pacified them by holding out the bait of a larger dividend than they
had been getting under the former regime. This he managed by the
common and fraudulent expedient of issuing bonds, and paying
dividends out of proceeds. So long as the profits of these small
stockholders were slightly better than they had been getting before,
they were complacently satisfied to let Gould continue his frauds.
This acquiescence in theft has been one of the most pronounced
characteristics of the capitalistic investors, both large and small.
Numberless instances have shown that they raise no objections to
plundering management provided that under it their money returns are
increased.
The end of Gould's looting of the Erie railroad was now in sight.
However the small stockholders might assent, the large English
stockholders, some of whom had invidious schemes of their own in the
way of which Gould stood, were determined to gain control themselves.
GOULD'S DIRECTORS BRIBED TO RESIGN.
They made no further attempt to resort to the law. A fund of $300,000
was sent over by them to their American agents with which to bribe a
number of Gould's directors to resign. As Gould had used these
directors as catspaws, they were aggrieved because he had kept all of
the loot himself. If he had even partly divided, their sentiments
would have been quite different. The $300,000 bribery fund was
distributed among them, and they carried out their part of the
bargain by resigning. [Footnote: Assembly Document No. 98, 1873: xii
and xiii. The English stockholders took no chances on this occasion.
The committee reported that not until the directors had resigned did
they "receive their price." ] The Assembly Investigating Committee of
1873 referred carelessly to the English stockholders as being
"impatient at the law's delay" and therefore taking matters into
their own hands. If a poor man or a trade union had become "impatient
at the law's delay" and sought an illegal remedy, the judiciary would
have quickly pronounced condign punishment and voided the whole
proceeding. The boasted "majesty of law" was a majesty to which the
underdogs only were expected to look up to in fear and trepidation.
When the English stockholders elected their own board Gould obtained
an injunction from the courts. This writ was absolutely disregarded,
and the anti-Gould faction on March 11, 1872, seized possession of
the offices and books of the company by physical force. Did the
courts punish these men for criminal contempt? No effort was made to.
Many a worker or labor union leader had been sent to jail (and has
been since), for "contempt of court," but the courts evidently have
been willing enough to stomach all of the contempt profusely shown
for them by the puissant rich. The propertyless owned nothing, not to
speak of a judge, but the capitalists owned whole strings of judges,
and those whom they did not own or corrupt were generally influenced
to their side by association or environment. "All of this," reported
the Assembly Investigating Committee of 1873, speaking of the means
employed to overthrow Gould, "has been done without authority of
law." But no law was invoked by the officials to make the
participants account for their illegal acts.
THE LEGISLATURE BRIBED AGAIN.
It seems that the entire amount, including the large fees paid to
agents and lawyers, corruptly expended by the English capitalists in
ousting Gould, was $750,000. Did they foot this bill out of their own
pockets? By no means. They arranged the reimbursements by voting this
sum to themselves out of the Erie Railroad treasury; [Footnote:
Assembly Document No. 98, 1873: xii and xvi.] that is to say, they
compelled the public to shoulder it by adding to the bonded burdens
on which the people were taxed to pay interest.
To complete their control they bribed the New York Legislature to
repeal the Classification Act. As has been shown, the Legislature of
1872 was considered a "reform" body, and it also has been brought out
how Vanderbilt bribed it to give him invaluable public franchises and
large grants of public money. In fact, other railroad magnates as
well as he systematically bribed; and it is clear that they
contributed jointly a pool of money both to buy laws and to prevent
the passage of objectionable acts. "It appears conclusive," reported
the Assembly Investigating Committee of 1873, "that a large amount--
reported by one witness at $100,000--was appropriated for legislative
purposes by the railroad interest in 1872, and that this [$30,000]
was Erie's proportion." [Footnote: Ibid., xvii.] One of the
lobbyists, James D. Barber, "a ruling spirit in the Republican
party," admitted receiving $50,000 from the Vanderbilts. [Footnote:
Ibid., 633.] While uniting to suppress bills feared by them all, each
of the magnates bribed to foil the others' purposes.
GOULD'S DIRECT ERIE THEFTS WERE $12,000,000.
What did Gould's plunder amount to? His direct thefts, by reason of
his Erie frauds, seem to have reached more than twelve million
dollars, all, or nearly all, of which he personally kept.
That sum, considering the falling prices of commodities after the
panic of 1873, and comparable with current standards of cost and
living, was equivalent to perhaps double the amount at present.
Various approximations of his thefts were made. After a minute
examination of the Erie railroad's books, Augustus Stein, an expert
accountant, testified before the "Hepburn Committee" (the New York
Assembly Investigating Committee of 1879) that Gould had himself
pocketed twelve or thirteen million dollars. [Footnote: Q.--Do you
think you could remember the aggregate amount of wrong-doing on the
part of Mr. Gould that you have discovered?
A.--I could give an estimate throwing off a couple of millions here
and there; I could say that it amounted to--that is, what we
discovered--amounted to about twelve or thirteen million dollars.--
Railroad Investigation of the State of New York, 1879, ii: 1765.]
This, however, was only one aspect. Between 1868 and 1873 Gould and
his accomplices had issued $64,000,000 of watered stock. Gould, so
the Erie books revealed, had charged $12,000,000 as representing the
outlay for construction and equipment, yet not a new rail had been
laid, nor a new engine put in use, nor a new station built. These
twelve millions or more were what he and his immediate accomplices
had stolen outright from the Erie Railroad treasury. Considerable
sums were, of course, paid corruptly to politicians, but Gould got
them all back, as well as the plunder of his associates, by
personally manipulating Erie stock so as to compel them to sell at a
great loss to themselves, and a great profit to himself. Furthermore,
in these manipulations of stock, he scooped in more millions from
other sources.
