The First Tycoon: The Epic Life of Cornelius Vanderbilt

by T. J. Stiles

  The final phase of the Commodore's career now commenced. If the Harlem was “not so big a road,” it was a beginning. And the measures he enacted upon assuming power set the pattern for what he would do with every railroad that later fell into his hands. “Mr. Vanderbilt replied that he would accept the office of President of the Co. upon the condition that he receive no compensation for his services,” the secretary recorded, “& that the Board appoint a vice president who shall discharge the executive duties of the office.” It was a declaration of a sweeping new policy of reform: he would save the company every penny—including the president's $6,000 salary—but he would not be an operational manager. Rather, he would be a railroad leader, a distinction critical to understanding his role.

  The board ratified his terms, of course, and elected William E. Morris vice president. Other reforms appeared in swift succession. The same day the board created an executive and finance committee, a tighter, more efficient group to act on behalf of the full board. It consisted entirely of Vanderbilt's assistants and allies: Clark, Schell, Banker, A. B. Baylis, and John Steward. The committee promptly restructured the company's debt by issuing $6 million in new consolidated mortgage bonds “for the liquidation, adjustment, & settlement of all debts & liabilities of the company.” In a stark departure from past expediency, the bonds were not to be sold for less than par. It was a bold decision given the railroad's miserable reputation.32

  By emerging from the shadows to publicly take charge of the Harlem, the Commodore staked his prized reputation on his ability to revive the ailing railroad. His failure to save the Accessory Transit Company had cut deeply into his muscular pride; he would never let the same thing happen again. But this personal project immediately came under attack. The two tales of Harlem—the comedy of public corruption and the heroic saga of its rescue—now converged.

  Just as Vanderbilt assumed the presidency of the railroad, the Harlem came under attack by New York's corrupt officials. Those officials were not its original enemies, the state legislators, but its erstwhile allies, the city councilmen. The elected elders of Gotham had bought as many shares of Harlem as their good credit would allow before giving the railroad the Broadway franchise. As soon as Governor Seymour vetoed the George Law bill, the price of Harlem soared to 105—nearly twice the market price of 58 recorded when this affair began. “In comparison with the thousands thus made in a day or two,” Harper's declared, “street-cleaning schemes, by which a few hundreds were filched, or the sale of votes at $100 a piece, seemed petty and contemptible.” But their grand profit in this most inside of inside trading led them, en masse, to a grave miscalculation: “If they could create, could they not also destroy?”33

  “The City Hall junta, like many other men, are smart in their own sphere, but children out of it,” Harper's continued. “In a sweetly innocent way, they ‘sold Harlem short’ all the way from 85—to which point the Commodore let it drop—to 72.” Their plan was simple: to sell Harlem short, revoke the Broadway franchise, then buy in at a profit after the price tumbled. They would use their official powers to destroy the share value of one of the city's largest companies and most important transit lines. The result would devastate the railroad's shaky credit as the price of its securities collapsed.

  For Vanderbilt, the potential losses may have been less important than the attack on his pet project, the intended showcase of his abilities as a businessman. It was said that friends of the aldermen and councilmen informed Vanderbilt of the impending revocation of the Broadway grant. “Rumor states,” the New York Herald wrote, “that the President of the Company, Commodore Vanderbilt, warned the members of the Council of the folly of their trick, and predicted that they would lose more than they would make by it.”34

  On June 25, the battle of Harlem began. The price began the day at 83 ¼, but orders to sell poured out of city hall. At four o'clock, the board of councilmen voted to repeal the Broadway grant, and Harlem fell rapidly to 72½ at the Open Board. But the Commodore had laid a trap. He intended to corner the market—to buy every share offered by the brokers working for aldermen and councilmen, even if they surpassed the total in existence. When the short-sellers went into the market to buy shares in order to deliver them to Vanderbilt's brokers, they would find none—and still less mercy.

