The First Tycoon: The Epic Life of Cornelius Vanderbilt (Pulitzer Prize Winner)

by T.J. Stiles

“Vanderbilt is but the precursor of a class of men who will wield within the state a power created by it, but too great for its control. He is the founder of a dynasty.”

Adams did not mean a family dynasty, but a line of corporate chiefs who would overshadow democratic government itself. Rockefeller, Carnegie, Gould, Morgan—all were just beginning their careers when Vanderbilt was at his height.

An island is defined by its edges.

Vanderbilt would never forget that the richest men traded in cargoes.

It probably never occurred to him that, in aspiring to their position, he was moving backward. He had started out as a specialist—one in transportation, no less, the field where a revolution was sorely wanted, where businessmen and legislators were looking to invest millions. But at this moment he surveyed the world as it was, saw that the general merchant reigned, and methodically became one himself.

He sneered with that contempt for weakness that comes naturally to a man who has beaten and cowed other men.

In the early years of the republic, politicians issued challenges to each other with alarming frequency. They did so in part because the first parties of the early republic were, to a great extent, factions of notables; political disputes quickly became matters of personal honor.6 But the importance placed on honor reveals something deeper: the persistence of an eighteenth-century culture of deference, dominated by an American aristocracy.

The word “aristocracy” tends to be used rather loosely. In the modern world, it is calculated by multiplying wealth by snobbery.

In Vanderbilt’s world, crowds were thicker, elbows sharper, confrontations cold and raw. He had grown up in a market-centered household outside the shadow of aristocrats; his was the individualistic society still emerging in America, guided not by honor but by calculation.

Vanderbilt believed in a growing market—that more and more people wanted to travel between the two cities, and would do so by steamboat if rates were cheap enough. This notion of an expanding economy was surprisingly new.

Law, rank, the traditional social bonds—these things meant nothing to him. Only power earned his respect, and he felt his own strength gathering with every modest investment, every scrap of legal knowledge, every business lesson taught by the irascible but brilliant Gibbons.

By 1824, more and more Americans demanded a market open to any who dared to venture in, an economy as democratic as the political arena increasingly was.66 Ogden’s attorneys were also to assert a state’s authority to interfere with interstate commerce. The claim affronted both Webster’s nationalism and his economic vision. If it prevailed, it would establish a constitutional rule that would turn the United States into a collection of feuding principalities, each erecting its own barriers to trade.

if you listened to a Yankee describe himself, “you might fancy him a god—though a tricky one.”

Close encounters with death have a reputation for transforming lives, for starting dramatic new departures.

Paper money was a dangerous shell game that only worked as long as everyone agreed not to look for the pea. “Real money,” wrote William Gouge in an influential book of 1833, “is a commodity.” Gold and silver had intrinsic value; no special trust had to be placed in anyone before precious-metal coin was accepted in payment.

Trust of the instruments is the value producer

“All corporations are liable to the objection that whatever powers or privileges are given to them, are so much taken from the government or the people,”

corporations never die.” The implications were frightful. Since they “live forever,” fretted Massachusetts governor Marcus Morton, their property was “holden in perpetual succession”—unlike individuals, whose estates were divided upon death. Eventually corporations would own everything.

In the emerging code of conduct for steamboat men, the first proprietor to occupy a line assumed a sort of natural right to the route. A challenger who lasted long enough could expect an offer of a bribe to abandon the market and, should he accept it, would be expected to abstain from further competition. Vanderbilt had now repeatedly preyed on existing lines—to New Brunswick, to western Long Island Sound, and now to Albany—and each time had taken money to stay away. Like his late mentor Thomas Gibbons, he often acted out of a sense of self-righteous outrage, but always in ways that suited his material interests.

The steamboat trade had always been the most aggressively competitive business in America. Its fare wars, populist advertising, and highspeed racing embodied the nation’s individualistic, unregulated society.

Lewis arranged to have the Girard Bank sell the old bonds to a consortium of speculators at twenty-five cents on the dollar. Then the consortium swapped them with the railroad for its new bonds, as Peck had proposed, at a rate of fifty cents on the dollar, doubling the speculators’ money.

For centuries, the social, political, and economic elite had been one and the same; power and influence had gone together with social standing and family prestige. The democratization of politics and the unleashing of the market, however, had destroyed the functional purpose of social standing.

Though the old patrician families still carried on in wealth and, to a lesser extent, in politics as well, they had no choice but to make room for those who could clamber up, now that family connections ceased to be a requirement for success.

The very qualities that made Vanderbilt a formidable businessman—his ferocity, his obsession with control—left him unable to manage the murkier negotiations of love, affection, and fatherhood.

