Socially, Gould was ostracized from every group in New York. Even at the height of his success, when he controlled the Erie and had made millions in the stock market, he was never invited to Mrs. Astor’s balls and, when he tried to join, was blackballed—almost unanimously—by the New York Yacht Club. He was an unappetizing little creature-sallow, frail, shy, and ill. He spent twenty years dying of tuberculosis, often in terrible pain and bleeding from the lungs, and, unable to sleep at night, he paced the sidewalk in front of his Fifth Avenue house under the eye of a bodyguard. By joining forces with Gould, the Seligmans did nothing to enhance their position with gentile society, nor did Gould profit socially from his association with the Seligmans. If anything, the relationship fanned the billowing anti-Semitism of the postwar period, and is perhaps responsible for the fact that many people today believe that Gould himself was Jewish. At the height of his unpopularity, Henry Adams referred to him as “the complex Jew,” and many of his contemporaries in Wall Street regarded him, as Dixon Wecter has said, “as a Shylock in habits and probably heredity.” This notion was supported by the discovery that Gould was descended from one Nathan Gold, who had settled in Fairfield, Connecticut, in 1646, and that the “u” had been added to the family name as late as 1806. Still, as Wecter points out, “it is quite possible that Israel has been blamed unfairly” for Jay Gould. And the best reason for believing this is that Gould was a man who simply did not care what anybody thought of him. If he had been Jewish, he would not have troubled to deny it.
This was a period which has been labeled “one of the most sordid of United States political and economic history,” what with the carpetbaggers in the South and, in the North, a high tolerance for “bribery, political gangsterism, and wild speculation.”* Gould and Drew and Jim Fisk were, from that standpoint, very much in tune with their times. Gould admitted that he used bribery and blackmail to buy up Erie Railroad stock options from towns along his routes, and that he used Fisk’s force of “plug-uglies” to take over by force and violence when other methods failed. Gould, furthermore, was by his own admission a raider and a ruiner. He had no interest in managing or improving railroads. He merely liked to drive a railroad’s stock up, with rumors and with trading, and then sell it and let it collapse of its own inflated weight.
The Seligman firm, in Joseph’s words, did “an enormous amount of business” in the Gould manipulations of the Erie stock, selling short for their own account whenever Gould or Fisk or Drew sold short—as they did consistently—letting the triumvirate’s operations provide the pattern for the Seligmans’ own. In almost no time, the Seligmans had let the name of their old friend President Grant be linked with one of the most spectacular and scandalous financial coups of the decade—Jay Gould’s attempt to corner the gold market.
The scheme boggled the minds of some of the brightest financiers of the day, and perhaps, in fairness to Joseph and his brothers, they never quite grasped what Gould was up to. Certainly President Grant was slow to realize what was afoot, as Gould had expected he would be.
In essence, it was a two-part plan designed to fill Gould’s pockets by selling inflated gold shares and by collecting higher freight rates on his Erie Railroad.* Gould planned to start buying up gold and then, as the price climbed, to go to Grant—with the aid of the Seligmans and their entree to the White House—and persuade him that there was a shortage of gold. “What shall we do?” Grant was intended to ask, whereupon part two of the scheme was to go into effect. In order to build up the American gold supply again, it would be suggested that Grant step up United States grain sales to Europe, which would be paid for in gold. (This would be good for the American farmer, Gould pointed out charitably, though farmers were a class of Americans in which he had never shown much interest previously. It would also be good for his Erie Railroad, which was the major grain shipper from the Midwest to Eastern ports.)
Gould’s stratagem was to raise the price of gold from $100 to about $145 and then unload it, meanwhile having got new freight contracts—at a higher rate—for shipping grain on the Erie. Gold began to climb as the Gould-Drew-Fisk group began buying, while the Seligmans, acting as the trio’s brokers, also bought for their own account. Grant seemed to be falling into line perfectly, and gold did indeed reach $145. Then, apparently, avarice—one of Mr. Gould’s most consistent emotions—took over, and Gould decided to let gold get a little higher—to $150—before selling. At this point Grant belatedly realized what was going on, and ordered his Secretary of the Treasury to release enough of the government’s own stock of gold reserves to bring the price down again. On what became known as Black Friday, gold prices crashed.
