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Part I
I’ve decided to write a series of articles on the Big Money Game. This is the game in which big money decides that the winners are those with the most money. You can play as well (because it helps big money play their game) and you might be considered a winner if you just accumulate the latest and best toys. Watch the ads on television and notice the smiling faces of those who have the latest and best toys.
The basic rules of the game are to: 1) capture the wealth of others; 2) prevent others from capturing your wealth; and 3) if necessary, form alliances to gain to control of your area of business, or even control governments— if that’s the best way of getting what you want. For example, a few years back, the executives of Enron stayed in the White House and with Prince Charles in Buckingham Palace. Money becomes power and control and people think they are winners when they have it. They are not happier and often, they hurt others by playing the game. Nevertheless, the game becomes their main focus and everyone thinks it is important. To some, it is the American dream.
In order to win the money game, people have to determine the basic rule that wins (i.e., have the most money) and the rules by which the game is played. However, those rules are broken or sidestepped as much as possible by the players. The men who “made” America did things like corner a market; destroy all competition related to that market; buy off politicians; water down stock; etc., etc. While many of the practices of the “old days” are illegal now, big money players are always finding ways to bend the rules or just taking chances, knowing they won’t get caught. If you are big enough and important enough, others in power will often overlook you breaking the rules.
So why am I writing this series of articles? First of all, I have been teaching the essence of games in Peak 202 for some time. And even if you haven’t taken that workshop, most of you know that one alternative to the big money game is the freedom game. You become free, from a financial perspective, when your passive income (money that works for you) is greater than your monthly expenses. So, if your money expenses are $5,000 per month, and you have no passive income, then your freedom number is $5,000 per month.
I also believe that the consciousness of humanity is going up; and eventually, all of humanity will wake up, meaning we treat each other as one so that the whole world is “us.” That’s happening now. There is a direct correlation between your level of consciousness and your happiness. I’ve watched my level of happiness go up to the point where it is constantly around 75-80 (on a scale that goes from -35 to +85). And since I’ve become a oneness trainer, I’ve seen dramatic changes in my Super Traders as well. Most of those who have completed Super Trader I now have happiness scores that are consistently above 75 and I would consider some of them to be awake. Oneness now says that as of January 21st, there are over 350,000 awake people on the planet and I personally know around 150 awake people. Five years ago, I didn’t know any.
In order for the planet to wake up, the big money game as we know it has to end. We can’t have rich people keeping poor countries in debt, and leaders in those countries taking everything for themselves, including the food that others need to survive. As people begin to wake up, they see it is their duty not to play games that hurt others. I’m not talking socialism or something similar here; I’m talking about people’s consciousness changing, and in turn, following sound spiritual principles. As this change in the game begins to happen, everything we now know will change.
Let me give you an example of how the game has been played and why it has to change. John Rockefeller formed the Standard Oil Trust in Ohio in 1882, which was basically a monopoly for petroleum. Standard controlled wells, refining and transportation. If you wanted light (kerosene) for your house, you paid the Standard Oil Trust; however, making sure that everyone could have light is certainly progress. When electricity was invented, however, more homes were able to turn on the lights. . Electricity could have been the end of the petroleum industry; and what difference would it have made to those who were already very rich?
Then, a new development came into play, as Henry Ford developed an automobile that everyone could afford. He thought that alcohol was much easier for most Americans to obtain than gasoline, and he wanted his first cars to run equally well on grain alcohol or gasoline. If the automobile industry moved towards alcohol, cars would have taken a different course and the greenhouse gas effect of the 20th century would have been at least mitigated (because alcohol is far less toxic to the environment).
What did Rockefeller do? He put his money behind the prohibition amendment. Do you really think that prohibition was adopted because a lot of people thought that others shouldn’t drink? No, it was big money making sure that the petroleum industry continued to thrive, even as people switched from kerosene to electricity and automobile ownership became widespread. That’s a prime example of how the game is played.
As people awaken, however, there will be a movement toward helping others, toward increased happiness, toward more abundance for all, more tolerance for all, and the cessation of violence toward others. Wars, another way the money game is played, will be a thing of the past. I wouldn’t have thought that this was possible in my lifetime even two years ago, but based upon the changes I’ve personally seen, I now think it will happen. Perhaps I’m a just a crazy old man, but what if I’m right?
Anyway, I’ve been telling people we have been in a secular bear market since 2000, and that it could last 15-20 years. However, the fundamental conditions for much of the world are not sound at all. So, I think this bear market might just end with a collapse of the entire system. If it weren’t for my involvement with oneness, I might be very depressed by this foresight, but I now believe that from the ashes of such a collapse, something wonderful will arise!
