The Bonanza King

by Gregory Crouch

  “We therefore confidently anticipate the continuance of your support,” Ward concluded.

  Mackay’s masterstroke decisively shifted the battleground. The transatlantic cable war would not be fought on price. Instead, it would be fought on trust. In essence, Mackay bet three years of effort and millions of dollars of invested capital on the public’s faith in his good name.

  • • •

  Support poured in. “The soundness of this argument will be generally recognized,” said the New York Times. Commercial Cable received pledges from bankers, brokers, and merchants throughout the United States and the United Kingdom, “all declaring their intention to continue as patrons” based on “the belief that the Commercial Company is in earnest in its pledge to maintain independence.”

  A New York Times editorial considered it “perfectly plain that the purpose of the pool companies is not permanently to maintain low rates, but to break down the competition of the Commercial Company and force it into the combination in order to carry the rates higher than before.” The public’s interest therefore lay in “sustaining the competition and defeating the scheme.”

  Jay Gould might have won a fight of nickels and dimes, but in a war of trust, John Mackay’s good name carried the clout of a man with mud-stained boots and callused hands. In a war of trust against such a man, thimble-rigging Jay Gould didn’t stand a chance. He tried to shift the terms of the fight. When the pool companies started issuing statements expressing their satisfaction with the increased traffic generated by low rates and spoke of maintaining their “test” for a period of five years, Mackay settled in for a long war.

  Mackay’s weakness remained in domestic distribution. To outflank Western Union and reach the Pacific Coast, Mackay negotiated a direct connection between Commercial Cable and the wires of the Canadian Pacific Telegraph Company, the communications arm of the Canadian Pacific Railroad, which ran across Canada from Montreal to British Columbia. In September, Western Union skipped its dividend.

  By the spring of 1887, both sides were suffering. Mackay held on, sometimes making up shortfalls in both Commercial Cable and Postal Telegraph from his own coffers. Gould held on, too. Mackay left New York for Europe in July. Three weeks later he was back. The Wall Street rumor mill speculated that Mackay’s surprise appearance portended an end to the cable wars. Other whisperings thought it had something to do “with the relations of the Nevada Bank to the bull deal in California wheat which collapsed last week.” Newsmen watched Mackay’s every move in New York, reporting the hours of his meals and his companions, looking for any hint of a meeting with Jay Gould or of messages passing between them, but couldn’t penetrate his veil of secrecy.

  Wall Street considered it “an auspicious omen” when, “in a democratic and conciliatory way,” Mr. Mackay put five cents in Jay Gould’s pocket by purchasing an elevated railroad ticket—Gould controlled the railroad. Mackay boarded in lower Manhattan and got off at Grand Central Station. At six o’clock, the Bonanza King headed west on the Chicago Express. Speculation shifted to the affairs of Nevada Bank.

  They were bleak indeed. Mackay arrived in San Francisco on August 15 facing the bank’s collapse. The problem originated with flaws in the judgment and character of Nevada Bank vice president George Brander. Brander’s shortcomings surfaced when James Flood fell ill with the painful and debilitating kidney disorders associated with Bright’s disease. With Mackay in Europe and New York and Flood sick, Brander controlled the bank. He made losses of about half a million, and in an effort to recuperate them, he started loaning Nevada Bank money to two wheat broker associates attempting to corner the California wheat market. Wheat prices rose, and Brander kept loaning to his two friends. Millions of dollars poured out of the Nevada Bank and Brander’s cronies still hadn’t cornered the California wheat market. Wheat prices kept rising until the bank’s reserves ran out. By then Brander’s only hope for escape lay in carrying the wheat corner through to a successful conclusion, but to do that he needed more money. Brander borrowed $300,000 from the Bank of California and dumped that into wheat loans. He stole $1 million of bonds Mackay kept in a safe deposit box on behalf of his wife and $600,000 in bonds owned by Flood’s sister, hypothecated loans upon the stolen bonds, and loaned the money to his wheat brokers. He floated loans on other customers’ property and bought still more wheat. The price of California wheat climbed until August 3, when Brander loaned the last of the money he could steal. After that, the price of wheat nosedived. Millions of dollars evaporated—none of which belonged to Brander.

