The First Tycoon

by T. J. Stiles

  When Corneil went free, he found his brother Billy and lawyer Charles A. Rapallo waiting for him. Billy told him, Corneil later reported, “that the doctor had sworn to this commitment to keep me out of the State prison [for forgery], and I told him I had rather be considered a damned rascal than a lunatic.… After that I had no conversation with William H. for two years.”68 Corneil blamed his brother, but his father almost certainly gave the order. The incident speaks to Vanderbilt's exasperation with Corneil. George inherited his athleticism; Billy showed signs of his shrewdness and intelligence; but Corneil was a schemer, a talker, and a weakling, all things that aroused the Commodore's contempt. Characteristically Vanderbilt tried to solve the conundrum with a decisive act; but family cannot be managed like a business. Like so many fathers, he would have to just muddle through.

  On the day that Vanderbilt had his son arrested, he confronted a far more dangerous, and far less likely, swindler: Robert Schuyler. Vanderbilt's relationship with him reached back at least as far as 1838, when Schuyler had served as president of the New York & Boston Transportation Company, the steamboat monopoly on Long Island Sound. But the twisted tale that unfolded over Independence Day of 1854 may have begun even earlier.

  The nephew of Alexander Hamilton, Schuyler was “no nameless money-making speculator,” George Templeton Strong wrote in his diary “but… one of our ‘first’ people in descent and social position and supposed wealth.” And yet, according to one Wall Street source, he led a double life. As an unmarried man, he resided at a hotel downtown, and maintained an office with his brother on Wall Street. Yet he also had a small house in the upper reaches of Manhattan, where he kept a mistress. “Here he lived a part of his time, and reared a family, though the mother of his children was not his wife,” the Wall Street insider wrote fifteen years later. Why he did not marry the woman is unclear—perhaps she was not considered a suitable match for the illustrious Schuyler scion. “The landlord, the butcher, the grocer, and the milkman transacted all their business with the lady. Bills were promptly paid, and no questions asked. The little girls became young ladies. They went to the best boarding-schools in the land.”

  His eldest daughter indirectly ended the masquerade. A minister of the gospel asked for her hand, insisted on meeting her family, and was stunned to discover that his prospective father-in-law was the rich and famous Robert Schuyler—and that his fiancée was an illegitimate child. At the minister's insistence, Schuyler agreed to marry the mother of his children, despite the likely scandal. To Schuyler's surprise, the elite of New York embraced his new family. “An uptown fashionable mansion was purchased, and fitted up in style. Crowds filled the spacious parlor, for there was just piquancy enough in the case to make it attractive. Splendid coaches of the fashionable filled the street; a dashing company crowded the pavement, and rushed up the steps to enjoy the sights.”69

  No other sources mention this tale; perhaps it was too delicate a subject for the newspapers, or perhaps it was just a rumor, an echo in the ruins of Schuyler's cataclysmic downfall. Tellingly, it suggested a personality steeped in subterfuge, an accomplished liar who saw deception as something other than his last resort. As Vanderbilt soon discovered, this described Robert Schuyler with tragic precision.

  On the morning of Saturday, July I, New York's merchant community expected runners to spread through the streets of downtown New York from “the eminent house of Robert and George L. Schuyler,” as the Evening Post called it, carrying payment for promissory notes and other debts now due. But instead of money, a message went forth that the firm could not meet its engagements; and Robert, the senior partner, had fallen terribly ill and could not leave his bed to manage his affairs.

  Wall Street had known great failures before, but this one deeply troubled the city's businessmen. The Schuylers occupied the center of the emerging corporate economy. George served as president of the New York & Harlem Railroad, Robert of the Illinois Central, the New York & New Haven, and others. Even worse, the money market was already approaching a crisis. The capitalists of New York and New England had overextended themselves in lending to expanding railroads in the West, while the supply of credit from London had dried up because of heavy borrowing by the British and French governments to finance the Crimean War against Russia.70

