The town records of Stroudsburg and the state banking records of Pennsylvania reveal no bank started by Gould, and no bank on the board of which Gould sat, existing in 1857 or 1858. Local land records in the region of Stroudsburg do show some land purchases in Gould’s name. These transactions, however, had an investment value of not more than $4,000 to $5,000, roughly the amount Gould is known to have possessed after his Roxbury land speculation. Another gap between the folklore and reality is the image of Pratt as a naive old man taken to the cleaners by a young and crooked upstart. Pratt had not amassed his fortune by being an idiot; and he was known to play fairly sharply himself on occasion. In fact, there is every indication that the breakup of Pratt & Gould represents the first time Pratt failed to get the better of a junior partner.
The habitually incorrect Warshow stumbled into a true statement when he wrote, “The tannery was doing a rushing business, and was always at capacity. Profits, however, were very small.”15 But the reason for the small–in fact, nonexistent–profits was not theft by Gould. In the wake of the 1857 Panic, leather prices remained severely depressed. Margins were tight. Against this backdrop–with his tannery running full tilt, but amortization of his investment slowed by a dismal economy–Pratt apparently sought to improve his personal profit by ousting his partner at a bargain price. The man in the best position to know–one John Gardner, who worked as an assistant to Jay at Gouldsboro–recalled that “Pratt having the largest interest said to Gould you must either sell or buy thinking it impossible for Gould to buy and secretly hoping to force Gould to sell his share thereby enriching himself at Mr. Gould’s expense.”16 More precisely, the terms laid down by Pratt were these: Pratt would buy out Gould for $10,000; or else Gould must buy Pratt out for $60,000. In an off-hand manner, Pratt added that the seemingly unbankable Jay could have ten days to decide.17
Reason suggests that Pratt’s offer to sell his share for $60,000 was a canard pure and simple. Pratt had sunk $120,000 into the operation. Therefore he would have offered to sell at half that amount only if he were convinced there was no way Gould could come up with the necessary funds. The actual deal that Pratt meant to force was Gould’s selling out for $10,000. This transaction, had it gone through, would have allowed Pratt to purchase Gould’s two-and-a-half years of full-time managerial devotion, not to mention Gould’s rights in the enterprise, very cheaply. But Pratt, who perhaps should have known better, had underestimated his young colleague.
In the time allowed him by Pratt, Gould traveled to the New York Swamp, where he struck a fast deal with Charles M. Leupp and Leupp’s partner and brother-in-law, David W. Lee. Leupp and Lee agreed to acquire a two-thirds stake (one-third apiece) in Pratt & Gould for a total price of $60,000. Returning to Prattsville, Gould flabbergasted Pratt when he exercised his option to buy the firm, offering letters from his new partners as surety. The deal, finalized on 27 January 1859, left Pratt with a $60,000 loss overall. Simultaneously it left Gould with a one-third stake in a thriving tannery and an alliance with one of the Swamp’s most prestigious brokerage firms.
In short, what so many previous writers have described as Gould’s first great swindle was in fact his first great coup. Given the facts, Pratt’s utter silence in later years regarding his partnership with Gould–an enterprise at the end of which Pratt wound up bettered by a man barely out of his teens–begins to make sense.
Chapter 9
CUNNING LUNACY
THE PRODUCT OF A socially prominent New York family, Charles M. Leupp was just fifteen when he went to work for Manhattan’s most successful leather merchant–also state legislator, New York City mayor, and Democratic congressman–Gideon Lee. Eventually, Leupp married Lee’s daughter.1 After Lee’s death in 1841, Leupp changed the name of the firm to Charles M. Leupp & Company while remaining partners with Lee’s son David, who served as attorney for the organization. By the time of his association with Jay Gould, Leupp was the dominant leather merchant in the Swamp.2
Unlike the rustic Pratt, with whom he had done much business in the 1820s and 1830s, Leupp prided himself on being an urbane gentleman, a lover of fine things, and a patron of the arts. Leupp’s $150,000 mansion at the corner of Madison Avenue and Twenty-fifth Street, in which he labored to raise his three daughters after his wife’s untimely death in 1843, was one of the handsomest in New York. Leupp cultivated writers including the journalist and essayist Nathaniel Parker Willis and artists such as the Hudson River painter Jasper Cropsey as friends. He was a member of the Century Club and of numerous artistic societies, and he took a leading role in several charitable institutions, most notably the Episcopal church (to which he was devoted) and the New York Society Library (which he served as trustee). All told, Leupp stood as a central figure in New York’s social, financial, and artistic aristocracy. He was a man of impeccable reputation, powerful connections, and great means. Were Leupp alive today, we would call him a “player.”