  When Mackay arrived in San Francisco on August 15, the Nevada Bank teetered on the cliff edge. Anticipating Gould’s effort to exploit the situation and destroy the public trust on which so much depended, Mackay met Gould on the original battlefield, the one of dollars and cents. On August 17, Mackay had one of his Commercial Cable Company officers speak to the newspapers in “substantially” these words: “The war in cable rates has been going on since May last year. In that time our customers have been paying us 25 cents a word, while the pool companies have been charging only 12 cents a word. It is simply justice to our friends who stood by us steadfastly that we should adjust our rates to that of the pool companies.”

  Gould’s attack came two days later, in a full-throated article that ran down a full column of the New York Tribute’s front page and continued onto page two. The article cast aspersions on Mackay’s business acumen, honesty, and solvency, denigrated the size of his fortune, blamed him for “vast losses,” the “certain ruin” of the Pacific Coast economy, and for bilking San Franciscans of $100 million to fund assessment mines on the Comstock. The Tribune described James Fair gloating over “the discomfiture of his old partners.” The article was, in all its particulars, an all-out assault on Mackay’s reputation.

  Mackay counterattacked the Tribune article’s crucifying weakness—many of its assertions and insinuations were provable lies—and he did what he’d always done in a crisis. He went to work. He fought back. (Only Brander’s staying submissively seated when Mackay stormed into the Nevada Bank from New York saved him from receiving a thrashing from the Bonanza King’s balled fists.) And in the fight to revitalize the bank, Mackay’s greatest asset was what it had always been, his good name. Mackay and Flood’s personal pledge secured a $1 million loan from the Bank of California. Theresa Fair stepped forward with several million dollars’ worth of securities. When the holder of a $500,000 note expressed reluctance to continue carrying the loan, James Fair assumed the debt, a gesture from an old partner that meant much to John Mackay. The cash infusion gave the Nevada Bank time to dispose of the thousands of tons of wheat it had loaned on to best advantage. That time saved the bank.

  On August 28, Mackay gave an interview in response to another New York Tribune attack. “Whatever may be the losses on this wheat . . . the Nevada Bank—which is equivalent to Flood and myself—will stand them.” Mackay flatly denied that the bank had been involved in the wheat speculation in any capacity other than that of making bad loans, and he offered to subject the bank’s accounts and his personal accounts to expert scrutiny to prove it.

  “A thunderbolt out of a clear sky” hit San Francisco financial circles on September 13 when the directors of the Nevada Bank announced that James Fair had assumed the presidency, proving a partnership forged through years of mutual hardship, risk, and endeavor more durable than anyone had thought possible. The Chronicle lamented that the men who could tell the full story “were as reticent as oysters,” but that had described the members of the Bonanza Firm with regard to business affairs since the days of their first association. Although the nearly disastrous Nevada Bank ordeal probably cost Mackay around $5.5 million and may have cost him as much as $8 million, Mackay survived with his credit and good name intact.

  In the wars of the land telegraph and undersea cables, Jay Gould’s next attack wasn’t long in coming.

  • • •

  One of Mackay’s prime goals in the land tele
graph business had been consummating an anti–Western Union alliance with Robert Garrett and the Baltimore & Ohio Telegraph. Mackay’s first effort to make that happen had failed in 1884. Mackay had tried again in 1886. After months of sluggish negotiations, Mackay and his allies thought they had an agreement with Robert Garrett. Then Garrett suddenly departed for Europe. When Garrett returned months later, he reneged on what Mackay and his lieutenants thought was a done deal. The coalition failed to materialize—for reasons Mackay and his team couldn’t fathom because the strategy seemed so sound—but people were beginning to remark on Robert Garrett’s increasingly erratic behavior.I

  Less widely understood was that Robert Garrett had muddled the entire Baltimore & Ohio system into serious financial trouble in the three years since his father’s death. When Garrett again went abroad on July 20, 1887, a few weeks before news of the Nevada Bank’s “Wheat Deal” broke, a banking syndicate fronted by J. P. Morgan took control of the B&O. Although feigning a lack of interest in public, Jay Gould began sniffing around the debt-saddled B&O Telegraph. Garrett rushed back from Europe, determined to prevent the sale of a prized operation to his mortal enemy. Morgan and the men to whom Garrett had entrusted his proxy voting power consummated a sale to Gould mere hours before Garrett stepped ashore in the early morning hours of October 7. Garrett embarrassed himself blustering about it in the newspapers, which elicited a shrug from Gould’s son George. “There is no Baltimore and Ohio Telegraph now,” he said on October 8. “Their wires are a part of our system.”