As a result, I am inspired to write a series of articles on famous people who have played the money game, and give you some of the rules they lived by.
First, we’ll explore some famous people who dominated the economics of at least the United States. These people will include:
Incidentally, I now have framed autographs, usually on stocks certificates or bonds, of everyone on this list, except the founder of the Rothschild dynasty and Paul Warberg. I’ve been studying these people just to familiarize myself with my own collection. The documents and signatures will all be framed and on display in our offices by the end of 2013 in our Robber Barron’s Hallway.
My plan is, the first part of this series will consist of a series of 15 articles (but perhaps more) on these famous people. I will probably read several articles and sometimes even a book on most of these people, but don’t expect a detailed treatise on their lives. There are lots of myths and history has a way of promulgating them. It’s very difficult for a casual reader to separate myth and fiction from what actually happened. The winners tend to make history, and history is just a series of beliefs (many not true) about what happened in the past. However, my primary purpose will be to show you some of the rules by which these people played the money game. As for that task, I believe I can do a good job.
By the way, while many of these people hurt a lot of others in their rise to power, modern civilization also would not exist without them. We all owe a debt of gratitude to these people for large buildings, various forms of transportation, modern finance, medicine, etc.
In this series of articles, I also want to cover some of the great panics and disasters that have occurred. Some of the one’s that might be included are as follows:
My overall goal in these articles will be to give you a great idea of the money game, how it’s played, and how it may totally collapse in the future if we do see a significant increase in human consciousness. Although your world could change completely in the coming years, you’ll understand how it will be for the better and that no one has to suffer in any way through those possible changes.
I plan to devote some articles to different ideas about how the money game could be played. These ideas are harder to find because these people did not survive when others were using force to play. For example, American Indians were largely wiped out by those playing the big money game. Native Americans generally had no ideas of ownership and believed that it was the job of the tribe to ensure that everyone had enough to live. I find some of their ideas quite noble, and I plan to discuss them in this series.
The Money Game Part II: John Jacob Astor (1773 – 1848)
I’ve chosen John Jacob Astor as the first person in my Money Game series because: 1) he was the first American millionaire, 2) he is considered to be the fifth richest American (based on wealth as a percentage of the GDP), 3) the 14th richest man of all time, and 4) he was good at playing the money game.
Early Background
John Jacob Astor was born in Germany, the son of Maria Magdalena and Johann Jacob Aster. Although his father was a relatively poor butcher, John received a fairly good education. At an early age, he began working under his father as a dairy salesman.
Later, at the age of 16, John was able learn and become fluent in English when he immigrated to London and started working for his brother making musical instruments.
After the American Revolutionary War, and just a few months after his move to England, John moved to New York with his oldest brother, Henry Astor. With £5 in his pocket, John helped Henry establish a butcher shop. He became a peddler, hawking goods from his brother’s shop.
John got his financial start through marriage to Sara Todd, the daughter of the woman who ran the boarding house where Astor stayed. This marriage gave him two things: a dowry of $300, and a very smart woman who helped him considerably in his business dealings throughout his life. My guess is that women seldom get the credit they deserve for the financial success of the family.
The Fur Trade Begins
I haven’t been able to find out how he became interested in the fur trade but Astor was able to take advantage of the Jay Treaty between England and the United States in 1794. That treaty opened up the fur markets in Canada and the Great Lakes region of the U.S. While the British were given the rights to the Canadian Fur market, somehow Astor managed to plunge into the commerce in furs in that region on his own. Perhaps his advantage was that he simply engaged in fur trade there while other Americans thought it was only available to the British. Anyway, he started trading with the Mohawk and Seneca Indians, undertaking all aspects of the fur business — hauling, packing, and arranging shipment.
This sort of work was very labor intensive, but profits could be as much as 1,000% of the amount invested. So, if he invested his dowry in the fur trade, he could have made $3000 from his first venture; and in the late 1700s, that was a lot of money. As his wealth grew, Astor set up outposts so that the Indians would bring the furs to him; doing this, he was able to control the area as far west as Minnesota.
Finally, Astor got one of the more prominent fur traders in New York, William Blackhouse, to provide him with capital and act as his mentor. Astor would eventually name one of his sons William Blackhouse Astor after his mentor.
The Magnate of the Canadian Northwest Fur trade in London was the Northwest Company. Astor made contact with them and started importing furs for them from Montreal to New York. He then discovered that London was more lucrative than New York, so he started shipping his furs to London and then to all parts of Europe. By 1800, 11 years after moving to America, Astor had become one of the leading figures in the fur trade and had amassed about $250,000.
