The First Tycoon: The Epic Life of Cornelius Vanderbilt (109 page)

“They do, eh?” the Commodore said, as he tapped the ashes loose from his cigar. “Well, as to special legislation, I agree with them. If they are in favor of making only general railroad laws, I'll be willing to back 'em. Further than that, I don't care what the devil they do. The Central can hold its own.”

“Then pray tell me if prices have been affected by the movement, prices of transportation.”

“I don't know, really. The farmers complain of charges for local transportation or something or other of that sort. But I hardly ever attend closely to railroad matters nowadays. If the farmers are opposed to special legislation, all right. The Central can stand anything the other railroads will. Let 'em give us general railroad legislation, and after that I don't care what they do.”
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At the most trivial level, this interview showed the nearly eighty-year-old Vanderbilt to be alert and engaged, consciously leaving to William and Stone the operational management of his lines. He only concerned himself with strategic and financial matters, as he would in minute detail when the Panic struck days later. But it also demonstrated the limitations of his own understanding of his role, now that he had become the railroad king. Ideological debates made no impression on him. He ignored all aspects of the reporter's description of the Grangers except for the issue of special legislation. And he placed even that point in the context of his competitive relationship with his rivals, rather than a larger philosophical discussion. His words bear repeating: “Further than that, I don't care what the devil they do. The Central can hold its own.” He did not mean that it could hold its own against the Grangers, but against the Erie, the Pennsylvania, or the Baltimore & Ohio.

Vanderbilt dismissed these agrarian radicals with sentiments that had themselves been radical back in his youth. In his formative years, competition had been the stuff of individualism, the egalitarian battle cry. The Jacksonians had seen strong government as the bodyguard of the “aristocrats,” as the creator of “special privileges” for the wealthy, best seen in state-chartered corporations. But two great developments had made antebellum politics obsolete: the rise of the railroads, and the Civil War.

The railroads posed a double, if not triple, conundrum. They could exist only as corporations, since they were too capital intensive, too long-lived, to be personal proprietorships or partnerships. As a result, they made the corporation a fact of life in America, which rendered the Jack-sonian critique of special privileges almost irrelevant. But they remained hotly controversial, thanks to their sheer enormity (on a scale forged by Vanderbilt himself). No other force in society rivaled them. Charles F. Adams Jr. observed in 1869, “It is but a very few years since the existence of a corporation controlling a few millions of dollars was regarded as a subject of grave apprehension, and now this country already contains single organizations which wield a power represented by hundreds of millions.” Railroads virtually monopolized transportation, having eclipsed all forms of domestic water transportation by the 1870s. “Railroads are the greatest and most powerful monopoly on the face of the earth,” one orator said. “They let the public feel their power in the fuel of their kitchens, the bread of their bodies, the material for their houses.” Everything and everyone moved at prices set by the railroads—“a frightening life-or-death power,” as historian Irwin Unger wrote.
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Seemingly omnipotent to the general public, the railroads themselves felt helpless to control rates. As discussed earlier, it was in their interest to take traffic below cost rather than lose it, since such a large percentage of their operating costs remained constant no matter how many trains they ran. This led to ruinous rate wars over “competing points”—cities served by more than one line. Railroads offered rebates to big shippers to attract business, and cut through rates well below those paid on local freight. But what the corporations saw as desperate discounting, western farmers called “discrimination,” as Vanderbilt himself noted. After all, merchants, meatpackers, and millers, not farmers themselves, shipped agricultural products over long distances. And, by separating pricing from distance, rate discrimination represented yet another alarming way in which the corporate system abstracted economic from physical reality. For all these reasons, the Grangers lobbied state legislatures for pro-rata rate regulation.

This lobbying speaks to the second great development of the era: the Civil War, which broke the tradition of a weak and passive government. Wartime necessity is the great centralizer of power and sire of a strong state. Soon after the conflict began, a quick succession of laws had embroiled federal authorities in the national economy. They included the Legal Tender Act, the National Bank Act, the chartering of the Union Pacific, the income tax, the creation of the Secret Service. The war created a new paradigm in the American mind: the notion that an active government could serve as a counterweight to the railroads and other large corporations. Of course, an alert historian of public policy will be quick to note the many ways in which antebellum government
did
intervene in the economy, from agricultural inspections to patent regulation. But what was new was a willingness among radicals to have government intervene against capital on behalf of farmers and labor—to redress the balance of power between corporations and the rest of society.

“We hold that a State cannot create a corporation that it cannot thereafter control,” a council of Missouri Grangers declared. Some went even further: “The time would come when the management of the roads must fall into the hands of the public—of the States,” one radical suggested.
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And the Grangers were only one element in an emerging correlation of forces. The labor movement, for example, pushed hard for legal limits on working hours. In May 1872, some 100,000 laborers in New York—two-thirds of the city's industrial workforce—went on strike for eight weeks to demand an eight-hour day. And the populist Greenback Party arose in defense of the most basic federal intervention in the economy—legal-tender paper money
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Vanderbilt's laissez-faire beliefs had morphed from radical to conservative without him even noticing.

Yet the American economic mentality was not a ship at sea, turning in a body in one direction or another. It was more like the ocean itself, in which the new radicals comprised one of many currents. As we have seen, the liberals—an intellectual elite with their own agenda—criticized both large corporations and government activism. Where Jacksonians had resisted state action in order to preserve the equality of the common man, the liberals did so out of fear that an ignorant electorate and uncultured titans would violate immutable economic laws. Human beings were corrupt, they thought, so when human beings meddled with the natural forces of trade they inevitably wrought harm, whether in stock watering by overlords such as Vanderbilt or the issuing of paper money by Congress to please western farmers.

