The First Tycoon: The Epic Life of Cornelius Vanderbilt

by T. J. Stiles

  Does the fact of your ostensible faith in the judgment, intelligence, and ability of your son William justify the conclusion that the combined intellect of your remaining children sinks to insignificance before his superior attainments, and does it preclude you from displaying a little hope over the reinvigorated intellect of your younger son, and tendering him a bit of charity in consideration of the sickness and disease that temporarily impaired his usefulness in times gone by?84

  With each lie, each bad check, the Commodore's frustration grew. By May 1875, their alienation had grown to the point that Corneil would try to get a job on the New York Central for a friend of his by asking for help from Thurlow Weed. He knew that Weed had greater influence with his father or brother than he had.85

  Cool and collected in business, Vanderbilt in his eighties often flared at his family, William included. A reporter later testified that, in 1874 or 1875, he made an unscheduled call on the Commodore—as so many reporters did—to ask about a rumor involving New York Central. The reporter said that he had spoken to William already, and repeated William's comments. “The Commodore got up angrily,” the witness said. “Billy Billy, he always tells more than he knows,” Vanderbilt snapped.86

  Despite such outbursts, Vanderbilt respected his son's abilities and relied on them heavily. As Wardell recalled, Vanderbilt “detested details,” and relished his leisure hours as he passed into his ninth decade.87 Vanderbilt and William must be viewed as a team, one that the father deliberately crafted. He had long intended for William to carry on the empire and perpetuate the family name, as reflected in the long history of his will, which changed little over the decades. William was, and always had been, the designated heir.

  Charles A. Rapallo, Vanderbilt's longtime lawyer and a justice of the New York Court of Appeals since 1870, would attest that the Commodore drafted his final will on July 14, 1868. It was modified on January 9, 1870, to incorporate his prenuptial agreement with Frank, and amended again on January 16, 1874, to give Frank the use of 10 Washington Place for the rest of her life. Under its terms, Frank, Phebe Cross, Emily Thorn, Sophia Torrance, and Mary La Bau each would receive bonds with a face value of $500,000; Catherine Lafitte would receive the interest from $500,000 worth of bonds; Ethelinda Allen, the interest of $400,000; Eliza Osgood, the interest of $300,000; Cornelius J., the interest of $200,000. Frank also would get two thousand New York Central shares.88

  In the 1870s, these were all vast sums. At the time, a skilled worker in New York might earn $400 to $600 per year—far less than 6 percent interest on $200,000 worth of bonds.89 But these figures were dwarfed by the unspecified “residue” left to William. In the Commodore's mind, he was not rewarding one child at the expense of the others, but taking a necessary step to preserve what he had built. Henry N. Phillips remembered how Vanderbilt told him in the summer of 1874, “I have not been fool enough to get this thing together to have it scattered when I am gone. Not a single share will go upon the market after my death.” At Saratoga in 1875, Vanderbilt said, “Harry, a million or two is as much as anyone ought to have.” Phillips joked that there was an easy way to get rid of his excess money. “No, there ain't,” Vanderbilt replied, “for what you have got isn't worth anything unless you have got the power; and if you give away the surplus you give away the control.” Vanderbilt looked beyond his son to build a foundation for the dynasty's third generation, by assigning tens of thousands of Harlem and Central shares to William's four sons, Cornelius, William K., George W, and Frederick W. He also brought William K. onto the Central board in place of the disgraced James Banker.90

  The public recognized William H. Vanderbilt as the heir, and he assumed a place of distinction in aristocratic, fashionable circles well before his father's death. He joined the American Geographical Society of New York. He purchased expensive fine art, from European paintings to Japanese vases. He sent his sons to Yale and other leading universities. He rented expensive pews at the Episcopalian Church of St. Bartholemew. He went on the board of the company created to build the Brooklyn Bridge. When his son William K. married Alva Smith at a fashionable church in Murray Hill on April 25, 1875, the New York Sun proclaimed it “certainly the grandest wedding witnessed in this city for many years.… The blockade of carriages was immense, the line extending for twelve blocks north and south. The church presented an uncommonly brilliant scene.” The Commodore and Frank attended, as did a roster of the city's elite, filling the guest book with such lofty names as Lorillard, Peabody, Cutting, and Morgan.91

