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| Cornelius Vanderbilt aka The Commodore (Source: Wikipedia) |
My curiosity about the Vanderbilt family started when I had the chance to visit Rhode Island and see one of their summer homes called The Breakers. It was so huge - the house covered 1 acre out of the 13-acre estate! And some of the anecdotes which our tour guide shared about how people lived during the Gilded Age were just over the top. The elites typically had 4 to 5 outfit changes in a day (since you can't wear the same thing for brunch, lunch, afternoon tea and dinner); the garden soil is not allowed to be seen with footprints (which means servants had to rake the soil every time someone steps on it) .... how could people spend such obscene amounts of wealth on things like those?
The Vanderbilt family was once one of the wealthiest in the US. Its patriarch, Cornelius Vanderbilt, also known as “The Commodore”, is the man behind the New York Central Railroad. He was born in 1794 and passed away in 1877. When he died, the biggest chunk of inheritance he gave to one of his children was worth USD95M - which is approximately USD2B in today's money. But within 30 years of his death, no member of his family was among the richest in the United States. Within 70 years of his death, all the Vanderbilt mansions on Fifth Avenue in New York were demolished. What happened? How could such a crazy amount of wealth possibly get depleted?
The Vanderbilt family was once one of the wealthiest in the US. Its patriarch, Cornelius Vanderbilt, also known as “The Commodore”, is the man behind the New York Central Railroad. He was born in 1794 and passed away in 1877. When he died, the biggest chunk of inheritance he gave to one of his children was worth USD95M - which is approximately USD2B in today's money. But within 30 years of his death, no member of his family was among the richest in the United States. Within 70 years of his death, all the Vanderbilt mansions on Fifth Avenue in New York were demolished. What happened? How could such a crazy amount of wealth possibly get depleted?
In the book “Fortune’s Children: The Fall of the House of Vanderbilt” written by Arthur T. Vanderbilt II (a grand-nephew of The Commodore), the author tries to chronicle the saga of 4 generations of the Vanderbilt family based on last wills, court transcripts, letters, memoirs, journals, newspaper clippings, magazines, etc.
But before we even wonder how such wealth got depleted, let's get to know more about The Commodore - how he, who was born poor, became one of the most prominent industrialists of the 19th century.
Cornelius was born in a small farmhouse at Staten Island. His pastime was to watch the ships sail at the waterfront as they approached New York. Days before he was about to turn 16, he told his mom that he wanted to run away and become a sailor but his mom knew him better – she knew that what he really wanted was a boat of his own so he could become a boatman at the New York harbor.
So his mom gave him a seemingly impossible task – if Cornelius is able to plough, harrow and plant corn on an 8-acre uncultivated land, she would lend him USD100 to buy a boat.
Cornelius successfully accomplished the task. How? He got some boys to help him and do the work. So on his birthday, his mom gave him USD100 and Cornelius bought a periauger.
With his boat, he ferried passengers. And a year later, he was able to repay his mom USD100 plus USD1,000 in profit.
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| Periauger (Source: Wikipedia) |
The Commodore continued ferrying passengers and sold food too. With his profits, he was able to buy 2 more periaugers.
Later on, he was able to buy a schooner. With the schooner, he got into coastal trade - carrying cargoes of oysters, watermelons, whale oil, etc. By 1818, at 24, he had saved $9,000 and owned several periaugers and schooners.
Then came the steamboats which outran his boats. He studied the steamboats by working as a captain for a steamboat owner.
Cornelius used the same strategy across the boat businesses he ran. He would operate in unauthorized routes, charged lower fares than the competitors, but raised the prices of food and drinks to cover his losses. Every time he does this, either the competition goes away or pays him to go away. Because of his rogue ways, he was frowned upon by some people.
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| Schooner (Source: Wikipedia) |
Cornelius used the same strategy across the boat businesses he ran. He would operate in unauthorized routes, charged lower fares than the competitors, but raised the prices of food and drinks to cover his losses. Every time he does this, either the competition goes away or pays him to go away. Because of his rogue ways, he was frowned upon by some people.
