Dark Genius of Wall Street
Page 30
By now, the five sons and daughters George Northrop had sired with Caroline Palen before he’d married Sarah were grown and gone, but Sarah was still left with nine surviving youngsters of her own. (Her youngest and tenth child, Anna, died at age ten in 1880.) With regard to these offspring, Jay stressed that every one of them was to continue in school, and that their grade reports should be sent to him for consideration. From the outset, Jay made it clear that he intended to be considerably more than just a signer of checks for Sarah and her family; he would also be a surrogate father. “Uncle Jay,” Alice Northrop recalled fondly, “came into the lives of my brothers and sisters and myself as infinitely more than an uncle. He kept the family together in our great emergency, helped financially as one by one we got on our feet. His help came quite unsought. He took, moreover, in many ways, during his remaining years, the place vacated by father.”14
After Sarah’s eldest daughter, Ida, graduated from Vassar and expressed an interest in opening a preparatory school, Jay moved the Northrops to Camden, New Jersey–George Northrop’s hometown–and financed the operation. The school he built there included a twelve-room residence for Sarah and those younger Northrops who remained attached to her apron strings. In time, one of the sons, Reid Northrop, would make a career with American Refrigerator Transit, a Missouri Pacific subsidiary. After Alice suffered an accident at Wellesley that left her lame and forced her to with- draw from college, Gould comforted her with tales of his own youthful disappointments and how he’d always overcome them. Then he treated her to fifteen months of rest and recovery in France, after which she returned without a limp and began teaching French at Ida’s school.
On the emotional first Christmas after George Northrop’s death, Jay and Ellie insisted that all the Northrops join them at 579. At the outset, Sarah warned the children not to expect too much; after all, Uncle Jay had already been more than generous. But on Christmas Day each child faced a chair or table loaded with wrapped gifts. Alice’s first present turned out to be a monogrammed gold Swiss watch from her aunt, at which point she exclaimed, “Oh, this is Christmas enough for me!”15 Alice also received a star-shaped brooch set in pearls from her cousin Edwin, and so on, all culminating with a large check from Jay. After the gifts were opened, the family partook of a massive dinner. The long dining-room table stood decorated with vases of scarlet anthuria and poinsettias from the Lyndhurst greenhouse. The menu featured terrapin, oysters, turkey with stuffing, potatoes, cranberries, and vegetables, all topped off with plum pudding. (In the kitchen, the staff enjoyed the same feast. Each butler, maid, and cook likewise received a generous check from Mr. Gould, as did every worker at Lyndhurst.) When night came, the children sang carols in the library before the large Christmas tree. Then each girl and boy was handed a box of candy and one more present before bed. (On another Christmas, Alice found herself whisked off to the family’s dress circle box at the Metropolitan Opera. Throughout the performance, she noted a large number of opera glasses aimed in the direction of the Goulds rather than at the stage. She guessed the attraction might have been her aunt’s Christmas present that year: pearls and a pendant once owned by Napoleon’s Empress Josephine.)
Jay and Ellie’s own children were a mixed bunch, a gaggle of unique and contradictory personalities. The eldest boy, George, came to be imperious and demanding at an early age. Regularly chastised by his parents for treating servants badly, George was filled with a sense of entitlement. This was something Jay had always found distasteful and foolhardy in those scions of second- and third-generation wealth against which he maneuvered on the Street. When it came to George, however, the adoring father was blind not just to the child’s unearned aristocratic sensibilities, but also to his inclination for self-indulgence, his lack of discipline, and his numerous shortcomings when it came to native wit. Unquestionably rational and coldly practical in assessing most things and people, Jay Gould nevertheless insisted–despite all evidence to the contrary–that his eldest son would, in time, possess the prowess and dedication necessary to take over the various Gould enterprises.
