The First Tycoon

by T. J. Stiles

  But the building was far from perfect. Though the car house was relatively free of engine smoke (locomotives unhooked from the cars before entering the shed and rolled off onto sidings, letting momentum carry the trains in), the lobby arrangements were peculiar. The New York Central, the Harlem, and the New York & New Haven each had separate waiting rooms; a passenger transferring from one railroad to another had to exit the building. In part, this was a design issue that the architects simply had not considered. But it also reflected the decentralized nature of Vanderbilt's empire. Rather like Spain under the Hapsburg kings, the Commodore's realm consisted of various railroad principalities united only by his own private estate. This reflected his often-overlooked sensitivity to public opinion, but the Harlem was also a property of great personal meaning to him. After rescuing the long-scorned company and raising it up to glory, he may well have resisted its consolidation into the Central out of purely sentimental motives.

  Vanderbilt, that student of human nature, did not lend sentimentality to people as easily as he did to property. He had entrusted the Lake Shore to intelligent, independent men—Clark, Schell, and Banker—and they ran it in an independent but not always intelligent way. Though they supported the Commodore's fight with the Erie in 1870, they began to engage in their own stock market operations. After their experience with the Central stock dividend, they loudly hinted at a similar dividend on the Lake Shore. When they finally announced it in the summer of 1871, it turned out to be smaller than expected: $15 million at par value, one-third to be paid by shareholders to fund the double-tracking of the line. “The Lake Shore tactics have a more bungled look than the strategy adopted in New York Central,” the New York Herald wrote. “Perhaps, after all, the venerable Commodore has been only letting his pupils try their hands at the game which he made so famous. In any view, the Lake Shore movement has lacked the brilliancy and Napoleonic skill displayed in the New York Central case.”111

  Then the Lake Shore suffered a staggering blow: the great Chicago fire of 1871. On October 7, according to the Herald, a woman named Scully on De Koven Street went out to tend to a sick calf in the darkness; her candle overturned in the hay. The ensuing conflagration proved so devastating that the Herald simply reported, “Chicago is wiped out.” Wiped out with it was the Lake Shore depot, owned jointly with the Chicago, Rock Island & Pacific. The company estimated its share of rebuilding at $350,000.112

  Still, the railroad declared 8 percent dividends that year, and the trio who ran it showed no lack of confidence. The newspapers identified Banker, still the vice president of the Bank of New York, as “the prime mover in all the current cliques and contrivances to move the Street, and the biggest man known around the brokers' offices.” Wielding skills acquired in Vanderbilt's service, he managed the pooled funds of his allies. He affected an aristocratic lifestyle, and ordered a custom-built yacht.113

  Augustus Schell and Horace Clark remained the senior partners. And, in 1871, they began to attain political power that they had not seen since 1860, as long-bubbling complaints over the flagrant corruption of Tweed-run Tammany boiled over into crisis. Tweed had softened opposition to his power by limiting taxes, which caused the city's indebtedness to rise from $30 million in 1866 to $90 million in 1871. In the latter year, the Times published evidence of Tweed's corruption in a series of spectacular articles. On September 4, a mass meeting assembled at Cooper Union and appointed a Committee of Seventy to return city government to the hands of safe, respectable men. The committee's attack was led by two Democratic allies of Clark and Schell, Samuel J. Tilden and Charles O'Conor, the latter appointed special prosecutor by the governor. They had Tweed arrested on October 26. The ring fell.114

  “The first deadly breach made in Tammany was the foundation of the Manhattan Club,” the Times reported. It identified Schell and Clark as leaders of the “silk-stocking sachems” of Tammany who “loved and revered its old traditions and its dignity, began to regard it as degenerate and degrading, and they seceded in a body.” With Tweed gone, the old stalwarts took the Hall back. On December 30, the reformed Tammany elected Augustus Schell the new Grand Sachem by acclamation.115

  If Banker led the trio on Wall Street and Schell in politics, Clark reigned as the railroad executive and chief strategist among Vanderbilt's “pupils.” Talkative, nervous, and soft-fleshed, the Lake Shore's president finally achieved the wealth and power he had dreamed of since George Templeton Strong dismissed him as a vulgar climber twenty years earlier. Success only whetted his ambition. And his ambition would lead him into an alliance with the enemy whom Vanderbilt disliked more than any other.

