The Historian's Perspective
Cornelius Vanderbilt, photograph ca. 1865 (GLC05151)
Robber Barons or Captains of Industry?
by T.J. Stiles
On February 9, 1859, Henry J. Raymond, editor of the New York Times,
said something strange about Cornelius Vanderbilt.
Raymond didn’t like Vanderbilt, a steamship tycoon with such
a vast fleet that he was known as the Commodore, then the highest rank
in the U.S. Navy. In an editorial titled, “Your Money or Your
Line,” Raymond blasted him for taking a large monthly payment
from the Pacific Mail Steamship Company, in return for Vanderbilt’s
foregoing competition on the sea lanes to California.
“Like those old German barons who, from their eyries along the
Rhine, swooped down upon the commerce of the noble river and wrung tribute
from every passenger that floated by,” Raymond wrote, “Mr.
Cornelius Vanderbilt . . . has insisted that the Pacific Company should
pay him toll, taken of all America that had business with California.”
Though Raymond never used the exact phrase “robber baron,”
his editorial is the first known use of the metaphor in American journalism.
It has become an enduring description of the industrial moguls of the
nineteenth century. It conjures up visions of titanic monopolists who
crushed competitors, rigged markets, and corrupted government. In their
greed and power, legend has it, they held sway over a helpless democracy.
But here’s the strange part: That’s not what Raymond meant.
He compared Vanderbilt to medieval robber barons because he preyed upon
monopolists. Pacific Mail had total market control of the sea lanes
to California, and it bought off Vanderbilt in order to preserve its
monopoly. Raymond attacked the Commodore for pursuing “competition
for competition’s sake; competition which crowds out legitimate
enterprises.” To the editor of the New York Times in
1859, Vanderbilt was a robber baron because he was a challenger, a spoiler—almost
the opposite of the current meaning of the term.
So how did the definition of “robber baron” change from
Raymond’s to our own? The simple answer is scale. Starting
in the middle of the nineteenth century—even as Raymond wrote
“Your Money or Your Line”—the first truly large enterprises
began to emerge. The rise of big business reshaped not only the economy,
but politics and culture as well.
A few key individuals played a leading role in this process. Condemned
as robber barons or praised as captains of industry, they helped to
invent the giant corporation and became the focus of the modern debate
over opportunity and equality, over the power of private enterprise
and the role of government regulation.
The Making of a Commodore
The life of Cornelius Vanderbilt offers a convenient guide to both the
impact of these titans and the controversy that surrounded them. For
one thing, his career lasted through most of the nineteenth century.
Born on a farm on Staten Island in 1794, during the presidency of George
Washington, he lived long enough to make deals personally with John
D. Rockefeller and leave Andrew Carnegie and J.P. Morgan hungering for
his business. For another, he himself was at the forefront in creating
the first large enterprises, which first appeared in his industry, transportation.
Vanderbilt’s early decades as a regional steamboat manager and
entrepreneur help explain Raymond’s curious use of the robber-baron
metaphor (curious to our ears, that is). Thomas Gibbons hired Vanderbilt
to captain a steamboat in 1817, when such vessels were barely a decade
old. With relatively few banks and only infant financial markets, the
economy was ruled by unspecialized general merchants. In keeping with
the eighteenth-century belief in a natural social hierarchy, a few patrician,
land-owning families provided leadership in all areas of public life—politics,
business, and society. In fact, New York’s state constitution,
which went into effect in 1777, established a three-tiered system of
citizenship, with escalating property requirements for voting; only
those in the top bracket of wealth could cast ballots for governor and
the state senate.
Gibbons challenged that system through a business and legal battle against
a New York state monopoly on steamboats. In 1798, the legislature had
granted the monopoly to Chancellor Robert R. Livingston, head of one
of the most prestigious patrician families; though he had shared it
with inventor Robert Fulton, he passed it down to his descendants as
a hereditary right. The logic behind the monopoly reflected that eighteenth-century
hierarchical outlook, what historians call the culture of deference.
