Great Fortunes from Railroads Part 24

These frauds were not so construed "by any technical construction, or far-fetched interpretation," but were committed "by the firm's deliberately and systematically stating the cost of their goods below the purchase price for no conceivable reason but to lessen the duties to be paid to the United States."

These long-continuing frauds could not have been possible without the custom-house officials having been bribed to connive. The practice of bribing customs officers was an old and common one. In his report to the House of Representatives on February 23, 1863, Representative Van Wyck, chairman of an investigating committee, fully described this system of bribery. In summarizing the evidence brought out in the examination of fifty witnesses he dealt at length with the custom house officials who for large bribes were in collusion with brokers and merchants. "No wonder," he exclaimed, "the concern [the custom house] is full of fraud, reeking with corruption." [Footnote: The Congrssional Globe, Appendix, Thirty-seventh Congress, Third Session, 1862-3, Part ii: 118.

"During the last session the Secretary had the honor of transmitting the draft of a bill for the detection and prevention of fraudulent entries at the custom-houses, and he adheres to the opinion that the provisions therein embodied are necessary for the protection of the revenue.... For the past year the collector, naval officer, and surveyor of New York have entertained suspicions that fraudulent collusions with some of the customs officers existed. Measures were taken by them to ascertain whether these suspicions were well founded. By persistent vigilance facts were developed which have led to the arrest of several parties and the discovery that a system of fraud has been successfully carried on for a series of years. These investigations are now being prosecuted under the immediate direction of the Solicitor of the Treasury, for the purpose of ascertaining the extent of those frauds and bringing the guilty parties to punishment.

It is believed that the enactment at the last session of the bill referred to would have arrested, and that its enactment now will prevent hereafter, the frauds. .h.i.therto successfully practiced."-- Annual Report for 1862 of Salmon P. Chase, Secretary of the Treasury.

No matter what laws were pa.s.sed, however, the frauds continued, and the importers kept on bribing.]

Great was the indignation shown at the charges by the fl.u.s.tered members of the firm; most stoutly these "eminently proper" men a.s.serted their innocence. [Footnote: If the degree of the scandal that the unearthing of the frauds created is to be judged by the extent of s.p.a.ce given to it by the newspapers, it must have been large and sensational. See issues of the New York "Times" and other newspapers of January 11, 1873, January 29, 1873, March 20, 1873, and April 20, 1873. A full history of the case, with the official correspondence from the files of the Treasury Department, is to be found in the New York "Times," issue of April 28, 1873.] In point of fact (as has been shown in the chapters on the Astor fortune) several of them had long been slyly defrauding in other fields, particularly by the corrupt procuring of valuable city land before and during the Tweed regime. They had also been enriching themselves by the corrupt obtaining of railroad grants. There was a scurrying about by Phelps, Dodge and Company to explain that some mistake had been made; but the Government steadfastly pressed its action; and Secretary Boutwell curtly informed them that if they were innocent of guilt, they had the opportunity of proving so in court. After this ultimatum their tone changed; they exerted every influence to prevent the case from coming to trial, and they announced their willingness to compromise.

The Government was induced to accept their offer; and on February 24, 1873, Phelps, Dodge and Company paid to the United States Treasury the sum of $271,017.23 for the discontinuance of the million-dollar suit for custom-house frauds. [Footnote: See Houses Executive Doc.u.ments, Forty-third Congress, First Session, 1874, Doc. No.

124:78. Of the entire sum of $271,017.23 paid by Phelps, Dodge and Company to compromise the suit, Chester A. Arthur, then Collector of, the Port, later President of the United States, received $21,906.01 as official fees; the Naval Officer and the Surveyor of the Port each were paid the same sum by the Government, and Jayne received $65,718.03 as his percentage as informer.

One of the methods of defrauding the Government was peculiar. Under the tariff act there was a heavy duty on imported zinc and lead, while works of art were admitted free of duty. Phelps, Dodge and Company had zinc and lead made into Europe into crude Dianas, Venuses and Mercurys and imported them in that form, claiming exemption from the customs duty on the ground of their being "works of art."]

