HISTORY OF THE GREAT AMERICAN FORTUNESCHAPTER I
AN INSERT ON THE SAGE FORTUNE
Russell Sage was mellow with experience when Gould was still in his verdant youth ; years before Gould began his predacious career, Sage had the reputation among the knowing of being an old hand at political and financial corruption. Was this reputation justified ? And did Sage garner his first millions by illicit methods ? Certain of his biographers glide nimbly over these questions, while others tell their ready-made advocates tale ; how by his thrift and enterprise, his marvelous business astuteness, and his imposing array of other mercantile virtues and faculties he made his great fortune.1 It would denote a lack of fidelity to these accounts were the word sterling omitted in connection with virtues ; in the case of our multimillionaires virtues must necessarily be sterling virtues. Were it not that the same stock phrases abound in all of these eulogies, they might provoke a gush of emotion, so touching are they, and often pathetic. But the moment the test of examination is applied they turn out to be sheer inventions.
In fact, all such works betray their own obvious worthlessness.
SAGES GREAT DEFECT.
One of the expected virtues, however, Sage grievously lacked, and it was by reason of this omission that he was the subject of gibes and harsh criticism throughout his life. So far as the methods that he used in getting together his millions went, he was not attacked ; on the contrary, in his later years at any rate, he was represented as a very shrewd man who made his money by legitimate means. It was his niggardliness which proved the ground for his unpopularity. The severe economy preached as one of the great stepping stones to fortune, was condemned after the fortune had been acquired. A certain state of public mind or standard had been built up almost requiring that the millionaire should be a good spender ; he should live sumptuously, blaze forth in glitter, and have some pet philanthropy.
Sages recusant quality classified him as quite distinctive among the very rich men of his time. No selfindulgence for him, no extravagance, no expensive hobbies or splurges. He was a man who displeased his class and violated its cations ; to such it seemed that he made wealth odious to the masses by declining to invest it with that generosity which, it was supposed, softened the popular hostility to the system allowing its accumulation.
Hence arose an undue rasping criticism of his personality. Nearly all of the millionaires of his day, after piling up their heaps, gloried in some costly conceit or resplendent show. None of this finery or foolery for the crustaceous Sage. He spent just enough to allow himself a comfortable domicile on Fifth avenue, one of the thoroughfares of the rich in New York city ; aside from this moderate expenditure, he was notoriously parsimonious ; his very clothes were the jest of the country.
Had he yielded to the prevalent custom of buying the reputation of philanthropist and benefactor of mankind by impressive donations or endowments (to be recouped by further pillage) he would infallibly have been otherwise judged. He made no attempt, however, to propitiate harsh public opinion ; be it said to his credit that he was unshakenly faithful to his sordid ideals ; at no time did he curry praise or essay to conciliate by flinging out as a social bribe morsels to charity or philanthropy. Where his compeers (whatever their motives) confused or deceived the public estimate of them and their ways by distributing largess every now and then, he made no advances or pretensions ; in the respect that he candidly idolized money, moralizing and sham almsgiving, cant and humbuggery were absent in his composition.
HIS CAREER AT THE START.
Sage was born of farmer folk in 1816 in Oneida County, New York, in an environment of poverty and cramping horizon. There is a paucity of information about his youthful days. We learn that as a boy his dominant yearning was for money, and that he developed a remarkable capacity for sharp trading. He clerked in his brothers grocery store at Troy, doubtless, we may reasonably surmise, learning all of the profitable little tricks of dealing with customers which an efficient clerk was taught, expected and paid to do ; deceit was then, as it is now, the lever of all successful business. No doubt he carefully, ever so carefully, saved money, and so likewise did tens of thousands of other clerksthrifty, ambitious striplings who put it away as they were beneficently advised. But the rule of thrift worked wrong-side in most of their cases ; very few of them became rich, despite their sticking punctiliously to all of the regularly prescribed axioms. Plain it ever has been that thrift, temperance and hard work are not the recipe for getting rich, else many millions of people who have to work hard, and who are thrifty and temperate, would forthwith become so. The orthodox formulas did not produce riches, as Sages fellow clerks found out. What, then, brought wealth to him ?
Long before down appeared on his chin he had gained a local reputation of being unusually keen at ` swapping. So wrote a eulogist whose description, slight though it be, gives a clue to Sages methods in boyhood days. We are told that he amassed enough money to open a grocery store of his own, and that in 1839 he became a partner in a wholesale grocery establishment.
HE AND HIS PARTNERS CONCOCT A SWINDLE.
On September 12, 1851, Sage and two other Troy men formed a copartnership, under the name of Wheeler, Sage and Slocum, to carry on a general produce business at Troy, with a Western headquarters at Milwaukee, under the name of Wheeler and Company. This copartnership was signalized by a memorable swindle, which called forth one of the severest decisions and denunciations ever handed down by the Supreme Court of the United States.2 The firm deliberately concocted a plan to cheat the creditors of one of its bankrupt creditors in Milwaukee, and while it was engaged in this operation, Sage hoodwinked and cheated his own partners out of the proceeds of the swindle.
The facts as given in the statement of the case and the decision of the Supreme Court of the United States were as follows :
The firm became the owner of a large debt against one Alanson Sweet of Milwaukee, a debt secured by a mortgage on valuable real estate. This real estate included a large warehouse, which Wheeler and Company had rented. Proceedings to foreclose the mortgage against the bankrupt Sweet were begun in October, 1854, and a decree was passed by the Wisconsin courts in November, 1855. The Supreme Courts statement of the case went on to say that Wheeler, Sage and Slocum were desirous of getting a perfect title to the mortgaged premises, the value of which was $50,000 when the mortgage was given. But other creditors had judgments against Sweet, and Sweet claimed the sum of $12,000 due him from Wheeler and Company for three years rent of the warehouse.