  When word went out of the Schuylers' failure, Cornelius Vanderbilt drove to Robert's mansion on Twenty-second Street. Schuyler owed him $600,000, of course, but Vanderbilt also feared a general panic in the wake of the bankruptcy. Sitting at Schuyler's bedside, the Commodore held out a check for $150,000, enough to see him through the next week or so. After a few arrangements, he said, he could provide still more help, as much as $3 million. Furthermore, he would go into Wall Street and start a bull campaign to drive the stock of the New Haven and Harlem railroads up to par, which would inflate the value of Schuyler's stock portfolio and allow him to settle with his creditors. All this and more he would do, the Evening Post reported, “if Mr. Robert Schuyler would only assure him that ‘all was right.’ To this Mr. Robert Schuyler made no other reply than shaking his head. No such assurance could be given.”71

  Perhaps this disturbing conversation had something to do with Vanderbilt's decision, the next day, to have his son arrested for lunacy. Certainly he saw something rotten in Schuyler's affairs—and others did too. On Monday, July 3, a director of the New Haven Railroad, Morris Ketchum, went to the company's office to investigate some unusual sales of the company's stock. “In a conversation with the book-keeper his suspicions were excited,” according to the press, because Schuyler had given orders that no one should be allowed to examine the company ledgers. Ketchum seized the books, and the next day pored over them with the treasurer and two other directors.

  When Schuyler learned of Ketchum's actions, he panicked. He sent for his brother, and “executed an assignment of all the property belonging to the firm, as well as his individual property,” to his attorneys. The next day, as the directors examined the books, he boarded a train to Burlington, Vermont. There he took a Lake Champlain steamboat to Canada.

  On Wednesday, July 5, Ketchum and his fellow directors announced the stunning news: Robert Schuyler had issued certificates for nineteen thousand shares of stock that legally did not exist—a fraud amounting to $1.9 million at par value. Since Schuyler was both president and stock transfer agent, he had thought he could hide his crime, because he had not sold the stock but used it as collateral for loans. He had hoped to ride out the crisis in his finances, repay the loans, and then destroy the fake certificates. Instead, he had gone bankrupt, leaving the railroad with an excess of nineteen thousand shares.72

  “The business and money circles of New York were electrified, and the whole community in some measure shocked, by the sudden disclosure,” one magazine reported. “Mr. Robert Schuyler, the person implicated, stood among the highest in the community was the honored representative of one of the old aristocratic families of New York.” As Strong wrote in his diary, “Wall Street all agog.… This swindle of Schuyler's is a great disaster and may well be the first crack that preludes a general crash and collapse.” Stock prices swiftly fell as further failures ensued. One of the bankrupts, the aristocratic Gouverneur Morris, had borrowed $100,000 on Schuyler's behalf, with the fraudulent stock as collateral.73

  Vanderbilt held more “spurious” shares than anyone—a total of 2,210, worth $221,000 at par value. The man scorned as “boorish” by New York's elite had done his best to save the most elite of them all, and had been repaid with treachery. To make matters worse, the New Haven Railroad soon announced that it would repudiate the spurious shares. Even the legitimate Harlem stock that Schuyler had given Vanderbilt as collateral proved a source of trouble when the now-struggling railroad refused to pay dividends on Vanderbilt's one thousand shares.74

  Robert Schuyler fled across the Atlantic to Genoa, where his family followed, and lived “in the strictest incognita,” a French reporter claimed. “Since his departure from Ameri
ca his health has been on the decline, and he finally died of grief and mortification” around the middle of February 1856. His widow returned to the United States and retired to an isolated cottage on Saratoga Lake, dogged by rumors that her husband was still alive, hiding himself with the woman he had once hidden from the eyes of society. “Fashionable New York, which could overlook twenty years of criminal life, could not excuse poverty” wrote Matthew Hale Smith, the aforementioned Wall Street insider. “It took reprisals for bringing this family into social position by hurling it back into an obscurity from which probably it will never emerge.”75

