The Wizard of Wall Street and His Wealth; or, The Life and Deeds of Jay Gould

by Trumbull White

One example of Mr. Gould’s finesse in connection with the Western Union will show his methods. By 1880 his American Union company had become a constant menace to the other company. Rates to every competing point had been cut, and his lines reached to the Pacific. Western Union at one period was up to 116. The wires of the Western Union were taken from the lines of the Union Pacific and other great railroad systems controlled by Mr. Gould and those of the American Union were substituted. The stock of the older corporation fell to 88. It was said at the time that Mr. Gould was short 30,000 shares of Western Union, and if that was so he made $840,000.

But in 1881 Mr. Gould and his associates had practically secured control of the Western Union. It was proposed to sell and transfer the entire assets and property of the American Union and the American and Pacific to the Western Union directors. Rufus Hatch, as a stockholder of the American Union, obtained an injunction restraining the consolidation, but on February 4, 1881, Judge Barrett refused to continue the injunction, and by the time he had concluded his opinion the papers were drawn up, the consolidation was ratified by the directors of the three companies, and almost before the country knew it there was one telegraph company where there had been three before.

The stock of the Western Union Telegraph Company was at once “watered” $40,000,000, or thirty-seven per cent. and Mr. Gould became the leading spirit in that company, directing its affairs from his offices, which were in that building.

Nothing Mr. Gould ever did in his life so arrayed public sentiment against him as this creation of the telegraphic monopoly. Eventually the Western Union acquired the Baltimore and Ohio telegraph, which Robert Garrett was glad to sell in order to get money to help the Baltimore and Ohio railroad out of the difficulties into which it had fallen.

Repeated efforts were made by the stockholders of the American Union to secure the interference of the attorney-generals of various states, but the consolidation stood. In May, 1882, the Western Union secured control of all the European cables, and no little comment was aroused soon thereafter when it was charged that Mr. Gould was making an effort to secure control of the New York Associated Press, or, at least, of the news which it sent out. He was reputed to control at that time three of the seven newspapers constituting the corporation, and something of a sensation was caused by the charge. The Western Union’s control of the cables became so absolute that the Mackay-Bennett cables were laid and gave a competing service to Europe, which was afterward largely extended to other parts of the world.

In probably no other country of the world would one man be permitted to control its telegraph system. But Gould became the absolute dictator of the Western Union and successfully overcame every competitor that arose. His record in Western Union, like that in his other properties, is that of a tremendous increase of securities. Like the wicked milkman, Gould always skimmed off the cream and poured water into all his properties. The comic papers delighted to picture him with a watering-pot in his hand.

The mainspring of the Western Union is monopoly. Its condition is such that it cannot exist with profit to its stockholders with a strong competition in the field. Thus it is a grand aggregation of small companies. It has absorbed and will probably continue to absorb every rival in the field. Gould himself rode into control on the back of a competing company. This was early in 1881. His version of the story is given in his testimony to the Senate Committee on Labor and Education.

“I am interested in the telegraph,” he told the committee, “for the railroad and telegraph systems go hand in hand, as it were, integral parts of a great civilization. I naturally became acquainted with the telegraph business and gradually became interested in it. I thought well of it as an investment, and I kept increasing my interests. When the Union Pacific was built I had an interest in a company called the Atlantic and Pacific, and I endeavored to make that a rival to the Western Union. We extended it considerably, but found it rather uphill work. We saw that our interest lay more with the Western Union. Through that we could reach every part of the country, and through a small company we could not; so we made an offer to sell to Western Union the control of the Atlantic and Pacific. At that time a very dear friend of mine was the manager, and I supposed that he would be made the manager of the Western Union; but after the consolidation was perfected it was not done, and I made up my mind that he should be at the head of as good a company as I had taken him from. The friend was Gen. Eckert, and for him I started another company, the American Union—and we carried it forward until a proposition was made to merge it also into the Western Union. As the stock of the latter went down, I bought a large interest in it, and found that the only way out was to put the two companies together. Gen. Eckert became general manager of the whole system. Meantime, I bought so much of its property and its earning power that I have kept increasing my interest. I thought it better to let my income go into the things that I was in myself, and I have never sold any of my interests, but have devoted my income to increasing them. This is the whole history of it.”

