The Men Who Built America: Cornelius Vanderbilt
This is part one of a series on "The Men Who Built America."
This past autumn, the History Channel came out with a four-part miniseries on entrepreneurs who built massive empires in America. Essentially, these entrepreneurs were responsible for making America great. Over the next several weeks, I'll be presenting my own series of sorts, about some of the men who built America—along with some added economic commentary.
The History Channel series begins by presenting Cornelius Vanderbilt, or "Commodore Vanderbilt" as he was commonly called. Vanderbilt began his entrepreneurial experience as a teenage boy transporting cargo around the New York harbor. From there he went on to start his own steamboat business, which became quite successful. Then the Commodore shifted his focus to building a railroad empire.
The History Channel paints Vanderbilt as a great tycoon, with overtones of a monopolist. He was hard-driven to make money and was a fierce business opponent who was willing to go to extremes to suffocate his competition. For example, he went so far as to stop allowing passengers train access into New York City, single handedly blockading train access into and out of the city.
The episode illustrates the importance of Vanderbilt's work. He was the person through which most of the country became connected via the railroad system. Just 15-25 years prior to his accomplishments, this notion was entirely unimaginable. This connection was critically important not only for moving individuals across great expanses, but also for the shipping of products, including oil.
What the History Channel does not show is how Vanderbilt's earlier life experiences in the steamboat industry shaped his vision for innovation. This is something that Burton Folsom, Jr. has described wonderfully in his book "The Myth of the Robber Barons: A New Look at the Rise of Big Business in America."
As Folsom describes, Robert Fulton was the first American to build a steamboat in the waters of New York in the early 1800s. The New York state legislature gave Fulton a monopoly by giving his company the rights to all of the steamboat traffic in New York waters. The adventurous Vanderbilt decided to break the New York state law during a 60-day stretch in which he cheaply ferried passengers back and forth from Elizabeth, NJ to New York City. If Vanderbilt could ship passengers more cheaply than Fulton, why not let him? Vanderbilt thought he had the right to do so, so he flew on his ship a flag stating, "New Jersey must be free."
It was not until 1824 that the Supreme Court struck down that Fulton monopoly, arguing that the federal government was to control inter-state commerce, not the state governments. Once the anti-monopolist ruling came down, Folsom writes, "On the Ohio River, steamboat traffic doubled in the first year … and quadrupled after the second year."
Vanderbilt was a critical part of this growth in steamboat traffic. His business brought down rates from New York City to Albany from three dollars down to one dollar. Soon, the cost moved from one dollar to ten cents, and then in time, it was free! Vanderbilt figured out that if enough people bought food on his boats, it would cover his costs. But that was not all: He led the way for rates from New York City to Philadelphia to go from three dollars to a dollar, NYC to Hartford went from five bucks to one, and NYC to Providence went from eight dollars to four! The New York Evening Post referred to him as "the greatest practical anti-monopolist in the country."
In my next post, I'll describe how political entrepreneurs like Fulton hindered innovation and growth and elaborate more on how Vanderbilt's private, free-market work helped the common man.