THEIR PRESENT WEALTH TRACED TO FRAUD.

From these persistent frauds came, to a large extent, the great collective and individual wealth of the members of this firm, and of their successors. It was also by reason of these frauds that Phelps, Dodge and Company were easily able to outdo compet.i.tors. Only recently, let it be added, they formed themselves into a corporation with a capital of $50,000,000. With the palpably great revenues from their continuous frauds, they were in an advantageous position to buy up many forms of property. Beginning in 1880 the mining of copper, they obtained hold of many very rich mining properties; their copper mines yield at present (1909) about 100,000,000 pounds a year.

Phelps, Dodge and Company also own extensive coal mines and lines of railroads in the southwest Territories of the United States. Ten thousand employees are directly engaged in their copper and coal mines and smaller works, and on the 1,000 miles of railroad directly owned and operated by them.

So greatly were the members of the firm enriched by their frauds that when D. Willis James, one of the partners sued by the Government for fraudulent undervaluations, died on September 13, 1907, he left an estate of not less than $26,967,448. John F. Farrel, the appraiser, so reported in his report filed on March 28, 1908, in the transfer tax department of the Surrogate's department, New York City. But as the transfer tax has been, and is, continuously evaded by ingenious antic.i.p.atory devices, the estate, it is probable, reached much more.

James owned (accepting the appraiser's specific report at a time when panic prices prevailed) tens of millions of dollars worth of stock in railroad, mining, manufacturing and other industries. He owned, for instance, $2,750,000 worth of shares in the Phelps-Dodge Copper Queen Mining Company; $1,419,510 in the Old Dominion Company, and millions more in other mining companies. His holdings in the Great Northern Railway, the history of which is one endless chain of fraud, amounted to millions of dollars--$3,840,000 of preferred stock; $3,924,000 of common stock; $1,715,000 of stock in the Great Northern iron ore properties; $1,405,000 of Great Northern Railway shares in the form of subscription receipts, and so on. He was a large holder of stock in the Northern Pacific Railway, the development of which, as we shall see, has been one of incessant frauds. His interest in the "good will" of Phelps, Dodge and Company was appraised at $180,000; his interest in the same firm at $945,786; his cash on deposit with that firm at $475,000. [Footnote: At his death he was eulogistically described as "the merchant philanthropist." On the day after the appraiser's report was filed, the New York "Times," issue of March 29, 1908, said: "Mr. James was a senior member of the firm of Phelps, Dodge & Co., of 99 John Street. His interest in educational and philanthropic work was very deep, and by his will he left bequests amounting to $1,195,000 to various charitable and religious inst.i.tutions. The residue of the estate, amounting to $24,482,653, is left in equal shares to his widow and their son." On the same day that the appraiser's report was filed a large gathering of unemployed attempted to hold a meeting in Union Square to plead for the starting of public work, but were brutally clubbed, ridden down and dispersed by the police.]

In the defrauding of the United States Government however, Phelps, Dodge and Company were doing no uncommon thing. The whole importing trade was incessantly and cohesively thriving upon this form of fraud. In his annual report for 1874, Henry C. Johnson, United States Commissioner of Customs, estimated that tourists returning from Europe yearly smuggled in as personal effects 257,810 trunks filled with dutiable goods valued at the enormous sum of $128,905,000. "It is well known," he added, "that much of this baggage is in reality intended to be put upon the market as merchandise, and that still other portions are brought over for third parties who have remained at home. Most of those engaged in this form of importation are people of wealth"... [Footnote: Executive Doc.u.ments, Forty-third Congress, Second Session, 1874, No. 2: 225.] Similar and additional facts were brought out in great abundance by a United States Senate committee appointed, in 1886, to investigate customs frauds in New York. After holding many sessions this committee declared that it had found "conclusive evidence that the undervaluation of certain kinds of imported merchandise is persistently practiced to an alarming extent at the port of New York." [Footnote: U.S. Senate Report, No. 1990, Forty-ninth Congress, Second Session, Senate Reports, iii, 1886-87.]

