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Friday, June 04, 2010

LIBERTARIAN HERO

I wish the average libertarian could meet Jay Gould, because he was unfettered capitalism in the flesh, “the human incarnation of avarice,” as one minister described him, the Mephistopheles of Wall Street, the robber baron par excellence, “prince of the railroad schemers”, annd the man within whom all the theories of the libertarians about capitalism and freedom met the reality of human nature, and got the tar beat out of it.
He was a “…short, thin man with cold black eyes, a narrow face and, in his maturity, a “full black beard”. Born into poverty, his mother was active in the Methodist Church until her death, when Jay was 10 years old. When he was seventeen, Jay apprenticed himself to a surveyor, Oliver Diston, at the salary of $10 a month. When Jay started issuing his own maps for sale, Diston sued. Jay’s attorney, T. R. Westbrook, managed to have the lawsuit dismissed, but, as one biographer noted, from that day forward, “…there was scarcely a day during his whole life that he did not have some litigation on his hands.”
His map business made Jay $5, 000, which he invested with Zadock Pratt, a Manhattan leather merchant. Smothering Mr. Pratt in adoration, the 21 year old Jay proposed to write the older man’s biography. That project drew the pair into a partnership in a new leather tannery south of Scranton, Pennsylvania. With Pratt’s money Jay built an entire company town, which he named “Gouldborough”. He wrote Pratt sycophantic letters, in one describing the organizing meeting for the new community. “Three hearty cheers were proposed for the Hon(erable) Zadock Pratt…This is certainly a memorandum worthy of note in your biography, of the gratitude and esteem which Americans hold your enterprising history.” However Mr. Pratt, who knew a lot more about the tanning business than young Jay, had begun to see through the fog of compliments.
Pratt showed up at the plant unannounced in the summer of 1858 to go over the books, and discovered them to be a confusing mess, showing unauthorized risky investments and a private bank which Jay had established in Stroudsburg, apparently with company funds, but without the company sharing equally in any profits. However, Jay had anticipated this, and had already lined up a richer and more docile partner. When confronted in August by Pratt, Gould stunned the man by offering to buy him out for $60,000. Pratt quickly accepted. The cash for the buyout had come from Jay’s new partner, Charles Lessup.
But it wasn’t long before even Lessup began to suspect he was being had, and by the fall of 1859 Lessup was panicked by the commitments Jay was making in his name. On October 6, 1859, facing financial disaster, Charles Lessup shot himself. Lessup’s daughters bitterly demanded Jay repay them for their father’s investment, and Jay countered with an offer of a payment of $10,000 a year for six years. He had, of course, neglected to include any interest during the five year delay. Unfortunately for Jay, the families’ lawyers caught the omission. Still, in the early months of 1860, it became clear that Jay was hiding assets from the family.
Lawyers and 40 deputized men were dispatched to the tannery on Tuesday morning, March 13, 1860. They flashed the legal papers, ushered the workers out and padlocked the doors. They held the place for a little over six hours, until Jay returned from New York. Just past noon some 200 men stormed the building with axes, muskets and rifles. Four men were shot, others were badly beaten, and according to the New York Herald, “…those who did not escape were violently flung from the windows and doors…” As Jay would later boast, ““I can hire one-half of the working class to kill the other half.” The courts would eventually throw Jay Gould out of the tannery, but by then he had shifted his operations to a place more suited to his nature; the unregulated economic free-for-all that was Wall Street.
While North and South battled over slavery, Jay Gould formed his own brokerage firm, Smith, Gould and Martin, and made the acquaintance of James “Big Jim” Fisk, who had made his fortune smuggling southern cotton through the Federal armies and selling Confederate War Bonds. And even while brave men died by their tens of thousands, this pair joined Daniel Drew, director of the Erie Railroad, in their own, private war.
Their enemy was Cornelius Vanderbilt, who owned every railroad in the east except the Erie. Naturally, “The Commodore”, as Vanderbilt liked to be called, was seeking a monopoly, so he could charge whatever freight rates he wanted, and he began to buy stock in the Erie. Sensing blood in the water, Jay and friends printed up 100,000 shares of Erie stock, which The Commodore promptly bought, and which the board of the Erie – Drew, Fisk and Jay Gould – immediately declared to be worthless.
