The First Tycoon: The Epic Life of Cornelius Vanderbilt

by T. J. Stiles

  When the Commodore returned from Saratoga, he suffered a terrible loss. In October, an epizootic struck New York's forty thousand horses, afflicting them with disease. The New York Herald remarked on “the singular spectacle… of a great city almost at a standstill; of thousands of persons, male and female, young and old, unable to reach their homes after a day of toil except on foot.” Omnibuses, streetcars, carts, and drays sat in the streets, or “were dragged slowly around by horses more dead than alive.” On November 15, thinking the worst had passed, Vanderbilt drove out behind Mountain Boy. Soon afterward the steed fell sick. Worcester came around to the Commodore's stables not much later, and Vanderbilt told him his finest horse was dead. He would rather have given a thousand shares of New York Central, he said sadly, than have that horse die. When Worcester later recounted this remark, William—knowing how much his father valued both money and the Central—could only say, “Whew!”32

  The Commodore was in a grim frame of mind, then, when his name began to appear in the newspapers in the ensuing week. Horace Clark and Augustus Schell carried out a corner in Chicago & Northwestern Railroad stock, in alliance with none other than Jay Gould. As with the Union Pacific earlier in the year, the newspapers assumed that Vanderbilt was the mastermind of any operation involving Clark and Schell, and proclaimed a new alliance between Gould and the Commodore. In fact, Vanderbilt had no interest in acquiring the Northwestern, and he would never take part in its management. The linking of his name with the Union Pacific had been bad enough, but to be identified with Gould snapped his temper. On November 26, he dictated a “card” for the newspapers.33

  SIR: The recent corner in “Northwestern” has caused some considerable excitement in Wall street, and has called forth much comment from the press. My name has been associated with that of Mr. Jay Gould and others in connection with the speculation, and gross injustice has been done me thereby.

  I beg leave, therefore, to say, once and for all, that I have not had, either directly or indirectly, the slightest connection with or interest in the matter. I have had but one business transaction with Mr. Gould in my life. In July 1868, I sold him a lot of stock, for which he paid me, and the privilege of a call for a further lot, which he also settled. Since then I have had nothing to do with him in any way whatever; nor do I mean ever to have, unless it be to defend myself. I have, besides, always advised all my friends to have nothing to do with him in any business transaction. I came to this conclusion after taking particular notice of his countenance. The almost constant parade, therefore, of my name in association with his seems very much like an attempt to mislead the public, to my injury, and, after the publication of this, ignorance or misinformation can no longer be urged as an excuse for continuing this course.

  As for Wall Street speculators, I know nothing about them. I do not even see the street three times a year, and no person there has any authority to use my name, or to include me in any speculative operation whatever.

  C. VANDERBILT

  No. 25 West Fourth Street, Nov. 26, 187234

  The card shows the emotion and haste in which it was written. The claim that he had had only one “business transaction” with Gould was true only if the definition of a transaction was limited to stock trades, and excluded their relations as railroad presidents. Even then, Vanderbilt neglected the technicality he had insisted on in 1868, that his sale of stock at the end of the Erie War be to Drew and no one else. On the other hand, his denial of any role in speculation rings true; as Worcester would later report, since 1870 Vanderbilt had limited himself to strategic purchases of stock for investment or to control other companies.35 As for his personal opinion of Gould—well, a lot of businessmen didn't like the look of him, let alone trust him.

  When asked about the card by a reporter, Vanderbilt said, “The constant association of my name with that of Mr. Gould has injured me greatly.” It made investors reluctant to buy the securities of his railroads, he claimed. He had seen one telegram from England that read, “What is the meaning of Vanderbilt's name being mixed up with Jay Gould's in this affair?” When pressed about Gould, he added:

  No man could have such a countenance as his, and still be honest.… I tell you, sir, God Almighty has stamped every man's character upon his face. I read Mr. Gould like an open book the first time I saw him. I did not like to express too strongly an opinion this morning, but if you wish to have it now I will give it to you. You have my authority for stating that I consider Mr. Jay Gould a damned villain. You can't put it too strongly.

