Vanderbilt: How to build powerful shipping and railroad empires

As one of the richest Americans in history, Vanderbilt was the patriarch of a wealthy, influential family. He provided the initial gift to found Vanderbilt University in Nashville, Tennessee, and created two powerful empires. For a complete biography, go to Cornelius Vanderbilt.

Shipping Empire

On November 24, 1817, a ferry entrepreneur named Thomas Gibbons asked Vanderbilt to captain his steamboat between New Jersey and New York. Although Vanderbilt kept his own businesses running, he became Gibbons’ business manager in the Union Line. When Vanderbilt entered his new position, Gibbons was fighting against a steamboat monopoly in New York waters, which had been granted by the New York State Legislature to the politically influential patrician Robert Livingston and Robert Fulton, who had designed the steamboat. Working under Gibbons, Vanderbilt learned how to manage a large and complex commercial operation. He studied legal matters, and quickly became skilled in shipping law. Gibbons was ferrying customers between New York and New Jersey, a clear violation of the 1808 state-sanctioned monopoly given to Fulton and Livingston. Aaron Ogden, who was operating Fulton and Livingston ‘s business, sued Gibbons for violating the monopoly. Vanderbilt and Gibbons hired Daniel Webster to defend their position. In Gibbons v. Ogden, the U.S. Supreme Court ruled in favor of Gibbons, stating the Constitution’s Commerce Clause gives Congress the exclusive authority to regulate interstate trade. Thus, it was unconstitutional for the New York legislature to give Ogden exclusive shipping rights.

After Thomas Gibbons died in 1826, Vanderbilt worked for Gibbons’ son William until 1829. Though he had always run his own businesses on the side, he now worked entirely for himself. Step by step, he started lines between New York and the surrounding region. He wanted to buy the Union Line company, but Gibbons’ son didn’t want to sell. Vanderbilt bought several boats and established the Dispatch Line, running between New York City and Philadelphia. Soon after that, he faced opposition by a steamboat operated by Daniel Drew, who forced Vanderbilt to buy him out. Impressed, Vanderbilt became a secret partner with Drew for the next thirty years, so that the two men would have an incentive to avoid competing with each other. Through aggressive marketing and low fees, Vanderbilt forced Gibbons’ son to buy him out, and soon became known for his sharp business acumen. During the 1830s, he built profitable shipping lines in the New York region, undercutting competitors’ fares and offering top service. Competitors struggled and finally paid him to take his business elsewhere. He then shifted his operations to the Hudson River, going head to head against the Hudson River Steamboat Association, another monopoly. Capitalizing on the populist language of President Andrew Jackson, he named his service the “People’s Line,” offering cheap fares for all. The Association bought him out for $100,000 and annual payments of $5,000. He became millionaire repeating the implementation of this business model several times.

In 1851, Vanderbilt expanded his shipping business, forming the Accessory Transit Company to transport passengers from New York City to San Francisco via the Nicaraguan isthmus. Again, his timing was perfect. The California Gold Rush brought an enormous demand for passage to the West Coast. Though offering a treacherous ride for its users, the Transit Company was a success. By 1852, his competition had had enough and offered him $40,000 a month to abandon his operations.

Cornelius Vanderbilt_patrick dwyer_History of American Financial Titans
Image courtesy of Cliff at Flickr.com

Railroad Empire

By 1864, Vanderbilt he had retired from shipping, having amassed nearly $30 million in wealth. He turned his attention more closely to railroads, acquiring the New York & Harlem and Hudson Line, and then going after the New York Central Railroad. In a ruthless act during a bitter winter when the Erie Canal was frozen over, he refused to accept Central’s passengers or freight, cutting them off from connections to western cities. Forced to capitulate, the Central Railroad sold Vanderbilt controlling interest. This new conglomerate revolutionized rail operations by standardizing procedures and timetables, increasing efficiency and decreasing travel and shipment times. He eventually consolidated his hold on rail traffic from New York City to Chicago.

Vanderbilt brought his eldest son Billy in as vice-president of the Harlem and in 1869, Vanderbilt directed him to begin construction of the Grand Central Depot on 42nd Street in Manhattan. It was finished in 1871, and served as his lines’ terminus in New York. The terminal was constructed with features like elevated platforms, a glass balloon roof spanning all of the tracks and boarding areas only accessible to the passengers. At the city’s insistence, the tracks were submerged below street level to reduce noise and smoke, and 4th Avenue became Park Avenue. The depot was replaced by Grand Central Terminal in 1913.

If you are curious about other transport empires, Patrick Dwyer recommends this read about William Boeing and his revolution of flight:

https://patrickjdwyer.wordpress.com/2016/06/07/how-one-mans-adventurous-spirit-revolutionized-flight/

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