The Commodore and the Commerce Clause

The President's Supreme Court argument supporting his Obama-care legislation to socialize, nationalize and monopolize the practice of medicine hinges on expansion of the constitutional reach of the "Commerce Clause"[1].  Paradoxically, it was pioneering free-market steamboat- and railroad-entrepreneur and early Wall Street titan, "Commodore" Cornelius Vanderbilt, who played a pivotal role in the landmark 1824 Gibbons vs. Ogden Supreme Court Decision that established primacy of the federal government in regulation of interstate commerce.

 "Cornelius Vanderbilt was a classic Market Entrepreneur (using Folsom's terminology) and an Agent of Creative Destruction -- a true Schumpeteran Entrepreneur. He was a key figure in breaking the steamboat monopoly granted to Robert Fulton and Robert Livingston in the waters around New York City; in the transatlantic steamship business; in the east coast to west coast steamship business; and the builder of the New York Central system which, in effect, replaced the Erie Canal. When he died he was the richest man in America ($105m) and he left a high quality quadrupled track railroad that played a key role in the development of the Midwestern United States."

Regardless of whether the President's legal argument prevails in court, we can be sure that his policies for tight government regulation and control of the healthcare industry are antithetical to the historic significance of 1824 ruling which triggered explosive laissez faire industrial growth in the United States, which quickly became a vast integrated, peaceful,  law-abiding common-market enabling Adam Smith's invisible hand to work economic miracles.

John Steel Gordon lists the 1824 decision as one of only "10 Moments That Made American Business." 

The decision was greeted with public jubilation, and for good reason. Thanks to competition, fares quickly fell on average by 40 percent, and in just two years the number of steamboats working New York waters increased from 6 to 43.

The long-term effects were even more profound: States stopped granting monopolies to influential local citizens, as they all were now presumptively unconstitutional, while other barriers to interstate commerce fell as well.

In his classic work The Supreme Court in United States History, Charles Warren calls Gibbons v. Ogden the "Emancipation Proclamation of American Commerce." That is not an exaggeration. With the decision, the United States became the world's largest truly common market, its goods free to move throughout vast territories unhindered by parochial concerns and regulations.

And the timing could not have been better. The power of steam to move goods cheaply over long distances, merely hinted at by the steamboat, was soon to grow by orders of magnitude. The railroad, beginning less than a decade thence, would make an integrated national economy a reality. Thanks to Gibbons v. Ogden, American businessmen would be able to take full advantage of it, and did they ever.

It's highly doubtful anyone will ever label the 2700-page Obama-care legislation as the "Emancipation Proclamation of American Medicine".  Daniel Webster successfully argued the 1824 case on behalf of Gibbons.  And by all accounts, Donald Verrilli, Obama's Solicitor General, is in no danger of being labeled the "Daniel Webster of the 21^st Century."  But how could he be?  He is saddled by Obama with the untenable "logic" of using a landmark Supreme Court judgment overturning state monopoly as the precedent for imposing federal monopoly. 

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Yet something larger is at work here.  The evidence is polls showing the American citizenry's near instinctive rejection of ObamaCare, the secretive congressional negotiations for which featured such unseemly horse-trading as the Cornhusker Kickback and the Louisiana Purchase. as well as Nancy Pelosi's now infamous line: "We Have to Pass the Bill So That You [peons] Can Find Out What Is In It." 

For what else could be in a 2700-page bill other than a withering thicket of politico- economic-medico supervisory provisions effectively "granting monopolies to influential local citizens" thereby causing the free-trade of goods and services to be "hindered by parochial concerns and regulations."  Its intent is for medicine to forever rigidly report to an extensive state-bureaucracy instead of the ever-shifting, ever innovating, unregulated market for new ideas, techniques and services. 

