IT WAS THE late summer of 1872. The presidential race pitting the New York newspaper magnate Horace Greeley against Ulysses S. Grant in the latter’s bid for a second term was just getting underway. Greeley, the owner of the New-York Tribune, had secured the Democratic nomination with a convention victory over Charles Francis Adams Sr., the grandson of the nation’s second president, John Adams, the son of its sixth president, John Quincy Adams, and father of Charles F. Adams Jr., the railroad gadfly.
Several eminent Republicans had abandoned Grant to support Greeley, whose anticorruption platform targeted the shady characters clustered around the president and his family. Revelations from newspaper investigations of New York’s William Marcy “Boss” Tweed and his Tammany Hall cronies hung in the air like an acrid miasma. The voters of Maine were due to hold their congressional election on Monday, September 9, in their tradition of casting their votes early to preempt the state’s frigid Novembers, when the rest of the country went to the polls. As in every presidential election year, the Maine balloting would be closely watched: The state’s record of forecasting the national vote through its choice of governors and members of Congress would later produce (following the 1888 presidential election) the political adage “As Maine goes, so goes the nation.”
This year, however, the voting in Maine would be overshadowed by an event that would cast a long shadow over national politics—the publication on September 4 of an explosive disclosure about the Union Pacific Railroad by the New York Sun, which led with the following headline:
How the Credit Mobilier Bought its Way Through Congress.
COLOSSAL BRIBERY.
Congressmen who Have Robbed the People, and who now Support the National Robber.
HOW SOME MEN GET FORTUNES.
Princely Gifts to the Chairmen of Committees in Congress.
The Union Pacific was not the most decrepit major railroad in the nation (myriad lines vied for that dubious honor) nor the most assiduously plundered (the Erie had retired that trophy for all time). But on that Wednesday morning the Union Pacific took pride of place as a national symbol of graft and corruption.
The firm Crédit Mobilier of America had been operated by the Union Pacific’s own officers to front as the road’s construction contractor. It was essentially a fiction, allowing the UP bosses to steer contracts to themselves, circumventing the law that prohibited such self-dealing on government-funded projects. The Crédit Mobilier was also a convenient tool for ensnaring politicians in the Union Pacific’s web by plying them with shares, often at healthy discounts and paid for with loans from the railroad itself. The fuse of scandal had been burning ever since.
THE CRÉDIT MOBILIER scandal stands as one of the most intricate financial schemes in American history, but it had been hiding in plain sight. Charles Francis Adams Jr. had pointed the finger of suspicion at the enterprise in one of his earliest efforts at muckraking, published in 1869 in the North American Review, where his brother Henry was an editor. “A new piece of machinery, called the Credit Mobilier, has come into play” in the building of the Union Pacific, wrote Charles, who acknowledged that the exact nature of this machinery was yet “shrouded in mystery.” What was known was that the Crédit Mobilier had been born as the Pennsylvania Fiscal Agency, which was a useless shell corporation until the irrepressible George Francis Train bought its charter, renamed it to create a Continental aura, and invited the directors of the Union Pacific to sign on. Adams observed that the Crédit Mobilier was reported to be “the real constructor of the Union Pacific, and now to have got into its hands all the unissued stock, the proceeds of the bonds sold, the government bonds, and the earnings of the road—in fact, all the available assets. Its profits are reported to have been enormous—reported only, for . . . there is nothing but hearsay and street rumor to rely upon.” In truth, Adams reported, the firm was “but another name for the Pacific Railroad ring.” He continued:
The members of it are in Congress; they are trustees for the bond-holders, they are directors, they are stockholders, they are contractors; in Washington they vote the subsidies, in New York they receive them, upon the Plains they expend them, and in the Credit Mobilier they divide them. . . . Here is every vicious element of railroad construction and management; here is costly construction, entailing future taxation on trade; here are tens of millions of fictitious capital; . . . here is every element of cost recklessly exaggerated, and the whole at some future day is to . . . constitute a source of corruption in the politics of the land, and a resistless power in its legislature.
The goal of the arrangement was crystal clear. According to the later testimony of J. M. S. Williams, an investor who held shares in both the railroad and the Crédit Mobilier, the two enterprises were one and the same, the scheme designed simply to siphon off money when cash moved from one to the other.
