by T. J. Stiles
On July 25, Keep resigned the Central presidency, and was replaced by H. Henry Baxter. Eager to appease Vanderbilt, the directors voted to reconsider the Central's relations with the Hudson River Railroad and Daniel Drew's People's Line. Two days later, Erastus Corning's son overheard Vanderbilt advise a friend to buy Central stock. In August, the New York Times reported that the Central's new management had forged “a close alliance with the Vanderbilt roads.” Ominously for Drew, the Central decided to “cut loose from all connection with the Hudson River steamboats.”5
The latter statement would prove to be gravely portentous. The relationship between Vanderbilt and Drew had undergone a transformation of late, one that grew more dangerous with each passing month. Vanderbilt's acquisition of the Hudson River Railroad had broken their unwritten nonaggression pact—and their long-standing partnership—by pitting their interests against each other for the first time since their clash on the river three decades before. Drew's participation in the second Harlem corner had turned their rivalry into a matter of open combat. Vanderbilt's infiltration of the Central heightened tensions still further; as one newspaper reported, “Drew and Vanderbilt promise to fight it out on the Hudson River all summer.”6
The summer of 1867 served as a mere skirmish before the battle to come. Vanderbilt's ascension to the presidency of the Central would spark a fight so fierce, so enormous, so outlandish, that history would record it as a formal noun: the Erie War.
EVEN BEFORE THE COMMODORE assumed control of the New York Central, his historical legacy as a railroad king began to take shape. He would be no Leland Stanford, no James J. Hill, building transcontinental lines through thousands of miles of unsettled plains and mountains; rather, he would be a creator of the invisible world, a conjurer in the financial ether. What made him powerful—and controversial—was not his riches alone, but his mastery of the corporate golem.
For his first magic trick, he took what was one and made it two. On March 30, 1867, the Hudson River shareholders (himself foremost among them) approved his plan to nearly double the stock by issuing new shares worth $6,963,900 at par value.7 Called a stock dividend, it was similar to a stock split, an operation that would become common in the twentieth century. In the nineteenth century, it sparked outrage. Charles F. Adams Jr. typified the reaction of orthodox thinkers when he called the transaction an “astounding” act of “financial legerdemain.”8 It seemed to unhinge the value of stock from the world of the concrete and real. Even now, the economic mind shrank before abstractions. Economists, moralists, and financiers alike expected stock to represent the original cost of physical construction and real property, at a rate of $100 per share, the standard par value. Even the most sophisticated thinkers refused to accept that stock could be increased at will, or that the market alone should determine the value of a share. The construction-based par value provided a reassuring sense that one could indeed find the honest, intrinsic, value apart from day-to-day market fluctuations, much like the gold that backed pre-greenback banknotes.
Stock that did not reflect construction costs was derided as “fictitious capital,” to use the formal term—or, more commonly, “watered stock,” which called up the image of livestock encouraged to gorge on water before weighing and sale at the market. By contrast, new stock was not seen as diluting share value if it reflected actual construction or additional real estate. This thinking explains the curious fact that bonds were often convertible into stock: if used to buy cars and engines, purchase land, or finance construction, then they represented an increase of real capital.9
Vanderbilt used this conventional wisdom to justify his stock dividend. He distributed the new shares to existing stockholders on a one-for-one basis, but required them to pay 54 percent of the par value (or $54 each). This money went to pay for the purchase of St. John's Park for $1 million and the building of a freight depot in place of its trees and flowers. The remaining 46 percent represented construction and rolling stock that had been paid for previously through the sale of bonds, now to be retired. And the Commodore and his son managed to pay 8 percent dividends even after doubling the stock, which tamped down criticism. “They have shown so much of practical ability in bringing up the [Harlem] to an 8 percent investment,” the Times wrote, “and of both ability and economy in making the Hudson River Road what is acknowledged to be… that this calculation was generally accepted as a sound opinion.” Cynical observers on Wall Street saw a stockjobbing ploy behind every corporate decision, but the Times demurred. “Mr. Vanderbilt emphatically declared that he should keep his present large holdings… to the close of his days, or so long as he is permitted to participate in the management of the property.”10
