The Master of Capitalism: Cornelius Vanderbilt - Part One

Hey everyone, welcome back. 

In the winter of 1877, several months before workers would rise up against the very industry that helped propel him to new heights, Americans read about the death of Commodore Cornelius Vanderbilt. Sticking to the facts, one paper wrote partially quote, “he was originally a poor boy, and commenced business as a master of a small boat,” after giving the briefest of summaries of Vanderbilt’s multi-decade career, the homage ended plainly “his enterprise, genius, and success have been felt the world over. Up to the time of his death he had the chief control of the New York Central and Harlem Railroads,” end quote. 

It is perhaps an understatement to say that Cornelius Vanderbilt was part of a transformative moment in American economic history. During his lifetime, the United States evolved from a rural, mostly agrarian independent economy reliant on local farmers and traders to a nation that was connected, industrious, and ready to compete on the global market. When I released my episode on the tycoons a few months back - which included Vanderbilt - I mentioned that I would do deeper dives if you asked. Well, dear listeners - you made your wishes known. 

Cornelius Vanderbilt casts a large shadow - so large, in fact, it is hard to get the important bits into a single episode. So this week I am starting my coverage of the original American capitalist, Cornelius Vanderbilt. What was his origin story? How did he make his early millions? And how did he handle those who betrayed him?

Grab your cup of coffee, peeps. Let’s do this. 

Cornelis Vanderbilt’s life story is what so many view as the prototype - the dream of what it means to grow up in America. Born into modest circumstances with minimal education, Cornelius Vanderbilt used his grit and determination to become a self-made millionaire. But for all the hard work - and the man definitely worked hard - Vanderbilt also had a bit of luck and relied on his family throughout his career - from receiving financial assistance from his parents in his earliest days, to reaping the benefit of the labor of cousins and in-laws. But before we get into all of that, let’s start at the beginning. I do also want to give credit to TJ Stiles whose research provided the bones of this episode. I generally try to avoid relying heavily on a single source when crafting episodes, but Cornelius Vanderbilt is a bit of an oddity. Despite being one of the most well known men in history, there is surprisingly little written about him that is both accessible and reliable. I’ve done my best to incorporate other source material where I could, but I feel okay relying on Stiles here given that his book won both the Pulitzer Prize and the National Book Award and received positive academic reviews by historians. 

Cornelius Vanderbilt entered the world on May 27, 1794 on the shores of Staten Island - when the United States was still under the leadership of first president George Washington. Known as Cornele as a child, the man who would go on to dominate transportation industries received little education, with some estimates placing his formal training at just three months. Biographer TJ Stiles describes how despite Vanderbilt’s lack of customary education, the future titan learned to read well enough, but never truly mastered the English language and spent the rest of his life with a tenuous grasp with the nuances of spelling and grammar. 

Vanderbilt started working young, helping with his father’s ferry business when an older brother passed away. The young boy took to the sea and in a trend that would come up again and again throughout his life - found it difficult to work for someone else - even if that someone was his father. According to one biographer, Vanderbilt’s father was simply not up to the challenge of running a ferry business, and so in 1810, Vanderbilt borrowed money to run his own boat, though he paid a commission to his parents. He eventually saved enough money to purchase shares in other boats - the profits from which he got to keep in their entirety without having to share with his parents. Vanderbilt was a beneficiary of war as during the War of 1812 the young captain secured a government contract to ferry supplies to various government outposts throughout the city. As biographer Daniel Alef highlights quote, “by the end of the War of 1812, Vanderbilt controlled most of the ferry traffic in New York waters,” end quote. 

Perhaps feeling he was coming into his own, Vanderbilt also started a family, marrying his cousin Sophia on December 19th, 1812. Together, the couple would have what contemporary audiences may find to be a jaw dropping 13 children - only 3 of whom were sons. For a man who would become obsessed with legacy, the lack of male heirs would come to be a disappointment. Vanderbilt eventually moved his young family from the outskirts of Staten Island to Manhattan where, biographer Stiles explains, quote “one acquired a reputation - and reputation was the axle of this informal, personal economy,” end quote. 

