Fortune’s Children: The Fall of the House of Vanderbilt, by Arthur T. Vanderbilt
Cornelius (“The Commodore”) Vanderbilt was the richest man in the world, having amassed a fortune in the railroad and steamboat industries. When he died, he was worth about $2 billion in 2024 dollars. His son William died with $3 billion. Within a few generations, most of that wealth was gone. Fortune’s Children is the wild and fascinating story of how that happened.
How to destroy $3 billion
So, how exactly does a family destroy so much wealth?
Having kids (i.e., Math). Most parents would split up their inheritance between their children. So, if you, your kids and your grandkids each had 4 children, the wealth would need to be split between 64 people by the fourth generation. But given that most people gave a majority of their wealth to their eldest (or favorite) son, this doesn’t completely explain it. Also, even if the individuals were less family, why didn’t the family become richer on the whole?
Consumption. The Vanderbilts spent A LOT. They each built multiple mansions on 5th Avenue and in elite vacation enclaves like Newport, Rode Island. One of them, “Marble House,” cost $300 million + in today’s dollars. In addition to the upfront costs, each of these mansions or yachts had exorbitant carrying costs given the number of staff needed to run them (36 staff, in the case of Marble House). Why did they spend so much? While they obviously liked nice things, the family was desperate to break into the “old money” elite of New York by building mansions in which they could throw the most ornate parties.
More consumption. Some members of the family also gambled endlessly, burning through millions of dollars and consuming the principal of their trust funds. When asked what his occupation was, Reggie Vanderbilt would sometimes be at a loss. His go-to answer was “gentleman.”
Less entrepreneurialism and risk-taking. Many of the descendants weren’t interested in running and expanding the family business, preferring a life of leisure. This likely drove up costs while limiting wealth creation.
Interestingly, bad investments or business performance didn’t seem to be a huge issues. A large portion of their fortune was tied up in safe government and corporate bonds as opposed to stocks. And it’s not like the railroad industry went bust or anything
Marriages of convenience and human cruelty
Marriages were very transactional among the wealthy during the late 1800s. Many marriages represented “trades” or were done for reasons other than love. Children became pieces on their parents’ chessboard. A couple of examples:
A “nouveau riche” bride marries a member of the British nobility (the bride’s family gained status, the groom’s family received much-needed money for the upkeep of their properties).
A “normal” man or woman (who would be charming or very good-looking) marries a very wealthy person for their money
Marriage wasn’t necessarily about pure romantic love for most of human history. While I understood this intellectually, the book surprised me with how cruel this could be. Take the examples above:
Alva Vanderbilt wanted her daughters to marry The Duke of Marlborough as opposed to the Winthrop Rutherfurd, the “normal” upper-class man she was in love with. She locked her daughter in her room and intercepted all of Rutherfurd’s letters. When her daughter told Alva that she and Rutherfurd were engaged, Alva faked a heart attack (with the implication that her daughters’ wedding would be to blame for her death)
On their wedding night, the poor-but-charming Harry Lehr tells his new bride - a heiress - that he married her simply for her money and will never love her. He tells her that he’ll pretend to be a loving husband in public but wants to see her as little as possible otherwise
Hunger and family fortunes
Cornelius Vanderbilt, the “first generation,” was very hungry, which I think is the key to success. He grew up in Staten Island where he dreamed of operating his own boat. He got his first boat and started his own ferry business at age 16 and was a hustler. He was also a ruthless operator: one of his favorite tricks was to open up a new route at cut-rate prices until his competitors paid him to exit the market or raise prices. He didn’t even get into the railroad business into his 40s, when he could’ve retired comfortably off his steamship fortune. But he loved the game.
While some of his descendants - particularly his son William - were good businessmen, most of them generally lacked his hunger and risk appetite.
I imagine this isn’t uncommon for subsequent generations to be less hungry or risk-taking than the generation which created the initial wealth. I think there are at least 3 reasons: first, it’s harder to be hungry when you grow up in opulence, don’t have to work, and the alternatives to working are very fun (building your own estate, traveling the world on your yacht). Second, it’s natural to be focused on just preserving wealth as opposed to taking risk to grow it. Third, there is probably some regression to the mean - the Commodore was incredibly talented, so it would be normal for future generations to be less so.
Why I loved the book
As I mentioned, I really enjoyed this book. Part of it is personal: for whatever reason, I’ve always found the Gilded Age and books that cover it (like Edith Wharton’s Age of Innocence and House of Mirth) to be fascinating. Maybe because it feels like a very different world from ours, but is modern enough to be accessible with similar enough English.
While a different world, the themes the book covers are still relevant. How do you teach your kids about money and the importance of saving? How do you raise your kids to be their own people as opposed to your “projects”? To what lengths is it worth going to impress people?
I also give a lot of credit to the author for humanizing the subjects. It’d be very easy to trivialize their feelings given their incredible wealth, but he spends a lot of time on their inner lives and struggles. Members of the family deal with bad (and forced) marriages, low self esteem (do people only like me for my money?), parental pressures, and social exclusion (given they were not “old money.”) This was also before modern medicine, so it wasn’t unusual for children to die. No part of me wishes I was billionaire in 1905.
Other lessons and thoughts
Consumption begets consumption. One theme from the book is that spending money leads to spending more money. Building a mansion on Fifth Avenue is expensive, but also requires servants, food, heating, even fresh-cut flowers. In addition, many of the mansions depreciated and were far below the buying price (Marble House, for example, sold for less than 1% of its original cost)
The loneliness of extreme wealth. One of the saddest stories is that of Gertrude Vanderbilt, a young girl who is unsure if people are only nice to her given her fortune (and you can’t completely blame her, given some of the above stories)
I was a bit astounded that many of the Vanderbilts didn’t pay any attention to spending or how much money they had left. This wasn’t because it was impossible to do before computers or the internet - the book speaks about various businessmen who would carry around small notebooks where they’d tally their holdings and net worth
Part of the reason, I think, is that the younger generations felt comfortable they’d have an “exit” or “liquidity event”: the death of a parent and inheritance of their wealth