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For better or worse, Jay Gould revolutionized the world of finance in the 19th century. In “American Rascal,” Greg Steinmetz tells his story.
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AMERICAN RASCAL: How Jay Gould Built Wall Street’s Biggest Fortune, by Greg Steinmetz
On April 5, 1882, Theodore Roosevelt stood in the New York State Assembly and demanded an investigation. The indignant 23-year-old accused a clique of “swindlers,” “wealthy stock gamblers,” “men whose financial dishonesty is a matter of common notoriety,” of corruptly monopolizing New York City’s elevated railroads. The plot’s mastermind, he implied, was Jay Gould.
Three cheers for the bad guy. The villain seizes control of the story, scheming, lying and betraying to get what he wants. And Jay Gould, the subject of Greg Steinmetz’s concise new biography, “American Rascal,” makes an excellent villain. Endlessly resourceful, utterly self-interested, he authored “the blackest pages in the history of American railways,” to quote his obituary in The St. Louis Post-Dispatch. Cartoonists drew him as a black-bearded spider, laying traps in the web of rails and wires that wrapped the country.
But here’s the strange thing: Roosevelt denounced Gould primarily for his use of a “fraudulent corporation,” the Manhattan Elevated Railroad. Why did he call it fraudulent? It was a holding company. It issued stock without building anything. Today, of course, holding companies are common. Corporations that build nothing are worth billions.
In the chasm between his morality and ours, we find what’s really interesting about Gould’s buccaneering. The controversies surrounding him crystallized the debate over the nature of a financial order that we now take for granted. The rise of the corporation in the 19th century introduced an unprecedented degree of abstraction to economic life. As Americans puzzled out this invisible universe of artificial beings and intangible assets, they developed some fears we still share, but they had other concerns that may seem counterintuitive. Strange as their arguments sound, they reveal the origins of our world.
When Gould was born — prematurely, Steinmetz notes — on a farm in upstate New York in 1836, Americans saw corporations as a form of government intervention. States chartered them with special acts, one by one, to induce investors to build facilities for economic development: turnpikes, bridges, canals, railways, banks. Jacksonian Democrats complained that this was a giveaway to a favored few, granting “special privileges” like limited liability, sometimes even monopoly rights. By the time Gould left the farm to become a store clerk, surveyor, then tannery entrepreneur, general incorporation laws had made corporations more common, but most were small and closely held. Before the Civil War, the New York Stock Exchange traded shares and bonds one at a time. After lunch, the brokers ran through the entire list again.
“There are magicians’ skills to be learned on Wall Street, and I mean to learn them,” Steinmetz quotes Gould as writing. As Southern states seceded, the magician’s apprentice arrived in New York, propelled by a passion for wealth. That sent him toward railroads. Created to solve the problem of transportation in a vast republic, they brought bigness to the corporation. Their hunger for capital forced them to issue large quantities of publicly traded stocks and bonds. Gould grasped how they created a financial market big enough to make a trader very rich, yet small enough to be manipulated.
In 1867, he maneuvered onto the board of the Erie Railroad, one of the four U.S. lines that crossed the Appalachians, connecting the Atlantic coast to the interior. He befriended another director named Jim Fisk, his flamboyant opposite. Fisk was part clown, part lion tamer and all impresario, hiding his shrewd intelligence behind flash as Gould masked his beneath a reserved manner. In 1868, the pair crafted increasingly outrageous machinations to defeat an attempt by Cornelius Vanderbilt to corner Erie stock. They illegally printed huge quantities of new shares, fled to New Jersey just ahead of the police, and finally Gould bribed the New York State Legislature en masse to legalize their stock issue. Vanderbilt accepted repayment of his losses and gave up.
In “A Chapter of Erie,” a landmark essay from 1869 about the affair, Charles Francis Adams Jr. called corporations “a power created by the state,” a fact lost to later generations, which would see them merely as businesses. “And yet already our great corporations are fast emancipating themselves from the state, or rather subjecting the state to their own control,” Adams wrote. Steinmetz (a former London bureau chief for The Wall Street Journal who now works in finance) correctly calls the essay “Adams’s masterpiece,” but overlooks this crucial point: the transition of corporations, in the popular imagination, from semi-public to private entities, from bodies sponsored by government to serve the people’s needs to concentrations of unaccountable power.
Gould’s career careened down this uncertain line between public and private interests. To promote exports and boost Erie freight traffic, he and Fisk tried to drive down the price of the greenback in Wall Street’s “Gold Room” (in essence, the foreign-exchange market). They lobbied President Ulysses S. Grant to stop federal sales of gold, and tried to influence him by corrupting members of his family. It ended in a financial panic known as Black Friday. Ejected from Erie management, Gould moved into Union Pacific, the first federally sponsored transcontinental railroad. He worked to put it on sound footing, but profited from it personally in ways that alarmed observers.
By then, Fisk had died, shot to death in the Grand Central Hotel by a rival for a mistress. Fisk had charmed the press; his loss did Gould’s image no good. But Gould grew into a pioneering railroad strategist. He bought up neglected minor lines, as Steinmetz observes, developed new sources of revenue and grasped the nuances of competition for long distance through freight. He achieved great success with the Missouri Pacific system. He continued to be controversial as he acquired newspapers and took control of the Western Union telegraph monopoly, but he was much more than a corporate raider, as Maury Klein demonstrated in his definitive biography, “The Life and Legend of Jay Gould.”
The takeover of New York’s elevated railways — its transit system — epitomized the power that corporations gave to a few wealthy individuals over a new class of wage workers and the general public. But Gould’s worst sin, to some contemporaries, was how he exploited the troubling abstraction of finance. Americans insisted that stock must be tethered to the physical world. They accepted that market prices fluctuated, but placed great importance on a share’s par value, usually $100, which was supposed to represent an expenditure on real capital — rails, rolling stock, depots. It was like the dollar under the gold standard, a token for a fixed amount of metal. To issue stock in excess of spending on facilities was fraud — “watered stock.” That’s why Gould’s Erie share issues were unlawful, and why Roosevelt denounced his holding company. Gould believed this kind of thinking was ridiculous.
It’s not for us to say Roosevelt was wrong. But New Jersey soon legalized holding companies, and the emphasis on par value and tangible assets faded. The law followed actual practice — Gould’s practice. Finance has grown ever more abstract since.
Steinmetz emphasizes Gould’s story, not these broader questions. In itself, that’s perfectly fine. Readers daunted by Klein’s volume may welcome his approach. But it’s neither an elegant work nor a scholarly one. Its sparse endnotes don’t inspire confidence. For example, Steinmetz cites “Jubilee Jim,” by Robert H. Fuller, a biography of Jim Fisk that amounts to “a recital in the first person by an invented confidant of the principal,” as the historian Bernard DeVoto put it in The Atlantic in 1929. (“One does not know, one cannot know, whether any given incident is based upon fact,” DeVoto added.)
There’s no formula for biography. Authors all bring their own interests, their own questions, their own craft to the keyboard. But every biography must convince the reader of its truth, or it is another kind of writing entirely. DeVoto spoke to this necessity. Figures like Fisk and Gould deserve examination, he wrote, but “in biography that must be hard-minded, … factual and documented to the last comma.” Finance may drift into the ether, but not studies of financiers.
T.J. Stiles received the Pulitzer Prize for “Custer’s Trials” and “The First Tycoon,” which also won the National Book Award. He is writing a biography of Theodore Roosevelt.
AMERICAN RASCAL: How Jay Gould Built Wall Street’s Biggest Fortune | By Greg Steinmetz | 300 pp. | Simon & Schuster | $28.99
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