Fortune's Children

by Arthur T. Vanderbilt

  By the end of the summer, the Commodore had had his fun. Drew tearfully pleaded for mercy, reminding the Commodore of their common, dirt-poor boyhoods and their years together on the Hudson. The Commodore took a certain pleasure in seeing his old rival grovel, and allowed Drew and the aldermen to buy the stock from him at $180 a share.

  The gentlemen of the common council were ruined. The Commodore was $5 million richer. Daniel Drew was poorer but wiser. He composed a little jingle setting forth what he had learned: “He that sells what isn’t his’n, must buy it back, or go to prison.”70 Drew was philosophical. He knew there would be opportunities to recoup his losses.

  With this invigorating success, the Commodore began buying stock in the Hudson River Railroad, another short line, 140 miles long, running from New York up along the Hudson to Peekskill. Like the Harlem, the road was in disrepair and near bankruptcy.

  Early in 1864, Vanderbilt traveled to Albany with pockets full of cash to convince the state legislators of the wisdom of passing a bill to authorize his Harlem railroad to consolidate with the Hudson, creating a through line into New York City. As soon as the Commodore returned home, another director of the Harlem, the ubiquitous Daniel Drew, arrived in Albany with even more money and an interesting proposition. What if it seemed that the legislature would pass the bill? Harlem stock would rise, right? And then what if at the last moment the legislators were to decide to vote down the bill? The shares would tumble. If the distinguished lawmakers were to sell the Harlem short, there were easy fortunes to be made. So sure were the legislators of the soundness of Drew’s scheme that many mortgaged their homes and farms to raise money to sell the Harlem short.

  On March 16, 1864, as the legislature debated the bill and its prospects seemed rosy, Harlem stock rose from 89, where it had settled after Drew’s last raid, and hit a high of 149. But then, as planned by Drew, the state senate committee refused to approve the consolidation of the Harlem and the Hudson, and in ten days the stock plunged 48 points.

  When Vanderbilt realized what was happening, he called his trusted broker. “How do you feel about it? Shall we let ’em bleed us? John, don’t those fellows need a dressing down? Let us teach ’em never to go back on their word again as long as they draw breath. Let us try the Harlem corner once more!”71

  Vanderbilt organized a pool to buy up all the outstanding shares of the Harlem. By April 6, it was back at 150. By the end of April it was at 235. By May 17, it had risen to 280. The legislators waved the white flag of truce, begging him to stop. Vanderbilt ignored them. “Tut it up to a thousand!” the Commodore exclaimed. “This panel game is being tried too often.”72

  After he had calmed down a bit and his friends convinced him that if he carried out his threat he would destroy the financial markets, he let the legislators out at 285. He chuckled with glee: “We busted the whole Legislature and scores of the honorable members had to go home without paying their board bills!”73 Vanderbilt made several million dollars on the second Harlem corner. Uncle Dan’l lost a million.

  When these profitable victories convinced the Commodore beyond doubt that “the business of the future in this country is railroading,”74 he cast a covetous eye at a third line, the New York Central.

  The New York Central, with 510 miles of track, was much larger than his Harlem and Hudson combined. It had originated in 1831 as a seventeen-mile road, the Mohawk and Hudson, and had emerged in 1853 as the New York Central, a consolidation of ten railroad companies that connected the major cities along the Erie Canal, from Albany to Buffalo. The Central was not only the most important line in the east, it was the natural link with Vanderbilt’s Hudson River Railroad and Harlem, connecting Manhattan with the heartland of the nation, with the Great Lakes, with the Ohio and Mississippi rivers. The trouble was that the New York Central was shipping all of its freight to the city not on the Commodore’s lines, but on the People’s Line, Daniel Drew’s old steamboat service on the Hudson River. Only when the river was blocked with ice in the winter did the Central rely on Vanderbilt’s Hudson River Railroad to make the connection to New York City.

