HISTORY OF THE GREAT AMERICAN FORTUNESCHAPTER X
THE SECOND STAGE OF THE GOULD FORTUNE
The first medium by which Jay Gould transferred many millions of dollars to his ownership was by his looting and wrecking of the Erie Railroad. If physical appearance were to be accepted as a gauge of capacity, none would suspect that Gould contained the elements of one of the boldest and ablest financial marauders that the system in force had as yet produced. About five feet six inches in height and of slender figure, he gave the random impression of being a mild, meek man, characterized by excessive timidity. His complexion was swarthy and partly hidden by closely-trimmed black whiskers ; his eyes were dark, vulpine and acutely piercing ; his forehead was high. His voice was very low, soft and insinuating.
The Erie Railroad, running from New York City to Buffalo and thence westward to Chicago, was started in 1832. In New York State alone, irrespective of gifts in other States, it received what was virtually a gift of $3,000,000 of State funds, and $3,217,000 interest, making $6,217,000 in all. Counties, municipalities and towns through which it passed were prevailed upon to contribute freely donations of money, lands and rights. From private proprietors in New York State it obtained presents of land then valued at from $400,000 to $500,000,1 but now worth tens of millions of dollars. In addition, an extraordinary series of special privileges and franchises was given to it. This process was manifolded in every State through which the railroad passed. The cost of construction and equipment came almost wholly from the grants of public funds.2
Confiding in the fair promises of its projectors, the people credulously supposed that their interests would be safeguarded. But from time to time, Legislature after Legislature was corrupted or induced to enact stealthy acts by which the railroad was permitted to pass without restriction into the possession of a small clique of exploiters and speculators. Not only were the people cheated out of funds raised by public taxation and advanced to build the road a common occurrence in the case of most railroads - but this very money was claimed by the capitalist owners as private capital, large amounts of bonds and stocks were issued against it, and the producers were assessed in the form of high freight and passenger rates to pay the necessary interest and dividends on those spurious issues.
THE SPECULATOR, DREW, GETS CONTROL.
Not satisfied with the thefts of public funds, the successive cliques in control of the Erie Railroad continually plundered its treasury, and defrauded its stockholders. So little attention was given to efficient management that shocking catastrophies resulted at frequent intervals. A time came, however, when the old locomotives, cars and rails were in such a state of decay, that the replacing of them could no longer be postponed. To do this money was needed, and the treasury of the company had been continuously emptied by looting.
The directors finally found a money loaner in Daniel Drew, an uncouth usurer. He had graduated from being a drover and tavern keeper to being owner of a line of steamboats plying between New York and Albany. He then, finally, had become a Wall street banker and broker. For his loans Drew exacted the usual required security. By 1855 he had advanced nearly two million dollars five hundred thousand in money, the remainder in endorsements. The Erie directors could not pay up, and the control of the railroad passed into his hands. As ignorant of railroad management as he was of books, he took no pains to learn ; during the next decade he used the Erie railroad simply as a gambling means to manipulate the price of its stocks on the Stock Exchange. In this way he fleeced a large number of dupes decoyed into speculation out of an aggregate of millions of dollars.
Old Cornelius Vanderbilt looked on with impatience. He foresaw the immense profits which would accrue to him if he could get control of the Erie Railroad ; how he could give the road a much greater value by bettering its equipment and service, and how he could put through the same stock-watering operations that he did in his other transactions. Tens of millions of dollars would be his, if he could only secure control. Moreover, the Erie was likely at any time to become a dangerous competitor of his railroads. Vanderbilt secretly began buying stock ; by 1866 he had obtained enough to get control. Drew and his dummy directors were ejected, Vanderbilt superseding them with his own.
VANDERBILT OUSTS DREW, THEN RESTORES HIM.
The change was worked with Vanderbilts habitual brusque rapidity. Drew apparently was crushed. He had, however, one final resource, and this he now used with histrionic effect. In tears he went to Vanderbilt and begged him not to turn out and ruin an old, selfmade man like himself. The appeal struck home. Had the implorer been anyone else, Vanderbilt would have scoffed. But, at heart, he had a fondness for the old illiterate drover whose career in so many respects resembled his own. Tears and pleadings prevailed ; in a moment of sentimental weakness a weakness which turned out to be costly Vanderbilt relented. A bargain was agreed upon by which Drew was to resume directorship and represent Vanderbilts interests and purposes.