  The corner was hardly a new maneuver on Wall Street (Vanderbilt may have carried one out in late 1852), but the Commodore proposed to conduct this one on a far larger scale than ever before. The dangers were immense. He had to buy on credit, for he had to buy quickly. Anything short of complete victory would prove disastrous; he had to control all the shares or he would be unable to extort money from the short-sellers. But Vanderbilt, as Lambert Wardell later explained, “was a bold, fearless man, very much a speculator, understanding all risks and willing to take them.”35

  On the morning of June 26, news of a Confederate invasion of Pennsylvania filled the pages of the newspapers. On Wall Street, nervous traders expected Harlem's rapid retreat after the repeal and the losses of the night before. “Instead of declining, however, it advanced, rather to the astonishment of the shorts,” reported the Herald. “It rose today to 97, a difference rarely witnessed in a single day and a more severe punishment than the bears have suffered for some time.” Vanderbilt's credit stretched as his brokers bought and bought, fighting the bears who sold in a desperate attempt to break down the price. Some of the short-sellers panicked and borrowed stock to deliver (rather than buy in at a loss); they paid interest of as high as 2 percent per day for its use. Still Harlem rose, to 101½ on June 27, then 106 on June 28. “The bear campaign in Harlem proves the most disastrous on record,” the Herald observed.

  As Harlem marched upward, the bears realized that they were borrowing stock, through third-party brokers, from Vanderbilt. He had slyly lent out his own stock for delivery to himself, to both fool and squeeze his opponents. Those opponents were cornered; they could not fulfill their contracts by delivering the stock they had promised. Each day that the situation persisted, they paid interest. “It is understood that the short sellers have acknowledged their defeat, and endeavored to make terms with their triumphant antagonists without success,” the Herald wrote.36

  The “triumphant antagonists,” of course, were Commodore Vanderbilt and a tight clique of friends and advisers who wisely followed his directions. He had directed his campaign from his office at 5 Bowling Green without ever going near Wall Street, ruthlessly gambling his fortune on complete victory. It was a chilling display of nerve. According to Harper's Weekly, the councilmen called to beg for mercy, and the Commodore graciously replied that “he knew not who had sold the stock he had bought. If the gentlemen present were the sellers, he feared they had parted with valuable property at a low price. For his part he didn't see that he had had, or was likely to have, any dealings with them; and wished them a very good morning.”

  For New York's famously corrupt councilmen, Vanderbilt's vengeance proved a grand humiliation. He had caught them in their game of twisting public power to private ends, and drove them to the brink of bankruptcy. They “slunk back to Wall Street” and found that Harlem had risen $2 per share. Even more devastating, Harper's added, was that “the public had come to understand the game.… No member of the City Hall party could show himself in public without exciting a roar of laughter.”37 Finally Vanderbilt granted a (stiff) price to let them out of their contracts. On June 29, the humbled Common Council restored the Broadway grant. Vanderbilt let the price down after he had squeezed the most he deemed prudent out of his foes. “It may seem anomalous to outsiders that Harlem should rise 30 percent on the repeal of the grant and fall on the repeal of the repeal,” the Herald wrote on July 1. “But people who sold the stock short understand the reason.”

  Two days later the Union army at Gettysburg held the line against Pickett's charge. The battered Army of Northern Virginia retreated, leaving the battlefield to the Army of the Potomac. “A memorable day” Strong wrote on July 5, “e
ven if its glorious news prove but half true.… This may have been one of the great decisive battles of history.” So too on Wall Street, if the reporting was only half true. Vanderbilt enriched himself by forcing greedy men to pay for selling him what was his all along.38

  The Harlem corner proved significant in many ways. For one, Vanderbilt's punishment of the famously corrupt city government resonated with disgruntled New Yorkers, especially the elite who resented the rise of the Irish to office. For another, the sheer volume of money in play attracted unprecedented attention to Wall Street. Some were charmed by the romance of this financial warfare; others were alarmed that the public highways should be gambled in financial markets that few Americans fully understood. Perhaps most important, the corner greatly increased Vanderbilt's stake in the Harlem Railroad. In a typical corner, the victorious bulls would try to unload the stock they had acquired; in this case, Vanderbilt held on to many of the additional shares he had bought, lifting his official holdings from less than one-tenth to almost one-third. He had pursued the corner to avenge himself, but it may have led him to make an even more serious commitment to the railroad. It transformed the Harlem into the foundation of his railroad kingdom.39