He applied the same strategy when he worked for the steamboat company. He brought his game at a new level when he started offering free fare in the Hudson River route. He was losing money but the competitors were losing more money and at a faster rate. What happened? The Commodore got paid USD100,000 upfront and USD5,000 annually for the next 10 years by the Steamboat Association just to leave the Hudson River route for 10 years.
In the 11 years The Commodore worked in the steamboat company, the business tremendously grew. He was able to save USD30,000 by 1829, at age 35, and at that time, he wanted to work for himself again. So he decided to resign and buy an old steamboat from his employer so he can run his own steamboat business.
As he was pushing 70s around 1862-1863, he saw the potential in the New York and Harlem railroad – it was a short, unprofitable line but it was the only railroad line that entered New York City. He started buying stocks at USD8/share and eventually became the controlling shareholder. He made improvements in the railroad business and the stock rose up to USD100/share . Later on, he also began buying stocks in the Hudson River Railroad and the New York Central.
There were detractors who wanted him to lose so they tried manipulating the stock price. But when the stock price plunged, The Commodore always bought all the outstanding shares. And after he made improvements in the railroads, the stock price always rose.
Sixty-seven years after his mother had loaned him $100, he had increased that loan by a factor of one million. He had accumulated a fortune of $105 million (about USD2.1B in today's money). He was richer, by far, than anyone else in the United States was or ever had been.
On Jan 4, 1877, at age 82, the Commodore passed away. His last words to one of his children, William Henry (aka Billy), were - “Keep the money together, hey. Keep the Central our road.”
In his last will, the Commodore gave away about USD10M to his family, friends, relatives, employees and charities. And as I mentioned earlier, the biggest chunk (the residual estate) amounting to USD95M went to his eldest son, Billy. The book states that USD95M was more money that what was held in the US Treasury at that time. Wow.
Anyway, The Commodore's last will was challenged by some family members as they found the sharing inequitable. They claimed that Billy manipulated his dad. Trials were held but a settlement was eventually reached.
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| William Henry Vanderbilt aka Billy The Commodore's eldest son (Source: Wikipedia) |
During Billy's time, he was able to double his inheritance within 6 years after his father’s death, growing it to USD194M (about USD4.9B in today's money). He owned stocks in various businesses, government bonds, real estate, art collection, etc. His annual income was USD10.35M and his annual expenses were only USD200,000 (about USD5M today). His fortune was growing by USD10M every year (about USD250M today).
With a man of such obscene fortune, you’d think he’d be happy. But as research studies and sages say, money can't buy happiness.
With a man of such obscene fortune, you’d think he’d be happy. But as research studies and sages say, money can't buy happiness.
Billy confided to a friend that his fortune gave him no advantage than those who owned moderate wealth. Once, referring to a neighbor, he told a friend -
“He isn’t worth a hundredth part as much as I am, but he has more of the real pleasures of life than I have. His house is as comfortable as mine, even if it didn’t cost so much; his team is about as good as mine; his opera box is next to mine; his health is better than mine, and he will probably outlive me. And he can trust his friends.”
Being the richest person in the world brought him, he said, nothing but anxiety.
“What’s the use of having all this money,” he said once to a nephew, “if you cannot enjoy it? My wealth is no comfort to me if I have not good health behind it.”
By his early sixties, Billy was tired and worn out. “The care of $200,000,000 is too great a load for my brain or back to bear,” he confessed to his family. “It is enough to kill a man. I have no son whom I am willing to afflict with the terrible burden. There is no pleasure to be got out of it as an offset—no good of any kind. I have no real gratification or enjoyments of any sort more than my neighbor on the next block who is worth only half a million. So when I lay down this heavy responsibility, I want my sons to divide it, and share the worry which it will cost to keep it.”
Thus, when Billy passed away, the biggest chunk (the residual estate) of USD130M (about USD3.4B today) was split between his 2 sons, William II and Cornelius II.
So if the 2nd generation was able to grow the wealth even more, what happened?
The book states several possible reasons - the imposition of rising taxes (income tax, property taxes, estate taxes), and the Depression, however it also notes that other family dynasties were able to survive and preserve their wealth like the Fords, Rockefellers and the DuPonts.