  Because the Central was too big for the Commodore to acquire by buying its stock, as he had the Harlem and the Hudson, he devised another plan. After months of negotiations with the directors of the Central failed to result in any agreement satisfactory to the Commodore for the use of his Hudson River Railroad for the Central’s through freight to the city, he issued an order to the managers of his road: “Take no more freight from the New York Central.”75 The order was exquisitely timed: The date was January 17, 1867; the Hudson River was choked solid with ice. Not a steamboat was moving. The trains of the Hudson River Railroad stopped in East Albany, just shy of the single-track railroad bridge across the river to the terminal shared with the Central. The Central’s connection to New York City was broken. Desperate passengers had to walk two miles through snow and ice, dragging their baggage across the frozen river from where the Central stopped to where the Hudson River Railroad began, if they wanted to get the connecting trains to the city. The Central’s freight piled up at its terminal.

  Within two days, the directors of the New York Central surrendered, and the Commodore could report in a statement published in the papers that “arrangements satisfactory to both companies for the transactions of their passengers and their freight business have been made.”76 The nature of the arrangements became clear later in the year when the directors of the New York Central sent him a letter:

  C. VANDERBILT, ESQ.

  The undersigned stockholders of the New York Central Railroad Company are satisfied that a change in the administration of the Company, and a thorough reformation in the management of its affairs, would result in larger dividends to the stockholders and greatly promote the interests of the public. They therefore request that you will receive their proxies for the coming election, and select such a board of directors as shall seem to you entitled to their confidence. They hope that such an organization will be effected as shall secure to the Company the aid of your great and acknowledged abilities.77

  On December 11, 1867, seventy-three-year-old Cornelius Vanderbilt was named president of the New York Central.

  These curious events troubled the New York legislature. An investigation was initiated and the Commodore ordered to testify. A legislator asked why he had not sued the Central if he had some grievance against it when it had refused to use his railroads for the better part of each year.

  “That is not according to my mode of doing things,” he replied. “It is not according to my mode of doing things to bring a suit against a man that I have the power in my own hands to punish.”

  “Were you not aware that in punishing a railroad corporation, you had no right to punish the people of the state or inconvenience them?”

  “I did not desire to punish anybody. All I desired was our own rights.”

  “Did you not know that the law provides a remedy for all wrongs?”

  “The law, as I view it, goes too slow for me when I have the remedy in my own hands.”

  One investigator asked Vanderbilt why he had refused to negotiate the dispute.

  “I did not have the time. I went home. Life is not a bit too short for me, and I like to play whist. I will not permit any business to come in and interfere with that.”

  Could not the Hudson River Railroad enforce its claims through the courts? he again was asked.

  “They might. I will not give an opinion on that point. I stated a while ago that I for one will not go to a court of law when I have got the power in my own hands to see myself right. Let the other parties go to law, but by God, I think I know what the law is; I have had enough of it.”78

  A month later, in January 1868, the Commodore was ready to acquire yet another railroad, this time the Erie, the great line stretching from Nyack to Lake Erie, which, like its rival the Central, connected New York with the Midwest. The Erie would complement the Commodore’s growing rail system and eliminate a tro
ublesome competitor that hurt the Central’s business by frequently cutting rates. It was controlled by none other than that old drover, seventy-year-old Daniel Drew, who had long been its treasurer and a director. He had made a fortune in manipulating the Erie’s stock by leaking rumors, trading on advance information, and withholding shares or flooding the Street with them. Wall Street was aghast to see moves of 20 or 30 percent in the Erie’s stock in a matter of days, time and again. “Daniel says up,” went the Wall Street wisdom of the day, “Erie goes up. Daniel says down, Erie goes down. Daniel says wiggle-waggle, Erie bobs both ways.”79 Drew was nicknamed by Wall Street the “speculative director,” and the Erie, the “scarlet woman of Wall Street.”80

  Strangely enough, when the Commodore began buying Erie, the stock began falling, from 97 to 50. Drew was again taking a short position in his own company, confident that he could manipulate the stock to depress it. Clearly, Uncle Dan’l had not yet learned the risks of tangling with the Commodore. The Commodore kept buying. Just to make sure everything was on the up and up, the Commodore went to court and obtained an injunction against the directors of the Erie, prohibiting them from issuing more stock than the 251,058 shares already outstanding.