George’s brothers, on the other hand, were not only smarter but more amiable and somewhat better motivated than he. Edwin, the next eldest, resembled his father in that he was quiet, studious, and disciplined. As well, he loved the outdoors and nature. An avid canoeist, Edwin energetically explored the Hudson River near Lyndhurst as a child and later, as a young man, would win some local note in New York by paddling all the way around Staten Island solo. His best friendship of youth, with the son of one of the Lyndhurst groundskeepers, was one he maintained for the rest of his life. (In this and other things to be mentioned later, Edwin mimicked Jay’s fundamental lack of snobbishness.) The next boy in line, Howard, joined Edwin in being naturally brighter than George. But he struck many as being undermotivated: a fine specimen of salmon who, despite ability, refused to swim upstream. As for Frank, he inherited Jay’s natural dexterity in advanced math, mechanics, and engineering. When he was just seven he unearthed his father’s old surveying gear and insisted that Jay teach him how it worked.
Of the two girls, Nellie demonstrated an early propensity for puritanism, probably inherited from her mother. When she attended the opera with her parents, she always averted her eyes from the short ballet that usually preceded the main event. When Jay inquired why, she told him she did not approve of risqué displays and thought the ballet immoral. Always buttoned up from head to toe, as a teenager Nellie devoted much time to doing good works through Christian mission societies. With the greatest zeal, she sewed blankets for the homeless, purchased Bibles for inebriates, and lent her efforts to all manner of moral reforms. She despised ostentation and at times showed visible embarrassment at displays of Gould wealth. Rarely did she interest herself in the young men of her age who sought her out so diligently. (She told Alice Northrop that compared to her father, they all seemed mere pygmies.) Nellie’s sister, Anna, on the other hand, delighted in the rich world of Fifth Avenue and Lyndhurst and displayed a sense of entitlement similar to George’s. When at Lyndhurst, Anna slept in the high tower bedroom and acted in every way like the princess one would expect to inhabit such a space. Pampered and self-absorbed, she was, like George, quite capable of being short with the staff that waited upon the family. Like him, she was frequently reprimanded for such outbursts. She was similarly dismissive of her Northrop cousins, whom she tended to view as charity cases and, as such, only slightly better than the servants.
“I am devoted to you children,” Jay wrote Nellie in the early 1880s, during one of his western sojourns. “I want the world for you all and happiness for you all.”16 There was never any doubt among Jay’s sons, daughters, nieces, and nephews–or among those intimates who observed him with them–that Gould’s most important possession, his greatest treasure, was his family. Therefore it was perhaps natural that, over time, Gould would become concerned about what he’d wrought in the way of reputation. “I much fear,” he told Morosini, “that I will be able to leave them everything but a good name.”17
Chapter 26
WIRES AND ELS
THE GOULD WHO PURCHASED LYNDHURST in 1880 had not only just finished merging the Kansas Pacific, Denver Pacific, and Union Pacific but also still maintained independent control of the Missouri Pacific, which he expanded through acquisitions of the Wabash, the Iron Mountain, and other smaller lines crossing the country west to Omaha, east to Toledo and Detroit, and north to the Great Lakes and Chicago. As well, Gould leased the Kansas & Texas (dubbed the Katy) and would by April 1881 purchase the Texas & Pacific from the Pennsylvania Railroad’s Tom Scott in a deal that also included the New York World newspaper, a subsidiary of that road. Other smaller roads likewise became absorbed in Gould’s ever-expanding web of properties. These combined assets–the newly expanded Union Pacific together with the Missouri Pacific and other lines in the Gould system of railways–represented some 15,854 miles of track, roughly one-ninth of the railway mileage in the country.