  As the Commodore intended, his son and grandsons moved smoothly toward the assumption of his throne. In June 1874, after Amasa Stone stepped down as managing director of the Lake Shore, Vanderbilt made William the vice president and operational manager of the railroad, just as he was on the Central. He did so “that in the event of his (the Commodore's) death Billy might succeed him without election,” recalled Edwin D. Worcester. “This means a great deal, and I am afraid a great deal to our disadvantage,” the superintendent of the Michigan Central wrote to James F. Joy. “He [William H. Vanderbilt] is ambitious, headstrong, and our experience shows to some extent unreliable & unfair.” He feared that William would turn the Vanderbilt railroads into a truly integrated system, leaving the Michigan Central on the outside. The consolidation of the Vanderbilt empire and dynasty went hand in hand.92

  William even adopted Vanderbilt's personal project, his eponymous school. Until virtually the moment of his death, the Commodore involved himself closely in the founding of Vanderbilt University. When Bishop McTyeire issued a draft upon Vanderbilt, also in June, the Commodore scolded him for making it “at sight,” meaning payable immediately, and instructed him to make all such drafts “at three days,” lest one arrive when he was out of town and his bankers refuse payment. “I mentioned it at the time to Frank,” he wrote. “As it happened it made no kind of difference as I was on the spot.… My kindest regards to your dear Lady. From hearing Frank talk of her, I have almost got to loving her, so look out!” More substantively, he paid detailed attention to the university's needs, and gave further gifts (with conditions) until his donation amounted to just under $1 million—mirroring his gift of the Vanderbilt to the Union navy, as he had intended. William began to give as well, and traveled to Nashville to inspect the university in September 1875, shortly before it formally opened on October 4. William later wrote to McTyeire, “It is my purpose to execute as far as I am able my Father's wishes.… Among the many things to which he gave thought and care, none was more important to him than the work he hoped would be accomplished by the Vanderbilt University”93

  But Vanderbilt's obsession with building a dynasty wounded those who were not a part of his plans. In June 1875, for example, his daughter Emily Thorn and her husband, William, paid a visit to 10 Washington Place before they went on to Newport, the favorite summer resort of the younger generation. William H. Davidge, a onetime president of the Pacific Mail Steamship Company and a good friend of Vanderbilt's, was present. He remarked, “Commodore, you have got some nice grandchildren. I know Thorn's children and I hear about his daughters.” Vanderbilt replied, “Yes, they are nice children, but they are not Vanderbilts.” Emily, clearly upset, said, “Father, they are your grandchildren, nevertheless.” At that, William Thorn recalled, “the old gentleman turned the subject.” The exchange hurt the Thorns. Both vividly recalled it years later. Indeed, it has become an oft-told example of Vanderbilt's misogyny, of his egotistical fascination with his own name, as perhaps it was. But the Commodore may have been deliberately retaliating against his daughter for snubbing Frank after his wedding.94 In any case, it clearly demonstrated how hard a man Vanderbilt could be.

  J. EDGAR THOMSON DIED on May 27, 1874, and Thomas Scott assumed the presidency of the Pennsylvania Railroad. The Commodore met with Scott just two days later at a secret conference of the trunk lines at the Windsor Hotel on Fifth Avenue. With a sharp slackening of business in the aftermath of the Panic (and the onset of a depres
sion), a sense of desperation had settled over the railroads, which began to slash rates to attract traffic, any traffic. William managed the Central's rates according to a principle his father had established on taking over the railroad: to follow, in self-defense, the cuts made by other lines, but not to initiate them. The Central had no reason to be the aggressor. With its rich local business in New York State, its cheap-to-operate line with low grades and few curves, and its four-track core between Buffalo and Albany, it found itself in the strongest competitive position of any trunk line. At the time of this conference, it boasted twice the passenger traffic of the Erie and 81 percent more than the Pennsylvania; and, though the Pennsylvania carried 10 percent more freight, the Central earned a significantly larger profit per ton, per mile.95

