Robber Barons or Captains of Industry? | The Gilder Lehrman Institute of American History
ShapingtheAmericanEconomy
RobberBaronsorCaptainsof Industry?
byT.J.Stiles
OnFebruary9,1859,HenryJ.Raymond,editoroftheNewYorkTimes,said somethingstrangeaboutCorneliusVanderbilt.RaymonddidntlikeVanderbilt, asteamshiptycoonwithsuchavastfleetthathewasknownasthe Commodore,thenthehighestrankintheUSNavy.InaneditorialtitledYour MoneyorYourLine,Raymondblastedhimfortakingalargemonthlypayment fromthePacificMailSteamshipCompanyinreturnforVanderbiltsforegoing competitiononthesealanestoCalifornia. LikethoseoldGermanbaronswho,fromtheireyriesalongtheRhine, swoopeddownuponthecommerceofthenobleriverandwrungtributefrom everypassengerthatfloatedby,Raymondwrote,Mr.CorneliusVanderbilt ...hasinsistedthatthePacificCompanyshouldpayhimtoll,takenofall AmericathathadbusinesswithCalifornia.
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ThoughRaymondneverusedtheexactphraserobberbaron,hiseditorialis thefirstknownuseofthemetaphorinAmericanjournalism.Ithasbecomeanenduringdescriptionof theindustrialmogulsofthenineteenthcentury.Itconjuresupvisionsoftitanicmonopolistswho crushedcompetitors,riggedmarkets,andcorruptedgovernment.Intheirgreedandpower,legendhas it,theyheldswayoverahelplessdemocracy. HIDE FULL ESSAY Butheresthestrangepart:ThatsnotwhatRaymondmeant.HecomparedVanderbilttomedieval robberbaronsbecausehepreyeduponmonopolists.PacificMailhadtotalmarketcontrolofthesea lanestoCalifornia,anditboughtoffVanderbiltinordertopreserveitsmonopoly.Raymondattacked theCommodoreforpursuingcompetitionforcompetitionssakecompetitionwhichcrowdsout legitimateenterprises.TotheeditoroftheNewYorkTimesin1859,Vanderbiltwasarobberbaron becausehewasachallenger,aspoileralmosttheoppositeofthecurrentmeaningoftheterm. SohowdidthedefinitionofrobberbaronchangefromRaymondstoourown?Thesimpleansweris scale.StartinginthemiddleofthenineteenthcenturyevenasRaymondwroteYourMoneyorYour Linethefirsttrulylargeenterprisesbegantoemerge.Theriseofbigbusinessreshapednotonlythe economy,butpoliticsandcultureaswell. Afewkeyindividualsplayedaleadingroleinthisprocess.Condemnedasrobberbaronsorpraisedas captainsofindustry,theyhelpedtoinventthegiantcorporationandbecamethefocusofthemodern debateoveropportunityandequality,overthepowerofprivateenterpriseandtheroleofgovernment regulation.