At all other ports the customs frauds were notorious.

The frauds of the whiskey distillers in cheating the Government out of the internal revenue tax were so enormous as to call forth several Congressional investigations; [Footnote: Reports of Committees, Fortieth Congress, Third Session, 1869-70. Report No. 3, etc.] the millions of dollars thus defrauded were used as private capital in extending the distilleries; virtually all of the fortunes in the present Whiskey Trust are derived in great part from these frauds.

The banks likewise cheated the Government out of large sums in their evasion of the stamp tax. "This stamp tax," reported the Comptroller of Currency in 1874, "is to a considerable extent evaded by banks and more frequently by depositors, by drawing post notes, or bills of exchange at one day's sight, instead of on demand, and by subst.i.tuting receipts for checks." [Footnote: Executive Doc.u.ment, No.

2, 1874:140.]

It was from these various divisions of the capitalist cla.s.s that the most caustic and virtuous tirades against Gould came. The boards of trade and chambers of commerce were largely made up of men who, while a.s.suming the most vaniloquent pretensions, were themselves malodorous with fraud. To read the resolutions pa.s.sed by them, and to observe retrospectively the supreme airs of respectability and integrity they individually took on, one would conclude that they were all men of whitest, most irreproachable character. But the official reports contradict their pretensions at every turn; and they are all seen in their nakedness as perjurers, cheats and frauds, far more sinister in their mask than Gould in his carelessly open career of theft and corruption. Many of the descendants of that sordid aggregation live to-day in the luxury of inherited c.u.mulative wealth, and boast of a certain "pride of ancestry" and "refinement of social position;" it is they from whom the sneers at the "lower cla.s.ses" come; and they it is who take unto themselves the ordaining of laws and of customs and definitions of morality. [Footnote: It is worthy of note that several of the descendants of the Phelps-Dodge-Stokes families are men and women of the highest character and most radical principles. J. G.

Phelps Stokes, for instance, joined the Socialist party to work for the overthrow of the very system on which the wealth of his family is founded. A man more devoted to his principles, more keenly alive to the injustices and oppressions of the prevailing system, more conscientious in adhering to his views, and more upright in both public and private dealings, it would be harder to find than J. G.

Phelps Stokes. He is one of the very few distinguished exceptions among his cla.s.s.]

From the very foundation of the United States Government, not to mention what happened before that time, the custom-house frauds have been continuous up to the very present, without any intermission. The recent suits brought by the Government against the Sugar Trust for gigantic frauds in cheating in the importation of sugar, were only an indication of the increasing frauds. The Sugar Trust was compelled to disgorge about $2,000,000, but this sum, it was admitted, was only a part of the enormous total out of which it had defrauded the Government. The further great custom-house scandals and court proceedings in 1908 and 1909 showed that the bribery of custom-house weighers and inspectors had long been in operation, and that the whole importing cla.s.s, as a cla.s.s, was profiting heavily by this bribery and fraud. While the trials of importers were going on in the United States Circuit Court at New York, despatches from Washington announced, on October 22, 1909, that the Treasury Department estimated that the same kind of frauds as had been uncovered at New York, had flourished for decades, although in a somewhat lesser degree, at Boston, Philadelphia, Norfolk, New Orleans, San Francisco and at other ports.

"It is probable," stated these subdued despatches, "that these systematic filchings from the Government's receipts cover a period of more than fifty years, and that in this, the minor officials of the New York Custom House have been the greatest offenders, although their nefarious profits have been small in comparison with the illegitimate gains of their employers, the great importers. These are the views of responsible officials of the Treasury Department." These despatches stated the truth very mildly. The frauds have been going on for more than a century, and the Government has been cheated out of a total of hundreds upon hundreds of millions of dollars, perhaps billions.

