The Bonanza King

by Gregory Crouch

  Western Union handled between 80 and 90 percent of the nation’s telegraphic traffic. The company charged high rates—especially in those large regions of the country where it had no competition at all—paid large dividends, and treated its customers as if it was doing them a favor. Western Union’s stock price soared when the company went unchallenged and sank whenever effective competition materialized.

  By September 1880, Gould had built another telegraph operation—American Union—into a system large enough to pain Western Union. Most businessmen thought Gould planned to make another killing selling out to Western Union. He did. As 1880 turned to 1881, Gould sold American Union stock high to Western Union. He also acquired large quantities of Western Union stock under the guise of buying shares to cover the huge short position he’d taken betting on a fall in Western Union stock price caused by effective American Union competition. (And, it went without saying, making superb profits in both transactions.) Gould shocked the nation in February 1881 when he emerged with what he’d wanted all along—control of Western Union and its near-monopoly of the domestic telegraph business of the United States.

  Gould then held sway over an empire built on three interconnected pillars—railroads, newspapers, and the telegraph. The thought of Jay Gould controlling the nation’s telegraphic communications filled rival businessmen with terror. A stock jobber able to tap every wire in America seemed to hold an impregnable position. Competitors grew certain that Gould read their private dispatches, employed code-breakers to unravel their ciphers, and garbled or delayed their communications. Speculators panicked, convinced Gould delayed information flows so he could read news before anyone else. Newspapers lived in particular terror of Gould’s clout—their business depended on stories cabled home by far-flung correspondents. By delaying, misrouting, or losing their traffic, Gould could crush them entirely, and they had no option but to pay Western Union’s exorbitant rates. Lily-livered newspapers flatly refused to publish anything inimical to Gould’s interests. Broadsheets with more editorial courage spoke out in favor of telegraph reform and suddenly stopped receiving timely communications. By the summer of 1883, only a few independent telegraph companies survived, all of them hamstrung by the small size of their networks. Western Union controlled everything else, and atop Western Union lurked the dark specter of Jay Gould. Many Americans came to see Jay Gould’s far-reaching influence in politics, the courts, communications, and the press as a threat to democracy itself.

  Western Union’s near-monopoly on American telegraph traffic also gave Gould leverage against the transatlantic cables. British and French capital controlled all three existing transatlantic cable companies, but they couldn’t do business without a domestic American cable operation feeding messages into their cables and forwarding European cables to destinations within the United States. To handle message distribution within the United States, each transatlantic company had entered into a contract with a separate American telegraph entity. One sent and received traffic through Atlantic & Pacific, another worked with American Union, and the third dealt with Western Union. But Western Union and Jay Gould now owned both Atlantic & Pacific and American Union. Gould canceled A&P’s and American Union’s contracts, forcing all three transatlantic companies to work through Western Union. Then Gould formed a company and began laying two American cables across the Atlantic. Gould-controlled transatlantic cables put the existing ocean cable companies at his mercy—with control of the American telegraph system and unfettered access to transatlantic cables, Gould could freeze them out. When they’d been independent, competition between the three transatlantic companies drove rates low, but faced with Gould’s power, the cable companies joined a Gould-controlled “pool”—a cartel—in the spring of 1882 that doubled rates from twenty-five cents to fifty cents per word and divided the traffic. They all earned higher profits on lower traffic volumes, making more money for less work. In the eyes of American businessmen, Gould’s controlling all traffic between Europe and the United States made a bad situation worse.

  • • •

  Monopolies quashed competition and squeezed rich profits. They also made fat targets. John Mackay had learned both lessons battling William Sharon and the Bank Ring on the Comstock. According to a close friend, in the three years since Mackay had cleaned out the Big Bonanza, he had come to view his pharaonic wealth as a trust, one that he felt obligated him to perform “some special service” on behalf of his adopted country. During his winter on the French Riviera, he’d decided to perform that service with an assault on Gould’s transatlantic telegraph monopoly—an idea surely encouraged by his friend James Gordon Bennett, Jr. (Mackay had also considered attempting to reinvigorate the New York shipbuilding industries that had given him such a boost during his youth—slow to adopt iron-hulled shipbuilding techniques, they’d been supplanted by British shipbuilders.) When he passed through New York the previous autumn, Mackay had quietly hired two telegraph experts to research the transatlantic telegraph situation on his behalf.

  Their reports surely made clear the problem that had forced the other transatlantic companies into Gould’s pool—no independent transatlantic company could survive, let alone compete, without access to a domestic distribution network inside the United States. Gould would simply kill it or compel it to join his pool by refusing to feed or distribute messages to or from the upstart cable company.

