The First Tycoon: The Epic Life of Cornelius Vanderbilt (76 page)

At half past ten in the morning on Thursday, February 4, not quite two months after the golden gathering, the family again assembled at 10 Washington Place, along with army comrades and friends of the deceased. By one report, George was engaged to a Miss Hawley, on whom the Commodore bestowed a house in upper Manhattan; most likely she attended as well. The funeral procession trailed in black behind teams of horses down to the Staten Island Ferry, rolled onto a boat that steamed across the bay, and drove up the drive from Vanderbilt's Landing to the cemetery, where the statue of Grief presided over the family tomb. “How wavering are the scenes of earth,” wrote Rev. Samuel Kissam, Billy's father-in-law, “our kindred pleasures, too.”

Now, now that circle we behold
In sorrow deep and wide
,
Weeping o'er son and brother cold
,
Long, long their joy and pride—
Embalmed, and ready for the tomb
.

Vanderbilt buried his youngest son. Now he looked to his oldest. William would speak for him not merely on ceremonial occasions, but with the full authority of the Commodore's tens of millions of dollars in his voice. At the next Harlem election in May, Vanderbilt made William vice president of the company. He brought him all the way into Manhattan, in fact, giving him a gift of a house on Thirty-eighth Street, on the west side of Fifth Avenue, two blocks south of the massive stone walls of the Egyptian-style reservoir between Forty-second and Fortieth streets. As dutifully as when William had left East Broadway for the farm twenty years before, he moved his family back to New York, into a house much like its new owner, substantial but unostentatious. “The interior was richly and not showily furnished,” the
New York Sun
wrote, “and the drawing room was surpassed in elegance of decoration and furnishing by hundreds in the city.”
⁷⁶

As for Corneil, he seems to have left George's funeral with a determination to plummet as swiftly as he could.

ON JANUARY 28, 1864
, the Congress of the United States passed a resolution thanking Cornelius Vanderbilt for his “unique manifestation of a fervid and large-souled patriotism,” the gift of the steamship
Vanderbilt
to his country. It further resolved that President Lincoln be requested to “cause a gold medal to be struck, which shall fitly embody an attestation of the nation's gratitude.” Congress may have waited nearly two years before extending its thanks, but its timing was appropriate: it celebrated the finest act in the long career of perhaps the single most important figure in the history of American steam navigation, at the very moment he left the sea behind.
⁷⁷

On the rivers, bays, and oceans, he had acted like a Viking prince, taking his fleet wherever trade or plunder seemed most promising, freely abandoning markets for a price. Railroads, on the other hand, were fixed properties, geographical entities by their very nature—often compared to nation-states by contemporaries and historians. The Commodore understood this intimately, having been involved in the industry for three decades. Though famous as a warrior, he demonstrated statecraft in the New York Central election, offering no hint of aggressive intent.

Diplomacy, unfortunately, did not seem to work on the management of the Hudson River Railroad. “When I first went into the Harlem road, I did not want to have anything to do with the Hudson River,” Vanderbilt said later. “I took the Harlem when it was down to nothing, and I got it up along by degrees; but I found that there was a continual clashing with the Hudson River. I said this is wrong; these roads should not clash.” For one thing, competition between the parallel lines kept fares dangerously low
⁷⁸
For another, their friction could be felt in relations with their mutual partner, the New York Central. Even after the Hudson River's directors failed to oust Corning, they demanded preference in through traffic. It was a conflict made nearly inevitable by the fragmentation of the railroad net into multiple companies. “In a hundred miles,” the
Railway Times
observed, “we have two or three corporations with their conflicting interests, conflicting time tables, and different organizations, likely at any moment to be at war with each other as interest or personal feelings may dictate.”
⁷⁹

Now began the second phase of the founding of Vanderbilt's empire: his campaign against the Hudson River Railroad. He began with an attempt to undermine it by changing the physical railway net itself—by outflanking the enemy in a double envelopment. First, on January 27, the Harlem board authorized him to sell (to himself, if he wished) the additional $2,139,950 in stock approved by the stockholders for the purpose of double-tracking the line to Chatham Four Corners. Second, he threatened to build down the western shore of the Hudson River, filing for incorporation of a line from Albany to the vicinity of New York City And he accepted Daniel Drew's proposal to build a short railroad from a point on the Central's line at Schenectady to Athens, a town on the Hudson River south of Albany where the People's Line steamboats would face fewer weeks of ice each winter. Officially known as the Saratoga & Hudson River Railroad (more commonly as the Athens road), it received a charter on April 15. Vanderbilt took a quarter of the $1.5 million in stock and went on the board with such well-known Wall Street figures as Henry Keep and Azariah Boody with Drew as the president. The two lines would be weapons against the Hudson River Railroad, threatening to strip it of what little freight it received from the Central.
⁸⁰

The Commodore also had a spy among the enemy: John M. Tobin, whom Vanderbilt had hired years before as a fare collector on the Staten Island Ferry. Matthew Hale Smith reported a popular story that, when Tobin first went to work for the ferry, Vanderbilt strictly instructed him to allow no one to ride for free; the first time Tobin saw the Commodore come aboard, he demanded the fare, saying, “No dead-heads on this line” (using the common slang for those who rode boats and trains for free). “Tobin became the delight of the Commodore,” Smith wrote. Tobin later had gone into the liquor business in Manhattan in the 1850s, and was considered to be “of gd [character] & [habits], hard-working & [industrious], careful & reliable,” according to R. G. Dun & Co.

