Founders - #258: Jay Gould (Dark Genius of Wall Street)

Starting point is 00:00:00 He was raised on a farm and milked cows as a boy. He neither drank nor smoked. He was affable to every employee, from the head of the department to the humblest. He enjoyed his wealth quietly. He rarely lost his temper. Self-control was one of his most profound attributes. He was a quiet man, and when he spoke, his words were both few and carefully chosen. He rarely boasted, but once speaking for himself and his fellow capitalists, he said, We have made this country rich. We have developed the country. We have created the earning power by developing the system. When he died, the press said that he was the world's richest man.

Starting point is 00:00:40 It also called him the world's most hated man. The man just described sounds like John D. Rockefeller. It is not. It also called him the world's most hated man. The man just described sounds like John D. Rockefeller. It is not. It's Jay Gold. Rockefeller and Gold had much in common. The two were nearly the same age. Their careers spanned the same period. Gold died at the end of 1892 as Rockefeller was preparing to retire from business. Their fortunes that year were about the same, around $100 million. When an acquaintance asked Rockefeller who was the greatest businessman he had known, his answer came without hesitation. Jay Gold, he said.

Starting point is 00:01:17 He echoed the sentiment of Cornelius Vanderbilt, who had long ago tangled with Jay Gold and lost. Vanderbilt said Gold was the smartest man in America. Their judgments must stand. Gold was perhaps the single most unsettling force ever to appear on the American industrial scene. He thought in continental terms when few contemporaries saw beyond state boundaries. He shook to his heels an industry already settled in its ways and set out to realize his dream of a transcontinental railroad.

Starting point is 00:01:51 Given the obstacles he faced, Gold's achievements were phenomenal. He was an advanced thinker in the field of corporate finance, and he set precedents which were later followed by investment bankers and by state and federal governments. Among wheelers and dealers of his day, he had no peer. He was obsessed with piling up a fortune, no holds barred. He mastered the details of running a railroad with embarrassing ease. He was a loner.

Starting point is 00:02:21 Labels do not imply judgments, but if such were to be made, gold must rank as the less honorable and less trustworthy, but the more brilliant of the two. For he was indeed the smartest man in America, at least in the business world of his day. That was not an excerpt from the book that I'm going to talk to you about today. That was actually an excerpt from a book I covered a few podcasts back on episode 254. And it's John D. Rockefeller, the founding fathers of the Rockefellers, written by David Freeman Hawk. And I wanted to start

Starting point is 00:02:52 there because I think it demonstrates how important understanding and studying Jay Gold is, is if you're reading a biography of Rockefeller and an entire chapter is dedicated to another person. And that made me want to read a biography of Jay Gold. And the book that I'm going to talk to you about today is The Dark Genius of Wall Street, The Misunderstood Life of Jay Gold, King of the Robber Barons. And it was written by Edward J. Renahan Jr. And I actually found out about this book

Starting point is 00:03:15 because the author is the one that sent it to me. So I want to jump into what would have been the introduction to the podcast for this book. And it's at the funeral of Jay Gold. And actually, before I start there, let me go to the very back cover of the book, because I thought this paragraph was very interesting. It talks about the thesis of the author. It's like, well, there's a ton of biographies written about Jay Gold. Everyone basically says the same thing, that he's evil, he's unscrupulous, he was the most hated man in his day. And Edwards, like, well, it's more complicated. If you actually

Starting point is 00:03:44 dig into the research, it's actually more complicated if you actually dig into the research it's actually more complicated than that so it says though reviled for more than a century as wall street's greatest villain jay gold was in fact its most original creative genius gold was the most astute financial and business strategist of his time and he was also the most widely hated that goes back to the book i was quoting from at the beginning, where it's like in his day, he had no peer. Back to the back cover. He was the undisputed master of the nation's railroads and telegraph systems at a time when these were the fastest growing new technologies of the age. His failed scheme to corner the gold market in 1869 caused the Black Friday Panic, and it's also a reason why for the rest of his life he

Starting point is 00:04:26 lives about like another 25 years after he actually caused this financial panic, and that's what gave him this terrible reputation that still exists to this day. He created new ways of manipulating markets, assembling capital, and swallowing his competitors. Many of these methods are now standard practice. That's just the first of many crazy sentences we're going to find in this book. Others were unique to their circumstances and unrepeatable. Some were among the first things prohibited by the SEC when it came into being in the 1930s. That would be about 40 years after Gold died. And so let's go to his funeral where one of his friends is there, this guy named Jesse.

Starting point is 00:05:10 And it says, Jesse said he found it ironic that Jay Gold was always cast as the demon in any telling of the nation's recent financial history. If Jay was a sinner, asked Jesse, exactly who were the saints? He ran down a list of the contenders, starting with Cornelius Vanderbilt. The foul-mouthed and brutal old Commodore never claimed to have any agenda other than his own enrichment. Was he to be revered? And what of Rockefeller, the avid, competition-crushing monopolist? Jesse did not see Jay as any more or less criminal than most operators of his era. I cannot say that Jay was, in his moral nature, much better, much worse, or much different than any other shrewd and sharp player of his generation. I've known them all, and I can tell you that he deserves no more notoriety than those against which and with which he played. If he was exceptional, it was as a strategist. He had a certain genius.

Starting point is 00:06:05 Time and time again, Wall Street never saw him coming. And then it goes right into the heart of the conflict of his reputation that he was both a great CEO and a ruthless financial manipulator. The case for gold as a successful long-term CEO is there to be made. The highly imaginative, ruthless, and easy-to-vilify manipulator of security markets was also a detail-oriented owner of companies. He was a workaholic who painstakingly consolidated dying railroads, transformed them into highly profitable mega lines, and then did the same thing in maximizing the profitability of the Western Union, skillfully steering all of his businesses

Starting point is 00:06:45 through choppy economic seas in the 1880s. And so they're describing at that point in Jay's life, he'd be in his 40s because he dies at 56 in 1892. And so I'm still in the preface of the book. It actually goes into the way he was reported in the press is not at all accurate to how he was in person. And I'll go into later on, and I didn't realize this when I read this the first time, much later in the book, Jay did that on purpose. His antagonist in business, after having been burned by him, provided a lot of information to a hungry press, and they in turn dubbed him the devil of Wall Street.

Starting point is 00:07:22 It was easier and more nurturing to the pride of the wounded to suggest a pact with Satan than to admit that Jay was in fact the Michelangelo of Wall Street, a genius who crafted financial devices and strategies and who leveraged existing laws in stunningly original ways. And then this sentence really describes why I think it's worth spending time studying him. His success was profound, his productivity was astonishing, and his motivations and tactics were fascinating. And I just want to pull out one sentence for you

Starting point is 00:07:56 that describes his personality, and this is actually repeated a lot. This is the first time of many times in the book that I read sentences that are just like this. Jay had always believed that shrewd aptitude This is the first time of many times in the book that I read sentences that are just like this. Jay had always believed that shrewd aptitude should be rewarded and its absence punished. He despised fools. He was definitely an elitist, but not in the terms of, oh, did you go to a right school?

Starting point is 00:08:20 Did you come from a rich family? It's do you have a brain or not? And so one of his best talents was identifying people whose mind far exceeded where they currently were in life. And he'd recruit them and they'd work with him in many cases, many decades. So his dividing line in life, you could think about it this way. It's like, if you're smart, you're with me. If you're not, I don't want anything to do with you. Another personality trait that Jay shares with a lot of people that you and I said in this podcast, he was always punctual. I just read this fantastic line in this post on a personal on this guy's personal website. And it reminded me that time is non-refundable.

Starting point is 00:08:55 And he said a week is two percent of a year. And finally, one more thing before I get into his early life and his complicated relationship with his father. Unlike most other self-made men, Gold never traded on his humble background. He said, the fact of my father's poverty is not worth one dime to me. And we're only a few pages into the book, but it's already clear that with that statement and knowing everything else that you know about him, he just knew. He's like, okay, my father's poverty, that was his problem. He never resolved.

Starting point is 00:09:21 That's fine. I just know that that's not going to happen to me. So let's go into Jay's father because I think it really sets the tone for his entire life. It's going to be kind of weird where I'm reading a biography of Jay Gold, and I think about the legendary director, Francis Ford Coppola, but I'll tie it together and explain why this is so important. So it says, Jay Gold's father was a complicated and tragic figure. So you can think of him right off the rip. I don't have to bury the lead here. His father's like the anti-model, like a cautionary tale for Jay. Okay. John Burr Gold's tribal memory passed on by his parents told him that he came from substantial people. All of these

Starting point is 00:09:55 prosperous Golds, Burns, and all these other last names that are in his family, who for generations had loomed so large in Connecticut history. Okay, so what they're talking about is the fact that two or three generations above Jay's father, they were rich and prosperous. Then the generation above, so that would be Jay's grandfather, starts losing everything. And so now where we are in this point in history, Jay's father is, think about how crazy this had to be. You're a poor farmer. And yet in your mind when you were raised, you were raised on stories about how wealthy and powerful your ancestors are. That has to be a very difficult thing to deal with mentally.

Starting point is 00:10:32 Yet John's own precarious position in life, like that of his father, fell considerably short of the heights scaled by his formidable ancestors. His lot in life was not substantial and he knew it. And that line in particular, his lot in life was not substantial and he knew it. That reminded me back on Founders number 242. Francis Ford Coppola talks a lot about it. In fact, in his biography, a main theme is the fact that Francis's intense drive to not be a failure came from the negativity that he was raised in in his house. There's two lines in that book that really stick out. And it says, you can always understand the son by the story of his father. The story of the father is embedded in the son. And then Coppola's own description of his father is devastating. He said, I'd spent a lifetime with a frustrated

Starting point is 00:11:26 and often unemployed man who hated anybody who was successful. And that line that the story of the father is embedded in the son resonates with the book that I'm holding in my hand. My friend Sam Hinckley just sent me a line that describes this phenomenon that appears over and over again on this podcast. And it says all ambitious men want either to please their fathers or to punch them in the goddamn face. And in Jay Gold's case, it's going to be clear. One, he knows that he's rare. He is aware that he is rare. He is aware that he's most likely smarter than almost anybody else around him. And so I don't think he ever thought that his life was going to end up like the same way as his father's is. But you also see this in his actions because the minute he can, he runs away from the farm.

Starting point is 00:12:08 And he's young. He's like, I think, 17 at the time. We'll get there in a few minutes. First is a description of his life and why he'd want to run away from this. They're living on a poor farm. His mother's name is Mary. Mary made all the family's clothes. The lion's share of their food came right off their homestead.

