“He who sells what isn’t his’n, must buy it back or go to pris’n.” – Daniel Drew (attributed)

Beginning with the New York & Harlem Railroad, Cornelius Vanderbilt started accumulating a network to connect New York with Chicago, which by 1870 comprised the New York Central & Hudson Railroad, then valued at $100,000,000, the most successful of the Northeast lines, which was able to pay dividends through the Panic of 1873. His methods were harsh. He cut off feeder traffic to force a downstream company into his control. He cornered the market in stocks to punish short-selling public officials.

Short-selling is selling stocks you don’t own with the hope of buying them back later at a lower price, and is in contrast with going long on a stock, or buying it with the expectation it will rise in price. Clearly if the price does not fall, a short-seller will lose money. If someone can acquire a majority of the outstanding stock, and an insufficient amount of stock is available for short-sellers to purchase, their losses can be astronomical. In one of his few failures, Vanderbilt got into a bidding war over the Erie Railroad.

The “Erie War” brought together a cast of some of America’s most important financiers and railroad men in a battle over a second-tier railroad.

Daniel Drew (1797-1879) was once Vanderbilt’s partner. He became a stock-broker in 1844, and joined the Board of the Erie RR in 1857. He shorted the stock of New York & Harlem RR, and lost a fortune in 1864. After the Erie War with Vanderbilt, in 1870 Fisk and Gould then played Drew, causing him to lose $1.5 million. The Panic of 1873 was no aid, and Drew filed for bankruptcy and died penniless.

James (Diamond Jim) Fisk (1835-1872) made his first fortune dealing in Army contracts in the US Civil War. While he lost this wealth in speculation, after the War he worked for Daniel Drew’s brokerage. The famous Black Friday of 1869 resulted from Fisk and Gould’s failed attempt to corner the Gold Market. After the Erie War, Fisk had a scandalous affair with showgirl Josie Mansfield which ultimately broke off when Mansfield took up with Fisk associate Edward Stokes, who then attempted to blackmail Fisk for his illegal doings. Fisk had no part of that, and Stokes killed Fisk in 1872 (and went to prison for 4 years). Fisk was remembered as a populist loathed by high society.

Jay Gould (1836-1892), about the same age as Fisk, but much younger than Drew, was a surveyor and historian, and then formed a tanning business. It was the Panic of 1857 which moved him to high finance, when he bought out his partners’ properties for himself. As with any good, on-the-edge capitalist, this led to some violent kerfuffles, but Gould profited, and soon used his profits to invest in the Rutland & Washington Railroad. He acquired a reputation of being able to move markets by cornering the market in Gold in 1869, culminating in Black Friday, when the price of Gold collapsed. After the Erie War, and then being forced out of that railroad, he acquired the Missouri Pacific, Union Pacific, and Western Union, and transit routes in New York City. among other properties. At one time he held 15% of all US rail mileage. When crushing the 1886 Great Southwest Railroad Strike, he is reported to have said “I can hire one-half of the working class to kill the other half.”

These three: Daniel Drew, one-time partner of Cornelius Vanderbilt, James Fisk, and Jay Gould illegally issued “watered-down” stock in the Erie Railroad, much of which was purchased by Cornelius Vanderbilt who was aiming to get control. Watered-down stock entails the issuing of additional stock in a company, increasing the company’s par value. Suppose a company had issued 10,000 shares of stock initially in exchange for $10,000 of capital. The stock would be watered if the company acquired say $1,000 of additional real assets in exchange for $2,000 in stock. The value of the other stock would in reality be worth less (since the total company assets were now $11,000 but there were 12,000 shares outstanding, each share was only worth $0.91 instead of $1.00. This procedure is no longer done (as such) since par value is now nominal on companies, and the last court case involving watered stock was in 1956.

The more control Vanderbilt wanted, the more stock Drew, Fisk, and Gould issued, costing Vanderbilt $7 million between 1866 and 1868. While much of that was repaid to Vanderbilt, Gould himself could not retain the Erie. This was due to a strange immigrant.

