The First Tycoon: The Epic Life of Cornelius Vanderbilt (82 page)

In early 1866, the railroad again needed money. Drew offered it, but he demanded Erie securities as collateral. The Erie (that is, Drew in his role as company treasurer) gave him (that is, Drew in his role as private speculator) 28,000 unissued shares created under a state law of May 4, 1864, along with $3 million in bonds that could be converted into stock at the holder's option. In return, Drew loaned the railroad a little less than $3.5 million. He then sold huge quantities of Erie stock at 90, on contracts that required him to deliver around the beginning of June. He steathily converted his bonds into stock, and on May 29 took all 58,000 shares out of his safe and threw them on the market. What he had sold at 90 instantly fell to 57½. Erie stockholders sold off in a panic, and Drew bought back his collateral for far less than he had sold it. It was “an operation,” Charles F. Adams Jr. later wrote, “which was at the time regarded as a masterpiece.”
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Throughout this highly profitable maneuver, Drew had faced one potentially fatal danger: his friend and fellow director Cornelius Vanderbilt, who was a creditor of the railroad and very much wanted it to clean up its finances. (A year earlier the Erie board had voted a dividend “against the remonstrance of Commodore Vanderbilt,” according to the
Chicago Tribune)
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If Vanderbilt had turned his mighty fortune against Drew's bear campaign, it would have been far more risky, perhaps even catastrophic.

But Vanderbilt did not oppose his old friend. Did Drew make a bargain with him? It is impossible to know. What is known is that Drew suddenly called a halt to the battle between his paddlewheelers and the Hudson River Railroad on June 1. When John M. Davidson, one of Drew's partners, sent runners to the railroad stations to call out the lower fares on the boats, a messenger “call'd to see me,” Davidson wrote to Corning, “and says, Drew says it must be stopped. Of course we understand Drew. He wants the fight to go on, but dares not show his hand, from fear of Vanderbilt.” At some point in 1866, Drew also agreed to cease running his boats to Athens. Taken together, these two facts sound very much like Vanderbilt's price for leaving Erie stock alone.
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Richmond's vulnerabilities were strategic. He needed Vanderbilt's cooperation to settle a ruinous rate war with the other trunk lines. William Vanderbilt and James Banker joined Richmond in peace talks with the Pennsylvania, the Erie, and the Baltimore & Ohio on May 2 in Buffalo and May 22–23 at the St. Nicholas Hotel in New York. The negotiations produced a cartel—one of the “largest and most sophisticated cartels ever attempted in American business,” in the words of Alfred D. Chandler Jr. The trunk lines agreed to a schedule of rates; to end the special pricing represented by drawbacks and rebates; and to put themselves under the authority of Samuel Sloan as trunk line commissioner. He would receive a salary of $10,000 a year and have the power to fire any employee of any company who undercut the agreed rates.
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Despite the happy cooperation between Richmond and the Vanderbilts in the creation of this cartel, tensions between them continued to rise. William, for example, discovered “hundreds of instances” in which freight specifically consigned to the Hudson River Railroad was reconsigned in the Central's offices to the People's Line.
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Rather than continue to fight over these petty but intractable issues, Richmond proposed a bold solution. One day in May, he suggested to Horace Clark that the Central consolidate with the Hudson River into one super corporation.
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“I do not see how it is practicable,” Clark said. “To propose a law to consolidate the Hudson River and the Central roads would shake the State to its centre, because everybody would say that it was an attempt to increase the power of the railroad monopoly.” Clark's observation speaks to the political sensitivity that pervaded Vanderbilt's circle. Though railway corporations did indeed wield great influence (the Pennsylvania especially deserved its reputation for overshadowing its state legislature), they also operated under the eye of a cynical and suspicious public. In New York, they were influential, but not all-powerful. The Central labored under statutory restrictions on fares and faced repeated proposals in the legislature for further restraints. Many considered it to be dangerously large as it was.
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Richmond did not argue the point. He wryly observed, “Railroads can lease other roads. I wish you would talk with the Commodore about it, and see what he will do.” Richmond and Vanderbilt met to discuss the matter in person. “Mr. Richmond expressed himself that he was very anxious that these roads should be one,” Vanderbilt recalled. “We talked it over a number of times afterwards, and finally he got me to thinking of the thing. He talked then about a lease.”
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He got me to thinking of the thing:
what Richmond proposed would smolder in the Commodore's mind, until, under the right conditions, it would flare spectacularly into fruition. For the time being, he rejected consolidation for the reasons Clark enumerated. And yet, surprisingly, he agreed to consider a lease of the Hudson River and the Harlem to the New York Central. In retrospect, Vanderbilt's openness to virtually abandoning his railroad career—a career that later went on to such triumphs—is stunning. It obliterates any notion that he harbored long-term plans for monopolizing New York's railways. Rather, he thought he would be content if his business peers accepted that he had successfully reformed his two companies, especially the Harlem.
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With lease talks under way, Richmond made his own conciliatory gesture by agreeing to lease the troublesome Athens railroad. Thus Vanderbilt would receive a return on his “foolish” investment, along with the satisfaction of seeing the line shut down, its threat to the Hudson River road ended for good.
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So much for Drew and Richmond; but there remained Henry Keep. To him, Vanderbilt and Richmond's gestures of peace looked like acts of war. Bearded and brooding, Keep had kept silent during this intricate game, but he felt badly used by the Athens lease agreement. “A dispute or misunderstanding arose as to the terms upon which it should be leased, and out of that misunderstanding it is supposed that some of difference of opinion arose between Mr. Vanderbilt and Mr. Keep,” Clark said. The Commodore himself remarked, “That Athens business is a matter which I suppose Mr. Keep does not feel well towards me about.”

