The Life and Legend of Jay Gould, by Maury Klein, Baltimore: Johns Hopkins University Press, 595 pages, $27.50
In 1870 Jay Gould and his partner Jim Fisk were in control of the Erie Railroad, and the company was embroiled in a familiar kind of trouble. Erie and the parallel New York Central were struggling to dominate livestock shipments from Buffalo to New York City, and freight rates had plummeted from $125 to $25. Now the New York Central's master, Cornelius ("Commodore") Vanderbilt, announced a ludicrous $1 per carload rate.
Soon the Central had all the eastbound livestock traffic it could handle, and Vanderbilt was jubilant-until he learned that Gould and Fisk had acquired all the livestock in Buffalo and then availed themselves of the Central's $1 rate to New York. "When the Old Commodore found out that he was carrying the cattle of his enemies at great cost to himself…he very nearly lost his reason," Gould's secretary later said. "I am told the air was very blue in Vanderbiltdom."
I have culled this minor episode from among hundreds to illustrate why Maury Klein's new biography of Jay Gould can be enthusiastically recommended as a good read. It might also begin to revise the way America's "Gilded Age" is understood and taught.
The biographer's subject was reviled as no financier has been, before or since. A generation of editorial writers and cartoonists cast Jay Gould as Satan himself, with a ferocity that would not be believed today. At his death, erroneous and speculative newspaper accounts were reworked into several hack biographies that then entered the mainstream of American history. Substantial primary sources on Gould were thought not to exist until his letters were brought to light in this new book.
Klein, a professor of history at the University of Rhode Island, has made it his mission to disentangle Jay Gould's life from his legend. To do that, it was necessary to write a financially literate account, and one that brings the personalities into focus. He had the delicate job of correcting Gould's critics without making him into a saint. In all areas, Klein has succeeded, and apart from hoping that textbook editors will take note, I won't dwell on the accomplishment.
Klein's biography of Gould will interest the student of American economic history for another reason. In freeing Gould's story from the prison of populist/progressive ideology, we are at last able to survey the forces at work in the latter years of the Industrial Revolution.
In place of "robber barons" roving the landscape at will, we find the business titans of Gould's generation spending much of their harried lives attempting to wrest a semblance of industrial stability out of the chaos left behind by the Civil War. Especially in the railroad industry, government initiatives encouraged premature expansion and then, without any real policy, tended to prevent disinvestment.
That government made large land grants available to some railroads, in a deliberate effort to build track ahead of economic demand, is well known. More commonplace was the state charter of railroads, conferring powers of eminent domain on private corporations and frequently providing access to bond financing by state or local governments. While relatively few large railroads benefited from federal land grants, the more mundane involvement of state legislatures facilitated the later construction of thousands of miles of unnecessary, duplicating railroad lines.
Once in place, marginal railroads were sheltered by extremely liberal bankruptcy laws. At a time when construction bonds represented the largest portion of many a railroad's fixed charges, bankruptcy relief was the best competitive tool of a weak carrier. If a new railroad could get relief from its construction debt obligation, it then represented a competitive threat to soundly financed railroads.
Under the circumstances, railroad entrepreneurs would frequently build railroads they knew would fail, giving stronger competitors the option of buying them out or facing stiff competition from the new railroad once it was relieved, through bankruptcy procedures, of its debt burden. These "blackmail roads" were built for the sole purpose of forcing a strong existing line to buy out their builders.
Gould and his contemporaries spent a generation attempting to consolidate the railroad network into a few strong systems, trying and discarding one unworkable solution after another. The courts refused to enforce price-fixing and traffic pooling agreements, which might have become the prelude to actual consolidation. This left the participants to fall back on pathetic appeals to honor and self-sacrifice.
In the end, the only way out was for each emerging system to build even more railroad in a desperate bid to control access to all major markets in each region. Seeing this early, Jay Gould's program to expand the Missouri Pacific precipitated a construction spree unparalleled in history, one that we have still not undone.
Gould's retold story also provides a poignant reminder of the role "economic error" plays in history. If Klein makes his case that Gould was intent on building, not wrecking, railroads and other enterprises, it cannot be said that he was ultimately successful in this regard. Gould railroads passed into other hands hardly much stronger than in the beginning.
Jay Gould's ever-present shortage of capital was compounded by a failure to find good management and, oddly enough in light of the charges that he ruthlessly betrayed his friends and partners, an excessive loyalty to second-raters like Silas Clark, who headed many of Gould's railroads. Gould eventually worked himself to death by his extreme absorption in the details of his businesses. Shall we, with his biographer, say that this reflects his commitment to build the enterprise—or is this a common 19th-century failure to establish a system of delegated authority?
So, too, it may be that Gould made a strategic error by concentrating his energies on transcontinental systems. As Klein points out, in 1882 Chicago itself delivered more freight to the eastern trunk lines in just five days than California did in a year, so far ahead of economic development were the western railroads. While Gould was trying to make sense out of the Union Pacific and Missouri Pacific, Vanderbilt's heirs were laying the basis of the New York Central's future strength within the Midwest and Northeast regions. Even the Lackawanna, where Gould had caused the building of an important route to Buffalo, turned into a cash cow despite less-than-stellar management.
Jay Gould's life spanned an era that begins with the pastoral America of the 1840s and leads to the first stirrings, in the late 1890s, of a broadly prosperous middle-class society. With their flimsy Emersonian ethics and archaic concepts of business organization, the protagonists of the Industrial Revolution were in many ways inadequate to meet the challenges they themselves had spawned.
What makes Jay Gould ultimately a tragic figure is that, despite the role he played in fashioning several industrial empires, he died too soon to see the harvest. It was left to the next generation to bring in professional management, invest new capital in relatively stabilized enterprises, and build the bridges, massive railway passenger stations, and other monuments to confidence in the future that began to spring up across the nation after 1900.
The Union Pacific, on which Gould had doted most of his later life, was acquired by Edward H. Harriman and, in combination with the Southern Pacific, became a driving force in the development of the West, especially California. The Lackawanna, struggling to handle enormous volumes of anthracite coal, completely rebuilt its railroad across northwestern New Jersey and Pennsylvania, erecting reinforced concrete bridges larger than any built before. Jay Gould's son George attempted to link together the Missouri Pacific, Wabash, and other properties into another transcontinental but was ultimately stymied by regional competitors, now robust and comfortably positioned in the marketplace for another generation.
William D. Burt is president of a transportation firm in Binghamton, N.Y.