In business, Leupp had long been known as a conservative: He was a solid citizen who calculated his risks carefully and placed only the safest of bets. Therefore one is at first at a loss to explain Leupp’s move to purchase a controlling interest in the Gouldsboro concern. The leather merchants of the Swamp generally did not invest directly in tanneries. Thus they avoided overt conflicts of interest that might complicate their buying, selling, and bartering. By going in with Gould, Messrs. Leupp and Lee risked alienating the numerous other tanners on whom they relied for trade, who would now have cause to question the Leupp firm’s impartiality in dealing.
Why did the normally conservative Leupp take himself and his brother-in- law into the Gouldsboro enterprise? Few understood at the time what David Lee did: Leupp was mentally unhinged. David Lee would tell friends in later years that he’d noticed severe changes in Leupp’s demeanor as early as 1853, when the leather merchant began exhibiting wild, albeit occasional, swings from high elation to deep depression. Things had grown so bad, and the swings so frequent, by mid-1856 that Lee took the reins of the firm for a time, sending Leupp off to travel and revive himself. The convalescence ended abruptly, however, with the advent of severe market conditions in 1857, a financial storm that Lee was unprepared to deal with. The Panic brought Leupp reluctantly back to the Swamp, where, by October 1858, he’d once again fallen prey to mood shifts. Thus the maniacally optimistic speculator who agreed almost instantly to bank Gould against Colonel Pratt soon enough collapsed into nervousness, second guesses, and doubts. Lee said later that he should have guessed that his partner was completely insane. “That Charles was unsound in mind I have seen for a good while [but] how terribly in this have we all (for several of us–friends & physicians were conscious of his unsoundness and watching him carefully) been deceived by the wonderful cunning of lunacy.”3
Because of Leupp’s mental state, the business arrangement between Gould, Leupp, and Lee, which promised to be complicated from the outset, became even more so. Wishing for reasons of both practicality and public relations to distance themselves from the day-to-day management of the Gouldsboro tannery, Leupp and Lee signed a working agreement with Jay on 1 February 1859 that called for Gould to act as the “sole known partner” of the concern. Although Charles M. Leupp & Company would underwrite all of the Gouldsboro tannery’s credit going forward (thus allowing Jay to issue “two-named paper” for which he, Leupp, and Lee would be equally liable), the plan as originally proposed called for Jay to make all decisions concerning the running of the Gouldsboro plant. As Gould explained it later, Leupp and Lee wanted their involvement kept as quiet as possible, for they feared that knowledge of their interest “in manufacturing would affect the standing of their paper [credit] in [the] market.”4
As might be expected, the management agreement called for Leupp & Company to continue to service Gouldsboro as merchants, just as they had done for more than a year. Leupp & Company’s standard commission schedule of 5 percent for the purchase of hides and 6 percent for sales of leather remained unchanged. Interest
ingly, however, the contract obligated Leupp to deliver a monthly minimum of only 1,800 sides, less than half the 5,000 sides per month he’d provided for the voracious and productive Gouldsboro plant through 1858. Perhaps Leupp and Lee, already carrying paper representing their $60,000 initial investment in Jay’s operation, thought by this method to limit their overall exposure with regard to the Gouldsboro enterprise. Perhaps, as well, it suited Leupp & Company’s purposes (in their representation of other tanneries) to cut back production at the upstart Gould operation, thus upping demand (and pricing) for tanned sides overall. Both these elements of business calculus were most certainly in the air, as was Leupp’s increasingly impaired mental state, as Leupp and Lee launched their uneasy relationship with Gould. And all three of these factors, combined with Jay’s growing penchant for maximizing his advantage and cutting legal corners, would quickly collide.
