The First Tycoon: The Epic Life of Cornelius Vanderbilt (29 page)

WHATEVER HUGH MCLAUGHLIN SAID OR DID
, Cornelius Vanderbilt didn't like it. On Staten Island on December 1, 1843, Vanderbilt flared in rage at McLaughlin, and bashed him with his knuckles until he reduced him to a bleeding wreck. What's remarkable about the story is not the beating, but McLaughlin's nerve in then suing him for $1,000. Vanderbilt's reputation usually terrified people.
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On January 27, 1842, for instance, a committee from the Elizabethport & New York Ferry Company met him to discuss his proposal to sell them some waterfront land in Port Richmond, Staten Island. Coming from Vanderbilt, the most innocuous offer sounded like a threat. If they bought the land, they asked, would he sign an agreement to not compete with their ferry? “Capt. Vanderbilt would not agree to bind himself by any written agreement,” the committee reported, “but said his word was better than his bond & that he has no intention of running an opposition to us any more than he should think of running a boat to Quebec.” The delegation didn't believe him, but finalized the deal just the same, “believing that he will not interfere with us, if we make the purchase,” as the committee put it. It was an offer they couldn't refuse.
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They did not have to look far for examples of Vanderbilt's ruthlessness. After taking over the Richmond Turnpike Company, he had pummeled his cousin Oliver—matching his fare cuts, filing lawsuits, even fencing in his dock and dumping gravel on it. And Vanderbilt insisted on a $20,000 bribe from the Navigation Company to leave the outside line. “Sooner than pay him one dollar tribute,” Comstock sputtered, “I would die in a ditch.… In fact I protest as an owner to paying him one dollar, directly or indirectly.” The company paid.

But this was not the usual sort of extortion. It formed part of a larger deal in August 1842 that forced Sanford off the Sound and gave Vanderbilt the right to connect to the Norwich Railroad. Sanford retreated to lines between Boston and Maine, and Coit sold his
Worcester
to Vanderbilt. Daniel Allen began to sell through tickets via the Norwich on the “New York and Boston Railroad Line” for the
Worcester
under Jacob Vanderbilt and the
Cleopatra
under Captain Isaac Dustan.
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The Norwich maneuver was the first of a series of strategic moves that would transform Vanderbilt from a spoiler to the ultimate insider. He began to systematically seize power in the companies that provided transportation around New York. On November 20, 1843, he bought 490 shares (out of 998 total) in the Elizabethport Ferry Company, which effectively gave him control of the second major ferry service to Staten Island (the company's boats stopped at Port Richmond on their way to New Jersey). On March 1, 1844, Vanderbilt became a director and treasurer; in July, he had Allen named secretary, and moved its offices in with his own, now at 34 Broadway
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Also in March, another corporate delegation visited Vanderbilt—this one from the Long Island Railroad, now nearing completion to its eastern terminus, the village of Greenport. They had discovered, they told him, that the New England railroads across the Sound refused to supply a connection to Boston “without the concurrence of the steamboat proprietors connected with such railroads.” As negotiations wound on, the corporation invited him to join the grand festivities that marked the opening of the line on July 29 and 30. Vanderbilt and some five hundred dignitaries, including the mayors of New York and Brooklyn, rode in the first set of trains to make the ninety-five-mile journey from Brooklyn to Greenport. In August, he closed a deal to sell the railroad the
Cleopatra
, the
Worcester
, and the
New Haven
for $120,000 in railroad stock and $125,000 in bonds. He joined the board of directors, and was named to the three-man committee that managed its steamboat affairs.
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In all these moves, Vanderbilt bracketed the Stonington with his attacks. First, as an individual proprietor he had drawn traffic to the outside route. Then his agreement not to compete with the Stonington and the Navigation Company in return for $20,000 had only bound him as an individual proprietor, not as a corporate director. So he operated through those corporations, undermining the Stonington through the railroads that ran parallel to it. He undercut it on both sides, by selling $2 tickets to Boston via the Norwich and, in 1845, arranging for the Long Island Railroad to switch its steamboat connection from Stonington to Providence.
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The Stonington, however, transformed from a bankrupt enterprise into a potential fountain of profits and dividends. It began with the rise of Elisha Peck to the board of directors in January 1843. This was a powerless position; with the Stonington in the hands of its bondholders, led by William Lewis of the Girard Bank, the stockholders had no influence. But Peck had a plan to reduce the crippling debt by half and regain control: the railroad would take back the existing bonds in exchange for new ones worth 50 percent less. He argued that it was better for the creditors to accept half than to hold title to a whole that would never be paid. The deal would allow the company to resume its interest payments and therefore restore its financial health.