Had it not been for his intense greed and his constitutional
inability to remain true to his confederates, Gould might have been
allowed to retain the proceeds of his thefts. His treachery to one of
them, Henry N. Smith, who had been his partner in the brokerage firm
of Smith, Gould and Martin, resulted in trouble. Gould cornered the
stock of the Chicago and Northwestern Railroad; to put it more
plainly, he bought up the outstanding available supply of shares, and
then ran the price up from 75 to 250. Smith was one of a number of
Wall Street men badly mulcted in this operation, as Gould intended.
Seeking revenge, Smith gave over the firm's books, which were in his
possession, to General Barlow, counsel for the Erie Railroad's
protesting stockholders. [Footnote: Railroad Investigation, etc.,
v:531] Evidence of great thefts was quickly discovered, and an action
was started to compel Gould to disgorge about $12,000,000. A criminal
proceeding was also brought, and Gould was arrested and placed under
heavy bonds.
AN EXTRAORDINARY "RESTITUTION."
Apparently Gould was trapped. But a wonderful and unexpected
development happened which filled the Wall Street legion with
admiration for his craft and audacity. He planned to make his very
restitution the basis for taking in many more millions by
speculation; he knew that when it was announced that he had concluded
to disgorge, the market value of the stock would instantly go up and
numerous buyers would appear.
Secretly he bought up as much Erie stock as he could. Then he
ostentatiously and with the widest publicity declared his intension
to make restitution. Such a cackling sensation it made! The price of
Erie stock at once bounded up, and his brokers sold quantities of it
to his great accruing profit. The pursuing stockholders assented to
his offer to surrender his control of the Erie Railroad, and to
accept real estate and stocks seemingly worth $6,000,000. But after
the stockholders had withdrawn their suits, they found that they had
been tricked again. The property that Gould had turned over to them
did not have a market value of more than $200,000. [Footnote:
Railroad Investigation, etc. 1879, iii: 2503. One of the very rare
instances in which any of Gould's victims was able to compel him to
disgorge, was that described in the following anecdote, which went
the rounds of the press: "An old friend had gone to Gould telling him
that he had managed to save up some $20,000, and asking his advice as
to how he should invest it in such a manner as to be absolutely safe,
for the benefit of his family. Gould told him to invest it in a
certain stock, and assured him that the investment would be
absolutely safe as to income, and, besides, its market value would
shortly be greatly enhanced.
"The man did as advised by Gould, and the stock promptly started to
go down. Lower and lower it went, and seeing the steady depreciation
in the price of the stock, and hearing stories to the effect that the
dividends were to be passed, the man wrote to Gould asking if the
investment was still good. Gould replied to his friend's letter,
assuring him that the stories had no foundation in fact and were
being circulated purely for market effect.
"But still the stock declined. Each day the price went to new lower
figures on the Stock Exchange, and finally the rumors became fact,
and the Directors passed the dividend. The man had seen the savings
of years vanish in a few months and realized that he was a ruined
man.
"Goaded to an almost insane frenzy, he rushed into Gould's office the
afternoon the Directors announced the passing of the dividend, and
told Gould that he had been deliberately and grossly deceived and
that he was ruined. He wound up by announcing his intention of
shooting Gould then and there.
"Gould heard his quondam friend through. There could be no mistaking
the man's intent. He was evidently half crazed and possessed of an
insane desire to carry out his threat. Gould turned to him and said:
'My dear Mr.---' calling him by name, 'you are laboring under a most
serious misapprehension. Your money is not lost. If you will go down
to my bank tomorrow morning, you will find there a balance of $25,000
to your credit. I sold out your stock some time ago, but had
neglected to notify you.' The man looked at him in amazement and,
half doubting, left the office.
"As soon as he had left the office Gould sent word to his bank to
place $25,000 to this man's credit. The man spent a sleepless night,
torn by doubts and fears. When the bank opened for business he was
the first man in line, and was nearly overcome when the cashier
handed him the sum that Gould had named the previous afternoon.
"Gould had evidently decided in his own mind that the man was
determined to kill him, and that the only way to save his life and
his name was to pay the man the sum he had lost plus a profit, in the
manner he did. But as a sidelight on the absolutely cold-blooded
self-possession of the man, it is interesting."]
THE SECOND STAGE OF THE GOULD FORTUNE
Gould's thefts from the Erie railroad were, however, only one of his
looting transactions during those busy years. At the same time, he
was using these stolen millions to corner the gold supply. In this
"Black Friday" conspiracy (for so it was styled) he fradulently
reaped another eleven million dollars to the accompaniment of a
financial panic, with a long train of failures, suicides and much
disturbance and distress.
CHAPTER XI
THE GOULD FORTUNE BOUNDS FORWARD
The "gold conspiracy" as plotted and consummated by Gould was in its
day denounced as one of the most disgraceful events in American
history. To adjudge it so was a typical exaggeration and perversion
of a society caring only about what was passing in its upper spheres.
The spectacular nature of this episode, and the ruin it wrought in
the ranks of the money dealers and of the traders, caused its
importance to be grossly misrepresented and overdrawn.
THE ABUSE OF GOULD OVERDONE
It was not nearly as discreditable as the gigantic and repulsive
swindles that traders and bankers had carried on during the dark
years of the Civil War. The very traders and financiers who beslimed
Gould for his "gold conspiracy" were those who had built their
fortunes on blood-soaked army contracts. Nor could the worst aspects
of Gould's conspiracy, bad as they were, begin to vie in disastrous
results with the open and insidious abominations of the factory and
landlord system. To repeat, it was a system in which incredible
numbers of working men, women and children were killed off by the
perils of their trades, by disease superinduced and aggravated by the
wretchedness of their work, and by the misery of their lot and
habitations. Millions more died prematurely because of causes
directly traceable to the withering influences of poverty.
