GOULD AND THE TELEGRAPH MONOPOLY.
The manipulation of values and the methods of running the railroad
and telegraph systems of the United States effect more nearly the
personal interests of every individual than do any of the other great
enterprises of the country. It is for that reason that Jay Gould’s
actions in his railroad properties and his telegraph companies are such
an important factor of interest in the events of his life.
Mr. Gould’s connection with the Western Union Telegraph Company began
in the early part of 1881. For a number of years, with the aid of the
American Union and the Atlantic and Pacific telegraph companies, which
he controlled, he was able to advance and depress the stock of the
Western Union at will. He was simply playing a great game with his
larger rival and waiting the chance when he would take possession and
unite all the lines.
One example of Mr. Gould’s finesse in connection with the Western Union
will show his methods. By 1880 his American Union company had become a
constant menace to the other company. Rates to every competing point
had been cut, and his lines reached to the Pacific. Western Union
at one period was up to 116. The wires of the Western Union were
taken from the lines of the Union Pacific and other great railroad
systems controlled by Mr. Gould and those of the American Union were
substituted. The stock of the older corporation fell to 88. It was said
at the time that Mr. Gould was short 30,000 shares of Western Union,
and if that was so he made $840,000.
But in 1881 Mr. Gould and his associates had practically secured
control of the Western Union. It was proposed to sell and transfer
the entire assets and property of the American Union and the American
and Pacific to the Western Union directors. Rufus Hatch, as a
stockholder of the American Union, obtained an injunction restraining
the consolidation, but on February 4, 1881, Judge Barrett refused to
continue the injunction, and by the time he had concluded his opinion
the papers were drawn up, the consolidation was ratified by the
directors of the three companies, and almost before the country knew it
there was one telegraph company where there had been three before.
The stock of the Western Union Telegraph Company was at once “watered”
$40,000,000, or thirty-seven per cent. and Mr. Gould became the leading
spirit in that company, directing its affairs from his offices, which
were in that building.
Nothing Mr. Gould ever did in his life so arrayed public sentiment
against him as this creation of the telegraphic monopoly. Eventually
the Western Union acquired the Baltimore and Ohio telegraph, which
Robert Garrett was glad to sell in order to get money to help the
Baltimore and Ohio railroad out of the difficulties into which it had
fallen.
Repeated efforts were made by the stockholders of the American Union
to secure the interference of the attorney-generals of various states,
but the consolidation stood. In May, 1882, the Western Union secured
control of all the European cables, and no little comment was aroused
soon thereafter when it was charged that Mr. Gould was making an effort
to secure control of the New York Associated Press, or, at least,
of the news which it sent out. He was reputed to control at that
time three of the seven newspapers constituting the corporation, and
something of a sensation was caused by the charge. The Western Union’s
control of the cables became so absolute that the Mackay-Bennett cables
were laid and gave a competing service to Europe, which was afterward
largely extended to other parts of the world.
In probably no other country of the world would one man be permitted to
control its telegraph system. But Gould became the absolute dictator
of the Western Union and successfully overcame every competitor that
arose. His record in Western Union, like that in his other properties,
is that of a tremendous increase of securities. Like the wicked
milkman, Gould always skimmed off the cream and poured water into
all his properties. The comic papers delighted to picture him with a
watering-pot in his hand.
The mainspring of the Western Union is monopoly. Its condition is such
that it cannot exist with profit to its stockholders with a strong
competition in the field. Thus it is a grand aggregation of small
companies. It has absorbed and will probably continue to absorb every
rival in the field. Gould himself rode into control on the back of a
competing company. This was early in 1881. His version of the story is
given in his testimony to the Senate Committee on Labor and Education.
“I am interested in the telegraph,” he told the committee, “for the
railroad and telegraph systems go hand in hand, as it were, integral
parts of a great civilization. I naturally became acquainted with the
telegraph business and gradually became interested in it. I thought
well of it as an investment, and I kept increasing my interests. When
the Union Pacific was built I had an interest in a company called the
Atlantic and Pacific, and I endeavored to make that a rival to the
Western Union. We extended it considerably, but found it rather uphill
work. We saw that our interest lay more with the Western Union. Through
that we could reach every part of the country, and through a small
company we could not; so we made an offer to sell to Western Union the
control of the Atlantic and Pacific. At that time a very dear friend of
mine was the manager, and I supposed that he would be made the manager
of the Western Union; but after the consolidation was perfected it was
not done, and I made up my mind that he should be at the head of as
good a company as I had taken him from. The friend was Gen. Eckert,
and for him I started another company, the American Union--and we
carried it forward until a proposition was made to merge it also into
the Western Union. As the stock of the latter went down, I bought a
large interest in it, and found that the only way out was to put the
two companies together. Gen. Eckert became general manager of the whole
system. Meantime, I bought so much of its property and its earning
power that I have kept increasing my interest. I thought it better to
let my income go into the things that I was in myself, and I have never
sold any of my interests, but have devoted my income to increasing
them. This is the whole history of it.”