Starting point is 00:12:24 Their furniture was handmade. Tragically, she's going to die. He has to deal. His sisters die. His mother dies. He's four when his mom dies. And so he doesn't really have a memory of her. Remember this for later when we get to his obsession with flowers, which a lot of people are going to find surprising considering how ruthless they said Jay was. But his passions in life, it says it later in the book, towards the end of the book, but his passions were money-making, reading, walking, flowers, and the enjoyment of nature. And so he would love to take walks in nature constantly. So his mother dies. He's four. His father needs a mother because he's got a lot of

Starting point is 00:13:05 kids i don't even know how many they got like seven or five or something like that uh so john marries again that summer and then that wife also dies later on that winter so now he's five years old his stepmom maybe he remembers her maybe he doesn't then his dad marries again two years later that woman also dies and so his older sister later in life is describing this part. And she says Jay had seen a great deal of trouble before he had reached the age of 10. And so you could think of his early life as constant exposure to a life that he does not want. And he'll do whatever he can to avoid it. He was a serious child.

Starting point is 00:13:44 There's so much similarities between Rockefeller and Jay Gold. It's not even funny. Jay was a serious child, seemingly delicate until challenge, and possessed a somber maturity that bellied his youth. They said the exact same thing about Rockefeller. He was remarkably focused. Same thing about Rockefeller. I knew him once to work at times for three weeks on a difficult problem. Sarah, this is his sister, recalled, he would never accept assistance in working out hard problems. That is the first mention of something that is repeated maybe five or ten times throughout the book. He would never accept assistance in working out hard problems.

Starting point is 00:14:17 He would just doggedly pursue them. Part of Jay's tenacity derived from the early realization that he hated farming. It fell to him to perform many of the toughest chores about their homestead. It added up to a simple-minded drudgery that Jay described as torture. And even at this point in his life, when he's about 13 years old, he's obsessed with learning. He tries to get his hands on any kind of information he possibly can. And just like he would later in life, he approaches learning with a single-minded determination. He was extremely serious. This is his teacher, one of the teachers that knew him

Starting point is 00:14:50 when he was 14. Mr. Oliver recalled the 14-year-old Jay as a deliberate student. He was not a boy given to play. He was never rude and boisterous, didn't shout and didn't jump around. And so there's a series of adjectives that are going to follow him throughout his life. Persistent, deliberate in his study, disciplined. Again, we're going to see another example that he did not like to ask for help and would just stick with the problem until it was solved. Like his sister, Sarah, Oliver noted Jay's stark independence and penchant for refusing help. If he was sent to the blackboard to work out a sum, he would stay there the entire time rather than ask for a solution. The depth and the zeal that Jay put into his studies cannot be overstated.

Starting point is 00:15:32 Wait till I get to this conversation that happens about, I want to say 20 years into the future between him and Thomas Edison, and you'll know exactly what I mean. But at this point, Jay's still a teenager. We see that he picks up his first trade. This is important because his first trade is going to lead to his first business. And having this trade allows him to escape. So in his spare time, he continued to pursue mathematics, specifically the sciences, engineering, and surveying. He borrowed surveying tools and began to tutor himself in their use. Jay told his sister that surveying represented his ticket out of town. A month before his 16th birthday, so I was wrong. I thought he escaped when he was 17.

Starting point is 00:16:11 He escaped when he was 15, about to turn 16. He made the move from the farm into the town. He took off with just a mere $5 in his pocket. This is something you and I have seen over and over again. Henry Ford escaped the farm for the city. Chung Ju Young, which is the first thing that I thought of when I got to this part, that's the founder of Hantai, all the way back on Founders 117, I covered his autobiography, which to this day is probably the most inspiring autobiography I've ever read. His story is just crazy, but if you remember that story, or if you read the book or listen to the podcast,

Starting point is 00:16:41 he tried to escape four times from his... His father was also a poor farmer. He was in Korea. So he winds up escaping the fourth and final time to Seoul. But there's just something about these poor determined young boys, something inside of them that just tells them, I have to get out of here and I have to do it now, even with great risk. And a lot of them wind up leaving. It's not like they're coming, they're, they're leaving with a giant safety net. And inay's case he's got five dollars but he's now got a trade and he's got a brain so he gets hired by this guy named snyder snyder and hires jay and a couple other boys that are surveyors he's hires them to survey and make a map the importance of maps and understanding terrain are central to understanding why jay was so successful at what he. And I'll go into a lot more detail later. But in this case, Snyder is going to wind up hiring him for a job he cannot pay them for.

Starting point is 00:17:31 And so watch Jay's response to that. Snyder finally admitted to Jay and Peter, which is another young surveyor, that he was yet again bankrupt and could not pay the money that he owed them. And so Jay and Peter are like, OK, that's fine. In lieu of their salaries, Jay and Peter took Snyder's rights to the map and then brought in another useful surveyor by the name of Oliver as a third partner. Unlike his partners, Jay did not have any ready cash. So then he hired himself out to his partners at a rate of thirty dollars per month. And at the time, at the same time, agreeing to a reduced share of the proceeds from the map. So instead of them

Starting point is 00:18:04 splitting it three ways, thirty three, thirty three 33, 33, they're going to both take 40. Jay's going to get 20%. And then his partners are describing Jay at this point in his life, which he's like this his entire life until he dies. Jay Gold was all business in those days as he is now. So that's his partner describing him four decades after the fact. Why? Even at mealtimes, he was always talking maps.

Starting point is 00:18:28 He was a worker. And my father, remember the book starts out saying Jay was a workaholic, right? We're seeing the same thing. They were describing him, you know, the 50, 40 year old Jay, the Jay that was running railroads.

Starting point is 00:18:40 But he had those traits even when the opportunity was so much smaller than a transcontinental railroad. At one time, Jay owns like, I want to say like one ninth, anywhere from one, I've read different things, but anywhere from one ninth to one fifteenth of all the miles of railways in the United States, which is remarkable considering where he is right now in the story. While even at mealtimes, he was always talking maps. He was a worker, and my father used to say, look at this gold. Isn't he a driver?

Starting point is 00:19:08 Three months later, when they finished the map, the partner settled up, and Jay walked away with $500 as his share of the proceeds. This is 1852. And so his friends at the time, and many of these friends he kept for his entire life, which the author also brings up to the point, it was like, oh, he hated people. He was a loner. He's like, well, you're not paying attention. Like he had these like poor farmer boys, in many cases, never moved away from where they grew up. Jay would go back and visit them and they would maintain relationships for his entire life. So I think what the author is doing, which is really beneficial is just saying hey people are complicated if you

Starting point is 00:19:45 want to paint somebody with a broad brush you're just accepting inaccuracies that may simplify the way you think about them but it's a very incomplete picture of a human being but they're talking about even at this time they're like oh this dude is he's not normal this is strange so it says jay stated to his friend remember he's uh this point 16 i think jay stated to his friend, remember he's at this point 16, I think. Jay stated to his friend that it was his belief that happiness consisted not in indulgence, but in self-denial. He would routinely shun drink just as he did tobacco, games, or the habit of swearing. And he would also constantly, just like Rockefeller mentioned at a young age, Rockefeller stopped doing this when he was older. So to Jay, that I'm determined. My destiny is to be wealthy. I am determined to use all of my best energies to accomplish this life's highest possibilities, he said. What a line coming from

Starting point is 00:20:38 a teenager. I am determined to use all of my best energies to accomplish this life's highest possibilities. When he was a teenager, in addition to teaching himself surveying, he also taught, learned how to do bookkeeping. So he's going back and forth, just looking for all kinds of opportunities. His father owns like the small, like he traded his farm for like this tin store. So it says Jay did his father's books. These books revealed his father's dismal finances. This added to Jay's worries.

Starting point is 00:21:04 Despite all of this, Jay remained optimistic for himself in the long run, and he said so much to his friend Crosby one night. Jay announced suddenly, Crosby, I'm going to be rich. I've seen enough to realize what can be accomplished, and I tell you, I am going to be rich. And his answer to Crosby's follow-up question is actually really smart. When Crosby asked, by what method would gold become rich? And his answer to Crosby's follow-up question is actually really smart. When Crosby asked, by what method would gold become rich? Jay answered, I have no immediate plan. I only see the goal. Plans must be formed along the way. I only see the goal. And so his first step is like, well, I just made 500 bucks creating a map. There's clearly demand in this area for my surveying skills. Why don't I just do, instead of getting hired by Snyder and Snyder going bankrupt

Starting point is 00:21:49 and not paying me, why don't I just open my own business? And the way he moves for being 17 this time, the way he moves for being 17 is unbelievable. Jay's immediate plan was to undertake his own survey and map of Albany County. He had just turned 17 and he sent out letters to prominent men of the county soliciting their subscriptions. He then hired two assistants whom he instructed in the rudiments of surveying. He personally went door to door in every township selling advance orders for the finished map. He also advertised in the local newspaper to sell even more. And then look what he does here, which is really, really smart.

Starting point is 00:22:29 He solicited another contemporary, this guy named Simon, who was the publisher and editor of the local newspaper to help promote the map. A few months earlier, when Simon was seeking to broaden his subscriber base, Jay had sent him $5 as a way to contribute to the cause. And then a few months later, he asked Simon, he's like, the supervisors ought to encourage the use of maps in the schools in this county by buying maps. Remember, that's exactly what he's making and what he's going to sell for each of the school districts. And he asked Simon, he says, I want you to give me an editorial to this effect. You must model the editorial over to suit yourself, but it must be as strong as it can be made and come directly from you. And so think about what's happening there. Effectively, it is an ad for the product that Jay is making disguised as an editorial. Why is that important? Because

Starting point is 00:23:05 one of the things that stuck out for me from James Dyson's autobiography, I think I covered that back on Founders 200, was he said something that was fascinating in how he was able to grow. At the time, Dyson, he had one product. He was selling vacuums. It was only in one country in England. And yet he was able to grow faster than any other vacuum manufacturer in history. And he talked about that because he relied not on advertising, but on editorials. And he said that one decent editorial counts for 1,000 advertisements. And so that's why he directed his time and resources, and the resources he had then was not a lot, to getting editorials as opposed to just doing ads himself. So while Jay is running this map business

Starting point is 00:23:48 and doing everything else, he's like, okay, he's not the kind of person that ever does one thing at a time. The book was, there were so many times in this book, and I mentioned this on the Rockefeller podcast when they talk about all the partnership,

Starting point is 00:24:02 the secret partnership between Rockefeller and gold and how I had read that chapter twice and still didn't understand it there's a lot of that in the book because he's just so complex he's got so many things going at once and they all kind of like feed into each other but even as a young man he's like oh i'm not just going to focus on my surveying business i'm going to build there's all this these these contracts these lucrative contracts because they're building roads for the first time in this part of the country and so jay gets a contract to build a small road that's linked that's linking these two towns but there's also other people suing to stop the development and so i want to read a few paragraphs here because it really gives you insight into how jay operated

Starting point is 00:24:37 so he goes to meet this attorney this guy named hamilton harris and harris is telling us his first meeting with jay they wind up he winds up serving as one of Jay's attorneys for the next like 40 years. So the question at hand involved opponents to a particular section of the road who were seeking to gain an injunction, injunction, stopping construction. Harris had barely started laying out his vision for an elaborate legal defense when the small boy piped up with a question, was there anything Jay asked to stop the company from going ahead with construction before his enemies, the enemies of the road, were granted their injunction? So they're saying they're going to get this injunction. They just don't have it yet.

