Living the Gilded Life: Wealth and Corruption
Have you ever dreamed of acquiring staggering wealth, wealth so great that it couldn’t be spent in several lifetimes no matter how extravagant one might be? America has certainly produced its share of persons who have achieved such vast fortunes. Today, we think of the social media giants and Silicon Valley as the locus of such achievement, but in the 19th and early 20th centuries, it was industrial might that created such wealth. That’s the pleasant news. Less so are the accounts of the methods used by the era’s robber barons to amass their astounding fortunes. The history of America’s Gilded Age is rife with stories of the accumulation of unimaginable wealth and the ruthless, sometimes illegal, ways in which it was gained. Oh my, where to begin?
Perhaps the best place is with the greatest scandals of the period, those surrounding the building and running of the railroads. Of those, the Credit Mobilier Scandal stands out for the sheer audacity of those involved. In both the private and public sectors, the graft and corruption reached astounding proportions and tarnished a US president’s legacy.
Although the truth would not come out until some years later, the groundwork for the scandal was laid by Congress in 1862 and 1864 with the passage of legislation chartering the Union Pacific Company to build the eastern part of the railroad and the western portion respectively. The project was initially promoted as a “going concern” that would ultimately pay its own way, provide return on investment, and retire the debt to the US government all through freight and passenger service. A railroad from coast-to-coast was an attractive prospect and Congress initially approved the sale of $100 million in company stock backed by company real estate and promised additional financial support by loaning funds created through thirty-year government bonds issued and sold as sections were completed. When the directors decided they would be unable to raise sufficient additional funds through normal channels due to the risk to investors, they bribed enough Congressmen to ensure the passage of the second piece of legislation, which allowed the company to sell its own bonds, doubled the size of its land grant to 20,000,000 acres and gave the company the coal and iron rights of same.
In all honesty, building the railroad in the west was indeed a financial risk given the difficulty of construction in the rugged terrain, danger from hostile tribes, and no substantial demand for freight or passenger service at the outset. Had the corruption ended there, the story of how it took some finagling to get the Transcontinental Railroad built might have become one of history’s footnotes.
Human nature and ungoverned greed being what they are, the company directors believed their personal fortunes would benefit from additional tweaking of the railroad’s funding. In 1864, George Francis Train and Union Pacific vise president Thomas C. Durant formed the Credit Mobilier of America by taking over and renaming the Pennsylvania Fiscal Company. The original PFC was chartered as a loan company that could buy and sell railroad bonds and could “borrow and loan money without limit upon the resources or without the resources of the company.” Renamed Credit Mobilier, the company was then presented to the US government and the public, including any potential investors, as an independent corporation without ties to Union Pacific that had been chosen by UP directors as the principal construction contractor and construction management firm to build the railroad. In reality, Credit Mobilier was owned and controlled by Union Pacific officers and directors. Their purpose was to make money on the construction phase because they didn’t think the operational phase, freight and passengers, would ever turn a profit. Through Credit Mobilier’s agency, the US government was charged exorbitant fees and expenses to build the railroad. The differences between the actual construction costs and the reported costs then went straight into the pockets of Union Pacific directors, officers, and stockholders.
As murky as all this maneuvering seems, the US Congress in part became complicit in the fraudulent scheme through Massachusetts Congressman Oakes Ames who was chosen to head Credit Mobilier in 1867. Since Union Pacific’s directors basically had a license to loot the US Treasury, something had to be done to ensure that Congress would not exercise its oversight right. To forestall any potential investigations, Oakes gave or sold at a below market cost company stock to twenty Congressmen and the Vice President of the US. These Congressmen in turn voted to authorize more money for the railroad’s construction. Union Pacific stock and bonds paid enormous dividends. In one year, shareholders received dividends of 348% and in another 805%.
By Grant’s second presidential campaign in 1872, the railroad was complete, but Union Pacific was bankrupt and Credit Mobilier was out of business. In its original intent, Congress had established what should have been a permanent endowment for the building and maintenance of the Transcontinental Railroad, but the money wound up in the pockets of Union Pacific officers, directors, and stockholders. Despite rumors of wrongdoing, knowledge of the fraud might not have come to light but for the 1872 publication in the New York Sun of incriminating letters written by Oakes Ames. Congress now had no choice but to investigate. In 1873 before a Congressional committee, Ames read the names of the men who had benefited from his largess, including future US president James Garfield, Speaker of the House James G. Blaine, and Vice President Schuyler Colfax.
In its infinite wisdom, Congress chose to do nothing. No one went to jail. No one was even censured except Oakes Ames. Though blame was laid solely upon Ames, even he escaped serious punishment. His supporters argued that his actions in ensuring the railroad’s completion had been acts of patriotism. And besides, everyone used bribery and corruption to get railroads built.
Ulysses Grant won his second term, but his legacy was marred by multiple scandals during his presidency, Credit Mobilier among the most prominent. Historians are just now finally taking a second look at the Grant presidency and reevaluating his tenure. He was a great general and a good man by all accounts, but his failure to lead effectively from the Oval Office will forever tarnish his legacy, in my opinion.
Linda Bennett Pennell is an author of historical fiction set in the American South or about Southerners traveling far from home. While she writes about the land of her birth, anything with a history, whether shabby or regal, ancient or closer to our own day, has fascinated her since early childhood. This love of the past and the desire to create stories of it probably owes much to her Southern roots.
Southern families are filled with storytellers who keep family and community histories alive. It is in their blood and part of their birthright. Linda’s family had many such yarn spinners who entertained the family on cold winter evenings around her grandmother’s fireplace and during long summer afternoons on her wraparound porch. And most important of all, most of those stories were true.