If Sweet put in this defence successfully, a perfect title could not be secured. It was necessary, also, to deceive and bluff the other creditors. In order to grasp the whole of the real estate, the court said, Wheeler, Sage and Slocum thought it necessary to purchase certain judgments, and make other arrangements by collusion. Sage informed Wheeler and Slocum that this could be done by buying off Alexander Mitchell, who controlled Sweets defence, for $10,000. The courts statement continues :
Sage was authorized to perfect the agreement, and to charge Wheeler and Slocum their proportionate amount on the books of the firm. This agreement or a similar one, was made by Sage with Mitchell, and judgments purchased under it. Without the knowledge of Wheeler, Sage, however, abandoned this agreement, and made one with Mitchell for his own benefit. The mortgaged property was sold, and Mitchell became the purchaser, letting Sage have one-third interest on certain conditions ; this being done, as alleged, in violation of the rights, and without the knowledge of Wheeler and Slocum. The mortgaged debt was fixed at $24,000, two-thirds of which amount was paid over by Sage to Wheeler and Slocum, being, as he [Sage] said, the best that could be done, and which was accepted by Wheeler and Slocum on that hypothesis.3
SAGE SWINDLES HIS PARTNERS.
Yet, the court went on to relate, enough of the mortgaged property, as Wheeler found out and charged, had been sold to produce $105,000, in addition to unsold property, valued at $27,000, still in Mitchells hands.4
On the usual legal ground that when a party obtains an advantage by fraud, he is to be regarded as trustee of the party defrauded and compelled to account, Wheeler brought suit against Sage. He sued to have Sage declared trustee for himself (Wheeler) for one-third of the mortgaged property still held and unsold by Mitchell, and for one-third of the proceeds of the property that had been sold.
The Supreme Court of the United States declared the whole transaction fraudulent ; that while Wheeler, Sage and Slocum had successfully conspired to cheat Sweets, numerous other creditors, Sage had tricked and cheated his own partners. They had set out to get by fraud real estate worth $50,000 for $30,000, and had authorized Sage to arrange the collusion. Sage had afterward relinquished the agreement with Mitchell, and had secured clandestinely an advantage to himself, to the injury of the other parties.
In further stating the courts decision, Justice Davis continued :
The evidence in this case, consisting mainly of letters interchanged between Wheeler and Sage, shows clearly enough that a scheme was initiated to get title to the property, and that Sage was the active agent to perfect it, but for some unexplained reason it failed. . . . All parties rested in the belief that negotiations with Mitchell would be successful ; but ... Sage abandoned the idea of buying the property on joint account, and bargained with Mitchell in his own behalf. ... The Warehouse Case, as it is somewhere called in the record, is anything but creditable to the parties concerned, and it is surprising that they should have been willing to give it publicity through a legal proceeding. . . . The scheme was to get the real estate by depreciating its value through a process of entering judgment for a large nominal amount, and by deceiving and bluffing off other creditors. The court [in Wisconsin which passed the foreclosure decree] was imposed upon, and a combination formed, the object and direct tendency of which was to secure title to the valuable real estate of an insolvent debtor at the expense and sacrifice of his other creditors.
The court declined to pass judgment, one way or the other, on the ground that a party who had been engaged in an illegal transaction, could not expect redress, after being cheated, in any court of equity. A proceeding like this is against good conscience and good morals, and cannot receive the sanction of a court of equity. ... It is against the policy of the law to help either party in such controversies.5 The effect of this decision was to leave Sage in possession of the proceeds of his swindling operation.
For seven years Sage held the offices of Alderman of Troy and of Treasurer of Rensselaer County. Now it is that we get the first clear penetration into the methods by which he gathered in his first notable amount of money. Not by trafficking in weights and measures was it, nor by petty swindling, but by a transaction in which as a public official he betrayed the city of Troy into selling to himself for a small sum a railroad line, which railroad he later, according to a prearranged plan, sold to the New York Central consolidation at a very large profit.
HOW SAGE OBTAINED HIS FIRST SWEEP OF WEALTH.
There is nothing vague or conjectural regarding this illuminating transaction ; the facts are inscribed authentically in the public records.
In the years 1840-43, the city of Troy, at public expense, began to build a railroad running twenty-one miles from that city to Schenectady. The city of Troy, in 1837 and 1847, borrowed a total of $650,000, and in 1840 the State of New York loaned Troy $100,000, making $750,000 in all for the construction and equipment of the Troy and Schenectady Railroad. It was a time when capitalists passively looked on, allowing many municipalities and some of the States to build publicly-owned railroads and operate them for a time, and then, after many millions of public money had been expended, capitalists would contrive to take over the ownership unto themselves. This they did by depreciating and crippling railroads owned by the community, and by corrupting public officials to sell or lease them for comparatively insignificant sums. It was a favorite practice of the period, and was worked with great success.
The task of providing themselves with modern means of transportation frequently devolved upon communities, since no capitalist would take the initiative in any undertaking in which he did not see considerable immediate profits. The aim of the community was service ; that of the capitalist, profit. Communities would never stop to consider whether a railroad would yield profit ; the sole question guiding them was that of public need. The principle which made the people acquiescent in the loaning or donating of large sums of money to private railroad corporations was that railroads were a public necessity, whether publicly or privately built. In New York State alone, not to mention other States, the railroads originally received from cities, towns, villages and from the State, the sum of $40,039,496.82 by donation or investment ;6 a very considerable amount it made at a time when a dollar had a much greater purchasing power than now. Of this sum, only about one-fourth part was paid back ; at various times laws were corruptly passed releasing the railroad companies from liability for these debts. Every mile of those railroads is to-day absolutely owned, or practically so, by private interests.
As the greater number of railroads were owned by private corporations, it was not difficult for them to bankrupt publicly-owned railroads when they set out to do so. This they could easily do by diverting or obstructing freight and passenger traffic or by corrupting public officials to mismanage them. This conflict of public and private interest always resulted in the triumph of private interest ; necessarily so because public welfare and private profits were an incongruous mixture, the one the antithesis of the other, and also because the governing officials were either of the propertied classes or responsive or subservient to them.