The thin, wiry Tobin turned to stock speculation during the war, and became a flamboyant broker at the Open Board. “He was known to be somehow mysteriously connected with Vanderbilt,” William Fowler recalled. “His style of operating, too, was so bold and so dashing and even reckless… that it quite captivated ‘the boys,’ and they were all agog when Tobin got on his pins and commenced bidding.”
⁸¹
Tobin's connection to Vanderbilt remains just as mysterious now as it was then, but a connection they clearly had; so when Tobin had taken a seat on the Hudson River board on June 8, 1863, Vanderbilt had gained either a puppet or an ally inside the rival corporation.
⁸²

One of the canonical stories of Vanderbilt's life, enshrined in myth by the banker-memoirist Henry Clews, is that he had masterminded a famous corner in Hudson River stock almost simultaneously with the Harlem corner of 1863.
⁸³
There is no evidence for this tale, and it makes little sense. The leader of the Hudson River corner was Leonard Jerome, whom Vanderbilt simultaneously battled in the New York Central election. In December, the Commodore prepared to double-track the Harlem to Albany; why would he plan to pour money into a line with heavy grades if he was buying control of a parallel route, one better equipped and cheaper to operate?

The best explanation of his real actions, and calculations, would come from the Commodore himself on February 5, 1867, in testimony before a legislative committee. As quoted before, he would state that he had been frustrated and irritated by the railroads' conflicts. “I said this is wrong; these roads should not clash,” he would say. “Then, step by step, I went into the Hudson River.” Having weakened it with his outflanking moves, he slowly purchased its stock, quietly maneuvering for control.
⁸⁴

IN 1864, AS VANDERBILT
stepped-by-step into the Hudson River, he continued to direct the Harlem's affairs—none of which were more pressing than the Broadway streetcar line. Despite the municipal grant (and the Harlem's plan to buy the Broadway stagecoach companies), no progress had been made. In October 1863, a judge had ruled that the city had no power to issue its grant. The Harlem would have to go to Albany
⁸⁵

In early March, the railroad asked the state legislature for a bill to validate its rights to a railway in Broadway. Horace Clark led the lobbying effort, taking with him his fellow director, Daniel Drew. The committee seemed agreeable, and Senator John B. Dutcher, the Harlem's champion, prepared a report in favor of the bill. Harlem stock rose to 145. Then a vote was called. To Dutcher's (and Clark's and Vanderbilt's) surprise, the committee issued a negative report. Harlem plunged to 107.

Legislators on either side of the issue muttered charges of corruption against their foes. On March 25, Dutcher raised the issue openly on the Senate floor. “He… denied that those who were here urging this bill had been speculating in the stock, but the speculating in stock was on the other foot,” the
New York Herald
reported. “Those who had been trying to kill this bill had been in Wall Street, to his knowledge, betting great odds that the report would be unfavorable, and had also been selling the stock short.”

So they were. In fact, the inside trading on the committee report marked only the start of a massive attack by “a legislative clique” (as the
Herald
called the conspirators) on the stock value of the New York & Harlem Railroad Company. Following the example of the city councilmen the year before, they plotted to use their lawmaking power to make money by shorting Harlem. The corrupt legislators likely had an inside partner. Pervasive reports circulated in the press that Drew was selling Harlem short.
⁸⁶

Drew's betrayal of Vanderbilt marked a chilling turn in their relationship. Despite Drew's later reputation for treachery, there is no evidence that he ever double-crossed the Commodore over their decades of partnership and friendship. Indeed, they were so close that Drew named his own son after William H. Vanderbilt.
⁸⁷
So why now? Perhaps most perplexing, why did the famously shrewd Drew believe that he could drive down the price of the very stock that Vanderbilt had recently cornered?

One motive is obvious: if he succeeded, there would be a great deal of money in it. But more telling is the fact that, for the first time in more than thirty years, the two men's strategic interests were diverging. As long as Vanderbilt controlled the Harlem alone, he and Drew had a common enemy—a common rival for the New York Central's through freight—in the Hudson River Railroad. But Vanderbilt's creep toward control of the Hudson River presaged a conflict with Drew's steamboat line.

As to why Drew thought he could succeed, there are four likely answers. First, he probably believed, like most of Wall Street, that the Harlem had no hope for prosperity without the Broadway line, and he knew that the legislature held the last hope for such a franchise. Second, the amount of Harlem stock had just increased, which would tend to depress the price. Third, the legislature was considering another bill to allow the Harlem to convert $3 million of its bonds into still more shares; this would cut its debt in half, but further add to the circulating stock.

Finally, in a reflection of the growing complexity of the financial markets, Drew had cunningly refined his method of operations. In addition to selling shares that he did not own, he sold
calls
on shares that he did not own. A call was a contract that gave the buyer the right to call on the seller and buy a certain stock at a certain price within a limited period of time. If Drew sold seven-day calls for Harlem at 125, but the price fell below that figure for the duration of the call, then the holder of the call was certain to forgo his right to demand the stock. Who would insist on buying stock for more than the prevailing price? Drew, then, could make money without having to provide anything. More important, short-sellers used calls as margins to protect themselves from an upturn in the market. (Should the price rise unexpectedly, they could limit their losses by buying in at a preset call price.) Drew's huge distribution of calls, in addition to his own short sales, added momentum to the downward movement in Harlem.
⁸⁸