The 2 Industries in Which Vanderbilt Made His Fortune

A shrewd visionary who seemed to have an uncanny knack for predicting the direction of the economy Cornelius Vanderbilt amassed a fortune during his lifetime second only to that of Rockefeller. Vanderbilt’s influence in the shaping of the American economy can be seen today in the nation’s private industries and free-market policies, which are enjoyed by entrepreneurs nationwide, many of whom have little knowledge of the man who paved their way.

Cornelius Vanderbilt was born to a poor family in Staten Island, New York, in 1794. When he was 11 years old, he dropped out of school to work on his father’s ferry after the death of one of his brothers. He used his time on the water to learn about the shipping industry, and after earning enough money to purchase his own sailboat, he went into business for himself, ferrying goods and people between Manhattan and Staten Island. Soon, he was able to purchase several more vessels and establish his first fleet of ships.

His ran his sailboat ferry business so reliably that the US army awarded him a military contract during the War of 1812 to supply six army posts on New York Bay. His wartime activities also included ferrying food down the Hudson River to New York City, which was under a British Blockade.

Steamships

Upon feeling the growing impact of steamboats on his ferry business, Vanderbilt sold his sailboats and obtained a job as a steamboat captain. While in this role, he studied the evolving steamship technology and soon began to build his own line of ships. Vanderbilt went on to operate more than 100 steamboats throughout the 1840s.

Earning himself a reputation for being a “robber baron,” he competed fiercely with other New York-area passenger ferry services, savagely undercutting their prices and offering new, improved vessels. His ability to steal customers from his competitors was so great that many businesses became desperate enough to pay him to get out of the Hudson River market.

In the 1850s, the United States was gripped with gold fever, and the resultant westward expansion relied upon the speed and dependability of steamships. During this time, two government-subsidized companies controlled the postal and passenger route to California, which involved taking a steamship to Panama, catching a train across Panama, and boarding yet another steamship for the final leg of the journey. Passenger fare for the trip was $600, an amount Vanderbilt was sure he could undercut.

To accomplish this, Vanderbilt dug out a canal through Nicaragua, agreeing to pay an annual fee of $10,000 for its use. He charged fares of $150 and delivered US mail subsidy-free—effectively establishing himself as a provider of cheap, reliable transportation.

Complicating this plan was an American named William Walker, who took an army into Nicaragua, overthrew the government, and declared himself the president. He revoked Vanderbilt’s canal rights, thus forcing Vanderbilt to focus his energies on the Panama route instead.

The government-subsidized companies were enraged by Vanderbilt’s low fares ($100 for first class and $30 for third class) for the Panama route. To rid themselves of the problem, they used their government money to buy Vanderbilt out. Congress, angered to learn that their money was being used to fund payoffs, ended the mail subsidies immediately.

Railroads

By the early 1860s, Vanderbilt recognized that rail travel was quickly surpassing steamships as the primary method of transportation and began to sell off his steamship interests. He took over the struggling New York and Harlem railroad and employed the same successful techniques of slashing prices and improving service that he’d used before to quickly acquire customers and buy new rail lines. Eventually, he consolidated his railroad holdings into the New York Central and Hudson River Railroad, one of the country’s first mega-corporations. At his death, he controlled most of the important railroads in North America.

One of Vanderbilt’s noticeable influences in the railroad industry was the creation of a networked rail system that encompassed multiple states. This resulted in lower costs, shortened travel times, and increased efficiency, and earned him the title of ‘The First Tycoon.”

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