by T. J. Stiles
“They asked what my plan was,” Vanderbilt recollected, “and I said, to keep steam up and protecting my vessel as much as possible by various means; to run right into the rebel and drown him; that no vessel had been, or could be, made by the rebels that could stand the concussion or stand before the weight of the Vanderbilt.” Lincoln asked how soon he could have the great steamship at Hampton Roads. “The Vanderbilt should be at Fortress Monroe properly equipped and officered, under my direction, within three or four days at the farthest,” he answered. Vanderbilt then left immediately for New York. With the fate of McClellan's planned expedition in peril, with fears for the entire blockading fleet, he had no time to spare.35
During those rushed few days, Vanderbilt directed the refitting of his flagship in the Simonson shipyard at Greenpoint. His primary effort was to equip it as a ram. Treasury Secretary Salmon P. Chase inspected it soon afterward. “She was already strengthened [about] the bow with timbers,” he wrote, “so as to be little else for many feet (say 50) from the prow than a mass of solid timber plated outside with iron.” On March 20, the Commodore telegraphed Stanton to ask for formal authority to hunt for the Virginia. “The ship leaves to-morrow,” he wrote. The war secretary promptly wired back to Vanderbilt's office at 5 Bowling Green, “The President and this Department are highly gratified at your promptitude, and that you are so far forward.” In the formal order, Stanton wrote, “Confiding in your patriotic motives and purposes, as well as in your skill, judgment, and energy, full discretion and authority are conferred upon you to arm, equip, navigate, use, manage, and employ the said steamship Vanderbilt, with such commander and crew and under such instructions as you may deem fit.” The next day, Vanderbilt departed for battle.36
“Commodore Vanderbilt,” Stanton commented to General Henry Halleck on March 25, “is now at Norfolk to meet the Merrimac, and although not armor-clad, he is very confident of being able to run her down.” Many observers shared his optimism. “The immense size, great weight, and speed of the Vanderbilt especially would seem to make her a terrible opponent in an encounter of that kind,” remarked the Journal of Commerce. “An unwieldy floating battery, lying low on the water, could not survive many blows from a vessel of her weight.” The Vanderbilt was “put in fighting trim,” the London Times reported. “Her steam machinery has been protected by rails in the most ingenious way, and also by cotton bales and hay. Her prow has been armed with a formidable nose, with the intention to poke it right into the side of the Merrimac.… Its edge is made of steel, and very sharp.”37
Vanderbilt steamed up to Fortress Monroe in his titanic vessel, its immense sidewheels churning the water, smoke billowing out of its twin funnels. On going ashore, he consulted with General Wool and Commodore Louis M. Goldsborough, commander of the squadron so badly beaten in the first battle with the Virginia. Goldsborough impressed Vanderbilt, who turned his ship over to the officer (under the immediate command of Vanderbilt's own captain), despite Stanton's wish to keep it in the War Department's control. Vanderbilt returned to New York, sick with a cold, and explained himself to Stanton. “As for Commodore Goldsborough,” he wrote on March 31, “he is a trump. I think to be depended upon. He had given Captain Le Ferre directions, which accorded exactly with those that I had given him before leaving New York. So I left this matter undisturbed. My opinion is that the Merrimac will not venture outside of Fortress Monroe. If she does, I am quite certain she never can return.”38
His enemies feared that he might be right. The rebels respected “the powerful steamer Vanderbilt, fitted with a ram expressly to attack the Virginia” as Confederate Flag Officer Josiah Tatnall reported on April 30. With its great speed, it could easily outmaneuver and run down the Virginia (which could do no better than five knots), and sink it with its enormous weight, even if the ram did not carve open the rebel ship. As one Confederate officer recalled, “We were primed for a desperate tussle.”39
By now McClellan had landed the Army of the Potomac on the peninsula and proceeded to waste week after week besieging Yorktown. In early May, Lincoln himself visited the front, accompanied by Treasury Secretary Chase. One day, he and his party saw the telltale trail of smoke that indicated the Virginia was coming to fight. On May 7, Chase wrote to his daughter of how “the Merrimac came down & out—how the Monitor moved up & quietly waited for her—how the big wooden ships got out of the way, that the Minnesota & Vanderbilt [might] have fair sweep at her & run her down—how she wdn't come when they cd—how she finally retreated to where the Monitor alone cd. follow her.” The Vanderbilt performed its task as Vanderbilt predicted: the Confederates refused to risk the Virginia against his ship. Lincoln personally ordered an attack on Norfolk, and the retreating rebels scuttled their ironclad.40
Vanderbilt did not win glory in battle, but he played a key role in bottling up the Virginia, allowing the federal authorities to regain their confidence and the Peninsula Campaign to proceed (though to ultimate failure in the Seven Days' Battles). His ship remained in the fleet, where he always had thought it belonged. It was indeed a magnanimous gift—and one that would be remembered by Captain Raphael Semmes.