But this unending havoc, taking place silently in the routine
departments of industry, and in obscure alleyways, called forth
little or no notice. What if they did suffer and perish? Society
covered their wrongs and injustices and mortal throes with an
inhibitive silence, for it was expected that they, being lowly,
should not complain, obtrude grievances, or in any way make
unpleasant demonstrations. Yet, if the prominent of society were
disgruntled, or if a few capitalists were caught in the snare of ruin
which they had laid for others, they at once bestirred themselves and
made the whole nation ring with their outcries and lamentations.
Their merest whispers became thunderous reverberations. The press,
the pulpit, legislative chambers and the courts became their strident
voices, and in all the influential avenues for directing public
opinion ready advocates sprang forth to champion their plaints, and
concentrate attention upon them. So it was in the "gold conspiracy."
GOULD EMBARKS ON HIS CONSPIRACY
After the opening of the Civil War, gold was exceedingly scarce, and
commanded a high premium. The supply of this metal, this yellow
dross, which to a considerable degree regulated the world's relative
values of wages and commodities, was monopolized by the powerful
banking interests. In 1869 but fifteen million dollars of gold was in
actual circulation in the United States.
Notwithstanding the increase of industrial productive power, the
continuous displacement of obsolete methods by the introduction of
labor-saving machinery, and the consecutive discovery of new means
for the production of wealth, the task of the worker was not
lightened. He had, for the most part, after great struggles, secured
a shorter workday, but if the hours were shorter the work was more
tense and racking than in the days before steam-driven machinery
supplanted the hand tool. The mass of the workers were in a state of
dependence and poverty. The land, industrial and financial system,
operating in the three-fold form of rent, interest and profit, tore
away from the producer nearly the whole of what he produced. Even
those factory-owning capitalists exercising a personal and direct
supervision over their plants, were often at the mercy of the clique
of bankers who controlled the money marts.
Had the supply of money been proportionate to the growth of
population and of business, this process of expropriation would have
been less rapid. As it was, the associated monopolies, the
international and national banking interests, and the income classes
in general, constricted the volume of money into as narrow a compress
as possible. As they were the very class which controlled the law-
making power of Government, this was not difficult.
The resulting scarcity of money produced high rates of interest.
These, on the one hand, facilitated usury, and, on the other, exacted
more labor and produce for the privilege of using that money.
Staggering under burdensome rates of interest, factory owners,
business men in general, farmers operating on a large scale, and
landowners with tenants, shunted the load on to the worker. The
producing population had to foot the additional bill by accepting
wages which had a falling buying power, and by having to pay more
rent and greater prices for necessities. Such conditions were certain
to accelerate the growth of poverty and the centralization of wealth.
Gould's plan was to get control of the outstanding fifteen millions
of dollars of gold and fix his own price upon them. Not only from
what was regarded as legitimate commerce would he exact tribute, but
he would squeeze to the bone the whole tribe of gold speculators--for
at that time gold was extensively speculated in to an intensive
degree.
With the funds stolen from the Erie Railroad treasury, he began to
buy in gold. To accommodate the crowd of speculators in this metal,
the Stock Exchange had set apart a "Gold Room," devoted entirely to
the speculative purchase and sale of gold. Gould was confident that
his plan would not miscarry if the Government would not put in
circulation any part of the ninety-five million dollars in gold
hoarded as a reserve in the National Treasury. The urgent and all-
important point was to ascertain whether the Government intended to
keep this sum entirely shut out from circulation.
HE BRIBES GOVERNMENT OFFICIALS.
To get this inside information he succeeded in corruptly winning over
to his interests A. R. Corbin, a brother-in-law of President Grant.
The consideration was Gould's buying of two million dollars' worth of
gold bonds, without requiring margin or security for Corbin's account
[Footnote: Gold Panic Investigation, House Report: No 32, Forty-first
Congress, Second Session, 1870:157. Corbin's venality in lobbying for
corrupt bills was notorious; he admitted his complicity before a
Congressional Investigating Committee in 1857.] Thus Gould thought he
had surely secured an intimate spy within the authoritative
precincts of the White House. As the premium on gold constantly
rose, these bonds yielded Corbin as much sometimes as $25,000 a week
in profits. To insure the further success of his plan, Gould
subsidized General Butterfield, whose appointment as sub-treasurer at
New York Corbin claimed to have brought about. Gould testified in
1870 that he had made a private loan to Butterfield, and that he had
carried speculatively $1,500,000 for Butterfield's benefit. These
statements Butterfield denied. [Footnote: Gold Panic Investigation,
etc., 160.]
Through Corbin, Gould attempted to pry out Grant's policies, and with
Fisk as an interlocutor, Gould personally attempted to draw out the
President. To their consternation they found that Grant was not
disposed to favor their arguments. The prospect looked very black for
them. Gould met the situation with matchless audacity. By spreading
subtle rumors, and by inspiring press reports through venal writers,
he deceived not only the whole of Wall Street, but even his own
associates, into believing that high Government officials were in
collusion with him. The report was assiduously disseminated that the
Government did not intend to release any of its hoard of gold for
circulation. The premium, accordingly, shot up to 146. Soon after
this, certain financial quarters suspected that Gould was bluffing.
The impression spreading that he could not depend upon the
Government's support, the rate of the premium declined, and Gould's
own array of brokers turned against him and sold gold.
GOULD BETRAYS HIS PARTNERS.
