The First Tycoon: The Epic Life of Cornelius Vanderbilt (51 page)

Perhaps this disturbing conversation had something to do with Vanderbilt's decision, the next day, to have his son arrested for lunacy. Certainly he saw something rotten in Schuyler's affairs—and others did too. On Monday, July 3, a director of the New Haven Railroad, Morris Ketchum, went to the company's office to investigate some unusual sales of the company's stock. “In a conversation with the book-keeper his suspicions were excited,” according to the press, because Schuyler had given orders that no one should be allowed to examine the company ledgers. Ketchum seized the books, and the next day pored over them with the treasurer and two other directors.

When Schuyler learned of Ketchum's actions, he panicked. He sent for his brother, and “executed an assignment of all the property belonging to the firm, as well as his individual property,” to his attorneys. The next day, as the directors examined the books, he boarded a train to Burlington, Vermont. There he took a Lake Champlain steamboat to Canada.

On Wednesday, July 5, Ketchum and his fellow directors announced the stunning news: Robert Schuyler had issued certificates for nineteen thousand shares of stock that legally did not exist—a fraud amounting to $1.9 million at par value. Since Schuyler was both president and stock transfer agent, he had thought he could hide his crime, because he had not sold the stock but used it as collateral for loans. He had hoped to ride out the crisis in his finances, repay the loans, and then destroy the fake certificates. Instead, he had gone bankrupt, leaving the railroad with an excess of nineteen thousand shares.
⁷²

“The business and money circles of New York were electrified, and the whole community in some measure shocked, by the sudden disclosure,” one magazine reported. “Mr. Robert Schuyler, the person implicated, stood among the highest in the community was the honored representative of one of the old aristocratic families of New York.” As Strong wrote in his diary, “Wall Street all agog.… This swindle of Schuyler's is a great disaster and may well be the first crack that preludes a general crash and collapse.” Stock prices swiftly fell as further failures ensued. One of the bankrupts, the aristocratic Gouverneur Morris, had borrowed $100,000 on Schuyler's behalf, with the fraudulent stock as collateral.
⁷³

Vanderbilt held more “spurious” shares than anyone—a total of 2,210, worth $221,000 at par value. The man scorned as “boorish” by New York's elite had done his best to save the most elite of them all, and had been repaid with treachery. To make matters worse, the New Haven Railroad soon announced that it would repudiate the spurious shares. Even the legitimate Harlem stock that Schuyler had given Vanderbilt as collateral proved a source of trouble when the now-struggling railroad refused to pay dividends on Vanderbilt's one thousand shares.
⁷⁴

Robert Schuyler fled across the Atlantic to Genoa, where his family followed, and lived “in the strictest incognita,” a French reporter claimed. “Since his departure from America his health has been on the decline, and he finally died of grief and mortification” around the middle of February 1856. His widow returned to the United States and retired to an isolated cottage on Saratoga Lake, dogged by rumors that her husband was still alive, hiding himself with the woman he had once hidden from the eyes of society. “Fashionable New York, which could overlook twenty years of criminal life, could not excuse poverty” wrote Matthew Hale Smith, the aforementioned Wall Street insider. “It took reprisals for bringing this family into social position by hurling it back into an obscurity from which probably it will never emerge.”
⁷⁵

NOTHING, IT SEEMS, WAS BETTER
for the public than an angry Cornelius Vanderbilt. For all the distraction of Schuyler's fraud, the Commodore remained fixated on punishing Morgan and White—and the consumer profited. At the end of May 1854, he opened a second front by attacking one of the main sources of Morgan's wealth: his Gulf Coast steamship company. Vanderbilt established a rival line, running “three large first-class steamships” between Texas and New Orleans. “The avowed object,” the
Indianola Bulletin
reported, “is to oppose Harris & Morgan—to the death.” (Harris & Morgan, a New Orleans firm run by Israel C. Harris, Morgan's son-in-law, was the agent for his line.) Here, it seems, Vanderbilt's lobbying in Washington actually worked, for the Post Office took the Gulf mail contract away from Morgan and gave it to the Commodore. This pleased Texans who had grown tired of the “Harris & Morgan” monopoly. “Their uniform course was high-handed and despotic in the extreme,” the
San Antonio Ledger
wrote. “It is not probable that they will succeed in running Messrs. Vanderbilt & Co. off the track”
⁷⁶

This attack began just as the California traffic slacked off for the summer. Accessory Transit share prices slid down from a high of over 27 in January to 20¼ on July 17. A company official would feel obliged to explain to stockholders, “For some time, the sharp competition of three lines caused heavy losses.” That reference to
three
lines serves as a reminder that Vanderbilt's Independent Line hurt not only Accessory Transit but also the long-established axis of the Pacific Mail and U.S. Mail Steamship companies. Their revenues plunged as they tried to match Vanderbilt's reduced fares, which drew away passengers by the shipload. And that was the Commodore's intention, for he hoped the mail companies would put pressure on Morgan and White to settle.

