Jay Gould , the Union Pacific Railroad and Value Creation
By Maury Klein and Joseph Calandro , Jr .
During a recent financial history presentation , the name Jay Gould was mentioned . It was immediately followed by a discernable “ gasp ” from the audience . This apparently was the reaction the presenter was looking for as he proceeded to deride Gould ’ s memory ( Gould passed away in 1892 ). This presenter ’ s criticisms were very broad and culminated with a reference to Gould as an “ infamous speculator .” The criticisms and comments were generally inaccurate , but nevertheless in accord with many of the things that were written about Gould during his lifetime , which have been carried over into the present .
No one in United States financial and business history is as misunderstood , and under-appreciated , as Jay Gould . There are a number of reasons for this : First and foremost , Gould earned a reputation as the most hated man in America . Two early episodes , the Erie Railroad War and Black Friday , when he conceived an audacious scheme to corner the nation ’ s gold supply in 1869 , did much to create the image of him as a ruthless , unprincipled Wall Street renegade who seemed always to skirt the letter of the law . Hardly anyone recognized the breadth of his talents or viewed him as anything more than a stock manipulator who played the game better than most .
Second , Gould was an intensely private man who did not speak with the press unless he wanted something specific out of such interactions . Predictably , his desired ends were not always what members of the press supposed ; in other words , Gould used the press to achieve his ends , not to advance theirs .
Financier Jay Gould ’ s control of the Union Pacific Railroad from 1874 – 1880 helped give rise to modern financial strategy .
Third , Gould was uncommonly successful in investment , speculation / trading and business due to a variety of strategic moves frequently so audacious and complex that few , if any , of his contemporaries understood what he was doing , or why . Moreover , Gould did not socialize with the elite of his day , preferring instead to spend his non-working hours with his family and his books . Over time , factors such as these resulted in an information vacuum . As the press , like nature , abhors a vacuum , information was generated to fill it whether it was factually accurate or not .
More important than historical misunderstanding for our purposes here are the lessons that can be learned from the years that Gould controlled the Union Pacific Railroad ( UP ). By “ control ” we mean set the direction of the firm rather than own a majority interest in it . To explain , Gould exercised control by dominating the UP governance structure as a major , albeit not majority , shareholder . His activities at the UP helped give rise to modern financial strategy , which is an integrated and interactive discipline encompassing strategy , investment , finance and operational management .
We profile our reasoning in this article noting that it is an all too brief profile . Maury Klein ’ s biography demonstrates in detail how Gould ’ s entry into the management of the floundering UP marked the beginning of his emergence as a businessman and economic developer of the first rank , who went on to create his own railroad system around the modest Missouri Pacific Railroad .
Few men embody that most cherished of American myths , the rags-to-riches saga , better than Jay Gould . Born in 1836 on a farm near Roxbury , New York , he inherited his father ’ s passion for education . Small , frail and somewhat sickly , he hated farm work , but he worked to improve himself whenever an opportunity arose . Shortly before his 16th birthday he left home to work for a surveyor . Already he had learned to push his stamina to the limit and to master any skill that came his way . He taught himself surveying , wrote an impressive history of Delaware County and learned how to cultivate the confidence of those older than himself . He won the trust of a prominent tanner and at age 20 was sent into the woods of Pennsylvania to build and run a tannery from scratch . Despite his youth , older workers respected him well enough that the settlement was named Gouldsboro .
Tanning occupied him until 1860 , when an unfortunate partnership with the prominent firm of Charles M . Leupp unraveled as Leupp succumbed to mental illness and committed suicide . At the age of 24 , Gould turned his attention to Wall Street . Despite being an unknown outsider in a world where being an insider counted for nearly everything , he not only survived but gradually mastered the intricacies of finance . His fertile intellect seemed capable of absorbing everything it touched , and his capacity for growth seemed unlimited . Unlike many Wall Street denizens , his approach was quiet , subtle and self-deprecating . He learned well the art of being underestimated .
For seven years Gould gradually improved his fortunes in the sharkinfested waters of 19th century Wall Street . The business style that emerged was an astringent one , as lean and compact as Gould himself . It was both stealthy and secretive , the silent running of a loner forging his own way through dangerous territory . He formed the habit of telling no one about an operation except those directly involved , and then only as much as he wanted them to know .
To this passion for secrecy he added a view of ethical and legal niceties that , at times , bordered on amorality , which was common at the time . In struggling to survive in an arena where no mercy was
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