Entrapped, Gould realized that something had to be done, and done
quickly, if he were to escape complete ruin, holding as he did the
large amount of gold that he had bought at steep prices. By plausible
fabrications he convinced Fisk that Grant was really an ally. Gould
had bought a controlling interested in the Tenth National Bank. This
institution Gould and Fisk now used as a fraudulent manufactory of
certified checks. These they turned out to the amount of tens of
millions of dollars. With the spurious checks they bought from thirty
to forty millions in gold. [Footnote: Gold Panic Investigation: 13.]
Such an amount of gold did not, of course, exist in circulation. But
the law permitted gambling in it as though it really existed.
Ordinary card gamblers, playing for actual money, were under the ban
of law; but the speculative gamblers of the Stock Exchange who bought
and sold goods which frequently did not exist, carried on their huge
fraudulent operations with the full sanction of the law. Gould's plan
was not intricate. Extensive purchases of gold naturally--as the laws
of trade went--were bound to increase constantly its price.
By September, 1869, Gould and his partners not only held all of the
available gold in circulation, but they held contracts by which they
could call upon bankers, manufacturers, merchants, brokers and
speculators for about seventy millions of dollars more of the metal.
To the banking, manufacturing and importing interests gold, as the
standard, was urgently required for various kinds of interfluent
business transactions: to pay international debts, interest on bonds,
customs dues or to move the crops. They were forced to borrow it at
Gould's own price. This price was added to the cost of operation,
manufacture and sale, to be eventually assessed upon the consumer.
Gould publicly announced that he would show no mercy to anyone. He
had a list, for example, of two hundred New York merchants who owed
him gold; he proposed to print their names in the newspapers,
demanding settlement at once, and would have done so, had not his
lawyers advised him that the move might be adjudged criminal
conspiracy. [Footnote: Gold Panic Investigation, etc., 13.]
The tension, general excitement and pressure in business circles were
such that President Grant decided to release some of the Government's
gold, even though the reserve be diminished. In some mysterious way a
hint of this reached Gould. The day before "Black Friday" he resolved
to betray his partners, and secretly sell gold before the price
abruptly dropped. To do this with success it was necessary to keep on
buying, so that the price would be run up still higher.
Such methods were prohibited by the code of the Stock Exchange which
prescribed certain rules of the game, for while the members of the
Exchange allowed themselves the fullest latitude and the most
unchecked deception in the fleecing of outside elements, yet among
themselves they decreed a set of rules forbidding any sort of double-
dealing in trading with one another. To draw an analogy, it was like
a group of professional card sharps deterring themselves by no
scruples in the cheating of the unwary, but who insisted that among
their own kind fairness should be scrupulously observed. Yet, rules
or no rules, no one could gainsay the fact that many of the foremost
financiers had often and successfully used the very enfillading
methods that Gould now used.
While Gould was secretly disposing of his gold holdings, he was
goading on his confederates and his crowd of fifty or more brokers to
buy still more. [Footnote: "Gould, the guiltier plotter of all these
criminal proceedings," reported the Congressional Investigating
Committee of 1870, "determined to betray his own associates, and
silent, and imperturbable, by nods and whispers directed all."-Gold
Panic Investigation: 14.] By this time, it seems, Fisk and his
partner in the brokerage business, Belden, had some stray inklings of
Gould's real plan; yet all that they knew were the fragments Gould
chose to tell them, with perhaps some surmises of their own. Gould
threw out just enough of an outline to spur on their appetite for an
orgy of spoils. Undoubtedly, Gould made a secret agreement with them
by which he could repudiate the purchases of gold made in their
names. Away from the Stock Exchange Fisk made a ludicrous and
dissolute enough figure, with his love of tinsel, his show and
braggadacio, his mock military prowess, his pompous, windy airs and
his covey of harlots. But in Wall Street he was a man of affairs and
power; the very assurance that in social life made him ridiculous to
a degree, was transmuted into a pillar of strength among the throng
of speculators who themselves were mainly arrant bluffs. A dare-devil
audacity there was about Fisk that impressed, misled and intimidated;
a fine screen he served for Gould plotting and sapping in the
background.
THE MEMORABLE "BLACK FRIDAY"
The next day, "Black Friday," September 24, 1869, was one of
tremendous excitement and gloomy apprehension among the money
changers. Even the exchanges of foreign countries reflected the
perturbation. Gould gave orders to buy all gold in Fisk's name;
Fisk's brokers ran the premium up to 151 and then to 161. The market
prices of railroad stocks shrank rapidly; failure after failure of
Wall Street firms was announced, and fortunes were swept away.
Fearing that the price of gold might mount to 200, manufacturers and
other business concerns throughout the country frantically directed
their agents to buy gold at any price. All this time Gould, through
certain brokers, was secretly selling; and while he was doing so,
Fisk and Belden by his orders continued to buy.
The Stock Exchange, according to the descriptions of many eye-
witnesses, was an extraordinary sight that day. On the most
perfunctory occasions the scenes enacted there might have well filled
the exotic observer with unmeasured amazement. But never had it
presented so thoroughly a riotous, even bedlamic aspect as on this
day, Black Friday; never had greed and the fear born of greed,
displayed themselves in such frightful forms.
Here could be seen many of the money masters shrieking and roaring,
anon rushing about with whitened faces, indescribably contorted, and
again bellowing forth this order or that curse with savage energy and
wildest gesture. The puny speculators had long since uttered their
doleful squeak and plunged down into the limbo of ruin, completely
engulfed; only the big speculators, or their commission men, remained
in the arena, and many of these like trapped rats scurried about from
pillar to post. The little fountain in the "Gold Room" serenely
spouted and bubbled as usual, its cadence lost in the awful uproar;
over to it rushed man after man splashing its cooling water on his
throbbing head. Over all rose a sickening exhalation, the dripping,
malodorous sweat of an assemblage worked up to the very limit of
mental endurance.
