The First Tycoon: The Epic Life of Cornelius Vanderbilt (33 page)

Chapter Seven

PROMETHEUS

P
rophets, it is written, find no honor in their own countries. Certainly Lieutenant William Tecumseh Sherman paid little heed to the two emissaries who loomed over his desk, carrying with them a sign that the earth was about to open and swallow them all. What they held in their hands would even transform the life of a steamboat proprietor and railroad president now three thousand miles away.

It was March or April of 1848, in the Pacific coastal village of Monterey, in the recently conquered Mexican province of Alta California. The two men had ridden down from the settlement of Johann Augustus Sutter to speak to California's military governor, Colonel Richard B. Mason. They had found their way to this simple two-story adobe building, climbed the exterior staircase, and stepped into the upper level, where they now spoke to Lieutenant Sherman in the North American accents of U.S. citizens. Sutter had sent them, they announced, “on special business, and they wanted to see Governor Mason
in person,”
Sherman recalled. He waved them into Mason's office; before long the governor came to the door and asked Sherman to join them.

On Mason's desk, in the wrinkles of some sheets of paper that had been folded and unfolded, sat a few yellow, metallic lumps. Mason gestured to them and asked of Sherman, “What is that?” The young lieutenant picked up a couple of the larger pieces, unusually heavy for their size, and turned them over, peering closely at them. “Is it gold?” he asked in return. The governor responded with yet another question: Had Sherman ever seen “native gold”—that is, unrefined gold ore?

He had, in fact, though never in such large chunks. He polished a piece—“the metallic lustre was perfect,” he remembered—and bit down on it. It yielded, as gold would. Shouting through the door to his own assistant, he called for a hatchet from the backyard. When the soldier returned with one, Sherman raised it up and with the blunt end proceeded to hammer the biggest lump flat. Without question, it was gold.
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Sherman saw little significance in the nuggets he battered down on Governor Mason's desk. He was a tall twenty-eight-year-old, his head bristling with red hair, not to mention ambition, as might be expected of an intelligent West Point graduate. A little over a year earlier, he had landed at Monterey Bay after 198 days at sea, eager to win glory. He would not win it in California. The province had fallen to U.S. forces almost without resistance. When his academy classmates would tell one day of their bravery in the war, he wrote, “I will have to blush and say I have not heard a hostile shot.”

He did enjoy hunting “deer and bear in the mountains back of the Carmel Mission,” he wrote years later, “and ducks and geese in the plains of Salinas.” He also mingled with the residents of Monterey who, like Californians as a whole, were few—a mix of Mexicans, white emigrants from the states, and Indians. He joined in fandangos, poked his head into Mass at the Catholic church, and explored the countryside. On the whole, he found California to be “dry and barren,” poor and unpleasant, not equal to two counties of Ohio or Kentucky. He hardly expected it to produce more gold than he had just seen. As he wrote at the time, “California is a humbug.”
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Mason handed Sherman a letter from Sutter that explained matters. A man named James W. Marshall had found the gold in a tailrace, or water chute, for the wheel of a sawmill that he had been building for Sutter on the edges of the Sierra Nevada Mountains, forty miles above Sutter's settlement. Sutter had sent the messengers with a request for title to the mill land. At Mason's request, Sherman wrote that the governor could not help; California was still technically Mexican territory, and the laws of the United States did not yet apply. But, he added, “as there were no settlements within forty miles, he was not likely to be disturbed by trespassers.”
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Rarely has a prediction of the future been so utterly wrong.

NEW YORK'S NEW YEAR IN
1848 began as it always did, with one of the annual traditions that marked the march across the calendar in the island city. Moving Day, for example, arrived on May 1, the day when leases expired, as they had since Dutch times, the day when furniture-laden wagons rattled and cracked against each other in dense herds on almost every street. Evacuation Day, the celebration of the British army's departure from Manhattan on November 25, 1783, saw parades, thirteen-gun salutes, and mobs of revelers. And the first of the year brought the tradition of the New Year's Day call, a custom practiced in New York by the elite—the wealthy
and
respectable—who debarked from private carriages before the brownstone townhouses that shouldered together in the streets radiating from Washington Square, and that increasingly lined Fifth Avenue north, reaching nearly to Twentieth Street. To meet the torrent of visitors, women fortified themselves in their parlors amid rosewood and red satin, dispatching servants to usher in the gentlemen who raced up the steps to make their calls, stopping long enough to hand off their hats and remark on the weather. George Templeton Strong, a rising young lawyer in Wall Street, informed his diary that he made eighty calls by six o'clock one New Year's Day, “and got home at last, tolerably tired.”
⁴

Neither Strong nor any other wealthy
and
respectable diarist is known to have recorded a visit to 10 Washington Place, to the parlor of Sophia Vanderbilt. That was her husband's fault. When the Mercantile Agency the nation's first credit bureau, first reported on Vanderbilt in 1853, it examined his character as much as his finances (since it reported on businessmen, not consumers, it attempted to assess the general trustworthiness of its subjects). The result says much about the attitude of New York's establishment toward the self-made Vanderbilt. “Started early in life as master of a [small] sailing craft between Staten Island & New York City. Manifested great ability & enterprize, & was taken hold of by the [late] Wm. [sic] Gibbons of New Jersey,” observed its reporter. “From this position Vanderbilt has risen to great prosperity in his way. He has a [large] fortune.” These words were honest, respectful, and only slightly snide. Unfortunately for Vanderbilt, it was a long report. After the commercial judgment came the social, and it was blunt: “He is illiterate & boorish, [very] austere & offensive & has made himself [very] unpopular with the inhabitants of Staten Island, so much so that his leaving there is subject of great rejoicing by the inhabitants & was manifested by a public jubilee.” Among the Astors and Aspinwalls, the Schuylers and Grinnells, Cornelius Vanderbilt did not belong. He had no place in their traditions.
⁵

Outwardly, Vanderbilt seemed impervious to the snickers from those who drove their carriages past his new home on their way to the Astor Place Opera House.
⁶
In many ways, he was destroying tradition as rapidly as possible. His career had disrupted ancient ways of life by facilitating a new mobility in society, breaking down barriers between markets, and introducing a fierce competitiveness that had become central to American culture. Now he had taken in hand the most important kind of business of the nineteenth century, the railroad.