  *1 As mentioned previously, Edward Renehan Jr. claims in Commodore: The Life of Cornelius Vanderbilt (New York: Basic Books, 2007) to have discovered the privately held diary of Dr. Jared Linsly and that of sleeping-car manufacturer Webster Wagner, asserting that they show that Vanderbilt contracted syphilis in 1839 and began to show signs of dementia in 1868 (manifested in his backing of Woodhull and Claflin). Renehan claims that Vanderbilt descended into madness thereafter, and was used as a puppet by William for the rest of his life. In light of much contradictory evidence and subsequent developments, I must discount the validity of these sources and find Renehan's claims to be untenable. See the bibliographical essay, pages 581–4, for a full discussion.

  *2 The old station on Twenty-sixth Street was sold, and became the first Madison Square Garden.

  Chapter Eighteen

  DYNASTY

  First pride, then the fall. More than a proverb, this formula seems to be a natural law. Readers of fiction, political pundits, and students of the business cycle all know that what goes up eventually reverses course—usually soon after a sense of invulnerability has set in. But there are different kinds of pride, and not all lead to destruction.

  A circle of extremely proud men sat atop the railroad industry at the start of 1872: J. Edgar Thomson and Thomas A. Scott of the Pennsylvania, John W. Garrett of the Baltimore & Ohio, Jay Gould of the Erie, James F. Joy of the Michigan Central, Horace F. Clark of the Lake Shore, and, proudest of all, Cornelius Vanderbilt. When the time for a fall arrived, Vanderbilt alone would stand unbent and unbroken—though not uninjured. The key to his survival would be the nature of his pride. It never became complacency, and, great as he was, he paid heed to the world around him.

  On January 12, 1872, for example, the Commodore received a delegation of the residents of Fourth Avenue, come to complain about the Harlem Railroad's new Grand Central Depot—or, rather, the increase in rail traffic down the surface of the avenue upon Grand Central's completion. More than a dozen trains a day ran in each direction, leading to fatal accidents. The noise, smoke, and danger of the trains had long been a grievance of uptown residents. Now the New York Times had turned their cause into a crusade. Backed by the Times's daily editorials, they wanted the tracks buried in a tunnel and the train shed of the depot itself sunk below the surface of the avenue.1

  A reporter for the New York Herald observed that the Commodore listened “attentively,” and replied that “the great question was as to the best method of carrying out this proposed object.… It would certainly cost a heap of money.” He named $5 million as the likely figure, and stated flatly that the railroad could not afford the entire cost. The owners of the real estate along the avenue shared an economic interest in this matter, he noted; sinking the tracks would increase the value of their lands. “When we get a piece of property, and we want to improve that piece of property, why, let each of us pay our proportion.” (The fall of Tweed, he remarked elsewhere, made such a step possible, for the ring had blocked any such plan without a large payoff.)2

  Two weeks later, Vanderbilt presided over a conference with the Citizens' Eastside Association in the offices of Grand Central and presented a plan that he had ordered from J. C. Buckhout, the railroad's chief engineer. It would leave the expensive car house exactly where it was, but sink the tracks below the surface of the avenue, starting at Forty-
eighth Street, in an open cut, with overpasses at each intersection “so arranged that horses could not see approaching trains.” At Ninety-seventh Street, where the terrain dropped into the Harlem Flats, a viaduct would run above the streets. Buckhout put the cost at $4 million (not far from Vanderbilt's original guess). The Harlem's directors, Vanderbilt said, “were not wedded to any particular plan, but were ready to adopt that which would be the most feasible, and best adapted to the interests of the community.”