Gould read the 1,800-side minimum as just that–a minimum–and proceeded into 1859 with no idea of restricting production at the Gouldsboro tannery (a policy that, although it might have served the purposes of Messrs. Leupp and Lee, could only have hurt Jay’s position). Aggressive and expansionist by temperament, Gould argued to Leupp and Lee–diplomatically at first, after several months of tolerating low unit production–that he could and should ship 21,120 finished sides during July, August, and September of 1859, and that he would increase production to 8,000 sides in June “if you consider it safe & prudent to do so–if not–not.” In making his case for maximum production, Gould stated the simple math of static costs quite plainly, as if educating a nitwit son. “We can tan 90,000 sides cheaper pro rata than we can 60,000 as the same tannery & machinery does it & the same men oversee it, so that the cost of supervision is not increased.”5 When Leupp and Lee proved unreceptive to this logic, Gould countered by reminding them that he had, in the past six months, endorsed notes for Leupp and Lee associated with the Gouldsboro tannery amounting to more than $100,000 and had done so only on the assurance that he would always have enough hides flowing from the merchants to cover this debt. As well, Gould added darkly, there were also his own notes to Leupp & Company for hides that needed to be covered.
By the summer of 1859, Jay was dealing almost exclusively with David Lee. Starting in July, Leupp descended into hallucinations (an elephant in his living room, a vampire bat on his shoulder) and also began to display symptoms of paranoia. He believed (probably with reason) that his friends were spying on him. He also became convinced that detectives from the New York City police department followed him wherever he went. And he decided, without benefit of diagnosis, that he suffered from heart disease. At the same time that the distracted Lee dictated letters to Gould, he sat with one hand on his partner’s wrist, checking the man’s pulse, something Leupp insisted he do every ten minutes, “and in this way reassure my poor, haunted brother-in-law that he did indeed remain alive.”6
An unwilling leather merchant, the lawyerly Lee seems also to have been supremely concerned about spreading Leupp & Company’s position too thin with regard to the Gouldsboro tannery. Throughout June and July, Lee became so agitated about Gould’s insistence on operating the plant at maximum capacity that he offered to buy Jay’s share of the concern for $20,000, an offer Jay flatly rejected before countering with an offer to buy out Leupp and Lee instead. Unwilling to take Gould’s note, and unable to convince Gould to leave, Lee instead rectified his and Leupp’s chief conflict with Gould by arranging for another leather dealer, Boston’s John B. Alley, to replace Leupp & Company as supplier for the Gouldsboro tannery. In this way Gould could move to full capacity without unduly expanding the credit risk of Leupp and Lee, who remained partners in the Gouldsboro operation and so remained liable, with Jay, for its debts. As well, Leupp & Company would also continue to market the leather produced at Gouldsboro. But in the future they would not have the double risk of extending credit to Gouldsboro for hides and sharing indebtedness for those same items.
By early autumn only one dispute remained between Gould and his two partners from the Swamp. Lee insisted that the firm’s interest in a large supply of hides delivered before John Alley entered the picture be protected. Jay, in turn, told his partners he considered the hides collateral for all the paper he’d endorsed for Leupp and Lee over the past nine months. Gould and Lee were still negotiating this impasse–politely arguing back and forth in carefully worded letters–that October, when the next and perhaps inevitable scene of the drama played out.