  As the reporter walked down the stoop into the rain, the Commodore shouted after him, “He is undoubtedly a damned villain, and you can say I said so.”36

  Vanderbilt's remarks apparently stung Gould, who proved equally petty. “The poor old Commodore is in his dotage,” he told a reporter. “There is a class of rising financiers whom the old man hates.… While he in his second childhood is uptown amusing himself with his horses, and listening to the flatteries of sporting men, these young business men are rising into financial power which will far exceed the old Commodore's even in his palmiest days.” Gould was wrong, of course. He would never achieve Vanderbilt's power, or even his absolute, unadjusted net worth.37

  But this feud drew attention away from what truly made this moment so hurtful, and damaging, for the Commodore. Vanderbilt directed at Gould all the anger and frustration he felt at Clark and Schell's betrayal. The pair went so far as to bail Gould out of jail after he was arrested in a lawsuit at the height of the Northwestern corner. As Railroad Gazette observed, Gould “rarely worked with these men or men of their class, and… was thought to be hardly acceptable in their company”38 Vanderbilt, that student of human nature in the business environment, must have known that this was a very bad sign. Such open defiance of his feelings suggested that Clark, in particular, had begun to think of himself as a great railroad manager and financier in his own right, as he took over the Union Pacific and cornered the Northwestern. As Vanderbilt knew all too well, first pride, then the fall.

  ONE BY ONE, VANDERBILT'S old friends passed on. Erastus Corning had died in April 1872. Horace Greeley's wife died at the end of October, swiftly followed by Greeley's defeat in the presidential election and his own demise on November 29. It was publicly disclosed that Corneil owed nearly $46,000 to the editor, on promissory notes that were listed by the auditors of the estate under “items of doubtful value.”39

  More and more, Vanderbilt's legacy lingered in his mind as he rolled inexorably toward the same fate. The topic came up when he received a call from a Southern Methodist bishop named Holland N. McTyeire, who was married to a cousin of Frank's. The bishop had traveled to New York for treatment by Dr. William Bodenhamer. The Commodore liked him, and insisted that he stay at 10 Washington Place. McTyeire became a frequent guest. As Frank later wrote, Vanderbilt had high regard for his “noble Christian character & great executive ability”—the latter more important to him than the former, perhaps. Vanderbilt listened closely when McTyeire discussed how the Southern Methodists had received a charter for the Central University to be erected somewhere in Dixie, where the destruction of the Civil War remained all too visible.

  McTyeire returned to New York in March 1873, and called at Vanderbilt's home as usual. The Commodore took him aside and said that he would give $500,000 to endow the university. “It was a grateful surprise,” McTyeire later remarked; wisely, he had never asked for any money, let alone such a vast sum as $500,000 represented in 1873. As the Commodore explained, it was his lifelong nationalism, his patriotism, that moved him. “It was a duty” Vanderbilt later quoted himself as saying, “that the North owed to the South, to give some substantial token of reconciliation which would be a benefit, and he wanted to do his individual share by founding an institution.”40

  Charles F. Deems testified under oath to hearing similar statements by the Commodore about his motives. Vanderbilt, he said, voiced a fear that “the greatness of his success would give an argument aga
inst education and its usefulness; that it had been secretly a life-long regret to him that he was not educated.” But a desire to heal the divided nation was most important. “When the Commodore finally announced his purpose to make the gift, he said that he had this in mind during the Rebellion,” Deems reported. “He spent a million of money in sending a vessel against the Southerners to show his views then, and he wanted to give the money after the war was over to show them that the men of the North were ready to extend the olive branch.”41

  Characteristically, Vanderbilt entrusted his gift to McTyeire as an individual. In a letter dated March 17, he placed several conditions on his gift: he specified that the university should be located in Nashville (as a major Southern city), and that the bishop should be the president, with the power to veto resolutions by the university board. McTyeire agreed, and the board swiftly accepted. Indeed, the Southern Methodists immediately decided to change the name from Central to Vanderbilt University42