The Commodore also paid attention to the physical dimensions of his budding railroad system. In mid-1867, he realized that new construction would be necessary to integrate his two lines into Manhattan, to make the most efficient use of the strengths of each. The Hudson River had a level, double-tracked route with easy curves, allowing locomotives to pull more cars, use less fuel, and increase speed relative to other lines. It had access to the slips on the west side, convenient for freight handling. The Harlem possessed a portal in the center of Manhattan, which best served passengers. Vanderbilt planned a link between them close to the city: the Spuyten Duyvil Railroad, a short line that would curve along the Harlem River. The legislature chartered the company on April 24, and Vanderbilt took virtually all of the five thousand shares (later increased to a total of ten thousand, representing an investment of $1 million). Work would not begin until 1870, after a long struggle to secure the right of way, but the little line would prove to be an essential piece of Vanderbilt's kingdom.11
Of course, both these tangible and intangible creations remained within the parochial confines of New York. It was the presidency of the Central that would make Vanderbilt a national figure again, by giving him control of one of the four trunk lines that crossed the Appalachians. But the very success of the railroads over the past decade presented the trunk lines with a conundrum: the center of population and commerce had drifted far beyond their western termini (Buffalo for the Central, for example, and Pittsburgh for the Pennsylvania). They now depended heavily on connecting lines to such cities as Detroit, Cleveland, St. Louis, and Chicago. Managing their relations with these often quarrelsome connections posed a serious problem.
When it became clear to Vanderbilt that he would gain control of the Central at its annual election in December, he began to address this delicate matter of railroad statecraft. The Central had two routes to Chicago: the North Shore and the South Shore, named for their relationship to Lake Erie. On the North Shore, the Central connected via the Suspension Bridge over the Niagara River to the Great Western Railway of Canada, which used a ferry at Detroit to tie into the Michigan Central, which ran through to Chicago. On the South Shore, a chain of roads ran from Buffalo to Toledo; from there the Michigan Southern & Northern Indiana extended to Chicago. Vanderbilt invested in some of the South Shore lines and placed men on their boards of directors as these companies began a process of consolidation with each other that would not be complete for another two years. When he prepared a list of directors for the Central election coming in December, he included Amasa Stone Jr., an important South Shore railroad man from Cleveland.12
These steps worried the North Shore men, namely James F. Joy and the New England investors who had hired him to manage the Michigan Central. They believed that Vanderbilt, as president of the New York Central, probably would discriminate in favor of his South Shore connections, since that was where he had invested his own money. “I had seen by the NY papers that Vanderbilt probably had the control of the NY Cenl,” Nathaniel Thayer, a Boston financier, wrote to Corning on November 26. “Two weeks ago Joy was in NY when Comodore [sic] V. sent for him.” Vanderbilt had reassured Joy that he could “depend upon a perfectly fair course being taken, and that he knew we could injure the NY Cenl. more than they could us. We shall soon see however
what course they will take—and must act accordingly”13
Joy shared Thayer's suspicions, even after his conference with the Commodore. William hurried to reassure him. “I think you have in some way received an impression that the management of this & NY Cent roads desire to run their trains regardless of the connecting roads,” he wrote to Joy, under the letterhead of the Hudson River Railroad, “and I am most anxious to dispel any such ideas. I think we are fully aware of the importance of maintaining the most friendly relations with our connexions.”14
The words speak for themselves. As always, the Commodore relied first on diplomacy. Aware of the intricately interwoven web of railroad interests, he carefully avoided alienating his partners, even at the expense of some of his own investments. In the end, the Michigan Central's executives would admit that he remained fair and impartial with them. It may well be that he invested in the South Shore lines because that route was more troublesome than the North Shore (in which he would have to deal with only two well-run companies). That persistent problem in the railroad system—fragmentation—created complications on the South Shore that would grow into a crisis, one that would force Vanderbilt to conquer yet again. But not until after he had gone to war with Daniel Drew one last time.