The orderly development of the economy, the state legislators believed,
should be directed by the patrician class; New York needed steamboats,
so it turned to one of its leading families to provide them, in return
for a monopoly.
Gibbons attacked the monopoly because of a personal vendetta against
Aaron Ogden, a former governor of New Jersey who was licensed to run
a steam ferry between New York and New Jersey. With Vanderbilt in charge
of the boat, Gibbons punished Ogden in business, even as he brought
a legal challenge to the U.S. Supreme Court. “Gibbons runs an
elegant steamboat for half price . . . purposely to ruin Ogden,”
wrote one aristocratic observer. “Ogden has lowered his price
and now Gibbons says he will go for nothing. Did you ever hear of such
malice in this enlightened age?” Though “malice” seems
like an odd word for offering better service at lower prices, it speaks
to the patrician mindset. Competition was a new thing on the American
scene, and the old landed elite did not welcome it. They saw it as a
destructive force, plain and simple.
Gibbons won the court battle in 1824 when Chief Justice John Marshall
ruled that states could not erect barriers to interstate commerce, in
Gibbons v. Ogden. Ogden went to debtor’s prison, and
Gibbons himself died in 1826. Vanderbilt soon emerged as a steamboat
proprietor in his own right. He concentrated on the main artery of trade
as it shifted across the landscape—always with one end in New
York. When the Erie Canal opened, he competed between New York and Albany;
when textile mills began to sprout in New England during the industrial
revolution, he switched to Long Island Sound, on the route to Boston.
Everywhere he went, he was feared as the most effective competitor,
one who either destroyed his enemies or extracted a ransom in return
for leaving a market. As one businessman wrote to a partner about Vanderbilt,
in contemplating who might prove to be an ally or a rival, “I
confess if we are to be opposed I’d sooner have him with
us, than against us.”
Conservative members of the Whig Party sometimes condemned such competition,
just as the old patricians had. They desired rapid economic development,
but believed that it should be guided and assisted by the government.
Jacksonian Democrats, on the other hand, praised competition, upholding
aggressive self-interest in the marketplace as a matter of individual
liberty. This was an era of increasing democratization, as suffrage
was being granted to all men (though usually only white men), regardless
of their wealth. The principle of individual equality—of competitive
individualism—infused the Jacksonians’ view of everything.
In their eyes, government involvement in the economy only served to
grant special privileges to favored (usually wealthy) men, which created
an artificial aristocracy, the antithesis of democracy.
When Henry J. Raymond of the New York Times condemned Vanderbilt
in 1859 for competing against “legitimate enterprises,”
he wrote as an old Whig (though the Whig party had disappeared by then).
He saw Pacific Mail as a virtuous example of Whig values: Though privately
owned, it had been organized to fulfill a federal plan to guarantee
regular communications between California and the rest of the United
States, and received a federal subsidy in return for carrying the mail.
The irony is that the California steamship business itself helped change
the American economy in ways that would make Raymond’s views seem
obsolete within just a few years.
When the California Gold Rush began, Vanderbilt abruptly left the
regional transportation market around New York and competed in this
oceangoing steamship business. Even though the federal government subsidized
his competitors (Pacific Mail and its partner, the U.S. Mail Steamship
Company), he built steamships to run on both the Atlantic and Pacific,
which connected via a transit route across Nicaragua, farther north
than the established crossing in Panama. In 1851 he inaugurated the
line, offering lower fares and a faster passage. He again proved himself
a consummate competitor, and swiftly earned a fortune.
When the Nicaragua route was closed by a war in 1856, Pacific Mail
and U.S. Mail paid him the large monthly fee discussed by Raymond to
prevent him from competing by way of Panama.
These California steamship lines gave Americans a glimpse of the future
of big business. They stretched for thousands of miles, with stations
in distant countries. When they fought each other, the repercussions
were felt by hundreds of thousands of travelers, California residents,
and businesses. The demands of these enterprises also fed other industries.