  In July, the annual wave of heat and humidity and dirt and stench rolled over New York. It was time for Vanderbilt to move on, as he did every summer, to Saratoga. His victory secure, he could remove himself two hundred miles to the Springs. Everywhere people declared that Gettysburg had effectively ended the rebellion. “My cheerful and agreeable but deluded friends,” Strong wrote in his diary, “there must be battle by the score before that outbreak from the depths of original sin is ‘ended.’”40

  MANY MYSTERIES SURROUND the Harlem corner. How much stock did Vanderbilt really keep in the end? How much did he make? Who were his collaborators? Perhaps most important, who were his enemies? The councilmen and aldermen? In the last case, this was petty individual graft. The famously corrupt Tweed Ring did not yet exist. Nor was it a Tammany Hall operation. Contrary to historical myth, Tammany had never been an all-powerful machine, especially not now, when it comprised only one wing of the Democratic Party41

  Historian Mark Wahlgren Summers convincingly refutes the long-held idea that the Civil War gave rise to “exceptional rascality.” It was not corruption that was new, he writes, but the corruption issue—a fever for reform that would grow with the coming of peace. As we've seen, graft arrived on the American scene long before 1861; as Summers notes, the “argot of corruption,” with such terms as “borers,” “strikers,” and “dummies,” first emerged in the antebellum years. The source might be traced back to the Jacksonian revolution in politics, with the rise of professional politicians who treated elections and officeholding as a business. Some were simply greedy, but even the most public-spirited needed money to fund campaigns, partisan newspapers, and party rallies. As Tweed ascended to power in the months ahead, he would not pioneer graft, but rationalize it to serve the purpose of governing the decentralized, anarchic city. In that sense, the Common Council's bear raid on Harlem represented a transitional moment in New York's rich history of corruption—a frenzy of profiteering before the rise of the more systematic (but equally greedy) Tweed.42

  A more personal mystery surrounds Daniel Drew. The banker Henry Clews would later write in his influential memoir (Twenty-eight Years in Wall Street, updated later as Fifty Years in Wall Street) that “Drew was one of the great bears in this deal with the aldermen.” Clews and other Wall Street men of the 1860s depicted Drew as Vanderbilt's natural rival—the bear who fought the bull, a skulking fiend who undercut stock prices and refused to fulfill his contracts when he lost money43 Unfortunately, Clews was a wildly unreliable rumormonger with a taste for the most colorful version of any story; his oft-quoted tales are mostly worthless as historical evidence. More than that, this dark picture of Drew was projected through the lens of events yet to occur. In 1860, by contrast, R. G. Dun & Co. had made a more nuanced report: “His stock firm stands high at the Board. Drew is pretty well liked & not very grasping in his disposition, but takes care that he gets his own. Altho he is [responsible], his contracts would be better interpreted in writing.”44 He was a bit slippery, then, but not dishonorable—quite popular, in fact, and well respected. True, he had a taste for short-selling (his inside trading in Erie stock had come to light as early as 1857), but that did not make him Vanderbilt's enemy. No evidence exists to indicate a departure from their long years of close cooperation in business operations and speculation, let alone their friendship. “Uncle Daniel” was far more likely to have joined the Harlem corner.45

  A final enigma surrounds Vanderbilt's intentions, now that he controlled the Harlem. He had turned sixty-nine on May 27, an age generally associated with retirement—or death—rather than beginnings. He himself had written of “this late day” in his life. Yet he showed every sign of embracing his new role as chief executive despite his insistence on a vice president to run daily affairs. Over the ensuing months he would correspond with everyone from the Harlem's chief engineer to Edwin D. Stan-ton about everything from machine shops to individual locomotives.46 His long-term plans, on the other hand, remain shrouded. More than likely, he had little notion of the epic wars to come.