The visceral reaction of the American people to this federal seizure of power is a 21^st Century instance of what historian Gordon Wood named via the title of his book "The Radicalism of the American Revolution".  His thesis is essentially that a new social equality emerged in colonial America with the toppling and leveling of feudal hierarchy as economic activity shifted from localized self-sustaining manors (villas, plantations) emphasizing client-patron (or master-slave) relations. This transformation led to continentally-integrated free markets, connected by extensive new free trading routes among free men employing free labor. America is a coffee-drinking nation in consequence of the Boston Tea-Party's  early rebellion against state monopoly granted on tea to the Royal East India Company.  From such busters of monopoly-privilege as Vanderbilt and the Tea Partiers was born (according to Wood) an exceptional American identity of liberty and equality that to this day instinctively favors the underdog in any contest against socially-privileged incumbents.

Liberal Progressives today are intent on dismissing figures like Vanderbilt, linking him with others under the rubric "Robber Barons."  The truth is opposite. Lest we forget, Vanderbilt lived in an era not many generations removed from the Dutch-colonial Patroon System that established vast feudal manors along the Hudson. Vanderbilt did not keep his place in deference to this colonial-era social hierarchy. 

"Starting in 1810, at the age of 16, Vanderbilt operated a sailboat, though it was technically owned by his parents. On December 19, 1813, he married his first cousin, Sophia Johnson, and began to work entirely for himself. He ran a ferry between Manhattan and Staten Island, and began to trade in cargoes of fish, produce, and goods.

"Early on, he established a reputation as a man who was tough yet honest and capable. Boatmen sometimes engaged in fistfights and dirty tricks to steal customers. Vanderbilt, who grew to be six feet tall, learned to use his fists effectively, and demonstrated skill and daring in handling a vessel.

"Perhaps the greatest turning point in his life came on November 24, 1817, when he agreed to serve as ferry captain for Thomas Gibbons of New Jersey. Gibbons's vessel (which ran between New Jersey and New York) was a steamboat, which gave Vanderbilt an education in this new technology. More important, 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. Gibbons's lawsuit against the monopoly, Gibbons v. Ogden, was finally decided in his favor by the United States Supreme Court on March 2, 1824. Chief Justice John Marshall ruled that the monopoly had no force against interstate shipping; states, he declared, could not interfere with interstate commerce. The decision overturned lower court precedent to guarantee freedom of trade within the nation's borders. It allowed Gibbons's ferry to operate unhindered, and cleared the way for Vanderbilt's own future in transportation."

Who in this instance is the Robber Baron?  The one who secures political control of a major river valley so as to impose internal tariffs on behalf of one baronial family?  Or is it the one who frees the valley for open trade by all free-market entrants who seek to serve the travelling public?  Thusly liberals' cliché view of Vanderbilt masks the truth that our ingenious Yankee private sector transportation pioneers served to liberate Americans from limits imposed both by time, energy and geography as well as political borders separating the American colonies. 

Being a self-taught expert in steam-engine propulsion, Vanderbilt's career created a vast fortune, initially by engineering and managing an extensive steam-ferry system serving intra-coastal trading ports on storm-sheltered Long Island Sound and Narragansett Bay.  This early transport network linked Boston traffic overland, bypassing the long and dangerous ocean-going route around Cape Cod.  "Then in the 1830s railroads appeared, and a close association grew between the steamboat companies and the infant rail lines", according to this article entitled "Paddlewheels and Steam."  Vanderbilt was later a pioneer in California steam-ship transportation lines serving the mid-century Gold Rush, with lines from New York to the Isthmus of Panama for overland connections to Pacific steam lines to San Francisco. His maritime exploits earned Vanderbilt the popular honorific title "Commodore."   During the Civil War, the Commodore donated his largest ocean-going steamer to the Union, an act of selfless patriotism (Tea Partiers take note!) that puzzled and perplexed the cabal of corrupt contractors and politicians infesting Washington for purposes of war-profiteering.    

