In 1840, Thomas Carlyle delivered his famous lectures on the heroic in human affairs, declaring “the history of what man has accomplished in this world, is at bottom the history of the Great Men who have worked here.” This belief lives on in business, which celebrates individuals from Henry Ford to China’s real-estate mogul Zhang Xin.
But Carlyle had a knife in his back before he uttered his first words, planted by Adam Smith’s invisible hand. Historians and economists now stress blind forces over heroic leadership. So did Tolstoy, who famously wrote in War and Peace that Napoleon only imagined that he ordered the invasion of Russia; it was, rather, willed by millions of French citizens.
Ironically, Smith’s case was made by one of the strongest personalities in US business history: “Commodore” Cornelius Vanderbilt (1794-1877), a titan of transportation, the stock market and the modern corporation. In 1867, he testified before the New York state legislature, which was considering a bill to keep the trains running during disputes between connecting railroads. “If you could pass a law compelling men to take better care of their interests than their interests will compel them without the law, then it is well enough,” he said.
Vanderbilt did not acknowledge the existence of a public interest apart from private interests. More to the point, he implied that his own interests had compelled him to act as he did, as if he were a puppet of the invisible hand.
Case closed? Not if you take into account what he actually did – the reason for his testimony. At the time, Vanderbilt controlled the only railroads that entered New York City. He had been betrayed (as he saw it) by the managers of the New York Central Railroad, which connected his lines to the interior of the United States. He had retaliated by refusing to accept any of its trains onto his tracks.
He did so in deep winter, during a blizzard that kept shipping away from New York’s docks. In striking at his foe, he cut off the nation’s largest city from the rest of the United States. The Brooklyn Eagle said Vanderbilt “was placing the metropolis in a state of strict blockade, and cutting off its supplies… We can imagine no act more criminal.”
Far from inevitable, the action stunned enemies and allies alike. All his advisors, including his son William H. Vanderbilt, argued against it. But it worked. New York Central shares collapsed in price. Vanderbilt bought control and made the company the centre of a railway empire between New York and Chicago.
“It is impossible to regard Vanderbilt’s methods or aims without recognizing the magnitude of the man’s ideas and conceding his abilities,” wrote Charles Francis Adams Jr., grandson of President John Quincy Adams, in 1869. One of the keenest economic observers of that time, Adams argued for the significance of Vanderbilt as an individual. “He involuntarily excites feelings of admiration for himself and alarm for the public. His ambition is a great one.” Adams concluded, “As trade now dominates the world, and railways dominate trade, his object has been to make himself the virtual master of all by making himself absolute lord of the railways.”
Adams was correct to emphasize Vanderbilt’s significance, though he did so for the wrong reasons. As an intellectual, he assumed that Vanderbilt saw the economy systematically, as Adams himself did. The real sources of his impact lay elsewhere.
First, he was fierce. As Vanderbilt testified, “I am not afraid of my enemies, but, my God, you must look out when you get among your friends.” He saw the punishment of betrayal as key to making the market work. If so, he made it work again and again.
Second, his very lack of education made him extremely practical. He violated economic orthodoxy repeatedly, outraging theorists such as Adams. But he was effective, and others followed his example. Today Adams seems archaic and Vanderbilt looks quite modern.
Third, he was flexible. He had a remarkable ability to exploit momentary opportunities and expand them into transformative developments for himself and the economy. His moves into motorized shipping, the budding financial markets and railroads, and his creation of one of America’s first giant corporations, all flowed from unanticipated openings.
Finally, he took pride in being true to his word and honest as an executive. In a critical period of US economic growth – a dark age of insider trading and self-dealing – he brought stability and credibility to the markets, reduced costs and increased efficiency of transportation, and built infrastructure that serves the city of New York to this day.
The irony is that he put a human face on the depersonalization of the economy. His ferocity ignited a debate over corporate power and the need for government regulation. This debate revolutionized American politics and eventually led to the modern regulatory state.
Author: T.J. Stiles is the author of The First Tycoon: The Epic Life of Cornelius Vanderbilt, recipient of the Pulitzer Prize and the US National Book Award. He is participating in the World Economic Forum’s Annual Meeting in Davos 2014
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