3/7/12 - robert fulton goes bankrupt

In today's excerpt - Robert Fulton, the first American to operate a steamboat, went bankrupt when he lost his monopoly in a landmark Supreme Court ruling, which resulted in competition from innovative competitors like young Cornelius Vanderbilt. Prices dropped so low that a newspaper quipped—walking was more expensive than traveling on the Vanderbilt line:

"Every schoolchild is taught that Robert Fulton was the first American to build and operate a steamboat on New York waters. When his Clermont sauntered four miles per hour upstream on the Hudson River in 1807, Fulton opened up new possibilities in trans­portation, marketing, and city building. What is not often taught about Fulton is that he had a monopoly enforced by the state. The New York legislature gave Fulton the privilege of carrying all steam­boat traffic in New York for thirty years. It was this monopoly that Thomas Gibbons, a New Jersey steamboat man, tried to crack when he hired young Cornelius Vanderbilt in 1817 to run steamboats in New York by charging less than the monopoly rates.

"Vanderbilt was a classic market entrepreneur, and he was in­trigued by the challenge of breaking the Fulton monopoly. On the mast of Gibbon's ship Vanderbilt hoisted a flag that read: 'New Jersey must be free.' For sixty days in 1817, Vanderbilt defied capture as he raced passengers cheaply from Elizabeth, New Jersey, to New York City. He became a popular figure on the Atlantic as he lowered the fares and eluded the law. Finally, in 1824, in the landmark case of Gibbons v. Ogden, the Supreme Court struck down the Fulton monopoly. Chief Justice John Marshall ruled that only the federal government, not the states, could regulate interstate commerce. This extremely popular decision opened the waters of America to complete competition. A jubilant Vanderbilt was greeted in New Brunswick, New Jersey, by cannon salutes fired by 'citizens desirous of testifying in a public manner their good will.' Ecstatic New Yorkers immedi­ately launched two steamboats named for John Marshall. On the Ohio River, steamboat traffic doubled in the first year after Gibbons v. Ogden and quadrupled after the second year.

"The triumph of market entrepreneurs in steamboating led to improvements in technology. As one man observed, 'The boat build­ers, freed from the domination of the Fulton-Livingston interests, were quick to develop new ideas that before had no encouragement from capital.' These new ideas included tubular boilers to replace the heavy and expensive copper boilers Fulton used. Cord wood for fuel was also a major cost for Fulton, but innovators soon found that anthracite coal worked well under the new tubular boilers, so 'the expense of fuel was cut down one-half.'

"The real value of removing the Fulton monopoly was that the costs of steamboating dropped. Passenger traffic, for example, from New York City to Albany immediately dropped from seven to three dollars after Gibbons v. Ogden. Fulton's group couldn't meet the new rates and soon went bankrupt. Gibbons and Vanderbilt, meanwhile, adopted the new technology, cut their costs, and earned $40,000 profit each year during the late 1820s.

"With such an open environment for market entrepreneurs, Van­derbilt decided to quit his pleasant association with Gibbons, buy two steamboats, and go into business for himself. During the 1830s, Vanderbilt would establish trade routes all over the northeast. He offered fast and reliable service at low rates. He first tried the New York to Philadelphia route and forced the 'standard' three-dollar fare down to one dollar. On the New Brunswick to New York City run, Vanderbilt charged six cents a trip and provided free meals. As Niles' Register said, the 'times must be hard indeed when a traveler who wishes to save money cannot afford to walk.' "


Burton W. Folsom, Jr.


The Myth of the Robber Barons: A New Look at the Rise of Big Business in America


Young America's Foundation


Copyright 2010, 2007, 2003, 1996, 1991, 1987 by Burton W. Folsom, Jr.


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