Furs and Shipping
Astor eventually acquired 12 ships for his trade. I’m not sure when he acquired them, but when you are a large scale exporter, it only makes sense to own the transportation as well. However, the British had been impressing American sailors for their own ships. To prevent such actions, President Jefferson signed the 1807 Embargo Act, which, of course, impacted Astor and his ships.
Astor was apparently friends with Jefferson. With a million dollars in hand, Astor got Jefferson to help him form a new company to trade with Russia and China. However, Astor’s real motive was to control the fur trade in the Pacific Northwest and along the Columbia River. Remember that Jefferson made the Louisiana Purchase in 1803 and Lewis and Clark had made their expedition to the Pacific Ocean. Astor wanted to be the first in business in the Pacific Northwest. He financed two prolonged explorations, one by land and one by sea. In 1811, his ship, the Tonquin, arrived at the mouth of the Columbia River after sailing around South America and the expedition formed Fort Astoria. Astor also financed overland explorations to the Northwest and his party helped discover the Northwest Passage and the Oregon Trail. Again, the big money game produced positive benefits for many.
John Jacob Astor and the War of 1812
Astor, of course, was opposed to the War of 1812 because he was afraid of what would happen to Fort Astoria. Indeed, the British captured it shortly after the war started. As a result, they held an area the size of the original 13 colonies for the next 33 years and took away Astor’s claim to the Pacific Northwest.
Regardless, Astor formed alliances with the British and the Americans — both sides in the war. The US was in debt by $17 million from the War of 1812 and Astor advanced nearly $10 million to cover part of it. I doubt he was worth $10 million by this time, but he did what many wealthy people do during wars: he advanced money and then sold the bonds at a profit. Indeed, when those bond prices declined, Astor bought more and sold them in London at a profit. Notice that at this point, Astor has alliances with significant people in London and with the president of the United States. Astor was considered a super patriot for funding the war, even though he sold many of the bonds in London, to America’s enemies. In the end, Astor made a huge profit by financing the war.
So far, we see several examples of Astor’s game:
- He saw profit opportunities and took advantage of them first.
- He developed an extensive network of people to help him, both influential Americans and influential British.
- He financed a war, although probably not using much of his own money. This was also a favorite tactic of bankers such as the Rothschilds and J.P. Morgan.
In addition, because of the lost fur trade, Astor joined the opium smuggling trade. Notice that, at this point, he doesn’t need any more money; now it’s just a game to dominate.
Astor’s American Fur Company purchased ten tons of Turkish opium and then used its own ship to sell them in Canton, China. However, the opium trade didn’t last long, because now, Astor had discovered how much the North American Indians liked alcohol. So he started trading liquor for food, which was a very lucrative profit center for him because the Indians were addicted.
In 1817, the U.S. Congress passed a protectionist law (Astor’s influence?) that barred foreign traders from U.S. territories. The American Fur Company now dominated the area around the great Lakes.
In 1822, Astor established Astor House on Mackinac Island as the headquarters of his American Fur Company. Astor’s business interests grew to span the globe in time and his ships were sailing every one of the seas. In 1834, Astor sold his business, but the American Fur Company provided him with $500,000 in yearly income for a long time.
Astor hired the famous author, Washington Irving, to write some of his stories on the fur trade. Irving published Astoria in 1836 and it became an instant best seller.
Astor’s Real Coup: Owning New York City
While his primary occupation was furs and later financing the War of 1812, Astor had sort of a hobby. As he acquired money, Astor began to acquire land in Manhattan and the surrounding area which eventually became New York City.
- In 1799, a politician named James Roosevelt sold Astor land that was too poor to farm for $25,000. It was the equivalent of 120 city blocks today.
- In 1804, Aaron Burr sold him Kings Farm and Richmond Hill for $62,500. Most of King’s Hill Farm was under a 99 year lease from Trinity Church, so Astor just sub-leased it.
- Astor also purchased 70 acres in north New York City for $25,000. Sixty years later it was worth $70 million and is now Times Square.
- Astor leased the Richmond Hill Mansion to the then-Governor of New York, DeWitt Clinton. Clinton also needed money, so he sold much of what is now Greenwich Village to Astor for $75,000 in 1805.
- Acquired the Eden Farm (most of midtown Manhattan).
- Acquired the Philipse-Morris title to 51,000 acres in Putnam Country (with help of Aaron Burr).
- State of New York claims against Astor led to many years of litigation, but Astor prevailed and sold property to NY State for $525,000 plus annual payments of $25K for the rest of his life.
Later in his life, Astor sold his Fur Company to concentrate on developing Manhattan and effectively became the landlord of New York. He constructed a five-story, 300-room hotel in Manhattan, The Astor House, in 1834. In his will, he left $400,000 to build the Astor Library, which was later consolidated with other libraries to become the New York Public Library.