JOY AND THAYER'S WORRIES spoke to the paradoxical nature of Vanderbilt's reputation at this critical moment. On the eve of his ascension to power in the New York Central, he already stood as an icon of the best and the worst in the new corporate economy. R. G. Dun & Co. summed up the contradiction on July 2, 1867, in that five-word description quoted previously: “Good as gold but sharp.” Good as gold, because none could deny Vanderbilt's “great skill, energy, experience, and business tact,” as a Buffalo newspaper wrote. “He is a shrewd, far-seeing, and far-reaching man.” Wall Street marveled at his accomplishment in turning the Harlem into a profitable, dividend-paying railroad. He won particular praise for his economical management. In the Harlem, he claimed to have reduced expenses by $1.6 million per year. In the Hudson River, he gave instructions to a similar end: “If we can do this business as cheaply as the boats, let us do it, and do it just as cheap as we can.”15
His honesty attracted great admiration, for this was an era when even the best corporate officials routinely engaged in self-dealing, as they had since the first appearance of railroads in the 1830s. In the Pennsylvania—called by Azariah Boody “the most perfect road in this country”—the highly professional president and vice president, J. Edgar Thomson and Thomas A. Scott, demanded kickbacks in the form of stock from outside contractors, such as sleeping-car and express companies. In the Central, Corning and other directors had ordered the company to purchase iron, goods, and services from their own firms. “The pecularity of Mr. Vanderbilt's railroad management,” Putnam's Monthly Magazine wrote, “is that, instead of seeking to make money out of the road in contracts and side speculations, he invests largely in the stock, and then endeavors to make the road pay the stockholders.” The only compensation he accepted as president of his roads was in dividends on his own shares. “I manage it [a railroad corporation] just as I would manage my individual property. That is my notion, and the way I think a railroad ought to be managed,” he told the assembly committee in February. When he did manipulate share prices, he only drove them up.16
But he was sharp. In March 1866, the American Phrenological Journal saw “Firmness” and “Self-Esteem” in the high crown of his skull. “His will, self-reliance, and ambition to achieve success are immense.” When he demonstrated those traits in the blockade of the Central, the non-phrenological press decided that they might not be so healthy for the public. “Mr. Vanderbilt is a bold, outspoken man, and, backed by immense private wealth, can afford to say and do things which ordinary and prudent railway people and even very respectable stockjobbers would hesitate to commit themselves,” the Times wrote on February 7, 1867. “As the Colossus of Roads, he thinks as little of defying public opinion as when he used to snap his fingers at the world of California travel when he was dictator of steamship competition.” The Round Table wrote of the blockade, “Mr. Cornelius Vanderbilt proceeded to show to what sublimity of insolence the chieftains of the railway banditti have attained.… Railway wars, according to the Vanderbilt view, are to be waged against the passengers.”17
The enormous impact of this one man's decision to blockade the Central—even if it was short-lived—made him the personification of the unprecedented size and power of railroads. The Jacksonian fear of aristocracy and distrust of corporations reemerged in new form as the railroads became the only large-scale mode of transportation. Even before the blockade, the Times had singled out Vanderbilt for abuse in a scathing editorial, “The Tyranny of Corporations,” that was about these larger changes. “There is no nation on earth where they are so utterly under the control and at the mercy of gigantic corporations and monopolies as in the United States,” it claimed.
The tendency of power—of the modern aristocracy of capital—is toward disregard of individuals and individual convenience and comfort. We already begin to feel the first grindings of the approaching tyranny of capitalists or corporations.… Every public means of transit is in the hands of the tyrants of modern society—the capitalists.… Even the State Legislatures can barely hold their own against these powerful monopolies. They can bribe and bully and cajole, so as to squelch any bill directed against them.