By these methods the campaign against the public ownership of the Troy and Schenectady Railroad was begun. Small detached railroads were anomalies at best ; economic development demanded one of two solutions ; either that they became merged in a great public, or in a great private, system. Disconnected, they were wasteful, inconvenient and unsystematic. This essential fact is fully borne in mind in stating the facts.
Among the railroad capitalists the movement for combination and cohesion commenced at about 1850. In New York State a combination of various bankers, landowners and politicians concluded along in 1851 that it would be an excellent scheme to unite many of New Yorks separate little railroads into one centralized system. They were not prompted, it is true, by solicitude for the community ; very far from it ; the community to them signified a domain for spoils. Nor did they have any appreciation of the economic forces behind their project. Their one propelling idea was to buy up the small railroads for trifling sums and then organize a corporation and sell those railroads to the corporation at a tremendous profit. Nevertheless, in carrying forward the centralizing movement they did a necessary service to the community, however heavily the people have had to pay for it. The Troy and Schenectady Railroad was agreed upon as one of the roads to be included in this combination.
A CITY BETRAYED AND PLUNDERED.
How was the city of Troy to be induced to sell its railroad to the clique of projectors ? This was the problem. It did not perturb them long. Russell Sage undertook to carry through this portion of the bargain. He was at this time a leading member of the Troy Common Council, and was serving as one of Troys directors in the managing of the Troy and Schenectady Railroad. His first move, it would appear, was to cause a steady mismanagement of the railroads affairs so as to create dissatisfaction, if not disgust, with the continuance of public ownership and operation. Very deftly was his undermining and sapping work done so deftly and by such surreptitious methods that no suspicion of his complicity was aroused. A public sentiment unfavorable to Troys retention of the railroad was then adroitly worked up ; public petitions praying for the sale of the unprofitable and unsatisfactory road began to flow in to the Common Council.
What did the Common Council now do ? It appointed a committee to consider the question of selling ; of this committee Sage was the most active member. So very active was he that the committee reported favoring the selling of the railroad. The proposition was, in fact, carried by one vote ; it was Sages vote which decided. Then, on January 24, 1853, another committee of the Common Council was appointed ; its assigned function was to sell the stock, franchise and property of the railroad for not less than $200,000. Who was it that also singularly happened to be the foremost member of this second committee ? The phenomenally industrious Alderman Sage. And when the railroad was finally sold, who was it that bought it ? A company headed by Sage, and Sage it was who became its president.7 Extraordinarily considerate were the terms of sale ; $50,000 was to be paid down, the remainder in fourteen years.
A LITTLE DISTRIBUTION OF $8,000,000.
Quite a legitimate transaction, the apologist might say ; according to the law, however, it constituted malfeasance in office ; many an officeholder in various cities had been removed for less flagrant acts. It was recognized generally as a gross piece of corruption, but nothing was done to interfere with its success nor with the greater corruption that followed. Having, under form of law, grabbed the Troy and Schenectady Railroad, Sage sold it for $900,000 or so to the group of capitalists forming the New York Central Railroad combination. Although but $50,000 had been paid for it in cash, Sage and his associates disposed of it not only for the full value of its $650,000 capital stock, but they also received in exchange a premium of twenty-five per cent. on that amount in New York Central bonds. In this formation of the New York Central, $8,000,000 in bondsall wateredwere distributed as a bonus among the owners of the various railroads embraced in the consolidation ;8 no insignificant portion of the eight millions was Sages share of the spoils.
Whatever might be the later outcries of Troys population over the merciless extortions of the New York Central Railroad, Sage was now heralded more of a prominent citizen than ever before, a citizen of exceeding worth, stability and standing. The glorious and patriotic occupation of politico-business man, with its radius of opportunities, had proved very lucrative. Yet the national capital, Sage concluded, held out much greater inducements. Accordingly, the corrupt Troy political ring, of which he was a leader, caused him to be elected to Congress ; there he took his seat in December, 1853, and in 1854 was reŽlected.
That was the era when act after act was passed granting money and land, either openly or by indirection, to railroad companies, and giving corrupt powers and privileges of all miscellaneous kinds to other corporations and to individual capitalists. In the one year of 1856, exclusive of other years, Congress passed at least thirty railroad land-grant acts for the benefit of as many separate railroad corporations acts under which these railroad companies obtained the ownership of tens of millions of acres of public land. The corrupt means used to get these acts through proved one of the great scandals of the times, and led to the appointment of numerous Congressional and State legislative investigating committees. Few members of Congress and legislatures there were, as was abundantly shown, who did not take bribes either in money or in stocks and bonds.
If Sage was barely noticeable in Congress, and a tolerably complete blank in public life, he nevertheless all the more effectively and intimately cohered himself with many of these same rich railroad projects. The particuiar means whereby he did so are not ascertainable, but certain it is that when he left Congress he was found to be a conspicuous insider of various of these land grant railroad corporations.
UNRESTRAINED FRAUD AND BRIBERY.
He was called the father of railroad construction companies in Wisconsin and Minnesota, warbles a rhapsodizing writer,9 apparently confident that the reference will redound to Sages undying credit. What this eulogist prudently omits is an account of how these companies secured their charters and land grants.
The Minnesota and Northwestern Railroad Company was one of the railroad companies which obtained its charter and land during the very time Sage was in Congress ; the act was passed to the accompaniment of charges of fraud and bribery. As regards this corporation, however, there is no documentary evidence connecting Sage with it. But it is worth while referring to it.