What, may we ask, were these men snarling, cursing and fighting over?
Why, quite palpably over the division of wealth that masses of
working men, women and children were laboriously producing, too often
amid sorrow and death. While elsewhere pinioned labor was humbly
doing the world's real work, here in this "Gold Room," greed
contested furiously with greed, cunning with cunning over their share
of the spoils. Without their structure of law, and Government to
enforce it, these men would have been nothing; as it was, they were
among the very crests of society; the makers of law, the wielders of
power, the pretenders to refinement and culture.
Baffled greed and cunning outmatched and duplicity doubled against
itself could be seen in the men who rushed from the "Gold Room"
hatless and frenzied--some literally crazed--when the price of gold
advanced to 162. In the surrounding streets were howling and
impassable crowds, some drawn thither by curiosity and excitement,
others by a fancied interest; surely, fancied, for it was but a war
of eminent knaves and knavish gamblers. Now this was not a
"disorderly mob" of workers such as capitalists and politicians
created out of orderly workers' gatherings so as to have a pretext
for clubbing and imprisoning; nay it all took place in the
"conservative" precincts of sacrosanct Wall Street, the abiding place
of "law and order." The participants were composed of the "best
classes;" therefore, by all logic it was a scene supereminently sane,
respectable and legitimate; the police, worthy defenders of the
peace, treated it all with an awed respect.
Suddenly, early in the afternoon, came reports that the United States
Treasury was selling gold; they proved to be true. Within fifteen
minutes the whole fabric of the gold manipulation had gone to pieces.
It is narrated that a mob, bent on lynching, searched for Gould, but
that he and Fisk had sneaked away through a back door and had gone
uptown.
The general belief was that Gould was irretrievably ruined. That he
was secretly selling gold at an exorbitant price was not known; even
his own intimates, except perhaps Fisk and Belden, were ignorant of
it. All that was known was that he had made contracts for the
purchase of enormous quantities of fictitious gold at excessive
premiums. As a matter of fact, his underhand sales had brought him
eleven or twelve million dollars profit. But if his contracts for
purchase were enforced, not only would these profits be wiped out,
but also his entire fortune.
ELEVEN MILLIONS POCKETED BY JUDICIAL COLLUSION.
Ever agile and resourceful, Gould quickly extricated himself from
this difficulty. He fell back upon the corrupt judiciary. Upon
various flimsy pretexts, he and Fisk, in a single day, procured
twelve sweeping injunctions and court orders. [Footnote: Gold Panic
Investigation, etc. 18.] These prohibited the Stock Exchange and the
Gold Board from enforcing any rules of settlement against them, and
enjoined Gould and Fisk's brokers from settling any contracts. The
result, in brief, was that judicial collusion allowed Gould to pocket
his entire "profits," amounting, as the Congressional Committee of
1870 reported, to about eleven million dollars, while relieving him
from any necessity of paying up his far greater losses. Fisk's share
of the eleven millions was almost nothing; Gould retained practically
the entire sum. Gould's confederates and agents were ruined,
financially and morally; scores of failures, dozens of suicides, the
despoilment of a whole people, were the results of Gould's handiwork.
[Illustration: JAY GOULD, Who, in a Brief Period, Possessed Himself
of a Vast Fortune.]
* * * * * * *
From his Erie railroad thefts, the gold conspiracy and other
maraudings, Gould now had about twenty-five or thirty million
dollars. Perhaps the sum was much more. Having sacked the Erie
previous to his being ousted in 1873, he looked out for further
instruments of plunder.
Money was power; the greater the thief the greater the power; and
Gould, in spite of abortive lawsuits and denunciations, had the
cardinal faculty of holding on to the full proceeds of his piracies.
In 1873 there was no man more rancorously denounced by the mercantile
classes than Gould. If one were to be swayed by their utterances, he
would be led to believe that these classes, comprising the wholesale
and retail merchants, the importers and the small factory men, had an
extraordinarily high and sensitive standard of honesty. But this
assumption was sheer pretense, at complete variance with the facts.
It was a grim sham constantly shattered by investigation. Ever, while
vaunting its own probity and scoring those who defrauded it, the
whole mercantile element was itself defrauding at every opportunity.
* * * * * * *
SOME COMPARISONS WITH GOULD.
One of the numberless noteworthy and conclusive examples of the
absolute truth of this generalization was that of the great frauds
perpetrated by the firm of Phelps, Dodge and Company, millionaire
importers of tin, copper, lead and other metals.
So far as public reputation went, the members of the house were the
extreme opposites of Gould. In the wide realm of commercialism a more
stable and illustrious firm could not be found. Its wealth was
conventionally "solid and substantial;" its members were lauded as
"high-toned" business men "of the old-fashioned school," and as
consistent church communicants and expansive philanthropists. Indeed,
one of them was regarded as so glorious and uplifting a model for
adolescent youth, that he was chosen president of the Young Men's
Christian Association; and his statue, erected by his family, to-day
irradiates the tawdry surroundings of Herald Square, New York City.
In the Blue Book of the elect, socially and commercially, no names
could be found more indicative of select, strong-ribbed, triple-dyed
respectability and elegant social poise and position.
In the dying months of 1872, a prying iconoclast, unawed by the
glamor of their public repute and the contemplation of their wealth,
began an exhaustive investigation of their custom house invoices.
This inquiring individual was B. G. Jayne, a special United States
Treasury agent. He seems to have been either a duty-loving servant of
the people, stubbornly bent upon ferreting out fraud wherever he
found it, irrespective of whether the criminals were powerful or not,
or he was prompted by the prospect of a large reward. The more he
searched into this case, the more of a mountainous mass of perjury
and fraud revealed itself. On January, 3, 1873, Jayne set the full
facts before his superior, George S. Boutwell, Secretary of the
Treasury.