Vanderbilt will however be primarily remembered as the principal financial and managerial architect of the New York Central Rail Road's "Water Level Route" to the Midwest, with tracks north from Manhattan along the Hudson River joining the Erie Canal right-of-way west to Buffalo, Detroit, Chicago and points west, threading the Mohawk River Valley as a low elevation pass through the Appalachians.  Traffic grew quickly to become so extensive that Vanderbilt concluded correctly that profits, service, safety and efficiency would be improved by separating onto parallel lines the fast-moving passenger trains from slower-moving freight trains thus justifying economically the aforementioned quadruple track railroad.  All of this was financed privately on Wall Street, a conduit for vast flows of British as well as domestic investment capital. Vanderbilt learned to use the NY Stock Exchange to finance his railroad enterprises, becoming one of Manhattan's corporate titans possessing the power to move markets in railroad securities in the way, e.g., Warren Buffett does today.  Reproduced below is a map of US railroads at the height of the steam-age in 1918, nearly all of it constructed privately in the 19^th Century. 

Railroads of the United States in 1918 - constructed and operated by private industry

Even those most quintessential of municipal urban transit systems, the NY City-owned subways, began life in the 19^th Century as private sector concerns, some of whose names continue to adorn the principle lines (IRT and BMT )

In fact, the last major American civil engineering project publicly financed in the 19^th Century was the Erie Canal, funded almost entirely by NY State Government.  Although canal-building was the era's craze, the Federal Government -- dominated by Virginians -- consistently refused New York's entreaties for co-funding of this "internal improvement."  The canal's 8-year construction -- hand-excavated by work-crews from nearby upstate farm communities -- was punctuated by annual political struggles in Albany over the necessary tax appropriations.  These struggles pitted Governor Dewitt Clinton against an emergent Tammany Hall, causing him to lose his grip on New York State politics, a slippage that eventually thwarted Clinton's presidential ambitions.  Although Clinton was associated prominently with one of the most successful engineering achievements in history, his political career faltered.  19^th Century politicians were quick to spot a trend (Clinton's political fortunes being "Exhibit A") and so few had the temerity thereafter to tie their political fate to the fortunes of a large-scale public-works project.  This left a gap in means to fund large-scale projects that was quickly and ably filled by private-sector financial innovators, especially those on Wall Street

The Vanderbilt family's fabulous American legacy includes Vanderbilt University, Vanderbilt Hall at Yale, Vanderbilt Hall at Harvard, the Vanderbilt Mansions and, of course, Manhattan's Grand Central Terminal (reconstructed on the site of the Commodore's earlier Grand Central Depot) and the NY Central Headquarters Building -- now known as the Helmsley Building.  But can a man's legacy also include the competition he inspired?  Just as Steve Jobs's competition with Bill Gates and Microsoft propelled Apple to revolutionize computer and telecommunications technologies, so did competition with Vanderbilt's NY Central RR propel the Pennsylvania Railroad to new heights of achievement.   For the Pennsylvania was saddled with the need to hoist every ton of freight up and over the Appalachians, an inherent gravitational "energy tax" that was completely avoided by the Central's aforementioned "Water Level Route."  

In response, the Pennsylvania evolved to become widely-recognized as the most efficiently engineered and managed railroad in the world.  It's innovators included J Edgar Thomson who designed and constructed the famous Horseshoe Curve near Altoona PA, long considered an engineering marvel -- still used extensively today -- to efficiently transport freight over the mountains, opening trade routes between Philadelphia and Pittsburgh, a "western" city then considered the "gateway" to the Midwest, given its "Three-Rivers" site.  

Pennsylvania RR's Horseshoe Curve near Altoona PA

The Pennsylvania's tracks crossed New Jersey to connect to Manhattan via cross-Hudson ferries, later replaced by tunnels to Penn Station which are still in use today.  The great rivalry was symbolized by the presence of another great railroad station on Manhattan, the fabled Penn Station, which rivaled Grand Central Terminal in elegance and grandeur. 