A select committee of the House was appointed on July 24, 1854, to investigate ; and although the committee handed in an evasive, whitewashing report, the testimony given before it undoubtedly proved that somehow the wording of the act had been fraudulently changed in the House in the process of engrossing. These changes, according to J. Travis Rosser, secretary of the Territory of Minnesota, gave millions of dollars to the railroad company in question. As originally passed by the Senate, the bill had given the donation of land to the Territory of Minnesota, not to the company ; as it finally read after becoming a law, the bill contained the fraudulent changes inserted in the House.10 Robert W. Lowber, a stockholder, testified that arrangements had been made in the debate over the bill whereby the opposition of certain of its opponents was bought off, a statement which the incriminated denied.11 The majority of another committee, appointed on July 10, 1854, to investigate charges of bribery reported : The undersigned believe that it is clearly established by the testimony that money has been liberally used to secure the passage of bills, and they verily believe that much more evidence could be procured if time had been allowed the committee to make a more thorough investigation of the facts.12
THE ENTERPRISING FACTORY OWNERS.
This committee found that Samuel Colt, the founder of a fortune based upon the manufacture of firearms, paid out at least $15,000 to Dickerson, his attorney and one of his lobbyists, to buy off the opposition in Congress to a bill extending Colts patent rights, the time limit of which had expired. The testimony indicated that about $60,000 in all was spent in getting the bill passed. Another lobbyist, Jere Clemens, who also did the disbursing of Colts bribe money, was, at the same time, as he admitted under oath, lobbying for various railroad corporations seeking land grants, and for a bill similar to Colts which extended the patent rights of Cyrus H. McCormick,13 a manufacturer of reaping machines, and the founder of a multimillionaire fortune.
And how other factory owners were bribing Congress to pass tariff acts was disclosed by the investigation of a select committee of the House, the majority of which committee reported that one firm in particular, Laurence, Stone and Company, of Boston and New York, owners of the large Middlesex Mills, and the equally large Bay State Mills, in Massachusetts, had expended $87,000 in bribes to have the duties on raw woolen materials and dye stuffs reduced.14 Failing to get from Congress, politically pledged to a low tariff, a high protective tariff on woolen goods, they set out to accomplish the same result by securing a reduction of customs duties on raw material. One of the lobbyists for this firm was A.R. Corbin, brother-in-law of Ulysses S. Grant, the same Corbin whom Gould later bought up in his gold manipulation. Corbin received $1,000 in bribes from Laurence, Stone and Company, and he made no concealment of the fact that he had been regularly acting for the Illinois Central Railroad and other railroad corporations.
This was the time, it will be recalled, when Commodore Cornelius Vanderbilt, F.K. Collins, and other steamship capitalists were debauching Congress to get mail subsidies, and when Vanderbilt was blackmailing two Pacific steamship lines out of $612,000 a year of the Government subsidy funds. It was also during these years that a House committee, after investigation, found that the enacting charter and the land grant of the Des Moines Navigation and Railroad Company were passed by bribery.15 Obviously, judging from the reports of these various investigating committees, and from the much more significant circumstances calling for the appointment of those committees, Congress reeked with fraud and bribery, of which only slight oozings came to the surface ; and we incidentally get, in passing along, a lucid insight into some of the methods of the founders of great fortunes based upon manufacturing industries.
Bribery, indeed, was so undeniably rife that as a sop to public feeling, one investigating committee after another was appointed to inquire into charges. While on this subject, digression will be made to deal with two scandals in particular which came up at this period. It is well worth while referring to these, first, because they additionally reveal the utter corruption carried on continuously at Washington by every section of the capitalist class, and second, because they disclose some of the methods by which one of the most lauded multimillionaire financiers and philanthropists in the United States built up his fortune.
This was William W. Corcoran, a Washington banker, who, after the Civil War, became reputed as one of the most substantial and respected financiers in the Unites States. During the decades when Gould and Sage were being hotly denounced for their frauds, Corcoran loomed up as a staid, conservative banker and a man of accredited most honorable past. He was the chief partner of the banking firm of Corcoran and Riggs, and bequeathed $2,000,000 for a splendid art gallery to the city of Washington, and he also established a home for decrepit old women.
A SIDEWISE GLANCE AT A NOTED PHILANTHROPIST.
Corcoran was another of the many capitalists who contrived to assume a coating of protective respectability. His methods, however, were of the same fraudulent nature as those of all the other successful money getters.
Evidences of what these methods intrinsically were came out in 1854 ; they made such a rumpus that the house of Representatives was compelled to undertake some investigation. According to the written and repeatedly made charges of Benjamin E. Green, a political figure of the period, Corcoran had extensively bribed public officials in order to make large sums of money out of the handling of United States funds and of speculation in them. Under the treaty of Guadulupe Hidalgo, the United States had agreed to pay Mexico a large indemnity for territory ceded after the Mexican War. Part of this sum was paid by 1850, but a considerable sum still remained to be settled. Mexico needed money badly, and proposed that the United States pay it directly to the Mexican Government without the intermediary of banking houses. Green charged that Corcoran bribed Thomas H. Bayly, chairman of the House Committee on Ways and Means, so to misrepresent Mexicos proposition and manipulate matters that the firm of Corcoran and Riggs should be made the middlemen in the transaction. Bayly, charged Green, held a control over all of the appropriation bills in most of which Corcoran was directly or indirectly interested.16 Corcoran thus obtained the handling of the indemnity funds, and made a profit of about $500,000 from the transaction.17 A select committee of the House of Representatives made a show of investigating the charges against Bayly, and reported on August 3, 1854, a case of not proved.
THE GARDINER-MEARS SWINDLE.
At the very same time Corcoran was involved in another investigation by the House Committee on Judiciary a committee many of the members of which were themselves corrupt politicians. The transaction which it was investigating under a resolution passed by the House on March 6, 1854, was the great swindle perpetrated by George H. Gardiner and John H. Mears upon the United States Government. By perjury, forged affidavits and bribery these two men obtained $581,000 from the United States Government upon the representation that property of theirs had been destroyed in Mexico during the Mexican War. After the money had been appropriated, the facts as to the astounding fraud (as a House Committee termed it) came out publicly. Both the Senate and the House investigated the transaction ; a Senate committee reported that the claims were false and fictitious and the awards obtained upon forged and fabricated papers.18
The people of the United States were wrought up over the disclosures of this bold swindle, and Congress was smitten with another of its spasms of virtuous curiosity. A resolution was passed calling for the recovery of the money paid out to Gardiner and Mears. But were these men the real beneficiaries ? Who actually got the money ? Who were the principals behind the fraud ? These were points that had to be inquired into.
