The First Tycoon: The Epic Life of Cornelius Vanderbilt (34 page)

The rabble and their rousers were not the only Americans who had difficulty grasping the abstractions of the new economy. Most of those merchants and lawyers who paid New Year's calls on Fifth Avenue—not to mention the businessmen in smaller towns and villages around the country—still worked in personal enterprises, owned by single proprietors or small partnerships. Corporations remained so few that the stock exchange traded shares—and bonds—one at a time. The vice president of the Stock and Exchange Board called each one from the chair, brokers on the floor shouted bids and offers, and clerks recorded the trades on a large blackboard. Then they had lunch. Then they ran through the entire list once again.

As early as 1819, Chief Justice John Marshall had expounded on the corporation as “an artificial being, invisible, intangible,” but even corporate officials had difficulty with such abstract thinking. They used “company” as a plural noun, as in, “The company are in renewed trouble for their floating debts.” They saw the corporation as a gathering of individuals, as a kind of partnership—which it usually was, since few were very large or had widely traded stock.
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They placed great emphasis on the “par value” of stock, usually set at $100 per share. This represented the original investment in a company; it was expected that the total value of all its shares would equal the cost of the physical capital—land, buildings, machinery, livestock. A stock certificate might be a slip of paper, but it was thought to represent something real, much as paper currency represented cold, hard gold that could be retrieved on demand from a bank's vault.

With this physical, tangible basis for the price of stock, most investors did not buy in hopes that values would consistently rise, as they would in later centuries; that would have made no sense, since share prices ultimately rested on what it had cost to physically create the company, not how much it earned. They looked instead to a return on that cost in the form of dividends—often referred to as “interest on capital.” Share prices fluctuated, of course, but the most important factor driving them was the size and regularity of dividends. A price over par—above $100—was a premium paid for the certainty of a reliable return. A price below implied risk, uncertainty, even a dread conviction that dividends would never come. (Speculators did gamble on the prices of highly volatile, “fancy” stocks, but these were expected to go up and down, rather than rise steadily and permanently.)

It is easy to dismiss Vanderbilt and Drew's stock operations as mere corruption, as corporate profiteering of a type all too familiar to later generations. Indeed, they
were
corrupt, even by the broad social standards of their own time. When such dealings surfaced, contemporaries scorched these men with abuse, even though no laws prohibited their behavior. Social disdain for Vanderbilt, “illiterate & boorish,” and Drew, the former cattle drover, suffused such commentary.

But it is a mistake to simply adopt the condescension and derision of the contemporary social elite. This view ignores a critical fact: Vanderbilt and Drew's business careers, coming in the first half of the nineteenth century, were acts of imagination. In this age of the corporation's infancy, they and their conspirators created a world of the mind, a world that would last into the twenty-first century. At a time when even many businessmen could not see beyond the physical, the tangible, they embraced abstractions never known before in daily life. They saw that a group of men sitting around a table could conjure “an artificial being, invisible, intangible,” that could outlive them all. They saw how stocks could be driven up or dropped in value, how they could be played like a flute to command more capital than the incorporators could muster on their own. They saw that
everything
in the economy could be further abstracted into a substanceless something that might be bought or sold, that a banknote or promissory note or the right to buy a share of stock at a certain price could all be traded at prices that varied from day to day. The subtle eye of the boorish boatman saw this invisible architecture, and grasped its innumerable possibilities.
¹³

It is important to remember that the corporation originated in mercantilism. Legal historian Morton J. Horwitz describes it as “an association between state and private interests for public purposes.” (The mercantilist character of early corporations led Adam Smith to denounce them as “a sort of enlarged monopolies.”) Over time it changed character until, Horwitz writes, “the corporate form had developed into a convenient legal device for limiting risks and promoting continuity in the pursuit of private advantage.” Eventually it became just another way of organizing a business.
¹⁴

But not yet. In 1848, the corporation was still emerging out of a political conflict over the best way to create commercial facilities for the public good (namely banks and transportation infrastructure—turnpikes, canals, and railroads). Whigs had favored direct government action, from the Bank of the United States to state-owned railroads such as the Michigan Central, or else public-private partnerships, as in the Camden & Amboy Railroad. Jacksonians had wanted to limit government, fearing that “the money power” would capture it to enhance the advantages of the wealthy over their fellow citizens; like Adam Smith, they viewed corporations with a jealous eye. The Panic of 1837 had proved decisive in resolving this debate. In its wake, canals and railroads had failed, discrediting state-owned “internal improvements.” But the need for such public works remained. And so, for all the Jacksonian dread of “stockjobbers,” the task of building railroads and other large projects fell to privately funded business corporations. That created a paradox: the nation's public works, the carriers of commerce and means of travel, were owned by private parties, who operated them for personal gain.
¹⁵
Because of this, Vanderbilt's position as a corporate executive gave him an increasingly public role, one that would grow over time until he became the foremost symbol of this public-private paradox. In the popular mind, that role began not with the Stonington Railroad, but with a far more ambitious enterprise yet to come.

At fifty-four, Vanderbilt could look back on a career of breathtaking leaps of imagination. Steamboats and railroads, fare wars, market-division agreements, and corporations: all were virtually unknown in America when he mastered them. He understood the emerging invisible world far better than those who condescended to him. And this knowledge was about to serve him better than he could have dreamed. He was about to imagine a work of global significance—to create a channel of commerce that would help make the United States a truly continental nation. In the process, a most perplexing collision of public and private interests would embroil him in great-power diplomacy, international finance, and a bitter war between a half-dozen sovereign nations. And it was all because of a frenzy that now began three thousand miles from 10 Washington Place.