Nevertheless, Forbes and others watched Jay’s machinations with awe. “He veils his movements in a mystery as profound as that of an African sorcerer,” commented the New York Times. “When he condescends to speak, men listen as they would listen to the Sphinx which looks across the lifeless deserts of Egypt.”2 A reporter for the New York Stockholder, describing Jay’s plots, counterplots, and plots within plots, hinted correctly at the complexity of his grand strategy: “In his mind it is mapped out into a series of chessboards, set with curves and parabolas, as well as squares and corners,–chessboards which run into each other curiously, although a separate game goes on upon each. Pawns, knights, castles slip deftly from one to another in kaleidoscopic confusions, out of which only one pair of eyes in the world evolves orderly and coherent plan.”3
But sometimes the discussions of Gould’s dark inscrutability–his brilliant combinations, and his penchant for misdirection and pulling unsuspected rabbits out of previously unnoticed hats–was a bit overdone. The most reasonable of his critics were quick to note the absurd extremes to which some went in both vilifying Gould and extolling his genius. As early as 1875, the Times pointed out that nothing seemed to happen anywhere in the nation without “straightway we are assured that ‘JAY GOULD’ is at the bottom of the whole affair, as he is said to be at the bottom of everything that goes on nowadays. We strongly suspect that he will yet be found . . . to have had something to do with the hard Winter, frozen water-pipes, and plumbers’ extravagant bills. He doubtless formed a ‘ring’ with the plumbers sometime last Summer, and then produced the recent severe cold, so as to get his machinery to work.”4 Forbes found the Times’s irony amusing. Still, he insisted, within the popular image of Gould as the weaver of Byzantine webs lay a seed of truth.
Forbes would never willingly give any ground to Gould. But with numerous players other than Forbes, Gould enjoyed more amicable relations based on their shared attraction to pragmatic, strategic, and profitable compromise. When Collis P. Huntington invaded Texas in 1881, laying track for his Southern Pacific toward El Paso and at the same time buying up a small Louisiana trunk line, he posed a large competitive threat to Gould’s Katy and Texas & Pacific. Huntington’s line, when completed, would offer attractive alternate routing for goods moving between San Francisco and New Orleans, goods heretofore monopolized by the Gould railroads connecting to the Union Pacific and then Huntington’s Central Pacific. As well, there was nothing to stop Huntington from eventually building lines north to Kansas City or St. Louis.
The battle was joined when Gould realized Huntington had inadvertently built a section of his new road on land granted by Congress to the Texas & Pacific. While lawyers squabbled in court, construction crews for Gould’s Texas & Pacific frantically built a line west toward the oncoming Southern Pacific, with which it would eventually, if things didn’t change, run parallel. Meanwhile, the calculating Messrs. Gould and Huntington thought twice. The terrain in question, roughly ninety miles of desert, offered little prospect for local business and thus could not, of itself, be counted on to help support one rail line, let alone two. Confronted with this prospect, Gould and Huntington sat down together at Gould’s townhouse on Thanksgiving Day 1881. Over a snifter of brandy that Gould smelled and looked at more than he drank, the pair came to an agreement.
During the coming weeks, their construction crews would change course subtly and build toward one another with the idea of meeting. Thereafter, Gould, Huntington, and their assignees would share the problematic ninety-mile course of railroad. They would likewise divide equally the earnings on through business from California. As well, Huntington dropped his threat of building competing roads north and east. The agreement was to remain almost entirely intact for forty-six years. Eleven years after the 1881 agreement, once Gould was in his casket, Huntington would comment, “I know there are many people who do not like him [but] I will say that I always found that he would do just as he agreed to do.”5 Indeed, it was Huntington, not Gould, who would at one point violate the spirit of their truce by creating a through-line to New Orleans.