IF WALL STREET HAD SAINTS, then the college of financial cardinals would surely canonize Elbridge G. Spaulding. Spaulding, chairman of a House subcommittee on emergency measures, performed a true miracle: he conjured money out of nothing, and so contributed more toward the Union victory (and the future of New York's financial sector) than any single battlefield victory.41 Though his eminently forgettable name is eminently forgotten today he was one of the most important architects of the invisible world of commerce that emerged in the nineteenth century. In the nation's darkest hour, he took the increasingly abstract economy and completely abstracted the most solid thing of all: the dollar.
In the opening months of the Civil War, the financial markets staggered along in doubt and fear. These “financial markets” included not only the stock exchanges, but also farmers in Missouri and Michigan, merchants in Danville and Davenport, who clutched the paper notes and deposit receipts issued by local banks; which in turn deposited much of their reserves in New York banks; which in turn made their surplus funds available as call loans to stockbrokers; who in turn provided credit to clients for purchases of securities on Wall Street. The uncertainty of war caused many across the country to withdraw deposits or return notes for gold, ultimately draining reserves in Manhattan. Then, too, Secretary Chase borrowed heavily in New York to finance the war. Following Jack-sonian treasury laws to the letter, Chase refused to open accounts with the banks; instead, he insisted that gold be carted from their vaults through the twisting streets of lower Manhattan to the federal subtreasury The specie lingered there, out of circulation, for weeks or even months before it was spent.
As banks struggled with reduced reserves, the Union suffered the string of setbacks that marked the fall of 1861: the loss of Lexington, Missouri, in September; defeat at Ball's Bluff, Virginia, in October; and McClellan's long refusal to advance on Richmond. When the navy seized two Confederate diplomats at sea, on their way to London, it seemed that war with Britain might ensue. Banknote holders rushed to redeem their paper money for gold, which they hoarded; banks called in loans; stock prices fell, causing panicked selling, causing prices to fall faster, erasing their value as collateral for borrowers. In short, a panic ensued. The banks of New York had no choice but to do the unthinkable (indeed, the illegal under state law): by mutual agreement, they ceased to pay note holders and depositors in specie on December 30.42
“There is no such thing as gold and silver coin circulating in the country,” declared Senator John Sherman. “It is stowed away.” Hoarding threatened to strangle the North. Gold was the stuff that made Americans comfortable with the imagined devices of economic life; when it disappeared from circulation, the public began to give the emperor's wardrobe a second look. Sherman warned that the economy might break down, that the government might find itself unable to secure funds from the private sector
. The war would be lost. “We must have money or a fractured government.”43
Congressman Spaulding found a solution. A banker in private life, he drafted a law to issue federal notes that could not be redeemed for specie. They would be legal tender, which meant that they had to be accepted as payment for any debt; only customs duties and interest on federal bonds would be paid in gold. Lincoln signed the Legal Tender Act on February 25, 1862, and the Treasury began to issue $150 million in “greenbacks,” as the new bills were nicknamed. (In July came $150 million more.)