Reinstated in the Erie board, Drew successfully pretended for a time that he was fully subservient. Ostensibly to carry out Vanderbilts plans he persuaded that magnate to allow him to bring in as directors two men whose pliancy, he said, could be depended upon. These were Jay Gould, demure and ingratiating, and James Fisk, Jr., a portly, tawdry, pompous voluptuary. In early life Fisk had been a peddler in Vermont, and afterwards had managed an itinerant circus. Then he had become a Wall street broker. Keen and suspicious as old Vanderbilt was, and innately distrustful of both of them, he nevertheless, for some inexplicable reason, allowed Drew to install Gould and Fisk as directors. He knew Goulds record, and probably supposed him, as well as Fisk, handy tools (as was charged) to do his dirty work without question. He put Drew, Gould and Fisk on Eries executive committee. In that capacity they could issue stock and bonds, vote improvements, and generally exercise full authority.
DREW, COULD AND FISK BETRAY VANDERBILT.
At first, they gave every appearance of responding obediently to Vanderbilts directions. Believing it to his interest to buy as much Erie stock as he could, both as a surer guarantee of control, and to put his own price upon it, Vanderbilt continued purchasing. The trio, however, had quietly banded to mature a plot by which they would wrest away Vanderbilts control.
This was to be done by flooding the market with an extra issue of bonds which could be converted into stock, and then by running down the price, and buying in the control themselves. It was a trick that Drew had successfully worked several years before. At a certain juncture he was apparently caught short in the Stock Exchange, and seemed ruined. But at the critical moment he had appeared in Wall street with fifty-eight thousand shares of stock, the existence of which no one had suspected. These shares had been converted from bonds containing an obscure clause allowing the conversion. The projection of this large number of shares into the stock market caused an immediate and violent decline in the price. By selling short a Wall street process which we have described elsewhere Drew had taken in large sums as speculative winnings.
The same ruse Drew, Gould and Fisk now proceeded to execute on Vanderbilt. Apparently to provide funds for improving the railroad, they voted to issue a mass of bonds. Large quantities of these they turned over to themselves as security for pretended advances of moneys. These bonds were secretly converted into shares of stock, and then distributed among brokerage houses of which the three were members. Vanderbilt, intent upon getting in as much as he could, bought the stock in unsuspectingly. Then came revelations of the treachery of the three men, and reports of their intentions to issue more stock.
Vanderbilt did not hesitate a moment. He hurried to invoke the judicial assistance of judge George C. Barnard, of the New York State Supreme Court. He knew that he could count on Barnard, whom at this time he corruptly controlled. This judge was an unconcealed tool of corporate interests and of the plundering Tweed political ring; for his many crimes on the bench he was subsequently impeached.3 Barnard promptly issued a writ enjoining the Erie directors from issuing further stock, and ordered them to return to the Erie treasury one-fourth of that already issued. Furthermore, he prohibited any more conversion of bonds into stock on the ground that it was fraudulent.
So pronounced a victory was this considered for Vanderbilt, that the market price of Erie stock went up thirty points. But the plotters had a cunning trick in reserve. Pretending to obey Barnards order, they had Fisk wrench away the books of stock from a messenger boy summoned ostensibly to carry them to a deposit place on Pine street. They innocently disclaimed any knowledge of who the thief was ; as for the messenger boy, he did not know. These one hundred thousand shares of stock Drew, Gould and Fisk instantly threw upon the stock market. No one else had the slightest suspicion that the court order was being disobeyed. Consequently, Vanderbilts brokers were busily buying in this load of stock in million-dollar bunches ; other persons were likewise purchasing. As fast as the checks came in, Drew and his partners converted them into cash.
GOULD AND HIS PARTNERS FLEE WITH MILLIONS.
It was not until the days activity was over that Vanderbilt, amazed and furious, realized that he had been gouged out of $7,000,000. Other buyers were also cheated out of millions. The old man had been caught napping ; it was this fact which stung him most. However, after the first paroxysm of frenzied swearing, he hit upon a plan of action. The very next morning warrants were sworn out for the arrest of Drew, Fisk and Gould. A hint quickly reached them ; they thereupon fled to Jersey City out of Barnards jurisdiction, taking their cargo of loot with them. According to Charles Francis Adams, in his Chapters of Erie, one of them bore away in a hackney coach bales containing $6,000,000 in greenbacks.4 The other two fugitives were loaded down with valises crammed with bonds and stocks.
