#285 Jay Gould How Jay Gould Built Wall Streets Biggest Fortune

In "American Rascal: How J. Gold Built Wall Street's Biggest Fortune," Greg Steinmetz chronicles the life of the enigmatic and often maligned financier J. Gold, a central figure in Wall Street's tumultuous post-Civil War era. Gold, known for his role in the notorious Black Friday gold market crash, was a masterful tactician, expert communicator, and relentless worker whose aggressive tactics in finance laid the groundwork for America's modern financial systems. Despite his wealth and business acumen, praised by contemporaries like Vanderbilt and Rockefeller, Gold's underhanded methods and involvement in various scandals, including the Lord Gordon Gordon affair, made him a contentious figure. His contributions to the railroads and his relentless ambition, however, underscore his significance in shaping the economic landscape of 19th-century America. The book delves into Gold's complex character, from his tragic early life marked by loss and his father's alcoholism, to his strategic battles in business and his unyielding pursuit of a transcontinental railroad, a dream left unfulfilled by his untimely death from tuberculosis at 52.

• J. Gold was a wealthy and notorious businessman by age 36, known for his financial triumphs.
• He was untouchable by the law due to weak enforcement, lax laws, and corrupt judges.
• The book explores J. Gold's role in the economic expansion of the 19th century and the early days of Wall Street.
• Unlike Vanderbilt, Rockefeller, and Carnegie, who made their fortunes in industry, J. Gold was a financial magnate.
• J. Gold is mainly remembered for causing Black Friday, a financial crisis, but also contributed significantly to railroad development, shaping America's economy.

"A series of spectacular financial triumphs had made gold fabulously rich. Now, at age 36, he was the most notorious businessman in the country."

This quote highlights J. Gold's wealth and notoriety at a relatively young age due to his financial successes. His reputation was that of a notorious figure in the business world.

• J. Gold was acknowledged by his peers, including Vanderbilt and Rockefeller, as a master of his craft.
• He was known for his problem-solving skills, negotiation, communication, and tactical abilities.
• His strong work ethic and natural abilities allowed him to thrive in the competitive environment of Wall Street.

"Vanderbilt told a newspaper that Gold was the smartest man in America. Rockefeller, when asked who he thought had the best head for business, answered, Jay Gold."

This quote underscores the respect and admiration J. Gold received from other prominent businessmen of his time, indicating his exceptional business acumen.

• J. Gold's early life was marked by poverty and tragedy, shaping his drive to succeed.
• He saw money as a way to provide for his family and entered Wall Street at 24.
• His attempt to corner the gold market led to economic turmoil and nearly toppled President Ulysses S. Grant.
• Despite his wealth, J. Gold faced personal challenges, including tuberculosis, which led to his death at 52.

"The son of a poor farmer whose early life was marked by tragedy, J. Gold saw money as a means to give his family a better life, even if to do so, he had to pull a fast one on everyone else."

This quote illustrates J. Gold's motivation to accumulate wealth as a means to improve his family's life, despite his humble and challenging beginnings.

• J. Gold's work with railroads was pivotal in changing America, much like automobiles and the internet in subsequent centuries.
• His financial strategies and manipulation of the economy highlighted the dangers of unregulated capitalism and led to calls for financial reform.
• J. Gold's life and career are a testament to the complexities of the 19th-century business world and the need for oversight.

"While he made his money on Wall street, he did as much as anyone through his work with the railroads to build the country."

This quote emphasizes J. Gold's significant contributions to building the nation's infrastructure and economy through his involvement with the railroads, despite his primary association with Wall Street.

• J. Gold amassed a fortune that would be worth billions in today's currency.
• Despite his wealth, J. Gold did not become a household name, possibly because he did not put his name on prominent institutions.
• His death from tuberculosis at 52 cut short what could have been an even more substantial accumulation of wealth.

"He was richer than Rockefeller and so bare knuckled that even Wall street had to start making rules."

This quote conveys the extent of J. Gold's wealth and influence, suggesting that his aggressive business tactics were a catalyst for the establishment of rules and regulations on Wall Street.