Elisha Peck (apparently of no relation to Curtis Peck) was an ill-educated, hardheaded man, much like Vanderbilt. The polished and aristocratic Lewis mocked his unorthodox grammar and the sharp scrawl of his handwriting. But Peck proved that he understood his business very well indeed. He assembled a block of stockholders dedicated to “the work of regeneration & reform,” as broker Samuel Jaudon put it—a reform in administration as well as debt. Peck maneuvered to remove Courtlandt Palmer as president.
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Peck pulled off his coup—assisted by Lewis, who literally sold out Palmer. Lewis arranged to have the Girard Bank sell the old bonds to a consortium of speculators at twenty-five cents on the dollar. Then the consortium swapped them with the railroad for its new bonds, as Peck had proposed, at a rate
of fifty
cents on the dollar, doubling the speculators' money. That consortium of lucky men included Peck, his faction of stockholders, and Lewis himself, who blithely profited at his own bank's expense. Peck ascended to the Stonington's presidency, and the railroad, with its debt reduced by half, finally emerged out of bankruptcy
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But hardly had Peck assumed the presidency than he confronted the same problem that had wrecked Palmer. At the end of 1845, Peck wearily explained it in the railroad's annual report. “The receipts of the Company it will be seen, have fallen off materially, compared with those of the former years,” he wrote. “This has been caused by the very low rate of fare produced by an active opposition.”

That opposition came from Cornelius Vanderbilt, of course, in conjunction with an old friend. “It appears that Vanderbilt, Newton, & Drew are all connected in their steam boat operations,” Comstock wrote Handy. (He was referring to Isaac Newton, Drew's partner in the People's Line on the Hudson.) “I have it from pretty good authority that Mr. Newton & Drew are both interested” in Vanderbilt's operations on the Sound.
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And so they were. In recent years, Drew and Vanderbilt each had done his best to keep the other, a potentially deadly enemy, as close as possible. When Drew and Newton (an expert in the field of steamboats, unlike Drew) reorganized the People's Line as a joint-stock association in July 1843, Vanderbilt bought $11,500 worth of shares in the business, out of a total capitalization of $360,000, and took a seat on the board as one of five directors. (Drew owned $108,500, and Newton $52,000.) In December 1844, Daniel Allen became a partner in Drew's banking and brokerage firm, Drew, Robinson & Co.
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When Allen entered Drew's office, he learned that the latter had concocted a scheme to buy control of the Mohawk & Hudson, New York State's pioneering steam railroad, which offered a shortcut between the Erie Canal at Schenectady and the Hudson River at Albany. Starting on September 16, 1844, Drew's partner Nelson Robinson, a man renowned for his cunning as a broker, set out to acquire the necessary shares. He regularly would pass under the colonnaded facade of the Merchants' Exchange, a large building between Wall and William streets, and between Exchange Place and Hanover Street, completed in 1842. The edifice housed the long room where mere handfuls of brokers gathered in front of a table where the few publicly traded stocks were called in a daily auction. By June 11, 1845, Robinson had purchased enough shares to elect Newton as the Mohawk & Hudson's president, and both Allen and Drew as directors.
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With a man inside Drew's firm, Vanderbilt came to understand these operations intimately. They offered a promising model for his own offensive on the Sound. Barred by agreement from competing personally with the Stonington Railroad, he arranged in 1845 for the People's Line to take a steamboat off the Hudson and throw it on the outside route to Providence. Meanwhile, he used his position within the Norwich and Long Island railroads to further slash fares to Boston.