For example, Vanderbilt purchased (and expanded) a major shipyard and
steam-engine works in New York.
Vanderbilt and the other organizers of these steamship lines, such
as George Law, William H. Aspinwall, and Marshall O. Roberts, became
household names in the 1850s. And yet, with the exception of Vanderbilt,
none are remembered today. For one thing, the steamship lines were soon
eclipsed by the transcontinental railroads—the first being completed
in 1869. And the railroads, broadly speaking, far surpassed shipping
as true examples of big business.
Except in geographical extent, the California steamship lines could
not match the largest railways in terms of numbers of employees, volume
of business, capital requirements, or almost any other measure. And
it was the railroads that, directly or indirectly, gave rise to the
most famous captains of industry (or, if you prefer, robber barons).
Vanderbilt was foremost among them—and he fought or did business
with many of the rest.
The Railroad King
In 1863, amid the turmoil of the Civil War, Vanderbilt began to sell
off his steamship interests in order to buy large amounts of railroad
stock. The younger brokers on Wall Street mocked him, refusing to believe
that the old Commodore knew anything about the nation’s most dynamic
industry. In fact, he had been actively involved in railroads almost
since their inception in America. His steamboats had connected with
New England’s early railways, and in 1847 he had seized the presidency
of the Stonington Railroad, a strategic line in Rhode Island and Connecticut.
During the 1850s, he helped to save the endangered Erie Railway and
New York & Harlem Railroad (better known as the Harlem), lending
them money and helping to restructure their debt. When he took the presidency
of the Harlem in 1863, then, he drew upon deep experience with the stock
exchange, corporate finance, the railroad industry, and this particular
line.
In some respects, Vanderbilt became the greatest railroad tycoon of
his era almost by accident. At the age of 69, he simply wished to show
that he could turn a nearly bankrupt railroad into a thriving company.
But the fragmented nature of the railroad system—a vast net of
small lines, each built to serve a local community rather than a national
network—led to one conflict after another. In each case, he would
pursue diplomacy with a connecting line, seeking an amicable agreement;
the attempt would fail, a business conflict would ensue, and Vanderbilt
would triumph, ending the war by purchasing control of the neighboring
railway.
After he assumed the presidency of the Harlem in 1863, he ran into trouble
with the neighboring Hudson River Railroad. He took control of it in
1864, which gave him a monopoly on the railways that entered Manhattan.
In January 1867, concluding a long struggle, he seized the New York
Central after stopping all trains over the Hudson River at Albany, an
act that largely severed New York City’s connection to the rest
of the country (albeit only briefly). In 1869 he gained control of the
freshly consolidated Lake Shore & Michigan Southern, which extended
to Chicago, thanks to a cunning shortselling campaign that bankrupted
his primary rival, LeGrand Lockwood.
Only one major campaign failed: his attempt to corner stock in the
Erie Railway in 1868. Vanderbilt wanted to punish his old friend and
rival, Daniel Drew, who had betrayed the Commodore and his allies on
the stock market. The resulting conflict came to be known as the Erie
War. Drew, the treasurer of the Erie Railway, allied himself with new
members of the board of directors, particularly Jay Gould and Jim Fisk.
As Vanderbilt bought Erie stock, Drew sold it short. Then the Erie board
flooded Wall Street with fresh share certificates of dubious legality.
A famously corrupt judge, George Barnard, issued arrest warrants for
the directors, prompting them to pack up the Erie corporate files (and
funds) and flee to New Jersey. Gould visited Albany, New York’s
capital, with a suitcase full of greenbacks and checkbooks—which
convinced the suddenly enriched state legislators to legalize the new
shares. But Barnard kept his arrest warrants out, so the Erie board
had to compromise with Vanderbilt. The company restored his losses on
the stock exchange; in return, Vanderbilt asked the judge to lift the
warrants and allow the Erie directors to return to New York.