No, he did not. Keep coldly told Banker “that he would have revenge against Mr. Vanderbilt if it cost him half he was worth.”
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SARATOGA, WROTE A CORRESPONDENT
for the
New York Tribune
, was a place of “huge dining halls with long walls of staring white… ball-rooms with the same shadowless surfaces, with blinding glare of gas, and stifling atmosphere of odors.” The writer thought the only remnant of the elegant Saratoga of old to be the aristocratic Cubans who flocked to the Springs each summer. The rest were vulgar climbers. “From 8 o'clock till 11 there streams into the dining room a constant procession of over-dressed women, of flippant and loud-tongued men,” the reporter continued.

These fashionable young ladies audibly comment on the costumes of their neighbors, audibly snicker—I beg pardon of a polite world, but it is exactly what they do—at a toilet a little less fashionable, at a complexion a little less fair, at manners a little more rustic than their own. They paint and powder to a degree which arouses in one a desperate longing to get all of them under a pump.
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How like the reporting of the 1830s and ′40s this was. Saratoga had been the scene of social climbing since the collapse of the hierarchical culture of deference. The ladies' snickers were a testament to the triumph of democracy—for without inherited distinctions, social rank had become a battefield. Yet it was also true that, after the Civil War, a new elite was surpassing the old patricians in riches and in extravagance, and that Saratoga no longer remained the sole summer center of fashion. As the
New York Herald
had observed in 1865, “Newport seems to have become by common consent the watering place
par excellence;
and there wealth, fashion, rank, and beauty… have formed a colony, and consider it their summer home.” In May 1866, in a symbolic bit of destruction, fire destroyed Saratoga's far-famed Congress Hall hotel, built in 1812.
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But the Congress Hall would rise again, for Saratoga had not yet lost its supremacy as the nation's premier summer resort. Vanderbilt returned in 1866, as he had for at least three decades. This year, Saratoga chattered about his latest purchase, a six-year-old trotter named Mountain Boy. “I thought him the best horse of his age I ever saw,” Vanderbilt later wrote, worthy of his estimated price of $14,000.
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And Saratoga remained Wall Street's favorite haunt. “At other watering places, they
talked
stocks; at Saratoga they
bought
and
sold
them,” William Fowler wrote in 1870. “Little knots of dealers stood in the piazzas of the United States Hotel, the Union, and the Congress, and traded in Erie and Harlem. The great pulsations of the heart-financial, 180 miles away, throbbed here through the telegraphic wires.”
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In the summer of 1866, these clusters of brokers murmured stories that the Commodore's and Richmond's enemies had formed a coalition to take control of the New York Central Railroad at the December election.