The Pennsylvania RR pioneered professional "Big Business" management methods, techniques later adopted in other industries, most notably by Andrew Carnegie, an executive of the Pennsylvania's Western Division who went on to revolutionize the iron and steel industry. In homage, Carnegie Steel (later US Steel) named its first large-scale integrated steel works near Pittsburgh after J. Edgar Thomson. The functioning of these steel mills was predicated, of course, on marshaling vast concentrations of fuel, limestone, iron-ore and finished-steel, all of it efficiently transported by rail or river-boat.

Thus was ushered in the "Age of Steel," characterized by a virtuous yet competitive symbiosis that emerged among the iron and steel industry, railroads needing steel rail and locomotives, steel-bridge builders, steel-ship builders, builders of steel skyscrapers etc. -- all of whom served both as customer and supplier to burgeoning industrial markets that quickly transformed a continent (see map above) with mighty cities and interconnected markets, advancing American prosperity and living-standards to unprecedented heights, and laying the foundations of the modern world. Cultural byproducts of the new ubiquity of inexpensive steel included such important developments as the steel-string guitar; mass-marketed by mail-order giant, Sears & Roebuck, and delivered by rail throughout the United States, it was used to play that uniquely American music, the Delta Blues.

Today, we live, of course, in the "Age of Silicon" wherein similar market symbioses amidst and betwixt chip manufacturers, computer makers, telecoms, software industries, etc. combine to transform our world -- but that's the subject for another essay.  What is important here is to heed the "lessons learned" about the profound advantages of open, competitive markets which beginning in19^th Century America unleashed vast entrepreneurial energy that operated freely in an era when economic role of the Federal Government was inconsequential. 

These historic lessons are being dangerously and systematically obscured and obliterated by revisionist liberal-progressives who dominate our public-schools, universities, news-media and politics. Significantly, "Amtrak-Joe" Biden, stated falsely that:

"Every single great idea that has marked the 21st century, the 20th century and the 19th century has required government vision and government incentive"

Contradicting this are four significant instances of "great ideas" that had nothing to do with government recorded in our brief survey above: 1) NY Central RR's quadruple track; 2) Penn. RR's Horseshoe Curve, 3) Carnegie Steel's Edgar Thomson Works; and 4) Sears & Roebucks' mass produced steel guitars.  It's wise to recall that an earlier era of heedless progressive "modernizing" saw the demolition of Penn Station -- a cultural crime almost immediately and universally decried.  Today Biden et al continue this cultural destruction by tearing down rhetorically the memory of the enterprises who built these landmark railroad terminals. In Biden's view of the world, all competition is bad and all that is good comes from politicians. Following Biden's lead, union-dominated public schools impose ignorance upon today' students by not teaching of  the vast accomplishments of such private sector industrialists as Vanderbilt, Carnegie, Ford, Mellon and Rockefeller  -- all of whom were immensely significant cultural and educational philanthropists.  

Liberal Democrats seek instead to falsely abrogate all that is historically good to the auspices of a patrician government class in Washington - led by their version of feudal "Camelot."  This insidious anti-capitalist, anti-free market propaganda seeks relentlessly to obscure the historic truth as part of a liberal-progressive campaign to re- impose more primitive client-patron "dependency" relationship (witness Julia!) on freedom-loving citizens . This campaign is at odds with the American frontier spirit characterized by equality among self-reliant men and women, heartfelt implicitly and endowed explicitly by inalienable enumerated rights. (Recall that Wyoming was first state to grant women the right to vote). It is important for Americans to see through this veil of ignorance and recover and reclaim our awe-inspiring heritage of achievement by our forebears competing freely in wide-open markets, legally enabled under the Commerce Clause ruling of 1824 - a significant part of Vanderbilt's vast legacy to us all.  Unless and until we do, our economy will stagnate in disarray under mindless liberal control from Washington DC's ignorant Ruling Class. 

In Memory of Adm. Robert W. Schmitt 1933-2012 

[1] Article 1, Section 8, Clause 3, of the Constitution empowers Congress "to regulate Commerce with foreign Nations, and among several States, and with the Indian Tribes."