But, it turned out, Gould had sold out at the top of the market anyway, and so had the Seligmans. It was almost, or so it seemed at the time, as though Gould and the Seligmans had been given some advance warning of the Treasury’s forthcoming action. Had Grant tipped his old friends off? It was never proved, but this was widely assumed to be the case.
One thing was certain: though Jay Gould emerged from the scuffle not quite so rich as Fort Knox, he was some ten to twenty million dollars richer than he had been, and the Seligmans, though no figure for their profits exists, cannot have done badly even if they made no more than a straight commission. When Gould’s role in the “gold conspiracy” was discovered, he was attacked by an angry mob and barely escaped being lynched. As an almost anticlimactic aftermath, it turned out that Gould had double-crossed his old partner, Jim Fisk, by not letting him know that it was time to sell.
In 1872 Gould was ousted from the presidency of the Erie, and there was a long overdue investigation of the road’s management. Joseph Seligman was the first witness called. He pointed out that his firm had been merely brokers for, not manipulators of, the Erie. The line between a manipulator and a manipulator’s agent is somewhat thin, but in those more tolerant days this explanation apparently satisfied the investigating committee. Gould himself went on to blow stardust in the committee members’ eyes by telling a pathetic tale of how, as a poor farm boy, he “drove the cows to pasture and stung my bare feet on the thistles,” and how, at the age of seventeen, he came to New York hoping to sell a mousetrap he had invented. “It was in a pretty mahogany case,” he said, “which I carried under my arm. I went into a Sixth Avenue car, I think, and every now and then I ran out on the platform to see the buildings, leaving the case containing the mousetrap on the seat.” He came back to find the mousetrap gone, and there, sure enough, was a sinister retreating figure hurrying down the aisle of the streetcar. Gould collared the man, who turned out to be a notorious criminal. For having helped apprehend the rogue, Gould said, he had surely done his duty to society. The mousetrap story also satisfied the investigating committee, and both Gould and the Seligmans emerged from the investigation unscathed. Or nearly so. The unholy light from the “Scarlet Woman of Wall Street” now bathed the Seligman brothers.
In the first months following the investigation, Joseph resolved to “stay out of the d——d railroads altogether.” But the temptation was too great. Soon he had stepped up his railroad activities again, and was into them even more heavily than before. In 1869 America got its first transcontinental railroad when California’s Governor Leland Stanford went to Promontory, Utah, to drive the famous “golden spike” into the link joining the Central Pacific and the Union Pacific. The portly Governor aimed a silver mallet at the golden spike, swung, and missed. The miss was symbolic of the chaotic state of railroads, but no one perceived the symbolism. From that point onward, the growth of railroads was so rapid and disorganized that today there is virtually no American hamlet so small that it does not have its miles of rusted track approaching it, and a dilapidated station at its heart.
One transcontinental railroad might have seemed enough, but the first merely spurred dozens of rivals. One of these was called the South Pacific Railroad Company of Missouri, a line to run between St. Louis and the Kansas border. (Early railroads were named in the same helter
-skelter fashion as they grew; what the South Pacific had to do with Missouri is unclear, except that the aim of the road was westward.) Joseph Seligman undertook to sell the South Pacific’s first bond issue.
His system, a favored one of the period, was to loan a line money in return for bonds which were secured by the huge government land grants being given to railroads. It was a system which worked well when the bonds were marketable. In the case of the South Pacific the bonds sold poorly, and Joseph was briefly discouraged, suspecting that the country was becoming railroad-poor, “in view of the fact that nearly 200 railroads are being constructed within the borders of the United States.” Nevertheless, Joseph agreed to take on a second bond issue for the South Pacific with the proviso that someone from his firm be put on the railroad’s board. Thus Joseph himself became a director of the South Pacific.
