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Summary Article: Vanderbilt, William Henry
from Encyclopedia of the History of American Management

William Henry Vanderbilt, the eldest son of steamboat and railway magnate Cornelius VANDERBILT, was born on Staten Island, New York on 8 May 1821. He died in New York on 8 December 1885. His upbringing and much of his youth were very harsh. In spite of his family’s great wealth, ‘Billy’ Vanderbilt was cruelly treated by his father, who spoke to him roughly, accused him of stupidity, told him he would amount to little, and regarded him as unworthy to take part in the father’s steamboat business. He attended Columbia Grammar School, which he left in 1839. He was then sent to work under Daniel DREW, where he studied accounting. In 1842 Drew offered the younger Vanderbilt a partnership in his brokerage house, but Vanderbilt declined.

Vanderbilt was then given a farm on Staten Island by his father, who felt his son lacked the ability to be a successful businessman. Working to expand the farm, he soon proved his father wrong, yet his father continued to belittle him and refused to help when Vanderbilt mortgaged the farm in the hope of expanding it. When William successfully swindled his father, however, Cornelius developed a new respect for him and paid off the mortgage (Vanderbilt 1989). In fact, it seems that Vanderbilt had inherited many of his father’s entrepreneurial virtues and fewer of his vices. He made his farm the most successful on Staten Island, and raised four children from his wife, Maria Louisa Kissam. He was relatively honest and fair in his dealings with others, and more sociable than his father, whom the New York business establishment considered quite ill-mannered.

Vanderbilt became involved in railways slowly, from about 1864 on. He acquired the bankrupt Staten Island railroad, and turned it into a profit-making operation. He managed the line so meticulously and carefully that even his father was impressed enough to make him vice-president of the New York Central, and then his heir. As president of the New York Central and owner of seven-eighths of its stock, William Vanderbilt was now the richest person in America and, as ruler of its largest corporation, arguably among the most powerful; he held life-and-death power over entire businesses and cities such as Albany and Buffalo, which were utterly dependent upon the Central.

In spite of his power, William Vanderbilt was far more modest and cautious than his father. This was evident almost from the moment he inherited the Central. The mid-1870s was a trying time for American railways, which had been greatly overbuilt when the Panic of 1873 struck. By July 1877 the Pennsylvania, Erie and other lines were forced into a renewed round of wage reductions. In the first major labour war in American history, workers and the unemployed in Pennsylvania destroyed tracks, depots and freight cars. The unrest was so severe that President Rutherford B. Hayes had to send federal troops into Pennsylvania.

There was, however, no violence in New York, thanks to Vanderbilt. The Central earned almost $30 million in profits but its workers were paid only around a dollar per day. When the other lines slashed wages by 10 per cent in 1877, Vanderbilt followed suit; were he not to have done so, the Central’s stock would have fallen even more than it did. But what William did, and what his father would never have done, was to attempt a conciliatory approach with his workers. He offered to divide $100,000 among those employees that refrained from striking and promised that when profits permitted he would restore their wages to the original rate. This offer was enough to maintain industrial peace: almost 9,000 of the 11,000 Central employees accepted the offer, and the Central kept running. Vanderbilt kept his word and full wages were restored by October 1877.

In spite of this triumph, which represented the first halting step towards a new philosophy of labour–management relations, Vanderbilt remained haunted by his father’s reputation. During 1878–9 some of his brothers and sisters contested Cornelius’s will, which had promised virtually everything to William. The resulting trial exposed much of the father’s wrongdoing to the public eye. Vanderbilt was made the scapegoat for every accident on the Central, was caricatured in the press and subjected to increasing scrutiny by the New York legislature.

Cornelius Vanderbilt would have resorted to any means necessary to defeat any threat to his holdings. William Vanderbilt decided instead to reduce his interests in the business, and formed a close alliance with John Pierpont MORGAN, who sold 300,000 Central shares to British investors in return for a seat on the Central’s board. Vanderbilt’s conservatism limited the future growth of the Central and prevented it from becoming a truly transcontinental road. Even his remaining holdings had to be defended when Central was forced into a rate war with the Pennsylvania railroad by Jay GOULD. Gould, who had been a major rival of Cornelius Vanderbilt, now underwrote the construction of a West Shore line which went up the west bank of the Hudson and the opposite bank of the Mohawk from the Central. When the West Shore line began running in July 1883, Vanderbilt slashed his own rates, bankrupting the upstart within a year. The line was then bought by the Pennsylvania, which had far more power to hurt the Central. Both the West Shore and the Central continued to slash rates. The effect on the Central was devastating: its earnings fell from $33.7 million in 1883 to $24.4 million in 1885. Vanderbilt retaliated against the Penn by enlisting the aid of Andrew CARNEGIE and John D. ROCKEFELLER to build a line across southern Pennsylvania. At this point, both the British investors and Morgan began to panic. Vanderbilt accepted a settlement brokered by Morgan with Chauncy Depew of the Central and George Roberts of the Penn on Morgan’s yacht, the Corsair. The Central obtained the West Shore line, the Penn got the South Pennsylvania line, and the rate war ended.

Vanderbilt’s image as a conciliator was further enhanced. His style was now seen in almost every way to contrast with that of his father. He delegated power, listened to others, cultivated an open managerial style, and considered the quality of service to be as important as the bottom line. Nevertheless, William Vanderbilt was running a business and a business had to make money. When he cancelled an unprofitable mail service, a Chicago Tribune reporter in October of 1882 accused him of putting the interests of his stockholders above the public. Vanderbilt’s comment, ‘The public be d-d’, taken out of context, adorned newspapers all over the country, and was quickly adopted by journalists and politicians. What Vanderbilt actually had said was that he desired to do what he could for humanity in genera, but had to make sure he ran his railway on business principles and benefit the railway and its stockholders first. If the public needed the mail route, they needed to make it pay.

The sad result was that one of the more progressive managers of the ‘Gilded Age’, who protected his railway and improved labour relations, became labelled as one of the ‘Robber Barons’ when he was far less deserving of the title than others. At his death Vanderbilt left the Central, then worth almost $200 million, as one of the two largest and best-managed railways in the country.

BIBLIOGRAPHY
  • Klein, M. (1986). The Life and Legend of Jay Gould, Baltimore, MD: Johns Hopkins University Press.
  • Martin, A. (1992). Railroads Triumphant: the Growth, Rejection, and Rebirth of a Vital American Force, New York: Oxford University Press.
  • Vanderbilt, A. T. II, (1989) Fortune’s Children: The Fall of the House of Vanderbilt, New York: William Morrow and Co.
  • © Thoemmes Continuum, 2005

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