This is the fifth 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. (Click here to see all Al’s columns on the program and its subjects.)
Post #5: Vanderbilt to Traitors: “I Will Ruin You”
In 1835, the year Andrew Carnegie was born in Scotland, Vanderbilt started offering steamboat service up Long Island Sound from New York City to Providence, Rhode Island, in anticipation of the completion of a railroad from Providence to Boston later that year. His competitor for this business was the Boston and New York Transportation Company, which operated six small steamboats in the Sound. This time, instead of launching into a price war, Vanderbilt decided to collude with the competition to keep prices high. He and the B&NY agreed on a price of eight dollars for one way service between New York and Providence.
When the railroad was extended farther south, Vanderbilt and the B&NY shortened their boat routes accordingly.
Over the next few years Vanderbilt kept a close eye on the railroad construction, deftly shifting his routes to avoid competing with the iron horse, and targeting incomplete railroad connections that could be completed by his boats. In 1844 he accepted a seat on the Board of Directors of the Long Island Railroad, his first official connection to a railroad company. Soon after the railroad bought two of Vanderbilt’s boats for use as a connecting link between two railroad sections.
In 1845 Vanderbilt teamed up with investor Daniel Drew to buy a controlling interest in the Providence and Stonington Railroad, which connected with his steamboats from upper Long Island.
By the late 1840’s the Commodore could see that trains would eventually replace steamboats on virtually all of his routes in the Northeast, and he began to sell off his boats to investors less far-sighted than himself. One exception was the Staten Island Ferry, which the Commodore continued to own and operate for several years. (To this day ferries carry all the direct traffic between Staten Island and New York for obvious reasons.)
When the Great California Gold Rush began in 1849, Vanderbilt quickly realized that there was a fortune to be made in transporting people, supplies, and gold bullion between New York and San Francisco. Railroads were not an option; the nation’s east and west coasts would not be connected by rail for another twenty years. Vanderbilt commissioned the construction of several ocean going steamships.
Competitors were bringing their passengers to eastern Panama, guiding them across the isthmus, then picking them up on the western shore for transport up to California. Vanderbilt identified a route about five hundred sea miles shorter, crossing the isthmus in Nicaragua. He formed a publicly traded corporation called Accessory Transit which brought steam powered riverboats to eastern Nicaragua to travel up the San Juan River and across placid Lake Nicaragua, to a point just twelve miles from the Pacific Ocean. A short twelve mile overland trip allowed his customers to board a second steamship for transport to San Francisco. Steamships that Vanderbilt owned under a separate company traveled to Nicaragua from San Francisco and New York, and the steamboats that would operate on the river and in the lake were leased by Accessory Transit from Vanderbilt’s private company.
The San Juan was a dangerous river, full of rapids and rocks, so the fifty-five year old Commodore went to Nicaragua to personally pilot the first steamboat up the river. Vanderbilt was not a timid man; he had a track record of settling arguments with his fists, and captaining his own vessels in all sorts of bad weather, so his macho approach to the problem of San Juan River navigation surprised no one who knew him. Before returning to New York he tasked a team of engineers to make the river more navigable by blasting the boulders out of the worst stretches of rapids.
The riverboats and horse-drawn wagons worked will enough for Vanderbilt to make a million dollar a year profit from his San Francisco line in the short run, but his long range plan was to build a canal across Nicaragua. Meanwhile, doing business in any form required the cooperation of the local government. Instead of offering a flat fee for access, Accessory Transit contracted to pay the Nicaraguan government a percentage of its profits each year, thus giving the government incentive to facilitate the company’s profitable operation.
In 1853 Vanderbilt took his first real vacation. The ship he had built for the occasion was the largest steamship in the world at that time, and cost half a million dollars. He took his whole family and the families of several friends and toured Europe for several months.
When he returned to the US he learned that two of the officers in Accessory Transit had staged a coup of sorts. Charles Morgan and Cornelius Garrison, both board members chosen by Vanderbilt himself, colluded in his absence to take over the company and run it to the Commodore’s detriment. They added several cronies to the board and arranged a vote to make Morgan the president of the company. Morgan then suspended the payments Accessory Transit was supposed to make to Vanderbilt’s privately owned company for the use of his steamboats.
Cornelius Vanderbilt always regarded business deals as sacred. When Morgan and Garrison violated his trust he reacted with rage. He took out adds in several New York newspapers to make his position clear. “Gentlemen: You have undertaken to cheat me. I won’t sue you, for the law is too slow. I’ll ruin you. Yours truly, Cornelius Vanderbilt.”
Step One in the Commodore’s war against Morgan and Garrison was to sell off all his shares in Accessory Transit in preparation for his assault on the company’s business.
He then put his considerable assets to work competing with his two enemies. Leaving Nicaragua (and its unstable political climate) to his rivals, he ran his gold rush steamships to and from Panama. Despite the greater distances involved, his faster ships allowed him to offer passengers a quicker trip between New York and San Francisco. The efficiency of his operations, combined with his deep pockets, allowed him to price tickets at levels ruinous to Morgan and Garrison.
In the summer of 1854 Morgan, as President of Accessory Transit, agreed to pay off all of Vanderbilt’s financial claims against the company. Still not satisfied, Vanderbilt got a court order forbidding Accessory Transit to enter into any contracts with other companies owned by Morgan and Garrison. The resulting plunge in the value of Accessory Transit shares allowed Vanderbilt to buy up a large enough block to take back control of the company and force out Morgan and Garrison in December of 1855. He made himself president of the firm early in 1856.
While all this was going on the political situation in Nicaragua was becoming more and more complicated. In May of 1855 an American-born adventurer named William Walker went to Nicaragua with a small private army, formed an alliance with one of the waring local political parties, and seized control of the country. Garrison and Morgan made a financial arrangement with the new dictator while they were still in control of Accessory Transit.
When Vanderbilt got control of Accessory Transit later that year his enemies quickly formed a new company and persuaded the dictator to seize all the assets of Accessory Transit on land and in Nicaraguan waters and give them to the Garrison and Morgan company. They supplemented this property with a few steamships they legitimately owned and went back into the NY-to-Frisco transportation business.
Vanderbilt asked the US State Government to help him recover the stolen property, but no meaningful help was to be had from that quarter. Left to his own devices, he quickly resumed his economic war. He deployed several Vanderbilt steamships in the Gulf of Mexico, where Morgan was operating a shipping company unrelated to Accessory Transit. Prior to this Vanderbilt had never had business interests in the Gulf, but war is war, and he was determined not to allow any Morgan-owned business to operate profitably anywhere.
Costa Rica had declared war against Nicaragua shortly after William Walker took over the country. When Walker aligned himself with Vanderbilt’s enemies, Vanderbilt aligned himself with Costa Rica, and his support would prove decisive. Armed and funded by Vanderbilt, Costa Rica was able to conquer all of Nicaragua and take Walker into custody by May 1 of 1857.
While the war was going on, the Commodore ran ads in American newspapers warning would-be travelers that Nicaragua was a dangerous war zone. New York to Frisco travelers chose the much-safer isthmus crossing in Panama. Revisiting an old theme, Vanderbilt extorted payments from the companies doing business on the Panama route by threatening to compete with them. In the Gulf Vanderbilt was cutting prices below his operating costs, which were lower than Morgan’s. Morgan and Garrison were hemorrhaging money in every direction.
By December of 1857 Vanderbilt’s threat was a reality. Morgan and Garrison were financially ruined.
Next week’s post will cover Vanderbilt’s entry into the trans-Atlantic shipping business.
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