Monday, November 10, 2014

William Vanderbilt: The Mistaken Robber Baron

William Henry Vanderbilt
The life of Cornelius Vanderbilt was filled with cut throat competition. A man of extraordinary energy, he build two business empires. First was a maritime transport empire. And the second was a railroad empire. Vanderbilt became recognized as a ruthless tycoon, earning the title of robber baron. However, in 1877, he passed away and left his wealth to his eldest son, William Vanderbilt. William was mostly a contradiction of his father. And his life would prove to this fact.

William Vanderbilt was a great railroad tycoon. Known to his close associates as Billy, he was born on May 8, 1821 in New Brunswick, New Jersey. As a boy, he studied in the Columbia Grammar School until 1839. His upbringing, however, was terrible. Although he enjoyed luxury, he never enjoyed his father. His father, the domineering and arrogant “Commodore” Cornelius Vanderbilt, belittled Billy. The Commodore saw Billy as incompetent, weak, and unfit to become his successor. In an attempt to teach the boy about business, after leaving school in 1839, Billy was sent to work in a ship chandler’s shop for a year. In 1840, he worked as a clerk in the Drew, Robinson, & Co. From his work, Billy was able to learn accountancy. Later, he was offered by one of the firm’s partner, Daniel Drew, to become a partner in a new venture. Drew, however, was one of the Commodore’s arch nemesis. Hence, Billy declined the offer under intense pressure from his father.

At the age of 19, late teen age William made the best mistake of his life. At young age, he married Maria Louisa Kissam, a well-off daughter of a good family. This cause dismay to his father who thought that it was untimely and early. The decision reinforced the Commodore’s thought of his son as unworthy to become his heir. As a punishment for his action, the Commodore sent Billy and his wife to Staten Island and live there without support. Billy and his wife left for Staten Island and live by means of using the huge 70 acre land that the Commodore gave them.  

Scorned by his father, William soon proved his father wrong about him being incompetent and weak. He worked hard and made his farm profitable and productive. So profitable that he was confident enough to expand the farm from 70 to 350 acres. In order to do so, he needed to get a mortgage. But his father was unwilling to help him in getting the mortgage. However, William managed to persuade his father and supported him in getting the mortgage later on. When the expansion succeeded, William’s farm became one of the best and most successful farm in Staten Island. His success in running the farm earned him the highly sought respect of his father.

In 1857, the United States underwent an economic recession with the Panic of 1857, several business became unprofitable and most went bankrupt. In Staten Island, the short Staten Island Railroad became a victim of the recession. The railroad faced bankruptcy. William saw the Staten Island as important to the area and for his farm. Also, it was also a chance to show further to his father his capabilities. He then asked for his father for help to make him a receiver and an executive in the Staten Island Railroad. His father supported him and William became part of the railroad company.

His work in the Staten Island became a success story. In the following years after his entry, Staten Island turned around from a bankruptcy into profitability. Much of which was credited for William’s emphasis in good quality and maintenance services. His works in Staten Island further enhanced his relationship with his father.

In 1864, his father became confident enough to give William tougher responsibilities. William became recognized as the Commodore’s heir. On the same year, William was appointed vice president of his father’s Harlem Railroad. A year later, he became also became vice president of the Hudson River Railroad. For a decade he worked with his father for more than a decade until in 1877. On that year, Commodore Cornelius Vanderbilt passed away. All of his wealth and railroad empire fell to William’s hands.

William attained a huge amounts of wealth. He received $90 million of his father’s huge money. Moreover, he gained the presidency of his late father’s railroad empire.

But when William assumed the presidency of the railroad companies, the whole economy faced once again a terrible economic crisis. Four years prior to 1877, the United States was struck by the Panic of 1873. Years of overbuilding the railroads caused for the industry to become saturated. Numerous competition caused for cut throat and unprofitable rate wars. With the Panic, much of the unprofitable rate wars effects became visible. Numerous railroads failed and many took measures to avoid the same fate by cutting wages. Make huge railroad companies like the Erie and Pennsylvania slashed wages, which caused riot among disgruntled workers.

In this time of crisis, William showed a part of himself that was not a hallmark of his deceased father. William was much more sympathetic and respectful towards his workers. A character unseen in his late father. In 1877, much of the railway industry slashed their wages by 10%, Vanderbilt followed the trend. However, his company was spared from the violence of disgruntled workers because Vanderbilt negotiated a deal. He promised to workers that $100,000 would be divided by workers who would refrain from striking or rioting. In addition, he promised that if the profit was good, he would returned the wage back to normal and before the 10% decrease. Most workers agreed. 9,000 of the 11,000 agreed to the deal. And by October of the same year, the wages returned to normal. For Central Railroad, it recorded a profit of $30 million. Vanderbilt managed to keep the Central Railroad afloat during the midst of chaos and depression.