  The conference had been arranged because no business needed cooperation more than the railroads, which could not relocate to escape or accommodate competitors. But the Commodore's character played a role as well. Over the decades, his personality had evolved in parallel with his changing material interests. He had earned his reputation as a ferocious competitor in steamboats, a business notoriously prone to warfare, due to the low start-up costs and the inherent mobility of the physical capital—the steamers—which allowed a proprietor to fight on one route after another. It was also a time in his life when New York's merchant aristocrats derided him as a boorish outsider. After devoting himself to railroads, however, he had consistently pursued peace, seeking industry-wide agreements (though he remained ready to fight when attacked). The transformation reflected the nature of the railroad business, but it also suited his late-life status. The elite now thought of him as an “honorable & high toned” gentleman, precisely the sort of man who sought dignified arrangements, not economic bloodletting.96

  Af the end of this conference, though, the executives left the Windsor Hotel as divided as before, and prices fell still farther. “The trunk lines this year have been carrying a heavy traffic at very low rates,” Railroad Gazette would summarize at the end of the 1874. For the efficient and profitable Central, the boost in traffic brought by low rates was not entirely a bad thing. Where other railroads' securities plunged in value, the Central's first-mortage bonds brought a 5 percent premium. But the prevailing prices cut margins to a minimum, so the Commodore and his son continued to seek peace in an attempt to bring order out of chaos.97

  That summer Vanderbilt invited the presidents of the trunk lines and other important railroads to another conference, this one in Saratoga. On July 30 they met in his personal quarters. They arrived at a far-reaching agreement known as the Saratoga Compact. They would establish two bodies to regulate the industry's rates and traffic: a Western Bureau, consisting of the major trans-Appalachian companies, and a Trunk Line Commission for the East. The two boards would set rates, settle disagreements, and banish the costly use of commission agents, rebates, and drawbacks. Further meetings in New York on August 11 and in Chicago on September 2 worked out the details.98

  It was a grand accomplishment—one that immediately foundered. Two lines, one weak and one powerful, refused to take part. The Grand Trunk Railway of Canada declined to enter the compact because of its competitive disadvantages. As a long, roundabout line between the West and the Atlantic, it could only attract business with absurdly low rates, and so declined any price-fixing arrangement. President John W. Garrett of the Baltimore & Ohio, on the other hand, refused because of his competitive advantages. His was the shortest route between Chicago and a seaport (in this case, Baltimore), so he insisted on the right to set lower rates than the other trunk lines.99

  Vanderbilt responded to this intransigence with patience and self-possession. On November 12, he and William stepped off a special train in Baltimore and went to Garrett's offices. There they met Thomas A. Scott and Hugh J. Jewett (the new president of the Erie). One observer described Garrett as “a portly figure” with a round face, “bluish-gray eye, and solid, unanxious tread and pace.… He had a hard, round head, a slow and gracious manner.” His firm pate and rotund dignity may have reminded the Commodore of Erastus Corning or Dean Richmond; in any case, he impressed Vanderbilt, and the two got along well. “We have had a very pleasant interview in Baltimore, as pleasant a one as ever was held when so much capital was represented,” Vanderbilt told the Evening Post. “I believe Mr. Garrett… to be a high-toned, honorable man, and that he is willing to concede to any equitable arrangement between all the parties, if the equities can be got at. As to the general principles of railroading, I find by conversation with him that President Garrett exactly agrees with me on all of them; or, in other words, I agree with him so far as he has expressed his views to me.”