“Did this road cost the Union Pacific Railroad Company more than it cost the Credit Mobilier?” Williams was asked by a congressional committee.
“It depends upon how you look at it,” he replied. “If your right-hand pocket had more money than your left, and you took some from your right and put it in your left, you would be neither richer nor poorer.” Still, he agreed, the inflated cost of the construction—that is, the amount of the federal subsidy in excess of what the Union Pacific spent to build the road—ended up in the hands of Crédit Mobilier shareholders.
In his writings, Adams returned again and again to the suspicious doings of the “Pacific Railroad ring.” The spark of public outrage did not ignite, however, until the resolutely Democratic Sun unearthed testimony by a Crédit Mobilier trustee and stockholder named Henry McComb, who had profited handsomely from the company but was nevertheless convinced that he had been swindled by his own partners. McComb’s accusations had been delivered fifteen months earlier in a Pennsylvania courthouse, but to the outside world they were fresh, and damning.
The factual elements of the Sun’s exposé consisted almost entirely of McComb’s direct testimony at the Pennsylvania trial, spread over six columns of its front page, another six on page 2, and a further half-column on page 3. To his version of events, delivered under oath but obviously one-sided, the newspaper added its own breathless gloss, labeling the revelations “the most damaging exhibition of official and private villainy and corruption ever laid bare to the gaze of the world.” McComb testified that Crédit Mobilier of America was “the inside Ring of the [Union] Pacific Railroad, that outside of that the Pacific Railroad was not anything.” His testimony bristled with exaggerations, but the gist would stand the test of time.
The Sun identified as recipients of Crédit Mobilier bribes the Republican vice president Schuyler Colfax and Speaker of the House James G. Blaine, along with “the chairman of almost every important committee in the House of Representatives.” This was a defensible claim in Colfax’s case, though ultimately refuted in Blaine’s; as for the others, their venality eventually was documented even if their guilt in the eyes of the law, strictly speaking, was judged by their colleagues to be nonexistent.
The Sun’s most stunning revelation—the crux of the scandal, in fact—was that a handwritten list existed of thirteen members of Congress said to have received shares in the Crédit Mobilier from Oakes Ames, a Massachusetts congressman from a wealthy family who had joined the Crédit Mobilier enterprise with his brother, Oliver, sometime after its creation. The list, which included Colfax, Blaine, and Representative James Garfield of Ohio, a future president, had been attached to an 1868 letter from Ames to McComb. This seemed conclusive enough at first glance, for in the letter Ames discussed the placement of shares with selected members of Congress at discounted prices and “in trust,” partially to keep the recipients’ names confidential and partially to allow them to profit from any run-up in the shares without actually risking their personal capital. Ames further confided to McComb his intention to distribute his largess “where it will do the most good for us I think”—that is, to guarantee favorable votes for the Union Pacific on a host of matters due shortly to come before Congress. The list of alleged recipients, however, was in McComb’s handwriting, not Ames’s. It would turn out that the names referred to individuals Ames had considered approaching, not necessarily those who accepted shares from him.
In the political tumult of the moment this seemed an insignificant detail. The Republican Grant administration was already enveloped in scandal. There was the scheme in which Jay Gould and Jim Fisk had tried (and almost succeeded) to manipulate the guileless president into pumping up the value of their gold holdings. Graft by Grant’s appointees at the New York Custom House, where the bulk of European imports were managed, and among appointees of Postmaster General John Creswell had been the topic of previous newspaper exposés.
The Sun further exploited the general public’s habitual mistrust of politicians. “Mr. Blaine was a poor man when he became a member of Congress in 1864,” the newspaper stated simply. “He is now a millionaire.”
President Grant’s supporters, for their part, pointed to the suspect timing of the disclosures by the Democratic-aligned newspaper. Among the Sun’s critics was the staunchly Republican New York Times, which described Charles A. Dana, the Sun’s editor and part owner, as “the most malignant and prolific libeler ever connected with the American Press.” According to the Republican defenders, Ames was an obvious liar and merely a front for the Democrats. The fury of the pushback would seem familiar to anyone steeped in today’s reduction of official investigations to “fake news” and “witch hunts”: the Times charged that the Sun was “quite capable of inventing the whole story, the suit, court, parties and all, to serve its malice and mendacity. . . . A newspaper has no more right to publish every foul slander upon public men that it can find, than any man has to spend his time retailing scandal about his neighbors.”