When Astor died in 1848, he was worth $20-25 million—America’s first millionaire. If calculated as a percentage of the US GDP, his estimated net worth would have been equivalent to $110.1 billion in 2006 U.S. dollars. This would make him the fifth richest person in American history—ahead of Bill Gates. Most of his money went to his second son (the eldest had a mental problem), William Blackhouse Astor, who doubled the fortune to $50 million before he died. Interestingly, the first U.S. Income tax occurred during the Civil War and it was William Blackhouse Astor who brought suit against the U.S. and was able to get it repealed.
Astor and the Money Game
So what were Astor’s rules for playing the money game?
- Find unique opportunities and take advantage of them.
- Fur trade in Canada when it really was in British hands
- Corner the market if possible.
- Take advantage of new territories.
- Find an edge—trade furs for alcohol.
- Cover all aspects of your market (he did everything in the fur trade).
- When thwarted, do something else.
- Jefferson Embargo Act.
- Got Jefferson’s help in forming a new company to trade with China (but with ulterior motives).
- British take Ft. Astoria so
- Sell opium to the Chinese.
- Finance the War of 1812.
- Jefferson Embargo Act.
- Know key people and get them to help you. Those key people for Astor included:
- Aaron Burr,
- Gov. DeWitt,
- President Jefferson,
- And many influential people in London.
- Find a coach, mentor, financer (William Blackhouse).
- Sell everything and take advantage of other new opportunities as they arise.
- He bought and started to develop much of Manhattan.
There may be aspects to John Jacob Astor that I didn’t include, but to me, these cover his primary rules in the money game.
Next in the series, we’ll look at Commodore Vanderbilt, said to be the second-richest American and the 10th-richest person of all time.
Part III
Commodore Vanderbilt and the Money Game
I think Commodore Vanderbilt is the perfect example of how the money game is successfully played. When the Commodore died, he was worth about $105 million, translating to about 1.53% of the total GDP of his day. Various estimates, adjusted for inflation, put him anywhere from 2nd to 6th among the wealthiest Americans ever.
First, let me address some generalities about Vanderbilt’s life. Money and competition seemed to be everything to him. Vanderbilt and his wife, Sophia, had 13 children, but only three sons. Vanderbilt’s wife, Sophia, ran a boarding house and with her earnings she was expected to care for and educate all of the children. The Commodore actually lived on one of his ships for most of his early life.
He loved his family and did them many favors. Many of his sons-in-law were involved in running his businesses. However, Vanderbilt’s primary concern was in preserving his legacy.
He remarked that none of his shares would be sold after his death. Before his death, the Commodore gave away many shares of stock and much of his land to his son William H. Vanderbilt and to William’s sons. Although he provided for all 13 of his children in the will, William got the bulk of the estate. William’s son, Cornelius, who was the Commodore’s favorite grandson, was groomed to run the financial empire after William’s death.
The Commodore’s life was one financial battle after another, battles which he seldom lost. Even when he did lose, he always managed to get his money back or get revenge on the other party. If you had bet against Vanderbilt’s businesses, most of the time, you would have lost big. Vanderbilt had immense staying power and somehow always managed to come out on top.
Vanderbilt always paid for everything with cash, he never used leverage. This was one of the reasons he survived while many around him were going bankrupt trying to do similar things with borrowed money.
Vanderbilt knew nearly every prominent person of his era and that included a lot of wealthy people. Most were his friends, some were even former enemies. So networking, in an indirect way, was very important. At his peak, Vanderbilt personally met with Buchanan, Lincoln, Johnson and Grant. He had great influence over what they did.
The Commodore was ruthless. Two of his most famous quotes include:
- “What do I care about the law? Ain’t I got the power?”
- To his steamship rivals Charles Morgan and Cornelius Garrison: “Gentlemen: You have undertaken to cheat me. I won’t sue, for the law is too slow. I’ll ruin you.”
At one point, he personally funded an effort to end a war in Central America involving a number of countries. In doing so, he accomplished what the U.S. government could not.
Later, he was accused of manslaughter, but never even saw the inside of a jail. In fact, before the court proceedings even started, Vanderbilt and his family set sail for Europe on one of the biggest ships built to date, the North Star. His son-in-law, Horace Clark, handled the legal work for that case and everything was dismissed before the Commodore returned from his four month sailing journey.