As the investigation unfolded it appeared that a group of bankers and politicians were the parties backing the fraud. Possibly they instigated it, although this general belief was not determined. The testimony showed, however, that when the forged affidavits were being prepared, money was urgently needed to carry the projected swindle to a successful conclusion. At this point Corcoran came forward. He loaned $18,750 as funds for the promotion of the swindle, although he claimed, when the committee was investigating, that he did not know that this money was used to buy up testimony and otherwise complete the chain of fraud. But he admitted loaning this $18,750 to Robert G. Corwin and Thomas Corwin, powerful politicians of the day ; in return he received an assignment of the Gardiner claim as collateral security.19 Thomas G. Corwin later was appointed United States Secretary of the Treasury, and it was by his order, under an act passed by Congress, that the money was paid out. Of the $581,875 appropriated, the sum of $321,562.50 was nominally in the name of Gardiner himself, and $107,187.50 was awarded to Corcoran as the assignee of Gardiner. Both of these sums, however, were paid out to Corcoran and entered on the books of Corcoran and Riggs, and (so the report has it) credited to the parties interested.20 Gardiner, while being prosecuted for perjury, committed suicide. The bankers and politicians, however, whose tools Gardiner and Mears were, did not, it is hardly necessary to say, have to face criminal trial or any other kind of trial, except a friendly and evasive investigation. So far as Corcorans complicity was concerned, the committee exoneratingly whitewashed him, and relieved him from any legal responsibility.
It is probable that Sage learned many valuable lessons from his experience at Washington ; Corcorans particular kind of banking methods must have opened his eyes to possibilities. At any rate, already a millionaire, or nearly one, from the combination of business and politics, Sage now went into the banking business at Troy, and became a money lender and usurer on a large scale.
It was at this juncture that he turned up as one of the largest bondholders of the La Crosse and Milwaukee Railroad. He had become associated with this project at about the time he was in Congress, but the fact was not known until several years afterward, when he foreclosed. The eulogistic biographer in Americas Successful Men, treats Sages connection with the La Crosse and Milwaukee Railroad in this light fashion : The panic of 1857 found Mr. Sage a large creditor of the La Crosse Railroad. . . . To protect the loans he had made to the road he found himself compelled to advance yet larger sums, and later, through legal proceedings instituted to protect his investment, he became the owner of the road which afterward became a part of the Chicago, Milwaukee and St. Paul, of which Mr. Sage was at different times a director and vice president.
THE BRIBERY OF AN ENTIRE STATE.
This explanation reads very smoothly, but it omits a multitude of details both essential and enlightening. It can be said that at a period when bribery and fraud were so common as to cloy the popular mind, no transaction aroused a greater sensation or made a deeper impression upon a people jaded with continuous exposures of bribery, than the great thefts and briberies committed by the owners of the La Crosse and Milwaukee railroad.
This corporation had been chartered by the Wisconsin Legislature in 1852 to build a railroad crossing Wisconsin from Milwaukee on the eastern boundary, to La Crosse on the western. Two additional acts passed in the same year allowed it to consolidate with two other railroads running in different directions.
In June, 1856, Congress passed a bill granting to Wisconsin approximately 2,388,000 acres of public land in that State to be distributed among the railroads in Wisconsin. The enactment of this law was one of thirty distinct railroad land-grant acts passed in that one year. That they were put through by bribery was shown by the report of a House investigating committee which recommended the expulsion of four prominent Congressmen on the ground of their having been at the head of corrupt combinations in Congress.21 The La Crosse and Milwaukee Railroad Company thereupon lost no time in bribing (and all of the other land-grant railroads did the same in other States) the Legislature of Wisconsin to award a huge land grant. What followed the corrupt acts of Congress would doubtless never have been made public had it not been for the fact that another railroad company was sharply competing with the La Crosse and Milwaukee Company to get the major land grant from the Wisconsin Legislature. Beaten in the contest it revengefully raised charges that bribery had been used. The result was the appointment of a joint investigating committee by the two houses of the Wisconsin Legislature, and it is from their report, covering more than three hundred pages, and handed in on May 13, 1858, that the fullest details are obtainable.
This committee reported that in the construction of the La Crosse and Milwaukee Railroad nearly $1,700,000 had been stolen by the directors up to 1856. One method was by making exorbitant contracts with themselves to construct their roads ; another was by false construction charges ; a third was by their buying property as individuals and then selling it to the company at exorbitant prices. These fraudulent methods were common among the directors of railroads throughout the United States. According to the findings of the committee, the La Crosse and Milwaukee Railroad directors, composed of Wall street bankers and New York politicians, had so plundered the stock, security and property of the company that it was reduced to a condition of bankruptcy. The plan was thus made imperative of getting a large land grant in order to rescue the company from its condition, and save the directors from criminal prosecution for frauds and robbery. Sage did not figure among the directors at this time ; his holdings, it appears, were in bonds not stocks ; he remained in the background working through intermediaries.
$800,000 IN BRIBES TO GET AN ACT PASSED.
To get this land grant, consisting of about 1,000,000 acres, the La Crosse and Milwaukee Railroad directors debauched not merely a few leading members of the Legislature, but virtually the whole Legislature, the Governor and other State officers, and a large number of editors of newspapers and politicians. It was this wholesale bribery of an entire State, joined with the general plunder, robbery and sundry swindling, that made so uncommonly deep an impression upon the public mind ; the newspapers, which in general ordinarily gave scant space to accounts of bribery, opened up on this occasion, in evident appreciation of the nature of the scandal, and published long summaries, in some cases covering a page and a half in fine print, of the committees report.
