This is the fourth in my series of posts about the five businessmen the History Channel profiled in a terribly inaccurate and un-historical miniseries titled The Men Who Built America. I’m writing these posts in response to several comments and e-mails from TV viewers who have expressed interest in a more accurate version of the story.
Post #4: Cornelius Vanderbilt, Age Thirty-Four to Forty
In last week’s post I described Vanderbilt’s career as a steamboat captain and business manager in Thomas Gibbons’ company. In 1829 Vanderbilt went back into business for himself. He called his new company the Dispatch Line.
Vanderbilt put one of his three boats into service on the Delaware River, hauling passengers between Philadelphia, PA and Trenton, New Jersey. He formed partnerships with several stagecoach companies that could transport passengers from Trenton to New Brunswick, where his other boats would pick them up for transport to various New York area destinations. In offering through passage from Philadelphia to New York he put himself in the middle of a price war with the Union Line, a steamboat line owned by John Stevens and his family.
Stevens was a wealthy landowner and part-time inventor who had tried unsuccessfully to operate a steamship of his own invention in the years before Robert Fulton’s Clermont went down in history as the world’s first successful commercial steamboat. By the time Thomas Gibbons’ lawsuit overturned the Fulton heirs’ monopoly on Hudson River steamboating, several different shipyards were able to build viable steamboats, and Stevens and his family purchased several boats and went into business on a large scale. The Union line had it’s own assets running stagecoaches between the Delaware River and the Hudson, and they were offering Philadelphia-to-New York tickets before Vanderbilt.
The competition between Vanderbilt’s Dispatch Line and the Stevens family’s Union line created some great deals for their customers. Soon a passenger could take a steamboat upriver from Philadelphia, transfer to a stagecoach overland to the Hudson estuary, then transfer to a second steamboat for the final trip to New York; all for a total cost of one dollar.
1829 was also, by coincidence, the year George Stephenson’s steam powered locomotive the Rocket first demonstrated its ability to haul freight and passengers over the Manchester-to-Liverpool railroad Stephenson was building. The railroad went into full operation in 1830.
Stephenson was not the first inventor to put together a steam-powered vehicle that could chug around a track in front of a few witnesses. That honor goes to Stephenson’s fellow Englishman Richard Travithick, who demonstrated his locomotive in way back in 1804. Other inventors experimented with locomotives, with limited success, for the next quarter century. The significance of Stephenson’s locomotive is that it could, and did, actually operate profitably.
A hundred years after the Rocket was first demonstrated Stephenson’s company built an exact replica of the historic vehicle for Henry Ford. It can be seen today at the Henry Ford Museum in Dearborn, MI.
American John Stevens, the founder of the Union Line and Vanderbilt’s bitter rival in the transportation business, was one of the inventors who were trying to make railroading a practical reality when George Stephenson beat them all to the punch. Stevens was investing his time and money in the railroad business long before Vanderbilt showed any interest. As early as 1815 he had obtained a charter from the State of New Jersey to put a railroad between Trenton and New Brunswick; the overland leg of that Philadelphia to New York route. By 1825 he had built an experimental railroad around his large New Jersey estate, and was able to demonstrate a locomotive of his own design.
Vanderbilt, who would eventually become the most powerful figure in the American railroad industry, was still focusing all his attention on the steamboat business. His price war was so ruinous to John Stevens’ business that in 1930 Stevens actually agreed to start paying Vanderbilt to keep his boats out of the Philadelphia to New York routes. Today it’s illegal for anyone but the government to pay companies not to conduct their business (the federal government has been paying certain agricultural companies not to grow their crops since the 1930’s), but in 1830 it was perfectly legal for a businesses to bribe rivals to leave them alone.
Vanderbilt used the money he was getting from Stevens to pay for a fourth boat for his fleet, and concentrated on Hudson River routes.
