Daniel Drew

• Born: July 29, 1797
• Birthplace: Carmel, New York
• Died: September 18, 1879
• Place of death: New York, New York

American investor

Drew was one of the great nineteenth century robber barons. He was involved in insider trading and manipulating stock prices; he also engaged in predatory pricing to maintain monopoly power for his firms. Although he died impoverished, when he was wealthy he contributed money to establish the Drew Theological Seminary, which became Drew University.

Sources of wealth: Railroads; investments; transportation systems

Bequeathal of wealth: Educational institution

Early Life

Daniel Drew was born on a farm in Carmel, New York, in 1797. He grew up poor and virtually illiterate, as did most children of small farmers at that time. During the War of 1812, President James Madison began to draft men into the military; those who did not want to fight were offering $100 to people who would take their place. Regarding this as easy money, Drew became an army substitute. He served three months but saw no combat.

After the war, Drew used his $100 to buy cattle, herd them to New York City, and sell them to city butchers. During one drive he gave his cattle large quantities of salt before they entered Manhattan and let them drink all the water they wanted, thereby increasing their weight. Since he was paid based on the weight of his herd, Drew earned extra money through this scheme. Continually employing this ruse, Drew drove cattle into Manhattan from Ohio, Kentucky, and Illinois and became very wealthy.

First Ventures

This money let Drew purchase the Bull’s Head Tavern, a popular watering hole for drovers. The tavern had a thick safe, and guests gave Drew their money for safekeeping. By taking some of this money and investing it, Drew became a banker and a speculator. His small fortune soon became a large fortune.

While on the lookout for good investment opportunities, Drew became aware of Cornelius Vanderbilt. Vanderbilt was part of the Hudson River Association, which ran boats up and down the Hudson River between Manhattan and Albany, New York. Vanderbilt had argued with his partners, and he bought two boats and ran them in competition with association vessels. As a result, the association lost a lot of money, and it eventually had to buy out Vanderbilt.

Drew replicated Vanderbilt’s business methods. He started a competing boat line and squeezed the Hudson River Association until it bought him out. Then he started another line under someone else’s name, which was also bought out. The association was so weakened by its continual purchase of rival companies that it eventually sold its business to Drew.

As the owner of the sole means of transportation along the Hudson River, Drew pushed up the price on all river trips. When competition would arise, Drew would reduce his prices. Sometimes he would charge nothing, or even pay people to take his boats, knowing that he had the resources to outlast his rivals. When his competition went out of business, Drew would then charge exorbitant rates and accumulate reserves to fight off the next firm seeking to enter the market.

Mature Wealth

During the 1840’s, Drew became interested in stock trading. He opened a brokerage business in 1844 that specialized in transportation stock, and he began buying stock in the railroads that were starting to operate in the eastern United States. Drew quickly learned that it was easier to make money trading stock shares than running a business.

He also discovered how easy it was to make money manipulating stock prices. One of his famous schemes was dubbed “the handkerchief trick.” Meeting with investors, Drew would pull out his handkerchief to mop his brow. A slip of paper with a large buy order would fall to the floor; Drew would pretend not to notice. When Drew left the meeting, other investors would grab the paper and buy the listed stock. Drew, however, had purchased the touted stock before the meeting. When the other investors bought the stock, driving up its price, Drew sold out at a large profit.

Drew focused most of his attention on the Erie Railroad, then the largest rail network in the world. He acquired competitors of Erie, as well as all the steamboat lines between Manhattan and upstate New York. At the time, trains could not go directly into Manhattan; they stopped just outside, transferring people and goods onto steamships to complete the trip. By monopolizing transport links in and out of Manhattan, Drew was able to squeeze the Erie Railroad. He offered its main competitor, the New York Central Railroad, better rates on his steamboats into Manhattan. This created financial problems for Erie, and company officials were forced to put Drew on Erie’s board of directors and make him company treasurer. These positions enabled Drew to make money from his inside knowledge about the railroad. Before favorable information was announced, he bought Erie stock and profited when the stock price rose. Before bad information was announced, Drew would sell Erie’s stock short and buy it back at a lower price after the bad news became public.

Not satisfied gaining money from normal price changes, Drew sought to manipulate the price of Erie stock. When he wanted prices to rise, he would spread positive rumors. When he wanted prices to go down because he had sold short, he would circulate rumors that the railroad was in financial difficulty, or he would have someone obtain a court injunction to prohibit Erie from paying dividends.