Bilked out of $7 million, Vanderbilt filed legal papers to examine the Erie’s books. Jay and friends grabbed the company records and retreated to New Jersey, where they re-incorporated. Vanderbilt then had arrest warrants issued for all three men, but since New York law could not touch them, the Commodore began to assemble ships and men to invade New Jersey, all by himself. While the Erie Board prepared to receive the invaders, Jay managed to slide a bill through the New York State assembly making the issuing of worthless stock, legal, retroactively.
This trick was managed by the simple expedient of giving William “Boss” Tweed, the head of political graft in New York, a seat on the Erie board. That brought the Erie War to a temporary end. And if you are feeling sorry for the Commodore, remember that Cornelius himself once said, “Law, what do I care about the law? Ain't I got the power?" Another libertarian hero.
With the Commodore’s cash, and further fortified by looting the Erie’s assets, Jay, Fisk and Drew began their own complicated scheme to raise freight rates on the Erie Railroad. In 1869 they began to buy and hoard gold, because raising the price of gold would raise the price of wheat, which would allow them to raise the freight rates they charged farmers for shipping the wheat. As insurance the trio took on another partner, Abel R. Corbin, who happened to be President Grant’s brother-in law. That gave the appearance that “the fix” was in, and other investors jumped on the bandwageron. The price of gold skyrocketed.
When Grant learned about the manipulations, he immediately ordered the U.S. Treasury to sell $4 million in gold. The sudden influx hit the market like a bomb, on September 24, 1869, when gold dropped 30%. The date would henceforth be known as “Black Friday” (at least until October of 1929). Thousands of investors were wiped out, including Abel Corbin, and an angry mob swarmed the Gould’s brokerage offices, smashing the furnishings and chanting “Who killed Charles Lessup?” Of course the trio of Gould, Fisk and Drew, walked away from the wreckage with an $11 million profit.
Daniel Drew was to be Jay’s next victim. In 1870 Fisk and Gould sold their shares in the Erie to the Commodore for $5 million. The deal gave Vanderbilt his monopoly, but it also revealed that the Erie was bankrupt. And it left Daniel Drew, abandoned by his partners, out $1.5 million. He would die flat broke nine years later, just one more partner and one more victim of Jay Gould.
Big Jim Fisk was saved from a similar fate when, in 1871, a competitor for a woman shot him to death in a New York Hotel. After that Jay was reduced to stealing from lesser partners, such as Major Abin A. Selover, who actually considered himself a friend of Gould’s. It was Selover who introduced Jay to a California friend of his, James R. Keene. After Keene and Selover had both been battered by Gould in a contest for control of Western Union, Jay and Selover happened to meet on the street one day. Jay tried to walk away, but for once in his life, Jay Gould was caught.
Selover grabbed Jay be the collar and shouted, “I’ll teach you to tell me lies!” The six foot tall Selover then threw Jay to the ground, and then yanked him up again by one hand, dangling him above the stairwell of a below-street level barbershop. With his free arm Selover began slapping the Mephistopheles of Wall Street and shouting, “Gould, you are a damn liar!” When Selover finally let go, Gould dropped 8 feet to the stairs. A stock broker the next day quipped, “It was characteristic of Mr. Gould that he landed on his feet.”
Overnight, Abin Selover became the most popular man in New York City. Jay Gould was wise enough not to press charges, since no jury could be expected to convict anyone of assaulting Jay Gould. Henceforth, Jay never went out without a body guard. He began to describe himself as the “most hated man in New York”, but he never changed his ways. Selover went broke, as did Keene. However, when he died in 1892, Jay Gould was the ninth richest man in America, worth about $77 million. He died a hero only to those who never did business with him. Gould scoffed at the idea that Wall Street should be regulated. “People will deal in chance….Would you not, if you stopped it, promote gambling?”
It was and is a philosophy which fails to see an advantage to drawing a line between gambling and investing. It is the philosophy of libertarianism. It is the philosophy of greed. It was the philosophy of Jay Gould.
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