  Compared to his two young protégés and fellow Erie directors, stealthy Jay Gould and pudgy Jim Fisk, Drew was as moral as the sanctimonious, gospel-shouting Methodist preacher some said he tried to resemble. Thirty-two-year-old Gould, who had made a fortune speculating in small railways, was described by one railroad president with whom he had clashed as “a perfect eel.”81 Thirty-four-year-old Fisk, the son of a tinware peddler from Vermont, had been a salesman for Jordan, Marsh and Company in Boston and a cotton smuggler during the Civil War until he learned there were easier ways to make money on Wall Street. “There goes Jim Fisk, with his hands in his own pockets for a change,”82 businessmen joked. Gould and Fisk pointed out to Drew that the Commodore had beaten him at this game twice before, as he would again. There was no doubt that he had the wherewithal to buy every last share of the Erie. Why not let him buy every last share? Gould and Fisk patiently explained to Drew that there was a sure way to humble Vanderbilt. The Commodore wanted to buy Erie stock? Let him buy it. Let him buy as much as he wanted. He was gobbling it up in million-dollar blocks. The more he bought, the more unauthorized stock certificates they would print. On February 19, 1868, the Erie directors met and, in violation of the court injunction, issued fifty thousand new shares, followed in short order by another fifty thousand. The next day, these fresh certificates found their way to Wall Street. “If this printing press don’t break down,” chortled Jim Fisk, “Π1 be damned if I don’t give the old hog all he wants of Erie.”83

  Cornering Erie stock was as impossible as trying to corner the ocean. The more the Commodore bought, the more worthless stock the three conspirators dumped on the market, all the while selling the stock short in anticipation of its inevitable collapse.

  When the spanking new stock certificates turned up on the market, it was obvious to Vanderbilt what had happened: He had just paid millions of dollars for a bundle of worthless certificates. Enraged, he had a court issue a warrant for the arrest of Drew, Gould, and Fisk for violating the injunction.

  Drew had been withdrawing cash from the Erie’s treasury, the proceeds from the sales of the worthless stock certificates to Vanderbilt. Learning that a warrant for their arrest had just been issued, the three bundled $6 million of these greenbacks into packages and stuffed them in carpetbags. At ten o’clock on the morning of March 11, 1868, the three directors, Drew, Gould, and Fisk, were seen running from the Erie offices with their bulging carpetbags, dashing straight for the ferry that would take them across the Hudson River to New Jersey, outside of the New York court’s jurisdiction.

  Safe from the law and the raging old Commodore, the Erie ring holed up in Taylor’s Hotel in Jersey City. Around the hotel, which the press dubbed Fort Taylor, they stationed a small army of Erie detectives to protect them. “This struggle is in the interest of the poorer classes especially,”84 Fisk explained to the reporters inspecting three small cannons mounted on the shore aimed at New York City, and the arsenal of rifles, shot, and shells meant to protect their $6 million in greenbacks.

  All summer the three hid in Fort Taylor, surrounded by their money and an army of thugs, expecting a surprise attack by Commodore Vanderbilt, or at least some treachery by one or more of the three co-conspirators. In the fall, Gould traveled to Albany to induce the state legislators to enact a law that would legalize the actions that had been taken by the Erie in issuing the unauthorized stock. The Albany politicians were pleased to see him. He was, as the New York Herald wrote, “a godsend to the hungry legislators and lobbymen, who have had up to this time such a beggarly session that their board bills and whiskey bills are all in arrears.”85 It was rumored that Gould, Drew, and Fisk were willing to spend $2 million in Albany to secure the passage of their bill and hence their safe departure from Fort Taylor. This was quite possible. When Gould was arrested for contempt of court, bail was set at $500,000, an amount he had no trouble posting on the spot in greenbacks so that he could continue lobbying receptive legislators.

