Book Summary: American Rascal by Greg Steinmetz

My Personal Summary

This book is a biography of Jay Gould (1836 – 1892), one of the richest men to ever live.

Jay Gould was born with nothing and worked incredibly hard to build one of the biggest fortunes of his time.

Much of his fortune was built through manipulating stock prices of companies that he owned majority shares in and through buying and selling shares at strategic points in time.

He had very few morals but technically nothing he did was illegal because the judicial system was so pathetic at the time. In fact, he spent zero time in jail during his life.

While he did provide jobs for tens of thousands of railroad employees, he was known for paying low wages and he never supported labor unions.

His work ethic was certainly admiral and he was absolutely cut throat and ruthless in business, but it would be a stretch to call him an admiral man.

Today he is hardly remembered among the names of the great titans of industry because he didn’t live long enough to donate any of his money to building monuments or institutions in his name.

Book Notes

  • Gould was born in 1836 in New York.
  • Vanderbilt built his fortune through steamships and railroads, Rockefeller through oil, and Carnegie through steel. Gould is lesser known than all of them but made just as much money through finance.
  • Vanderbilt and Rockefeller both said that Gould was the smartest businessman in America.
  • Gould unfortunately died at age 56 from tuberculosis before he could dedicate his money to building enduring institutions in his name. Rockefeller lived long enough to see his son build Rockefeller Center. Vanderbilt was 79 years old when he financed Vanderbilt University. If Gould had lived long enough, his name would probably be all over various well-known institutions today.
  • Gould matters because he was responsible for laying as much railroad track as anyone, which transformed the country in the 1800’s as much as cars transformed the country in the 1900’s.
  • “America would have developed without Gould, only not as fast or efficiently.”
  • Growing up, Gould loved to read (common trait among successful people).
  • Gould’s mother died when he was only 4 years old and his father was an alcoholic, so Gould left home at 13 years old.
  • As a teenager, Gould made money by surveying land and making maps mostly for farmers. At one point, he crossed paths with a rich entrepreneur named Zaddock Pratt. At the time, leather was in high demand in America. The country needed shoes, boots, machine belts, leather breeches and more. Tanners made leather by soaking cowhides in tannic acid from hemlock trees. It turned out that hemlocks were most common in the Catskills mountains in New York. Gould pitched Pratt an idea to set up a tannery in a specific location with plenty of hemlock trees beside a river where train tracks were being laid. Pratt obliged and provided the money for Gould to start the venture.
  • Gould made good money selling leather, but he wanted to be as rich as the richest men in New York City. He figured out that these men got rich through buying and selling (i.e. trading) leather, which could be far more lucrative than producing it.
  • In 1857, the economy took a downturn. Gould ended up accepting $60k from a leather trader named Charles Leupp to buy out Zaddock Pratt’s share in the tannery. Leupp was beginning to go mentally insane at the time and requested that his name not be put on the business, so Gould was listed as the sole proprietor of the tannery.
  • In 1858, Leupp shot and killed himself. His business partner tried to forcefully take the tannery from Gould but he failed.
  • In 1860, Gould sold the tannery and decided he would pursue Wall Street instead, where he saw he could make far more money.
  • In 1863, Gould married Ellie Miller, daughter of Daniel S. Miller, a rich merchant in New York.
  • In 1864, Ellie gave birth to their son George.
  • In 1864, Gould bought shares in the Rutland & Washington railroad that ran from Vermont to New York at a depressed price of $5,000 and then sold them 18 months later for $100,000, an amount equal to $2.5 million in current dollars. This was his first big windfall.
  • In 1861, the Erie Railroad was built, linking the Great Lakes regions with the Atlantic Ocean for the first time ever.
  • Gould bought enough shares in the Erie Railroad to become a board member along with Cornelius Vanderbilt, Daniel Drew and Jim Fisk.
  • At the time, it was legal for board members to buy stock before making an important positive announcement about the railroad, which meant they could make an easy profit by buying low and selling high. Similarly, they could short a stock right before making a negative announcement.
  • The legal system was a mess during the late 1800’s and Gould took full advantage of it by manipulating the stock price of the Erie Railroad and buying and selling shares right before price movements.
  • The Herald newspaper once wrote of Gould: “However questionable these schemes may be, the skill and success exhibit Napoleonic genius on the part of him who conceived them.”
  • One time, Gould spread a rumor that Vanderbilt had died in a train wreck so that shares in a particular railroad stock tanked and Gould made money by shorting the stock and getting out before it was revealed that Vanderbilt was actually alive.
  • In 1868, Gould attempted to “pump and dump” gold – bidding up the price for gold as high as possible through buying massive amounts, then selling it all at a higher price.
  • Interesting: At the time, Thomas Edison was 21 and had invented the electronic vote recorder, which was being used to transmit the oscillating price of gold to buyers and sellers in real time.
  • Gould ended up making money with the gold fiasco but he was hauled in front of court and had to essentially lie about his pump and dump scheme to avoid getting in trouble. He also had to bribe many officials to look the other way.
  • In 1872, Gould resigned as a board member from the Erie Railroad. By that point he had millions in the bank at age 36 and could happily retire if he chose to, but he “needed the intellectual combat of business.”
  • In 1873, when a financial panic swept through the nation, shares of the Union Pacific Railroad (the railroad that ran from Omaha, Nebraska to Ogden, Utah) plummeted and Gould was able to buy enough shares at a low enough price to take over the company and name himself president.
  • Gould was highly interested in the telegraph interest and dreamed of owning Western Union, the most profitable telegraph company in the U.S., claiming he would “rather be president of Western Union that president of the United States.” He didn’t have nearly enough money to buy the company outright but he made a deal to buy Thomas Edison’s latest invention, the quadruplex – a machine that could transmit four messages at once – and use it in his own telegraph company Atlantic & Pacific.
  • “Edison and Gould shared some traits. Both were rustics born into poverty. Both thought about little besides their obsessions – inventions for Edison, money for Gould. Both worked all the time. Both had spent their childhoods reading anything that came their way.”
  • Gould claimed that his telegraph company would overtake Western & Union with Edison’s superior technology and shorted Western & Union’s stock. When the prices fell after Gould’s announcement, he made a handsome profit.
  • Western & Union eventually bought Atlantic & Pacific for $5 million.
  • In 1881, Gould went on a buying spree, buying enough shares to make him the sole decision maker for several railroads. At the time, 115,000 miles of track covered the United States. Gould was the master of 16,000 of them.
  • In 1892, Gould died at age 56 from tuberculosis.

Leave a Reply

Your email address will not be published. Required fields are marked *