This was a critical episode in the making of the modern notion of
the “robber baron.” For very good reason, the Erie War came
to symbolize the rampant corruption wrought by the enormous new railroad
corporations. Yet closer inspection reveals the nuance behind the historical
stereotype. Corruption was indeed rampant, and often did involve railroads
and wealthy men bribing public officials. Yet it also came in the form
of extortion by officeholders, who threatened to pass harmful laws unless
corporations paid off the legislators. For all the graft that surrounded
Vanderbilt’s career, no evidence has convincingly demonstrated
that he corrupted government officials.
The Erie War also suggests why robber barons (or, if you prefer, captains
of industry) loom so large in the popular imagination: through such
dramatic episodes, they personalized the very process of depersonalization.
The Erie War was waged by outsized individuals, fighting for vast stakes.
Yet the weapons, the battlefield, and the prize itself reflected the
rising institutionalization of the emerging corporate economy. Vanderbilt,
Drew, Gould, and Fisk fought with securities—stocks and bonds—traded
on a formal exchange, financed by large banks, in order to gain control
of a massive, bureaucratically managed enterprise. They made dehumanization
human.
Of course, these individuals were indeed important. They made decisions
that affected the lives of millions. Vanderbilt in particular spanned
a long period of economic history, from an age of individual proprietors
and small partnerships, to a corporate world of anonymous investors
and multi-tiered professional management. As one of the most successful
businessmen during this transformation, he attained disproportionate
wealth and influence. To paraphrase an old cliché, he was in
on the ground floor—and as the building rose, he stood atop the
roof all the way, giving directions as it was built. Ironically, this
new corporate structure was not dependent upon individuals, as the old
society had been. Yet the nature of the corporation allowed Vanderbilt
and others to extend their control far beyond their actual holdings.
As the "Railroad King" (to use the newspapers' nickname for
Vanderbilt), he took a series of dramatic steps that reshaped the railroad
industry. He consolidated smaller lines into some of the first giant
corporations in American history—capitalized at levels that dwarfed
entire industries at the time. With his son William Henry Vanderbilt
as his operational chief, he rationalized the organization of his companies,
and brought in professional managers. He introduced new efficiency into
the nation’s transportation system, lowering costs and building
key new infrastructure. The New York Central & Hudson River Railroad
paid steady, healthy dividends to investors, even during the depression
that began with the Panic of 1873. As the Railroad Gazette
wrote of him after his death in 1877, “His early career as a railroad
manager was distinguished by a series of bold, startlingly revolutionary
measures which attracted universal attention and had an effect reaching
far beyond the lines and companies with which he dealt directly. The
Vanderbilt era was the first great era of consolidations.”
Captains of Industry
As the nation’s first big business, railroads occupied the center
of the economy, a driver of demand and shaper of strategic interests
of other enterprises that gave rise to the classic captains of industry.
In Cleveland in the 1860s, a pious young bookkeeper named John D. Rockefeller
Sr. formed a petroleum-refining business with partner Henry Flagler.
They called it Standard Oil. Using some of Vanderbilt’s own competitive
tactics—driving down prices and buying out competitors—they
began to dominate the young oil industry. Relations with railroads,
which shipped oil, were a primary concern. Rockefeller worked closely
with the Commodore and his son to maintain healthy relations and obtain
preferential rates.
Railroads were even more central to Andrew Carnegie’s career.
A famously penniless immigrant from Scotland, Carnegie rose through
the ranks of the mighty Pennsylvania Railroad as the protégé
of Thomas A. Scott, first superintendent and then vice-president of
the company. Scott and J. Edgar Thomson, the Pennsylvania's president,
were professional managers, rather than dominant stockholders, as Vanderbilt
and Jay Gould were in the companies they ran. Though they were excellent
executives, they also developed a variety of methods to skim money out
of the Pennsylvania’s transactions. They often demanded stock
in companies that contracted with the railroad, and sometimes routed
business through shell companies that they personally controlled.
