Great Fortunes from Railroads Part 25

A MYTH OF MODERN FABRICATION

The myth had not then been built up of putative great construction pioneers, risking their every cent, and racking their health and brains, in the construction of railways. It was in the very heyday of the bribing and swindling, as numerous investigating committees showed; there could be no glamour or illusion then.

The money lavishly poured out for the building of railroads was almost wholly public money drawn from compulsory taxation of the whole people. At this identical time practically every railroad corporation in the country stood indebted for immense sums of public money, little of which was ever paid back. In New York State more than $40,000,000 of public funds had gone into the railroads; in Vermont $8,000,000 and large sums in every other State and Territory.

The whole Legislature and State Government of Wisconsin had been bribed with a total of $800,000, in 1856, to give a large land grant to one company alone, details of which transaction will be found elsewhere. [Footnote: See the chapters on the Russell Sage fortune.]The State of Missouri had already disbursed $25,000,000 of public funds; not content with these loans and donations two of its railroads demanded, in 1859, that the State pay interest on their bonds.

In both North and South the plundering was equally conspicuous. Some of the Northern Senators were fond of pointing out the incompetency and rascality of the Southern oligarchy, while ignoring the acts of the capitalists in their own section. Senator Wilson, for instance, enlarged upon the condition of the railroads in North and South Carolina, describing how, after having been fed with enormous subsidies, they were almost worthless. And if anything was calculated to infuriate the Southerners it was the boast that the capitalists of Ma.s.sachusetts had $100,000,000 invested in railroads, for they knew, and often charged, that most of this sum had been cheated by legislation out of the National, State or other public treasury, and that what had not been so obtained had been extracted largely from the underpaid and overworked laborers of the mills. Often they had compared the two systems of labor, that of the North and that of the South, and had pointedly asked which was really the worse.

Not until after the Civil War was under way, and the North was in complete control of Congress, was it that most of the Pacific railroad legislation was secured. The time was exceedingly propitious. The promoters and advocates of these railroads could now advance the all-important argument that military necessity as well as popular need called for their immediate construction.

No longer was there any conflict at Washington over legislation proposed by warring sectional representatives. But another kind of fight in Congress was fiercely set in motion. Compet.i.tive groups of Northern capitalists energetically sought to outdo one another in getting the charters and appropriations for Pacific railroads. After a bitter warfare, in which bribery was a common weapon, a compromise was reached by which the Union Pacific Railroad Company was to have the territory west of a point in Nebraska, while to other groups of capitalists, headed by John I. Blair and others, charters and grants were given for a number of railroads to start at different places on the Missouri River, and converge at the point from which the Union Pacific ran westward.

In the course of the debate on the Pacific Railroads bill, Senator Pomeroy introduced an amendment providing for the importation of large numbers of cheap European laborers, and compelling them to stick to their work in the building of the railroads under the severest penalties for non-compliance. It was, in fact, a proposal to have the United States Government legalize the peonage system of white slavery. Pomeroy's amendment specifically provided that the troops should be called upon to enforce these civil contracts. "It strikes one as the most monstrous proposition I ever heard of,"

interjected Senator Rice. "It is a measure to enslave white men, and to enforce that slavery at the point of the bayonet. I begin to believe what I have heard heretofore in the South, that the object of some of these gentlemen was merely to transfer slavery from the South to the North; and I think this is the first step toward it."

[Footnote: The Congressional Globe, Thirty-seventh Congress, Third Session, 1862-63. Part ii: 1241-1243.]

The amendment was defeated. The act which Congress pa.s.sed authorized the chartering of the Union Pacific Railroad with a capital of $100,000,000. In addition to granting the company the right of way, two hundred feet wide, through thousands of miles of the public domain, of arbitrary rights of condemnation, and the right to take from the public lands whatever building material was needed, Congress gave as a gift to the company alternate sections of land twenty miles wide along the entire line. Still further, the company was empowered to call upon the Government for large loans of money.

CONGRESS BRIBED FOR THE UNION PACIFIC CHARTER.

It was highly probable that this act was obtained by bribery. There is not the slightest doubt that the supplementary act of 1864 was.

The directors and stockholders of the company were not satisfied with the comprehensive privileges that they had already obtained. It was very easy, they saw, to get still more. Among these stockholders were many of the most effulgent merchants and bankers in the country; we find William E. Dodge, for instance, on the list of stockholders in 1863. The pretext that they offered as a public bait was that "capital needed more inducements to encourage it to invest its money." But this a.s.suredly was not the argument prevailing in Congress. According to the report of a Senate committee of 1873--the "Wilson Committee"--nearly $436,000 was spent in getting the act of July, 1864, pa.s.sed. [Footnote: Reports of Committees, Credit Mobilier Reports, Forty-second Congress, Third session, 1873; Doc. No.