  • • •

  Western Union wasn’t without troubles of its own that summer, however. Its wires went silent on July 20, 1883, stilled by a strike of the Brotherhood of Telegraphers, who sought better pay and improved working conditions. The company refused to bend, and the wires stayed quiet through the end of the month. Possibly precipitated into action by the telegraphers’ strike, John Mackay landed in New York on August 2. Rumor said he’d soon head for the Pacific Coast. Instead, Mackay took control of the foundering Postal Telegraph Company, one of the few small telegraph companies independent of Western Union. “Mackey’s New Venture” and “Mr. Mackey in Control” announced mid-August headlines in the New York Times. (The newspaper wouldn’t spell Mackay’s name correctly until December and wouldn’t consistently get it right until the spring of 1884.)

  The Postal Telegraph Company had been created to combat Western Union in June 1881, and two of its founders were men well known to John Mackay—James Keene, who had helped front the bear raids on the Con. Virginia in 1876, and George D. Roberts, an acquaintance from the old days of the Comstock, former co-owner in the Rising Star mine, Mackay’s unremunerative 1868 Idaho mining venture, and a mine promoter of very dubious scruples. Mackay bought a large bloc of Postal stock (possibly Keene’s share) and formed a syndicate with other large Postal stockholders that forbade members to sell stock for three years, locking up a sufficient quantity of the stock to ensure Mackay retained control. Mackay at first declined Postal Telegraph’s presidency, preferring to operate without title, as was his wont in mining operations. He assumed the title a fortnight later, having been convinced that the public would gain confidence in the enterprise with his name attached to the formal title.

  Although formed two years before, Postal had barely managed to get its New York to Chicago line into service in time for the Western Union strike, largely due to what the New York Times described as “a want of system at headquarters.” Although the company had “merits” and “[desired] to furnish telegraphing cheaply,” it also needed “a complete reorganization.” Mackay supplied that quickly.

  The Times interviewed Gould’s new competitor in the Hoffman House, the hotel on Broadway at Madison Square, between Twenty-fourth and Twenty-fifth streets, where Mackay stayed while in New York. (Mackay had reportedly loaned money to the proprietor, Edward S. Stokes, to help him remodel the hotel. The reporter remarked on Mackay’s ruddy Irish face and found him quiet in both manner and dress, but with features that “betoken a resolute will.” They appeared to belong to a man who “didn’t hesitate long in making a decision, and when his min
d is made up, allows no obstacles to remain in the way of execution.” Mackay said nothing about his plans, but the Times welcomed his appearance on the telegraphic battlefield, certain that the effects of “a blow struck at a monopoly” would “inure to the benefit of the public.”

  A few days after Mackay took formal control, the Western Union telegraphers surrendered, and the company resumed operations. Jay Gould testified before Congress in September, ironically aided in his attempts to deflect efforts to undo the Western Union monopoly and nationalize the American telegraph system by whisperings of Mackay’s efforts to organize a “gigantic opposition.”

  A fortune built on corporate paper tied Gould’s fortunes to the ups and downs of the financial markets, and Wall Street’s downward trend in the latter half of 1883 limited Gould’s ability to counterattack. Although the exact circumstances remained unknown outside his innermost circle, Gould was struggling to keep the fragile railroad properties of his empire afloat at a time when Mackay possessed the ultimate downturn asset—a war chest stuffed with coin. To Jay Gould, it must have seemed that Mackay was everywhere that dismal autumn: in Nevada, denying he had any interest in the state’s seat in the U.S. Senate—“I am not fool enough to go into politics,” Mackay told the Nevada State Journal; inspecting the thirty-one-hundred-foot levels of the Sierra Nevada and Union mines at the northern end of the Comstock with Senator John Paul Jones; ignoring threats of violence from Amelia Smallman, the woman who’d tried to blackmail him in 1878 and had recently been released from prison; conducting business in San Francisco; dropping hundreds of thousands of dollars on valuable mining property in Colorado; putting up money to fund two Comstock comrades’ purchase of the Salt Lake City Tribune; “doing Texas” after spending $400,000 on the Peerless mines in the Quijotoa Mountains west of Tucson; and taking an interest in and becoming a trustee of “the National Cable Railway Company,” organized in New York to install and operate San Francisco–style cable cars in other cities.

  Amidst all that furious activity, Mackay put his spurs to the Postal Telegraph. Mackay knew he lacked a thorough understanding of the telegraph industry—a common cause of failure in a rich man’s vanity business—so he hired competent managers, paid them well, and allowed them to run daily operations with enough rope to either hang themselves or succeed. Mackay reserved top-level strategic decisions to himself, and like Gould, he was a sphinx. Poker and mining ventures had taught him well: Mackay never gave a hint of his intentions, even to his closest associates. As he had done in mining, Mackay insisted Postal adopt the most advanced, highest-quality technology available. Postal strung new lines to add cities to its network and expanded its carrying capacity between New York and Chicago, the nation’s busiest telegraph artery. As Postal grew, Mackay hired many blacklisted strike refugees desperate for opportunities beyond Western Union. Mackay reorganized the company under a more comprehensive charter to forestall the Gould-abused tactic of suing rivals out of existence for overstepping the terms of their corporate charters. The new Postal put low rates into effect, announced that the company expected to be able to do business between any of the principal American cities within two years, and swiftly morphed into a credible and expanding rival of the “Western Union anaconda.” New York papers ceased “to make light of the Nevada miner.”