Carnegie got his start as an entrepreneur with a series of enterprises
that fed the Pennsylvania’s voracious demands, from sleeping cars
to bridges to iron, obtaining contracts through such pay-offs and his
personal relationship with Scott and Thomson. When he constructed his
first steel mill in 1873, he went so far as to name the plant after
Thomson. Yet he had learned his lessons well: He made sure that the
steel company was a private partnership, and kept a close eye on the
various managers. He did not want anyone to profit off his own firm
as his mentors had from the Pennsylvania.
J.P. Morgan, too, rose with the railroads. Born into a banking family,
he spent much of his career as a banker to the railways, serving as
advisor, organizer, and financial agent. Throughout the nineteenth century,
railroads continued to be the most capital-intensive (and thus most
capital-hungry) companies in America, so the great financial houses
were largely devoted to serving their needs. Morgan helped to reorganize
and rationalize burgeoning industries, restructuring railroads to end
destructive competition and fostering such giants as General Electric
and U.S. Steel. He helped to move big business out of the age of the
pioneering titans and into an era of institutionalization.
Ironically, Morgan helped inspire the single most important, and lasting,
federal intervention in the economy. “When a panic started in
New York in 1907,” writes biographer Jean Strouse, “he led
teams of bankers to stop it.” And stop it he did. But his very
success made Congress painfully aware of the level of influence held
by this private individual, and of the vulnerability of the financial
system. The result was the creation of the Federal Reserve, America’s
central bank.
The Birth of Regulation
Vanderbilt, Carnegie, Rockefeller, and others are often remembered as
monopolists, yet they radically lowered prices. As early entrants into
their markets, they fought their way through chaotic competition by
strictly controlling costs and increasing efficiency at every step.
By making transportation, steel, and oil far cheaper and more widely
available, they contributed to the rapid growth the American economy,
and the creation of tremendous wealth.
Not everyone was happy with these developments. The rise of large companies
also gave rise to a new class of lifelong wage workers (by contrast
with earlier generations, which had anticipated owning their farms or
shops). Unionization and strikes increased rapidly after the Civil War.
Starting in the 1870s, workers demanded laws to limit the workday to
eight hours.
Farmers, too, felt helpless before the railroads—“the greatest
and most powerful monopoly on the face of the earth,” in the words
of one orator. “They let the public feel their power in the fuel
of their kitchens, the bread of their bodies, the material for their
houses.” Cheaper transportation integrated the national marketplace,
putting farmers in distant regions into direct competition with each
other. And railroads gave discounts to large, long-distance shippers;
farmers who sent their harvest and livestock over short distances to
local markets resented paying a higher rate per mile.
As with workers’ demands for eight-hour laws, agrarian radicals
wanted government action. One council of Grangers declared, “We
hold that a state cannot create a corporation that it cannot thereafter
control.” Another speaker said, “The time would come when
the management of the roads must fall into the hands of the public.”
This call for public regulation, even ownership, marks a major shift
in politics. Gone were the days when Jacksonian radicals wanted the
government to stay out of the economy, to allow individuals to rise
on their merits. Now those on the left embraced government intervention
as a means of countering the new power of large corporations, which
towered over the economy as no businesses had before the Civil War.
It took decades for this kind of regulation—especially federal
regulation—to emerge. Yet even before the death of Cornelius Vanderbilt
in January 1877, the modern argument over private enterprise and the
role of government had clearly emerged. In a sense, it does not matter
whether one sees Vanderbilt and his peers as robber barons or captains
of industry; it is the fact that we argue about them as one or the other
that matters most. They not only changed the way we live—they
changed the way we think.
T.J. Stiles is the author of The First Tycoon:
The Epic Life of Cornelius Vanderbilt, winner of the 2009 National
Book Award for Nonfiction and the 2010 Pulitzer Prize for Biography,
and Jesse James: Last Rebel of the Civil War, winner of the
Ambassador Book Prize and the Peter Seaborg Award for Civil War Scholarship.
For a list of books and websites
about Cornelius Vanderbilt, Andrew Carnegie, and other "Captains of Industry," visit our
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