  THE HARLEM CORNER was perhaps the most spectacular sign of the vast quantities of wealth now being handled by the men of Wall Street. Vanderbilt kept his profits secret, but they surely ran into the hundreds of thousands of dollars. It was a harvest that reflected an increasingly stark polarization of society. When the income tax assessors drew up their lists that year, they found that the top 1 percent, a group of 1,600 families, earned 61 percent of the taxable income of Manhattan's more than 800,000 souls. Were dividends (which were taxed at the source) included, that percentage would prove far larger. Department-store magnate Alexander T. Stewart earned $1,843,637 in 1863; when one of his clerks was promoted that year, he received a salary of only $500, and many clerks received as little as $300. Wartime inflation punished the city's poor. Retail prices had risen 43 percent since 1860, and rents had climbed as much as 20 percent, but wages had increased only 12 percent. The resentment felt in such slums as Corlears Hook and Five Points began to boil.47

  On Saturday, July 11, a typically suffocating New York summer day, the lottery for the draft began, as mandated by the Conscription Act, passed by a Congress desperate for men to fight the increasingly costly war. At the corner of Third Avenue and Forty-seventh Street, “an area of vacant lots and isolated buildings,” as two historians of the city write, “the provost marshal read off names drawn from a large barrel.” Some of the 1,236 men drafted belonged to Black Joke Engine Company No. 33. Largely Irish and working-class, the firemen had always enjoyed an exemption from the state militia; being called up for federal service enraged them. On Monday, when the lottery was scheduled to resume, the Black Joke men sparked a citywide inferno known as the Draft Riots. Mobs stormed buildings and battled police; arsonists started fires from river to river, from Fiftieth Street to the Battery. The violence took a savagely racist turn. Rioters attacked black-owned homes and businesses, lynched black men and women, and ransacked the Colored Orphan Asylum on Fifth Avenue and Forty-second Street, shouting “Burn the niggers' nest!” Troops rushed back from Gettysburg; they charged barricades and battled lines of armed and organized civilians. By Thursday night, six thousand soldiers patrolled the smoldering city. On Friday, the omnibuses rolled once again.

  A man could avoid the draft by paying a $300 fee, a provision that inflamed class tensions—indeed, that drove much of the riot's fury. “There goes a $300 man!” the rioters bellowed when they spotted (and attacked) a prosperous-looking fellow on the streets. “Down with the rich men!” they cried, as they looted fine houses on Gramercy Park.48 But the Commodore did not feel their wrath, nor did he have any feeling for it.

  The city's response was typically divided. The Republican mayor Opdyke had appealed for troops. Democrats came up with a more sympathetic a
nd expedient solution. With Tweed's guidance, the county board of supervisors created a committee to pay for exemptions and substitutes for the poor. Governor Seymour, a Democrat, also convinced Lincoln to reduce New York's quota.

  Somewhere amid this crisis moved Horace Clark and Augustus Schell. Along with August Belmont, they led the “silk-stocking sachems” of Tammany Hall, a faction of wealthy Democrats who eyed Tweed warily as his influence grew in the wake of the riot. The time would come when Clark and Schell moved openly against Tweed, whom they considered a dangerous demagogue; but for the moment, they devoted themselves to the service of the Commodore as he worked to reform the Harlem Railroad. They would rebel against him one day as well, with disastrous consequences for all.49

  ON AUGUST 20, 1863, a small, slender, reserved young man with a great black sack of a beard composed a letter on the stationery of the Rutland & Washington Railroad, addressed to Erastus Corning, president of the New York Central. “I was informed to day,” he wrote, “that a party in intent with the Hudson River [Railroad] clique had been made up for the purpose of purchasing controll [sic] of the NY. Central.” An “informant” in the office of the ring's leader, Leonard W. Jerome, had overheard a conversation among its members, “[and] I thought it proper to advise you.”50