  Western Union swallowed Baltimore and Ohio Telegraph whole. “If Mr. Garrett had done as he promised to do the Western Union would [have never paid] another dividend,” lamented one of Mackay’s associates.

  The collapse of Baltimore & Ohio left Mackay’s Postal Telegraph and United Lines standing alone against the anaconda company, facing a battle they couldn’t win. Three weeks later, Mackay accepted an arrangement that consigned Postal to permanent second-class citizenship. The agreement raised and equalized rates and ended the rate wars in land telegraphy. Postal Telegraph would become profitable, but it would never grow into anything larger than a minor competitor of Western Union.

  In the aftermath of the domestic telegraph armistice, few punters were betting on John Mackay’s survival in the business. Most businessmen expected him to sell out—to Jay Gould. “Mr. Gould never lets anybody escape from his hands if they have what he wants,” remarked one Wall Street sage.

  Mackay accepted what must have surely felt like a painful domestic defeat because it included a crucial nugget for his transoceanic interests—the pact allowed the domestic companies equal access to each other’s transmission lines. That provision coupled to Postal’s guaranteed survival prevented Western Union from discriminating against Commercial Cable Company messages and thus removed the primary weapon Western Union had to employ against Mackay in the transoceanic struggle.

  Gould opted to tolerate Postal’s survival to prove the existence of competition in the industry and deflect political pressure to either break up what would otherwise have been a Western Union monopoly or nationalize the country’s telegraph lines.

  Gould and his wife had sailed for Europe to join his prepositioned yacht the day before the domestic rate arrangement became public—the start of a long-cherished vacation. The Goulds cruised the Mediterranean and the West Indies for the better part of five months. The transatlantic cable war dragged on while Gould tried to outlast John Mackay.

  A few months after the Goulds returned in March 1888, word of negotiations between Gould and Mackay swirled through business circles. A Gould man spoke of doubling the current rate, and of a rise to forty cents “very soon” thereafter. “You may consider this information as practically official,” he said.

  Mackay wouldn’t agree to any such thing. Mackay said he’d raise Commercial’s rate to twenty-five cents a word, but not a penny more. “I have tried twenty-five cents,” Mackay said. “I am content with that rate. The public is satisfied, and I will stay where I am.”

  Jay Gould got the message—take it or continue the war. He took it.

  As Mackay’s friend John Russell Young wrote in his book Men and Memories, “Peace was made by the absolute surrender of the monopoly.” The public had reposed its trust in the right man.

  * * *

  I. Robert Garrett really did go insane. He died in 1896, having spent the last three or four years of his life “on restraint” in an insane asylum.

  CHAPTER 18

  Twilight

  John William Mackay

  * * *

  There was nothing small about him.

  —“An Old Friend’s Tribute,” Salt Lake City Tribune, July 21, 1902

  In his day, John Mackay’s was the most beloved rags-to-riches story in America. His outlandish mining success and his victory over Gould’s Atlantic cable monopoly fascinated people in the last decades of the nineteenth century and the turn of the twentieth. The strength of his character commanded their admiration. He’d risen from the infamous Five Points, the world’s most notorious slum. When Mackay sailed from New York in 1851, he’d had no name, no money, and not a single influential friend on earth. He’d possessed nothing but strong arms, a clear head, and a legendary capacity for hard work. From there, he’d done it the American way—he’d earned it. In the eyes of the times, his road to riches had made no man poorer, and few begrudged him his success.

  After breaking Gould’s monopoly, Mackay stayed active in the Commercial Cable Company and the Postal Telegraph, having carved out a role for himself as a major player in what people of a later age ought to recognize as the ground floor of the modern communications industry—the digital communications industry. The current on/current off signal of the telegraph was exactly the same as the “ones” and “zeros” processed by modern computers, the major difference being the speed at which they’re processed, many billions per second as opposed to a few hundred per minute. The telegraph cables laid across the ocean floors in the second half of the nineteenth century were the direct technological and conceptual antecedents of the modern transoceanic cables that connect the continents and serve as the arterial electronic ganglia of the World Wide Web. They changed distance and perception and thus changed the world.