In the 1820s, Vanderbilt transitioned from ferry captain - or periauger captain - to the steamboat. He saw the potential in the new technology and what it could mean for transportation. Again, Vanderbilt went to work for someone else - this time a man named Thomas Gibbons. Much like before, Vanderbilt grew to feel stymied after Thomas Gibbons passed away and Vanderbilt was left to deal with the younger, and his opinion less capable son. Vanderbilt believed that he could do things better on his own and taking everything he learned from the senior Gibbons, Vanderbilt commissioned the construction of his own steamship the Citizen in 1828. Described as 106 feet long and weighing 145 tons, Vanderbilt ensured that the captain of the vessel were members of his family and set the route from Elizabethtown to New York with stops on Staten Island’s northern shore. He also acquired two other boats and acquired interest in another steamship - all which were already established and making consistent runs from Manhattan. Vanderbilt’s new company was called the Dispatch Line and was in direct competition with his former employer, the Union Line. This triggered a fare war, prompting Vanderbilt to buy out his competition. When Vanderbilt ran into similar competition on the Hudson River - this time against the Hudson River Association - resulting in yet another fare war - Vanderbilt won out when the association caved and paid Vanderbilt $100,000 plus a yearly fee if he agreed to stop using the Hudson River. 

Although it would be another couple of decades before he would be crowned the King of the Rail, Vanderbilt got an early preview on November 8, 1833 after hearing about a new form of transportation in New Jersey. As described by biographer TJ Stiles, quote “the locomotive resembled an oversize barrel with a smokestack in front; the engineer and fireman stood on a rear platform with no shelter from the elements,” end quote. There were several passenger cars and Vanderbilt and roughly two dozen others climbed aboard to see what the fuss was all about. On board with such luminaries including president John Quincy Adams, Vanderbilt was lucky to survive when one of the train’s axles broke, causing the car to jump the rack and careen into a ditch. Seriously injured, the accident was not enough to scare Vanderbilt away from the technology and he would put his entire energy and attention on the railroad. 

But for the moment, Vanderbilt remained focused on monopolizing the waterways of the east coast. The steamship captain was aggressive in his pursuit, challenging proprietors along the waterways - goading them into price wars and forcing them to either fold or buy him off. Stiles explains in his analysis that Vanderbilt was essentially taking advantage of a developing code of conduct for steamboat captains, quote “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,” end quote. Vanderbilt built a small fortune playing this game and started to take over companies that provided transportation in the New York area. 

In 1843, Vanderbilt purchased 490 out of 998 shares of the Elizabethport Ferry Company which essentially gave him control of the second major service to Staten Island. By March of 1844 he was the company’s treasurer and relocated the offices to 34 Broadway. He continued to expand with the largest steamship ever built in the United States, the 321-foot steamer called the Atlantic which was commissioned by the Norwich Railroad. Unfortunately, the massive steamer wouldn’t last very long, crashing along the rocks during a storm on November 27th 1846 killing seventy passengers on board. Not one to be deterred, Vanderbilt launched yet another steamer earlier the next year, titled the Cornelius Vanderbilt. 

Despite his limited education, Vanderbilt demonstrated an intuitive understanding of a developing concept that would later dominate American business: the corporation. While still in their infancy, Vanderbilt utilized the corporation to his advantage in making himself one of the wealthiest men in history. Vanderbilt biographer TJ Stiles argues that Vanderbilt was an exception to his contemporaries who struggled to see anything beyond the tangible. The corporation was something that could last beyond any one individual lifetime and Vanderbilt - as well as his business partner Daniel Drew saw how stock could be manipulated to effect value. As Stiles lays out quote, “they saw that everything in the economy could be further abstracted into a substanceless something that might be bought or sold, that a banknote or promissory note or the right to buy a share of stock at a certain price could all be traded at prices that varied from day to day,” end quote. This knowledge was critical in Vanderbilt’s development and success as a businessman and served him well throughout his career. 