The business culture they created demonstrates how the impulse to stifle competition arose inseparably from competition itself in the American economy, with sometimes bewildering consequences.

one wanted to enforce monopolies, one had to be a master of competition.

the task of building railroads and other large projects fell to privately funded business corporations. That created a paradox: the nation’s public works, the carriers of commerce and means of travel, were owned by private parties, who operated them for personal gain.

At each stage of his career, he had seized control of the most important channel of transportation in the young country’s growing economy.

The Spanish built cities in Nicaragua a century before Squanto taught the Pilgrims to plant corn, but they left an inheritance of perpetual civil war.

Unlike virtually every other former Spanish province, it lacked a single metropolitan center. Two cities—León and Granada—fought for dominance. As in other Latin American nations, two parties, generically known as the Liberals and the Conservatives,*2 dominated politics, but here they were identified with the two cities: the Liberals made a bastion of León, while the Conservatives were entrenched in Granada.

there was something Homeric in this uneducated man’s conception of himself. Like Achilles, he would lead the charge himself; like Odysseus, he would face ocean storms, river rapids, tropical fevers, and the crocodiles and sharks of Nicaragua’s waters. These trips would further open his eyes to the world and enhance his heroic reputation.

The success of Vanderbilt’s Nicaragua venture had national consequences. Simply put, he helped transform a rush for gold into the lasting establishment of American civilization on the Pacific. By steeply reducing fares and offering faster service, Vanderbilt sped up the flow of migrants to the West and gold to the East, where it had a significant impact on the economy. And he did it not only without a federal subsidy, but in competition with the subsidized line.

speculators, who bought and sold rapidly), were bought “on margin.” A broker would lend the purchase money to his client, who merely put up a margin—an amount sufficient to protect the broker against loss if the price fell. Such stocks were, to use the technical term, “hypothecated.” When prices fell, the broker could either ask for a bigger margin from the client or sell the stock immediately to avoid a loss. The faster the price dropped, the more likely brokers were to dump hypothecated stocks, because they had less time to get more money from their clients. That drove the price down further, and eventually shook loose all the stock held on margin.

The bears had to buy stock for as much as 40 to deliver the shares they had sold for less than 30. Even worse, it appears that Vanderbilt and his friends may have “cornered” the market by buying up the available supply (the new stock had yet to be issued). When caught without shares to deliver, the bears had to pay the buyers heavily to get out of their contracts. Thus Vanderbilt made money by buying shares that didn’t even exist.

In the United States, less than eighty years had passed since the Revolution, and the people thought of themselves as the guardians of a bold experiment in republican government and social equality. “The sovereigns of Europe,” the Herald added, “have looked upon our increasing power with mingled surprise and alarm—surprise at our progress, and alarm lest the lesson which it silently inculcates might be learned by their own oppressed subjects.”

calumnious

the key to understanding Vanderbilt is that he saw no distinction between the roles defined by moralists and philosophers. He freely played the competitor and monopolist, destroyer and creator, speculator and entrepreneur, according to where his interests led him.

“This was one of the secrets of his success,” Wardell later reflected. “He never underrated himself nor anybody else.”

Truly a great piece of management success

He was very concise and gave general directions regarding matters

He did not think of his businesses as machinery; rather, he saw them as military campaigns against his enemies.

he regularly sold out his steamboat and steamship lines after only a year or two of competition: once he achieved victory, he lost interest.

He devoted little time to the businesses that he did operate year after year,

The hallmark of a modern financial system is institutionalization—the emergence of banks and similar bodies to pool capital, assess risks, and provide credit.

To disengage from politics was, in some ways, to disengage from the substance of social intercourse.

against any challengers. In any case, he never engaged in competition purely for its own sake, but always as a means of achieving a satisfactory, and profitable, equilibrium.

Filibustering” had entered the American vocabulary around 1850 as a name for armed invasions of foreign territory by private American citizens—generally with the hope of annexing those lands to the United States.

filibustering reflected the explosion of freelance violence as civil society and respect for political norms disintegrated in the fight over slavery’s growth in the 1850s.

filibustering was a complicated phenomenon, mingling nationalist expansionism with naked racism with a crusading belief in spreading Protestantism and free institutions to benighted Latin America.

He constructed this ship to compete on the Atlantic;

Passengers Per trip is the advantage after thd fixed capita costs

there were too many in the race, they kept too closely together, and the road was not wide enough.” With dozens of horses sprinting down the lane, the spinning wheels cracked against each other, and three wagons were smashed to pieces, “and all tumbled together. The Commodore came out all right.” Municipal policemen rushed to the scene from Mayor Wood’s nearby home, but no one was hurt.

A metaphor for Vanderbilt's business career? Foreshadowing?

Vanderbilt and his ring still saw little distinction between the corporation and its stockholders.