". . . Acording to ordinary modes of reckoning," he wrote, "a house
of the wealth and standing of Phelps, Dodge and Company would be
above the influences that induce the ordinary brood of importers to
commit fraud. That same wealth and standing became an almost
impenetrable armor against suspicion of wrong-doing and diverted the
attention of the officers of the Government, preventing that scrutiny
which they give to acts of other and less favored importers." Jayne
went on to tell how he had proceeded with great caution in
"establishing beyond question gross under-valuations," and how United
States District Attorney Noah Davis (later a Supreme Court Justice)
concurred with him that fraud had been committed.
* * * * * * *
THE GREAT FRAUDS OF PHELPS, DODGE AND COMPANY.
The Government red tape showed signs at first of declining to unwind,
but further investigation proved the frauds so great, that even the
red tape was thrilled into action, and the Government began a suit in
the United States District Court at New York for $1,000,000 for
penalties for fraudulent custom-house under-valuations. It sued
William E. Dodge, William E. Dodge, Jr., D. Willis James, Anson
Phelps Stokes, James Stokes and Thomas Stokes as the participating
members of the firm.
The suit was a purely civil one; influential defrauders were not
inconvenienced by Government with criminal actions and the prospect
of prison lodging and fare; this punishment was reserved exclusively
for petty offenders outside of the charmed circle. The sum of
$1,000,000 sued for by the Government referred to penalties due since
1871 only; the firm's duplicates of invoices covering the period
before that could not be found; "they had probably been destroyed;"
hence, it was impossible to ascertain how much Phelps, Dodge and
Company had defrauded in the previous years.
The firm's total importations were about $6,000,000 a year; it was
evident, according to the Government officials, that the frauds were
not only enormous, but that they had been going on for a long time.
These frauds were not so construed "by any technical construction, or
far-fetched interpretation," but were committed "by the firm's
deliberately and systematically stating the cost of their goods below
the purchase price for no conceivable reason but to lessen the duties
to be paid to the United States."
These long-continuing frauds could not have been possible without the
custom-house officials having been bribed to connive. The practice of
bribing customs officers was an old and common one. In his report to
the House of Representatives on February 23, 1863, Representative Van
Wyck, chairman of an investigating committee, fully described this
system of bribery. In summarizing the evidence brought out in the
examination of fifty witnesses he dealt at length with the custom
house officials who for large bribes were in collusion with brokers
and merchants. "No wonder," he exclaimed, "the concern [the custom
house] is full of fraud, reeking with corruption." [Footnote: The
Congrssional Globe, Appendix, Thirty-seventh Congress, Third Session,
1862-3, Part ii: 118.
"During the last session the Secretary had the honor of transmitting
the draft of a bill for the detection and prevention of fraudulent
entries at the custom-houses, and he adheres to the opinion that the
provisions therein embodied are necessary for the protection of the
revenue.... For the past year the collector, naval officer, and
surveyor of New York have entertained suspicions that fraudulent
collusions with some of the customs officers existed. Measures were
taken by them to ascertain whether these suspicions were well
founded. By persistent vigilance facts were developed which have led
to the arrest of several parties and the discovery that a system of
fraud has been successfully carried on for a series of years. These
investigations are now being prosecuted under the immediate direction
of the Solicitor of the Treasury, for the purpose of ascertaining the
extent of those frauds and bringing the guilty parties to punishment.
It is believed that the enactment at the last session of the bill
referred to would have arrested, and that its enactment now will
prevent hereafter, the frauds hitherto successfully practiced."--
Annual Report for 1862 of Salmon P. Chase, Secretary of the Treasury.
No matter what laws were passed, however, the frauds continued, and
the importers kept on bribing.]
Great was the indignation shown at the charges by the flustered
members of the firm; most stoutly these "eminently proper" men
asserted their innocence. [Footnote: If the degree of the scandal
that the unearthing of the frauds created is to be judged by the
extent of space given to it by the newspapers, it must have been
large and sensational. See issues of the New York "Times" and other
newspapers of January 11, 1873, January 29, 1873, March 20, 1873, and
April 20, 1873. A full history of the case, with the official
correspondence from the files of the Treasury Department, is to be
found in the New York "Times," issue of April 28, 1873.] In point of
fact (as has been shown in the chapters on the Astor fortune) several
of them had long been slyly defrauding in other fields, particularly
by the corrupt procuring of valuable city land before and during the
Tweed regime. They had also been enriching themselves by the corrupt
obtaining of railroad grants. There was a scurrying about by Phelps,
Dodge and Company to explain that some mistake had been made; but the
Government steadfastly pressed its action; and Secretary Boutwell
curtly informed them that if they were innocent of guilt, they had
the opportunity of proving so in court. After this ultimatum their
tone changed; they exerted every influence to prevent the case from
coming to trial, and they announced their willingness to compromise.
The Government was induced to accept their offer; and on February 24,
1873, Phelps, Dodge and Company paid to the United States Treasury
the sum of $271,017.23 for the discontinuance of the million-dollar
suit for custom-house frauds. [Footnote: See Houses Executive
Documents, Forty-third Congress, First Session, 1874, Doc. No.
124:78. Of the entire sum of $271,017.23 paid by Phelps, Dodge and
Company to compromise the suit, Chester A. Arthur, then Collector of,
the Port, later President of the United States, received $21,906.01
as official fees; the Naval Officer and the Surveyor of the Port each
were paid the same sum by the Government, and Jayne received
$65,718.03 as his percentage as informer.