Meanwhile, he was also helping to finance the Atlantic & Pacific Railroad, a much more ambitious project which planned to lay tracks all the way from Springfield, Missouri, to the California coast (going nowhere near the Atlantic, however). There were a few problems. To begin with, though the Atlantic & Pacific had been granted 42 million acres of land for its proposed 2,000 miles of track, only 283 miles of track had actually been laid. It was essential to the economics of railroads that the lines have, at their terminal points, cities, or at least markets, to provide the completed lines with revenue from freight. A project such as the Atlantic & Pacific had to make its way through a great deal of industrially barren Western land, and across the industrially dead Rocky Mountains, before it got to the commercially profitable Pacific Coast. There were, furthermore, only a few level or practicable crossings over the mountains and, at the time, only two possible crossing points on the Colorado River. In the case of the Atlantic & Pacific, it turned out that other lines had already preempted these points. The Atlantic & Pacific was, when Joseph took an interest in it, in effect a railroad to nowhere.
Joseph was demonstrating a curious weakness that would continue to plague him in all his railroad dealings: he had a poor sense of geography. He never seemed to know quite where he was. (This was literally true; his wife used to complain that whenever he came out of a theater or restaurant, he invariably started walking the wrong way.) He seems only dimly to have grasped the facts of such topographical features as the Rockies and the Colorado. Also, an even more serious defect, he had very little interest in the management, operation, or even in the reason for railroads. He didn’t care how a line was run, or why, or even where, as long as it had iron wheels. He was only interested in its financial side. And so, when he financed railroads, he was really financing a business he did not understand.
Still, he went into the Atlantic & Pacific for several millions of dollars and took on its bonds to sell, which did even more poorly than the South Pacific’s. As he had done with the SP, he joined the board of directors of the Atlantic & Pacific. A glance at the map, meanwhile, would have revealed to Joseph that, in addition to the two lines’ individual problems, for a considerable distance across the state of Missouri they ran parallel to each other and only a few miles apart. Joseph’s two struggling lines were competitors.
Joseph had also become interested in the Union Pacific Railway Company, Southern Branch. This line, which presently changed its name to the jawbreaking “Missouri, Kansas & Texas Railway Company”—called the K & T, or the “Katy”—was to be built on a north-south line from Fort Riley, Kansas, to New Orleans. Once more, a glance at the map would have revealed that the tracks of the Katy, moving southward, would at some point intersect—and collide—with the tracks of the Atlantic & Pacific, moving westward. And it was not so simple as building a bridge, or constructing a tunnel, at the meeting point, since both lines appeared to have identical title to the disputed land. In other words, whichever line got there first could effectively stop the other. On the board of the Katy, and laboring to sell her bonds, were such Wall Street figures as Levi P. Morton (of Morton, Bliss & Company), George C. Clark (of Clark, Dodge), August Belmont (of August Belmont)—and Joseph Seligman.
In 1870, while the South Pacific and the Atlantic & Pacific raced westward side by side, and the Katy raced southward to beat the Atlantic & Pacific, someone asked Seligman, “Which line are you for, Joe?” “I’m for railroads!” Joseph replied, no doubt with a trace of hysteria in his voice.
He also had other railroad commitments. He was involved with the Missouri Pacific Railroad, one of whose projects was to build a small branch line in St. Louis County from Kirkwood to Carondelet, Missouri. In the area, President Grant had a ramshackle and unproductive farm, and Joseph wrote the line’s president, Andrew Pierce, saying: “When the Mo. Pacific R.R. builds the Carondelet Branch, I would advise by all means to take the route through General Grant’s farm.” “Why?” Pierce wanted to know. “Because I told Grant that’s the way it would go,” Joseph replied. Since Joseph was financing it, that was the way it went. Railroad fever seems to have come close to affecting Joseph’s reason. While directing railroads through his friends’ farms, he was able to complain, in the next breath, that railroad routes were being laid out “against all dictates of logic and sense.”