  Alas, it was not up to these two alone to make the peace. An obstacle arose, and its name was Thomas A. Scott, whose sleight-of-hand approach to managing the Pennsylvania aggravated Garrett. (It also landed Scott in trouble with his own stockholders, who launched an investigation of his regime in 1874.) Garrett insisted on the abolition of Scott's independent fast-freight corporations, which funneled much of their profits to the Pennsylvania's president; not surprisingly, Scott refused. The result was a highly personal spat between the two, who traded public recriminations in early 1875.100

  When the Pennsylvania and the Baltimore & Ohio fought, the New York Central could not avoid the resulting repercussions. A desultory rate war raged through 1875. William managed the rise and fall of prices, though his father remained informed and engaged. On June 23, the eighty-one-year-old Commodore gave a long interview to the New York Times in which he discussed communications with James Joy, the rate war, and the condition of the Lake Shore. He bridled when asked if he was selling Lake Shore short. “That is a lie!” he snapped. “You may say that he who tries to injure the property which he is managing for stockholders, and endeavors by any means to deteriorate its value, is a thief.”101 And yet, he remained close friends with Daniel Drew, the past master of deteriorating his own corporations' value.

  The railroad war proved to be Vanderbilt's main point of interest in the management of Western Union, still run by William Orton. On November 17, 1875, Garrett wrote to the Commodore to inform him that the Baltimore & Ohio was ejecting Western Union from its line along that railroad in favor of Gould's upstart Atlantic & Pacific telegraph company. As Orton succinctly summarized the situation, “The competition between the Railroad Companies for Western business has caused the rivals of the New York Central to strike at the Western Union for the purpose of injuring the Commodore.” Still, Vanderbilt, for the most part, was content to let Orton manage Western Union, as William did his railroads.102

  This conflict would not end in a glorious victory. Rather, it offered a quiet affirmation of William's capable management and the Commodore's strategic gifts. As it dragged on through 1876, the New York Central continued to pay 8 percent dividends; in fact, the board made them automatic, issued on a quarterly basis. Even the Lake Shore resumed dividends. By glaring contrast, the Pennsylvania and the Baltimore & Ohio were forced to halt dividends altogether. Of all the competitive advantages that entered into this feat, the most important was the great infrastructure envisioned by the Commodore and completed by the end of 1874: the St. John's Park Freight Depot, the Grand Central Depot, the Fourth Avenue Improvement, a huge North River grain elevator, a double-track bridge at Albany, and especially the four-track line to Buffalo. The Central cut expenses by more than 20 percent on the freight traffic that now increased with the low rates. “This enormous gain is due chiefly… to the separate freight tracks, permitting a uniform moderate speed for freight trains,” Railroad Gazette wrote at the end of 1876. The Commodore's calculations were proved correct.103

  The rate war also led to Vanderbilt's last great acquisition: the Canada Southern Railway. Launched in 1871 by Daniel Drew and John F. Tracy as a rival to the Great Western of Canada, it was completed from Detroit to the Niagara Suspension Bridge in 1874, just as rates began to plummet. By the end of 1875 it was penniless, with $
700,000 in floating debt, $1.4 million in unpaid bonds, and a workforce that received nothing but promissory notes for their wages. Indeed, it was in a far weaker condition than any company the Commodore had taken over in the past. But, given its strategic geographical location, its very weakness made it a threat. Left alone, it would likely fall into the hands of, or make an alliance with, the Grand Trunk, to the Central's injury. And it did possess a well-laid-out line with low grades. Vanderbilt opened negotiations with the Canada Southern directors to rescue their line, and they arrived at an agreement on December 18, 1875. He purchased 48,195 shares (of nearly 100,000 total) for $10 per share, with the right to acquire the remaining fifty thousand shares as they became available. By January 1, 1876, Vanderbilt owned a total of 85,000. On that day, he gave Worcester the stock certificates and ordered him to put ten thousand shares in the name of William; one thousand each in the name of William's sons William K. and Frederick; ten thousand in Worcester's own name; ten thousand in the name of Augustus Schell; and ten thousand in the names of several others. Worcester had each of these individuals endorse the certificates, then handed them back to the Commodore.104

  Other business battles raged during these years, such as squabbles over the Wagner sleeping-car company (in which William owned much stock), pooling arrangements with the Fort Wayne, and the telegraph war with Gould's company. These were managed by William and Orton. From the Commodore's perspective, the storm that began in 1873 had come and gone (though the depression would continue to 1879). He had triumphed.105