As a fleet owner, the Commodore always took care to hire and retain competent and reliable captains to operate his vessels. Many of his most dependable captains came from his own family. His brother Jacob, who had captained a sailing sloop for him during his pre-steam days, was a competitor in 1829 and 1830, but Cornelius bought a partnership with him in ’31. Cousin John Vanderbilt operated a steamboat on the Hudson for Cornelius for years.
A steamboat captain named Noah Brooks gave Vanderbilt an opportunity to show how highly he valued his human resources when the Commodore decided to violate convention by operating his boats on Sundays. Brooks, a devout Christian, felt bound by Exodus 20:10 to abstain from work on the Sabbath. Brooks knew Vanderbilt would not be swayed by Bible-based arguments, so when the Commodore announced his seven day workweek Brooks handed in his resignation.
After a while Vanderbilt came to the conclusion that he would rather employ Brooks six days a week than entrust his steamship to any of the other available captains seven days a week. He approached Brooks and offered him a pay raise, and a weekly sabbath break, to come back onto the payroll. Brooks accepted the offer.
This meritocratic attitude toward his workforce was something Vanderbilt shared with all very successful businessmen. Andrew Carnegie once explained his extrordinary success by saying that he’d always been smart enough to hire men smarter than himself.
Advertising pioneer David Ogilvy lectured all his management level employees about the importance of hiring talented people for their departments. “If each of us hire people who are smaller than we are, we shall become a company of dwarfs,” said Ogilvy. “But if each of us hires people who are bigger than we are, we shall become a company of giants.”
Walmart founder Sam Walton, who like Carnegie and Rockefeller rose from childhood poverty to become the richest man in the world, sometimes went to extraordinary lengths to hire coveted employees away from his competitors. When he identified someone as the kind of worker he wanted, he would apply all his legendary salesmanship, along with the inevitable offer of a step up in pay, to pull the human resource away from his competition. In his autobiography he describes one case were he courted a certain talented manager for over a decade, while the object of his attention remained steadfastly loyal to the retailer that had given him his chance in business. When the rival retailer was bought out by a larger company, Walton swooped in with an offer and hired the man away from the big conglomerate.
Getting back to Vanderbilt, in the early 1830’s he deployed his fleet of steamboats, and his roster of hand-picked captains, from New York to points farther up the Hudson River. First he squeezed out the competition on the New York to Peekskill route, then he launched into a price war with a trust called the Hudson River Steamboat Association that had controlled the Manhattan to Albany route. This was long before the Sherman Anti-Trust Act, and it was perfectly legal for a cabal of steamship owners to collude together to devide up the market and keep fares high. The Association offered Vanderbilt a chance to join, but he chose to start a price war with the Association members instead.
John Stevens’ sons, who were still bribing Vanderbilt to stay out of Philadelphia, were members of the Association. By December of 1834 the Stevens family and the other Association members approached Vanderbilt and negotiated yet another bribe for non-competition. They agreed to pay him $50,000 up front and $10,000 per year to stay out of the upper Hudson market for ten years.
These cases of steamboat companies paying a competitor not to do business are something of an anomaly in the history of American business. Nothing like it happened in the careers of Carnegie, Rockefeller, Ford, or any other nineteenth century businessman I’ve ever heard of. And while Vanderbilt was sometimes willing to accept such payments, it’s worth noting that he never offered to make the payments to anyone else. He was probably a good enough businessman to realize that it was a poor strategic move.
Vanderbilt was not one to sit around idle, even when someone was paying him to. While his competitors were bribing him not to do business in the Hudson and Delaware rivers he deployed his ever-growing fleet of steamboats in Long Island Sound and up and down the Atlantic Coast.
In 1833 Vanderbilt took his first ride on a railroad train, on the Camden and Amboy line owned and operated by John Stevens. An axle broke and the car in which Vanderbilt was riding overturned. Two men were killed and several were injured. Vanderbilt suffered three broken ribs and a punctured lung and spent the next several months convalescing, but the bad experience didn’t dissuade him from entering the railroad business a few years later.
Next week’s post will cover Vanderbilt’s early investments in railroading, and his establishment of an ocean-going steamship line.
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