“The new currency began to be seen in the Exchange brokers' offices early in April, first in large notes of $1,000, then of $500,” recalled Wall Street speculator William W. Fowler. “In a fortnight, it was coming on in sums counted by the million.… From Washington, they came back to the sub-treasury in New York by the express-wagon load, in boxes and in bags, but generally done up in packages the size of small bricks, in brown paper, tied with red tape, sealed with the treasury seal, and numbered and marked; at the sub-treasury, they were paid out.” The flood of money revived the markets, he wrote, “as if by magic.”44
The greenback started a massive reconstruction and expansion of the invisible architecture of the economy, institutionalizing New York's existing centrality to the financial system. In 1863, the National Banking Act created a network of federally chartered banks, which were required to purchase federal bonds and to deposit their cash reserves with banks in reserve cities; banks in reserve cities had to deposit their own cash reserves with banks in New York. This sanctified in law the pyramiding of cash and credit in Manhattan that had occurred before the war, strengthening the mystic cord of money that stretched from the hearthstones of western farms to stockbrokers' offices in Wall Street. The act also allowed such banks to issue national banknotes, which were redeemable in greenbacks, not gold.45
The revolutionary nature of all this can scarcely be overestimated. On one hand, it suddenly overturned long-standing traditions concerning the role of the national government in the economy. Jackson had staked his presidency on the fight against the federal charter of one bank (albeit an enormous one); now Washington chartered hundreds of banks, dictated how they would structure and place their reserves, and even issued a national paper currency for the first time since the ratification of the Constitution. In addition, Congress enacted a federal income tax in 1861, also for the first time, extending the touch of the central government to individuals through an extensive new bureaucracy as never before. As one New Yorker wrote in his diary, “The direct tendency of all the acts of the administration and the great aim of the Republican party is toward a strong consolidated Govt overriding state constitutions or laws.”46 It was not a party platform but a war for national survival that drove this process, and radically redefined what Americans accepted as legitimate federal activity.
Perhaps the most revolutionary innovation of all was Elbridge Spaulding's greenback. The idea of “fiat money” (as economists call irredeemable legal tender) offended economists and businessmen, who believed that it would spark disastrous inflation. Old Jacksonians saw it as a dangerous step that opened the economy to political corruption and manipulation. Going deeper, the Legal Tender Act represented a direct attack on the ancient worldview that was rooted in the tangible and real, by declaring that mere markers, the product of imagination alone, would be the medium of exchange and store of value. Serious, knowledgeable men—men such as Hugh McCulloch, a future secretary of the treasury—argued, “Gold and silver are the only true measure of value. These metals were prepared by the Almighty for this very purpose.” Now Spaulding made straight what God had made crooked.47
The greenback did lead to unforeseen complications. Since the Legal Tender Act did not eliminate the gold dollar, it created two currencies—both denominated as dollars. The supply and demand for each varied, so the value of the greenback fluctuated against the gold dollar. An improvised currency exchange soon emerged in New York, later transformed into a formal trading floor called the Gold Room. There brokers determined the “gold premium”—the price in greenbacks of one hundred gold dollars (e.g., a gold premium of 115 meant $115 in greenbacks would buy $100 in gold coin).*2 Gold stayed out of circulation within the country for the most part (due to the effect known as Gresham's law), but it remained the exclusive form of payment in overseas trade; the Gold Room, then, became the international currency exchange, and thus essential to American foreign commerce. But the value of the greenback also fluctuated with the fate of Union arms on the battlefield. As an abstract unit, created by law, it represented only the strength of public confidence in the federal government. Defeats damaged the greenback; victories brought the two dollars closer in value. Whenever a military campaign began, speculators would gamble on the result by buying greenbacks or selling them short. Essential or not, the gold market began to look seditious.48
“I never cared anything about your gold or paper money,” Vanderbilt later testified. “I always considered it the same thing with me. If it had cost $1,000 in gold and I paid for it with $1,000 in paper… I say there is no difference.”49 He spoke after the end of the war, when the gold premium had grown smaller and less volatile; during the worst of the conflict, when a gold dollar commanded as many as three greenbacks, he undoubtedly paid more attention to the difference.50 But his casual dismissal of this revolutionary development says much about his mind. After five decades on the forefront of economic change, he easily accepted this innovation. Flexible and pragmatic, he saw Spaulding's miracle as a minor change in the rules.