Starting point is 00:25:16 So when Harris says, no, there's not, that's where Jay senses his opportunity. And this is what he does. As he would so many years, so many times later in life. Jay now used the letter of the law, not the spirit. Right. Jay now used the letter of the law to his complete and utter advantage. The same day he hired every laborer he could find. The following morning, he purchased and hauled vast supplies of lumber using the good credit of the Shakersville Road Corporation. That's who he's working in collaboration with, as his collateral. Then he put three teams to work on eight-hour shifts day and night.

Starting point is 00:25:51 So he moved not only just fast, but immediately. And then he said, hey, we're going to work every single hour, every single minute of the day. And this is the result. By the morning of the day that the road's opponents obtained their injunction, the disputed section of highway was already finished. I have to remind you again, he's like 17 or 18 years old when this is happening. That's just remarkable.

Starting point is 00:26:12 Not only is he building maps, creating maps and selling them, he's building roads. He's taking every opportunity. He winds up saving like a couple thousand dollars at a very young age. But in between all this, he's also taking any job he can get. So he starts working in a general store. And I guess at this time, general stores literally sold everything because people go there to order books. And so this is our first introduction to two things that are going to happen his entire life is that Jay's extremely well-read and in a hurry. I think his personal library later in life consists of something like 5,000 books. So this teacher is going to stop in at the store that Jay is working in to order textbooks.

Starting point is 00:26:50 And so this is his recollection of meeting Jay Gold for the first time. I was pleasantly greeted by this young gentleman who kindly offered to assist me in selecting the textbooks I needed. He began suggesting the books he considered best for particular studies. Jay's remarks and criticisms impressed McLaurie. That's the teacher. I soon learned that his knowledge of books was not limited to mathematics and the physical sciences. He was fond of literature and scientific studies, and he must have spent much time with books for he had acquired an extensive knowledge of a wide range of subjects.

Starting point is 00:27:25 Around this time, another one of his sisters dies. Given his early losses as a child, his own close brushes with death, and Polly's demise as his sister, Jay would always remain acutely aware of the brevity of one's time on Earth. Time is flying fast, he said. As a niece who knew him well would one day suggest, those four words, time is flying fast, he said. As a niece who knew him well would one day suggest, those four words, time is flying fast, were indicative of a feeling that seems to have been

Starting point is 00:27:51 always in the mind of Jay from his childhood. A feeling which apparently spurred and drove him, seldom permitting him pleasure in leisure or relaxation. Again and again, this is the main punchline why I'm telling you this. Again and again, he the this is the main punchline why i'm telling you this again and again he came to speak of the shortness of life and the necessity of doing while there was yet time while there was yet time to do okay so now i want to get to the part where jay winds up partnering with one of the richest people around at this point and a person he's eventually going to get the best of

Starting point is 00:28:27 in a very surprising manner, which again speaks to what everybody says about him. The fact that he was the smartest person around, he was a genius, he had this like brilliant strategic mind. And so we see that in a smaller dose many, many years before he gets to Wall Street. And what's fascinating about what's about to happen

Starting point is 00:28:42 is this all opened up from an idea that he had when he was much younger, where he told his sister, he's like, surveying, me learning how to survey is my ticket off this farm. And so as he's practicing that trade, building that business, he goes and tries to sell the maps that he's making. And so because that worked in one county, he's like, oh, if I can make a map for one county, I can just keep doing this over and over again. This is going to lead him to meeting this guy named Zadig Pratt, which I'm going to get to. I'll give you an overview of this guy and why this is so just mind-blowing. This whole book is mind-blowing. The entire life of Jay Gold is mind-blowing.

Starting point is 00:29:16 Jay first encountered Pratt, who was 46 years older than him, during the summer of 1852, when Jay was working on the map of Ulster County. So Jay's like, hey, I'm working on this map. I can do that for this other county that you have either businesses or your house in. Will you fund it? And it says Pratt declined to fund that project, but pronounced himself impressed by Jay and promised he would keep him in mind for future tasks. So that happened in 1853. In 1856, Pratt goes looking for Jay.

Starting point is 00:29:47 And he tells Jay that he wants Jay to make a survey of his farm. So Jay does that, but he also does something, again, that's really smart. He's like, listen, I'm going to find, I'm going to attempt to make myself useful in any way possible to Pratt. And so they're going to wind up becoming partners. I need to give you background into Pratt because he's also a crazy person as well. He's unbelievably wealthy. He owned, so he was a tanner. In fact, he owned the largest tannery in the world. So they use the word tannery over and over again in the book. It's just the manufacturing of leather. And what Pratt did was he had, I don't know, I think like 30 different partners. He'd have all these different partners with all these different people and they would just build tanneries everywhere. So by the time Jay meets Pratt, he has the largest tannery business

Starting point is 00:30:28 in the world. He had been served in the House of Representatives. He was a banker. In fact, well, let me read this line because this is a fantastic line. Like many people of great accomplishment, Pratt was somewhat eccentric and possessed a powerful ego. What does that mean? Well, when he starts his bank, he decides to print his own notes that were kept on par with the current, the local currency, right? Guess who he put on his bank notes? Himself.

Starting point is 00:30:59 He put pictures of his own face. He owned a bunch of land too. And so they had this massive massive think of mount rushmore but instead of putting you know presidents or whatever he put his face he had he hired he hired uh what are they i guess carvers artists maybe to put to carve his face in this this this rock they called a massive rock outcropping that was 500 feet above the valley that they're in so i'm just trying to give you background to the personality that Jay is about to partner with and deal with. Like the

Starting point is 00:31:29 guy's obviously very wealthy, one of the wealthiest people around, owns a ton of land, owns all these different businesses, has all these different partners, has a giant ego, printed his own face on dollar bills for all intents and purposes purposes and then carved his face into a rock and so because jay did good work for him then jay when jay pitches him he's like hey why don't we do this 50 50 partnership and why don't we start another tannery i'll run it you have obviously the capital and the knowledge but i'll do all the work and so says pratt uh he convinced pratt on the spot and they formed a 50-50 partnership. Pratt's main contributions to the enterprise were his expertise and his money, while Gold was able to invest his

Starting point is 00:32:09 useful energy. Pratt made it clear that the day-to-day responsibility for the operation was to be Jay's and Jay's alone. Pratt would be available for consultation and advice, and he would answer all questions as to how to set up and manage the plant and market the finished leather. And this is remarkable to contemplate. Jay was not yet 21. And so this goes on for two and a half years. I want to get, there's two important parts. I'm going to tell you how, like you might be like, well, how did Jay wrestle this business away from Pratt? Like that seems unbelievable. But before I get there, Pratt introduces Jay to a different side of the industry. And that is this market called the swamp. It is in New York City. And Pratt tells Jay that the swamp is to tanners what Wall Street is

Starting point is 00:32:54 to financiers. And so Jay is studying the entire industry. And he's like, oh, wait a minute. Who would I rather be? This is just a fantastic question to ask in general. It's like, what side of the transaction do I want to be on? And so he's breaking down all the different parties that make money on the production of leather. And he realizes, oh, I can't stay on this side of the transaction. And this is what he said. Remember, think about how young he is. I think he's like 20. We fast forward in the story a little bit. So I think he's like 22, 23 here. I've come to realize that it's the merchants, Gold wrote, who commanded the true power in this industry. So I think he's like 22, 23 here. I've come to realize that it's the merchants, Gold wrote, who commanded the true power in this industry. So he's going to describe what he means by merchants.

Starting point is 00:33:36 The tanner, which is where he is in this sequence right now, okay? The tanner appears to take the greatest share of capital, but merely processes that capital because his expenses are extensive, his risk is real, and his labor is heavy. The shippers deal with the next largest sums of money, but again, they have extensive expenses and a lot of work to do. The brokers, now this is so important to understand because this is the role he's going to play for the majority of his career until he starts running the United Pacific Railroad for real, which we'll get to. But this is really, about like, I think in my opinion, no, this is, I shouldn't even, I'm not even going to hedge. This is going to be his greatest skill. So let's go back to this. The brokers, meanwhile, take what seemed the smallest share, but the small share of the revenue, but it is in fact the largest. So he's talking about the financiers, right? Theirs is nearly pure profit made on the backs of the shipper and the tanner, and they never have to get their hands dirty. And so that is important because

Starting point is 00:34:32 Pratt introduces him to the swamp. He is going to wind up going to the swamp independently when he realizes that Pratt is trying to move against him. And so this part of the story is where Pratt tries to get rid of Jay, but instead Jay gets rid of Pratt. Again, think about this. How crazy is this? Is this not very eerily similar to what happened in Rockefeller's life, where his first partners, oil partners, like, hey, we're going to get rid of Rockefeller, didn't know that he had all these secret machinations that were taking place, right? Rockefeller said, oh, while they were talking big and loud, my mind was moving. We're going to see Jay does the exact same thing, except Jay is doing it to much more formidable people because Rockefeller's partners were a few

Starting point is 00:35:13 years older than him, but they had similar levels of experience. Jay is going to outwit somebody that should have known better. So says Zadig Pratt in his later years, hardly ever spoke of his partnership with Jay Gold. In his autobiography, Pratt filled page after page with the names of dozens of partners. Nowhere did he mention Jay. Jay himself commented on the dissolution of their partnership only once during Senate testimony many years later when he summarized the event in one flat sentence. So again, go back to this idea of Jay had an economy of speech. He was very quiet very stealthy very secretive he did not like to talk this is he's going to summarize this entire thing

Starting point is 00:35:50 i'm about to read to you in one sentence we carried on the business for a while and then i bought mr pratt out yeah that is understating that jay come on now pratt apparently sought to improve his personal profit by ousting his partner at a bargain price they were also kind of like fighting this is two and a half years into their partnership and jay's like oh like i understand the business sought to improve his personal profit by ousting his partner at a bargain price. They were also kind of like fighting. This is two and a half years into their partnership. And Jay's like, oh, like, I understand the business now. He started relying on Pratt less and less and being harder to deal with, which, of course, Jay's very difficult to deal with. Pratt, having the largest interest, said to Gold,

Starting point is 00:36:19 you must either sell or buy, thinking it impossible for Jay to buy and secretly hoping to force Jay to sell his share, thereby enriching himself at Jay's expense. Pratt would buy out Jay for $10,000 or else Jay would must buy Pratt out for $60,000. Pratt added that Jay would only have 10 days to decide. And then the author does a great job of describing Pratt's motivations. Pratt had so far sunk $120,000 into the operation. He would have offered to sell at half that amount only if he were convinced there was no way Jay could come up with the necessary funds.