And the thieving importers of these times comprise the respectable and highly virtuous chambers of commerce and boards of trade, as was the case in Gould's day. They are ever foremost in pompously denouncing the very political corruption which they themselves cause and want and profit from; they are the fine fellows who come together in their solemn conclaves and resolve this and resolve that against "law-defying labor unions," or in favor of "a reform in our body politic," etc., etc. A glorious crew they are of excellent, most devout church members and charity dispensers; sleek, self-sufficient men who sit on Grand Juries and Trial Juries, and condemn the petty thieves to conviction carrying long terms of imprisonment. Viewing commercial society, one is tempted to conclude that the worthiest members of society, as a whole, are to be found within the prisons; yes, indeed, the time may not be far away, when the stigma of the convict may be considered a real badge of ancestral honor.

But the comparison of Gould and the trading cla.s.ses is by no means complete without adding anew a contrast between how the propertied plunderers as a cla.s.s were immune from criminal prosecution, and the persecution to which the working cla.s.s was subjected.

Although all sections of the commercial and financial cla.s.s were cheating, swindling and defrauding with almost negligible molestation from Government, the workers could not even plead for the right to work without drawing down upon themselves the full punitive animosity of governing powers whose every move was one of deference to the interests of property. Apart from the salient fact that the prisons throughout the United States were crowded with poor criminals, while the machinery of the criminal courts was never seriously invoked against the commercial and financial cla.s.ses, the police and other public functionaries would not even allow the workers to meet peacefully for the pet.i.tioning of redress. Organized expressions of discontent are ever objectionable to the ruling cla.s.s, not so much for what is said, as for the movements and reconstructions they may lead to--a fact which the police authorities, inspired from above, have always well understood.

THE CLUBBING OF THE UNEMPLOYED.

"The winter of 1873-74," says McNeill, was one of extreme suffering.

Midwinter found tens of thousands of people on the verge of starvation, suffering for food, for the need of proper clothing, and for medical attendance. Meetings of the unemployed were held in many places, and public attention called to the needs of the poor. The men asked for work and found it not, and children cried for bread.... The unemployed and suffering poor of New York City determined to hold a meeting and appeal to the public by bringing to their attention the spectacle of their poverty. They gained permission from the Board of Police to parade the streets and hold a meeting in Tompkins Square on January 13, 1874, but on January 12 the Board of Police and Board of Parks revoked the order and prohibited the meeting. It was impossible to notify the scattered army of this order, and at the time of the meeting the people marched through the gates of Tompkins Square....

When the square was completely filled with men, women and children, without a moment's warning, the police closed in upon them on all sides.

One of the daily papers of the city confessed that the scene could not be described. People rushed from the gates and through the streets, followed by the mounted officers at full speed, charging upon them without provocation. Screams of women and children rent the air, and the blood of many stained the streets, and to the further shame of this outrage it is to be added that when the General a.s.sembly of New York State was called to this matter they took testimony, but made no sign. [Footnote: "The Labor Movement":147-148.

In describing to the committee on grievances the horrors of this outrage, John Swinton, a writer of great ability, and a man whose whole heart was with the helpless, suffering and exploited, closed his address by quoting this verse:

"There is a poor blind Samson in our land, Shorn of his strength and bound with bonds of steel, Who may in some grim revel raise his hand, And shake the pillars of the Commonweal."]

Thus was the supremacy of "law and order" maintained. The day was saved for well-fed respectability, and starving humanity was forced back into its despairing haunts, there to reflect upon the club- taught lesson that empty stomachs should remain inarticulate. For the flash of a second, a nameless fright seized hold of the gilded quarters, but when they saw how well the police did their dispersing work, and choked up with their clubs the protests of aggregated suffering, self-confidence came back, revelry was resumed, and the saturnalia of theft went on unbrokenly.