  The conferences revealed the Commodore to be as mentally sharp as ever, not to mention politic. Though some on the committee grumbled about not getting everything they wanted, most agreed that the plan he presented was a reasonable compromise.3

  Reasonable is a word that historians have rarely linked to the Commodore's name, but it defined his behavior as a railroad leader. He was especially reasonable in his attempts to cooperate with his fellow corporate titans. There was nothing new about that, of course. Adam Smith himself observed in The Wealth of Nations, “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public.” As we have seen, formal and informal devices to control competition arose simultaneously with competition itself in American history. Among the railroad trunk lines, these efforts were particularly pronounced, leading to repeated attempts to erect highly structured cartels. Once constructed, railroads were there to stay, even if they went bankrupt. The fights between them could only be settled through takeovers or cooperation—and even the Commodore could not buy up every rival line. Nor did he want to. The companies most likely to slash prices were those in the most desperate condition.4

  Vanderbilt, then, naturally grasped an opportunity to cooperate with the Pennsylvania in order to control one of the most lucrative kinds of freight. But the scheme that now unfolded spoke to something larger than the tension between competition and cooperation; it reflected the increasing concentration of power in the American economy. Four companies came together in this plot: the Central, the Pennsylvania, the Erie, and John D. Rockefeller's Standard Oil. Each was a giant in its industry, and Standard Oil was still growing rapidly, gobbling up its rivals. The symbolism of their conspiracy, far more than its actual impact on business, would turn it into one of the most notorious incidents in the rise of corporate capitalism in America.

  On December 14, 1871, Vanderbilt was approached by Peter H. Watson, an executive of the Ashtabula & Franklin, a Lake Shore subsidiary that ran to the Pennsylvania oil fields. Watson invited the Commodore into a plan to divide the rail traffic in petroleum. They would do so through a shell corporation, the South Improvement Company (SIC). By far the largest refiner in the SIC would be Standard Oil. The plan had the following components: First, the SIC would provide the cars, pumps, tanks, and other equipment for shipping oil and kerosene. Second, the SIC would receive special rebates (as high as 50 percent) on freight charges. Third, the SIC would receive drawbacks from shipments made by other refiners—that is, a percentage of the money paid by outsiders would go to the SIC. Finally, the SIC's shipments would be split three ways, with 45 percent going to the Pennsylvania and 27.5 percent each to the Erie and the New York Central & Hudson River.5

  The Pennsylvania's ingenious vice president, Thomas A. Scott, appears to have concocted the SIC, but it offered Vanderbilt multiple advantages. The provision of tanker cars, for example, would save the Central a great deal of money. Since tanker cars could be used for no other product, they rolled back to Cleveland or the oil region empty, a frustrating expense. The traffic division locked in the Pennsylvania's existing two-to-one advantage, but it also guaranteed the Central's share in the face of Scott's aggressive attempts to control oil shipments. Finally, it would add predictability and stability to the business produced by this rapidly growing and changing industry.

  Watson, Rockefeller wrote to his wife on December 15, “saw Com. Vanderbilt last night & succeeded admirably, so that now we count surely on Clark, him, & W. H. Vanderbilt.” This letter is telling: the Commodore conducted the talks without his son's involvement. William later testified that he had had nothing to do with the SIC negotiations, saying, “The contract was made and handed to me to sign.” William had little affection for Rockefeller, who demanded special treatment by the railroads; in 1872, William would complain of the rising titan, “These oil men are sharp fellows & would like us to carry the oil for nothing.” Seven years later, he would be heard to say that he “was disgusted with oil companies and oil men long ago.” Historical caricatures notwithstanding, William struck many businessmen as less diplomatic than his famously imperious father (at this point in the Commodore's career, that is). “He has worked against me in petty ways,” one man had complained of William in 1868, and behaved in a “dirty, contemptible manner.” The superintendent of the Michigan Central would write in 1874, “He is ambitious, headstrong, and our experience shows to some extent unreliable & unfair.” The Central's partners found the Commodore to be much more reasonable.6

  The Pennsylvania legislature obediently chartered the SIC, as instructed by Scott. The forty-eight-year-old possessed one of the most brilliant minds of his times. With a head of thick, graying hair and writhing sideburns rather like those of the Commodore, he had a handsome face and large, engaging eyes—and served as mentor to Andrew Carnegie. Contemporaries called this witty, dapper man “Colonel Scott,” in tribute to his service as assistant secretary of war early in the Civil War. The Pennsylvania's president, J. Edgar Thomson, relied heavily on him to craft the railroad's strategy.7