Starting point is 00:36:58 But Pratt, who should have known better, had underestimated his young colleague. You and I have talked about this how many times? It's got to be dozens of times by now where we see this mistake happen over and over again. There is no benefit to underestimating somebody. It is all downside and no upside. As Pratt is about to discover here, in the time allowed, so that's the 10 days, Jay had traveled to the New York swamp. So think about it as like the financial market for Tanner's right where he struck a deal with this guy named Charles Lee up and Lee up's partner, David Lee.

Starting point is 00:37:30 Lee up and Lee own one of the swamp's most prestigious brokerage firms. That's who he's trying to partner with. OK, so says, yeah, they agreed to acquire a two third stake in Pratt and Gold, which is the name of the company for a total of sixty thousand dollars to sixty thousand dollars, which is what the same price that Pratt and Gold, which is the name of the company, for a total of $60,000 to $60,000, which is what the same price that Pratt named. Jay flabbergasted Pratt when he exercised his option to buy the firm. The deal was finalized and that left Pratt with a $60,000 loss because remember, he had already put in 120 grand into the company and then Jay just had to come up with 60. So that's where they came up with a $60,000 loss. So that left Pratt with a $60,000 loss, but it left Jay with a one-third stake in a thriving tannery and an alliance with one of the swamp's most prestigious brokerage

Starting point is 00:38:16 firms. Given these facts, this is such a fantastic way to tie this and end the story. Given these facts, Pratt's utter silence in later years regarding his partnership with Jay and Enterprise, at the end of which Pratt wound up bettered by a man barely out of his teens, begins to make sense. And we see Jay's own view of himself even when he's young. He's about to try to buy out his other partners and one of his partners is about to shoot himself. This is crazy. So says jay had a growing penchant for maximizing his advantage and cutting legal corners he was aggressive and expansionist by temperament so at this time uh his two partners lee up and lee are trying to

Starting point is 00:38:58 get him to say hey essentially like let's say i'm making these numbers up but you can produce 10 000 units a month we're only going to sell 1800 they're trying to like, let's say I'm making these numbers up, but you can produce 10,000 units a month. We're only going to sell 1,800. They're trying to, like, there's something else going on in the market at the time that's very complicated. I'm just going to skip over part of that. But essentially, like, hey, hold back. We're not going to sell all of our production. Jay is not going to put up with that. He's aggressive and expansionist by temperament.

Starting point is 00:39:19 And something else you can learn from studying Jay Gold is that everybody around him, he just thought larger than every single person around him, as we'll see. Gold argued to his partners diplomatically at first, after several months of tolerating low unit production, that he could and should ship 21,000 finished hides during July, August, and September. Because he's not concerned with the other stuff that you're worried about. He's like, hey, I'm making these. I want to sell them. And they're going to have this gigantic fight. This is going to wind up, they're going to have a fight at this court case for like seven years. But this is just hilarious. I just want to pull out one paragraph.

Starting point is 00:39:52 Because, again, I'm really trying to get in your mind who Jay was and just the kind of person you're dealing with here. Lee became so agitated about Jay's insistence on operating the plant at maximum capacity. That's a great analogy or metaphor, rather, of how Jay approached business in general. He's taking it. I'm operating at maximum capacity here. I'm not sitting back. I'm aggressive and I'm going. So he says he became so agitated about Jay's insistence on operating the plant at maximum capacity that he offered to buy jay's share of the business for twenty thousand dollars what now we've already

Starting point is 00:40:30 been talking for a while you know what do you think jay's response is going to be jay flatly rejected before countering that i'll buy you out so unfortunately lee up of lee up and lee starts having like the psychotic break starts uh like having hallucinations and seeing things that are not there like runs into his house one day kisses both of his daughters on like goodbye runs into the next room and then shoots himself and so because he had this this complicated estate it is causing problems in the business that they own together this is known as the Goldsboro war war Goldsboro being the name of the tannery that they own together. This is known as the Goldsboro War. Goldsboro being the name of the tannery that they own together. And so they're trying to like Jay's trying to buy Lee out now that Lee up is dead. Lee is not being truthful, as we'll see, and neither

Starting point is 00:41:15 is Jay. So Jay, what he does is like, hey, I can't wait for all this. I need to find a way to not be reliant on their brokerage, on this brokerage that is now in all kind of court cases and everything because it's unresolved who owns what assets. So he goes, they're both doing secret machinations against each other. Jay goes and sets himself up as a leather merchant in the swamp and he starts marketing his own tan sides

Starting point is 00:41:38 from the tannery that he owns on his own, which used to be what his partners were doing for him. One of the things his partners were doing for him. And so at the same time, his partner Lee, who is older, is like, hey, come have this meeting. Let's work this out. We can do a deal. And what he does is he lures Jay to New York for a few days. And with the promise, like, oh, we're going to meet. Oh, we can't meet today. OK, well, we'll meet tomorrow. Oh, I'm sick, I'll meet you in three days. But in the meantime, since he knows Jay's in New York, he goes and tries to take over the tannery by force.

Starting point is 00:42:10 And so when I say that he tries to take over or seize it by force, there is so many examples in the book. And if you study like American business history in the 1800s, that's not like hyperbolic. Like literally he's going to hide. There's about to be a shootout at a tannery. That's how things were resolved in many cases. We've gone over this over and over again,

Starting point is 00:42:30 whether it's the Vanderbilts, the Rockefellers, Fords, they break strikes with violence. Henry Clay Frick did this. Andrew Carnegie did this. And what complicates things is not only do they hire like trained, like detectives and soldiers and mercenaries, but then they'll have like a shootout and then they'll go to the courts. But each side owns all the judges and all the politicians are in their

Starting point is 00:42:52 pocket. Wait till you see what Jay talks about. He's testifying and he goes into detail later on about he's there like, well, how many politicians did you buy? And he says, like, asking me how many politicians I bought, it's like asking how much freight my railroads ran on any given day a few years ago. It would just be impossible to tell you because it's just a standard part of my business. So I'll just give you an overview of how this ends here. Lee's there. He's got, he goes into the tannery, barricades himself inside, and they call it an army. He's got 25 heavily armed men inside the tannery, barricades himself inside, and they call an army. He's got 25 heavily armed men

Starting point is 00:43:27 inside the tannery. They're prepared for a fight. So Jay finds out. He goes, and then his first action, it says, was to consult with his attorney. His attorney promptly urged that Gold could take back his property by force. So he met, he was met at the gates. So he brings his own army so jay how young is he he's got to be what he's still like maybe 25 years old when this is happening it's unbelievable so gold brings his own army meets lee and his army at the gates of the tannery and lee says they says lee threatened his life if he did not leave the premises gold then invited lee to surrender in order to avoid bloodshed. This is insane.

Starting point is 00:44:07 And so it says, upon Lee's refusal, Jay moved into action. So Lee's got 25 people. Jay's got 50. Jay says, I divided my 50 men into two companies, one of which I dispatched to the upper end of the building. So he's a flanking him, essentially, while I headed to the other side

Starting point is 00:44:22 and opened a large front door. When Jay burst to open the door and ran in, he was immediately saluted with a shower of bullets, which forced him to retire temporarily before charging a second and a third time. This is insane. At last, he gained complete entry. The firing now became general on all sides, and the bullets were whistling in every direction.

Starting point is 00:44:41 It's amazing how bad an aim they were. Lee gets shot in the finger, and I think three other guys get shot, but no one dies. And so after the shootout goes to the courts, Jay and Lee wound up in court. Suits and countersuits went on for seven years while the tannery languished and lost all value. And the reason they lost all value is because because of all the lawsuits, he was incapable of transacting business while the lawsuits progressed. Gold was forced to start over both financially and professionally. And so what he did after this, he's like, OK, what's my next move? What business am I going to jump in? He spent time in Manhattan pondering his future, looking for a toehold and a new career. And this is where he's like, OK,

Starting point is 00:45:21 I'm going to Wall Street. He's got a great line on that. His dad's back in the picture. His dad is like drunk all the time, poor, has to live with one of his sisters. And so it says, Jay looks at father sadly, Sarah said. That's a sister. What he sees in that broken man, I cannot tell. That gives me like shivers. The idea that you would ever mismanage your life so poorly that your children describe you as a broken man. And listen to this writing. What Jay saw was a specter of futile pride and

Starting point is 00:45:57 broken dreams from which he would spend the rest of his life in flight. I am trying, Jay said, to start myself in the smoky world of stocks and bonds. This is one of the best sentences in the entire book. There are magician skills to be learned on Wall Street, and I mean to learn them. So let's go to when Jay arrives on Wall Street. He's around 24, 25 at the time. Jay spent his first few months on Wall Street doing small deals, winning and losing, and learning from his mistakes. He spent long days researching leads with a monk-like dedication. We saw that when he was younger. We see that now when he's in his mid-20s. He'll keep that monk-like dedication his entire life. He also studied the moves of the sharpest players and learned how instruments, financial instruments, might be

Starting point is 00:46:44 leveraged to provide either the cash or the credit necessary to make one's desired next step possible. And we see that he was not prone to distraction. He fixated on the business and his own future, and he appears to have cared little about the wider world. And so there's all these sentences that are spread throughout the book. We see it here as well with other people describing his personality. It was remarkably consistent. This is what he was like in his mid-20s. He seemed to have approached all things with a machine-like intensity that some found hard to take. He was a sober fellow blessed with great personal discipline, a commodity that remained in perpetual short supply among the would-be millionaires on the street. So he's meeting a lot of older people that are more experienced.