Here in more than one sense was an instructive and significant situation. Vanderbilt, the foremost blackmailer of his time, the plunderer of the National Treasury during the Civil War, the arch briber and corruptionist, virtuously invoking the aid of the law on the ground that he had been swindled ! Drew, Gould and Fisk sardonically jested over it. But joke as they well might over their having outwitted a man whose own specialty was fraud, they knew that their position was perilous. Barnards order had declared their sales of stock to be fraudulent, and hence outlawed ; and, moreover, if they dared venture back to New York, they were certain, as matters stood, of instant arrest with the threatened alternative of either disgorging or of a criminal trial and possibly prison. To themselves they extenuated their thefts with the comforting and self-sufficient explanation that they had done to Vanderbilt precisely what he had done to others, and would have done to them. But it was not with themselves that the squaring had to be done, but with the machinery of law ; Vanderbilt was exerting every effort to have them imprisoned.
How was this alarming exigency to be met ? They speedily found a way out. While Vanderbilt was thundering in rage, shouting out streaks of profanity, they calmly went ahead to put into practice a lesson that he himself had thoroughly taught. He controlled a sufficient number of judges ; why should not they buy up the Legislature, as he had often done ? The strategic plan was suggested of getting the New York Legislature to pass an act legalizing their fraudulent stock issues. Had not Vanderbilt and other capitalists often bought up Congress and Legislatures and common councils ? Why not now do the same ? They well knew the approved method of procedure in such matters ; an onslaught of bribing legislators, they reckoned, would bring the desired result.
GOULD BRIBES THE LEGISLATURE WITH $500,000.
Stuffing $500,000 in his satchel, Gould surreptitiously hurried to Albany. Detected there and arrested, he was released under heavy bail which a confederate supplied. He appeared in court in New York City a few days later, but obtained a postponement of the action. No time was lost by him. He assiduously cultivated, says Adams, a thorough understanding between himself and the Legislature. In the face of sinister charges of corruption, the bill legalizing the fraudulent stock issues was passed. Ineffectually did Vanderbilt bribe the legislators to defeat it ; as fast as they took and kept his money, Gould debauched them with greater sums. One Senator in particular, as we have seen, accepted $75,000 from Vanderbilt, and $100,000 from Gould, and pocketed both amounts.
A brisk scandal naturally ensued. The usual effervescent expedient of appointing an investigating committee was adopted by the New York State Senate on April 10, 1868. This committee did not have to investigate to learn the basic facts ; it already knew them. But it was a customary part of the farce of these investigating bodies to proceed with a childlike assumption of entire innocence.
Many witnesses were summoned, and much evidence was taken. The committee reported that, according to Drews testimony, $500,000 had been drawn out of the Erie railroads treasury, ostensibly for purposes of litigation, and that it was clear that large sums of money did come from the treasury of the Erie Railroad Company, which were expended for some purpose in Albany, for which no vouchers seem to have been filed in the offices of the company. The committee further found that large sums of money were expended for corrupt purposes by parties interested in legislation concerning railways during the session of 1868.
But who specifically did the bribing ? And who were the legislators bribed ? These facts the committee declared that it did not know. This investigating sham resulted, as almost always happened in the case of similar inquisitions, in the culpability being thrown upon certain lobbyists who were enriched. These lobbyists were men whose trade it was to act as go-betweens in corrupting legislators. Gould and Thompson the latter an accomplice testified that they had paid Lou Payn, a lobbyist who subsequently became a powerful Republican politician, $10,000 for a few days services in Albany in advocating the Erie bill ; and it was further brought out that $100,000 had been given to the lobbyists Luther Caldwell and Russell F. Hicks, to influence legislation and also to shape public opinion through the press. Caldwell, it appeared, received liberal sums from both Vanderbilt and Gould.5 A subsequent investigating committee appointed, in 1873, to inquire into other charges, reported that in the one year of 1868 the Erie railroad directors, comprising Drew, Gould, Fisk and their associates, had spent more than a million dollars for extra and legal services, and that it was their custom from year to year to spend large sums to control elections and to influence legislation.6 Vanderbilt later succeeded in compelling the Erie Railroad to reimburse him for the sums that he thus corruptly spent in fighting Drew, Gould and Fisk.7
Their huge thefts having been legalized, Drew, Gould and Fisk returned to Jersey City. But their path was not yet clear. Vanderbilt had various civil suits in New York against them ; moreover they were adjudged in contempt of court. Parleying now began. With the severest threats of what the courts would do if they refused, Vanderbilt demanded that they buy back the shares of stock that they had unloaded upon him.