U.S. Mail recently had undergone a change in management that boded well for Vanderbilt's strategy. On March 18, George Law had sold his shares to Marshall O. Roberts; on April 4, he resigned from the board. With the scratch of a pen, Vanderbilt's most intransigent foe had retired from the battlefield. Leadership now passed to Roberts, the president of the North River Bank, owner of vast amounts of prime real estate in Manhattan and New Jersey, and a wily operator on the stock market. On Wall Street, he was “not [very] popular,” the Mercantile Agency reported that year. “Mr. Roberts, on the commencement of his mercantile life, was in [very modest] circumstances, & has risen to his present position by his industry, shrewdness, & perseverence.” This sounded very much like a description of Vanderbilt. But Roberts had ascended into the sanctum of New York's most refined society A former Whig candidate for mayor, a close ally of Moses Taylor and August Belmont (both wealthy social leaders), Roberts built a costly mansion on Fifth Avenue in 1854, and boasted that his net worth amounted to half a million dollars. He had no interest in pursuing Law's old vendetta or in bleeding profits merely to save Charles Morgan's pride.
⁷⁷

With steerage fares between New York and San Francisco as low as $35, passengers flocked to the Independent Line, only to see the ugly side of competition, the ferocious cost cutting that made such prices possible. As one popular song ran:

You are driven round the steerage like a drove of hungry swine
,
And kicked ashore at Panama by the Independent Line;

Your baggage is thrown overboard, the like you never saw
,
A trip or two will sicken you of going to Panama
.

Despite this ruthless attempt to limit expenses, Vanderbilt, too, lost money on his California line, especially when traffic fell during the summer. And so did his partner, Edward Mills, who “was [about] ruined in consequence,” according to the Mercantile Agency. Desperate to cut his losses, Mills sold his share of the
Uncle Sam
and the
Yankee Blade
to Vanderbilt. It did little good. Unable to pay his debts, he went bankrupt, ending a long career as a steamship entrepreneur.
⁷⁸
Vanderbilt had carried him down to disaster. Truly there was no friendship in trade.

If Mills had been able to hold on for just a few weeks longer, the outcome for him would have been very different. On August 29, rumors began to circulate on Wall Street that Vanderbilt and his foes were meeting to discuss terms. Two days later, news broke of a final settlement. Driven to desperation, Morgan, Roberts, and Aspinwall decided to buy out Vanderbilt on his terms. The Accessory Transit, U.S. Mail, and Pacific Mail companies purchased his steamships for $800,000, an amount far exceeding their original cost (“a gd. price,” the Mercantile Agency judged). The mail companies jointly paid half and received the
North Star
, which U.S. Mail would operate. Accessory Transit paid the other $400,000 and took the
Yankee Blade
and the
Uncle Sam;
it also agreed to give Vanderbilt $115,000 in compensation for “his claims of every sort, including his interest, past and prospective (say for two years), in the transit over the isthmus,” as the company reported. The first payment of $60,000 would be made in December, with two more scheduled in early 1856. To add injury to insult, the
Yankee Blade
soon went ashore on a reef at Point Arquilla and proved to be a total loss.
⁷⁹

On top of that, the Accessory Transit share price slid still lower, allowing the Commodore to “buy in” and profitably “cover” the short-selling contracts he had made in January (to use the jargon of the time). He paid as little as 16¼ for each share that he now sent over to Charles Morgan, who had agreed to pay 25 whenever Vanderbilt chose to deliver them.
⁸⁰
The Commodore had not only forced his foe to acknowledge he was right, he also had forced Morgan to pay him three times—in an inflated price for his steamships; in cash for his claims; and in the stock market.