And a lucky day was that for the police. The methods of the ruling cla.s.s were reflected in the police force; while perfumed society was bribing, defrauding and expropriating, the police were enriching themselves by a perfected system of blackmail and extortion of their own. Police Commissioners, chiefs, inspectors, captains and sergeants became millionaires, or at least, very rich from the proceeds of this traffic. Not only did they extort regular payments from saloons, brothels and other establishments on whom the penalties of law could be visited, but they had a standing arrangement with thieves of all kinds, rich thieves as well as what were cla.s.sed as ordinary criminals, by which immunity was sold at specified rates. [Footnote: The very police captain, one Williams, who commanded the police at the Tompkins Square gathering was quizzed by the "Lexow Committee" in 1893 as to where he got his great wealth. He it was who invented the term "Tenderloin," signifying a district from which large collections in blackmail and extortion could be made. By 1892, the annual income derived by the police from blackmailing and other sources of extortion was estimated at $7,000,000. (See "Investigation of the Police Department of New York City," 1894, v:5734.) With the establishment of Greater New York the amount about doubled, or, perhaps, trebled.] The police force did not want this system interfered with; hence at all times toadied to the rich and influential cla.s.ses as the makers of law and the creators of public opinion. To be on the good side of the rich, and to be praised as the defenders of law and order, furnished a screen of incalculable utility behind which they could carry on undisturbedly their own peculiar system of plunder.

CHAPTER XII

THE GOULD FORTUNE AND SOME ANTECEDENT FACTORS

With his score or more of millions of booty, Jay Gould now had much more than sufficient capital to compete with many of the richest magnates; and what he might lack in extent of capital when combated by a combination of magnates, he fully made up for by his pulverizing methods. His acute eye had previously lit upon the Union Pacific Railroad as offering a surpa.s.singly prolific field for a new series of thefts. Nor was he mistaken. The looting of this railroad and allied railroads which he, Russell Sage and other members of the clique proceeded to accomplish, added to their wealth, it was estimated perhaps $60,000,000 or more, the major share of which Gould appropriated.

It was commonly supposed in 1873 that the Union Pacific Railroad had been so completely despoiled that scarcely a vestige was left to prey upon. But Gould had an extraordinary faculty for devising new and fresh schemes of spoliation. He would discern great opportunities for pillage in places that others dismissed as barren; projects that other adventurers had bled until convinced nothing more was to be extracted, would be taken up by Gould and become plethora of plunder under his dexterous touch. Again and again Gould was charged with being a wrecker of property; a financial beachcomber who destroyed that he might profit. These accusations, in the particular exclusive sense in which they were meant, were distortions. In almost every instance the railroads gathered in by Gould were wrecked before he secured control; all that he did was to revive, continue and elaborate the process of wrecking. It had been proved so in the case of the Erie Railroad; he now demonstrated it with the Union Pacific Railroad.

THE MISLEADING ACCOUNTS HANDED DOWN.

This railroad had been chartered by Congress in 1862 to run from a line on the one hundredth meridian in Nebraska to the western boundary of Nevada. The actual story of its inception and construction is very different from the stereotyped accounts shed by most writers. These romancers, distinguished for their sycophancy and lack of knowledge, would have us believe that these enterprises originated as splendid and memorable exhibitions of patriotism, daring and ability. According to their version Congress was so solicitous that these railroads should be built that it almost implored the projectors to accept the great gifts of franchises, land and money that it proffered as a.s.sistance. A radiantly glowing description is forged of the men who succeeded in laying these railroads; how there stretched immense reaches of wilderness which would long have remained desolate had it not been for these indomitable pioneers; and how by their audacious skill and persistence they at last prevailed, despite sneers and ridicule, and gave to the United States a chain of railroads such as a few years before it had been considered folly to attempt.

Very limpidly these narratives flow; two generations have drunk so deeply of them that they have become inebriated with the contemplation of these wonderful men. When romance, however, is hauled to the archives, and confronted with the frigid facts, the old dame collapses into shapeless stuffing.