In this essay, one can hear the writer straining to construct a new political matrix to account for conditions that antebellum Americans had only begun to glimpse in the 1850s. These words were heartfelt, but did not reflect a coherent critique of corporate power in a democratic society. The Times admitted, “It is no part of our present purpose to suggest a remedy. Indeed, we must frankly confess we see none.”18
Inconclusive as this outcry may have been, it appeared in one publication after another, often in the context of an attack on Vanderbilt. On December 15, 1866, Harper's Weekly published an essay titled “King Corporation,” arguing, “Some method must be devised of emancipating the country from the tyranny of these vast corporations.” The Cleveland Leader wrote on January 21, 1867, “The tendency of great railroad corporations has been to become monopolies of the most unblushing and reckless character.”19
On February 9, the Round Table published the lambasting of Vanderbilt quoted previously—but, unlike the Times or Harper's, it offered a solution: “Congress, under its power to regulate interstate commerce, is the only source whence effectual remedy can come.” Of course: this was the obvious method, if Americans truly wished to regulate railroads. Generally speaking, the railroad (with the telegraph) was the first kind of company to straddle state lines, and it nearly monopolized interstate commerce. But neither the government nor the public was ready for federal regulation. Despite the expansion of federal power during the war, Washington still lacked a nonpartisan, professional civil service that could undertake such a vast and complex task as overseeing the railroads. Nor did the political will for it exist yet. But it was coming.20
None of this particularly mattered to the New York Central stockholders. The Vanderbilt they saw was the economical, energetic, far-seeing executive who promised to energize a leaderless trunk line. By the second week in November the Commodore had guaranteeed his success in the December election. To persuade the public—and his enemies—that he had widespread support, he and a party of socially prominent stockholders published a rather contrived exchange of letters. John Jacob Astor Jr., Edward Cunard, John Steward, and others in control of more than $13 million in stock formally asked Vanderbilt to lead the Central and enact “a thorough reformation in the management of its affairs.” He accepted.
In reprinting the correspondence, the New York Herald offered a pragmatic commentary. “That the result aimed at will be beneficial to the stockholders of all the roads mentioned cannot be doubted,” its financial writer said, “and although there is a look of monopoly about it, the practical effect may be unobjectionable t
o the public.”21 For the stockholders, this was all that mattered. If Vanderbilt truly was becoming society's new tyrant, at least he made the trains run on time—and profitably.
But there was another trunk line in New York, one in which Daniel Drew reigned as treasurer. In taking the Central, Vanderbilt would come to the conclusion that he must drive Drew off the Erie board. It would be the costliest mistake he ever made.
THE YEAR 1867 WAS ONE OF momentous business for one Cornelius Vanderbilt—and of momentous personal developments for three Cornelius Vanderbilts: the Commodore; his benighted son; and his grandson, the oldest of William's four male children. “Handsome, serious, high-minded, industrious, efficient, and thorough,” Louis Auchincloss describes the grandson—Cornelius Vanderbilt Jr., as he was now known. He “got on well with his grandfather—no easy task.” The well-educated scion of Staten Island had started out at the Shoe and Leather Bank in New York. After a certain period, the Commodore saw that he received a position at the banking and brokerage house of Kissam Brothers, and then he brought him in to work for the Harlem Railroad.22
The Commodore took a special interest in his namesake. Since young Cornelius was the presumed heir of the patriarch's presumed heir, this was natural enough, but the young man's name may have been a crucial factor. The aged founder of the family treasured those two words, Cornelius Vanderbilt. Throughout his life he had christened boats, ships, and children after himself until finally he ceased to produce them. The details of his beliefs about the power of words lie beyond detection, but it is significant that “name” is a synonym for reputation. He prized his “character,” to use an old term, for honor, honesty, strength, and sagacity. The son who bore his name lacked all of those traits, to his bitter disappointment; but now he had a chance to reach down two generations, to build his dynasty by molding the character of another, better Cornelius.