• J. Gold's mother died when he was four, leaving a lasting impression on him.
• He experienced multiple family tragedies and an alcoholic father, which contributed to his resilience and work ethic.
• J. Gold's passion for surveying and business began in his teenage years, leading to his first business venture creating maps.

"Jay later said that the only thing he remembered about his mother were her cold lips."

This poignant quote reflects the deep personal impact of J. Gold's mother's death on his early life, which may have influenced his later drive and determination in business.

• Zadock Pratt was a successful businessman who became a partner in J. Gold's tannery business.
• Pratt's early ventures and success in the leather industry provided a model for J. Gold's own business pursuits.
• The partnership with Pratt eventually led J. Gold to realize the potential of financial markets, prompting his move to Wall Street.

"Everybody knew Zaddick Pratt. Pratt was an inspiration."

This quote introduces Zadock Pratt as a well-known and inspirational figure, highlighting his significance in J. Gold's life and the broader context of American business history.

• Zadock Pratt was situated in the Catskills, an area abundant with hemlock trees, which are rich in tannic acid essential for tanning.
• Pratt was innovative, doubling leather output by meticulously experimenting with boiling times, tannin concentrations, and hide sizes, while recording data.
• He was also a dedicated congressman, never missing a day on the house floor, and had eccentric hobbies like reenacting battles with real gunpowder.
• Pratt's significant weakness was his pride, which manifested in naming his community Prattsville, using his portrait on banknotes, and commissioning a stone cutter to sculpt his likeness on the rocks.

"If Pratt had a business card, it might have said something like data scientist."

Pratt's approach to tanning was analytical and methodical, akin to a data scientist's work.

"Pratt had a weakness. Pride."

Pride was Pratt's downfall, influencing decisions that focused on self-aggrandizement rather than strategic business moves.

• Jay recognized the potential in the tanning industry and approached Pratt for investment, leading to a successful business partnership.
• He identified that the real wealth in the industry was not in manufacturing but in understanding market forces and trading based on that knowledge.
• Jay's dissatisfaction with the tanning industry's profits led him to the realization that merchants in 'the swamp' held the true power through decision-making and trading.

"He had not forgotten the mansions in Manhattan."

Jay's ambition was fueled by the wealth he observed in Manhattan, which he aspired to achieve.

"It occurred to Jay that he could make even more money by understanding the forces that move prices and then trading on that knowledge."

Jay's shift from manufacturing to trading was based on his insight into market dynamics and profitability.

• The swamp was a market in Manhattan where commodities like leather goods were traded.
• Jay found the idea of trading more appealing than manufacturing due to its emphasis on decision-making and information.
• He realized that brokers, who dealt with transactions, made the most profit with minimal expenses and labor compared to manufacturers and shippers.

"The swamp was money making, distilled to its essence."

The swamp represented the purest form of profit-making through smart decision-making rather than physical production.

"The brokers, meanwhile, take what seems the smallest share, but it is in fact the largest."

Jay's epiphany was that brokers had the most profitable role in the industry, which guided his career shift.

• Jay's singular focus on the tannery gave him an advantage over Pratt, who was involved in multiple ventures and personal interests.
• The concept of extreme focus as a superpower is highlighted, with multitasking seen as a disadvantage in competition.

"Jay should not have won this battle with a much more experienced and successful entrepreneur. But that entrepreneur is distracted."

Focus allowed Jay to outmaneuver Pratt despite the latter's greater experience and wealth.

"Focus and extreme, extreme focus is a superpower that is, in my opinion, almost going extinct in our modern world."

The narrative emphasizes the power of focus in achieving success, which is becoming rare in the multitasking modern world.

• Jay rejected Pratt's offer to buy him out for $10,000 and countered with a demand for $60,000.
• Pratt, confident Jay couldn't raise the money, gave him ten days to decide, prompting Jay to secure funding from traders in the swamp.
• The transaction resulted in Jay, not Pratt, benefiting from the market recovery, despite Pratt's initial larger investment.

"Jay took Leop's money and paid Pratt."

Jay's strategic move to leverage relationships and secure funding allowed him to take control of the business.

"Pratt had invested 120,000 of cash in the tannery. Gold had invested nothing but his labor."

The outcome of the deal demonstrated Jay's shrewdness in business, turning his labor investment into a significant financial gain.