[Ill.u.s.tration: RESIDENCE OF JAY GOULD, 759 Fifth Avenue, New York]

In the opening chapter of the present part of this work it was pointed out by a generalization (to be frequently itemized by specifications later on) that the accounts customarily written of the origin of these railroads have been ridiculously incorrect. To prove them so it is only necessary to study the debates and the reports of Congress before, and after, the granting of the charters.

SECTIONAL INTERESTS IN CONFLICT.

Far greater forces than individual capitalists, or isolated groups of capitalists, were at work to promote or prevent the construction of this or that Pacific road. In the struggle before the Civil War between the capitalist system of the North and the slave oligarchy of the South, the chattel slavery forces exerted every effort to use the powers of Government to build railroads in sections where their power would be extended and further intrenched. Their representatives in Congress feverishly strained themselves to the utmost to bring about the construction of a trans-continental railroad pa.s.sing through the Southwest. The Northern const.i.tuents stubbornly fought the project.

In reprisal, the Southern legislators in Congress frustrated every move for trans-continental railroads which, traversing hostile or too doubtful territory, would add to the wealth, power, population and interests of the North. The Government was allowed to survey routes, but no comprehensive trans-continental Pacific railroad bills were pa.s.sed.

The debates in Congress during the session of 1859 over Pacific railroads were intensely aciduous. Speaking of the Southern slave holders, Senator Wilson, of Ma.s.sachusetts, denounced them as "restless, ambitious gentlemen who are organizing Southern leagues to open the African slave trade, and to conquer Mexico and Central America." He added with great acerbity: "They want a railroad to the Pacific Ocean; they want to carry slavery to the Pacific and have a base line from which they can operate for the conquest of the continent south." [Footnote: The Congressional Globe. Thirty-fifth Congress, Second Session, 1858-59, Part II, Appendix: 291.] In fiery verbiage the Southern Senators slashed back, taunting the Northerners with seeking to wipe out the system of chattel slavery, only to extend and enforce all the more effectually their own system of white slavery. The honorable Senators unleashed themselves; Senatorial dignity fell askew, and there was snarling and growling, retorts and backtalk and bad blood enough.

The disclosures that day were extremely delectable. In the exchange of recriminations, many truths inadvertently came out. The capitalists of neither section, it appeared, were faithful to the interests of their const.i.tuencies. This was, indeed, no discovery; long had Northern representatives been bribed to vote for land and money grants to railroads in the South, and vice versa. But the charges further brought out by Senator Wilson angered and exasperated his Southern colleagues. "We all remember," said he, "that Texas made a grant of six thousand dollars and ten thousand acres of land a mile to a Pacific railway company." Yes, in truth, they all remembered; the South had supported that railroad project as one that would aid in the extension of her power and inst.i.tutions. "I remember," Wilson went on, "that when that company was organized the men who got it up could not, by any possibility, have raised one hundred thousand dollars if they paid their honest debts. Many of them were political bankrupts as well as pecuniary bankrupts--men who had not had a dollar; and some of them were men who not only never paid a debt, but never recognized an obligation."

At this thrust a commotion was visible in the exalted chamber; the blow had been struck, and not far from where Wilson stood.

"Years have pa.s.sed away," continued the Senator, "and what has Texas got?" Twenty-two or twenty-three miles of railway, with two cars upon it, with no depot, the company owning everything within hailing distance of the road; and they have imported an old worn-out engine from Vermont. And this is part of your grand Southern Pacific Railroad. These gentlemen are out in pamphlets, proving each other great rascals, or attempting to do so; and I think they have generally succeeded. ... The whole thing from the beginning has been a gigantic swindle. [Footnote: The Congressional Globe, etc., 1858-9, Part II, Appendix, 291.]

What Senator Wilson neglected to say was that the capitalists of his own State and other Northern States had effected even greater railroad swindles; the owners of the great mills in Ma.s.sachusetts were, as we shall see, likewise bribing Congress to pa.s.s tariff acts.