The First Tycoon: The Epic Life of Cornelius Vanderbilt (69 page)

“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.”
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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.”
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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.
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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.”
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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.
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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).
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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.
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“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.”
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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.
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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.
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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.”
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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.
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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.
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Perhaps he was at the Fashion Course on Long Island when the tax man knocked on the door, for it was there that Vanderbilt indulged in the latest phase of his rivalry with Robert Bonner, editor of the
Ledger
, for ownership of the fastest trotting horses in New York. After one race at the course in 1862, “it was whispered that Mr. Bonner would give his mares a trial of one mile,” the
Atlantic Monthly
later reported, “and his appearance on the course in his road wagon, driving the well-known beauties, detained the whole assembled multitude.” Bonner and Vanderbilt's informal heats on Harlem Lane and Bloomingdale Road remained a topic of fascination in horse-mad New York, a city all the more crazed for racing as the wartime boom multiplied the men of leisure. Vanderbilt offered to bet $10,000 that his finest pair could beat Bonner's, but Bonner refused to bet as a matter of principle. Instead, he offered to stage a public time trial.

After the jockeys cleared off the track, the audience watched the Commodore walk onto the turf with a watch in hand. “When Mr. Bonner brought out his team there was a murmur of admiration,” the
Atlantic Monthly
wrote. He started his horses, Lady Palmer and Flatbush Maid, on a fast first mile round the track, then whipped them to an even faster second mile. As Vanderbilt kept time, his competitor drove the team to a speed of 2 minutes and 28¾ seconds per mile, and the crowd roared. “It was entirely unprecedented,” the
Atlantic Monthly
observed. “After learning the time in which his horses had trotted, Mr. Bonner publicly declared that, while it was a rule with him never to make a bet, he would present ten thousand dollars
as a gift
to any gentleman who owned a team, if he would drive them in the time just made.” Vanderbilt took his horses as seriously as he did his business; he would work very hard to earn that gift.
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There was nothing really new about Vanderbilt's day on the Fashion Course, but it hinted at how he and the world around him were coming into closer alignment. On one hand, the old mercantile aristocracy continued to treat him as a worthy business partner but a bit of a vulgarian. His status as a social outsider among the elite has been exaggerated—his poor manners and ignorant speech even more so—yet there was undoubtedly an inner sanctum of patrician life in which he was still not welcome. In April 1860, for example, Strong had informed his diary that he had been asked to join a “committee of twenty which is hereafter to take charge of polite society regulate its interests, keep it pure.… It is to pass on the social grade of everybody, by ballot—one blackball excluding.” The other members included “Hamilton Fish, Anson Livingston, John Astor, William Schemerhorn, and others of the same sort”—but not, of course, Commodore Vanderbilt. “His wealth is unquestioned,” R. G. Dun & Co. had reported in 1860, but “his over-reaching disposition makes people shy of him.”
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On the other hand, Vanderbilt socialized with another set that came rapidly to the fore in the volatile atmosphere of the war years: the aggressive, enterprising, risk-taking “fast men” of Wall Street. These men—Vanderbilt's circle—raced trotters, played whist at Saratoga, and bought and sold stocks with an avidity never seen before.
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The cultural appeal of exclusivity would persist; in some eyes, the social strength of old family names only grew stronger, and new families sought to mingle and marry with them. Still, the economic and cultural reorientation of the Civil War undoubtedly created a sense that new growth was crowding out the old. Dixiecentric cotton merchants declined, and the geographical center of business shifted north. What historian Sven Beckert calls an emerging industrial bourgeoisie was not so much a new class, perhaps, as the triumph of a new
outlook
among the wealthy, one that had long existed but now came to the fore. It was an ease with the abstract economy, the intangible commerce of stocks and bonds and clearinghouse transactions, the impersonal corporations that began to supplant old family firms. This was the mind-set of the rising generation of rich New Yorkers. To them, the aged Commodore would be seen not as a barbarian but as a hero, an esteemed elder who saw far beyond the men of his time. In 1870, for example, when William W. Fowler published
Ten Years in Wall Street
, a memoir of his decade as a player on the stock market, he dedicated the book to Vanderbilt.
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