AT FIRST THE accusations appeared to leave their targets unscathed. In the November election, Grant was returned to office with an overwhelming majority of 286 electoral votes to Greeley’s 66; Greeley, exhausted by the rigors of electioneering, despondent over the death of his wife on October 29, and mortified by the scale of his electoral defeat, died before the electoral votes were even counted. Blaine, Colfax, Garfield, and the other alleged culprits all won reelection.
But the scandal could not be laid to rest so easily, given the direct accusations against sitting members of Congress. A few weeks after the election, the House empaneled two separate investigations. One, under the chairmanship of Representative Luke Poland of Vermont, was assigned to investigate the bribery charges against its members. The second, under Jeremiah Wilson of Indiana, was to investigate whether the Union Pacific and Crédit Mobilier had defrauded the federal government. The Poland Committee convened first, but behind closed doors; a public outcry eventually forced it to hold its proceedings in the open, providing irresistible material for the popular press. That was especially so on February 11, 1873, when Oakes Ames appeared in the committee room and, before an overflow crowd giddy with anticipation, produced a red Morocco-leather-covered notebook in which he had recorded all the payouts of shares and dividends to his fellow members of Congress. The session that day was “the most dramatic incident I ever witnessed,” one veteran of the press corps would recall years later. Of Ames, he wrote, “sorrow and determination were written in every line of his strong face. He looked broken.” For Ames had realized that the only way to defend himself against the accusations he faced was to sully the reputations of colleagues he had once counted among his closest friends, “to some extent declaring his own infamy. . . . Cost what it might, he was determined to vindicate himself.”
The Poland Committee issued its report on February 18. Its very first pages made clear that Ames would be the fall guy in the affair, which was not to say he was blameless. The Crédit Mobilier had provided him with 343 shares to distribute at his discretion, the committee recounted.
In his testimony, Ames had displayed an insensitivity, not to say disingenuousness, about self-dealing that would be indefensible today, and that challenged standards of rectitude even at the time. Asked by the committee if he thought it was “entirely proper” for a member of Congress to hold stock in a railroad over which Congress had jurisdiction, he replied levelly, “There is no law and no reason, legal or moral, why a member of Congress should not own stock in a road any more than why he should not own a sheep when the price of wool is to be affected by the tariff.” He said he had been unaware that anyone could have held a different view until that question was put to him.
Ames maintained that his efforts on behalf of the railroad deserved gratitude, not obloquy: “Those of us who were willing to aid this great enterprise were under the impression our acts were praiseworthy and patriotic.” Yes, he said, “we wanted capital and influence. Influence not on legislation alone, but on credit, good, wide, and a general favorable feeling.” With a childlike guilelessness, he acknowledged: “I did agree to sell to several, and did actually deliver to some members of Congress, without as much as a thought then or now of any corrupt purpose on my part or theirs, a small amount of stock.” He offered some members a guarantee against loss; to others he offered shares without requiring a payment in advance, although as the stock began to return dividends he paid them over as if they had bought the shares legitimately. When some, including Colfax, got spooked by the disclosures in the Sun and proposed to return their shares as though their transactions had never happened, he took them back with no questions asked. Garfield asked Ames to get him ten shares of stock “and hold it until he could pay for it. He never did pay for it.” Blaine, he acknowledged, declined any shares.
The Poland Report amounted to a lesson in how to tailor an investigatory conclusion to exonerate the guilty, punish one’s adversaries, and identify a scapegoat. The panel found that Representative William D. Kelley of Pennsylvania had acquired ten shares of the Crédit Mobilier from Ames without putting up any cash; Ames applied subsequent dividends on the shares to the purchase price of $1,047, and delivered to Kelley the balance of $329. Garfield not only received his ten shares gratis, but also pocketed a $329 balance. The committee found these transactions to be formally blameless, however, since the Crédit Mobilier was a state-chartered corporation “not subject to Congressional legislation.” The fact that all its profits were ultimately derived from the Union Pacific, which did hold a federal charter, was of no moment, for that in itself “did not create such an interest . . . as to disqualify the holder of Credit Mobilier stock from participating in any legislation affecting the railroad company.” The committee could not discern that any of the Republican members had been corrupted in their official duties by their interest in the Crédit Mobilier.