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ConservativemembersoftheWhigPartysometimescondemnedsuchcompetition,justastheold patricianshad.Theydesiredrapideconomicdevelopment,butbelievedthatitshouldbeguidedand assistedbythegovernment.JacksonianDemocrats,ontheotherhand,praisedcompetition,upholding aggressiveselfinterestinthemarketplaceasamatterofindividualliberty.Thiswasaneraof increasingdemocratization,assuffragewasbeinggrantedtoallmen(thoughusuallyonlywhitemen), regardlessoftheirwealth.Theprincipleofindividualequalityofcompetitiveindividualisminfusedthe Jacksoniansviewofeverything.Intheireyes,governmentinvolvementintheeconomyonlyservedto grantspecialprivilegestofavored(usuallywealthy)men,whichcreatedanartificialaristocracy,the antithesisofdemocracy. WhenHenryJ.RaymondoftheNewYorkTimescondemnedVanderbiltin1859forcompetingagainst legitimateenterprises,hewroteasanoldWhig(thoughtheWhigpartyhaddisappearedbythen).He sawPacificMailasavirtuousexampleofWhigvalues:Thoughprivatelyowned,ithadbeenorganized tofulfillafederalplantoguaranteeregularcommunicationsbetweenCaliforniaandtherestofthe UnitedStatesandreceivedafederalsubsidyinreturnforcarryingthemail.Theironyisthatthe CaliforniasteamshipbusinessitselfhelpedchangetheAmericaneconomyinwaysthatwouldmake Raymondsviewsseemobsoletewithinjustafewyears. WhentheCaliforniaGoldRushbegan,Vanderbiltabruptlylefttheregionaltransportationmarket aroundNewYorkandcompetedinthisoceangoingsteamshipbusiness.Eventhoughthefederal governmentsubsidizedhiscompetitors(PacificMailanditspartner,theUSMailSteamshipCompany), hebuiltsteamshipstorunonboththeAtlanticandPacific,whichconnectedviaatransitrouteacross Nicaragua,farthernorththantheestablishedcrossinginPanama.In1851heinauguratedtheline, offeringlowerfaresandafasterpassage.Heagainprovedhimselfaconsummatecompetitor,and swiftlyearnedafortune.WhentheNicaraguaroutewasclosedbyawarin1856,PacificMailandUS MailpaidhimthelargemonthlyfeediscussedbyRaymondtopreventhimfromcompetingbywayof Panama. TheseCaliforniasteamshiplinesgaveAmericansaglimpseofthefutureofbigbusiness.They stretchedforthousandsofmiles,withstationsindistantcountries.Whentheyfoughteachother,the repercussionswerefeltbyhundredsofthousandsoftravelers,Californiaresidents,andbusinesses. Thedemandsoftheseenterprisesalsofedotherindustries.Forexample,Vanderbiltpurchased(and expanded)amajorshipyardandsteamengineworksinNewYork. Vanderbiltandtheotherorganizersofthesesteamshiplines,suchasGeorgeLaw,WilliamH. Aspinwall,andMarshallO.Roberts,becamehouseholdnamesinthe1850s.Andyet,withthe exceptionofVanderbilt,nonearerememberedtoday.Foronething,thesteamshiplinesweresoon eclipsedbythetranscontinentalrailroadsthefirstbeingcompletedin1869.Andtherailroads,broadly speaking,farsurpassedshippingastrueexamplesofbigbusiness. Exceptingeographicalextent,theCaliforniasteamshiplinescouldnotmatchthelargestrailwaysin termsofnumbersofemployees,volumeofbusiness,capitalrequirements,oralmostanyother measure.Anditwastherailroadsthat,directlyorindirectly,gaverisetothemostfamouscaptainsof industry(or,ifyouprefer,robberbarons).Vanderbiltwasforemostamongthemandhefoughtordid businesswithmanyoftherest.
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Robber Barons or Captains of Industry? | The Gilder Lehrman Institute of American History