  One autumn Sunday, when Drew could enter New York without fear of arrest, he went to see his old friend Commodore Vanderbilt and once again offered the peace pipe. A settlement was reached. Drew, Gould, and Fisk agreed to buy fifty thousand of Vanderbilt’s Erie shares at $70 a share, to give him $1,250,000 in Erie bonds, and in addition to pay him for his troubles a cash bonus of $1 million. Vanderbilt in return agreed to dismiss all legal actions against the three. Despite the settlement, the Commodore had lost several million dollars in the Erie war. This time, he was the one who had learned a lesson: “Never kick a skunk. From now on, I’ll leave them blowers alone.”86

  The Commodore never really minded the Erie setback. At seventy-five, he was having the time of his life.

  Before he established his railroad empire, a traveler from New York to Chicago had to change trains seventeen times. By 1869, he had consolidated his Harlem, Hudson, and New York Central lines to create a unified rail system that spun like a spider’s web, touching every major city in the growing Northeast. Old iron rails were ripped up and replaced with steel rails the Commodore imported from England. Where the lines had been single-track, the Commodore laid a parallel track; one was dedicated to passenger service, one to freight. Freight cars were redesigned to carry not the usual eight tons, but fifteen to twenty tons of precious cargo. Terminals, stock and grain elevators, and bridges were constructed. At Fourth Avenue and Forty-second Street in Manhattan he built the Grand Central Depot, a massive brick-and-granite structure with a glass-domed roof that covered five acres, a building that was, as he planned it, the largest terminal in the world. Pullman sleeping cars, safety couplers, and Westinghouse air brakes, all developed in the last several years to make rail travel safer and more convenient, were installed on all his trains. The New York Central, when consolidated with the Commodore’s other lines, created a trunk line between the Atlantic Ocean and the Great Lakes, stretching to the nation’s heartland. With its 740 miles of track, 408 locomotives, 445 passenger cars transporting over 7 million passengers each year, and 9,026 freight cars carrying much of the nation’s produce, raw materials, and manufactured goods, it was a veritable money machine. Central’s stock rose from 75 to 120 in 1867. Despite doubling the number of shares outstanding, the stock jumped to 200 by 1869. The Commodore couldn’t have been happier; more money was always more happiness. The Commodore was in paradise.

  Vanderbilt’s overhead was slim. An English visitor asked to see his “bureaux of affairs.”

  “What bureaux?” he asked.

  “Your departments of business where you conduct your affairs.”87

  The Commodore pointed to his faithful clerk, Lambert Wardell, seated on a stool in the corner of his office in the Grand Central Depot.

  But where are your materials for work? the Englishman persisted.
Vanderbilt opened the drawer of his work table, which contained nothing but a checkbook and cigars. Everything was recorded in a single small book he carried with him at all times, his “confidential book” he called it, in which he kept a record of all his property.

  As had always been his way, he ran his railroads as he pleased. One of his business associates once told him that each of the transactions he had just completed was in violation of the New York statutes.

  “My God, John,” the Commodore exclaimed in amazement. “You don’t suppose you can run a railroad in accordance with the statutes of the State of New York, do you?”88

  Running his railroads as he pleased often meant cutting expenses to the bone, as he had with his steamboats, to earn the greatest profit. If travelers could afford to pay extra for seats in a drawing room car, all was well. They would settle into roomy seats behind plate-glass windows, in a well-ventilated car with a washbasin and clean towels, plenty of ice water, a waiter, and a separate compartment for packages. If, however, they traveled at the legal passenger rates, it was quite a different story. The passengers in these stuffy cars sat in a blinding storm of black dust, with their refreshment “of the flavor and attractiveness of bilge water.” As the New York Times observed, “Commodore Vanderbilt is not unknown to fame as the Poor Railroad King. Those who have had occasion to pass over his lines will not deny that he is the king of poor railroads….Mr. Vanderbilt’s roads are great roads, but what are the passengers going to do about it?”89 “Such cars!” wrote a traveler on his lines. “Old, low-roofed, meanly, dingily furnished, smoky, rickety, crazy, abominable! What an odor! Tombs’ stench over again. As we proceeded on our way, the leaky old hulk opened its sides to the rain, and very soon the floor was sole deep in water.”90