Lord Gordon-Gordon (a.k.a. Lord Glencairn, Hon. Mr. Herbert Hamilton, George Herbert Gordon, George Gordon, George Hubert Smith, and John Herbert Charles Gordon) migrated from Britain to North America in 1870. He was not a Lord, as many Americans and Canadians later learned, merely impersonating a Scottish peer to borrow money to buy land. He landed in Minnesota in 1871, and deposited £20,000 in a local bank, establishing legitimacy. He promised to invest $5 million to help resettle 100 Scottish families on land managed for the Northern Pacific Railroad. Col. Loomis, the land commissioner for the Northern Pacific spent $45,000 touring with Lord Gordon-Gordon through rural Minnesota.

While still leading Minnesota on, Lord Gordon-Gordon, using letters of introduction from Col. Loomis, soon moved to New York. On the train ride east, he befriended the wife of James Fisk. In 1872, he convinced Gould that he and his European friends already owned some 60,000 shares of the Erie RR and he could help Gould acquire control of the Board of Directors of the Erie Railroad, in exchange for $1 million in stock as part of a “pooling of interest.” Upon receiving the stock, Gordon-Gordon promptly sold it, worsening Gould’s position. Gould sued, and Gould’s friends in New York City Hall (then under the reign of their ally and Erie RR fellow Board member, Boss Tweed) had Gordon-Gordon arrested. But Gordon-Gordon made bail based on the reputation of his purported European friends, and promptly fled to Manitoba, before such information could be confirmed, and before his history caught up with him.

“600 shares of Erie, some 1,900 of corporations affiliated with Erie, and 4,722 of the Oil Creek and Allegheny Valley Railroad, twenty-one thousand dollar bonds of the Nyack and Northern Railroad, and $160,000 in currency. The careful recipient of these securities and cash presently found an error of forty thousand dollars in the footing of Gould’s memorandum and sent word of the shortage. Gould did not think there was such an error, but under the circumstances he would not dispute the point and came back with an additional forty thousand dollars in cash. To a modest request for a memorandum receipt, his lordship replied with exceeding dignity that his word of honor ought to be receipt enough, and handed the bundle back to Gould. Gould took it, went as far as the door, returned, laid it down, and departed in faith that his property was in safe hands. It must have been sheer sport in playing a fish which had taken his hook so greedily that led Gordon to demand that Gould separate himself from the old directorate. On March 9 Gould delivered to him his resignation as director and president of the Erie Railroad Company, to take effect upon the appointment of his successor. The great covenant was complete.” (Folwell 1921)

Gordon-Gordon offered to buy large parts of Manitoba from the government, which appealed to locals there, but soon his American enemies found out and sent a posse of bounty-hunters to bring him back to the US. This posse included 2 future Governors of Minnesota and 3 future members of Congress. They successfully kidnapped Gordon-Gordon but were stopped by the Mounties in Winnipeg and put in prison themselves. The Governor of Minnesota put the state militia on alert and President Grant authorized sending an army into Manitoba, and a major international incident between Canada and the US was threatened. To avoid conflict, Canada released the posse, but Gordon-Gordon was already freed. Then his European enemies asked for his extradition on similar charges of swindling a jeweler of £25,000, and Canada agreed. Making his escape again, he was again arrested, and again released on bail. But before his extradition in 1874, he held a party, gave gifts to his local friends, and then shot himself.

Gould’s loss of $1 million in stock may have been sufficient to cost him the Erie Railroad.

References:

Folwell, W. (1921). History of Minnesota, Volume 2. Minnesota Historical Society Press.

Johnston, J. (1950-51). Lord Gordon Gordon. Transactions of the Manitoba Historical Society Series 3.

Adapted from Garrison, W and Levinson, D (2014) The Transportation Experience: Second Edition. Oxford University Press.

I am pissed, but she is furious, since it missed her baby by inches. The crowd, led by the mom, but including everyone else around starts yelling at the guy, basically asking the rhetorical question “what the hell is wrong with you? Get out.”. He stands there unfazed as a lynch mob begins to form, and he sort of shrugs. The yelling gets louder. His lady whispers to him to the effect that they better leave, and she escorts him off the bridge.

The riot was averted, and the real fireworks proceeded apace. They looked something like this:

I have not returned to fireworks at the Stone Arch Bridge, my preferred location is now Tower Hill, which is not nearly so close to the action, but let’s you see almost every firework display in the Metro area. Unfortunately the Hill is infested with mosquitos and smokers this time of year.