Drew was the first to compromise ; Gould and Fisk shortly afterward followed. They collectively paid Vanderbilt $2,500,000 in cash, $1,250,000 in securities for fifty thousand Erie shares, and another million dollars for the privilege of calling upon him for the remaining fifty thousand shares at any time within four months. Although this settlement left Vanderbilt out of pocket to the extent of almost two million dollars, he consented to abandon his suits. The three now left their lair in Jersey City and transferred the Erie offices to the Grand Opera House, at Eighth avenue and Twenty-third street, New York City. In this collision with Vanderbilt, Gould learned a sharp lesson he thereafter never overlooked ; namely, that it was not sufficient to bribe common councils and legislatures ; he, too, must own his judges. Events showed that he at once began negotiations.
GOULD AND FISK THROW OVER DREW.
The next development was characteristic. Having no longer any need for their old accomplice, Gould and Fisk, by tactics of duplicity, gradually sheared Drew and turned him out of the management to degenerate into a financial derelict. It was Drews odd habit, whenever his plans were crossed, or he was depressed, to rush off to his bed, hide himself under the coverlets and seek solace in sighs and self-compassion, or in prayer for with all his unscrupulousness he had an orthodox religious streak. When Drew realized that he had been plundered and betrayed, as he had so often acted to others, he sought his bed and there long remained in despair under the blankets. The whimsical old extortionist never regained his wealth or standing. Upon Drews effacement Gould caused himself to be made president and treasurer of the Erie Railroad, and Fisk vice-president and controller.
When Gould and Fisk began to turn out more watered stock various defrauded malcontent stockholders resolved to take an intervening hand. This was a new obstacle, but it was coolly met. Gould and Fisk brought in gangs of armed thugs to prevent these stockholders from getting physical possession of the books of the company. Then the New York Legislature was again corrupted.
A bill called the Classification Act, drafted to insure Gould and Fisks legal control, was enacted. This bill provided that only one-fifth of the board of directors should be retired in any year. By this means, although the majority of stockholders might be opposed to the Gould-Fisk management, it would be impossible for them to get possession of the road for at least three years, and full possession for not less than five years.
But to prevent the defrauded large stockholders from getting possession of the railroad through the courts, another act was passed. This provided that no judgment to oust the board of directors could be rendered by any court unless the suit was brought by the Attorney-General of the State. It was thus only necessary for Gould and Fisk to own the Attorney-General entirely (which they took pains, of course, to do) in order to close the courts to the defrauded stockholders. On a trumped-up suit, and by an order of one of the Tweed judges, a receiver was appointed for the stock owned by foreign stockholders ; and when any of it was presented for record in the transfer book of the Erie railroad, the receiver seized it. In this way Gould and Fisk secured practical possession of $6,000,000 of the $50,000,000 of stock held abroad.
ALLIANCE WITH CORRUPT POLITICS AND JUDICIARY.
From 1868 to 1872 Gould, abetted by subservient directors, issued two hundred and thirty-five thousand more shares of stock.8 The frauds were made uncommonly easy by having the Tweed machine as an auxiliary ; in turn, Tweed, up to 1871, controlled the New York City and State dominant political machine, including the Legislature and many of the judges. To insure Tweeds connivance, they made him a director of the Erie Railroad, besides heavily bribing him.9 With Tweed as an associate they were able to command the judges who owed their elevation to him. Barnard, one of Tweeds servile tools, was sold over to Gould and Fisk, and so thoroughly did this judge prostitute his office at their behest that once, late at night, at Fisks order, he sportively held court in the apartment of Josie Mansfield, Fisks mistress.10 When the English stockholders sent over a large number of shares to be voted in for a new management, it was Barnard who allowed this stock to be voted by Gould and Fisk. At another time Gould and Fisk called at Barnards house and obtained an injunction while he was eating breakfast.