In 1848, Vanderbilt took over the presidency of the Elizabethport Ferry Company and boasted a 20% dividend. That same year, Vanderbilt was able to buy full control of the Staten Island Ferry for $80,000. By the following year, word that gold had been discovered in California would prompt Vanderbilt to expand once again from regional steamships to oceanic steamships where he proposed the idea of building a canal in Nicaragua. Vanderbilt became so dedicated to the idea that he even resigned from his position at Stonington Railroad to try to see it through. The canal never came to fruition, but the transportation company he founded, Accessory Transit Company, flourished. Passengers excited about the prospect of heading west enjoyed low fares and faster service, ensuring that, as Stiles argues, San Francisco remained an important port of entry even after the thrill of gold mining wore off. 

The 1850s were a rocky decade for the magnate. In July 1852, a bridge collapse at the Staten Island Ferry terminal killing seventeen people led to Vanderbilt being indicted for manslaughter. The charges would later be dropped, but trouble continued for Vanderbilt when he was betrayed by a business partner - Joseph L. White. The duo, who were partners in the Accessory Transit Company, were also working together to raise funds for the canal in Nicaragua and White traveled to London under the guise of securing additional funding for that purpose. Unable to convince London bankers to invest in the project, White lied about his failures long enough to offload his rights to the canal, burning Vanderbilt in the process. Vanderbilt had little recourse for White’s actions on the Nicaragua front, so he sought revenge through their partnership in the Accessory Transit Company. Again, Vanderbilt’s mastery of corporate structure and the stock market served him well in his revenge plot as he immediately went about manipulating the price of the company’s shares. This, according to TJ Stiles, was the basis for much of White’s wealth and thus was a critical weapon in his tool chest. 

But the decision to attack his business partner also exposed just how profitable the Accessory Transit Company had become. Vanderbilt tried to drive down the price of the stock in order to buy out White, but White remained steadfast. Vanderbilt next offered to sell the company his steamships for an inflated price - sending in his son-in-law to secure the deal. Finally, on Christmas Eve, Vanderbilt received word - the Accessory Transit Company agreed to purchase seven steamships for a combination of cash and bonds in the company, with payment due in a year. Yet, White would again betray Vanderbilt - this time with Charles Morgan - ousting him from the company and denying him payment. Furious, Vanderbilt first tried to manipulate the company’s stock value, which forced company president Charles Morgan to purchase shares to keep the price stable. Next, Vanderbilt launched a rival steamship line. And as was his calling card throughout much of his business life, the Commodore - as he was known - slashed prices in the first shots of a fare war knowing that doing so would eat away at the Accessory Transit Company’s profits and hurt their ability to pay a dividend and impact their overall share price. 

This was a costly battle of revenge that had consequences beyond the board room. For one, the public enjoyed much cheaper fares. But not everyone had the capital to weather such heavy and sustained losses. One man who partnered with Vanderbilt on the competing line, Edward Mills, was ruined by the magnate’s thirst for blood, going bankrupt. For Vanderbilt, however, the ends justified the means and his gamble paid off. Despite losing a significant sum, the Commodore was able to hold out long enough to compel a settlement offer. As Stiles makes plain Vanderbilt quote, “not only forced his foe to acknowledge he was right, he also had forced Morgan to pay him three times - in an inflated price for his steamships; in cash for his claims; and in the stock market,” end quote. In the end, Vanderbilt got his revenge and was victorious over his enemy - no matter who was hurt in the process. 

Vanderbilt sat atop the steamship industry as one of the wealthiest and most powerful people in the United States. Yet, as influential as the Commodore was, there was still a whole industry waiting in the wings - and a new level of domination coming with the emergence of the railroads. 

Be sure to tune in next week as I wrap up my coverage of Cornelius Vanderbilt. Learn all about how he helped the Union Navy during the war and why he chose to charge head first into yet another industry in his twilight years. 

Thanks, peeps. I will see you next time.