Following his victory in the Central, in 1878, he faced a new challenge. This time, the problem was not from the economy or the railroad industry, but closer to home – his siblings. In 1878, his brother, Cornelius Jeremiah Vanderbilt and two of her sisters contested the will of their father. In accordance to the will of the Commodore, Cornelius J. only received $200,000; and, the two sisters received $300,000 and $500,000. They contested the portion that after each of them received a specific amount, the rest would go to William. A court battle raged for a year until both parties decided to settle. From the settlement, each of William’s eight sisters would receive additional $500,000 and Cornelius J. would annually receive a million dollars for life.

While the lawsuit between the siblings raged, William continued to work on his railroad empire. In 1877, he supported the foundation of the Eastern Trunk Line Association, which aimed to end dangerous rate wars and bring the industry to a much more stable condition. In 1878, Vanderbilt got interest over few railroads. In a deal with Jay Gould, William received large shares of the Michigan Central and Canada Southern Railroad. Later on, he combined the two railroads and became the President. In 1879, William needed more capital to retain the Central from the intense competition in the industry. He sought the help of the Drexel, Morgan, & Co. to sell 300,000 shares of stocks of the Central Railroad. The famous banker and financier, J.P. Morgan, successfully sold the shares to British investors. As reward for his deeds, Morgan asked for a seat in the board of directors of Central Railroad. William agreed and two began a powerful alliance. In 1881, he gained control of the Chicago and Northwestern Railroad and sizable amount of control over the Cleveland, Columbus, Cincinnati, and Indianapolis Railroad. In 1882, William continued to expand his interests. He gain a large amount of shares in the New York, Chicago, and St. Louis Railroad or the Nickle Plate. He also had stocks in the Western union Telegraph Company until 1881, when he decided to sell his stake.

William, however, was not safe from criticism like his father and other business moguls. In October 1882, William shut ed down the mail service that ran across his Chicago Line because it's unprofitable. The press took the issue seriously and criticized William for not taking into consideration the public. William tried to comment on the issue. But In an interview William allegedly said, “The Public be dammed.” But there were many variations to what truly transpired, but Vanderbilt did not really said the praise. What he said is that railroads do not run for public benefit but for profit and if the public wanted a mail service, they needed to pay for it. His comment was misquoted, manipulated, and sensationalized by the media. And from the Public be Dammed comment, William was mistakenly ranked among the Robber Barons.

Because of the issue, William must sell some of his shares in order to appease the public. He sold some of his holdings with the help of J.P. Morgan and made $30 million. He also resigned as President of all his railroad companies but remain as chairman of board of each. He also began to transfer day to day affairs to his sons and his seasoned managers.

After the outcry from the public from the misquotation, in 1883, William’s control over the railroads of New York was challenged. His good relationship with Jay Gould ended. Gould took part in the establishing of the West Shore Line. A line which had exactly the same route as the Central. It threatens the profits and dominance of the Central over the route. In July, when West Shore Line opened for service. Vanderbilt slashed his rates to drive the West Shore into bankruptcy. Within a year, William was successful. However, West Shore Line was bought by a more formidable company – Pennsylvania Railroad. Again, William continued to wage a rate war against Pennsylvania Railroad. For two years, it took a toil to Central. Its profits drop. From 1883 to 1885, profits drop from $33.7 million down to $24.4 million. In order to reduce Pennsylvania Railroad’s profits, he solicited the help of two other great tycoons of his time, Andrew Carnegie and John Rockefeller. He wanted them to build a Southern Pennsylvania railroad to challenge Pennsylvania Railroad’s dominance in the Pennsylvania.

In 1885, the war between Central and Pennsylvania concluded. With both sides tired and weary, the two parties agreed to a settlement brokered by J.P. Morgan aboard his yacht, the Corsair. Central was represented by Chauncy Depew and the Pennsylvania Railroad was represented by George Roberts. From the agreement, Central would purchase the West Shore Line while Pennsylvania Railroad would purchase the planned Southern Pennsylvania Railroad. 

The fight with Pennsylvania, however, would be his last. On December 8, 1885, William Henry Vanderbilt passed away in Staten Island, New York. On his end, he left the Central as one of the most successfully run railroad company and worth $200 million. He left $10 million to his eight children and the rest was divided by his two eldest sons. Before he passed away, he also donated $450,000 to the Vanderbilt University and $50,000 to his Episcopal Church.

William Vanderbilt was less well-known than his father but equal in their achievement. The Commodore was famous for making a railroad empire. But his son was famous for keeping that empire alive and thriving under dire situations. Although he did not inherited the adventurist mind of his father, but he showed a side that his father never did. He showed compassion and respect for his workers and did not engage in predatory competition so much, only with the exception of the fight for West Shore Line. He was mistakenly labelled as a robber baron even though he never deserved becoming one. 

Curley, Robert (ed.). The Complete History of Railroads: Trade, Transport, and Expansion. New York: Britannica Educational Publishing, 2012.

Ingham, John. Biographical Dictionary of American Business Leaders v. 4. Connecticut: Greenwood Press, 1983.

Kohn, George. The New Encyclopedia of American Scandal. New York: Facts on File, 2000.

Witzel, Morgan (ed.). The Encyclopedia of the History of American Management. Bristol: Thoemmes Continuum, 2005.

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