  Vanderbilt had another project already under way to establish his legacy: the construction of two additional tracks on the Central between Albany and Buffalo (where its main feeders, the Lake Shore and the North Shore lines, converged). At the time, most railroads had only single-track lines, so even a complete double track was considered a great thing. The Lake Shore was considered an excellent road, yet it had only one track for part of its length. To construct a quadruple track over the distance of some three hundred miles loomed in the public mind as a monumental undertaking. Work began in 1872 through the simple device of extending sidings at various points along the line until they met. By the end of the year, seventy-five miles had been completed. To move the work along faster (and to consolidate existing debt), the New York Central board voted on January 11, 1873, to issue $30 million in bonds, plus another £2 million to be sold in London.43

  “I had this design in mind when I went on the road three [sic] years ago,” he told a reporter. “I got our best people together, and submitted a proposition to them. Suppose all the passenger trains were taken off, and the road given up entirely to freight? How much percent on the current expenses could we save in the transportation of freight?” The Central's freight haulage had risen dramatically since the Civil War. Freight receipts had climbed by 72 percent, despite the fact that freight rates had fallen by an average of 8 percent per year. In 1872, 203,351 freight cars passed over the line; in 1873, it would carry east 255 carloads in a single day, the largest total of any railroad to date. Passenger traffic, on the other hand, remained flat. “We have to run freight trains so rapidly to get them out of the way of the passenger trains that we frequently have to run thirty miles an hour,” the Commodore explained. “But it uses up the rolling stock, knocking the cars to pieces without really carrying the freight any faster.” Ten percent was the lowest estimate he received of the savings to be derived from running freight trains on separate tracks; Vanderbilt thought 15 percent.44

  “Suppose, now, we should save 15 percent on $15,000,000 freight transportation. That would be $2,250,000,” he lectured. “Now, suppose the new tracks cost $15,000,000, on which we should pay 7 percent, which would be $1,050,000. Now, if our business remained just as it is, the new tracks would give us a saving of $1,200,000 a year.” It is significant that he made his calculations based on the railroad's current business. At the start of 1873, after years of rapid growth, such railroad executives as Scott and Clark banked on continued expansion; the older and wiser Vanderbilt did not. “I hope to seem them laid. I am getting pretty old, but I never had better health than now”45

  On April 1, 1873, in a further step to put his empire in order, he leased the Harlem to the New York Central & Hudson River for an annual payment of 8 percent of the par value of its stock, the Harlem's now-customary dividend. It exemplified Vanderbilt's pattern: a slow but inexorable advance from financial control to coordination to centralization of the different components of his realm. Of all the Commodore's railroad vassals, only Clark's Lake Shore still ran its own affairs. As Vanderbilt Allen, Commander of the Order of the Mejidie, could have explained, it occupied a place rather like Egypt in the Ottoman Empire—owing allegiance to the sultan, but functionally independent. Not for long.46

  NOW THAT THE CENTRAL had issued £2 million in bonds, they had to be sold to English investors. On March 3, 1873, Vanderbilt gave the job to James Banker. He had confidence in Banker's abilities, of course. He bombarded Banker with personal instructions for the disposition of millions of dollars worth of securities up to the moment of his departure for London. But Vanderbilt may have wished to banish Banker in order to halt the growing stock operations he conducted with Clark and Schell.47