Accessory Transit and the mail companies quickly made arrangements with each other to return fares to their previous high levels: $300 for first cabin, $250 for second, and $150 for steerage—three times or more what Vanderbilt had charged. But if Morgan and Roberts had paid any attention to the Commodore's long career, they must have been wary of his agreement to forgo future competition. “Vanderbilt is slippery,” observed the
San Francisco Alta California
, “very much like the Irishman's flea, and we should not be at all surprised if a line of opposition steamers were puffing away in the course of six months, established at least indirectly through his means.”
⁸¹

The precise prediction would prove wrong, but the sentiment was entirely correct. In little more than a year, Vanderbilt would once again take his place as a major force in the steamship lines to California. And when he did, he would find himself embroiled in a war not only for business but for the very survival of Central America, as the United States plunged toward civil war.

*
John Overton Choules,
The Cruise of the Steam Yacht North Star
(New York: Evans and Dickerson, 1854), 26–7, records the following passengers, in addition to himself and his wife: Dr. Jared Linsly and his wife; the wife of the captain, Asa Eldridge; Cornelius and Sophia Vanderbilt; and the Vanderbilts' children and their spouses, Phebe Cross, Kate Vanderbilt, George W. Vanderbilt, Maria and William H. Vanderbilt, Ethelinda and Daniel B. Allen, Eliza and George Osgood, Emily and William K. Thorn and their daughter Louisa, Sophia and Daniel Torrance, Louise and Horace F. Clark, Mary and Nicholas B. La Bau. Cornelius J. Vanderbilt and Frances Lavinia did not accompany them.

*
A popular story attributes the invention of the potato chip to Vanderbilt. In 1853 he supposedly complained that his fried potatoes were not salty or thin enough; the Lake House cook, George Crum, retaliated by frying absurdly thin and salty slices, which Vanderbilt loved. (The
Washington Post
, May 19, 1917, credited Crum's half sister, Catherine A. Wicks.) There is no truth to the tale. The
New York Herald
, August 2, 1849, strongly suggests that the potato chip originated with the now-forgotten Eliza, no later than the summer of 1849. See William S. Fox and Mae G. Banner, “Social and Economic Contexts of Folklore Variants: The Case of Potato Chip Legends,”
Western Folklore
42, no. 2 (April 1983): 114–26.

Chapter Ten

ARIEL

“B
illy, never underestimate your opponents.” Lambert Wardell overheard the comment in one of Vanderbilt's increasingly frequent, and increasingly fatherly, conversations with William. It is difficult to chart this father-son relationship, for it was entirely oral, yet it seems that a warming continued after their months together on the
North Star
. This particular piece of advice stuck in Wardell's memory because it was so characteristic of his employer's thinking. “This was one of the secrets of his success,” Wardell later reflected. “He never underrated himself nor anybody else.”
¹

These well-remembered words say much about how the Commodore envisioned his business career. Wardell would add that he “detested details.… He was very concise and gave general directions regarding matters rather than dictating in detail.” This statement seems not to apply to this stage of Vanderbilt's career, considering the minute attention he often lavished on his ships and various operations, until it is put into the context of that comment about “opponents.” He did not think of his businesses as machinery; rather, he saw them as military campaigns against his enemies. When he could not avoid the merely mechanical aspect of his enterprises he often expressed impatience; but when he was locked in combat he paid attention to the tiniest detail. This helps explain why he regularly sold out his steamboat and steamship lines after only a year or two of competition: once he achieved victory, he lost interest. He devoted little time to the businesses that he did operate year after year, such as the Staten Island Ferry, which had attracted widespread complaints about its condition.
²

In the months and years that followed the
North Star's
voyage to Europe, Vanderbilt increasingly thought of himself in another way: as a pillar of New York's mercantile community. That could be seen clearly in August 1854 (the same time that he achieved victory over the Accessory Transit Company), when he set out to rescue a bastion of New York's business establishment, the New York & Erie Railroad—or Erie, as it was more commonly known. The Democrats who ran New York State had chartered the company in 1832 with the Whiggish notion that it would be a private corporation with a public purpose, to bring the benefits of the newfangled railway to the southern tier of upstate New York counties. Even the radical
New York Evening Post
supported it, and prominent merchants subscribed to the stock. But building a line over the mountains from the Hudson River to Lake Erie proved far too expensive and time-consuming for private capital alone. The state stepped in repeatedly to keep the enterprise afloat as it grew ever more costly. Finally, in 1851, New York celebrated the completion of what was then the longest railroad in the world.
³