The liberals were not simply “the ideological vanguard of the city's economic elite,” as historian Sven Beckert suggests. The liberals believed the market would solve all problems; many financiers did not. Though most wealthy New Yorkers did indeed want a return to the gold standard, Richard Schell argued that it defied economic reality “I cannot get it through my head,” he said, “that a great country like this should take for the basis of her wealth a commodity of which there are only eleven hundred millions worth in the world.” (Many economists would eventually come to the same conclusion; John Maynard Keynes would famously call the gold standard a “barbarous relic”) And ruinous competition among the railroads transformed even the Commodore—the fiercest competitor of all—into an advocate of cartels. Over the coming decades, J. P. Morgan would make his mark on history by taming competition through financial coordination of rival companies. The corporate chieftains did lobby to keep government from regulating their industries, but they also imposed private regulation of their own making to tame the market in the name of stability and profit.
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As Vanderbilt entered his final years, it was not at all clear how these contradictory currents would resolve themselves into the new mainstream. The liberals won some battles, such as a return to the gold standard and civil-service reform (starting in 1878), which would slowly eliminate the spoils system. Agrarian radicals secured both “Granger laws” in western states that regulated railroad rates and the Bland-Allison silver act of 1878 (which expanded the money supply by adding silver). The Interstate Commerce Commission came in 1887, and the Sherman Antitrust Act in 1890. The courts, though, struggled with the implications of the changing economy. The Supreme Court allowed state regulation of the railroads in 1877, but hesitated to fully endorse the corporation's nature as a legal person. In the railroad tax cases of 1882, for example, the justices “looked through the corporation and saw the property of the shareholders,” in the words of Gregory A. Mark. It took another four years until, in
Santa Clara County v. Southern Pacific Railroad
, the high court ruled that corporations were entitled to the same rights as natural persons under the Fourteenth Amendment.
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And yet, even before the Commodore's death it was clear that the forces he had helped to put in motion were remaking the economic, political, social, and cultural landscape of the United States. There was the transparently obvious: the dramatically improved transportation facilities that allowed Americans to fill in the continent; the creation of enormous wealth in new business enterprises; and the railroads' economic integration of the nation, bringing distant farms, ranches, mines, workshops, and factories into a single market, one that both lowered prices and dislocated older communities. (The new availability of western foodstuffs, for example, uprooted New England farmers.) And there was the less obvious, such as the emergence of a new political matrix in which Americans struggled to balance the wealth, productivity, and mobility wrought by the railroads and other industries with their anxiety over the concentration of vast economic power in the hands of a few gigantic corporations. Though government regulation would emerge slowly and fitfully—fiercely opposed by many—it would take its place at the center of politics in the decades ahead.

Still more subtle, and perhaps more profound, was a broad cultural shift as big business infused American life. An institutional, bureaucratic,
managed
quality entered into daily existence—what scholar Alan Trachtenberg calls the “incorporation of America,” a cultural dimension of “managerial revolution” or “visible hand” that business historian Alfred D. Chandler Jr. identified. More and more, the national impinged upon the local, the institutional upon the individual, the industrial upon the artisanal, the mechanical upon the natural. Even time turned to a corporate beat. Time had always varied from town to town, or even by household; the young Jay Gould, for example, had helped families determine when the sun was at its height so they could set their clocks to noon. But the sun proved inconvenient for the schedules of nation-girdling railways. In 1883, writes Trachtenberg, these “distinct private universes of time” vanished when the railroads, “by joint decision, placed the country—without act of Congress, President, or the courts—under a scheme of four ‘standard time zones.’”

By the end of the century, the industrial, corporate economy would color the answers to many of life's basic questions: Where to work? What to buy? From whom to borrow? How to go from here to there? The impact of big business would even be seen in Americans' choice of heroes, particularly the mythologization of Jesse James as an avenger of the small farmer against banks and railroads. In reality, he cast himself as a Confederate avenger against the victorious Union—but the wider nation wanted a champion of the individual against the faceless institution, and so it drafted James.
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In 1873, the railroads were the vanguard of these changes. They comprised by far the biggest industry, and boasted by far the largest corporations. At their forefront stood Cornelius Vanderbilt, child of the eighteenth century, master of the nineteenth, maker of the centuries to come. He never ceased to strive to rationalize his businesses, or to foster cooperation with his rivals. But he could not escape the legacy of the past, or the realities of economics. The irony is that the railroads suffered severely after the Panic of 1873 precisely because of the laissez-faire policies and culture that Vanderbilt himself had championed throughout his life. With the economy in shambles, railway companies battled each other ruthlessly to capture whatever traffic they could, sending prices spiraling downward. As the Commodore faced his final years, his empire fought to survive. Success would depend on how well he had constructed it.

VANDERBILT WAS A HARD MAN
. Testifying in 1877, Edwin D. Worcester remembered many instances over the previous three years in which the Commodore had been brusque. He often said about his son Corneil, “He's a very smart fellow, but he has a cog out.” But then, Worcester added, “I have heard him use that expression of ‘having a cog out’ about almost every man he knew, at some time or other.” On another occasion after the Panic, Vanderbilt was sitting with Worcester in the offices at the Grand Central Depot when a Catholic priest walked in and returned $20 “which somebody had obtained wrongfully from the road.” Vanderbilt handed the money to Worcester and instructed him to deposit it in the proper account. The priest lingered and talked about the poverty of his church; Worcester thought to himself that a reward of $10 might be in order, but the Commodore sat silent. Finally the priest left, and Vanderbilt said, “There's considerable good in religion after all.”
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