Cybertelecom
Cybertelecom
Federal Internet Law & Policy
An Educational Project
Telegraph :: 1874 :: Jay Gould Dont be a FOOL; The Law is Not DIY


Source: Jay Gould's private bowling alley / F. Opper. Library of Congress.

Jay Gould

Jay Gould was a railroad Robber Baron. In the Gilded Era of unregulated financial markets and turbulence, Gould knew how to manipulate markets and execute hostile take-overs. Both railroads and telegraph were inventions of the industrial era, requiring access to long stretches of right of way, and were carriers of third-party goods, information, and passengers. Both were interstate corporations and the country's first nationwide monopolies. Both were vital to the economic development and the defense of the nation. From 1860 through 1888, Congress passed a series of Manifest Destiny laws that were simultaneously railroad and telegraph authorizations. Railroads were the property owners of vast rights-of-way, they were legally mandated to construct and operate telegraph service, and were the anchor customers of telegraph. The business of railroads and telegraph went inextricably intertwined.

In 1874, Jay Gould acquired control of Union Pacific Railroad. Union Pacific Railroad had control of the small Atlantic & Pacific Telegraph Company. Gould was now in the telegraph business. The 'Dark Genius of Wall Street' he set his gaze on Western Union.

The story of Jay Gould's hostile takeover of Western Union is a story within a story within a story. It is also the story of Thomas Edison, Civil War Hero and Vice President of Western Union Thomas Eckert, the Little Automatic Telegraph Company, the Post Roads Act, the remnants of the National Telegraph Company, Alexander Graham Bell's new telephone company, and the Baltimore & Ohio Railroad and telegraph company. It was a time of intense market turmoil. Vanderbilt and Orton's Western Union would lose almost every skirmish. In the end, Western Union won the first Supreme Court case based on the Post Roads Act and in so doing lost the keys to the kingdom, Gould had successfully taken over Western Union, Bell had successfully kept Western Union out of its market (and would acquire Western Union in 1909), Thomas Eckert had become President of Western Union, and Thomas Edison had become Thomas Edison.

Gould and the Railroads

Gould was a a robber baron and was skilled a manipulating markets in order to gain control of railroads. In 1874, Gould gained control of Union Pacific Railroad. Union Pacific Railroad had control of the small Atlantic & Pacific Telegraph Company (established 1854). Union Pacific had an 1869 agreement: A&P received leased the railroad's telephone poles; Union Pacific received 24,000 shares - a controlling interest - in A&P. [NYT April 5, 1880] [Nairn at Chap. 3 ("The only competition of any note came from the Atlantic and Pacific Telegraph Company, which had come to arrangements with Union Pacific in 1869 (and later also Central Pacific) in exchange for stock.")]. Gould was now playing with the telegraph market.

After Gould sold Atlantic & Pacific Telegraph to Western Union, he then acquired the Wabash Railroad, formed the American Union Telegraph, and granted himself permission to use the railroad's right of way. We also negotiated with other railroad companies to break their exclusive contracts with Western Union and grant permission to his American Union telegraph.

Gould and Gen. Thomas Eckert

Gould would leverage the expertise of Thomas Eckert. Thomas Eckert had been Assistant Secretary of War, an officer for the US Military Telegraph Office, during the Civil War. Eckert emerged from the Civil War to become General Superintendent of Western Union [WU Report 1869at vi] [WU Report 1873 at 15 (Eckert was assigned to looking into the pneumatic tube business)] 1867: Vanderbilt controlled WU overlooks Eckert and names William Orton President of WU. Eckert did not get along well with Orton. [Klein at 199 ("Jay learned of his discontent and resolved not only to acquire his services for A&P but also to use him as an intermediary in reaching Edison.")] January 1875: Eckert resigns Western Union position; becomes President of the Atlantic and Pacific Telegraph Company. [NYT Jan. 15, 1875] [Klein at 200 (week after the Edison agreement)] Gen. Eckert hires "as his three chief aides none other than the three former cipher men in the War Department during the recent war Albert B. Chandler, D. Homer Bates and Charles A. Tinker." [Harlow at 323 ] In 1893, After Gould's successful takeover of WU, Eckert becomes President of WU. [Gen. Thomas Eckert Elected to Succeed Dr. Green, Western Union's President, New York Times, March 9, 1893 ("he quit the company to join the Atlantic and Pacific Company. In this stop, however, he was led by Jay Gould, who greatly admired his talents and employed them in the warfare conducted against the Western Union, both by means of the Atlantic and Pacific and the American Union")] [Edison Papers, Automatic Telegraphy]