• Jay avoided alcohol, seeing it as an advantage in business and life, given his father's struggles with alcoholism.
• During the conflict over the tannery, Jay's sober approach contrasted with his opponents, who were drunk and less effective.

"Jay paid his soldiers in cash, and he made sure they were sober."

Jay's strategy of ensuring his allies were sober during the conflict was a tactical decision that contributed to his success.

"Jay was the son of an alcoholic and he was an advocate, advocate for sobriety."

Jay's personal experiences with alcohol influenced his stance on temperance, which he saw as a strength in his business dealings.

• Jay Gold left the business in Pennsylvania to pursue a career on Wall Street at the age of 24.
• He aimed to become a stockbroker and private investor, learning the "magician skills" of trading.
• Gold's approach was methodical, involving deep research to separate viable investments from nonsensical ones.

"Jay was convinced the big money wasn't in the wilds of Pennsylvania. It was on a narrow street in New York." "He's going to set himself up as a stockbroker and a private investor." "Jay Gold did not invest on hunches. He dug deep to discover whatever was noble, separating the nonsensical from the plausible."

These quotes illustrate Jay Gold's strategic decision to move to Wall Street and his diligent approach to investment, favoring thorough research over gut instincts.

• David Ogilvy's advice to become the best-informed person in one's field inspired Jay Gold.
• Warren Buffett's recommendation to read extensively aligns with Ogilvy's and Gold's approach to knowledge.
• The focus is on deep understanding and mastery of the subject matter to achieve success.

"David says, set yourself up to becoming the best informed person in the agency on the account to which you are assigned." "The good ones, no more."

These quotes reflect the philosophy of becoming highly knowledgeable in one's field, as advocated by David Ogilvy and practiced by both Warren Buffett and Jay Gold, highlighting the importance of comprehensive understanding in achieving success.

• At 28, Jay Gold invested in the Rutland and Washington railroad, exploiting fluctuations in bond prices to gain control.
• His strategic investment and subsequent operation of the railroad led to a significant profit.
• Gold's approach combined investment savvy with hands-on management, exemplifying his dual role as an investor and operator.

"He's going to make, obviously, a lot of money in building up and also trading on railroads." "His $5,000 investment, an investment that others on Wall Street thought was a loser, brought him $100,000, which would be equal to $2.5 million in today's dollars."

The quotes highlight Jay Gold's successful investment in the railroad industry, showcasing his ability to identify and capitalize on lucrative opportunities through strategic management and investment.

• Jay Gold's ambition was realized through his work in railroads, which he saw as his true calling.
• He expressed a clear vision for his future and a sense of divine inspiration in his chosen path.
• Gold's personal life was characterized by simplicity and devotion to family.

"Now I have my road to walk and my reason for walking it. Now the pieces fit. And this thing, ambition is no longer blind, but divine." "He and Ellie, his wife, preferred simplicity and domestic pleasures."

These quotes reveal Jay Gold's profound sense of purpose and direction in his career, as well as his preference for a simple and family-oriented personal life, indicating his holistic approach to success and fulfillment.

• Jay Gold engaged in a complex battle over the Erie railroad, demonstrating his financial and legal acumen.
• He and his partners used legal loopholes and strategic stock issuance to outmaneuver Vanderbilt.
• Gold's relentless approach to achieving his goals involved examining problems from all angles.

"The story of how Jay seized Erie shows his brilliance as a financial strategist, his deep understanding of law, a surprising grasp of human nature, and a mastery of political reality." "Vanderbilt believed that the share count was fixed, so he kept buying."

The quotes encapsulate the intense rivalry and strategic moves during the Erie railroad war, where Jay Gold's ingenuity and understanding of the legal and financial systems allowed him to gain an advantage over Cornelius Vanderbilt.

• Jay Gold faced over 100 legal cases following his attempt to corner the gold market.
• His strategy was to delay legal proceedings, allowing him to accumulate wealth and reduce the impact of any settlements.
• Gold's patience and willingness to wait out his opponents were key to his legal strategy.

"I avoid bad luck by being patient. Whenever I'm obliged to get into a fight, I always wait and let the other fellow get tired first."