With his growing fortune, Drew bought a lot on Seventeenth Street in Manhattan, facing Union Square, and built a four-story mansion, a barn, a cow shed, and a horse stable. Drew, however, had even greater ambitions. He sought to acquire the Erie Railroad and become even wealthier. When Erie decided to extend its rail line by connecting New Jersey and Manhattan, Drew created difficulties for the project. He circulated rumors on Wall Street that there were logistical problems building the tunnel underneath the Hudson River and financial problems at Erie. He also sought to tie up the New York State legislature, which had to approve the construction project. As a result of these actions, capital for the project became scarce, which enabled Drew to come to the rescue. He lent Erie the money it needed, taking the railroad line as security for the loan.

Vanderbilt, wary of Drew from previous dealings with him, wanted to keep Drew from controlling the railroad company. Vanderbilt started buying Erie stock in order to control the railroad himself. Drew, however, got the Erie board of directors to approve a $10 million offering of new stock and bonds in order to replace the railroad’s iron rails with steel rails and build a third rail allowing narrow-gauge trains to run on Erie lines. Vanderbilt got an injunction from a Manhattan judge prohibiting Erie from issuing any more stock. In response, Drew and his colleagues Jay Gould and James Fisk got a judge from Binghamton, New York, to order Erie to issue more stock. The three men began printing new shares of Erie stock and selling them to Vanderbilt. When it became clear that they could keep printing and selling new shares, the price of Erie stock tumbled.

Vanderbilt lost a small fortune of $7 million, but he obtained a contempt of court order against Drew, Gould, and Fisk and warrants issued for their arrest. Fearing they would be arrested, the three fled to New Jersey. Safe from the legal arm of New York, they attacked Vanderbilt’s rail lines. They reduced Erie’s rates for the trip between Buffalo and Manhattan in order to compete with Vanderbilt’s New York Central Railroad. They also announced a plan to start a boat line that would charge only fifty cents for a trip between these two cities in order to draw customers away from Vanderbilt’s Hudson Railroad. The Drew-Vanderbilt battle eventually ended when Vanderbilt agreed to let Drew keep his money, and Drew agreed to relinquish control of the Erie Railroad.

Nonetheless, Drew sought to make one more killing on Erie stock. Drew, Gould, and Fisk deposited $14 million into various banks. They then sold short in Erie stock and withdrew their $14 million from the banks. The banks, however, had already lent out the money. The bankers were forced to call in their loans, while individuals had to sell their Erie stock in order to repay their bank loans. Stock prices tumbled. Gould, Fisk, and Drew made a fortune, but the economic impact was devastating; people blamed the three for the economic mess. Fearing for his life, Drew decided to abandon the scheme and put money back into Manhattan banks.

In the early 1870’s, Drew was one of the wealthiest living Americans. However, his fortunes reversed when the 1873 stock market panic resulted in the demise of several brokerage firms in which he was a partner. Drew had to mortgage his home and take as much property as possible out of his name. In 1887, he lost more money after Gould brought him into a plan to increase Erie stock prices; Gould, however, was really arranging to lower prices. Eventually, Drew was forced to declare bankruptcy.

Legacy

Daniel Drew was one of the great American robber barons. His methods for earning money were certainly illegal by twenty-first century standards. He engaged in predatory pricing, manipulated stock prices for his own gain, and traded stock based on insider information. In the nineteenth century, however, such activities were normal and usually thought to be smart business practices.

Drew’s legacy, however, was not entirely negative. Having had many religious experiences throughout his life and professing to be a devout believer, in the 1860’s he donated a large sum of money to establish the Drew Theological Seminary in Madison, New Jersey. The school eventually grew to become Drew University, one of the nation’s top liberal arts colleges.

Bibliography

Browder, Clifford. The Money Game in Old New York: Daniel Drew and His Times. Lexington: University Press of Kentucky, 1986. A scholarly account of the financial manipulations in which Drew engaged during his lifetime.

Josephson, Matthew. The Robber Barons: The Great American Capitalists, 1861-1901. New York: Harcourt Brace Jovanovich, 1934. Reprint. San Diego: Harcourt Brace Jovanovich, 1961. The classic work on the nineteenth century robber baron era in the United States. Contains a detailed history of the lives and schemes of Drew, Gould, Fisk, and Vanderbilt.

Minnigerod, Meade. Certain Rich Men. New York: G. P. Putnam’s Sons, 1927. A biographical and journalistic account of the lives of seven wealthy Americans, including Drew.

White, Bouck. The Book of Daniel Drew. New York: George H. Doran, 1910. Although somewhat speculative and fictional in parts, this work remains the standard biography of Drew.