More important was the sudden acceleration of the pace of the game. In 1861, he had continued his business life much as before. At sea, he had withdrawn his European line, but he remained the guiding spirit of the Atlantic & Pacific Steamship Company. He had received his last payment of $105,050.67 from Pacific Mail, in which he remained the largest stockholder (receiving 15 percent, or $15 per share, in annual dividends). On land, he continued to serve on the board of the Hartford & New Haven Railroad (now paying annual dividends of 12 percent), and he held his seat as a director of the Harlem Railroad, though he rarely attended meetings now that he had helped reduce its floating debt to a manageable $43,789. He also indulged in his own version of charity when he agreed to pay off a mortgage held by a Mrs. Herndon, at the request of Chester A. Arthur, a politically active lawyer and future president. “This will save her from being annoyed with a mortgage,” he had written to Arthur on October 8, 1861, “& can pay at her pleasure.” And, in a curious echo of the war in Nicaragua, Parker French, William Walker's one-handed confidence man, was arrested in November as an organizer of the Knights of the Golden Circle, a shadowy pro-Confederate conspiracy in the North. Then, in 1862, everything began to move much faster.51
The old commercial heart of the city had pulsed with cotton, beating in time to Southern harvests and exports. Seemingly overnight, a transplant gave New York a new, industrial, Northern heart of coal and iron and rifles and tents and shoes and uniforms. Greenbacks and military purchase orders flowed into New York and quickly revived business. Factories, workshops, and warehouses could not meet demand, so new factories, workshops, and warehouses opened. The wave of investment and confidence sped up life on Wall Street dramatically. In early 1862, the Open Board of Stock Brokers organized in a dark basement room on William Street. Known as the “coalhole,” it was a literal trading pit into which unlicensed curbside brokers flowed to buy and sell shares from each other with an abandon not seen in the auctions at the older New York Stock and Exchange Board. A financier reportedly said, “The battle of Bull Run makes the fortune of every man in Wall Street who is not a natural idiot.”52
The turn of New York's economy perfectly suited Vanderbilt, the maker and driver of ships, the financier and rescuer of railroads. New construction and repairs kept his Simonson yard in Greenpoint filled to capacity. The Commodore's Allaire Works employed eight hundred men in constructing gun carriages for Monitor-style turrets;
building engines for passenger steamers, navy frigates, an ironclad warship, and various gunboats; and repairing machinery on dozens of ships.53
Newspaper editors and political malcontents talked of making Vanderbilt the secretary of the navy or treasury, a chorus that grew louder whenever the Union had a nautical or financial setback. But the Commodore stuck to his long-standing policy, as he once put it, “to mind my own business.” Perhaps he stuck to it a bit too closely. There was no sign of him when the income tax assessor of the new Internal Revenue Bureau made his rounds in 1862. At 38 Lafayette Place, the assessor found that William B. Astor owed taxes on three carriages, one billiard table, and 8,400 ounces of silver plate, in addition to an annual income of $617,472 (plus $64,850 in interest from federal bonds). At 10 Washington Place, he discovered nothing. The dry federal tax list reveals the bureaucratic equivalent of frustration; the assessor simply made up an income figure of $500,000 for Vanderbilt (on which he was taxed at the top rate of 5 percent), and added a 50 percent penalty, presumably for a failure to respond to inquiries. In fact, federal tax lists would prove to be a worthless source of information about him. His income increasingly consisted of stock dividends, which were taxed at the source. Even the most reliable individual income tax figure radically underreported his actual receipts.54