buylargeamountsofrailroadstock.TheyoungerbrokersonWallStreetmockedhim,refusingto believethattheoldCommodoreknewanythingaboutthenationsmostdynamicindustry.Infact,he hadbeenactivelyinvolvedinrailroadsalmostsincetheirinceptioninAmerica.Hissteamboatshad connectedwithNewEnglandsearlyrailways,andin1847hehadseizedthepresidencyofthe StoningtonRailroad,astrategiclineinRhodeIslandandConnecticut.Duringthe1850s,hehelpedto savetheendangeredErieRailwayandNewYork&HarlemRailroad(betterknownastheHarlem), lendingthemmoneyandhelpingtorestructuretheirdebt.WhenhetookthepresidencyoftheHarlem in1863,then,hedrewupondeepexperiencewiththestockexchange,corporatefinance,therailroad industry,andthisparticularline. Insomerespects,Vanderbiltbecamethegreatestrailroadtycoonofhiseraalmostbyaccident.Atthe ageof69,hesimplywishedtoshowthathecouldturnanearlybankruptrailroadintoathriving company.Butthefragmentednatureoftherailroadsystemavastnetofsmalllines,eachbuiltto servealocalcommunityratherthananationalnetworkledtooneconflictafteranother.Ineachcase, hewouldpursuediplomacywithaconnectingline,seekinganamicableagreementtheattemptwould fail,abusinessconflictwouldensue,andVanderbiltwouldtriumph,endingthewarbypurchasing controloftheneighboringrailway. AfterheassumedthepresidencyoftheHarlemin1863,heranintotroublewiththeneighboring HudsonRiverRailroad.Hetookcontrolofitin1864,whichgavehimamonopolyontherailwaysthat enteredManhattan.InJanuary1867,concludingalongstruggle,heseizedtheNewYorkCentralafter stoppingalltrainsovertheHudsonRiveratAlbany,anactthatlargelyseveredNewYorkCitys connectiontotherestofthecountry(albeitonlybriefly).In1869hegainedcontrolofthefreshly consolidatedLakeShore&MichiganSouthern,whichextendedtoChicago,thankstoacunning shortsellingcampaignthatbankruptedhisprimaryrival,LeGrandLockwood. Onlyonemajorcampaignfailed:hisattempttocornerstockintheErieRailwayin1868.Vanderbilt wantedtopunishhisoldfriendandrivalDanielDrew,whohadbetrayedtheCommodoreandhisallies onthestockmarket.TheresultingconflictcametobeknownastheErieWar.Drew,thetreasurerof theErieRailway,alliedhimselfwithnewmembersoftheboardofdirectors,particularlyJayGouldand JimFisk.AsVanderbiltboughtEriestock,Drewsolditshort.ThentheErieboardfloodedWallStreet withfreshsharecertificatesofdubiouslegality.Afamouslycorruptjudge,GeorgeBarnard,issued arrestwarrantsforthedirectors,promptingthemtopackuptheEriecorporatefiles(andfunds)and fleetoNewJersey.GouldvisitedAlbany,NewYorkscapital,withasuitcasefullofgreenbacksand checkbookswhichconvincedthesuddenlyenrichedstatelegislatorstolegalizethenewshares.But Barnardkepthisarrestwarrantsout,sotheErieboardhadtocompromisewithVanderbilt.The companyrestoredhislossesonthestockexchangeinreturn,Vanderbiltaskedthejudgetoliftthe warrantsandallowtheEriedirectorstoreturntoNewYork. Thiswasacriticalepisodeinthemakingofthemodernnotionoftherobberbaron.Forverygood reason,theErieWarcametosymbolizetherampantcorruptionwroughtbytheenormousnewrailroad corporations.Yetcloserinspectionrevealsthenuancebehindthehistoricalstereotype.Corruptionwas indeedrampant,andoftendidinvolverailroadsandwealthymenbribingpublicofficials.Yetitalso cameintheformofextortionbyofficeholders,whothreatenedtopassharmfullawsunless corporationspaidoffthelegislators.ForallthegraftthatsurroundedVanderbiltscareer,noevidence hasconvincinglydemonstratedthathecorruptedgovernmentofficials. TheErieWaralsosuggestswhyrobberbarons(or,ifyouprefer,captainsofindustry)loomsolargein