  NOTHING, IT SEEMS, WAS BETTER for the public than an angry Cornelius Vanderbilt. For all the distraction of Schuyler's fraud, the Commodore remained fixated on punishing Morgan and White—and the consumer profited. At the end of May 1854, he opened a second front by attacking one of the main sources of Morgan's wealth: his Gulf Coast steamship company. Vanderbilt established a rival line, running “three large first-class steamships” between Texas and New Orleans. “The avowed object,” the Indianola Bulletin reported, “is to oppose Harris & Morgan—to the death.” (Harris & Morgan, a New Orleans firm run by Israel C. Harris, Morgan's son-in-law, was the agent for his line.) Here, it seems, Vanderbilt's lobbying in Washington actually worked, for the Post Office took the Gulf mail contract away from Morgan and gave it to the Commodore. This pleased Texans who had grown tired of the “Harris & Morgan” monopoly. “Their uniform course was high-handed and despotic in the extreme,” the San Antonio Ledger wrote. “It is not probable that they will succeed in running Messrs. Vanderbilt & Co. off the track”76

  This attack began just as the California traffic slacked off for the summer. Accessory Transit share prices slid down from a high of over 27 in January to 20¼ on July 17. A company official would feel obliged to explain to stockholders, “For some time, the sharp competition of three lines caused heavy losses.” That reference to three lines serves as a reminder that Vanderbilt's Independent Line hurt not only Accessory Transit but also the long-established axis of the Pacific Mail and U.S. Mail Steamship companies. Their revenues plunged as they tried to match Vanderbilt's reduced fares, which drew away passengers by the shipload. And that was the Commodore's intention, for he hoped the mail companies would put pressure on Morgan and White to settle.

  U.S. Mail recently had undergone a change in management that boded well for Vanderbilt's strategy. On March 18, George Law had sold his shares to Marshall O. Roberts; on April 4, he resigned from the board. With the scratch of a pen, Vanderbilt's most intransigent foe had retired from the battlefield. Leadership now passed to Roberts, the president of the North River Bank, owner of vast amounts of prime real estate in Manhattan and New Jersey, and a wily operator on the stock market. On Wall Street, he was “not [very] popular,” the Mercantile Agency reported that year. “Mr. Roberts, on the commencement of his mercantile life, was in [very modest] circumstances, & has risen to his present position by his industry, shrewdness, & perseverence.” This sounded very much like a description of Vanderbilt. But Roberts had ascended into the sanctum of New York's most refined society A former Whig candidate for mayor, a close ally of Moses Taylor and August Belmont (both wealthy social leaders), Roberts built a costly mansion on Fifth Avenue in 1854, and boasted that his net worth amounted to half a million dollars. He had no interest in pursuing Law's old vendetta or in bleeding profits merely to save Charles Morgan's pride.77

  With steerage fares between New York and San Francisco as low as $35, passengers flocked to the Independent Line, only to see the ugly side of competition, the ferocious cost cutting that made such prices possible. As one popular song ran:

  You are driven round the steerage like a drove of hungry swine,

  And kicked ashore at Panama by the Independent Line;

  Your baggage is thrown overboard, the like you never saw,

  A trip or two will sicken you of going to Panama.

  Despite this ruthless attempt to limit expenses, Vanderbilt, too, lost money on his California line, especially when traffic fell during the summer. And so did his partner, Edward Mills, who “was [about] ruined in consequence,” according to the Mercantile Agency. Desperate to cut his losses, Mills sold his share of the Uncle Sam and the Yankee Blade to Vanderbilt. It did little good. Unable to pay his debts, he went bankrupt, ending a long career as a steamship entrepreneur.78 Vanderbilt had carried him down to disaster. Truly there was no friendship in trade.

  If Mills had been able to hold on for just a few weeks longer, the outcome for him would have been very different. On August 29, rumors began to circulate on Wall Street that Vanderbilt and his foes were meeting to discuss terms. Two days later, news broke of a final settlement. Driven to desperation, Morgan, Roberts, and Aspinwall decided to buy out Vanderbilt on his terms. The Accessory Transit, U.S. Mail, and Pacific Mail companies purchased his steamships for $800,000, an amount far exceeding their original cost (“a gd. price,” the Mercantile Agency judged). The mail companies jointly paid half and received the North Star, which U.S. Mail would operate. Accessory Transit paid the other $400,000 and took the Yankee Blade and the Uncle Sam; it also agreed to give Vanderbilt $115,000 in compensation for “his claims of every sort, including his interest, past and prospective (say for two years), in the transit over the isthmus,” as the company reported. The first payment of $60,000 would be made in December, with two more scheduled in early 1856. To add injury to insult, the Yankee Blade soon went ashore on a reef at Point Arquilla and proved to be a total loss.79