As the Commodore grew in business, so did the concept of the corporation. Originally, when a project was too big for a single person to handle, a corporation would be formed in order to finance it. People thought of the corporation as having some par-value represented by the initial startup costs and that the primary concern of the corporation was its dividends. Vanderbilt, however, grew to understand the corporation very well and started doing things that others might have thought of as unfair simply because he understood how corporations worked. For example, he would often settle a deal by agreeing not to enter into any other competition. Those deals were always agreed with a handshake. He would never sign a written document. People soon discovered that, while he would not compete against them personally, the agreement didn’t stop him from competing against them though one of his corporations.
And finally, his business philosophy could be summarized by a quote he made in an 1869 court testimony: “How do I make a profit? I make it by the savings of expenditures. If I cannot use the capital of that road (meaning railroad) better per year than anyone else who has ever been in it, then I do not want to be in the road. That has been my principle with steamships: but if I could not run a steamship alongside another man and do it as well as he for 20 percent less than it cost him, I would leave this ship”
The Commodore’s life might be said to be comprised of four phases: 1) Early Ferryboat Days; 2) Thomas Gibbons Apprenticeship; 3) Ruling the Ocean Routes as the Commodore; and 4) The Railroad King. During each phase there were numerous battles, all interesting, which the Commodore usually won.
Early Ferryboat Days
Vanderbilt’s parents were humble, but instilled a strong entrepreneurial sense in him. His father used his sailboat as a ferry and to salvage cargo from shipwrecks. His mother loaned money and even foreclosed a mortgage she had extended to her own daughter, after her daughter was widowed. Starting in 1810 at the age of 16, Vanderbilt operated a sailboat, technically owned by his parents. Later, he married his first cousin, Sophia Johnson, and began to work entirely for himself. It was said that he got married simply to become independent of his parents. He ran a ferry between Manhattan and Staten Island and began to trade in cargoes of fish, produce and goods. He was a big man, over six feet tall, who learned to use his fists as well as his brain. He was tough, honest and capable, and he knew when to break the rules.
Thomas Gibbon’s Apprenticeship
In 1817, Vanderbilt agreed to serve as a ferry captain for Thomas Gibbons of New Jersey, while still operating his own boats. He agreed to do this because Gibbons’ vessel (which ran between New Jersey and New York) was a steamboat, giving Vanderbilt an education in this new technology. Most importantly, Vanderbilt assisted Gibbons in a battle against a legal monopoly on steamboats in New York waters that had been granted to the patrician Livingston family. In those days, rich families were often granted monopolies in new technologies and the steamboat was a prime example of that. Vanderbilt frequently ran against the law for Gibbons. In fact, the law in New Jersey was on Gibbon’s side while that of New York was on Ogden’s, who had been granted the license to operate a steamship by the Livingston family.
In 1824, Chief Justice John Marshall of the US Supreme Court ruled against the monopoly granted by NY saying that states could not interfere with interstate commerce. Had the verdict gone the other way, Vanderbilt would have probably gone bankrupt and been thrown in jail for his many violations of earlier court rulings. However, the ruling allowed Gibbon’s ferry to operate without any problems and that opened up Vanderbilt’s future in transportation.
Vanderbilt understood that the speed of information in his time could only move as fast as the fastest form of transportation. So, as technology advanced, Vanderbilt adapted by moving from ships, to steamships, to advanced steamships, to railroads, and eventually he even controlled the early telegraph.
Vanderbilt worked for Thomas Gibbons until Thomas’ death in 1826, and then for his son William Gibbons until 1829, but all the while continuing to operate his own ships on the side. His aggressiveness caused Thomas Gibbons to write, “I am afraid of this man.”
The Commodore
Vanderbilt was always designing and building larger and faster steamers, becoming one of the leading maritime architects of the paddlewheel era. After leaving Gibbons’ service, he inaugurated a series of lines radiating out of Manhattan—first to New Brunswick, NJ then to Peekskill, Albany, and the ports on Long Island Sound. He competed against the dominant steamboat enterprises in each market, offering better speed and lower fares. At times, he accepted pay-offs to end his competition; and he paid at least one rival, Daniel Drew, to do the same.
Starting in 1835, Vanderbilt concentrated on Long Island Sound, where his boats connected to the new railroads that served Boston and New England’s budding factory towns. He acquired a stake in a number of these railways and took part in their management. In 1847, with the aid of Daniel Drew (an ally by that point), he took control of the Stonington railroad, and was elected corporate president.
During the Gold Rush, there was a great migration of Americans to California. Remember, the fastest transportation was the fastest form of information transfer. To go to California, you could go across the country by wagon train, taking a year, or you could go by ship around South America — or perhaps via a water and land route through Panama or Nicaragua. Vanderbilt immediately moved into this field, even winning the government mail route to the Pacific. He would operate one set of ships for the Atlantic part of the route and the other set for the Pacific.