  His frustration with Clark in particular only had grown in the weeks following the Northwestern corner. In January, Vanderbilt again found his own name dragged into one of Clark's Wall Street operations, involving Western Union. Trading through George B. Grinnell & Co. (a firm in which Clark was a special partner), Clark's circle bulled the telegraph stock in January and February. That circle included Banker, Augustus and Richard Schell, and George A. Osgood. Osgood, too smart for his own good, told a reporter that “he would not allege that the Commodore was acting as the bone and sinew of the clique, for even if he were, it would not be wise to have the fact published as coming from him.” The journalist reported the conversation to Vanderbilt, who became “indignant.” Leaning back in his chair, the Commodore stretched out his arm and said, “My son, when the gang of stock speculators in Wall Street tell you a story about my connection to any enterprise but New York Central, Hudson, or Harlem, don't believe them. I have all I can do to tend to what I have on hand now, and if I had the Western Union Telegraph line I wouldn't want to be bothered with it.” Vanderbilt was being a bit disingenuous himself; he may have had a large, perhaps even controlling, stake in Western Union, though he did not take part in its management, let alone in this attempted corner. More ominously, he now condemned his own sons-in-law as “the gang of stock speculators.”48

  “It is well known that several months ago Commodore Vanderbilt quarreled with his son-in-law, Mr. Horace F. Clark,” the New York Herald reported that spring. “The reason of this was stated to be that the Commodore objected to his relative's speculating in Western [railroad] stock, particularly when they were fancy stocks.”49 This was more than a matter of personal pique. A subtle but profound shift in the economic winds could be felt, especially by so experienced an observer as Vanderbilt. In the judgment of English bankers, American railroads had overexpanded. As Junius S. Morgan wrote to Andrew Carnegie from England that spring, “Our market is at the moment over-supplied with American securities.… On the continent it is still worse.” In London, Banker found it impossible to sell the Central's bonds, a matter of regret to Morgan's son in America, J. P. Morgan, precisely because the future of U.S. railroads looked so doubtful. “The kinds of bonds which I want to be connected with are those which can be recommended without a shadow of doubt, and without the least subsequent anxiety, as to payment of interest,” J. P. Morgan wrote to his father on April 16. “I did feel exceedingly disappointed that we could do nothing with the New York Central.… It would do us all far more good to be connected with such a negotiation, even had the profit been small, than anything I have heard of for a long time.”50

  On the day that Morgan wrote these lines, the first tremor of the coming shock hit Wall Street—and it brought down the house of Barton & Allen. A squeeze in the money market led to a panic. When banks called in loans to Samuel Barton and Vanderbilt Allen, they could not pay. They had embroiled themselves too deeply in Clark and Schell's operations, especially in the Union Pacific, and Vanderbilt refused to save them. A reporter for the Herald asked Barton outright whether they were doing business for the Commodore. “None whatever, lately,” he replied. Still, he felt wounded, after the long years in which Vanderbilt had taken a special interest in both himself and Allen. “If Mr. Vanderbilt had stuck by us, we shouldn't have failed,” he said.
“But he would not.”51

  Vanderbilt's stern refusal to rescue his relatives from their recklessness—which he had warned them against many times—split the clan. Daniel Allen took it personally, and broke off his long relationship with the Commodore. Expectations rose of a reckoning between Vanderbilt and Clark.52 But fate intervened.

  On June 19, Clark dropped dead at the age of fifty-eight. He had had heart disease—“rheumatism of the heart,” as the press called it—and, after feeling unwell for some days, suffered a heart attack. On June 22, the Commodore and Frank led a parade of mourners into the Madison Square Presbyterian Church for the funeral, including William and his wife, Augustus Schell and his new spouse (married on March 25, with Clark playing a central role in the Quaker ceremony), and delegations from railroad boards from around the country. Afterward Clark was buried in Woodlawn Cemetery53

  Worcester rushed back from a trip to Buffalo for the funeral, and stopped to see Vanderbilt at his office on West Fourth Street. The Commodore told him to get into a carriage, remarking, “This is Mrs. Vanderbilt's coupé, and you must be careful not to soil it with your tobacco juice.” As they drove to Grand Central, Vanderbilt became reflective. “Mr. Worcester, there's one thing you ought to inculcate upon your boys, and that is to be very economical.” The source of his mood was an investigation he had launched into the Lake Shore's books. “Clark was foolish,” Vanderbilt said. “This is a lesson teaching us to take care of ourselves.”54