78: xviii. The committee reported that the evidence proved that this sum had been disbursed in connection with the pa.s.sage of the amendatory act of July 2, 1864.]

For this $436,000 distributed in fees and bribes, the Union Pacific Railroad Company secured the pa.s.sage of a law giving it even more favorable government subsidies, amounting to from $16,000 to $48,000 a mile, according to the topography of the country. The land grant was enlarged from twenty to forty miles wide until it included about 12,000,000 acres, and the provisions of the original act were so altered and twisted that the Government stood little or no chance of getting back its outlays.

The capitalists behind the project now had franchises, gifts and loans actually or potentially worth many hundreds of millions of dollars. But to get the money appropriated from the National Treasury, it was necessary by the act that they should first have constructed certain miles of their railroads. The Eastern capitalists had at home so many rich avenues of plunder in which to invest their funds--money wrung out of army contracts, usury and other sources-- that many of them were indisposed to put any of it in the unpopulated stretches of the far West. The banks, as we have seen, were glutting on twenty, and often fifty, and sometimes a hundred per cent.; they saw no opportunity to make nearly as much from the Pacific railroads.

THE CREDIT MOBILIER JOBBERY.

All the funds that the Union Pacific Railroad Company could privately raise by 1865 was the insufficient sum of $500,000. Some greater incentive was plainly needed to induce capitalists to rush in. Oakes Ames, head of the company, and a member of Congress, finally hit upon the auspicious scheme. It was the same scheme that the Vanderbilts, Gould, Sage, Blair, Huntington, Stanford, Crocker and other railroad magnates employed to defraud stupendous sums of money.

Ames produced the alluring plan of a construction company. This corporation was to be a compact affair composed of himself and his charter a.s.sociates; and, so far as legal technicalities went, was to be a corporation apparently distinct and separate from the Union Pacific Railroad Company. Its designed function was to build the railroad, and the plan was to charge the Union Pacific exorbitant and fraudulent sums for the work of construction. What was needed was a company chartered with comprehensive powers to do the constructing work. This desideratum was found in the Credit Mobilier Company of America, a Pennsylvania corporation, conveniently endowed with the most extensive powers. The stock of this company was bought in for a few thousand dollars, and the way was clear for the colossal frauds planned.

The prospects for profit and loot were so unprecedentedly great that capitalists now blithely and eagerly darted forward. One has only to examine the list of stockholders of the Credit Mobilier Company in 1867 to verify this fact. Conspicuous bankers such as Morton, Bliss and Company and William H. Macy; owners of large industrial plants and founders of multimillionaire fortunes such as Cyrus H. McCormick and George M. Pullman; merchants and factory owners and landlords and politicians--a very edifying and inspiring array of respectable capitalists was it that now hastened to buy or get gifts of Credit Mobilier stock. [Footnote: The full lists of these stockholders can be found in Docs. No. 77 and No. 78, Reports of U. S. Senate Committees, 1872-73. Morton, Bliss & Co. held 18,500 shares; Pullman, 8,400 shares, etc. The Morton referred to--Levi P. Morton--was later (1888-1892) made Vice President of the United States by the money interests.]

The contract for construction was turned over to the Credit Mobilier Company. This, in turn, engaged subcontractors. The work was really done by these subcontractors with their force of low-paid labor.

Oakes Ames and his a.s.sociates did nothing except to look on executively from a comfortable distance, and pocket the plunder. As fast as certain portions of the railroad were built the Union Pacific Railroad Company received bonds from the United States Treasury. In all, these bonds amounted to $27,213,000, out of much of which sum the Government was later practically swindled.

GREAT CORRUPTION AND VAST THEFTS.

Charges of enormous thefts committed by Credit Mobilier Company, and of corruption of Congress, were specifically made by various individuals and in the public press. A sensational hullabaloo resulted; Congress was stormed with denunciations; it discreetly concluded that some action had to be taken. The time-honored, mildewed dodge of appointing an investigating committee was decided upon.

Virtuously indignant was Congress; zealously inquisitive the committee appointed by the United States Senate professed to be. Very soon its honorable members were in a state of utter dismay. For the testimony began to show that some of the most powerful men in Congress were implicated in Credit Mobilier corruption; men such as James G. Blaine, one of the foremost Republican politicians of the period, and James A. Garfield, who later was elevated into the White House. Every effort was bent upon whitewashing these men; the committee found that as far as their partic.i.p.ation was concerned "nothing was proved," but, protest their innocence as they vehemently did, the tar stuck, nevertheless.