Starting point is 00:47:29 One of these guys is famous in his own right, this guy named Daniel Drew. Daniel Drew and Gold will battle for many, many years, just like Drew will battle with Vanderbilt. Vanderbilt's like a main character in this book, but I'm only bringing Drew up so we can compare and contrast the way like how Jay thought about what he was learning as just a means to an end. So it says Jay continued to study the art of Wall Street as practiced by the most seasoned speculators. In time, he became a master at stock watering, short selling, pooling, bear raids, bear traps, and other standard tricks of Wall Street. But unlike the Daniel Drews of the world, Jay valued Wall Street speculation as a means towards a greater and more complicated end. He sought, in the long run, to take control

Starting point is 00:48:12 of companies that he could manage, improve, and merge. It was only a matter of time before he focused his attention on the one sector of the marketplace that offered the greatest range and flexibility of financial instruments, and also the greatest promise for long-term growth, railroads. And so one of his first advantages derives from the fact that he had this monk-like dedication. He studied and read everything. There is something, this is not like the sexy part of business by any means, but it's something that you and I have seen over and over again. The most explicit statement of the importance of studying regulations

Starting point is 00:48:44 came all the way back from the guy that founded Trader Joe's. I read his autobiography. It's called Becoming Trader Joe. I did a podcast on it. It's number 188. And he says in that book, as I learned time and time again, success in business often rests on a minute reading

Starting point is 00:49:00 of the regulations that impact your business. And that comes into play. This is how he gets involved in railroads for the very first time. As Gold knew, the New York General Railroad Act of 1850, that must be made for good reading, right? Or for fun reading. The New York General Railroad Act of 1850 allowed directors of railroads to issue bonds on their own authority to finance expansion. It also permitted the easy conversion of these same bonds into common stock and then back again into bonds. Jay must have quickly realized that just a small percentage of Wilson's bonds,

Starting point is 00:49:39 Wilson is the guy offering to sell bonds in this R&W railroad for like 10 cents on the dollar. Okay, so this is why Jay realized, oh, I got to jump on this right now. Jay must have quickly realized that just a small percentage of Wilson's bonds, when converted, would establish a controlling interest in the R&W railroad. Wilson offered Jay all of his bonds at just 10 cents on the dollar. So this is where we see Jay take control of his first railroad. This is something he's going to do for the rest of his career. Thereafter, for a solid year and a half, Jay is 27 years old at this time. I should bring that to your attention. Thereafter, for a solid year and a half, Jay spent four to five days a week working to improve the infrastructure,

Starting point is 00:50:15 traffic, and profitability of the R&W railroad. And we see this monk-like dedication again. What he didn't know about the railroad business was considerable. And so he made a point of learning it. He says, quote, I left everything else and went into railroading. I took entire charge of that road. I learned the business and I was president and treasurer and general superintendent. I kept at my work. One of his employees on the railroad was this guy named Charles Frost.

Starting point is 00:50:43 He gives us a description of Jay Gold at 27. He was a man of snap judgment, curt in his remarks, and exacting. Action was his hobby, and he was relentless in his efforts to bring about the accomplishments of those things which he set out to do. Isn't it remarkable, though? We started with the description of Jay Gold when he was like 14 from his teacher. Thirteen years later, it's the same personality over and over again, just applied. He's applying his talents and his dedication, his persistence, his like deliberate study to whatever is in front of him. But he's absolutely relentless.

Starting point is 00:51:17 They call him machine like, disciplined. Action was his hobby. Relentless in his efforts to bring about the accomplishments of those things which he set out to do. You and I are not building railroads, but we can apply these same traits to whatever it is that we do. And so even while he's doing all this, we see the other important, he had essentially like two, the two most important things in his life was his work and his family. He was not an absentee father, an absentee husband. In fact, he was extremely intro, extreme introvert. his day all if he's not working he's spending time with his family he's making sure now he's far away so

Starting point is 00:51:49 during the week he has to like he's on like the round trying to to build his fortune still very early like he's so he's got a little bit of money but he's not nearly as wealthy as obviously he's going to be but he's coming home every weekend he's spending time uh his his wife is now starting to have i think they have one of him, like five or six kids. He's around his family like he wanted to be with his family when he was not working is what I'm trying to tell you. Early in his career, Jay demonstrated his lifelong disinclination to separate himself from family. He always returned to his family every weekend. And so because he makes these rapid improvements to this R&W, he's able to partner

Starting point is 00:52:25 with another guy that owns other railroads. So there's a lot of highlights I have on this one page. I'm going to summarize. I'm going to read you my summary of what I wrote to myself after I read this part. And because I think it like sets up what's about to take place. So it says other people can have the same ideas as you and still won't get the same results as you if you are more creative and your execution is better. A lot of other people saw the opportunity in railroads and vertically integrated monopolies. And so in 1865, Jay sold control of the R&W to this guy named William T. Hart, who was a steamboat entrepreneur who, like other old steamboat entrepreneurs, Daniel Drew and Cornelius Vanderbilt, saw the future and was now interested in railroads. So that's an important part.

Starting point is 00:53:12 Why are all these like, what is it taking place? Like, what do you know as a steamship operator, right? You're in the business of transporting goods and people from one spot to another. Now they're building out railroads, which just seems to be a way larger opportunity than steamboats, which, so Hart saw this, Daniel Drew saw this, and Vanderbilt saw this as well. And so just like Vanderbilt before him,

Starting point is 00:53:36 Hart is like, oh, I have a steamboat business. Let me combine it with a railroad business. So he had taken control over these. These names are so hard. Like, I'm just hard. It's irrelevant what it's named. Do you want me to say Rennes-Soller in Taratoga? It's a bigger railway than the one at this point that Jay has control of. So he's going to merge. He's going to sell his interests. They're going to merge. Jay realized more than $100,000 on this one transaction.

Starting point is 00:54:01 That seems like a lot of money. There's single transactions that Jay does later in his life that he makes $40 million on. It's bananas. Jay realized more than $100,000 on this one transaction. That seems like a lot of money. There's single transactions that Jay does later in his life that he makes $40 million on. It's bananas. Jay realized more than $100,000 on this one transaction, his first truly enormous payday, but he was not done. A week later, he and Hart incorporated this other railroad. So essentially they're all combining, they all have the same playbook, right? That's what I meant. I was like, yeah, you could see the same opportunity, but like if you're more creative and your execution is better, like you'll yield better results. So they just take a bunch of small railroads and they consolidate them and make them into larger railroads. And this is why Jay tells us exactly because we see a note that he wrote his partner, which is a guy named Hart. I believe that consolidation will prove both essential and inevitable for a score or more roads in the coming decade.

Starting point is 00:54:42 He's predicting the future and he's right about that. Far better than mere cooperation is tight coordination, close vertical integration, economy of scale, and unchallenged market domination whenever possible. So that's Jay's playbook that he's writing when he's in his 20s. That's what Hart's trying to do. That's what Drew, Vanderbilt, Rockefeller, Morgan, all these guys are doing the same thing at this point in time. And so he's like, let's not stop here. What is his advantage? Ever since boyhood, he had a fascination with maps.

Starting point is 00:55:12 How crazy is this? All these experiences he could not have predicted when he's telling his sister as a teenager, what was he, 15, 16? Hey, surveying, making maps, studying the terrain, understanding the strategic ports, how to link quarries, forests, and other resources together in a transportation network. All of that, there's no way he could have predicted what he's going to use that skill set 10 or 12 years later,

Starting point is 00:55:37 which is exactly where we're in at this point. So he's like, listen, I had a fascination with maps. Now the one-time surveyor scrutinized his maps with a freshly engaged eye. He studied the small railroads dotting the landscape as one would study the pieces of a complex jigsaw puzzle, pondering which among the myriad possible combinations might yield maximum economy and profit. That is not exclusive to Jay Gold. We have studied multiple entrepreneurs on this podcast that were obsessed with the physical landscape and they use their understanding of the physical landscape to gain an advantage over their competitors. Is that not what Sam Walton did? He was the only

Starting point is 00:56:14 retailer in the South that has his own plane. So he's flying over, he's studying traffic, but he can get down real low, studies traffic patterns. He picked out what, if my memory serves me correct, the first 130 Walmart locations himself out of his little Cessna plane. It's the same thing that Rockefeller was doing when he set up his first refinery in Ohio. Way before he was, he had, you know, at one time he was what, refining, I think 90%. He owned like 90% of all the refinery market in the United States. Way before that, he realized, hey, I should set this up so I can actually transport the refined oil by both railroads and by boat. And now we see Jay Gold taking that same idea and applying it to, hey, which railroads give me a strategic advantage

Starting point is 00:56:56 if I can overtake and consolidate them? That's really cool. It's really cool to me, at least. And what's even cooler is the fact that he's like oh i found my life's work this is what i'm going to do forever oh this is so this is so good this is jay's words this is what makes it like exciting for me we are at a moment he wrote where there is a particular inevitable future waiting to be made i see things things very, very clearly. I feel inspired with an artist's conception. My road is laid out before me in the plainest of ways. He's talking about his path in life, not his railroad. He felt as if all the wheels had finally been installed in his life. Not only did he have professional focus, but also the meaning that his family. A wife and child. This is so good. Check out this writing.

Starting point is 00:57:46 A wife and child to fight wars and build castles for. Now that I am in this place, it is a puzzlement to me how I endured before. Everything prior seems to have been boxing in the dark, scraping without reason. Now I have my road to walk and my reason for walking it. So not only do I know what I'm doing in my life, I'm dedicating it to the consolidation of railroads, right?

Starting point is 00:58:10 And the building up of railroads, but I'm doing it for my family. I'm going to read that again. Now I have my road to walk and my reason for walking it. Now the pieces fit. And this thing, ambition is, and this, and this thing, ambition is no longer blind, but divine, a true and noble and this thing ambition is no longer blind but divine a true and noble

Starting point is 00:58:27 and necessary path that's the end of his quote it's a fantastic summation by the author work and family would remain his two hallmarks until the end of his days so i just want to give you an overview how how he was working at this point at this point in his career the note of himself is don't waste time or money didn't excuse me didn't waste time or money did just want to give you an overview of how he was working at this point in his career. The note I left myself is don't waste time or money. Didn't, excuse me, didn't waste time or money. Did not want to waste his talent on small accomplishments and recruited only A players. And again, I know I just mentioned this to you, but a lot of these traits, you and I are not building railroads, but there's these traits just can be universally applied to

Starting point is 00:58:59 whatever you do. He had an energetic mind. He suffered neither fools nor small talk. He would not tolerate lengthy, meaningless discussions on the weather. He was invariably polite to everyone, whether the sweeper of the floor or the commander of the fleet. He would nevertheless, though, remove himself promptly from any interaction that seemed without point. One got the feeling that he did not believe he had time to waste. Friends, relatives, and business associates noted Jay's economies of action,

Starting point is 00:59:28 the way he hoarded his time and his capacity for focus as much as he did his dollars. And this is what he says about that. We must look at accomplishing big things in big ways, he would tell his assistants. Early in his career, during a meeting with subordinates who exasperated him by bickering about whether a particular move might be too audacious he insisted that they keep their eye on the ball the procedure gentlemen the procedure we need not hesitate about dimensions jay's abilities as an entrepreneurial talent scout selecting the natural leaders from among the naturally led. The innovators

Starting point is 01:00:06 from among the drones would loom large in the making of his fortune. In time, he would surround himself with an assortment of lieutenants who had little in common other than their drive, their smarts, their inventiveness, and their humble origins. He would say that the school of the street is the one that teaches the most important lessons to those who have the capacity for learning them. And so this is what I was talking about earlier, where he's able to identify somebody. It's like, oh, this person has a brain

Starting point is 01:00:34 that is more advanced than their current, like where they're at in life. In time, his inner circle would include a former Vermont peddler, an Italian immigrant whose only formal training was as a deckhand, and a one-time grocery clerk. So this is where his father dies. Jay is 30 years old. And again, I want to go back to what I said that was in that Francis Ford Coppola biography,

Starting point is 01:00:57 that you can always understand the son by the story of his father. The story of the father is embedded in the son. By the time John Burr Gold died in 1866, Jay could have purchased the old family farm plus 20 more like it in cash. Jay and his father could not have been less alike. My father met many unconquerable challenges. He walked a hard road. The world did not open up for him as it does for some. He was haunted by unfulfilled aspirations, broken dreams, and empty hopes. He drank from a bitter cup and did so more than once.