IN APRIL 1848
, in the northeastern corner of the great peninsula that extended like a thumb to enclose San Francisco Bay, some two hundred buildings could be counted in the village of Yerba Buena. They included some 145 houses, a dozen stores, and perhaps thirty-five shanties. Clustered in a sandy basin beneath steep hills and ridges, the town formed a convenient port close to the Golden Gate, with the promise of steady growth as Americans trickled into California. To assist that growth, the leading citizens had decided to change Yerba Buena's name to that of the bay—San Francisco. Already the population had risen from around two hundred in 1846 to as much as a thousand.

By the end of May, they were gone. Sand blew through deserted streets. Ships sailed through the Gate, rounded the northeastern corner of the peninsula, and dropped anchor in front of those two hundred empty buildings; then their crews scurried overboard, never to return. Over the previous few weeks, visitors from the upper country had brought rumors of gold near Sutter's settlement of New Helvetia; then men who had panned and dug for gold themselves had brought the yellow evidence to town. “The inhabitants began gradually, in bands and singly, to desert their previous occupations, and betake themselves to the American River,” wrote a resident. “Soon all business and work, except the most urgent, was forced to be stopped.… About the end of May we left San Francisco almost a desert place.”
¹⁶

The craze soon struck Monterey. “As the spring and summer of 1848 advanced,” William T. Sherman recalled, “the reports came faster and faster from the gold-mines at Sutter's saw-mill. Stories reached us of fabulous discoveries, and spread throughout the land. Everybody was talking of ‘Gold! gold!!’ until it assumed the character of a fever. Some of our soldiers began to desert; citizens were fitting out trains of wagons and pack-mules to go to the mines.”
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Nothing could have been more predictable than the rush to the “diggings,” as they were called. Gold was not simply
worth
money—it
was
money. Anyone could take refined gold (and refining was a relatively simple process) to the United States Mint and have it poured into coin. The earth was spitting up cash. Who wouldn't have gone?

In late June, Lieutenant Sherman convinced Colonel Mason that they must visit the diggings in order to report on the find. With four soldiers, Mason's black servant, “and a good outfit of horses and pack-mules,” they journeyed up to the mines. “I recall the scene as perfectly today as though it were yesterday,” Sherman wrote decades later. “In the midst of a broken country, all parched and dried by the hot sun of July, sparsely wooded with live-oaks and straggling pines, lay the valley of the American River, with its bold mountain stream coming out of the snowy mountains to the east.” Along a gravel floodplain adjacent to the river, “men were digging, and filling buckets with the finer earth and gravel,” which they poured into roughly made sifters. Sherman estimated that about four men worked each sifter, and each man earned an average of an ounce of gold—$16—per day, though they often pulled in twice as much. “The sun blazed down on the heads of the miners with tropical heat, the water was bitter cold, and all hands were either standing in the water or had their clothes wet all the time; yet there were no complaints of rheumatism or cold.”

When Mason and Sherman returned to Monterey, they learned that the Mexican War had ended, and California would remain American territory. The troops began to desert by the company, riding to the mountains to take raw money out of the water and the dirt. “Nearly all business ceased,” Sherman wrote, “except that connected with gold.”
¹⁸

It soon became clear just how much business could be connected with gold. Well before the end of the year, men began trickling back to San Francisco to start businesses to serve the thousands who poured off ships that sailed in growing numbers through the Golden Gate. California was one of the most remote parts of the new American empire—as much as six months' voyage from the Atlantic coast around Cape Horn—yet already its residents could see that something enormous had started there, something that would have repercussions far beyond the mountains and the bay.

IN MARCH 1847
,
Merchant's Magazine
had published a survey of the commercial potential of the recently conquered territory of Upper California. “The Indians,” the writer added, “have always said there were mines, but refused to give their locality”
¹⁹

Cornelius Vanderbilt, like most New York businessmen, paid little attention to reports of secret Indian gold. He had other concerns. In 1848, he took over the presidency of the Elizabethport Ferry Company, now paying a 20 percent dividend (that is, $20 per share).
^*1
That same year, Oroondates Mauran died. On March 1, Vanderbilt bought Mauran's shares of their joint enterprises from his estate, buying full control of the Staten Island Ferry for $80,000, along with various parcels of real estate.
²⁰

Before the end of the year, Vanderbilt developed his own health problems. He began to suffer heart palpitations. His heart started beating faster and faster, until “it was impossible to count its pulsations,” Dr. Linsly recalled. “At first these attacks lasted a few hours only. They increased at last to twenty-four hours' duration, and in 1848 Dr. Edward Johnson and I were with him sometimes all night and he was a great sufferer.” Given the state of medical knowledge, Linsly and Johnson likely made things worse. George Templeton Strong for one seriously considered homeopathy as an alternative to conventional medicine, “with emetics and cathartics and blistering and bleeding and all the horrors, the anticipation of which makes the doctor's entry give me such a sinking of spirit.”
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Vanderbilt survived his beating heart, blistered skin, and bleeding veins, only to learn that something strange was going on in the world. Rumors circulated of gold in California—real gold, not a figment of Indian legends. The rumors quickly found their way to the stock exchange, where brokers sucked in all commercial information, good or bad. With his ear to the Street, or at least to Nelson Robinson's lips, Vanderbilt would have heard the stories early on. On December 5, 1848, President Polk formally announced the discovery in his annual written message to Congress. “The accounts of the abundance of gold in that country are of such an extraordinary character as would scarcely command belief,” he reported, “were they not corroborated by the authentic reports of officers in the public service.” Horace Greeley proclaimed in the
New York Tribune
, “We are on the brink of the Age of Gold.”
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