѕѕɅѥ͍ٔ)ͥɅѕ䰁ٕѵа)Ʌѥи)]ɽȁɕͽѡ́ѥ)ѥѡЁЁ́ѽɥɽ)5-éɅ䁑Ʌѕ́)х܁ձé䁥ѼѡЁѡչɥU@ɭѡ)́ɝ́ͥ͵ٕȁѡ)ɅݡݕЁѼɕє́ݸɅɽѕɽչѡЁ5ͽɤ)AIɽ)܁ѡЁЁɥ͡)ɥѡ̰ѡɅ̵Ѽɥ)ͅѕȁѡ)ձ ɸ)ɴȁI䰁9܁eɬ)ɥѕ́ѡˊéͥȁՍѥMɅͽݡЁͥ)ѕɴݽɬЁݽɭѼ)ɽ͕ٔݡٕȁչ)ɽ͔Mѱ䁉ɔ̀Ѡѡ䁡()ЁѼݽɬȁٕȸɕ)ɹѼ́͠хѼѡ)ЁѼѕȁͭѡЁ)́݅丁!х՝Ё͕ٕ她)ɽєɕͥٔѽ䁽݅ɔ) չ䁅ɹ܁Ѽձѥمєѡ)ѡ͔ȁѡ͕!)ݽѡЁɽЁхȁ)Ё͕݅́ЁѼѡݽ́AمѼեոх䁙ɽ)͍Ʌэє́Ѡȁݽɭ)ɕѕݕ՝ѡЁѡ͕ѱЁ݅́ձ͉ɼ)Qչѥ)ݡչչєѹ͡ݥѠ)ѡɽЁɴ ɱ́41)չɅٕ́1ՍյѼх́ѕեЁѡ)аձɹ́ѕѥѼ)]Mɕиєչݸ)ͥȁݽɱݡɔͥ)չѕȁɱ䁕ٕѡ)٥ٕЁɅՅ䁵ѕɕѡ)ɥ́!́ѥѕ)͕ͽɉٕѡ)ЁѽՍ́䁙ȁɽѠ)͕չѕU])MɕЁ镹̰́ɽ݅́եа)Չѱ͕ɕѥ!ɹ)ݕѡЁչɕѥѕ)ȁ͕ٕ啅́ձɅՅ)ɽٕ́չ́ѡ͡ɭѕ݅ѕ́Ѡ]Mɕи)Qͥ́屔ѡЁɝ݅́)ɥЁ́Ё)ձ͕%Ё݅́Ѡѕѡ䁅)͕ɕѥٔѡͥЁչ)ɝ́ݸ݅ѡɽ՝ɽ)ѕɥѽ丁!ɵѡЁѕ)ЁɅѥፕЁѡ͔)ɕѱ䁥ٽٕѡ䁅́Ս)́݅ѕѡѼܸ)Qѡ́ͥȁ͕ɕ䁡)٥܁ѡѥ́ѡа)Ёѥ̰ɑɕɅ䰁ݡ)݅́Ёѡѥ%՝Ѽ)٥ٔɕݡɔɍ݅()ܹ5ɟۊ%99 %0!%MQ=Ig((