This beautiful account of Gould’s devotion to a friend, to the extent
of starting a telegraph company for him, does not, however, tell
the whole story. Gould’s policy in regard to the American Union was
twofold. It was to establish a competing company so strong that the
Western Union would have to absorb it, or else it would absorb the
Western Union. The result was that the Western Union did absorb the
American Union and Gould absorbed the Western Union! By the aid of
his rival company Gould kept hammering at the stock of the Western
Union, then controlled by Vanderbilt. By every art known to Wall street
speculation he forced the price down as low as he could. He sold the
stock “short” in large amounts, and in buying to cover bought enough
additional to place him in control. Then he consolidated the two
companies and 100,000 shares of American Union, which represented a
comparatively small outlay of capital on the part of Gould, went into
the Western Union at par and Gould’s immense holdings of Western Union
were thus acquired at a low figure. Of course, if he had attempted
to market his holdings in one lump his profits would have been wiped
out, but by carrying the load and letting the stock out by driblets
his profits were large, even if he sold under the market price, which
was nearly always below par. On Jan. 11, 1881, it became known in Wall
street that the consolidation was probable and the price of Western
Union rose from 78 to 103 and the next day to 114½. The consolidation
increased the capitalization of the Western Union to $80,000,000,
and this amount has increased later by the capitalization of scrip
dividends and by the acquisition of the Baltimore and Ohio telegraph.
After Gould became the master of the system the Mutual Union was
started as a rival concern. Gould soon gobbled it up and leased it to
the Western Union. Then Robert Garrett developed the wires owned by
the Baltimore and Ohio railroad into a competing telegraph system,
and under the management of Mr. Bates, who had formerly been with
Gould in American Union and Western Union, it became a big system,
stretching far west and south. But Garrett soon got into deep waters.
He had not the genius of his father, the famous John W. Garrett, and
a struggle with Gould was beyond his strength. The Baltimore and Ohio
railroad, nominally a Gibraltar of strength, was intrinsically weak.
Garrett entered into negotiations to sell a controlling interest in
the property. His desire was to place it in hands hostile to Gould,
but the latter used his power in the stock market to frustrate his
plans. Garrett contracted to deliver the control to Henry S. Ives, a
young speculator who was modeling his life after the Gould pattern,
but in the end Garrett was not able to deliver, nor was Ives able to
receive. The B. and O. system was dismembered, and the telegraph fell
into Gould’s hands. Gould had previously announced to the public that
“the Western Union does not intend to buy any more rival telegraph
companies,” but when he found he could get the B. and O. cheap, a
little declaration of that kind did not stand in the way. In fact it
was intended only to mask his intention to buy.
Gould drew around him in Western Union a powerful body of men. His
board of directors included Norvin Green, Harrison Durkee, Alonzo B.
Cornell (who when governor of the state from 1880 to 1883 posed as
an anti-Gould and anti-monopoly governor), Cyrus W. Field, Robert L.
Kennedy, Hugh J. Jewett (whose testimony in regard to Erie has already
been quoted), J. Pierpont Morgan, of Drexel, Morgan & Co.; C. P.
Huntington, R. C. Clowry, Henry Weaver, Erastus Wiman, of R. G. Dun &
Co.; John Jacob Astor, Frank Work, George B. Roberts, president of the
Pennsylvania railroad, the leading railroad system of the world; George
D. Morgan, John Hoy, W. D. Bishop and J. W. Clendenin. The management,
however, was in the hands of an executive committee composed of Gould’s
immediate associates. The Western Union, besides its land system, owns
ocean cables and has a big interest in the telephone and stock “ticker”
systems, and Gould’s power as the master of this company can scarcely
be estimated.
It is believed that Mr. Gould’s real ambition, so far as concerned
the Western Union, was to sell it to the government. But so long as
the country believed that Jay Gould desired to sell there could be no
public opinion aroused in favor of purchasing it. So Gould, if such was
his real desire, masked his purpose behind a display of indifference
or opposition, in the hope that if it was thought he did not wish to
sell the country would be all the more eager to buy. Thus he told the
Committee on Labor and Education:
“I think the control by the government is contrary to our institutions.
The telegraph system, of all other business, wants to be managed by
skilled experts, while the government is founded on the idea that
the party in power shall control the patronage. If the government
controlled it the general managers’ heads would come off every four
years and you would not have any such efficient service as at present.
The very dividend of the Western Union is based upon doing business
well, keeping her customers and developing her business. If the
Democrats were in power there would be a Democratic telegraph; if the
Republicans came into power there would be a Republican telegraph, and
if the reformers came in I don’t know what there would be. (Laughter.)
I think it would be a mere political machine. I would be perfectly
willing, so far as I am concerned, to allow the government to try it,
to sell out our property, but it would be very unjust to take it away,
the property of our own citizens, and make it valueless.”
“Have you any idea what the government ought to pay?”
“I think that it ought to pay what it is worth and no more. I think
that the method that was provided in the law is a very just one, and
I would be perfectly willing to let the government take it on those
terms.”
“What, in your opinion, is the Western Union property worth?”
“Well, I judge of property myself by its net earning power; that is the
only rule I have been able to get. If you show me a property that is
paying no more than the taxes, I don’t want it. I want property that
earns money. You might say that there is water in Western Union, and
so there is. There is water in all this property along Broadway. This
whole island was once bought for a few strings of beads. But now you
will find this property valued by its earning power, by its rent power,
and that is the way to value a railroad or a telegraph. So it is worth
what it earns now, a capital that pays seven per cent.”
“That would be $100,000,000?”
“Yes, and it is worth much more than that, because there are a great
many assets.”
[Illustration: GOULD FAINTING AT DIRECTORS’ MEETING IN RUSSELL SAGE’S
OFFICE.]