Starting point is 01:01:37 I have tried to make it my business to achieve some of the things that were denied him. In that way, perhaps, I can honor my father with my actions. That has been my philosophy. That has been my best hope. We all give, or should give, the best that is in us. But what he had inside him was not enough. He was not blessed with the stuff of success. So there's so much detail about Jay's career.

Starting point is 01:02:08 If you're interested, I highly recommend reading the book. I want to skip over some parts and just get to the point where he starts at first being a partner with Cornelius Vanderbilt. And then they have a weird relationship. Vanderbilt's way older and a lot richer than he is. They started being partners and then they're, and then they'll work together. Vanderbilt says that Jay's the smartest person in America, but he also says he hates his face. So I want to just pull out something about this famous historical event

Starting point is 01:02:36 called the Erie War. It's this fight over the Erie Railroad. And I just want to, like, the reason I'm bringing this to your attention is because what Jay's doing, going back to what I said a few minutes ago, it's not like he's the only one that saw this opportunity. There was a bunch of formidable people seeing, it's like in today's age, thinking you're the only person that realizes the advantage of the internet and what it could do to a business. Like that was the railroads in their day. So this is more about like why Vanderbilt jumped into this, like why he was engaged in this business. Vanderbilt's strategy in railroading

Starting point is 01:03:05 was elemental as it was effective. You buy a railroad, you put in honest management, you improve its operation, you consolidate it with other roads when they could be run together economically, you water the stock, that's something that's all over this book, and then you make it pay dividends.

Starting point is 01:03:25 And so it's important to understand going into this, they're not viewing this as like, oh, I'm going to build up a great business. Jay has that view later on with the Union Pacific. These are just their businesses in name only. They're financial instruments to be completely milked. And at this point, Jay is still considered a nobody, but that's not going to be the case for long. And so he winds up getting on the board, on this board of this, but that's not going to be the case for long. And so he winds up getting on the board, on this board of this robo that's controlled by Vanderbilt. But I want to go to what the press says. The New York Herald speculated about the possibility of the future intrigues among the three lions. So those people, that's Vanderbilt, Daniel Drew, who I had mentioned

Starting point is 01:03:58 earlier, and this guy named Eldridge, who is supposed to be like Vanderbilt's guy. And so it says only these three in the newspaper's estimate bore watching. The balance of the board were nothing more than, quote, a batch of nobodies. One of those new board members was Jay Gold. Another was an equally obscure player by the name of James Frisk Jr. No one could have guessed that these two unknowns

Starting point is 01:04:23 would soon be notorious as the all-time greatest tag team ever to wrestle Wall Street to its knees. So I want to introduce you to Jim Fisk. I need to read a biography of him and you'll see why. He's Jay's partner for a few years before he gets murdered. And so I want to spend a little bit of time talking about why Jay and Jim were actually good partners. This is an overview of how different Fisk was from Gold. Champagne breakfasts, exquisite silk suits, and gold canes became Fisk's permanent norm. So did a steady procession of actresses and chorus girls. This is actually what gets him killed.

Starting point is 01:05:02 One of his many love affairs is with this well-known actress. She winds up falling in love with Fisk's partner. And partner, like, he's got a bunch of partners. They're all involved in a million different businesses. And so they wind up fighting over her. And they're also fighting in court on other, like, business-related matters and all kinds of things. Anyways, that is going to wind up, this guy is going to wind up following Fisk into like a bar or hotel and shooting him twice and killing him. This is a few years from now. And so that's described in more detail later on the book, but that's like

Starting point is 01:05:33 the brief overview. This is, they worked well together because they were in many ways opposites. Jim was loud and self-confident. Jay was silent and indifferent. Jim was bold. Jay was cautious. Jim said what he thought. Jay kept his mouth shut. Jim liked to spend his money. Jay liked to keep his. Jim was generous and open-handed. Jay wasn't. But both men had an inexhaustible capacity for work and both were unusually intelligent. They made a formidable combination when they joined forces. So it says, Jay was always intense and therefore serious. His whole mind was centered upon whatever project he happened to have in hand. And this idea that he had intense focus is mentioned many times throughout the book.

Starting point is 01:06:18 Towards the very end, I want to read some sentences before I go back to their partnership. This will give you a great description of who he was as a person. The general impression that Jay evoked was of a highly focused mind tolerating the presence of a body out of mere necessity. His concentration was so intense that you noticed it. All right, so let's go back to this partnership, what they're describing. So he's very serious. His whole mind's centered upon whatever project that he happened to have in hand. He was a stronger character than Jim Fisk because he was more tenacious, but somehow he didn't seem to know that much about people.

Starting point is 01:06:50 So that is, Jim was like a master at people. Jim Fisk, on the other hand, served as the consummate salesman and promoter. So at this point, Jay and Jim are in this battle with Vanderbilt. They go back and forth a bunch, and so they're holed up, hiding out in New Jersey. It's very complicated. This has to do with the control of the Erie Railroad. And so what what they're describing in the book and why I bring this your attention is because like Jay Gold sets the strategy and then Jim goes, and most of the steamboats there belonged to him. As ambitious young men, we saw that there was no chance for us to expand, and so we came over here to grow up with the country. While Fisk was doing all the talking, it was Jay Gold who had composed the talking points. To him goes the credit for this masterstroke of framing the fight against Vanderbilt in populist terms.

Starting point is 01:07:44 This is just a high-minded battle against single-minded greed. It is a war against monopoly. We just know from the Edward Bernays book that I just covered how the press is routinely manipulated for private interest. The idea that they put a populist spin on this war for control of the railroad as a war against monopoly. Every single one of these guys are monopolists. Like this is absurd. And so let me grab another paragraph from the book, paragraph or two of the book, because it goes into detail again about their partnership. It's just, it's a huge part of understanding Jay Gold's career. Jay remained devoted to Fisk, who fulfilled most of the social and public relations obligations of their partnership. Fisk most often provided the public face for Jay Gold's

Starting point is 01:08:26 machinations. Jay preferred to let Fisk handle all the late night entertaining. Fisk was far better than Jay at glad handing, befriending, carousing with, and winning the men of the press. Jay retreated to his house and his family every evening with a religious consistency. And so what would he do when he went home? Always devoted to his books, Jay now began to collect. And unlike other such collectors, he actually read antique editions of his classic works. His taste ran towards the natural sciences. He also collected books on botany and spent much of his time with his children working in the garden that he had

Starting point is 01:09:05 cultivated when his sister sarah visited she guessed this is what i mentioned earlier to keep in your mind when his sister sarah visited she guessed at the source of jay's fascination with beautiful flowers when she recalled as jay could not the extensive gardens their mother had once maintained around the old farmhouse. So the book goes into the Erie War. It's extremely complicated and hard to follow. I've said I've read these parts multiple times. Still can't really figure it out and this is why. The Great Erie Railway stock litigation was the most extensive and complicated ever brought before the civil courts of any country. The weapons deployed by both sides in this quarrel added up to about $120 million in capital. The players contesting for control of the Erie were the sharpest to ever walk on Wall Street.

Starting point is 01:09:59 And so after this was resolved, that's when Vanderbilt has that famous quote. Vanderbilt was annoyed but also impressed by Jay. Vanderbilt told a reporter that he considered the younger fellow the smartest man in America. That is not the last time that Jay is going to tangle with Vanderbilt. There's actually a funny story later in the book I'll tell you about. I got to get to when Jay, the most famous thing that Jay is known for is cornering the gold market or attempting to corner the gold market unsuccessfully, actually, and causing a great depression, like a financial, it's the original Black Friday. I know that term is used multiple times, but this is the first time it's used. Okay, so I think a good place to start is to

Starting point is 01:10:36 realize, hey, at this time, a lot of people were trading gold. Almost all this is on margin. That's what Jay's doing. And then he realizes that's not good enough. I want to be able to actually predict the market and I want to have an unfair advantage. So it says the gold exchange bank was a clearinghouse that by 1869 averaged 70 million in business every day. Most of this trade was being transacted on margin. As Jay later explained to a congressional investigative committee, because this is going to spawn the panic of 1869, that if a man had $100,000 of money and good credit, he could transact business of $20 million. $20 million being the total gold available in New York City at that time. So as normal, he's studying the market, trying to figure out, okay, what's the most influential level

Starting point is 01:11:20 lever I can pull? He took notice that the Treasury Department had the power to shape and move the market. He commented that if one could control or at least have advanced knowledge of the Treasury movements with regard to gold, then one would be in a position to corner the market, reaping a massive return in the process. He is 33 years old when this is taking place. So up until what you and I know about Jay at his point in life, what do you think a man like that is going to say, hey, huh, the Treasury Department can shape and move the market. I would just have to find a way to get advanced knowledge of the Treasury movements with regard to gold. I should put my guy who's under my control in that position.

Starting point is 01:12:01 So there's two things happening here. Jay is trying to influence the president. This is President Grant at this time. And he needs to get his guy hired as an assistant federal treasurer. OK, because remember, Jay saying that knowing what the treasury was doing is in advance is key to this whole thing. This is not going to work out well for him, by the way. Check this out. He sets up President Grant's brother-in-law. So this guy named Corbyn. From that moment on, Corbyn, or rather his wife, because it was in his wife's name, which would be Grant's sister, would profit $15,000 on every dollar rise in the greenback price of gold. So Jay wants the price to go up. Gold then sent Corbyn, which is Grant's brother-in-law,

Starting point is 01:12:43 to Washington to lobby his brother-in-law on the necessity of tightening the gold supply. Now, this lobbying is sometimes overtly direct. So at one point, Grant's like, hey, keep gold away from me. He keeps bringing up this thing over and over again. But he doesn't realize at this point, Grant does not know that his brother-in-law is in on this. OK, when he finds out, that is where everything goes bad for Jay. Before that happens, Jay lobbied successfully for the appointment of Brigadier General Daniel Butterfield. His new position called for Butterfield to execute all

Starting point is 01:13:17 orders for U.S. Treasury transactions in the New York market. Butterfield, by definition, would be the second man after the secretary himself to know of any U.S. Treasury moves with regard to gold. The third piece of this is Jay's pool. This is also going to lead to one of his downfalls. He does not have enough assets at this time to corner the market himself. So he's got to collect. I'm going to skip over all the names. There's a bunch of them. Let's say maybe 10 other wealthy investors and saying, hey, let's do this together. And his partner, Fisk, is like, dude, you're crazy. You can't be doing this. Although Fisk remained willing to help his partner in any way he could, at the outset, he kept his own money off the table. Eventually, he's going to jump in. And this is

Starting point is 01:14:01 why. The thing began to look scary to me, he said. Indeed, given the many wild cards in play, it seems surprising that the normally careful Jay, always so intent on controlling every aspect of his deals, decided to go ahead with the plan to corner gold. Why is that? Why are they bringing that up now? Because his pool, like this investors, these, they are not, like he doesn't have control over them.