As to the thefts of the Credit Mobilier Company, the committee freely stated its conclusions. Ames and his band, the evidence showed, had stolen nearly $44,000,000 outright, more than half of which was in cash. The committee, to be sure, was not so brutal as to style it theft; with a true parliamentarian regard for sweetness and sacredness of expression, the committee's report described it as "profit."

After holding many sessions, and collating volumes of testimony, the committee found, as it stated in its report, that the total cost of building the Union Pacific Railroad was about $50,000,000. And what had the Credit Mobilier Company charged? Nearly $94,000,000 or, to be exact, $93,546,287.28. [Footnote: Doc. No. 78, Credit Mobilier Investigation: xiv.] The committee admitted that "the road had been built chiefly with the resources of the Government." [Footnote: Ibid., xx.] A decided mistake; it had been entirely built so. The committee itself showed how the entire cost of building the road had been "wholly reimbursed from the proceeds of the Government bonds and first mortgage bonds," and that "from the stock, income bonds, and land grant bonds, the builders received in cash value $23,366,000 as profit--about forty-eight per cent. on the entire cost." [Footnote: Ibid., xvii.]

The total "profits" represented the difference between the cost of building the railroad and the amount charged--about $44,000,000 in all, of which $23,000,000 or more was in immediate cash. It was more than proved that the amount was even greater; the accounts had been falsified to show that the cost of construction was $50,000,000.

Large sums of money, borrowed ostensibly to build the road, had at once been seized as plunder, and divided in the form of dividends upon stock for which the clique had not paid a cent in money, contrary to law.

THRIFTY, SAGACIOUS PATRIOTISM.

Who could deny that the phalanx of capitalists scrambling forward to share in this carnival of plunder were not gifted with unerring judgment? From afar they sighted their quarry. Nearly all of them were the fifty per cent. "patriot" capitalists of the Civil War; and, just as in all extant biographies, they are represented as heroic, self-sacrificing figures during that crisis, when in historical fact, they were defrauding and plundering indomitably, so are they also glorified as courageous, enterprising men of prescience, who hazarded their money in building the Pacific railroads at a time when most of the far West was an untenanted desert. And this string of arrant falsities has pa.s.sed as "history!"

If they had that foresight for which they were so inveterately lauded, it was a foresight based upon the certainty that it would yield them forty-eight per cent. profit and more from a project on which not one of them did the turn of a hand's work, for even the bribing of Congress was done by paid agents. Nor did they have to risk the millions that they had obtained largely by fraud in trade and other channels; all that they had to do was to advance that money for a short time until they got it back from the Government resources, with forty-eight per cent profit besides.

The Senate Committee's report came out at a time of panic when many millions of men, women and children were out of work, and other millions in dest.i.tution. It was in that very year when the workers in New York City were clubbed by the police for venturing to hold a meeting to plead for the right to work. But the bribing of Congress in 1864, and the thefts in the construction of the railroad, were only parts of the gigantic frauds brought out--frauds which a people who believed themselves under a democracy had to bear and put up with, or else be silenced by force.

THE BRIBERY PERSISTENTLY CONTINUES.

When the act of 1864 was pa.s.sed, Congress plausibly pointed out the wise, precautionary measures it was taking to insure the honest disburs.e.m.e.nts of the Government's appropriations. "Behold," said in effect this Congress, "the safeguards with which we are surrounding the bill. We are providing for the appointment of Government directors to supervise the work, and see to it that the Government's interests do not suffer." Very appropriate legislation, indeed, from a Congress in which $436,000 of bribe money had been apportioned to insure its betrayal of the popular interests.

Buts Ames and his brother capitalists bribed at least one of the Government directors with $25,000 to connive at the frauds: [Footnote: Doc.u.ment No. 78, Credit Mobilier Investigation: xvii] he was a cheaply bought tool, that director. And immediately after the railroad was built and in operation, its owners scented more millions of plunder if they could get a law enacted by Congress allowing them exorbitant rates for the transportation of troops and Government supplies and mails. They corruptly paid out, it seems, $126,000 to get this measure of March 3, 1871, pa.s.sed. [Footnote: Doc. No. 78, etc., xvii.]