The Gould who purchased Lyndhurst also still had a hand in the country’s wireless business. Back in August 1877, following the merger of the Western Union with the A&P, William H. Vanderbilt had gruffly and loudly refused Gould a seat on the Western Union board. In response, nearly two years later, Gould formed the American Union, with an eye toward using this new firm as leverage for wounding and then taking over the Western.6 General Thomas Eckert, the former Western Union superintendent whom Gould had lured over to serve as president of the A&P, now served as president of the American Union. Morosini came on as treasurer. And John W. Garrett, the proprietor of the Baltimore & Ohio who’d previously played ball with Gould with regard to the A&P, joined the board. The firm capitalized at $10 million to start. Then, through the Gould-organized Central Construction Company, it began to grow at a swift rate. In repeated newspaper interviews, Gould positioned his American Union as necessary for democracy and waxed eloquent about how a telegraphic monopoly must not be allowed to dominate the Republic. Most editorial writers, however, were skeptical. “We agree with Mr. Gould,” said the Herald, “that telegraph monopoly is a bad thing in the same way that all monopolies are bad things. But we doubt very much that the great monopolist himself is a likely knight to do true battle against this or any other combination. Gould’s end-game, whatever that might be, will most assuredly benefit the Gouldian good more than it will the public good. Gould has been called many things, but never a patriot.”7
Taking these by-now standard criticisms in stride, Jay focused on growing his new firm. He not only built new wires nationwide but also leased those of the Dominion Telegraph of Canada and entered into agreements with the Union Pacific and the Kansas Pacific (over which property Gould had only recently reconciled with Villard). He could not, however, dislodge the Western Union from the Missouri Pacific–Vanderbilt resorting to the courts to maintain that franchise and hold the Missouri to previously negotiated contracts. Nevertheless, Gould was able to keep the Western Union off most of his other properties, including the Wabash. After a year of operation, the American Union had established more than 2,000 offices connected by some 50,000 miles of wire. During the same year, the Western Union’s gross business dropped by $2 million. Sticking to his usual script, Gould not only supplied competition for the Western Union but also formed a pool (including Sage and Dillon) to mount bear raids on Western Union stock, beating the formerly blue-chip item down to depths it had not known in years. By the close of 1880, Western Union had dropped to below $90 for the first time since its founding. Early in 1881, when the stock stood at 78 and Gould personally controlled 90,200 shares (in excess of $7 million worth), William H. Vanderbilt surrendered. In the year and half since the American Union was founded, Western Union had, at least on paper, lost some 25 percent of its value: more than $10 million.
A memorandum ratified by the Western Union board on 15 February 1881 contained the details of the reorganization and consolidation. Both the American Union and the A&P, the latter having been operated by the Western Union as a separate subsidiary, would be folded into the main company. Western Union issued $15 million in stock to exchange for American Union shares, and the exchange took place at what observers calculated to be twice the American Union’s origi
nal cost. Western Union also issued another $8.4 million in stock to cover outstanding A&P shares at 60, along with a stock dividend of $15.5 million for all preconsolidation shareholders (Gould near the head of the line). In short order, when rumors of the deal leaked out, shares of Western Union went above 116 and American Union went past 94. In the end, the reorganization left the Western Union capitalized at $80 million. For his part, Gould personally walked away with some $30 million in value over what he’d possessed before the merger, and he emerged with control of the corporation. In under two years’ time, Jay had accomplished the nineteenth-century equivalent of creating a start-up Apple Computer and leveraging it to force a merger with an IBM. He was now the key figure in the two most important, cutting-edge sectors of the U.S. industrial scene: transportation and communications.
“The country finds itself this morning at the feet of a telegraphic monopoly,” the Herald mourned on 16 February 1881, one day after the memorandum of agreement was announced.8 Even the Gould-friendly Tribune expressed concern that the Western Union consolidation was too much and might trigger a massive retaliation by the federal authorities. The Tribune argued that the largeness and totality of the Western Union’s dominance might eventually tend toward a “control of the telegraphic system by the Government as complete as its control of the mails.”9 On other fronts, the New York Board of Trade–New York’s futures marketplace–issued a statement against the merger, the Anti-Monopoly League organized a protest meeting, and the New York State Assembly passed a bill designed to pre- vent the transaction. (Gould’s old Albany protégé Hamilton Harris made sure the measure never reached the floor of the New York State Senate.) When a group of Western Union shareholders tried to sue to stop the merger, Gould gave no ground in cross-examination by the shareholders’ attorney–the notorious agnostic Colonel Robert G. Ingersoll–completely baffling him with truthful but arcane double-talk concerning the nature of the consolidation. “I do not believe,” Ingersoll said later, “that since man was in the habit of living on this planet anyone has ever lived possessed of the impudence of Jay Gould.”10