It was largely by means of his corrupt alliance with the Tweed ring that Gould was able to put through his gigantic frauds from 1868 to 1872.
Gould was, indeed, the unquestioned master mind in these transactions ; Fisk and the others merely executed his directions. The various fraudulent devices were of Goulds origination. A biographer of Fisk casually wrote at the time : Jay Gould and Fisk took William M. Tweed into their board, and the State Legislature, Tammany Hall and the Erie `ring were fused together and have contrived to serve each other faithfully.11 Gould admitted before a New York State Assembly investigating committee in 1873 that, in the three years prior to 1873, he had paid large sums to Tweed and to others, and that he had also disbursed large sums which might have been used to influence legislation or elections. These sums were facetiously charged on the Erie books to India Rubber Account whatever that meant.
Gould cynically gave more information. He could distinctly recall, he said, that he had been in the habit of sending money into various districts throughout the State, either to control nominations or elections for Senators or members of the Assembly. He considered that, as a rule, such investments paid better than to wait until the men got to Albany. Significantly he added that it would be as impossible to specify the numerous instances as it would be to recall the number of freight cars sent over the Erie Railroad from day to day. His corrupt operations, he indifferently testified, extended into four different States. In a Republican district I was a Republican ; in a Democratic district, a Democrat ; in a doubtful district I was doubtful ; but I was always for Erie.12 The funds that he thus used in widespread corruption came obviously from the proceeds of his great thefts ; and he might have added, with equal truth, that with this stolen money he was able to employ some of the most eminent lawyers of the day, and purchase judges.
GOULDS TRADING CLASS SUPPORT.
Those writers who are content with surface facts, or who lack understanding of popular currents, either state, or leave the inference, that it was solely by bribing and trickery that Gould was able to consummate his frauds. Such assertions are altogether incorrect. To do what he did required the support, or at least tolerance, of a considerable section of public opinion. This he obtained. And how ? By posing as a zealous antimonopolist.
The cry of anti-monopoly was the great fetich of the entire middle class ; this class viewed with fear the growing concentration of wealth ; and as its interests were reflected by a large number of organs of public opinion, it succeeded in shaping the thoughts of no small a section of the working class.
While secretly bribing, Gould constantly gave out for public consumption a plausible string of arguments, in which act, by the way, he was always fertile. He represented himself as the champion of the middle and working classes in seeking to prevent Vanderbilt from getting a monopoly of many railroads. He played adroitly upon the fears, the envy and the powerful mainsprings of the self interest of the middle class by pointing out how greatly it would be at the mercy of Vanderbilt should Vanderbilt succeed in adding the Erie Railroad and other railroads to his already formidable list.
It was a time of all times when such arguments were bound to have an immense effect ; and that they did was shown by the readiness with which the trading class excused his corruption and frauds on the ground that he seemed to be the only man who proved that he could prevent Vanderbilt from gobbling up all of the railroads leading from New York City. With a great fatuousness the middle class supposed that he was fighting for its cause.
The bitterness of large numbers of the manufacturing, jobbing and agricultural classes against Commodore Vanderbilt was deep-seated. By an illegal system of preferential freight rates to certain manufacturers, Vanderbilt put these favorites easily in a position where they could undersell competitors. Thus, A.T. Stewart, one of the noted millionaire manufacturers and merchants of the day, instead of owing his success to his great ability, as has been set forth, really derived it, to a great extent, from the secret preferential freight rates that he had on the Vanderbilt railroads. A variety of other coercive methods were used by Vanderbilt. Special freight trains were purposely delayed and run at snails pace in order to force shippers to pay the extraordinary rates demanded for shipping over the Merchants Dispatch, a fast freight line owned by the Vanderbilt family.
These were but a few of the many schemes for their private graft that the Vanderbilts put in force. The agricultural class was taxed heavily on every commodity shipped ; for the transportation of milk, for example, the farmer was taxed one-half of what he himself received for milk. These taxes, of course, eventually fell upon the consumer, but the manufacturer and the farmer realized that if the extortions were less, their sales and profits would be greater. They were in a rebellious mood and gladly welcomed a man such as Gould who thwarted Vanderbilt at every turn. Gould well knew of this bitter feeling against Vanderbilt ; he used it, and thrust himself forward constantly in the guise of the great deliverer.