  The cooperation between Vanderbilt and Scott was something of a paradox, for they represented contrary models of corporate executive. Vanderbilt exemplified the owner as manager—the amateur, the financier who purchased a majority of the stock and then took charge. By contrast, Scott and Thomson were professional executives who had risen through the ranks on their managerial merits. They owned relatively little stock, and ran the Pennsylvania on behalf of largely passive shareholders. As manager, not owner, Scott pioneered the art of operating through shell companies. With his skillful manipulation of the compliant state legislature, he created corporations for special purposes that were financed by the Pennsylvania but controlled by himself and Thomson. The Central's fast-freight lines were cooperative ventures with connecting lines, for instance, nothing more than management devices for efficient handling of through freight. The Pennsylvania's were distinct corporations, created by Scott, controlled by Scott, and paying dividends to Scott, with some left over for the railroad. Blandly dubbed “transportation” or “improvement” companies, Scott's shell corporations sometimes created managerial efficiencies, but always allowed him to personally control (and siphon money from) vast properties beyond the grasp of any individual stockholder.8

  Scott and Vanderbilt forged divergent paths toward the future of the large enterprise in the American economy. Scott, along with Thomson, crafted the seemingly more sophisticated model, erecting holding companies to lease or purchase connecting lines far beyond the borders of Pennsylvania. Under his guidance, the Pennsylvania created a massive self-contained system that sprawled from the Mississippi River to the Atlantic seaboard, from the Great Lakes to the Gulf Coast. But the Commodore moved more cautiously. He pursued cooperation with his connections, and refrained from interfering in his son-in-law Clark's management of the Lake Shore. If Vanderbilt's decentralized strategy seems less advanced, it reflected his ever-astute calculations. He did not wish to alienate important partners, such as the Michigan Central. And he did not want to burden himself or the Central with financially unstable properties. As Scott aggressively acquired line after line, he found it more and more difficult to make them all pay; by contrast, Vanderbilt insulated the Central from the weaknesses of its connections—even from the Lake Shore, which he largely owned.9

  Scott possessed great powers of mind, but he suffered from overconfidence. More and more, he began to overreach. Acting on his own account, he
joined with his protégé Carnegie in 1871 to seize the Union Pacific in a complex operation, taking over as president. Already overworked, he gave little attention to his new duties. Carnegie quickly sold their shares at a profit, and the stockholders concluded to overthrow their absentee chief. In 1872, Scott began to promote the Texas & Pacific, a planned transcontinental road that increasingly weighed him down with debt and worry10

  As for the SIC, it soon collapsed under the weight of public outrage once the terms of its contracts were revealed. At a closed meeting on March 25 with angry refiners, officers of the participating railroads (including Scott and William H. Vanderbilt) abandoned it. The railroad men refused even to let Rockefeller into the room. But Rockefeller would go on with his conquest of the oil industry, and would press the railroads for further privileges and rebates, much to William's annoyance. And the Commodore would continue to look for cooperation with his competitors.

  In the ensuing year, observers might wonder how he could harmonize the warring railroads when he could not even control his own house.11

  EVERYBODY DIES—just not always in the right order. By all logic, Cornelius Vanderbilt should have gone before any of his many familiars who died in 1872. He turned seventy-eight that year, decades past life expectancy. He had survived fistfights, boiler explosions, a train wreck, heart trouble, Nicaraguan rapids, exposure to tropical diseases, Atlantic storms, and wagon smashes. Yet he endured as those younger than himself passed away. On February 24, LeGrand Lockwood fell dead at fifty-two, still in debt to the Lake Shore. Before that, on January 6, the “porcine carcass” of the thirty-eight-year-old Jim Fisk tumbled down the steps of the Grand Central Hotel, shot by Edward S. Stokes, and died soon after. “I cannot sufficiently give expression to the extent I suffer over the catastrophe,” Jay Gould told the New York Herald. It was, perhaps, more than a coincidence that Gould lost control of the Erie Railway in just two months to an assault led by financier James McHenry. (Two years later, McHenry would recall that he offered control of the Erie to Commodore Vanderbilt, who declined, suggesting Peter H. Watson instead.) Lock-wood and Fisk probably drew little of Vanderbilt's sympathy. In December, he would coldly testify at Stokes's trial, “I had a very bad opinion of Mr. Fisk since I first knew him.”12