James Brooks of New York, the sole Democrat in the dock, was another story. He had badgered Ames and officers of the Union Pacific for two hundred shares of Crédit Mobilier; they eventually agreed to give him one hundred, plus $5,000 in Union Pacific bonds and $20,000 in stock. Brooks was a board member of the Union Pacific, representing the government, and thus barred by law from owning any interest in the railroad. Holding Crédit Mobilier shares may not have been “forbidden by the letter of the law,” the committee acknowledged, “yet it was a violation of its spirit and essence.” Brooks demonstrated his guilty knowledge by instructing Ames to place the securities in his son-in-law’s name to conceal his ownership.
The committee directed its heaviest fire at Ames. He had brought the House of Representatives into “contempt and disgrace”; he had sold to several members of Congress stock in the Crédit Mobilier at par (that is, for $100 per share) “when it was worth double that amount or more, with the purpose and intent thereby to influence their votes and decisions.”
The committee recommended that Brooks and Ames be expelled from the House. It was hard not to notice that Ames was to be punished for bribing members, even though none (except Brooks) had been deemed guilty of accepting a bribe. (The Sun editorialized on the “manifest injustice of punishing two men for the very crime of which others equally guilty are acquitted.”)
On February 25, as the House prepared for the expulsion vote, the clerk of the House read a lengthy defense written by Ames and his lawyers. During the reading, it was reported, Ames sat by and “shed tears copiously. . . . At one time he became so wrought up he bowed his head on the desk before him, and blubbered like a child.” Ames’s statement recounted virtually the entire history of the Union Pacific and Crédit Mobilier, painting the firms as paragons of national advancement and himself as their instrument. “I have risked reputation, fortune, everything, in an enterprise of incalculable benefit for the Government. . . . Who will say that I alone am to be offered up as sacrifice to appease a public clamor or expiate the sin of others?” He said that if the House so chose, he would accept its condemnation, awaiting in “unfaltering confidence” for history to provide him with vindication. A few days earlier, he had unburdened himself to a reporter from the New York World:“It’s like the man in Massachusetts who committed adultery,” he said. “The jury brought in the verdict that he was guilty as the devil, but that the woman was as innocent as an angel. These fellows are like that woman.”
In the event, the House quailed at the prospect of ejecting a member as an offender without documenting an offense. Knowing that the necessary two-thirds votes could not be mustered for removal, the House voted merely to censure Ames and Brooks. The two returned to their homes having avoided outright conviction but carrying the burden of vilification. Brooks, already in poor health at sixty-two, died two months later, on April 30. Five days later Ames suffered a stroke, and expired on May 8 at the age of sixty-nine.
As much as the nation’s political leadership desired to put the Crédit Mobilier affair behind it, the scandal further darkened the reputation of Grant and his administration and dismayed his supporters. One of Grant’s crestfallen followers was Walt Whitman, who added to his poem “Respondez!,” which had first appeared in the 1867 edition of Leaves of Grass, a bitter parenthetical stanza:
(Stifled, O days! O lands! in every public and private corruption!
Smother’d in thievery, impotence, shamelessness, mountain-high;
Brazen effrontery, scheming, rolling like ocean’s waves around and upon you, O my days! my lands!
For not even those thunderstorms, nor fiercest lightnings of the war, have purified the atmosphere;)
Whitman’s journey from exaltation of America’s industrial might to skepticism and ultimately denunciation was just beginning.
THE POLAND AND Wilson investigations have been faulted for depicting the Crédit Mobilier arrangement as unique in the railroad industry at the time. In truth, as the historian Nelson Smith Trottman observed a few years later, the creation of a construction company to funnel profits into the hands of a railroad’s management had “become an established institution”; the Union Pacific’s version was merely one of countless examples of “uncontrolled railroad finance.”
Yet there was more to it than that. The scandal translated the railroad builders’ intricate methods of profiteering at the expense of investors into a straightforward narrative easily grasped by the ordinary newspaper reader. In this case, moreover, the cheated investors included the public itself. That brought the matter home to Americans who might have regarded earlier depredations by the builders as dramas they could enjoy at a remove, like members of a theater audience.
