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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 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.

See Edward J. Renehan, Jr., Dark Genius Of Wall Street: The Misunderstood Life Of Jay Gould, King Of The Robber Barons (2005). C-Span video of Renehah book tour.

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 (The Union Pacific had been established in 1862 by an act of Congress [U.S. v Western Union, SCt Nov. 18, 1895]) and therefore the Atlantic and Pacific Telegraph Company. Gould was now playing with the telegraph market.

Gould negotiated with the Baltimore & Ohio Railroad to switch teams. It went from having an exclusive contract with Western Union to having a contract with the Atlantic & Pacific Telegraph company (which was then acquired by Western Union)

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.

Protecting the Western Market of Union Pacific, Gould acquired the St. Joseph and Western Railroad in 1879 and the Kansas Pacific Railroad in 1880. [Stock Certificate for the St. Joseph Railroad Company, owned by Jay Gould, dated 1879] St. Joe had had an exclusive contract with Western Union. Gould had St. Joe seize control of the lines. A federal court enjoined the railroads self-help seizure of the telegraph lines - holding that such a contractual matter properly needed to be litigated through the courts - but also held that Western Union's exclusive contract with the St. Joseph was void

Atlantic and Pacific Telegraph Company

In 1852, Henry O'Reilly was the first to publicly advocate for an Atlantic and Pacific line (a.k.a. a transatlantic line). [A Memorial by Henry O'Reilly, Proposing a System of Intercourse Across the American Continent, American Telegraph Magazine Vol. 1, No. 1, Oct. 1852] [Memorial of Henry O'Reilly, concerning Military Highways or Stockade Routes for protecting travellers and settlers, facilitating mail and telegraph communication through vast interior territories, and rendering the United State independent of foreign countries for transmitting mails between Atlantic and Pacific states, 35th Cong., 1st Sess., Misc. Doc. No. 134, Jan. 5, 1858.] [Marysville 1861 ("It is not know who first conceived the idea of building a wire across the continent, but it was first made the subject of a public effort by Henry O'Reilly, who, about ten years ago memorialized Congress on the feasibility of telegraph communications between the Mississippi Valley and the Pacific")] When Morse's patents expired in the 1860s, O'Reilly was first in line for a chance to take Western Union down a peg. James Reid recounted

"Now, unshackled by patents, a clear field before him, he commenced, with characteristic impetuosity, the organization of Companies to carry out his various undertakings. His plans, though somewhat vague and general, were such as to inspire much of the old enthusiasm under which his early projects had been accomplished. He was aglow with all the energy of his sanguine character, and his elastic sunny nature won again, as in other days, many friends." [Reid at 578]

Awaiting the expiration of the Morse patents, O'Reilly had an office in Manhattan where the huge signs in the window read "Telegraph to the Pacific." His stationary letterhead read "Atlantic and Pacific Telegraph, Telegraph Construction Office." But when the moment came, O'Reilly had failed to learn the lesson of network economics and network effect. [Reid at 578 ("But Mr. O'Reilly had not learned by experience, and commenced again districting the face of the map with independent, or co-operating lines. He seems never to have fully conceived the grandeur of the telegraph as a unit. This may have been the result of an innate hatred of monopolies.").] He again embarked on a series of small, independent telegraph network projects, and by the time in 1866 when he turned to the Atlantic & Pacific Telegraph company, he received the "unexpected blow" that his financial backers had formed the company without him. O'Reilly, instead, turned his endeavors to the National Telegraph Company.

"The Atlantic and Pacific Telegraph Company was regularly organized December 2, 1865, under the telegraph laws of the State of New York, with a capital of $ 5,000,000." [Reid at 579] [A New Company, The Telegrapher, Vol. II, No. 26 April 16, 1866 p. 94 (describing the "Atlantic and Pacific Telegraph Co." as a "New Company.")] [Atlantic and Pacific Telegraph Company, The Telegrapher, Vol. III, No. 51 May 1, 1867 p. 191 ("This company have completed their organization")]

The A&P from New York to Buffalo opened to the public in 1867. In 1874, A&P formed an agreement with the Chicago, Rock Island and Pacific Railroad and provided telegraph service to Omaha. [Reid at 580]

In 1869, Union Pacific Railroad acquired control of the small Atlantic & Pacific Telegraph Company; A&P leased the railroad's telephone poles; Union Pacific received 24,000 shares - a controlling interest - of A&P. [The War of the Telegraphs, NYT April 4, 1880 ("In 1869, the Union and Central Pacifici Railroad Companies leased their telegraph lines to the Atlantic and pacific Telegraph Company in perpetuity, the consideration received by the railroad companies being a certain amount or capital stock of the telegraph company, the railroad companies agreeing to maintain the lines in good working order and to furnish all needed instruments and operators.")] [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.")] [Reid at 580 ("In 1874 they had reached Omaha, Neb., by the Chicago, Rock Island and Pacific Railroad, and Ogden in Utah, by the Union Pacific Railroad. Connections with the Pacific coast were secured by contract with the Central Pacific Railroad Company which had constructed a line of iele graph of its own between Ogden and San Francisco.")] [The War of the Telegraphs, New York Times, April 4, 1880 ("In 1869, the Union and Central Pacific Railroad Companies leased their telegraph lines to the Atlantic and Pacific Telegraph Company in perpetuity, the consideration received by the railroad companies being a certain amount of capital stock of the telegraph company, the railroad companies agreeing to maintain the lines in good working order and to furnish all needed instruments and operators.").]

In the early 1870s, Atlantic & Pacific made an overture to Western Union to be acquired. "but the panic of '73 had come in, and the W.U.T. had by that time swallowed so many companies that it was suffering from indigestion, and had been put on a low diet for a time by President Orton." [Harlow at 325]

In 1874, Gould acquired control of Union Pacific, and therefore Atlantic and Pacific Telegraph Company. At the time, "By these various extensions and alliances the lines of the company embraced, in 1874, 5,097 miles of poles and 12,039 miles of wire. It had an authorized capital of $10,000,000 with an actual issue of $ 9,578,100." [Reid at 580] A&P is approximately 7% the size of Western Union.

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. [Reid at 584 ("Gen. Eckert's resignation and election to the Presidency of the Atlantic and Pacific Telegraph Company was sudden and unexpected. It was at once instinctively regarded as a sign of battle with the Western Union Telegraph Company, whose service he had left.")] [NYT Jan. 15, 1875] [Klein at 200 (week after the Edison agreement)] [Harlow at 325 ("Gould struck up a friendship with General T. T. Eckert, Superintendent of the Eastern Division of the Western Union, and playing upon the latter's dissatisfaction with what he regarded as certain mistaken policies of his company, induced him to leave it.")] 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." [Reid at 583] [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


Image of Edison's American Automatic Telegraph at the Henry Ford Museum. Youtube.

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

1869

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 ]


1876

1879

1881: Market War Fall Out

1883

1884

1885

1886

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