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Wall Street History
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11/02/2001
Jay Gould, Part I
Continuing our admittedly haphazard history of gold in America,
we now advance to the story of Jay Gould and his 1869 attempt
to corner the gold market.
Born on May 27, 1836, Jason "Jay" Gould was born on a family
farm in upstate New York to parents who were of English and
Scottish heritage. Gould was a sickly child (and he would be
plagued by ill health his entire life) who appeared to have few
other interests than how to make money. He left school at 14,
clerked in a store, studied surveying, took a job as a surveyor''s
assistant at $20 / month and saved a few hundred dollars. He
also was interested in literature and while he was still in his
teens, Jay wrote a history of Delaware County, New York. Soon
he had amassed about $5,000 selling his maps and book. Gould
then launched his first real business venture, opening a tannery
near Stroudsburg, PA with a partner by the name of Zadoc Pratt.
Well, before you knew it, Gould and Pratt''s tannery was the
biggest in the country and they named the town where it was
located, Gouldsboro. But little did Pratt know that Gould was
secretly learning how to play the New York futures market for
leather hides. [Bet you didn''t even know this once existed. I
didn''t.] Pratt also didn''t know that Gould, who managed the
books, was using a small, secret bank in Stroudsburg to siphon
off Pratt''s funds. Well, when Pratt realized that Jay was cooking
the books you can imagine that he was quite upset, and
discouraged, but for some reason he didn''t try to prosecute
Gould, instead, he allowed himself to be bought out by Jay for
one-half of what he originally put into the tannery. Despite this
incident, soon Gould had cornered the hide market and was worth,
on paper, $1 million. Alas, the panic of 1857 wiped Jay out,
as the hide market collapsed along with everything else, thereby
proving that even today, cowhide is not a safe haven during times
of financial stress.
Gould had a new partner at the time, Charles Leupp, and Leupp
was astounded that the young Gould didn''t seem to care that the
two were nearly bankrupt. In fact Leupp was so upset by
Gould''s seeming lack of business ethics that he went home to his
East Side New York City residence and promptly committed
suicide. As market historian Charles Geisst puts it, "The first
fatality in Jay Gould''s long and infamous business career."
Gould would go on to become prince of the "robber barons," a
group that initially included the likes of Jim Fisk, Daniel Drew,
and Cornelius Vanderbilt.and later John D. Rockefeller and
Andrew Carnegie.
In fact Jay Gould is one of the great dirtballs of all time. Now
we aren''t going to cover his whole career here because, over
time, his name will pop up in various other tales I''ll be
addressing, and, yes, he has his defenders. After all, by the time
he was finished as a speculator / financier, Gould had thought up
just about every possible financial instrument there was, long
before the likes of Michael Milken, including payment-in-kind
bonds, deeply subordinated convertibles, and layering of junior
securities. But bottom line, Jay Gould was scum. To give you
an idea, following are various descriptions of him that I gleaned
from the sources listed below.
"A secretive trickster."
"Gould was slight, consumptive, dark, secretive, scheming, and
loathed by all except his family."
"He was not a builder, he was a destroyer."
"The worst man on earth since the beginning of the Christian era.
He is treacherous, false, cowardly, and a despicable worm
incapable of generous nature." [Fellow speculator James R.
Keene - courtesy of Edward Chancellor]
"One of the most sinister figures that ever flitted batlike across
the vision of the American people." [Joseph Pulitzer -
Chancellor]
"A freebooter who, if he could not appropriate millions, would
filch thousands; a pitiless human carnivore, glutting on the blood
of his numberless victims; a gambler destitute of the usual
gambler''s code of fairness in abiding by the rules; an incarnate
fiend of a Machiavelli in his calculations, his schemes and
ambushes, his plots and counterplots." [Gustavus Myers: "A
History of Great American Fortunes."]
And perhaps the most famous, from speculator Daniel Drew,
"His touch is death."
Physically, there is also no shortage of description. Gould was
"tiny, silent, with sad dark eyes." He only weighed about 120
pounds and he had a nervous disposition and a certain air of
effeminacy in his gestures. A reporter for an upstate New York
newspaper once filed this report.
"I saw him take the plunge in the Turkish bath of Saratoga. His
arms were small, his chest was hollow, his face was tawny and
sallow, and his legs! Well, I never saw such a prominent ''bull''
that had such insignificant calves. Perhaps - perhaps you could
not put a napkin ring over his foot and push it up to his knees; I
am not certain."
Author Charles Morris adds, "Gould was a loner, famously
poker-faced, a man of long silences, who betrayed the tensions of
business by obsessively tearing small bits of paper." [Aagh! I
sometimes do that.] Morris does note that "Gould could be
relied upon to keep his word - provided that the relier (sic)
parsed very precisely what Gould had promised, for he was
master of the crucial ambiguity."
Gould made his initial fortune, after the tannery trade, in
railroads, where he and his cronies would master "the art of
buying rundown (operations), making cosmetic improvements,
paying dividends out of capital, and selling out at a profit, (all
the while) using corporate treasuries for personal speculation and
judicious bribes." [Tindall and Shi]
A typical deal of Gould''s was the looting of the Erie Railroad in
1868, when Jim Fisk, Frederick Lane and Gould seized control
of the railroad from the rest of the board. They quickly issued
and sold more than $20 million in stock (secretly) and pocketed
the proceeds between the three of them. They then walked away,
leaving the Erie in severe financial distress, a condition from
which it wouldn''t emerge until the 1940s. That was the pattern
throughout Gould''s career. Nearly every enterprise he touched
was either compromised or ruined.
Next week, 1869 and Jay Gould''s attempt to corner the gold
market.
Sources:
"America: A Narrative History," Tindall and Shi
"Empire Express," David Haward Bain
"Wall Street: A History," Charles Geisst
"Devil Take the Hindmost," Edward Chancellor
"A History of the American People," Paul Johnson
"Manias, Panics, and Crashes," Charles Kindleberger
"Money, Greed, and Risk," Charles Morris
"The Presidents," edited by Henry Graff
Brian Trumbore
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