When you read about the lifestyle the 3rd generation family members led, you'll get ideas on what are the other probable causes. Here are some -
- The wives of the third generation Vanderbilts weren't just competing in terms of lifestyle with other rich people but also among themselves. If one built a mansion, the other would try to build a bigger mansion. If one built a yacht, the other one would build a bigger yacht.
- When the Vanderbilts couldn't make it to the New York's elite guest list of Mrs. Astor's Annual 400 event (she invited the top 400 NY elite since her ballroom in the house can accommodate up to 400 guests), you know what one of the Vanderbilt wives did? She came up with her own event inviting not just 400 but 1,200 because that's what her ballroom in the house can accommodate! Haha... And you know how much the party cost? USD250k (about USD6.3M today). The roses alone which adorned the ballroom cost USD11k (about USD275k today). Crazy spending, right?
- The mansions the Vanderbilts built on Fifth Avenue were just as crazy. Even if the family members were less than 10, their mansions would have 130+ rooms. They employed 30 to 40 servants in the household ranging from butlers, valets, ladies’ maids, footmen, housekeepers, a chef, assistant chefs, pantry boys, parlor maids, upstairs maids and scrubbing maids, laundresses, chauffeurs, seamstresses, and guards.
- Some of them reached a lifestyle where they were spending beyond their annual income. For example, one couple was spending USD250,000 each year but the annual interest from their trust fund was only USD125,000. Their overspending ate up their principal.
- Some of them never worked a day in their lives and solely depended on the income of their trust funds. Some spent their fortune like there was no tomorrow - they partied, gambled, traveled all over the world, build huge estates - until the funds got depleted and they went broke.
And of course, there were factors beyond their control like the rising costs of property taxes (the tax more than tripled within 3 decades) that the income from their trust funds was eventually no longer enough to cover the property taxes of their huge mansions alone. Then, there was the stock market crash in 1929. And of course, the eventual introduction of other modes of transportation.
The book is a very interesting read. Sometimes you'll feel like you're reading fiction as some sub-stories seem taken out of movie plot like -
- a mom disapproved her daughter's choice of boyfriend so the letters sent by the boy were confiscated and the letters the girl wrote were never mailed. Then the mom made her daughter marry a duke from Europe.
- a grandmother and an aunt connived to take away a daughter (little Gloria) from the custody of her own mom. She was forced to write letters and make false statements which she did because she was made to believe that her beloved nurse would be taken away from her if she stayed with her mom. (This actually became a TV mini-series in 1982 entitled Little Gloria...Happy at Last.)
But these sub-plots are the lives of real people. And when you read their verbatim sentiments lifted from their journals or transcripts, you'll really feel for them. The greatest insights for me are actually reading their innermost thoughts.
Here are some words from William II, one of the sons of Billy. William II is one of Billy's sons who got half of the big chunk of inheritance.
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| William Vanderbilt II Son of Billy (Source: Wikipedia) |
“My life was never destined to be quite happy,” he told them. “It was laid out along lines which I could not foresee, almost from earliest childhood. It has left me with nothing to hope for, with nothing definite to seek or strive for. Inherited wealth is a real handicap to happiness. It is as certain death to ambition as cocaine is to morality."
“If a man makes money, no matter how much, he finds a certain happiness in its possession, for in the desire to increase his business, he has a constant use for it. But the man who inherits it has none of this. The first satisfaction, and the greatest, that of building the foundation of a fortune, is denied him. He must labor, if he does labor, simply to add to an oversufficiency.”
So if you're not expecting any inheritance from your parents (ahem...haha...), let's take it from William. :)
Another beautiful quote is from Alva Vanderbilt, wife of Billy and mother of William II.
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| Alva Vanderbilt, wife of Billy (Source: Wikipedia) |
One of her last few words on her deathbed were -
“It makes no difference now. The important thing is knowing how to live. Learn a lesson from my mistakes. I had too much power before I knew how to use it and it defeated me in the end. It drove all sweetness out of my life except the affection of my children. My trouble was that I was born too late for the last generation and too early for this one. If you want to be happy, live in your own time.”
Yes, fortunes may have been lost and the succeeding generations may not have been able to keep The Commodore's wish to keep the money together and to keep the Central their road, but no amount of fortune can equal the lessons and realizations gained at the end of one's life. :)