In 1840, he had prophesied to the chief engineer of the Stonington, “If I owned the road, I'd know how to make it profitable.” As president of the line he brought his prediction to fruition. He expanded local traffic and dramatically improved its financial position. On May 1, 1848, he completed a new set of tracks that eliminated the ferry in Providence that had been such a bottleneck. In June, the railroad hosted a party for the leading businessmen of Boston to herald a new junction with the Boston & Providence. In December, the Stonington won lavish praise in the press. “This route is, without question, the shortest, directest, and easiest now in use” between Boston and New York, commented the
Independent
. “The cars are comfortable, and their motion equable and noiseless. The boats to Stonington are magnificent.… Throughout the whole route there is full proof of care, energy, and competency, which justify the rapidly growing popularity of this route.” Perhaps most important, under Vanderbilt's management the long-bankrupt line paid $65,000 in dividends that year.
⁷

“Mr. Vanderbilt, the well-known Admiral of the Sound,” in the words of one newspaper, had held on to his interests in the “magnificent” boats that steamed between Stonington and New York's teeming slips.
⁸
As he had assured the Stonington's chief engineer, when he finally owned the road, he owned the boats, too—though they were managed by Daniel Drew through the New Jersey Steam Navigation Company.

The year 1848 marked a high point of the partnership that Vanderbilt and Drew formed in the aftermath of their collision on the Hudson in 1831. For seventeen years each had taken a stake in the other's enterprises, neatly insuring against competition from the man he most respected. On Long Island Sound, they carried their cooperation beyond mere mutual nonaggression. With control of both trains and boats, they had eliminated the adversarial relationship between land and sea that had bedeviled the Stonington during the presidency of the hapless Courtlandt Palmer.

Vanderbilt and Drew took their partnership from business operations to the stock market. The model for what they now did with the Stonington took shape no later than 1844, when Drew had joined Isaac Newton and Nelson Robinson to buy control of the Mohawk & Hudson River Railroad. They had planned to divert its passengers and freight onto the People's Line boats, and to acquire (as they would explain in court in 1848) “the profits to be derived from the purchase and sale of stock.” Once they took control of a corporation, Drew and his partners gained first access to information that would drive the price of its stock, from potential problems to impending deals to the number and disposition of its shares in the market. They could also manipulate the share price, so they could buy or sell in advance of a manufactured rise or fall in the stock. Drew's passion for insider trading (as dealing in the stock of one's own corporation came to be known) made him a good credit risk in the eyes of the Mercantile Agency. Writing a decade later, in reference to another railroad that Drew controlled, an agency reporter observed, “He is inside & knows its fluctuations & bearings, & he is shrewd [enough] to take [good] care of himself. He may therefore be regarded as reliable [for his debts].” It was all perfectly legal. When Drew had to explain his behavior in court, it was not in a criminal case, but in a civil lawsuit filed by a junior partner of Drew, Robinson & Co., who felt that he had been cheated out of his share of the profits. That junior partner was Daniel B. Allen.
⁹

Drew made few such revelations. He, Vanderbilt, Newton, and Robinson profited by keeping their operations and arrangements to themselves. “It would be difficult to find the real wealth of [Vanderbilt],” the Mercantile Agency observed. “It must, however, be great.” When their names came up for discussion, the same adjectives appeared again and again: “smart… shrewd… cunning.”

Of all this cunning crowd, no one, not even Vanderbilt, was sharper than Drew's senior partner in Drew, Robinson & Co. Though both Drew and Vanderbilt understood the dynamics of the stock market exceptionally well, it was Nelson Robinson who worked “the Street,” as Wall Street was called. (“Wall Street” was itself a nickname for the stock exchange, formally called the New York Stock and Exchange Board.) There he won a reputation as “one of the shrewdest and keenest operators,” as he made trades among the crowd of unlicensed brokers who gathered on the curb outside the Merchants' Exchange and inside on the floor of the great hall where formal transactions took place. He mastered the brokers' arts—not simply buying and selling at the right price, but also managing the terms, such as the number of days allowed to close a transaction, and whether the buyer or seller would be able to select the day within that window to make payment or delivery. Perhaps most important, Robinson understood the magic of perceptions—the whispered rumor to shape the mood of the market, the daily feat of acting to fool the brokers who studied his face, the trades conducted anonymously through other brokers to mask his real movements.
¹⁰

Secrecy in such operations served a political purpose as well. Many Jacksonians had never fully reconciled themselves to corporations, let alone to “stockjobbing” and “speculation,” two of the worst insults an orator or editorialist could imagine. Even at the half century, the notion of dividing a company into shares, treating each share as property, and then allowing its value to fluctuate, just seemed wrong, even immoral to them.
¹¹