The corruption of lawmakers by the Union Pacific was hard to overlook, despite the Poland Committee’s effort to exonerate the graft takers. The committee was fully alive to the threat the scandal posed to Congress’s reputation:
This country is fast becoming filled with gigantic corporations, wielding and controlling immense aggregations of money, and thereby commanding great influence and power. It is notorious in many State legislatures that these influences are often controlling, so that in effect they become the ruling power of the State. Within a few years Congress has, to some extent, been brought within similar influences, and the knowledge of the public on that subject has brought great discredit on the body.
“In a free government like ours,” it warned in its report, “we cannot expect the people will long respect the laws, if they lose respect for the law-makers.”
The scandal was a painful setback for Wall Street financiers hoping that the railroad industry would finally acquire at least a veneer of respectability. Disclosures of the Crédit Mobilier’s unsavory relationships with politicians reinforced the conviction of the bankers that Washington, DC, unlike their own community, was a hive of fraud and corruption, albeit one on which they were dependent to build their fortunes. Pierpont Morgan, among others, fretted that the scandal would unsettle the financial markets to his disadvantage—a fear that would prove warranted in 1873, only a year after the Sun’s bombshell. The scandal also magnified public mistrust of the railroad industry itself, which was already becoming manifest in restiveness among shippers and employees.
Still, the scandal’s principal impact was on the Union Pacific. Because the railroad’s managers had profited from inflated construction contracts they awarded themselves via the Crédit Mobilier, they had felt no incentive to economize on construction or to make sure they got their money’s worth. “Instead of gaining by cheap construction, they profited by dear,” wrote the railroad management expert Stuart Daggett in 1908. “Instead of aiming to reduce the cost in every possible way, they schemed at making the contracts as lucrative as possible.”
The legacy of the Crédit Mobilier would be seen in the Union Pacific’s financial accounts for years. Its moral burden, moreover, would persist even longer. “The ‘Credit Mobilier’ investigation has tinged everything,” lamented the Union Pacific’s government directors in their report for 1874; the road would labor under the shame of scandal for decades. By some estimates the thievery related to the Crédit Mobilier put more than $20 million into the pockets of the insiders. The result was a capital structure that loaded the railroad with a punishing weight of debt. On the day the golden spike was struck, marking completion of the transcontinental railroad, the entire capitalization of the road was estimated at $111 million, or more than $106,000 per mile, of which 50 percent was water—capital that had never been spent on construction and had been pocketed by the promoters, but would still have to be repaid to investors.
Through the early 1870s the Union Pacific enjoyed a traffic surge. Smelting of iron ores had taken off in the mining territory around Salt Lake City, where the UP held a monopoly, and the tourist and trade boom in the West fattened its top line; had the road been capitalized at a responsible level it almost certainly would have thrived. Instead, it struggled perpetually to raise enough revenue to pay its annual interest, not to speak of funds needed for operations and maintenance. In 1873, for instance, the Union Pacific took in more than $4 million but owed $3.4 million in interest—and it earned that much only because it held a monopoly, for the moment, on transcontinental shipping in a booming economy. Upon the appearance of the first competing transcontinental line, or the first economic downturn—which was already lurking on the horizon—the road would be exposed to financial disaster.
That reality could not be kept from anyone who had a chance to examine the books. Horace F. Clark, a railroad executive from Chicago who was the son-in-law of Cornelius Vanderbilt, had bought into the UP in 1872 and become its president. His goal was to combine the road with other Vanderbilt holdings and create a semi-transcontinental line from the East Coast to Utah. But upon taking office he had discovered that the UP was, financially speaking, hanging by a thread. If not for loans backed by the credit of its directors, Clark told the Wilson Committee, the railroad would be bankrupt.
In this desperate state the Union Pacific was defenseless against financial manipulation by speculators operating in the guise of rescuers. The road, the Wilson Committee found, “is now helpless and dependent,” so “weakened” as to make it an easy mark for “capitalists and powerful railroad corporations.”
The committee was prescient. Within months of its report, the leading speculator in the United States surfaced with a controlling interest in the UP that had been acquired in secret.
But before Jay Gould could make something of the “helpless” Union Pacific, he would have to steer it through a crisis it shared with all the other railroads in the United States. This was the Panic of 1873, which would trigger a five-year depression—the worst the country had suffered in its short history. Even worse, the panic was the product of a heedlessly expanding railroad industry, including a headstrong gamble by a man who had staked his fortune and his stature as the leading financier in the country on the building of a second transcontinental railroad. The road was the Northern Pacific. The man was Jay Cooke.