As for the small stockholders of the Erie railroad, Gould easily pacified them by holding out the bait of a larger dividend than they had been getting under the former regime. This he managed by the common and fraudulent expedient of issuing bonds, and paying dividends out of proceeds. So long as the profits of these small stockholders were slightly better than they had been getting before, they were complacently satisfied to let Gould continue his frauds. This acquiscence in theft has been one of the most pronounced characteristics of the capitalistic investors, both large and small. Numberless instances have shown that they raise no objections to plundering management provided that under it their money returns are increased.
The end of Goulds looting of the Erie railroad was now in sight. However the small stockholders might assent, the large English stockholders, some of whom had invidious schemes of their own in the way of which Gould stood, were determined to gain control themselves.
GOULDS DIRECTORS BRIBED TO RESIGN.
They made no further attempt to resort to the law. A fund of $300,000 was sent over by them to their American agents with which to bribe a number of Goulds directors to resign. As Gould had used these directors as catspaws, they were aggrieved because he had kept all of the loot himself. If he had even partly divided, their sentiments would have been quite different. The $300,000 bribery fund was distributed among them, and they carried out their part of the bargain by resigning.13 The Assembly Investigating Committee of 1873 referred carelessly to the English stockholders as being impatient at the laws delay and therefore taking matters into their own hands. If a poor man or a trade union had become impatient at the laws delay and sought an illegal remedy, the judiciary would have quickly pronounced condign punishment and voided the whole proceeding. The boasted majesty of law was a majesty to which the underdogs only were expected to look up to in fear and trepidation.
When the English stockholders elected their own board Gould obtained an injunction from the courts. This writ was absolutely disregarded, and the anti-Gould faction on March 11, 1872, seized possession of the offices and books of the company by physical force. Did the courts punish these men for criminal contempt ? No effort was made to. Many a worker or labor union leader had been sent to jail (and has been since), for contempt of court, but the courts evidently have been willing enough to stomach all of the contempt profusely shown for them by the puissant rich. The propertyless owned nothing, not to speak of a judge, but the capitalists owned whole strings of judges, and those whom they did not own or corrupt were generally influenced to their side by association or environment. All of this, reported the Assembly Investigating Committee of 1873, speaking of the means employed to overthrow Gould, has been done without authority of law. But no law was invoked by the officials to make the participants account for their illegal acts.
THE LEGISLATURE BRIBED AGAIN.
It seems that the entire amount, including the large fees paid to agents and lawyers, corruptly expended by the English capitalists in ousting Gould, was $750,000. Did they foot this bill out of their own pockets ? By no means. They arranged the reimbursements by voting this sum to themselves out of the Erie Railroad treasury ;14 that is to say, they compelled the public to shoulder it by adding to the bonded burdens on which the people were taxed to pay interest.
To complete their control they bribed the New York Legislature to repeal the Classification Act. As has been shown, the Legislature of 1872 was considered a reform body, and it also has been brought out how Vanderbilt bribed it to give him invaluable public franchises and large grants of public money. In fact, other railroad magnates as well as he systematically bribed ; and it is clear that they contributed jointly a pool of money both to buy laws and to prevent the passage of objectionable acts. It appears conclusive, reported the Assembly Investigating Committee of 1873, that a large amount reported by one witness at $100,000 was appropriated for legislative purposes by the railroad interest in 1872, and that this [$30,000] was Eries proportion.15 One of the lobbyists, James D. Barber, a ruling spirit in the Republican party, admitted receiving $50,000 from the Vanderbilts.16 While uniting to suppress bills feared by them all, each of the magnates bribed to foil the others purposes.
GOULDS DIRECT ERIE THEFTS WERE $12,000,000.
What did Goulds plunder amount to ? His direct thefts, by reason of his Erie frauds, seem to have reached more than twelve million dollars, all, or nearly all, of which he personally kept.