Starting point is 01:14:25 Gold's pool was barely that. the quote unquote members remained independent, giving gold, no fiduciary authority over their investments. And this is the most important part to understand each player was free to buy or sell according to his own clock. So it is not a pool at all. And so you're going to see as they're doing, like they, they keep defecting. Sometimes they sell when Jay wants them to buy and sometimes the reverse. Sometimes they don't act at all. So this is again, he's he's too aggressive on Grant and his pool members are not actually loyal to him. The one thing that that saves his ass is the fact that he had Butterfield in that position. And so let me fast forward to the end where this all falls apart because we see the mistakes that he makes in a clumsy attempt to counter this lobby, meaning that his pool members are now moving against him.

Starting point is 01:15:09 The increasingly nervous Gold embarked upon an action that proved lethal to his cause. He instructed Corbyn to write his brother-in-law a letter arguing against federal intervention. Then he had the letter hand delivered by an Erie employee to the president in rural Pennsylvania. And so Grant's not a dummy. He's like, why is a member of like, I'm like, my brother-in-law is trying to track me down. I'm on vacation. I'm in the middle of nowhere. The letter is hand delivered by somebody that works for Jay Gold. What is happening here? All was not right. Thinking it odd that his brother-in-law had sent a courier to find him in the wilderness and deliver a plea for support of gold prices, which is what Jay wanted at this point.

Starting point is 01:15:50 Grant at long last realized that Corbyn was an interested party and was long on gold and anxious to influence the president to protect his financial position. He became enraged. So Grant comes upon his wife. Right. Remember, that's Corbin's sister, in the process of writing a letter to Corbin's wife. And so Grant is giving his wife a very specific message to convey to Corbin's wife. Tell your husband that my husband, which is the president of the United States, is very much annoyed by your speculations. You must close them out as quick as you can. So when that letter arrives to Jay's partner, he's like, oh, Grant is saying we need to close this out immediately. Jay quietly start stops buying and then starts selling very slowly. Now, a day or this is like, I think a day or two later, maybe a week later, I can't remember the exact time frame. There's he starts selling

Starting point is 01:16:43 very fast. And this is where his plan fails. And so they're like, hey, what caused Jay to speed his exit? First, the 10th National Bank would no longer be of service. This is a financial institution they were using because federal auditors had arrived on the premises. Word of an impending failure was on the street. Immediately afterward, there's about to be a bank run on 10th National. It's essentially what's happening here. Immediately afterward, the broker for the assistant federal treasurer. So that's Butterfield, right? The guy gold put in place.

Starting point is 01:17:12 That guy's broker has suddenly become a seller rather than a buyer of gold. That tips off Jay. Oh, this is over. I got a reverse position immediately. And that is the only thing that saves Jay from being almost completely wiped out. He still has a loss, which I'll get into right here, but not nearly as if he didn't have butter filled in that spot. Nearly a thousand individual investors were bankrupted on the day's activity. 14 brokerage houses went under, along with several

Starting point is 01:17:40 banks. This is Jim Fisk's description of Jay Gold that day. Jay has sunk down right now. There's nothing left of him but a heap of clothes and a pair of eyes. Although at the end of the day, he turned a small profit on gold, the week's massive decline in stock prices meant that gold owed significant sums on margin calls. Now, the author makes the point that the money he's going to make back, I think in like 18 months, he's like richer than he ever is going to be. So he just jumps right back at it. But this is what the long lasting effect is. And it goes back to what Warren Buffett warned. He's got this great quote about why you need to protect your reputation at all costs. He's like, it takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you'll do things differently.

Starting point is 01:18:22 Well, this attempted cornering of the gold market destroyed jay's reputation reputation to this day and we're what 150 years later jay's attempted gold gold corner would cost him dearly in one other way in addition to market losses oh this is funny actually this isn't his reputation i'll get there in a minute vanderbilt wins again this guy's just hilarious he's a terrible person somebody you don't want to be friends with. Somebody you definitely don't want to work with. But he just he pops up in all these like stories. It's amazing. So this also cost him because he's running a railroad. So one of the brokerage houses that failed in the wake of Black Friday was this company called Lockwood. OK, the guy, the chairman of Lockwood was it's

Starting point is 01:19:04 named after him. His name is LeGrand Lockwood. He was also, in addition to being a chairman of a brokerage house, he was a treasurer on this very important railway that was a strategic importance to both Jaygold and Vanderbilt. But they did not have control over it at this point. So that's called the Lakeshore and Michigan Southern line. OK, because his brokerage house failed, Lockwood was forced to throw an enormous block of stock from his railway onto the market. And you're doing this in a depression. So it's considerably depressed in the aftermath of Black Friday. It says with his own affairs in disarray, Jay could not act swiftly. You already know who does, though. Instead, it was Vanderbilt who purchased 70,000 shares of Lakeshore at a bargain price and then took control of the line. Vanderbilt wins again.

Starting point is 01:19:57 The gold corner was to cost Jay Gold even more dearly in the way of a tarnished reputation, which is what I just said. This is when the precious absolutely destroys him, and he never escapes this. He didn't escape in life, and he doesn't escape it in death either. So Jay does something smart. He licks his wounds, gets right back in there, starts building up his fortune again.

Starting point is 01:20:19 There's a couple of different things that are going to happen in these next few pages that really speak to not only how clever he is, but how ruthless he could be. And a lot the stuff that's why they said like at the very beginning what was that line that some of his acts were among the first things prohibited by the sec when it came into being in the 1930s and we're going to see just out and out corruption for sure nothing we'll get there in a minute this was actually funny this made me laugh and just funny because it's also clever on Jay's part.

Starting point is 01:20:53 So both railroads are battling, Vanderbilt's railroads and Jay's railroad, to try to get more cattle shipments from the west to flow east over their lines. So they make more money. So to attract, they have basically one lever they pull here. They do rate wars over and over again, which you and I have talked about on past podcasts about, you know, the history of railroads is one as a history of rate of rate war. So it's like, all right, we right now, Vanderbilt is charging 125. So Jay starts to rate war, rate war. And he says, if you throw your cattle and you ship it on my line, instead of paying Vanderbilt 125, you could pay me 75. So then Vanderbilt retaliated and dropped his to 50. Gold then retaliated and dropped his to 25, only to have Vanderbilt go to a ridiculous $1 per carload. And this is hilarious. At first, Vanderbilt delighted in reports that while his cars were packed, the Jay Gold and Jim Fisk had bought every bit of marketable livestock coming into New York, which they then shipped to New York via Vanderbilt's railroad, realizing enormous profits.

Starting point is 01:21:58 So he's like, my car, look, I dropped it to a dollar. I'm going to try to starve them out. I'm going to win this great war. They're like, oh, we'll just buy all the livestock. And then thanks. Thank you, Vanderbilt, for transporting our livestock for a dollar, which we'll resell and make a huge profit, which they then shipped to New York via Vanderbilt's railroad, realizing enormous profits. That is clever, dude. When the old Commodore found out that he was carrying the cattle of his enemies at a great cost to himself and great profits to fisk and gold, he barely nearly lost his reason. So that's one thing of being clever. This is him being ruthless. This would obviously be very illegal what he's about to do now. Jay also routinely played stocks of firms such as the United States Express Company, which is a package and mail delivery service that relied on his railroad for its livelihood.

Starting point is 01:22:46 Look what he does here. He never hesitated as Erie president to make ominous noises about severing relations or raising the rates for such a dependent organization. He would then short its stock and reap hundreds of thousands of dollars as it tumbled down. Later, he would send out a positive word that would revive the company's prospects on Wall Street along with its stock valuation, at which point Jay would ride the same security back up. And then more on his ruthlessness. This is just what I mentioned earlier, that he just considered bribing politicians as a normal part of his job. And he's about to say this to Senate investigators. It was the custom when men received nominations to come to me for contributions, Jay said.

Starting point is 01:23:26 And I made them. And I considered this good paying dividends for the company. In a Republican district, I was a strong Republican. In a Democrat district, I was a Democrat. In politics, I was always an eerie railroad man every time. These transactions were plentiful enough so that Jay claimed not to be able to count them off individually. There has been so much of it, he said, and it had been so extensive that I have no details how to refresh my mind. When I went over a transaction, I completed

Starting point is 01:23:56 it. That was the end of it. And then I went on to something else. You might as well go back and ask me how many cars or freight were moved on a particular day. I could not charge my mind with the details. I can only tell you what my general rule was. And that was my general rule of action. And then right before he gets to his, what he considers his greatest accomplishment, this is the Union Pacific. I had this thought, I just jotted it down. There's not even a highlight. It's just a post-it note on a page because it's just going on for page after page. And I go at one, at this point, you have to wonder why not apply your genius to something good why don't you build apply your genius to building a great product and a great company

Starting point is 01:24:32 instead and so that's indeed what he starts doing uh like the next chapter two before i get there i just have to tell you this funny exchange where vanderbilt admits that he hates gold's face the old commodore instead said that he disliked Gold because of his face. No man could have such a countenance and still be honest, Vanderbilt said. God Almighty has stamped every man's character upon his face. I read Mr. Gold like an open book the first time I saw him. I consider Jay Gold a damn villain. Gold suggested that perhaps Vanderbilt at 79 was senile. Jay Gold was 36.

Starting point is 01:25:08 And so everything else that takes place for the rest of Gold's career and life is taking place where the entire country hates him. They said, you know, he's the most hated person. The press is just relentless at disparaging him, trying to make fun of him, calling him a devil. And so I had read enough of these reports that his response when I got to this part of the book really surprised me. And the reason that this surprised me because Jay thought that the press was doing him a favor. And his attitude does like make me believe that he definitely had an inner scorecard as opposed to an outer scorecard. And as I read these two paragraphs, what also came to mind is what

Starting point is 01:25:44 John D. Rockefeller realized when he was a young man working in the commission house. He said something that was fascinating. He said that things are not as they appear from the outside. That was like his main lesson he took away from that job. So he says, the public heard from Jay only when he, and not the public, would profit by the utterance.