  Although news didn’t leak until after the middle of October, Mackay had quietly struck a crucial blow against Gould’s transatlantic monopoly before he’d left Europe: He and James Gordon Bennett, Jr., had signed contracts with Siemens Brothers of London for the construction of two new cables to lay across the Atlantic. Mackay and Bennett commissioned the building of a gigantic steel-hulled ship, Cable Ship Mackay-Bennett, to lay and service the cables and incorporated a new enterprise called the Commercial Cable Company, under whose auspices they hoped to have new transatlantic cables in action the following summer. (Commercial Cable was 70 percent Mackay and 25 percent Bennett, with a few other brave souls willing to defy Gould taking up the remaining 5 percent.)

  While Mackay was in the West, the Carson Morning Appeal asked him about Jay Gould. Mackay said he didn’t fear Gould as a business antagonist and expressed “mild surprise” that so many New York merchants stood “in such terror of the little Ogre of Wall Street.” “This is all humbug,” Mackay said. “Capital is not so powerful as people think. When a man has kept his business as a constant menace to the public and acted the bully instead of the friend of his patrons, it takes very little to knock him out, provided you give the patrons to understand that you are in the fight to stay.” Mackay promised that his new lines weren’t “a sell-out proposition” and that people could do business with him with confidence, without fear that he’d quit the field and give Gould the opportunity to “revenge himself” upon his former customers.

  The Daily Alta California “thank[ed] heaven” for James Gordon Bennett and John W. Mackay and the prospect of relief from the exorbitant rates of the “monstrous monopoly.” The London Truth “congratulated” Mackay and Bennett for their “enterprise” and “determination” and hoped for a quick end to the “obnoxious monopoly” of the Atlantic Ocean cables.

  Mackay’s whirlwind of 1883 activity ended when he boarded the SS Alaska in New York on December 11, bound for Liverpool. Aboard ship, Mackay received an ovation from the other passengers. Surrounded and congratulated, Mackay seemed “in the happiest mood,” as if he relished the prospect of adversity. (“Enemies are my masseurs,” he once confessed to a friend. “They keep my blood circulating.”) Asked about the cable venture aboard the Alaska, Mackay said, “I’m as confident of success as I am that I’ll have my breakfast tomorrow morning.”

  As if his looming fight with Jay Gould wasn’t enough, Mackay had entered into another—with one of the most famous artists in the world.

  • • •

  Art occupied a special place in both John and Louise Mackay’s hearts. They much admired artists. A friend said John Mackay would “transit a realm” to spend a few minutes with a Velásquez or a Rubens. Among the contemporary French painters he and his wife most admired were Alexandre Cabanel, Léon Bonnat, Madeleine Lemaire, and Ernest Meissonier. The Mackays owned at least one Bonnat, Cabanel had painted an excellent portrait of John in 1878, and Mrs. Mackay had commissioned three works from Mademoiselle Lemaire. All three painters had become family friends. By the early 1880s, septuagenarian Ernest Meissonier—best known for his broad and dramatic canvasses of Napoleon Bonaparte and of violent Napoleonic battlefields—had risen to assume the mantle of the “greatest” of French painters and may have considered himself above such uncultured American acquaintances. In any event, John and Louise Mackay had paid a visit to Meissonier’s studio, and out of that visit came a loose arrangement for the artist to paint Louise’s portrait. She’d sat for Meissonier a number of times in early 1882. Ominously, Meissonier neglected to remember at least one scheduled sitting.

  Meissonier finished Louise’s portrait in the summer of 1883. Louise was at her summer retreat in Villebon, southwest of Paris beyond Chartres, and she didn’t see the finished painting. When Meissonier asked to exhibit it “with his works”—presumably a question posed in a letter—Louise gave her assent, under the impression that Meissonier meant to show it in a retrospective of his life’s work scheduled for May 1884. Meissonier, however, referred to the upcoming National Salon, where he exhibited the canvas, which Louise still hadn’t seen.

  “Talk” from the salon called Meissonier’s portrait “hard, and utterly wanting in distinction, grace, and female elegance.” Churlish Meissonier complained that his subject’s “plump and concentric roundness” realized “no type of beauty,” and that he found Mrs. Mackay’s face and person “wanting in distinction.”

  Critics focused on the extra decade Meissonier had added to Louise’s features and on her coarse hands. They were the hands of a washerwoman. A “caricature” more than a likeness, the painting communicated exactly what the artist thought of Louise Mackay.

/>   Louise asked for a “retouching.” Meissonier “stood on his dignity as an artist” and refused. Adding to Louise’s bitterness, Meissonier presented a bill for 70,000 francs, then worth about $14,000. Meissonier had never before charged more than $9,000 for a portrait.

  Louise refused to pay. The portrait remained in Meissonier’s possession.

  Around that time, John arrived in Paris. He considered the whole affair an insulting swindle, and he thought Meissonier “wanting in respect for his wife.”