That sum, considering the falling prices of commodities after the panic of 1873, and comparable with current standards of cost and living, was equivalent to perhaps double the amount at present. Various approximations of his thefts were made. After a minute examination of the Erie railroads books, Augustus Stein, an expert accountant, testified before the Hepburn Committee (the New York Assembly Investigating Committee of 1879) that Gould had himself pocketed twelve or thirteen million dollars.17
This, however, was only one aspect. Between 1868 and 1873 Gould and his accomplices had issued $64,000,000 of watered stock. Gould, so the Erie books revealed, had charged $12,000,000 as representing the outlay for construction and equipment, yet not a new rail had been laid, nor a new engine put in use, nor a new station built. These twelve millions or more were what he and his immediate accomplices had stolen outright from the Erie Railroad treasury. Considerable sums were, of course, paid corruptly to politicians, but Gould got them all back, as well as the plunder of his associates, by personally manipulating Erie stock so as to compel them to sell at a great loss to themselves, and a great profit to himself. Furthermore, in these manipulations of stock, he scooped in more millions from other sources.
Had it not been for his intense greed and his constitutional inability to remain true to his confederates, Gould might have been allowed to retain the proceeds of his thefts. His treachery to one of them, Henry N. Smith, who had been his partner in the brokerage firm of Smith, Gould and Martin, resulted in trouble. Gould cornered the stock of the Chicago and Northwestern Railroad ; to put it more plainly, he bought up the outstanding available supply of shares, and then ran the price up from 75 to 250. Smith was one of a number of Wall Street men badly mulcted in this operation, as Gould intended. Seeking revenge, Smith gave over the firms books, which were in his possession, to General Barlow, counsel for the Erie Railroads protesting stockholders.18 Evidence of great thefts was quickly discovered, and an action was started to compel Gould to disgorge about $12,000,000. A criminal proceeding was also brought, and Gould was arrested and placed under heavy bonds.
AN EXTRAORDINARY RESTITUTION.
Apparently Gould was trapped. But a wonderful and unexpected development happened which filled the Wall Street legion with admiration for his craft and audacity. He planned to make his very restitution the basis for taking in many more millions by speculation ; he knew that when it was announced that he had concluded to disgorge, the market value of the stock would instantly go up and numerous buyers would appear.
Secretly he bought up as much Erie stock as he could. Then he ostentatiously and with the widest publicity declared his intention to make restitution. Such a cackling sensation it made ! The price of Erie stock at once bounded up, and his brokers sold quantities of it to his great accruing profit. The pursuing stockholders assented to his offer to surrender his control of the Erie Railroad, and to accept real estate and stocks seemingly worth $6,000,000. But after the stockholders had withdrawn their suits, they found that they had been tricked again. The property that Gould had turned over to them did not have a market value of more than $200,000.19
Goulds thefts from the Erie railroad were, however, only one of his looting transactions during those busy years. At the same time, he was using these stolen millions to corner the gold supply. In this Black Friday conspiracy (for so it was styled) he fraudulently reaped another eleven million dollars to the accompaniment of a financial panic, with a long train of failures, suicides and much disturbance and distress.
1 Report on the New York and Erie Railroad Company, New York State Assembly Document, No. 50, 1842. See also, Investigation of the Railroads of the State of New York, 1879, 1 : 100.
2 The Erie Railway was built by the citizens of this State with money furnished by its people. The State in its sovereign capacity gave the corporation $3,000,000. The line was subsequently captured, or we may say stolen, by the fraudulent issue of more than $50,000,000 of stock. ... An Analysis of the Erie Reorganization bill, etc., submitted to the Legislature by John Livingston, Esq., counsel for the Erie Railway Shareholders, 1876
3 At his death $1,000,000 in bonds and cash were found among his effects.
4 Chapters of Erie : 30.
5 Report of the Select Committee of the New York Senate, appointed April 10, 1868, in Relation to Members Receiving Money from Railway Companies. Senate Document No. 52, 1869: 3-12, and 137, 140-146.
6 Report of the Select Committee of the Assembly, Assembly Documents, 1873, Doc. No. 98: xix.
What the Erie has done, the Committee reported, other great corporations are doubtless doing from year to year. Combined as they are, the power of the great moneyed corporations of this country is a standing menace to the liberties of the people.
The railroad lobby flaunts its ill-gotten gains in the faces of our legislatures, and in all our politics the debasing effect of its influence is felt (p. 18).
7 Railroad Investigation of the State of New York, 1879, ii: 1654.
8 Fisk was murdered by a rival in 1872 in a feud over Fisks mistress. His death did not interrupt Goulds plans.
9 Did you ever receive any money from either Fisk or Gould
to be used in bribing the Legislature ? Tweed was asked by an aldermanic committee in 1877, after his downfall.