Starting point is 01:26:02 Jay gave interviews for a purpose. His statements on these occasions were often masterpieces of misdirection. I feel like you and I have been talking about misdirection a lot these last few podcasts. Jay also used the press to nurture the popular image that he had emerged with after Black Friday, the dark, inscrutable, amoral, and ultimately pitiless master of financial markets one of gold's like lifelong people that work with him and was friends with him would recall jay repeating machiavelli's advice from the book the prince that it is better to be feared than to be loved and explain that his image as an

Starting point is 01:26:39 evil but brilliant wonder kid was his most valuable. He takes it even a step further here. Look at it the way he thinks. To keep up his reputation as a villain, Jay always insisted on anonymity when it came to charitable giving. Jay donated generously to a host of worthy causes throughout the 70s, 80s, and early 90s, but routinely insisted that his name not be associated with these gifts, lest one of the key pillars of his publicized character, his cold-blooded heartlessness,

Starting point is 01:27:14 be undermined. And so now we finally get to the point where Jay says, hey, I'm going to actually run a business for the long term. From the spring of 1874 onward, for the rest of his life, his primary personal focus was not stock speculation, but the management of the Union Pacific as a business. He was the supreme ruler of the UP, even though he preferred anonymity and officially held no positions other than his seats on the board and executive committee. Jay not only strengthened the firm's financial structure, but also served as its chief strategist. And so think about what you and I were just talking about. Hey, you're doing all this crazy stuff.

Starting point is 01:27:49 Yeah, you're making a lot of money, but you're kind of just pumping and dumping and you're accumulating a lot of enemies. You're shuffling paper. You're making great wealth. But like, why don't you? You clearly have a genius. Like, why don't you apply that to actually doing something? And this is where he's like he considers like his greatest achievement. And so he starts off applying his same modus operandi, as we've seen him apply over and over

Starting point is 01:28:08 again. In taking on all these tasks, Jay necessarily immersed himself in the minutiae of the UP's operation, coming to know the UP's road, resources, strengths, and shortcomings intimately. Jay would ride the length of the UP's tracks, as well as the railroads controlled by his competitors. As he rode, a stenographer would sit at his side, jotting down the moguls' running thoughts on maintenance initiatives, possible cost economies, and recommended improvements. We also see that he decided, hey, I need to supplement my knowledge of affairs of the railroad by finding more A players. So he hires this guy named H.H. Clark. H.H. Clark became Jay's chief operational lieutenant. Clark knew Wall Street not at all, but he understood locomotives and freight forwarding intimately. He and Jay shared two traits. They were both workaholics and they both loved books. In the evenings, after Jay's train

Starting point is 01:29:04 pulled to rest both the machine and the men driving it, Jay would then walk the lonely western towns. So the towns, these like tiny little towns that are starting to be serviced by Jay's railroad. And he's doing the exact same thing that we saw the founder of UPS do. Back on podcast number 192, the founder of UPS was Jim Casey. He started UPS when he was like 17 years old or something like that. But he would make a point. He's like, listen, my executives tell me what they think I want to hear. It's like filtered through all this other nonsense. So every time you'd see a

Starting point is 01:29:32 brown UPS truck, he'd pull over and start talking directly to the driver. So we're seeing very similar things here because obviously like the railroads are servicing something that not only they're moving freight, but they're moving people and all these like little frontier towns are popping up. So he'd walk these lonely western towns and quiz local UP employees for their views concerning what the company might do better in that particular neighborhood. Our men on the ground, what Jay's realizing here is exactly what Jim Casey said. Our men on the ground have intelligence we need. They are our agents, and if we fail to know their minds, we fail to know their minds at our own peril. Throughout his long days back at the UP business office in new york he focused always on core business

Starting point is 01:30:08 fundamentals memo after memo stressed essential basics of economy prices could never rise to the point where they jeopardize the long-term interest of our customers he would say expenses had to be monitored constantly and closely and so then the book goes into detail like what are the main expenses of a railroad? Their main expenses are capital because a ton of them are saddled with debt because they've been just used and abused as financial instruments as opposed to businesses. So you have capital costs, labor and coal. So this is how he's going to wind up dropping coal expenses by 32 percent. And he dropped labor by 48 percent. Also very, very ruthless. So the U.P. owned a bunch of coal

Starting point is 01:30:43 mines. They had staffed it previously with a bunch of people, Norwegians and Swedish, and they're going to make a fatal mistake when dealing with Jay Gold. The Norwegians and Swedes talked of solidarity, a sentiment with which Gold, like other capitalists of his day, had no sympathy whatsoever. when these men whom gold already thought were being overpaid at $52 a month seemed on the verge of a labor action so think of it as a strike jay reinforced their ranks with chinese miners at a monthly cost of just 32 per head he's going to get that down to 27 so he's going to reduce his labor costs from $52 a month per person down to 27 when the miners finally did go on strike jay just brought in more Chinese. At the same time, Jay issued orders to purchase new modern machinery with which to maximize efficiency and also obviously get rid of as many employees as possible, like physical labor and try to replace that with technology. And so why is that important? Because Andrew Carney is the first person that put this idea in my mind.

Starting point is 01:31:42 But we see he's doing this around the same time as Jay is. And even as a young person starting out in the steel industry, he would always invest in technology and have the latest machines and the latest technology. Even as the old timers in the industry is like, oh, you're wasting your money, Andrew. Like you're like this is you shouldn't be doing this or whatever the case is. And one of the main lessons I took away from reading Andrew Carnegie's biography is that you should always invest in technology, the savings compound. It gives you an advantage over your slower moving competitors and can be the difference between profit and loss. We see Jays doing this in the coal mines. This increased the production in the UP controlled mines more than doubled, while the cost per ton dropped a total of 65 cents to $1.35. So he's paying before $2 a ton.

Starting point is 01:32:24 Now he's paying $1.35. By my calculations, that's a drop in coal expense by 32%, thus laying a vital cornerstone for UP expansion. So not only is he building up this railroad, but the other main technology of the day besides railroads is telegraphs. Telegraph lines are usually run next to railroad tracks. And so that's why you would see some people that invest in railroads would also invest in telegraph lines. He decides, hey, Western Union has a giant monopoly. It's the largest telegraph company in the United States. He winds up buying controlling interests in a much smaller one. He wanted to see if he could compete. Like the way to think about

Starting point is 01:32:59 what's happening is like, well, can better technology beat a better network turns out no and not in this case so what he's doing at this point this is where his life intersects with what i mentioned earlier thomas edison this is a young thomas edison this is not like super famous edison and he has invented a way to send multiple like essentially more messages on the same line so gold's going to buy this technology and he's going to try to put it onto the telegraph company that he controls. But here's the telegraph company that Gold controls. It's called AMP. At this point, they have 7,460 miles of wire.

Starting point is 01:33:35 Okay. So 7,400 miles of wire. Not that bad. Western Union has 154,000 miles of wire. So this idea where it's like, I'm going to try to compete against a better network with better technology actually doesn't work. It doesn't matter that he had better technology becauselike dedication to understanding things and he just took it so much further than the average person would or any other person would. And so it's very highly likely that there was not another person that understood the complexities of railroad interchanges and finance as much as

Starting point is 01:34:18 Jay Gold did. And that was his main advantage, right? And when you realize like this interaction that an older Jay Gold is having with a younger Thomasomas edison it's like oh they're barely the same on the same planet because their interests do not overlap at all so it says during subsequent interactions edison discovered that jay gold had no sense of humor i tried several times to get off what seemed to me a funny story but he failed to see any humor in them i was very fond of stories and had a choice lot with which i could usually throw a man into convulsions. Jay did not respond. Gold, in turn, tried to dazzle Edison with a detailed discussion on the complexities of railroad interchanges and finance. His passion, right? He brandished maps and lectured on for hours about his particular passion, all to no effect. The two men barely lived on the same

Starting point is 01:35:08 planet. Let's go back to how ruthless he can be. He is building up the UP. At the same time he's building up the UP, part of that is consolidating smaller and rolling up like these smaller railroads, right? This is like standard playbook that a lot of the railroaders used. Now, the weird thing is like some of these he rolled up into up some he controlled independently and so i was texting a friend of mine about this yesterday and this is how i was like gold just made this is what i wrote in a text message text message gold just made 40 million in the 1870s by selling a railroad he owned 50 of to another one he operated and threatened the board of the up if you now this is gonna get real confusing so this is what he's saying to the board of the up he's trying to sell ownership

Starting point is 01:35:50 in another where the hands are more than 50 he goes if you which is really we don't buy this i will extend that other line and compete with you which is me this is clearly a conflict of interest i cannot believe this happened. And then, so that was the text message. This is a note selling to himself. Hey, board, buy this other line I own or I'll compete against you, which is us. Gold's careful collection of rival lines came to a head at the very end of 1879 when he proposed to his fellow UP directors that his Kansas-Pacific-Denver combination should be merged with the United Pacific. As a stick, he threatened, should his fellow UP directors turn down his offer,

Starting point is 01:36:32 he would extend the Kansas-Pacific, where it would then link with another railroad called the Central Pacific, and that would gain an independent connection to the West Coast. The UP directors agreed to Gold's terms. Gold, who held close to half the Kansas Pacific stock, later estimated that he had personally netted $40 million on this one transaction. He was not yet 44. And this is what the author said about this. This is nothing new to Gold. He did this when he ran the Erie. Gould resumed the trading position he had so often occupied when he ran the Erie, that of representing both buyer and seller. And then this goes back to, one, he was obsessed with valuable information,

Starting point is 01:37:13 and he also at the same time desired you to be confused and to believe false information. Main theme in his life. Despite Jay's steadfast and detail-oriented management of the Union Pacific, the press and the public continue to view him as nothing more than a supremely talented corporate raider. Jay said nothing to dissuade them. If people believed he was spending all of his hours rigging Wall Street, then they were distracted from his real agenda. The press of Jay's own era presumed that he had no entrepreneurial devotion to the firms with which he was concerned. After he died, only a select few of his associates would remember the long trips across the desert and mountains.

Starting point is 01:37:56 Jay demanding that he be shown each and every trivial branch and spur. Only they would recall the plethora of maps stacked up on tables in Jay's office, the maps that had so bored Edison. All of these maps annotated in Jay's own hand with detailed data on mineral deposits, grades, population centers, and the like. Only they would remember his clearly enunciated vision that the creation of the gold system of railways in the American West constituted his most important life's work, his monument, his contribution, and only they would recognize his truth,

Starting point is 01:38:38 the simple words Jay spoke. I have been interested in railroads ever since I was a boy. I think a railroad train is one of the grandest sights in the world. And that is where I'll leave it for the full story. Highly recommend reading the book. If you buy the book, I don't, this is not going to be the last book I read on Jay Gold. I know in the future, I'll pick up another one for sure. If you buy the book using the link that's in the show notes in your podcast player, you'll be supporting the podcast at the same time. That is 258 books down, 1,000 to go.

Starting point is 01:39:13 And I'll talk to you again soon.

Your Ad Here

Founders - #258: Jay Gould (Dark Genius of Wall Street)

There aren't comments yet for this episode. Click on any sentence in the transcript to leave a comment.