After all the trials the Erie endured in construction, it began to make a great deal of money. In 1853, it earned $4,318,762, a 25 percent increase over the year before and well above expenses (at a time when only three or four dozen textile factories represented a total investment of $250,000 or more). When Nelson Robinson carried its stock up to 92, it was not simply because of his skills as a broker, but also because the Erie had bright prospects. But it seems that Robinson did not attend to his duties as treasurer quite as carefully as he should have. A massive cluster of debts fell due on September 1, 1854; when the railroad's officers tried to arrange short-term loans to cover the payments, they encountered the same tight money market that had brought down Robert Schuyler. The company needed a great deal of credit, very fast.
⁴

The Erie towered over the economic landscape. Its stockholders numbered in the hundreds, and it boasted a capitalization larger than all but a few other giant railroads. Yet it was situated in a culture that still did not distinguish between the invisible corporation and its corporeal managers and shareholders. In this crisis, all eyes turned to its directors, who were expected to take personal responsibility for the corporation's debts. Panicked by the enormity of the payments coming due, they all declined. “Where are all the great financiers who used to congregate in the directors' room of this huge concern, and put forth their edicts with all the pomposity of the Grand Mogul?” asked the
New York Herald
. “Where are they now? We do not see them striding about the streets, annihilating all the little bears by a look. Verily, their occupation is gone, and they have given place to a set of hungry creditors.”
⁵

Robinson was nowhere to be found. As treasurer, he had seen the storm coming, sold all of his stock, and again went into retirement. Only his former partner, Daniel Drew, stood up to the challenge. Drew's connection to the road predated his election to the board of directors; as early as 1842, he and Isaac Newton had provided the steamboat connection between Manhattan and Piermont, the railroad's terminus on the west bank of the Hudson River. On August 30, 1855, the Mercantile Agency summarized his life and reputation in words that reflected the deep respect of Wall Street. “He is a self made man, of great energy, [prudence,] & integrity. Began his [business] life as a cattle dealer, in which he made considerable money. Was afterwards a broker in the firm of Drew, Robinson & Co.… until March ′52, when he retired,” it wrote. “Was then believed to be [worth] over a million & is probably [worth] that now.… He is [very] prompt in all his [business] transactions. Is in unquestioned [credit] & his [notes] are placed amongst the first-class paper.”
⁶

A day would come when the brokers of Wall Street would howl with laughter at the thought of Drew being described by the words “prudence” and “integrity.” But in August 1854 he seemed like a savior when he undertook to rescue the Erie from bankruptcy. Not that he acted out of sheer nobility: he knew that the railroad would have to pay him enormous fees for credit it could get nowhere else. But it needed more credit than Drew alone could muster, and so the former drover turned to his old friend. “Mr. Vanderbilt has been called upon for aid after every member of the board of directors, except Mr. Drew, declined to come under for any further responsibility” the
New York Herald
reported, “and if he backs out we really do not know what will become of the once magnificent Erie Railroad Company”
⁷

He did not back out. Vanderbilt endorsed the Erie's paper—that is, he accepted ultimate responsibility for its repayment of a six-month loan—to the sum of $400,000. For collateral, he took a mortgage on the entire rolling stock, all 180 locomotives and 2,975 cars. Drew endorsed notes for $200,000 (later even more) and took a mortgage on everything that was left. If the Erie didn't pay, it would become the personal property of Vanderbilt and Drew. The railroad's position was so precarious that a panicked sell-off of its stock broke out when it was rumored that Vanderbilt had been thrown from his wagon in Broadway and severely injured (it actually happened to his brother Jacob).

But the Erie paid back the loan. It also delivered a 10 percent fee to the two gentlemen, a neat $40,000 payoff for the Commodore on his bet that the Erie would survive.
⁸

The incident reveals much about Vanderbilt's peculiar role in the emergence of the modern economy. The hallmark of a modern financial system is institutionalization—the emergence of banks and similar bodies to pool capital, assess risks, and provide credit. By 1854 such institutions had already sprouted on the American scene, but Vanderbilt the individual seemingly dwarfed them all. In rescuing the Erie, he (and Drew) accomplished what seemed beyond the combined might of New York's merchant class. He would have to battle that class again—as early as the beginning of October, when his spokesman faced down an angry meeting of New Haven Railroad stockholders, marking the start of Vanderbilt's long war to force the corporation to accept responsibility for the spurious stock Schuyler had issued.
⁹
But his salvation of the Erie consolidated his position as a merchant prince in the Medici mold, both a relic of a bygone era and an aggressive leader of the new. And it contributed to a slow and subtle change in his social status.