Joseph’s other railroads were nearing the point of battle, and in 1871 actual warfare broke out. Construction crews of the Katy and the Atlantic & Pacific met at the town site of Vinita (now in the state of Oklahoma), and went at each other with clubs, picks, crowbars, and heavy wooden railroad ties. It was a bloody encounter, and quite a number of men on both sides were killed before the Katy was declared the victor and Joseph decided that some of his railroad directorships “seem to represent a conflict of interests.” To solve this, he resigned from the board of the Katy, remaining on the board of the other two conflicting lines. But he held on to his Katy stock anyway, just in case.
A year later Joseph found himself in a despondent mood about railroads and wrote to his brother William in Paris: “Now as to our various investments in R.R. bonds which have at present no market value I fully agree with you that we have too many for comfort.” The letter continued on a note of high resolve: “I have concluded not to go another Dollar on any R.R. or State or City bond … and nothing will induce me hereafter [to put] another Dollar in any new enterprise until I have the moral assurance that the bond is as good as sold in Europe.” And yet, halfway through this same letter, Joseph began to waver and to defend his activities in railroads, reminding William, “We have made a fortune these past 6 years & made it principally out of new R. Roads.”
But Joseph began privately advising his clients to stay out of railroads. “We wish to give you our experience,” he wrote to one of them. “New roads want no end of money … when you are in once for $25,000 they will draw you in for $100,000 and, subsequently, for half a million … it will take you many years to get your money back—and possibly never. This is our friendly caution.”
It was good advice, but Joseph, addicted to the iron horse, was incapable of following it. In the years to come, his investments escalated from three railroads to over a hundred. At times he himself seemed confused by his activities. At one point he helped Jay Gould buy a controlling interest in the Missouri Pacific. A year later Joseph bought back a lot of the bonds he had sold to Gould. When Joseph helped Commodore Vanderbilt dispose, quietly in London—in the same kind of over-the-transom deal Joseph had performed for Drew—of some New York Central bonds, J. P. Morgan, Vanderbilt’s banker, repaid Joseph by helping him sell 2 million dollars’ worth of Gould’s Missouri Pacific bonds—though Gould and Vanderbilt (and Morgan too) were bitter enemies. The Missouri Pacific bonds sold, as usual, poorly, and Joseph wrote William in a familiar vein: “I am heartily sick of waging a seemingly endless battle over Western railroads.” Soon, however, he was back in again, selling Gould and Collis P. Huntington of San Francisco a controlling interest in the San Francisco line, which was supposed to provide the “missing link” over the Sierras from the Gould-dominated (at the time) Union Pacific into San Fran
cisco. The Seligmans had no sooner sold the line to Gould than they bought it back again—and tried to sell it again, and finally did, to the Santa Fe on a share-for-share basis.
While Joseph was cautioning his clients to stay out of railroads, he was flirting with “a short but very promising little road” called the Memphis, Carthage & Northwestern. Soon after he had sunk $250,000 in it the M C & W found itself unable to pay for an engine. In an emergency move to help out, Joseph personally purchased a locomotive—which he named “The Seligman”—and rented the engine back to the line for a modest seventy dollars a week. (It was an idea borrowed from Vanderbilt, whose engine was called “The Commodore.”) “The Seligman” chugged around for a while, but was unable to pull the line out of the red. Within three years it collapsed into bankruptcy and the engine was sold at auction for two dollars.
In 1873 Joseph wrote: “I am disgusted with all railroads, and shall never again be tempted to undertake the sale of a d—d railroad bond. I am daily engaged in two or three d—d railroad meetings and, therefore, cannot attend to office business as much as I want to.” A month later he was writing dreamily of something called the “Great National, Atlantic and Pacific Railroad … a line never obstructed by snows, and of comparatively easy grades.” A year later he was writing to William: “It would have been better if we had never touched [railroad] bonds at all … it was impossible for us to compete with the Barings and J. S. Morgan [father of J.P. and head of Morgan’s London office] and others in the very best roads of the United States … we did not then understand the difference between finished first-class roads and unfinished second-class roads.”
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