More than $800,000 in bonds and money but chiefly in bonds had been paid out in bribes to insure the passage of the land-grant act of 1856, the committee reported. This was an underestimate. According to the report of the president of the La Crosse and Milwaukee Railroad Company to the stockholders, the passage of this act cost $1,000,000 in bonds.22 In his annual report for 1858 the president of the company bewailed the fact that the passage of the land-grant act had cost the company so much. He itemized the expenses incurred. The first was this brief but significant entry, Construction bonds of 1862, issued for Charter Expenses, $1,000,000. The second item enumerated in the list of expenses for getting the land grant was another $1,000,000 spent in the purchase and consolation of the St. Croix and Lake Superior Railroad, which railroad was awarded 847,000 acres of public land.23 A third entry was, Stock issued for Charter Expenses at Madison [the capital of Wisconsin], $90,000.24 A fourth item was one of $210,000 for services in getting a charter for a branch railroad called the Milwaukee and Watertown Railroad.25
Large as they were, these expenditures were trivial compared to the value of the land grants received. The annual report of the La Crosse and Milwaukee Railroad Company for 1857 contained a statement from the Wisconsin Land Commissioner setting forth that the areas granted were rich agricultural and timber lands, and valuing them at the sum of $17,345,600.26 Seventeen million dollars in return for a disbursement of several millions in bribes was not a bad business transaction.
UNPARALLELED ACTS OF FRAUD AND PLUNDER.
But to revert to the report of the joint legislative committee of Wisconsin : It reported that for the passage of the land-grant act of 1856, $175,000 in bonds were distributed among thirteen specified Senators, the individual bribes of whom ranged from $10,000 to $20,000 ; that $355,000 in bonds had been given in bribes to seventy specified Assemblymen an average bribe of $5,000; that $50,000 in bonds were given as a bribe to Coles Bashford, Governor of Wisconsin, and $16,000 to other State officials, and that $246,000 had been variously paid out to certain specified editors and to other persons of influence.27
The committee reported that the bribers used a secret written code in order to conceal the evidence of bribery. This code, however, was revealed. The committee commented : The bribery or `buying tip a great majority of the Legislature of 1856, is discovered in the background as a tame fact, while the ingenuity displayed in the attempt to veil the transaction beyond the possibility of detection, is so supremely unique as to extort attention. The actors seem not to have been mindful of the fact, that no lid was ever large enough to completely cover up itself.28
The evidence taken, the committee concluded, establishes the fact that the La Crosse and Milwaukee Railroad Company have been guilty of numerous and unparalleled acts of mismanagement, gross violations of duty, fraud and plunder. In fact, corruption and wholesale plundering are common features.29
They were not merely common features of the railroad corporations in Wisconsin, but everywhere else in the United States ; year after year they went on unhindered by legislative or Congressional investigations. The stolen rights and property, far from being forfeited, became strongly riveted vested rights ; neither the bribers nor the bribed were troubled with criminal prosecution except very rarely, and then it was only the subordinate tools who were sent to prison. Every bribery scandal would be shortly followed by some new scandal ; the old would die away or become forgotten, and the new would absorb public attention for a time, only to go through the same process.
Yet, under a noted decision of the Supreme Court of the United States, the principal, in every transaction coming within the law, was fully liable to punishment. In January, 1829, in a suit brought by the Government against Astors American Fur Company, growing out of a seizure by General Tipton of liquors intended for debauching the Indians, that court had laid down this principle of law (Peters Reports, II, 364) : That whatever was done by an agent, in reference to the business in which he was at the time employed, and within the scope of his authority, was said and done by the principal, and might be proved in a criminal as well as a civil case, in all respects as though the principal were the actor or speaker. This interpretation, however, was no more used against other capitalists than it was against Astor.
The great land grants received by the La Crosse and Milwaukee Railroad Company were not the only gifts in the legislative acts of 1856. As a corporation the company was forever exempted from taxes, and the lands granted were exempted from taxation for ten years a sufficient time in which to strip them of their timber or sell them. Despite all of the legislative gifts, and additional very valuable donations by towns, counties and cities, the railroad had been so consummately pillaged of its money and resources, and so difficult was it to raise money in the panic of 1857, that it was forced into bankruptcy.30
Now it was, as his biographic limners express it, that Sage projected himself into the foreground to protect his interests. How he did it they do not tell, but the court records of the time describe his methods with considerable plainness of speech if not clearness of explanation. It appeared that Sage had been all along using dummy directors and agents ; that is to say, he had put forward certain men who nominally were the owners and active spirits, while he, under cover, was actually the controlling owner and moving figure. This fact came out in numerous suits which were carried to the Supreme Court of the United States, and it is from the records of this august court that certain details are obtained.
FRAUDULENT BONDS AND FRAUDULENT SALE.
Sage was virtually the owner of a two million-dollar third mortgage issued to cover the eastern division of the La Crosse and Milwaukee Railroad, extending from Milwaukee to Portage City, or about half the breadth of Wisconsin. The Supreme Court of the United States set forth in its statement of the case in 1867 that for these $2,000,000 in bonds, not more than $280,000 had been paid in money. Indeed, said the Court, the actual amount is but a little over $150,000.31 By what the Court called a fraudulent arrangement, intended to cheat the stockholders and the creditors of the road, this third mortgage was given precedence and the property was foreclosed. The Supreme Court records do not show how Sage got hold of his bonds, but they do spread out that the fraudulent bond issue was followed by a fraudulent foreclosure sale.