The first element in this alliance was Corning, who wished to return to power in the railroad he had helped create. The second element was American Express, as embodied by William G. Fargo, the Buffalo businessman who had founded it (in addition to Wells, Fargo & Co.). Express companies had existed for decades, carrying expensive, high-priority items—especially money, for this was an economy that relied heavily on cash. They paid railroads rent to allow their messengers and safes to travel in the baggage cars of trains, though they often secured their routes by giving railway presidents shares in their companies—shares that were not publicly traded and paid double-digit dividends. Vanderbilt, impervious to this bribery, squeezed them to pay more to the Harlem and the Hudson River. “The directors of the [American], Adams Co. & United States [express companies] held a meeting to devise some means to break down the present prices charged by Vanderbilt & Co.,” John M. Davidson reported to Corning on June 19. “The whole thing may end in smoke, but at present it looks like a fight.” Already Fargo, on behalf of American Express, was buying Central shares in preparation for the December coup.
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So was Henry Keep, the third and most important party in the plot against Richmond and Vanderbilt. Keep, who turned forty-eight on June 22, was a powerful, if silent, figure on Wall Street. Orphaned at the age of twelve, he had served as an apprentice to a Joseph Grimmonds in Adams, New York, near Lake Ontario and the Canadian border. After five years, Keep ran away; Grimmonds posted a notice in the local newspaper, announcing, “All persons are forbid trusting him.” He became a teamster on the Erie Canal, then began to buy and sell bank notes and bills of exchange, and finally became a banker. He forged a connection with LeGrand Lockwood of the banking and brokerage firm Lockwood & Co., and together they manipulated the stock of the Michigan Southern & Northern Indiana, one of the Central's links to Chicago. Thickset with a thick beard, Keep rather resembled General Grant, not only in appearance but in his taciturn manner as well. As Fowler wrote, Keep kept “an open countenance but thoughts concealed, a still tongue but a busy brain.”
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Keep served as leader of the alliance. He was a past master of stock market battles; more than that, he had a personal vendetta against the Commodore, whom he saw as the real power behind Richmond. Keep, too, traveled to Saratoga that summer, and though he famously kept his mouth shut, word of his plot found its way to the ears of John Morrissey The prizefighter operated a kind of clearinghouse for “points” (as stock tips were called) in his Saratoga gambling saloon. “He (M) told us last night Keep and his party had control of all the Central stock here & they had arranged to carry it,” wrote G. C. Davidson, brother of John, “and [Keep had] gone to Europe to be gone till the Fall. He says they are in earnest and want to out the present directors.”
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Translated from Wall Street jargon, this meant that Keep and his allies had bought a majority of the shares and proxies held in New York, and had done so on credit. (To “carry” a stock was to hold it on margin.) Keep sailed for Europe to deceive Richmond and Vanderbilt as well as to buy up proxies for shares held in London.
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Keep did not fool the Commodore, but Vanderbilt responded in two starkly different ways. As a private investor, he limited his personal exposure. “I said, ‘I will not own any of this property where it is owned by such a set of men,’” he later testified. “I sold out.” On July 30, after the payment of dividends, he sold all of his 6,500 Central shares. As a railroad president, on the other hand, he behaved as if it were irrelevant who ruled the Central. As he often said, “I think the Hudson River Road can take care of itself.” Perhaps he thought that Richmond might survive after all. But he did not.
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“The announcement of the death of Dean Richmond creates a profound sensation in this city,” wrote an Albany correspondent for the
New York Times
on August 27. The railroad president, so long a titan in New York business and politics, had fallen ill at the Manhattan home of lawyer Samuel J. Tilden, and unexpectedly died. “He was sometimes abrupt in his manners,” the New York Central directors declared in their official tribute, but “he never betrayed a confidence reposed in him and never practised deception.”
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Those qualities explain why he and Vanderbilt liked each other so much.