HISTORY OF THE GREAT AMERICAN FORTUNES

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 surpassingly 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 assistance.  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.

Residence of Jay Gould 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.

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 entrenched.  Their representatives in Congress feverishly strained themselves to the utmost to bring about the construction of a trans-continental railroad passing through the Southwest.  The Northern constituents 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 passed.

The debates in Congress during the session of 1859 over Pacific railroads were intensely aciduous.  Speaking of the Southern slave holders, Senator Wilson, of Massachusetts, 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.”1  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, retort 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 constituencies.  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 institutions.  “ 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 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 struck, and not far from where Wilson stood.

“ Years have passed 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.”2

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 Massachusetts were, as we shall see, likewise bribing Congress to pass tariff acts.


A MYTH OF MODERN FABRICATION.


The myth had not then been built up of putative great constructive 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.3  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 Massachusetts 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.  Competitive 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.”4

The amendment was defeated.  The act which Congress passed 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 assuredly 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, passed.5

For this $436,000 distributed in fees and bribes, the Union Pacific Railroad Company secured the passage 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 associates ;  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.6

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 associates 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 the 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 participation 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, $93,546,287.28.7  The committee admitted that “the road had been built chiefly with the resources of the Government.”8  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 &151; about forty-eight per cent. on the entire cost.”9

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 passed as “ history ! ”

If they had that foresight for which they are 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 fortyeight 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 destitution.  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 passed, Congress plausibly pointed out the wise, precautionary measures it was taking to insure the honest disbursements 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.

But Ames and his brother capitalists bribed at least one of the Government directors with $25,000 to connive at the frauds :10  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, passed.11

What was the result of all this investigation ?  Mere noise.  The oratorical tom-toms in Congress resounded vociferously for the gulling of home constituencies, 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 1895.12

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 perpetrators 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 not done, and so long as they were unmolested in the possession of their loot, the participating capitalists could well afford to be curiously tolerant of verbal chastisement which soon passed away, and which had no other result than to add several more ponderous volumes to the already appallingly encumbered archives of Government investigations.

By this time — the end of 1873 — the market value 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 quantities 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 participating capitalists showed a sturdy 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 asset 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 well 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.13  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 principal 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.




END OF VOL. II.




Part III, comprising “ The Great Fortunes from Railroads,” is continued in Vol. III.
      (The index for Volumes I, II and III will be found in. Volume III.)



 

1 The Congressional Globe, Thirty-fifth Congress, Second Session, 1858-59, Part II, Appendix :291.

2 The Congressional Globe, etc., 1858-59, Part II, Appendix, 291.

3 See the chapters on the Russell Sage fortune.

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

5 Reports of Committees, Credit Mobilier Reports, Forty-second Congress, Third session, 1872-73; Doc. No. 78:xviii. The committee reported that the evidence proved that this sum had been disbursed in connection with the passage of the amendatory act of July 2, 1864.

6 The full lists of these stockholders can be found in Does. 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.

7 Doc. No. 78, Credit Mobilier Investigation: xiv.

8 Ibid., xx.

9 Ibid., xvii.

10 Document No. 78, Credit Mobilier Investigation:xvii.

11 Doc. No. 78, etc., xvii.

12 98 U.S. 569.

13 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.