Of the $2,000,000 in bonds, the Court said, only $200,000 in money was paid. The remainder of the two millions was in the hands of either directors or under their control by a fraudulent arrangement. The Court denounced the foreclosure as a sale made by a fraudulent notice in which the interested parties only knew what was about to happen.32
This foreclosed eastern division of the La Crosse and Milwaukee Railroad was reorganized as the Milwaukee and Minnesota Railroad Company, with Russell Sage as its president. The foreclosure had been applied for on August 17, 1857. It would seem, therefore, that Sage had become a heavy bondholder during, or immediately after, the very time when the acts were being bribed through Congress, and that he was one of the largest bond creditors at the identical time, or soon after, the La Crosse and Milwaukee Railroad Company had corrupted the entire State of Wisconsin with $800,000 in bonds as bribes. But the precise date of his becoming connected with the railroad is not altogether clear in the records. After the foreclosure sale, some of the stockholders and many of the creditors, comprising firms which had supplied material for the construction of the railroad, objected to being cheated. A number of legal actions ensued ; these were also carried to the Supreme Court of the United States, and from them additional facts can be gleaned.
A GENERAL ALL-ROUND SWINDLING.
One of these cases considered by this court in 1863 was that of several banking firms representing Sage, in an action against the La Crosse and Milwaukee Railroad Company, the purpose of which suit clearly was to swindle the stockholders and judgment creditors. On the face of the action, it was necessary that Sages Milwaukee and Minnesota Railroad Company, as the successor in part of the original company, should make a defence, but very curiously it made none. There was something very singular about this omission ; what it was came out in the intervening application of defrauded stockholders. The records of the case of Bronson et al vs. The La Crosse and Milwaukee Railroad Company read :
After the time had expired within which the Milwaukee and Minnesota Railroad Company ought to have answered, but before an order had been entered taking the bill against them pro confesso, one J.S. Rockwell, a stockholder of the said company, presented to the court his petition, charging collusion between the complainants or their agents, and one Russell Sage, president of the said Milwaukee and Minnesota Railroad Company, to secure a foreclosure and sale in their cause ; for the purpose of extinguishing the rights of the said Milwaukee and Minnesota Railroad Company, which was alleged to be the owner of the equity or redemption of the mortgaged premises ; and that the president [Sage] of the last named company, although requested by its stockholders, had declined to make any defense in its cause.33
Obviously, for the scheme afoot was to so tangle up the affairs of the company in legal hocus pocus as to have a valid ground for absolutely cheating (or as the term went, freezing out ) the stockholders and judgment creditors. Four years later, as we have just noted, the Supreme Court of the United States found it so in deciding another case.
Rockwell was not the only stockholder charging collusion. Another stockholder, Fleming, presented a petition making a number of charges of which collusion was merely one. He also charged that the mortgage issued by the La Crosse and Milwaukee Railroad Company represented what was popularly known as Corruption Bonds and was gotten up for the corrupt and fraudulent purpose of disposing of said bonds, or a large part thereof, in payment of pretended debts to the officers and agents of said company, or their friends, without any consideration to be paid therefor. Also, that a large part of said bonds were so disposed of and given away in fraud of its creditors.34 The attorney for the complaining stockholders said in summing up the case Men placed to manage corporations for the interest of the stockholders manage them only for their own. They become contractors, half ruin the corporation, pay themselves with its assets at enormous discounts, then resuscitate things and are rich in the result.35 The Supreme Court of the United States subsequently set aside the foreclosure sale on the ground that it was fraudulent, but Sage, by other means, succeeded in keeping his hold.
These are the authentic, exact legislative and court records. Entirely different are the facts they reveal from the phrase going the rounds of the press at Sages death couched in this or similar language, Perhaps the most noteworthy fact in the accumulation of Mr. Sages fortune is the absence of graft. And likewise very different are they from the statements given in the ludicrous histories prepared by the railroad corporations themselves.
While Sage was foreclosing the eastern division of the La Crosse and Milwaukee Railroad, he was, at the same time, foreclosing, by reason of his holdings, another division which likewise became a part of the Chicago, Milwaukee and St. Paul Railroad system. This other division was the Milwaukee and Horicon Railroad, which was part and parcel of the continuous corrupt transactions. The historian of the Chicago, Milwaukee and St. Paul system writes of the episode in this uninforming way : The Milwaukee and Horicon Railroad, incorporated in 1852, was foreclosed by Washington Hunt and Russell Sage in 1863 and by them transferred to the Chicago, Milwaukee and St. Paul in June, 1863.36
The enormous frauds in Wisconsin were only a part of Sages activities at this period. At the same time, he and his fellow capitalists were contiguously carrying through similar fraudulent operations in Minnesota. Were it not that occasionally they fell to quarreling over the spoils, and let out secrets in the civil courts, we should be at a loss to know the precise nature of their transactions. As it is, certain records of lawsuits survive to give a fairly clear index of their methods, and what these were will now be related in an expository outline.
1 For example : See Americas Successful Men, Vol. i, containing a laudatory sketch of Sage.
2 See Wheeler vs. Sage, Wallaces Reports, Supreme Court of the United States, 1:518-531.
3 Wallaces Reports, Supreme Court of the United States, i : 519.
5 Wallaces Reports, Supreme Court of the United States, i : 530-531.
6 Railroad Investigation of the State of New York, 1879, i:238-243.
7 See Investigation of the Railroads of the State of New York, 1879, v:28-58.
8 The Hepburn Committee legislative investigation of 1879 went into the history of this stock watering operation. An account of the Troy transaction by F.W. Powell, entitled Two Experiments in Public Ownership of Steam Railroads, appeared in the Quarterly Journal of Economics, issue of November, 1908.