At first glance, it seems impossible to decipher the contradictory signals sent by New York's great merchants in the 1850s. James King and the Mercantile Agency scorned him; Hamilton Fish and Robert Schuyler turned to him for help. But the signs of acceptance were growing more numerous. In 1855, for example, he received a dinner invitation from the socially prestigious merchant Cyrus W. Field, brother of the prominent lawyer David Dudley Field, denizen of fashionable Gramercy Park, and organizer of an attempt to build a transatlantic telegraph cable. Unusually, Vanderbilt personally wrote a reply. “I am extreamly mortified to be compelled to say it is out of my power to do so in consequinc of an ingagement previously made,” he wrote.
¹⁰
This otherwise insignificant letter is less notable for Vanderbilt's continuing disregard for conventional spelling than for the formal tone that now suffused his language, as well as the fact of the invitation itself.

Did this creeping social acceptance give his wife Sophia equal satisfaction? “She was of simple tastes and habits, and never learned to feel quite at home amid the great and splendid city” wrote William A. Croffut a decade after Vanderbilt's death. Croffut was more a gossip than a biographer, but we have little other evidence. “She clung closely to the acquaintances of her youth, and used to tell… that the happiest days of her life were those spent in hard work in the halfway tavern at New Brunswick, and that she liked the house that her husband had built on Staten Island, with all the children romping on the lawn… far, far better than the prim mansion on Washington Place.”
¹¹

WITH ALL HIS ENEMIES CHASTISED
, Vanderbilt had to decide what to do next. No matter how significant he was as a financier, temperamentally he wasn't suited to merely play the money man. He was a builder of enterprises—more specifically, he was a competitor. He was accustomed to taking a leading role in transportation, which was by far the largest sector in the American economy; that meant he was accustomed to being a public figure, for transportation was the great meeting ground of public and private interests in the nineteenth-century republic. It is not surprising, then, that as soon as he closed up his California lines he launched an attack on the sea lanes to Europe.

The end of 1854 happened to be the perfect time for his entry into the transatlantic steamship business. The Cunard Line, the British steamship company, temporarily disappeared because of the intensifying war with Russia. “In response to the British government's need for support in the Crimea,” writes maritime historian John A. Butler, “the line was… obliged to withdraw from the New York-Liverpool route and send its ships to the Black Sea with troops and mail.” In addition, the primary American competitor, the heavily subsidized Collins Line, had recently suffered the sinking of its flagship
Arctic.
¹²

“There is room for more Atlantic steamships, and, just in the nick of time, we have the man to step in and fill up the deficiency,” the
Herald
announced in December. “We understand that Mr. Cornelius Vanderbilt, who, as a shipbuilder and navigator has earned for himself the title of ‘Commodore Vanderbilt,’ is now building two fine steamers, upon the general plan of the
North Star
, to ply from New York to Havre or Liverpool, and that they will be ready for sea in the course of the coming spring.” Though the
Herald
avoided criticizing the Collins Line, the political controversy surrounding its federal subsidies suffused its commentary. “Competition is the life of business,” it wrote. “Commodore Vanderbilt has the necessary experience, both as a steamship builder and as a steamship navigator, to know what to do in the way of putting up a perfect steamer; and with a private fortune of some $7,000,000 or $8,000,000, he may undertake this great Atlantic enterprise with impunity”
¹³

The
Herald
was right in one respect, but off the mark in two others. The Commodore did indeed have a steamship under construction at the Simonson shipyard, one specifically designed for the Atlantic. The
New York Post
lovingly described the three-deck sidewheeler:
“twenty-three
hundred tons burden, and named the
Ariel
, diagonally iron-braced throughout, and considered as strongly built as any steamship of her class afloat.” But, according to Vanderbilt himself, the
Herald's
estimate of his fortune was short by several million—a margin larger than the estate of nearly any other wealthy man in the country. An associate later recalled how the Commodore asked him who he thought was New York's next-wealthiest merchant, after William B. Astor. When he guessed Stephen Whitney, with some $7 million, Vanderbilt snorted, “Hmmm! He'll have to be worth a good deal more than that to be the second-richest man in New York.”
¹⁴