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thepopularimagination:Throughsuchdramaticepisodes,theypersonalizedtheveryprocessof depersonalization.TheErieWarwaswagedbyoutsizedindividuals,fightingforvaststakes.Yetthe weapons,thebattlefield,andtheprizeitselfreflectedtherisinginstitutionalizationoftheemerging corporateeconomy.Vanderbilt,Drew,Gould,andFiskfoughtwithsecuritiesstocksandbonds tradedonaformalexchange,financedbylargebanks,inordertogaincontrolofamassive, bureaucraticallymanagedenterprise.Theymadedehumanizationhuman. Ofcourse,theseindividualswereindeedimportant.Theymadedecisionsthataffectedthelivesof millions.Vanderbiltinparticularspannedalongperiodofeconomichistory,fromanageofindividual proprietorsandsmallpartnerships,toacorporateworldofanonymousinvestorsandmultitiered professionalmanagement.Asoneofthemostsuccessfulbusinessmenduringthistransformation,he attaineddisproportionatewealthandinfluence.Toparaphraseanoldclich,hewasinontheground floorandasthebuildingrose,hestoodatoptheroofalltheway,givingdirectionsasitwasbuilt. Ironically,thisnewcorporatestructurewasnotdependentuponindividuals,astheoldsocietyhad been.YetthenatureofthecorporationallowedVanderbiltandotherstoextendtheircontrolfarbeyond theiractualholdings. AstheRailroadKing(tousethenewspapersnicknameforVanderbilt),hetookaseriesofdramatic stepsthatreshapedtherailroadindustry.Heconsolidatedsmallerlinesintosomeofthefirstgiant corporationsinAmericanhistorycapitalizedatlevelsthatdwarfedentireindustriesatthetime.With hissonWilliamHenryVanderbiltashisoperationalchief,herationalizedtheorganizationofhis companies,andbroughtinprofessionalmanagers.Heintroducednewefficiencyintothenations transportationsystem,loweringcostsandbuildingkeynewinfrastructure.TheNewYorkCentral& HudsonRiverRailroadpaidsteady,healthydividendstoinvestors,evenduringthedepressionthat beganwiththePanicof1873.AstheRailroadGazettewroteofhimafterhisdeathin1877,Hisearly careerasarailroadmanagerwasdistinguishedbyaseriesofbold,startlinglyrevolutionarymeasures whichattracteduniversalattentionandhadaneffectreachingfarbeyondthelinesandcompanieswith whichhedealtdirectly.TheVanderbilterawasthefirstgreateraofconsolidations.
CAPTAINS OF INDUSTRY
Asthenationsfirstbigbusiness,railroadsoccupiedthecenteroftheeconomy,adriverofdemandand shaperofstrategicinterestsofotherenterprisesthatgaverisetotheclassiccaptainsofindustry.In Clevelandinthe1860s,apiousyoungbookkeepernamedJohnD.RockefellerSr.formedapetroleum refiningbusinesswithpartnerHenryFlagler.TheycalleditStandardOil.UsingsomeofVanderbilts owncompetitivetacticsdrivingdownpricesandbuyingoutcompetitorstheybegantodominatethe youngoilindustry.Relationswithrailroads,whichshippedoil,wereaprimaryconcern.Rockefeller workedcloselywiththeCommodoreandhissontomaintainhealthyrelationsandobtainpreferential rates. RailroadswereevenmorecentraltoAndrewCarnegiescareer.Afamouslypennilessimmigrantfrom Scotland,CarnegierosethroughtheranksofthemightyPennsylvaniaRailroadastheprotgof ThomasA.Scott,firstsuperintendentandthenvicepresidentofthecompany.ScottandJ.Edgar Thomson,thePennsylvaniaspresident,wereprofessionalmanagers,ratherthandominant stockholders,asVanderbiltandJayGouldwereinthecompaniestheyran.Thoughtheywereexcellent executives,theyalsodevelopedavarietyofmethodstoskimmoneyoutofthePennsylvanias transactions.Theyoftendemandedstockincompaniesthatcontractedwiththerailroad,and sometimesroutedbusinessthroughshellcompaniesthattheypersonallycontrolled.