  Mackay also stayed involved in mining. His investments in the Peerless mines west of Tucson don’t seem to have panned out, but his commitments in Colorado likely did produce dividends. Mackay owned mines in California, Nevada, and Alaska, and he invested in copper mines, which complemented his telegraph interests. Although he never set foot in the place, the town of Mackay, Idaho, bears his name, thanks to the controlling interest he once held in the local copper mines. Today, some five hundred souls live in Mackay, situated about sixty miles east of Sun Valley in the Big Lost River Valley between the Lost River Range and the White Knob Mountains—one of whose summits is 10,270-foot Mackay Peak.

  “[Mackay] never seemed to know the value of a dollar, but somehow could always lay his hands upon whatever millions he needed for a new enterprise,” an officer of the Postal Telegraph once said. Considering the common Comstock origins of so many people who dominated the American mining industry in the 1880s and 1890s, Mackay’s seemingly limitless wealth through those years, and his rigid unwillingness to discuss his own affairs, it seems at least plausible that Mackay held a silent interest in one of the era’s other great mining regions.

  George Hearst, Mackay’s onetime co-owner of the unsuccessful Rising Star mine in Idaho, had become one of the most successful miners in the West, with successful properties in Utah’s Ontario Mine, the Homestake Mine in the Black Hills, and the Anaconda Mine in Butte, Montana. He served as one of California’s U.S. senators from 1886 until his death in 1891.

  • • •

  In early November 1888, shortly after the Cable War armistice, a stroke paralyzed Gould’s beloved wife, Helen. She died in January 1889. Gould himself had been hiding tuberculosis. He fought on, directing his
empire of railroads and telegraphs until he succumbed in December 1892. Although he was decades ahead of most of his contemporaries in the wiles of finance and in understanding how to evaluate corporate values, the tenor of Gould’s publicity never changed. He died as he had lived, the most hated man of the age. (In the spirit of bygones, Louise Mackay hosted an elaborate London dinner party for Jay Gould’s son George and George’s wife in the late spring of 1894.)

  Mackay’s partner James Flood survived Helen Gould by only a month. Fair reportedly described Flood as “dying by inches” when Flood went to Europe seeking relief from the kidney-failing ravages of Bright’s disease. Flood died in Heidelberg, Germany, on February 21, 1889. Flood had treasured the memory of William O’Brien to his dying day. Standing with a friend in front of a portrait of O’Brien that hung in Flood’s country mansion in Menlo Park, Flood once said in a voice charged with emotion, “Billy was my partner once; he is my partner now, and will be my partner forever.” Reflecting on Flood’s life, John Mackay said, “In all that goes toward the development of manhood, the best man I have ever known.”

  After Flood’s death, Mackay sold a majority interest in the Nevada Bank to a syndicate led by Southern California financier Isaias W. Hellman, a man with a true calling for banking—a profession for which Mackay had no special love. Mackay retained a minority interest and stayed on the board of directors, joined by James L. Flood, son of his former partner, and, among others, San Francisco clothing manufacturer Levis Strauss. The Nevada Bank prospered under Hellman’s leadership. Mackay remained on the board for the rest of his life; his son would succeed him. In April 1895, the Nevada Bank changed its name to the Nevada National Bank, and in 1905 Nevada National absorbed the Wells, Fargo & Company Bank to become the Wells Fargo Nevada National Bank of San Francisco. Led by the officers and board members of Nevada National (including Mackay’s and Flood’s sons), the new Wells Fargo Nevada National opened in the old Wells Fargo building at the corner of Market and Sansome streets. In 1924, Wells Fargo Nevada National merged with the Union Trust Company and became Wells Fargo Bank and Union Trust Company, unfortunately dropping the title of the original bank. Although Wells Fargo still operates from the same Market Street location, the “official” corporate website history neglects to mention the 1905 merger, let alone that in it, Wells Fargo was the subordinate entity. Anybody doing business under the stagecoach logo of Wells Fargo today makes a direct connection to the great Bonanza Firm of yore.