Vanderbilt’s wanted to construct a canal across Nicaragua which was already largely traversed by natural waterways. Nicaragua was closer to the US than Panama, and a canal there would be cheaper and faster than his competition who were crossing through Panama. He was unable to secure the necessary capital for the canal from British bankers, but he was able to convince the Nicaraguan government to grant his company the exclusive right to transport passengers and freight from ocean to ocean. Displaying his ever-present sense of adventure, he personally went to Nicaragua three times in order to scout the canal and transit routes, negotiate with the government, and pilot steamboats across Lake Nicaragua. Inaugurated in July 1851, Vanderbilt’s line, known as The Accessory Transit Company, soon became an effective competitor with the established Panama route, carrying passengers between New York and San Francisco at lower fares. The route saved nearly a week of travel time compared to the journey via Panama, and several months off a voyage around Cape Horn. The success of the Nicaragua route lifted Vanderbilt to national prominence. He acquired the informal title of Commodore—then the highest rank of the U.S. Navy—an honorific description used by newspapers, politicians, and family members for the rest of his life.
The Accessory Transit Company’s success led to a succession of conflicts with partners in the enterprise. In 1856, after a hiatus outside of the company, partly to take a celebrated journey with his family to Europe, Vanderbilt resumed control, only to run up against William Walker. Walker was a soldier of fortune who had invaded foreign countries and in 1855, managed to take control of Nicaragua. In doing so, he stripped Accessory Transit of its transit rights, transferring them to a friend of Walker’s, who resold them to Vanderbilt’s business rivals. Soon, a war developed involving a number of countries, which the United States was powerless to stop. Vanderbilt personally developed and financed a plan to overthrow Walker’s regime. After Walker was gone, however, the new Nicaraguan government refused to reopen the transit route. Again, showing his toughness and tendency to never lose, Vanderbilt started a new line running by way of Panama. Ultimately he forced Pacific Mail to divide the market with him and establish a joint monopoly in 1860.
During this period, Vanderbilt also engaged in other enterprises.
- On May 21, 1855, he initiated a transatlantic steamship line, in opposition to a federally subsidized company led by Edward K. Collins. As usual, his line offered steeply lower fares, and Collins’s company eventually went bankrupt.
- After many prior ventures into ferries between Manhattan and Staten Island, he started the service that is the direct ancestor of the municipal Staten Island Ferry that is in operation today.
- During the Civil War, Vanderbilt donated his largest steamship to the Union Navy. The Union was afraid that the ironclad, famously known as the Merrimack, would destroy Union shipping. However, Vanderbilt’s ship, the Vanderbilt, was able to hold the ironclad at bay and stop it from doing more damage until it was later destroyed. After the war was over, Congress awarded him a gold medal for his service.
The Railroad King
It is remarkable that Vanderbilt was able to see that the railroad would become the king of transportation in the latter part of the nineteenth century. As a result, he sold all of his steamship businesses and moved into railroads where he became the King.
Vanderbilt’s interest was first drawn to the New York & Harlem Railroad, which went right into the center of Manhattan. Once he acquired that, he took control of a series of railroads that connected New York to Chicago—moving sequentially into:
- The Hudson River,
- The New York Central,
- The Lake Shore & Michigan Central, and
- The Canada Southern.
He created an interregional railroad system. This was a major transformation of the railroad network, which had previously been fragmented into numerous short railroads, each with its own procedures, timetables, and rolling stock. The creation of a coherent system spanning several states lowered costs, increased efficiency and sped up travel and shipment times.
Vanderbilt was ruthless in his business tactics. For example, in January 1867, he halted all rail traffic going into Manhattan to settle a business dispute. A winter storm was preventing ferries from reaching the city at that time so his action essentially cut off New York from the rest of the country. Such acts aroused fierce debate over the new power of corporations, and about the inherent conflicts between private and public interests created by very large enterprises. Vanderbilt saw no such conflicts. As he explained his philosophy to the New York State legislature, “It is not according to my mode of doing things, to bring a suit against a man that I have the power in my own hands to punish.” The New York Times created the metaphor (if not the actual phrase) of “the robber baron” in order to criticize Vanderbilt’s style of business.
In 1863 and 1864, Vanderbilt cornered the market in Harlem railroad shares in order to punish short-selling public officials who wished to damage the stock price. In 1868, he waged an epic, yet failed attempt to corner Erie Railway stock. Jay Gould, Daniel Drew and James Fisk bribed the New York State legislature to enable them to print more and more stock, which they sold to Vanderbilt. The Commodore lost $7 million in this venture, but was later able to force Gould to give much of it back. Many assumed that Vanderbilt was paying off public officials as well, though evidence was lacking.