“All of these lines are probably run for the pleasure of doing an active business,” the
Boston Advertiser
joked, for it seemed impossible that they made enough money to pay expenses.
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This fare-cutting assault marked the final offensive of Vanderbilt's long war on the Stonington and the Navigation Company. This time, however, he had his eye not only on the movements of passengers on the Sound, but on the movements on Wall Street. He did not want a bribe—he wanted possession.

On July 4, 1845, the
New York Herald
published a lengthy analysis of Vanderbilt's attack, without mentioning his name. “The parties engaged in the running of the opposition boat, are perfectly indifferent about its earnings—they do not look for a single cent in return for the outlawry in that quarter,” the paper stated, using the revealing term “outlawry” for the ruthless reduction in prices.

The support of the opposition is purely a Wall Street stock operation, and so long as it suits the interests of these brokers cornering Long Island, Norwich and Worcester, and Stonington Railroad stock, the boats will be regularly employed on the route.… The stock of the Stonington Railroad Company has thus far been more seriously affected than any other. That road having no local travel of consequence, depending almost entirely upon the receipts from through travel, its income has been badly reduced by the attraction of passengers to other routes.

Perversely, the very reforms that Peck had carried out now made the Stonington a desirable property, and thus a target of attack. Vanderbilt waged his ferocious fare competition in order to drive down its stock price, in order to gain control. With Drew's firm (and most likely Nelson Robinson personally) handling the trading, Vanderbilt bought up large blocks of shares. He convinced Drew and his partners to buy shares as well, on the promise of a large rise in price once he assumed control of the corporation. As the annual meeting approached, Vanderbilt tried to rally support among the other investors. “A meeting of the stockholders of the Stonington Railroad is to be held at the Astor [House hotel] this evening,” the
Herald
reported on September 26, 1845. “The late movements which have taken place in this Stock are said to be for the purpose of producing a change in the Direction.”

A few days later, the old board of directors won reelection.
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But the steady pressure Vanderbilt exerted on the railroad's business allowed him to acquire more and more shares. To that end, he next moved into the Hartford & New Haven Railroad. For its first few years, the line had staggered along with only local traffic; then, in December 1844, it completed a connection to Boston through an extension to the Western Railroad at Springfield, Massachusetts. “The result has produced a complete renovation of the affairs of the company,” the
American Railroad Journal
reported, as revenue more than doubled. On June 1, 1846, Vanderbilt sold to Hartford & New Haven three modest steamboats in return for $180,000 in stock at the par value of $100 per share (which paid a dividend of 7.5 percent, or $7.50 per share). This made him a major shareholder and a company director. It was another route on which he could cut fares to Boston—another finger in his grip on the Stonington's throat.
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In September 1846, he seized Stonington directorships for himself, sons-in-law Allen and William Thorn, and Drew and his partner Eli Kelley. The Navigation Company succumbed as well, as Drew bought control of the old foe in early August 1846 (undoubtedly with Vanderbilt's assistance). Finally, in 1847, Vanderbilt and his partners forced Peck off the Stonington's board, replacing him with Nelson Robinson, and Vanderbilt assumed the presidency. “The road never was under better management or more prosperous condition,” the
Herald
reported. The monopolists' nemesis, the champion of the people, was now the prince of Long Island Sound.
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“NO ONE WHO SAW IT WILL DENY
that the Whig Procession yesterday surpassed anything of the kind ever seen in this country,” the
New York Tribune
exclaimed on October 31, 1844. “The Procession occupied two hours and a half in passing Canal street, while it was half an hour longer in wheeling into Broadway from Marketfield st.” Brass bands, columns of banner-wielding marchers, and formations of mounted men demonstrated in favor of Whig presidential candidate Henry Clay—and against Democrat James K. Polk, derided by the
Tribune
as “the creature and heir of the Annexation Conspiracy!”
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