On 5 October, a Wednesday, Charles Leupp spent most of the day in his Ferry Street office sporadically dealing with business but mainly complaining to Lee and several secretaries about his terrible health, his faithless associates, and his numerous unnamed enemies. After work, Leupp walked uptown to his home on Twenty-fifth Street, where he ate a silent dinner with his daughters Maggie and Laura. Later on, William F. Cook, one of a dozen or so friends who had lately taken turns dropping in on their troubled associate, stopped by and was invited to share a glass of ale. When Cook lifted his glass and made a toast to Leupp’s health, Leupp sighed, buried his head in his hands, and then looked up forlornly with an “unnatural expression.”7
Cook acquiesced when the agitated Leupp asked that he stay the night. A few hours later, as the guest chatted with Leupp’s daughters in an upstairs sitting room, a “wild-eyed” Leupp suddenly rushed in. The daughters, by now quite used to their father’s outbursts, did not comment when Leupp embraced and kissed each of them, tears in his eyes, before turning briskly away and stalking back out the door. Moments later, from Leupp’s bedchamber, came the crack of a gunshot. Running to the sound, Cook and the girls found Leupp lying on his bed, blood pouring from a wound in his chest, and a double-barreled pistol cast down on the floor. “Poor father shot himself . . . ,” Laura wrote the following morning. “It was not his fault. He was insane and has been so some time. . . . He has intended it a long while, don’t blame him.”8 Testifying before an inquest on the afternoon of 6 October, David Lee talked at length about his brother-in-law’s prolonged “mental degeneration” and stated categorically that “there was nothing in the facts of Mr. Leupp’s personal, family, social, property or commercial condition, as far as I am aware, to justify any apprehension or distress on his part.”9
Leupp’s suicide is another chapter of Jay’s life that several generations of biographers–fixated on demonizing their subject–have gotten utterly wrong. The popular, spurious version of the story lays the blame for Leupp’s suicide squarely on Gould and, to make the economics fit the tale being told, changes the date of Leupp’s death from 1859 to 1857.10 Never mind that Leupp and Gould did not even become partners until the very end of 1858. Never mind that both Leupp & Company and Pratt & Gould emerged solvent from the Panic of 1857. And never mind that Leupp was by no means bankrupt when he died. As the story goes, Gould–creating “two-name” paper–had begun speculating wildly in hides, attempting to corner that market, just prior to the Panic of 1857. Then, in the midst of the 1857 collapse, Jay supposedly left Leupp a ruined man, holding the bag for hundreds of thousands of dollars in sharply devalued hides and leather. This in turn led to Leupp’s suicide.
According to the version propounded by Richard O’Connor, “Then came the Panic of 1857, in which . . . Gould was caught short in his gamble on leather futures. . . . Meanwhile, Charles Leupp was learning that he had not only invested in the Gouldsboro tannery but his name and credit had been used to finance [a corner on] the hide market.”11 In the tale as related by Warshow, Josephson, O’Connor, and Edwin Hoyt, Charles Leupp and his bookkeepers descended on Gouldsboro at one point in the midst of the Panic. There, like Pratt before him, Leupp supposedly discovered not only his gross liability for Gould’s failed speculations, but also large discrepancies in the books. “When the Panic of 1857 occurred,” wrote Charles Geisst in his 1997 volume Wall Street: A History, “the hide market collapsed and Gould lost nearly everything. Word of the collapse soon reached Leupp, who hastily [went] to confron
t Gould. The younger man simply shrugged off the loss, which had bankrupted both of them, as bad luck.”12 Hoyt, using vivid details taken from thin air rather than from the official coroner’s in- quest, wrote that “on leaving the train [after his visit to Gould], Charles Leupp took a cab to his Madison Avenue mansion, walked in the door, marched into his library, locked the paneled doors behind him, picked a revolver out of the desk drawer, put the barrel in his mouth, and pulled the trigger, sending a bullet through his brain. All this happened in the summer of 1857, when Charles Leupp gave himself to history as the first notable ruined man . . . to choose death by his own hand rather than public dishonor.”13
Thirty years after Leupp’s 1859 suicide, a grim Gould–weary of being blamed by uninformed gossip for the leather merchant’s sad end–succinctly and somewhat impatiently snapped at a reporter that Leupp was a victim of “his own demons, and nothing else.”14
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