Gould took advantage of The Post Roads Act to give him access to Post Roads and railroad ROW, ending Western Union's exclusive agreements with railroad companies. Thomas Eckert had been on the WU Board of Directors when it agreed to the Post Roads Act. He would have understood Norvin Green's strategy - and would have been able to bring it over to A&P and Gould. [Klein at 194 (Klein quoting Matthew Josephson in The Robber Barrons, Gould, "with the advice of a technician, a certain General Eckert, set about building a telegraph line of his own along the tracks of his railroads, which he named the 'Atlantic and Pacific Company.'")]

Gould, Edison, and the Little Automatic Telegraph Company

Captains Of Industry - The Story Of Jay Gould (November 31, 1937), "Recorded in the early 1930s by Atlas Radio Corporation of Canada"

Robber Barons and the Battle of the Tunnel, The History Guy

Western Union and Bell Telephone Agree to Divide the Market

Other Notes

Gould also was able to leverate his newspapers. [Daniel Alef, Jay Gould: Ruthless Railroad Tycoon (2010) ("Gould's newspaper The New York World... denounced WU and drove down the price of its stock.")]

Repeatedly over the next few decades Post Office will argue in favor nationalizing the telegraph and telephone service. As fervor in favor of nationalizing the telegraph grew, it met opposition from Jay Gould who was seeking to corner and monopolize the telegraph market.

Gould's Timeline

1873: Long Depression Weakens Players Financially

1874: Round I: Gould Gains Control of A&P

1875: Gould Launches First Rate War with A&P

1876: Gould launches second rate war

1877: Cornelius Vanderbilt dies

1878: WU Acquires A&P

1877: Round II

Yup, Round II begins a year before Round I ends. In 1877, the Supreme Court handed down its decision in Pensacola, breaking exclusive contracts between telegraph companies and holders of right of way. In Pensacola, Western Union had an agreement with the Pensacola and Louisville Railroad to build a telegraph line over the railroad ROW - it was for the small market in Pensacola, Florida. Pensacola Telegraph claimed an exclusive right to the market, pursuant to a statute from the Florida legislature. Pensacola Telegraph sued to exclude Western Union. Western Union avoided arguing that the loathsome Post Roads Act gave it the right to enter the market; instead, Western Union argued that Pensacola and Louisville Railroad had also received authority from the Florida legislature to build a railroad, that authority was proper, and that authority was delegated to Western Union. The Supreme Court went rogue, and in a case of first impression, found that the Post Roads Act permitted any telegraph company to enter a market and therefore the state legislature had no authority to exclude Western Union. As a company whose business strategy was exclusive contracts with railroad companies in order to erect barriers to market entry for rivals, this was a huge blunder for Western Union.

Jay Gould was listening and knew what his next move was. He would acquire the Wabash Railroad - which had an exclusive contract with Western Union; he would create the American Union telegraph company; and he would grant himself permission to construct a telegraph line over his own railroad ROW based on Pensacola. Western Union sued to enforce its exclusive contract. A Circuit Court applying Pensacola found that Western Union's exclusive contracts were null and void. Gould now had his Golden Ticket into the telegraph market - using his railroad connections, he flipped railroad companies to his side and built out lines for his new American Union telegraph service.

1879: American Union

1880: Courts Break RR Exclusive Contracts

1881: Gould acquired control of Western Union

[Nairn Chap. 3 ] [Nonnenmacher ]


1879

1881: Market War Fall Out

1882

1883

1884

1885

1886 49th Cong. Sess. 1 CHAP. 637.-An act to forfeit the lands granted to the Atlantic and Pacilic Railri.tl Coimpany to aid in the construction of a railroad and telegraph line from the States of Missouri and Arkansas to the Pacific coast, and to restore the same to seltl rmiilt aind for other purposes

© Cybertelecom ::