What was the result of all this investigation? Mere noise. The oratorial tom-toms in Congress resounded vociferously for the gulling of home const.i.tuencies, and of palaver and denunciations there was a plenitude. The committee confined itself to recommending the expulsion of Oakes Ames and James Brooks from Congress. The Government bravely brought a civil action, upon many specified charges, against the Union Pacific Railroad Company for misappropriation of funds. This action the company successfully fought; the United States Supreme Court, in 1878, dismissed the suit on the ground that the Government could not sue until the company's debt had matured in 1895. [Footnote: 98 U.S. 569.]

Thus these great thieves escaped both criminal and civil process, as they were confident that they would, and as could have been accurately foretold. The immense plunder and the stolen railroad property the perpretrators of these huge frauds were allowed to keep.

Congress could have forfeited upon good legal grounds the charter of the Union Pacific Railroad Company then and there. So long as this was note done, and so long as they were unmolested in the possession of their loot, the partic.i.p.ating capitalists could well afford to be curiously tolerant of verbal chastis.e.m.e.nt which soon pa.s.sed away, and which had no other result than to add several more ponderous volumes to the already appallingly enc.u.mbered archives of Government investigations of the stock of the Union Pacific Railroad was at a very low point. The excessive amount of plunder appropriated by Ames and his confederates had loaded it down with debt. With fixed charges on enormous quant.i.ties of bonds to pay, few capitalists saw how the stock could be made to yield any returns--for some time, at any rate.

Now was seen the full hollowness of the pretensions of the capitalists that they were inspired by a public-spirited interest in the development of the Far West. This pretext had been jockeyed out for every possible kind of service. As soon as they were convinced that the Credit Mobilier clique had sacked the railroad of all immediate plunder, the partic.i.p.ating capitalists showed a st.u.r.dy alacrity in shunning the project and disclaiming any further connection with it. Their stock, for the most part, was offered for sale.

JAY GOULD COMES FORWARD

It was now that Jay Gould eagerly stepped in. Where others saw cessation of plunder, he spied the richest possibilities for a new onslaught. For years he had been a covetous spectator of the operations of the Credit Mobilier; and, of course, had not been able to contain himself from attempting to get a hand in its stealings. He and Fisk had repeatedly tried to storm their way in, and had carried trumped-up cases into the courts, only to be eventually thwarted. Now his chance came.

What if $50,000,000 had been stolen? Gould knew that it had other resources of very great value; for, in addition to the $27,000,000 Government bonds that the Union Pacific Railroad had received, it also had as a.s.set about 12,000,000 acres of land presented by Congress. Some of this land had been sold by the railroad company at an average of about $4.50 an acre, but the greater part still remained in its ownership. And millions of acres more could be fraudulently seized, as the sequel proved.

Gould also was aware--for he kept himself informed--that, twenty years previously, Government geologists had reported that extensive coal deposits lay in Wyoming and other parts of the West. These deposits would become of incalculable value; and while they were not included in the railroad grants, some had already been stolen, and it would be easy to get hold of many more by fraud. And that he was not in error in this calculation was shown by the fact that the Union Pacific Railroad and other allied railroads under his control, and under that of his successors, later seized hold of many of these coal deposits by violence and fraud. [Footnote: The Interstate Commerce Commission reported to the United States Senate in 1908 that the acquisition of these coal lands had "been attended with fraud, perjury, violence and disregard of the rights of individuals," and showed specifically how. Various other Government investigations fully supported the charges.] Gould also knew that every year immigration was pouring into the West; that in time its population, agriculture and industries would form a rich field for exploitation.

By the well-understood canons of capitalism, this futurity could be capitalized in advance. Moreover, he had in mind other plans by which tens of millions could be stolen under form of law.

Fisk had been murdered, but Gould now leagued himself with much abler confederates, the princ.i.p.al of whom was Russell Sage. It is well worth while pausing here to give some glimpses of Sage's career, for he left an immense fortune, estimated at considerably more than $100,000,000, and his widow, who inherited it, has attained the reputation of being a "philanthropist" by disbursing a few of those millions in what she considers charitable enterprises. One of her endowed "philanthropies" is a bureau to investigate the causes of poverty and to improve living conditions; another for the propagation of justice. Deeply interested as the benign Mrs. Sage professes to be in the causes producing poverty and injustice, a work such as this may peradventure tend to enlighten her. This highly desirable knowledge she can thus herein procure direct and gratuitously.

Furthermore, it is necessary, before describing the joint activities of Gould and Sage, to give a prefatory account of Sage's career; what manner of man he was, and how he obtained the millions enabling him to help carry forward those operations.