This quote reflects Jay Gold's tactical use of patience in legal battles, highlighting his approach to dealing with adversity and conflict by outlasting his opponents.

• Not all American railroads were profitable investments; location, debt, and management significantly impacted success.
• European investors often mistakenly believed all American railroads were sound investments.
• The distinction between well-managed and poorly-managed railroads remains relevant.

"Contrary to what stockbrokers told them, it turned out that not all American railroads were winners."

The quote emphasizes the importance of discerning between good and bad business opportunities, particularly in the railroad industry, where various factors contribute to a company's success or failure.

• The railroad industry has a history of speculative directors manipulating stock prices and awarding contracts to themselves and friends.
• James J. Hill was highlighted as an exceptional railroad builder who managed to create a profitable railroad without bankruptcy.
• Warren Buffett and Charlie Munger admire operators like Hill, and their readings influenced the coverage of Hill's biography in episode 96.

"In fact, if you want to learn about the greatest, what is arguably the greatest railroad builder in American history, it's this guy named James J. Hill."

This quote emphasizes James J. Hill's significance in American railroad history and his unique achievement of building a profitable railroad without succumbing to bankruptcy, unlike many of his contemporaries.

• Jay Gould attempted to take control of the Erie Railroad by engaging with a scam artist posing as Lord Gordon Gordon.
• Gould was deceived and lost a significant amount of money in stocks to the imposter.
• The incident escalated to an international conflict between the U.S. and Canada, including attempted kidnapping and the involvement of future Congress members.

"Jay Gold attempted to take control of the Erie Railroad by recruiting foreign investments from Lord Gordon Gordon... He bribed Gordon Gordon with a million dollars in stock. But Gordon Gordon was an imposter and cashed the stock immediately."

This quote details the fraudulent encounter between Jay Gould and the con artist, leading to a significant financial loss for Gould and a subsequent legal and international debacle.

• Vanderbilt acknowledged Gould as the smartest person in America, though he was disliked by many who lost to him in business.
• Gould's strategic response to rate wars exemplified his adaptability and intelligence in business.
• An anecdote involving cows demonstrates Gould's ability to turn a competitive disadvantage into a profitable opportunity.

"Instead, gold and Fisk made a profit by buying cows in Chicago and shipping them to market at Vanderbilt's bargain rates."

The quote illustrates Gould's clever maneuver to capitalize on Vanderbilt's price cuts, showcasing his business acumen and strategic thinking.

• Thomas Edison witnessed Gould's attempt to corner the gold market as a telegraph operator.
• Edison's paths crossed with Gould again when he sold his Quadruplex invention to him.
• Edison found Gould both strange and unsettling but respected his meticulous approach to business.

"Edison found gold strange and unsettling. Gold had a peculiar eye, Edison later wrote. There was a strain of insanity somewhere."

Edison's personal observations of Gould reveal a complex character seen as both unsettling and yet highly focused on his business endeavors.

• Gould saw the potential in the telegraph industry, which was closely tied to railroading.
• He aimed to challenge the monopoly of Western Union by utilizing Edison's invention.
• Gould's strategy was to build a company with the intention of being bought out by Western Union, which he successfully achieved.

"Jay was keenly interested in the telegraph business... Jay Gold coveted it."

This quote shows Gould's ambition to enter and disrupt the telegraph industry, reflecting his entrepreneurial spirit and strategic foresight.

• Gould was a homebody with a routine that prioritized family and work.
• His vision for a transcontinental railroad was compared to Rockefeller's domination in the oil industry.
• Gould's legacy is complex, with historians struggling to reach a definitive judgment due to his controversial business practices and personal virtues.

"Every man has a natural inclination of his own. Mine are domestic. They are not calculated to make me particularly popular on Wall Street, and I cannot help that."

Gould's quote reflects his personal values and preference for a domestic life, providing insight into the man behind the business mogul persona.

• The podcast episode concludes with a recommendation to read the book for more stories and insights.
• The host promotes Founders Premium, a subscription service offering AMA episodes where subscribers can ask questions directly.

"That is 285 books down, 1000 to go, and I'll talk to you again soon."

This final statement signifies the host's ongoing commitment to reading and discussing a vast number of books, inviting listeners to continue engaging with the podcast's content.