A. I did sir ! They were of frequent occurrence. Not only did I receive money but I find by an examination of the papers that everybody else who received money from the Erie railroad charged it to me.Documents of the Board of Aldermen, 1877, Part II, No. 8:49.
10 The occasion grew out of an attempt of Gould and Fisk in 1869 to get control of the Albany and Susquehanna Railroad. Two parties contestedthe Gould and the Ramsey, headed by J. Pierpont Morgan. Each claimed the election of its officers and board of directors. One night, at half-past ten oclock, Fisk summoned Barnard from Poughkeepsie to open chambers in Josie Mansfields rooms. Barnard hurried there, and issued an order ousting Ramsey from the presidency. Judge Smith at Rochester subsequently found that Ramsey was legally elected, and severely denounced Gould and Fisk. Letters of General Francis C. Barlow, Albany: 1871.
The records of this suit (as set forth in Lansings Reports, New York Supreme Court, 1:308, etc.) show that each of the contesting parties accused the other of gross fraud, and that the final decision was favorable to the Ramsey party. See the chapters on J. Pierpont Morgan in Vol. III of this work.
11 A Life of James Fisk, Jr., New York, 1871.
12 Report of, and Testimony Before, the Select Assembly Committee, 1873, Assembly Documents, Doc. No. 98: xx, etc.
13 Assembly Document No. 98, 1873 : xii and xiii. The English stockholders took no chances on this occasion. The committee reported that not until the directors had resigned did they receive their price.
14 Assembly Document No. 98, 1873: xii and xvi.
15 Ibid., xvii.
16 Ibid., 633.
17 Q. Do you think that you could remember the aggregate amount of wrong-doing on the part of Mr. Gould that you have discovered ?
A. I could give an estimate throwing off a couple of millions here and there ; I could say that it amounted to that is, what we discovered amounted to about twelve or thirteen million dollars.Railroad Investigation of the State of New York, 1879, ii: 1765.
18 Railroad Investigation, etc., v : 531.
19 Railroad Investigation, etc., 1879, iii: 2503.
One of the very rare instances to which any of Goulds victims was able to compel him to disgorge, was that described in the following anecdote, which went the rounds of the press :
An old friend had gone to Gould, telling him that he had managed to save up some $20,000, and asking his advice as to how he should invest it in such a manner as to be absolutely safe, for the benefit of his family. Gould told him to invest it in a certain stock, and assured him that the investment would be absolutely safe as to income, and, besides, its market value would shortly be greatly enhanced.
The man did as advised by Gould, and the stock promptly started to go down. Lower and lower it went, and seeing the steady depreciation in the price of the stock, and hearing stories to the effect that the dividends were to be passed, the man wrote to Gould asking if the investment was still good. Gould replied to his friends letter, assuring him that the stories had no foundation in fact and were being circulated purely for market effect.
But still the stock declined. Each day the price went to new lower figures on the Stock Exchange, and finally the rumors became fact, and the Directors passed the dividend. The man had seen the savings of years vanish in a few months and realized that he was a ruined man.
Goaded to an almost insane frenzy, he rushed into Goulds office the afternoon the Directors announced the passing of the dividend, and told Gould that he had been deliberately and grossly deceived and that he was ruined. He wound up by announcing his intention of shooting Gould then and there.
Gould heard his quondam friend through. There could be no mistaking the mans intent. He was evidently half crazed and possessed of an insane desire to carry out his threat. Gould turned to him and said : `My dear Mr. calling him by name, `you are laboring under a most serious misapprehension. Your money is not lost. If you will go down to my bank tomorrow morning, you will find there a balance of $25,000 to your credit. I sold out your stock some time ago, but had neglected to notify you. The man looked at him in amazement and, half doubting, left the office.
As soon as he had left the office Gould sent word to his bank to place $25,000 to this mans credit. The man spent a sleepless night, torn by doubts and fears. When the bank opened for business he was the first man in line, and was nearly overcome when the cashier handed him the sum that Gould had named the previous afternoon.
Gould had evidently decided in his own mind that the man was determined to kill him, and that the only way to save his life and his name was to pay the man the sum he had lost plus a profit, in the manner he did. But as a sidelight on the absolutely cold-blooded self-possession of the man, it is interesting.