In 1870, Vanderbilt consolidated his two core companies into one of the first giant corporations in American history: the New York Central & Hudson Railroad. The new company had a par-value stock capitalization of about $100 million, roughly four times greater than that of the New York Central alone just a few years earlier. The par-value of each share was $100, a figure of great importance to nineteenth-century investors. In theory, the total par-value of a company’s stock represented its investment in physical capital.
Cornelius Vanderbilt ordered the construction of new infrastructure, including the original Grand Central Depot (then the largest railroad station in the United States), a massive freight depot at St. John’s Park in lower Manhattan, and an unprecedented four-track corridor between Albany and Buffalo. Within the city of New York, Vanderbilt was eventually forced to move his railroads underground.
The New York Central & Hudson River was able to continue to issue regular dividends after the cataclysmic Panic of 1873, when other major railroads suspended payment and half of the nations’ railways went bankrupt.
Stock of the New York Central and Hudson River with Vanderbilt’s Picture
Even though Vanderbilt had little education and spelled phonetically, he was one of the first to really understand the power of corporations. He carried out some of the first notable stock splits, later rewarded with rising share value on the stock market. Conventional economic thinkers, on the other hand, denounced these splits as “stock watering.” In keeping with the theory of the day, they believed that the shares of stock should equal the amount of investment in physical capital, usually at $100 per share, the standard par-value. If new shares did not represent a corresponding increase in real estate, buildings, rolling stock and the like, then they were condemned as “fictitious capital.” Vanderbilt, however, usually increased the dividend payment after such splits to make investors happy. Vanderbilt defended his operations in conventional terms, but he contributed to the abstraction of the financial sector, decoupling securities from a direct linkage to the physical world.
Corporate collusion to eliminate competition was another issue that surrounded Vanderbilt during his later years.
- Vanderbilt dominated railroads, although he was later surpassed in that by Jay Gould.
- Rockefeller and Standard Oil Trust dominated the oil industry.
- Carnegie dominated the Steel Industry.
- And J. P. Morgan later dominated railroads, steel, and electricity.
Vanderbilt had celebrated competition as a steamboat entrepreneur, but when he went into railroads he tried to construct cartels to set rates and manage conflicts across the industry. He was attacked by numerous critics, including Mark Twain.
Vanderbilt was very liberal in his business attitudes in his early years, espousing laissez faire views of Adam Smith, even though he probably had not read The Wealth of Nations. Although his views never changed, by the time he died, Vanderbilt was actually considered very conservative. In 1867, when testifying before the New York State legislature, Vanderbilt said: “I have always served the public to the best of my ability…Why? Because, like every other man, it is to my interest to do so.” This is pure Adam Smith philosophy.
Summary: The Money Game as Played By Cornelius Vanderbilt
1) Money was more important than anything else to him, including his family.
2) He thrived on competition and his life was one battle after another.
3) He broke the rules continuously, even though he was pretty honest and straight forward in terms of his word. If he said something, he stood buy it. However, when he said he wouldn’t compete against you, and then did so as a corporation, he really wasn’t breaking his word, he was bending the rules.
4) He knew most of the influential people of his era and was able to use them to further his interests.
5) He determined the latest advances in technology (in this case transportation) and was always at the forefront. He contributed greatly to the advancement of the United States and in doing so became one of the wealthiest men ever.
PART IV
Early Origins of the Money Game – Croesus and Greek Civilization
When I first proposed writing a series of articles on the money game, I received a complaint from someone who said that most of my focus was on Americans. What about the Europeans or Asians? Well, there were reasons for my emphasis on Americans. First, while I was concentrating on some of the richest people of all time (including the Rothschilds and the Medicis), most of the people on that list prospered in the United States between 1850 and 1910. The period of time after the American Civil War was one of the greatest times for profit in the history of the world. You could make your own rules for playing the game because there was minimal government regulation in American business and no income tax. Those two factors had a huge impact on wealth accumulation. For example, I believe my net worth would probably be about 100 times what it is now if there was no income tax today. In any case, those who played the game well in the US in the fifty years after the Civil War became money giants.
For much of the history of Europe and Asia, one has to consider the impact of royalty on the wealth factor. If you had a significant amount of money in an area that had an all-powerful ruler, then there was a good chance that the ruler considered everything in the kingdom as belonging to him. Thus, if you didn’t play good politics with the royal family, they could take your money away. In fact, royal families would have to be considered part of the money game in old Europe and that’s not a relevant factor today.
Nevertheless, I just finished a great book, The History of Money, which inspired the next three articles in the money game series. These next three articles will not focus on particular people, but on particular eras.
- This article will cover the ancient Greeks and the development of gold and silver coins.