  On top of that, the Accessory Transit share price slid still lower, allowing the Commodore to “buy in” and profitably “cover” the short-selling contracts he had made in January (to use the jargon of the time). He paid as little as 16¼ for each share that he now sent over to Charles Morgan, who had agreed to pay 25 whenever Vanderbilt chose to deliver them.80 The Commodore had 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.

  Accessory Transit and the mail companies quickly made arrangements with each other to return fares to their previous high levels: $300 for first cabin, $250 for second, and $150 for steerage—three times or more what Vanderbilt had charged. But if Morgan and Roberts had paid any attention to the Commodore's long career, they must have been wary of his agreement to forgo future competition. “Vanderbilt is slippery,” observed the San Francisco Alta California, “very much like the Irishman's flea, and we should not be at all surprised if a line of opposition steamers were puffing away in the course of six months, established at least indirectly through his means.”81

  The precise prediction would prove wrong, but the sentiment was entirely correct. In little more than a year, Vanderbilt would once again take his place as a major force in the steamship lines to California. And when he did, he would find himself embroiled in a war not only for business but for the very survival of Central America, as the United States plunged toward civil war.

  * John Overton Choules, The Cruise of the Steam Yacht North Star (New York: Evans and Dickerson, 1854), 26–7, records the following passengers, in addition to himself and his wife: Dr. Jared Linsly and his wife; the wife of the captain, Asa Eldridge; Cornelius and Sophia Vanderbilt; and the Vanderbilts' children and their spouses, Phebe Cross, Kate Vanderbilt, George W. Vanderbilt, Maria and William H. Vanderbilt, Ethelinda and Daniel B. Allen, Eliza and George Osgood, Emily and William K. Thorn and their daughter Louisa, Sophia and Daniel Torrance, Louise and Horace F. Clark, Mary and Nicholas B. La Bau. Cornelius J. Vanderbilt and Frances Lavinia did not accompany them.

  * A popular story attributes the invention of the potato chip to Vanderbilt. In 1853 he supposedly complained that his fried potatoes were not salty or thin enough; the Lake House cook, George Crum, retaliated by frying absurdly thin and salty slices, which Vanderbilt loved. (The Washington Post, May 19, 1917, credited Crum's half sister, Cathe
rine A. Wicks.) There is no truth to the tale. The New York Herald, August 2, 1849, strongly suggests that the potato chip originated with the now-forgotten Eliza, no later than the summer of 1849. See William S. Fox and Mae G. Banner, “Social and Economic Contexts of Folklore Variants: The Case of Potato Chip Legends,” Western Folklore 42, no. 2 (April 1983): 114–26.

  Chapter Ten

  ARIEL

  “Billy, never underestimate your opponents.” Lambert Wardell overheard the comment in one of Vanderbilt's increasingly frequent, and increasingly fatherly, conversations with William. It is difficult to chart this father-son relationship, for it was entirely oral, yet it seems that a warming continued after their months together on the North Star. This particular piece of advice stuck in Wardell's memory because it was so characteristic of his employer's thinking. “This was one of the secrets of his success,” Wardell later reflected. “He never underrated himself nor anybody else.”1

  These well-remembered words say much about how the Commodore envisioned his business career. Wardell would add that he “detested details.… He was very concise and gave general directions regarding matters rather than dictating in detail.” This statement seems not to apply to this stage of Vanderbilt's career, considering the minute attention he often lavished on his ships and various operations, until it is put into the context of that comment about “opponents.” He did not think of his businesses as machinery; rather, he saw them as military campaigns against his enemies. When he could not avoid the merely mechanical aspect of his enterprises he often expressed impatience; but when he was locked in combat he paid attention to the tiniest detail. This helps explain why 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, such as the Staten Island Ferry, which had attracted widespread complaints about its condition.2