9 Americas Successful Men, i:567.
10 Reports of Committees, Thirty-third Congress, First Session, Vol. iii, Rep. No. 352:30.
11 Rep. No. 352, 1854:35. This act was later repealed. See
Chapter ii. Lowber was, for a time, acting-president of this company. He was a notoriously corrupt New York city politician, and at that very time, was making considerable sums of money, by fraudulently selling land at exorbitant prices, to New York
city. (See The History of Tammany Hall, p. 216.) Lowber, on one of these occasions, corruptly sold land to the city of New York for $196,000, which the Controller refused to pay on the ground that this sum was five or six times more than the land was worth. Lowber recovered judgment in the courts against the city, and when the Controller declined to satisfy it, was on the point of causing New Yorks City Hall, in 1858, to be sold at auction, when Mayor Tiemann halted the proceedings, and raised the necessary sum. As it was, the paintings and statuary in the City Hall were sold, and were bid in by Mayor Tiemanns secretary.
Other officers of the Minnesota and Northwestern Railroad Company were equally notorious New York lobbyists and corruptionists.
12 Reports of Committees, Thirty-third Congress, First Session, Vol. iii, Report No. 352:35.
13 Rep. No. 352, etc 20. It is deserving of note that Houghton includes both Colt and McCormick in his Kings of Fortune, or the Triumphs and Achievements of Noble, Self-made Men, etc.
14 Reports of Committees, First Session, Thirty-fifth Congress, Vol. iv, Report No. 414.
15 See Chapter ix, Vol, ii of this work.
16 Reports of Committees, Thirty-third Congress, First Session, Vol. iii, Rep. No. 354:4.
18 U.S. Senate Report No. 182, 1854.
It was at this period that vast stretches of valuable land in the Southwest and the Pacific States were being obtained by forged documents and by the testimony of perjuring Mexicans. See Chapter ii, Vol. ii, and the chapter on the Elkins fortune in Vol. iii.
19 House Reports, Thirty-third Congress, First Session, Vol. iii, Report No. 369:39.
20 Rep. No. 369, etc. It is pertinent to note here that Riggs, of the firm of Corcoran and Riggs, was accused, in 1868, of handling a corruption fund employed by the Russian Minister to the United States to secure the passage of a bill appropriating $7,200,000 for the purchase of Alaska by the United States. The House Committee on Public Expenditures investigated. Riggs denied the charges. But inasmuch as the members of the Russian Legation, although requested to appear and explain, refused to do so, the Committee reported its investigation, barren of affirmative or satisfactory negative results.See Reports of Committees, Third Session, Fortieth Congress, 1868-69, Report No. 35.
21 Report of Select Committee appointed to Investigate Certain Alleged Corrupt Combinations of Members of Congress, Reports of Committees, 1856-57, Vol. iii, Report No. 245.
22 See The Sixth Annual Report of the La Crosse and Milwaukee R.R. Company. New York, 1858:16.
23 Sixth Annual Rep., La Crosse and Milwaukee R.R., 16.
26 The Fifth Annual Report of the La Crosse and Milwaukee R.R. Co., 1857, 55 and 100.
27 Report of the Joint Select Committee Appointed to Investigate Into Alleged Frauds and Corruption in the Disposition of the Land Grant by the Legislature of 1856 and for Other Purposes ; Appendices to [Wisconsin] Senate and Assembly journals, 1858.
28 Ibid., 47. In Wisconsin, not less than in other States, large numbers of farmers were flagrantly robbed. The robbery of Nation, States, counties, municipalities and individuals proceeded at the same time.
Of the corruption and fraud in the case of the Milwaukee and Superior Railroad Company, an investigating committee reported that many of the farmers in Milwaukee County and other parts of Wisconsin had mortgaged their farms in order to raise money for the purchase of railroad stocks. These farmers were anxious to aid in the construction of a road which they supposed would benefit themselves and the public generally. Many were Germans, confiding, unsophisticated men. The committee continued : A swarm of these vultures known as ` stock agents were sent out amongst the people, and as the result shows, from the evidence herewith, many poor and worthy men have been robbed of their all, and unless some relief is extended to them in some way, will soon be deprived of their houses, if said mortgages are of any legal effect. . . Report of Select Committee Appointed Under Resolution No. 128 Assembly, to Investigate the Affairs of the Milwaukee and Superior Railroad Company, Appendix to Assembly Journal, Wisconsin : 10-11.
29 Report of the Joint Select Committee, etc., Appendices to [Wisconsin] Senate and Assembly Journals, 1858:47.
30 In the testimony before the Wisconsin Joint Select Committee of 1858, Sages name was not in any way brought out. It is certain, however, that in 1857 Sage was a controlling owner of the La Crosse and Milwaukee Railroad. The investigating committee reported this testimony of Prentiss Dow, a stockholder :
In August and September, 1857, rumors became very current in New York that vast frauds had been committed in the management of the affairs of the company ; that the funds raised by the sale of subscriptions of land grant bonds had been applied to other purposes than building the road ; that the `statement of the company was unreliable, as to the true condition of the company. Many of the holders of land grant bonds became alarmed and sales of them were made as low as twenty cents on the dollar.(Appendix to Assembly Journal, Wisconsin, 1858, p. 165.) Perhaps Sage bought more of the bonds at this time.
31 James vs. Railroad Company, Wallaces Reports, Supreme Court of the United States, vi : 755.
32 Wallaces Reports, Supreme Court of the United States, vi:755.
33 Wallaces Reports, Supreme Court of the United States, ii:285-286.
34 Wallaces Reports, etc., ii:287. This is one instance of many more such instances clearly revealing the real nature of the ability of the capitalists in developing the resources of the country. Ability it was of its kind, and one wholly used for plunder and personal enrichment.
35 Ibid., 295.
36 Outline History of the Chicago, Milwaukee and St. Paul Railroad Company. Compiled by the General Passenger Department, 1888: 2.The chief attorney for the various railroads merged in this system was Samuel J. Tilden, who later posed as so great a reformer in politics, and who was the Democratic nominee for President of the United States in 1876. It will be continuously observed that the men nominated by both political parties for high office, executive, legislative and judicial, were invariably those who had proved their usefulness as tools, retainers or beneficiaries of the corporate interests. Witness Garfield and Blaine, implicated in the Credit Mobilier swindle, Morton and many others.