- The second will be on the money’s impact on the rise and fall of the Roman Empire.
- And the third will talk about the impact of the Roman Catholic Church on the money game with a special reference to the Knights Templar.
The Origins of Coinage
Most everyone has heard the phrase “Rich as Croesus.” Well, Croesus basically changed how the money game was played. The ideas of the Lydian kings, like Croesus, paved the way to incredible wealth and to a culturally rich society — the Greek Civilization. So, how did that happen?
Homer portrayed people of combat and heroism and wrote about anger, war, heroism, passion, violence, honor, etc. Money had no place in the poems of Homer because people were only interested in honor. Towns tried to be as self-sufficient as possible so they would not have to trade with neighbors; neighbors could be dangerous.
Somewhere around the seventh century BC, the Lydian people who inhabited the western part of modern day Turkey, recognized the need for a portable wealth. They manufactured coins made of electrum, a naturally occurring mix of gold and silver. These coins were thick slugs about the size of the end of one’s thumb. Each coin was stamped with a lion’s head to guarantee its authenticity and standardized in weight and size to eliminate the need to assess its value each time it was used. This made trading easy and it opened up trade to new segments of the population.
Around 560BC, Croesus ascended the throne in the kingdom of Lydia and things started to change. During his 14 year reign, Croesus created new coins made of pure silver and gold. This created more opportunity for commerce and the invention of the retail market. Rather than having to find the home or shop of a craftsman, you could go to a central market to purchase items there. Anyone could come to the central market and buy or sell items with gold and silver coins.
Coinage also affected traditional societal roles. The Greek historian, Herodotus, was said to have been horrified to find that women could choose their own husbands because they could have dowries to aid them in their selection. In addition, the first known brothels arose around these times as part of the “market.” Women could work in the brothels long enough to secure a dowry big enough to find the husband they wanted. In addition, the Lydians were credited for creating the first gambling games around this time.
Commerce created the fabulous wealth of Croesus. But he also squandered it on two common weaknesses for kings — buildings and armies. It was said that he conquered most of the other Greek cities, after which he built extensively in them. This process eventually led to his downfall. As he considered a campaign against the Persian Empire, Croesus asked the oracle at Delphi what chance he had and was told a great empire would fall. Croesus interpreted the prophecy as a favorable sign that he would conquer the Persians but it was his great empire that would fall.
The Ancient Greeks
After Croesus fell, the surrounding Greeks adopted the Lydian practice of making coins and commerce began to flourish throughout the Mediterranean. Eventually, the Greeks replaced the Phoenicians as the greatest traders of the Eastern Mediterranean.
Coinage offered stability to this trade because it provided merchants with a permanent medium of exchange. Previously, money had consisted of some prominent, but usually perishable commodity. Once money was based upon rare metals, however, these coins provided people with:
- Ease of use
- Standardization and
- A non-perishable way of storing wealth.
At the time, other civilizations had been based on a strong authority supported by a massive army and by wealth collected as tribute. Kinship and brute force were the primary methods for organizing societies.
Money helped Greece organize its society on a much greater scale than was previously possible. Money didn’t require extensive administration, police or military systems. Money especially suited Greece at that time because it was a loose structure of many relatively independent city states.
Those in power saw the advantages money offered them. They could collect money for taxes rather than collect commodities which could perish before they were used. Even crimes could be monetized so if someone committed a crime, they could pay a penalty rather than being killed.
In addition to money providing a medium of exchange for goods, it allowed payment for services. People could work and get paid for doing a service and that service had value. Not only could you buy a loaf of bread, you could also pay someone to clean your house, commission a poem, or obtain sexual services – all because of money. People began to work to get paid rather than being forced to do so.
Money enabled an artistic culture to develop. People could produce a work of art (music, painting, a play, etc) and get paid to do so. Athens became a center for artistic culture and flourished as one of the wealthiest Greek city-states. Interestingly, the basis for most of Athen’s money was silver for which they had an ample supply after discovering rich deposits in Laurium, south of the city.
Politics too started to change as a result of money. The Greeks had to deal with debt and at one point they passed a law canceling it. It didn’t work, but at least they tried. Prior to money, you could only vote if you owned land. But after the development of coinage, having wealth also gave you the privilege to vote. Essentially a great civilization flourished, and the center of that civilization was the marketplace.
Too little was written during that particular era of history to understand how individuals played the money game; however, it was obvious that the rules of the game changed considerably as coinage emerged and evolved. Greece went from a society dominated by honor to one dominated by commerce, in which culture was now able to flourish. Those who had the ability to see what was happening could easily dominate the money game, however, there are insufficient records to know who those people were and how they played.