One of the methods of defrauding the Government was peculiar. Under
the tariff act there was a heavy duty on imported zinc and lead,
while works of art were admitted free of duty. Phelps, Dodge and
Company had zinc and lead made into Europe into crude Dianas, Venuses
and Mercurys and imported them in that form, claiming exemption from
the customs duty on the ground of their being "works of art."]
THEIR PRESENT WEALTH TRACED TO FRAUD.
From these persistent frauds came, to a large extent, the great
collective and individual wealth of the members of this firm, and of
their successors. It was also by reason of these frauds that Phelps,
Dodge and Company were easily able to outdo competitors. Only
recently, let it be added, they formed themselves into a corporation
with a capital of $50,000,000. With the palpably great revenues from
their continuous frauds, they were in an advantageous position to buy
up many forms of property. Beginning in 1880 the mining of copper,
they obtained hold of many very rich mining properties; their copper
mines yield at present (1909) about 100,000,000 pounds a year.
Phelps, Dodge and Company also own extensive coal mines and lines of
railroads in the southwest Territories of the United States. Ten
thousand employees are directly engaged in their copper and coal
mines and smaller works, and on the 1,000 miles of railroad directly
owned and operated by them.
So greatly were the members of the firm enriched by their frauds that
when D. Willis James, one of the partners sued by the Government for
fraudulent undervaluations, died on September 13, 1907, he left an
estate of not less than $26,967,448. John F. Farrel, the appraiser,
so reported in his report filed on March 28, 1908, in the transfer
tax department of the Surrogate's department, New York City. But as
the transfer tax has been, and is, continuously evaded by ingenious
anticipatory devices, the estate, it is probable, reached much more.
James owned (accepting the appraiser's specific report at a time when
panic prices prevailed) tens of millions of dollars worth of stock in
railroad, mining, manufacturing and other industries. He owned, for
instance, $2,750,000 worth of shares in the Phelps-Dodge Copper Queen
Mining Company; $1,419,510 in the Old Dominion Company, and millions
more in other mining companies. His holdings in the Great Northern
Railway, the history of which is one endless chain of fraud, amounted
to millions of dollars--$3,840,000 of preferred stock; $3,924,000 of
common stock; $1,715,000 of stock in the Great Northern iron ore
properties; $1,405,000 of Great Northern Railway shares in the form
of subscription receipts, and so on. He was a large holder of stock
in the Northern Pacific Railway, the development of which, as we
shall see, has been one of incessant frauds. His interest in the
"good will" of Phelps, Dodge and Company was appraised at $180,000;
his interest in the same firm at $945,786; his cash on deposit with
that firm at $475,000. [Footnote: At his death he was eulogistically
described as "the merchant philanthropist." On the day after the
appraiser's report was filed, the New York "Times," issue of March
29, 1908, said: "Mr. James was a senior member of the firm of Phelps,
Dodge & Co., of 99 John Street. His interest in educational and
philanthropic work was very deep, and by his will he left bequests
amounting to $1,195,000 to various charitable and religious
institutions. The residue of the estate, amounting to $24,482,653, is
left in equal shares to his widow and their son." On the same day
that the appraiser's report was filed a large gathering of unemployed
attempted to hold a meeting in Union Square to plead for the starting
of public work, but were brutally clubbed, ridden down and dispersed
by the police.]
In the defrauding of the United States Government however, Phelps,
Dodge and Company were doing no uncommon thing. The whole importing
trade was incessantly and cohesively thriving upon this form of
fraud. In his annual report for 1874, Henry C. Johnson, United States
Commissioner of Customs, estimated that tourists returning from
Europe yearly smuggled in as personal effects 257,810 trunks filled
with dutiable goods valued at the enormous sum of $128,905,000. "It
is well known," he added, "that much of this baggage is in reality
intended to be put upon the market as merchandise, and that still
other portions are brought over for third parties who have remained
at home. Most of those engaged in this form of importation are people
of wealth"... [Footnote: Executive Documents, Forty-third Congress,
Second Session, 1874, No. 2: 225.] Similar and additional facts were
brought out in great abundance by a United States Senate committee
appointed, in 1886, to investigate customs frauds in New York. After
holding many sessions this committee declared that it had found
"conclusive evidence that the undervaluation of certain kinds of
imported merchandise is persistently practiced to an alarming extent
at the port of New York." [Footnote: U.S. Senate Report, No. 1990,
Forty-ninth Congress, Second Session, Senate Reports, iii, 1886-87.]
At all other ports the customs frauds were notorious.
The frauds of the whiskey distillers in cheating the Government out
of the internal revenue tax were so enormous as to call forth several
Congressional investigations; [Footnote: Reports of Committees,
Fortieth Congress, Third Session, 1869-70. Report No. 3, etc.] the
millions of dollars thus defrauded were used as private capital in
extending the distilleries; virtually all of the fortunes in the
present Whiskey Trust are derived in great part from these frauds.
The banks likewise cheated the Government out of large sums in their
evasion of the stamp tax. "This stamp tax," reported the Comptroller
of Currency in 1874, "is to a considerable extent evaded by banks and
more frequently by depositors, by drawing post notes, or bills of
exchange at one day's sight, instead of on demand, and by
substituting receipts for checks." [Footnote: Executive Document, No.
2, 1874:140.]