This beautiful account of Gould’s devotion to a friend, to the extent of starting a telegraph company for him, does not, however, tell the whole story. Gould’s policy in regard to the American Union was twofold. It was to establish a competing company so strong that the Western Union would have to absorb it, or else it would absorb the Western Union. The result was that the Western Union did absorb the American Union and Gould absorbed the Western Union! By the aid of his rival company Gould kept hammering at the stock of the Western Union, then controlled by Vanderbilt. By every art known to Wall street speculation he forced the price down as low as he could. He sold the stock “short” in large amounts, and in buying to cover bought enough additional to place him in control. Then he consolidated the two companies and 100,000 shares of American Union, which represented a comparatively small outlay of capital on the part of Gould, went into the Western Union at par and Gould’s immense holdings of Western Union were thus acquired at a low figure. Of course, if he had attempted to market his holdings in one lump his profits would have been wiped out, but by carrying the load and letting the stock out by driblets his profits were large, even if he sold under the market price, which was nearly always below par. On Jan. 11, 1881, it became known in Wall street that the consolidation was probable and the price of Western Union rose from 78 to 103 and the next day to 114½. The consolidation increased the capitalization of the Western Union to $80,000,000, and this amount has increased later by the capitalization of scrip dividends and by the acquisition of the Baltimore and Ohio telegraph. After Gould became the master of the system the Mutual Union was started as a rival concern. Gould soon gobbled it up and leased it to the Western Union. Then Robert Garrett developed the wires owned by the Baltimore and Ohio railroad into a competing telegraph system, and under the management of Mr. Bates, who had formerly been with Gould in American Union and Western Union, it became a big system, stretching far west and south. But Garrett soon got into deep waters. He had not the genius of his father, the famous John W. Garrett, and a struggle with Gould was beyond his strength. The Baltimore and Ohio railroad, nominally a Gibraltar of strength, was intrinsically weak. Garrett entered into negotiations to sell a controlling interest in the property. His desire was to place it in hands hostile to Gould, but the latter used his power in the stock market to frustrate his plans. Garrett contracted to deliver the control to Henry S. Ives, a young speculator who was modeling his life after the Gould pattern, but in the end Garrett was not able to deliver, nor was Ives able to receive. The B. and O. system was dismembered, and the telegraph fell into Gould’s hands. Gould had previously announced to the public that “the Western Union does not intend to buy any more rival telegraph companies,” but when he found he could get the B. and O. cheap, a little declaration of that kind did not stand in the way. In fact it was intended only to mask his intention to buy.

Gould drew around him in Western Union a powerful body of men. His board of directors included Norvin Green, Harrison Durkee, Alonzo B. Cornell (who when governor of the state from 1880 to 1883 posed as an anti-Gould and anti-monopoly governor), Cyrus W. Field, Robert L. Kennedy, Hugh J. Jewett (whose testimony in regard to Erie has already been quoted), J. Pierpont Morgan, of Drexel, Morgan & Co.; C. P. Huntington, R. C. Clowry, Henry Weaver, Erastus Wiman, of R. G. Dun & Co.; John Jacob Astor, Frank Work, George B. Roberts, president of the Pennsylvania railroad, the leading railroad system of the world; George D. Morgan, John Hoy, W. D. Bishop and J. W. Clendenin. The management, however, was in the hands of an executive committee composed of Gould’s immediate associates. The Western Union, besides its land system, owns ocean cables and has a big interest in the telephone and stock “ticker” systems, and Gould’s power as the master of this company can scarcely be estimated.