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CarnegiegothisstartasanentrepreneurwithaseriesofenterprisesthatfedthePennsylvanias voraciousdemands,fromsleepingcarstobridgestoiron,obtainingcontractsthroughsuchpayoffs andhispersonalrelationshipwithScottandThomson.Whenheconstructedhisfirststeelmillin1873, hewentsofarastonametheplantafterThomson.Yethehadlearnedhislessonswell:Hemadesure thatthesteelcompanywasaprivatepartnership,andkeptacloseeyeonthevariousmanagers.He didnotwantanyonetoprofitoffhisownfirmashismentorshadfromthePennsylvania. J.P.Morgan,too,rosewiththerailroads.Bornintoabankingfamily,hespentmuchofhiscareerasa bankertotherailways,servingasadvisor,organizer,andfinancialagent.Throughoutthenineteenth century,railroadscontinuedtobethemostcapitalintensive(andthusmostcapitalhungry)companies inAmerica,sothegreatfinancialhouseswerelargelydevotedtoservingtheirneeds.Morganhelpedto reorganizeandrationalizeburgeoningindustries,restructuringrailroadstoenddestructivecompetition andfosteringsuchgiantsasGeneralElectricandUSSteel.Hehelpedtomovebigbusinessoutofthe ageofthepioneeringtitansandintoaneraofinstitutionalization. Ironically,Morganhelpedinspirethesinglemostimportant,andlasting,federalinterventioninthe economy.WhenapanicstartedinNewYorkin1907,wrotebiographerJeanStrouse,heledteams ofbankerstostopit.Andstopithedid.ButhisverysuccessmadeCongresspainfullyawareofthe levelofinfluenceheldbythisprivateindividual,andofthevulnerabilityofthefinancialsystem.The resultwasthecreationoftheFederalReserve,Americascentralbank.
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Robber Barons or Captains of Industry? | The Gilder Lehrman Institute of American History
newpoweroflargecorporations,whichtoweredovertheeconomyasnobusinesseshadbeforethe CivilWar. Ittookdecadesforthiskindofregulationespeciallyfederalregulationtoemerge.Yetevenbefore thedeathofCorneliusVanderbiltinJanuary1877,themodernargumentoverprivateenterpriseand theroleofgovernmenthadclearlyemerged.Inasense,itdoesnotmatterwhetheronesees Vanderbiltandhispeersasrobberbaronsorcaptainsofindustryitisthefactthatweargueabout themasoneortheotherthatmattersmost.Theynotonlychangedthewaywelivetheychangedthe waywethink. T.J.StilesistheauthorofTheFirstTycoon:TheEpicLifeofCorneliusVanderbilt(2009),winnerof the2009NationalBookAwardforNonfictionandthe2010PulitzerPrizeforBiography,andJesse James:LastRebeloftheCivilWar(2002).
METADATA Era:TheRiseofIndustrialAmerica,18771900,NationalExpansionandReform,18151860 SubEra:DevelopmentoftheWest,PopulismandAgrarianDiscontent,TheAgeofJackson,The GildedAge Theme:Economics,GlobalHistoryandUSForeignPolicy CurriculumSubject:Economics,Geography,Science,Technology,EngineeringandMath,World History GradeLevel:9,10,11,12,13+ Keywords:Capitalism,corporations,industrialization,labor,Monopoly,Railroads,Regulation,Robber Barons,steamships,unions CoveragePeople:AaronOgden,AndrewCarnegie,CorneliusVanderbilt,DanielDrew,GeorgeLaw, HenryFlagler,HenryJ.Raymond,J.EdgarThomson,J.P.Morgan,JayGould,JimFisk,JohnD. RockefellerSr.,JohnMarshall,LeGrandLockwood,MarshallO.Roberts,RobertFulton,RobertR. Linvinston,ThomasA.Scott,ThomasGibbons,WilliamH.Aspinwall,WilliamHenryVanderbilt CoverageEvents:ErieWar,Gibbonsv.Ogden,GoldRush CoverageOrganizations:DemocraticParty,ErieRailway,FederalReserve,HudsonRiverRailroad, LakeShore&MichiganSouthern,NewYork&HarlemRailroad,NewYorkCentral,NewYorkCentral& HudsonRiverRailroad,PacificMailSteamshipCompany,PennsylvaniaRailroad,StandardOil, StoningtonRailroad,USMailSteamshipCompany,WhigParty CoverageGeographical:California,ErieCanal,NewYork,Nicaragua,Panama,Pennsylvania DISCUSSION ThisessaywouldbeagoodfollowuptoLincoln'sconceptof"improvement"foundinTHE REPUBLICOFNATUREch.4.
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