It was from these various divisions of the capitalist class that the
most caustic and virtuous tirades against Gould came. The boards of
trade and chambers of commerce were largely made up of men who, while
assuming the most vaniloquent pretensions, were themselves malodorous
with fraud. To read the resolutions passed by them, and to observe
retrospectively the supreme airs of respectability and integrity they
individually took on, one would conclude that they were all men of
whitest, most irreproachable character. But the official reports
contradict their pretensions at every turn; and they are all seen in
their nakedness as perjurers, cheats and frauds, far more sinister in
their mask than Gould in his carelessly open career of theft and
corruption. Many of the descendants of that sordid aggregation live
to-day in the luxury of inherited cumulative wealth, and boast of a
certain "pride of ancestry" and "refinement of social position;" it
is they from whom the sneers at the "lower classes" come; and they it
is who take unto themselves the ordaining of laws and of customs and
definitions of morality. [Footnote: It is worthy of note that several
of the descendants of the Phelps-Dodge-Stokes families are men and
women of the highest character and most radical principles. J. G.
Phelps Stokes, for instance, joined the Socialist party to work for
the overthrow of the very system on which the wealth of his family is
founded. A man more devoted to his principles, more keenly alive to
the injustices and oppressions of the prevailing system, more
conscientious in adhering to his views, and more upright in both
public and private dealings, it would be harder to find than J. G.
Phelps Stokes. He is one of the very few distinguished exceptions
among his class.]
From the very foundation of the United States Government, not to
mention what happened before that time, the custom-house frauds have
been continuous up to the very present, without any intermission. The
recent suits brought by the Government against the Sugar Trust for
gigantic frauds in cheating in the importation of sugar, were only an
indication of the increasing frauds. The Sugar Trust was compelled to
disgorge about $2,000,000, but this sum, it was admitted, was only a
part of the enormous total out of which it had defrauded the
Government. The further great custom-house scandals and court
proceedings in 1908 and 1909 showed that the bribery of custom-house
weighers and inspectors had long been in operation, and that the
whole importing class, as a class, was profiting heavily by this
bribery and fraud. While the trials of importers were going on in the
United States Circuit Court at New York, despatches from Washington
announced, on October 22, 1909, that the Treasury Department
estimated that the same kind of frauds as had been uncovered at New
York, had flourished for decades, although in a somewhat lesser
degree, at Boston, Philadelphia, Norfolk, New Orleans, San Francisco
and at other ports.
"It is probable," stated these subdued despatches, "that these
systematic filchings from the Government's receipts cover a period of
more than fifty years, and that in this, the minor officials of the
New York Custom House have been the greatest offenders, although
their nefarious profits have been small in comparison with the
illegitimate gains of their employers, the great importers. These are
the views of responsible officials of the Treasury Department." These
despatches stated the truth very mildly. The frauds have been going
on for more than a century, and the Government has been cheated out
of a total of hundreds upon hundreds of millions of dollars, perhaps
billions.
And the thieving importers of these times comprise the respectable
and highly virtuous chambers of commerce and boards of trade, as was
the case in Gould's day. They are ever foremost in pompously
denouncing the very political corruption which they themselves cause
and want and profit from; they are the fine fellows who come together
in their solemn conclaves and resolve this and resolve that against
"law-defying labor unions," or in favor of "a reform in our body
politic," etc., etc. A glorious crew they are of excellent, most
devout church members and charity dispensers; sleek, self-sufficient
men who sit on Grand Juries and Trial Juries, and condemn the petty
thieves to conviction carrying long terms of imprisonment. Viewing
commercial society, one is tempted to conclude that the worthiest
members of society, as a whole, are to be found within the prisons;
yes, indeed, the time may not be far away, when the stigma of the
convict may be considered a real badge of ancestral honor.
But the comparison of Gould and the trading classes is by no means
complete without adding anew a contrast between how the propertied
plunderers as a class were immune from criminal prosecution, and the
persecution to which the working class was subjected.
Although all sections of the commercial and financial class were
cheating, swindling and defrauding with almost negligible molestation
from Government, the workers could not even plead for the right to
work without drawing down upon themselves the full punitive animosity
of governing powers whose every move was one of deference to the
interests of property. Apart from the salient fact that the prisons
throughout the United States were crowded with poor criminals, while
the machinery of the criminal courts was never seriously invoked
against the commercial and financial classes, the police and other
public functionaries would not even allow the workers to meet
peacefully for the petitioning of redress. Organized expressions of
discontent are ever objectionable to the ruling class, not so much
for what is said, as for the movements and reconstructions they may
lead to--a fact which the police authorities, inspired from above,
have always well understood.
THE CLUBBING OF THE UNEMPLOYED.
"The winter of 1873-74," says McNeill, was one of extreme suffering.
Midwinter found tens of thousands of people on the verge of
starvation, suffering for food, for the need of proper clothing, and
for medical attendance. Meetings of the unemployed were held in many
places, and public attention called to the needs of the poor. The men
asked for work and found it not, and children cried for bread.... The
unemployed and suffering poor of New York City determined to hold a
meeting and appeal to the public by bringing to their attention the
spectacle of their poverty. They gained permission from the Board of
Police to parade the streets and hold a meeting in Tompkins Square on
January 13, 1874, but on January 12 the Board of Police and Board of
Parks revoked the order and prohibited the meeting. It was impossible
to notify the scattered army of this order, and at the time of the
meeting the people marched through the gates of Tompkins Square....
When the square was completely filled with men, women and children,
without a moment's warning, the police closed in upon them on all
sides.
One of the daily papers of the city confessed that the scene could
not be described. People rushed from the gates and through the
streets, followed by the mounted officers at full speed, charging
upon them without provocation. Screams of women and children rent the
air, and the blood of many stained the streets, and to the further
shame of this outrage it is to be added that when the General
Assembly of New York State was called to this matter they took
testimony, but made no sign. [Footnote: "The Labor Movement":147-148.
In describing to the committee on grievances the horrors of this
outrage, John Swinton, a writer of great ability, and a man whose
whole heart was with the helpless, suffering and exploited, closed
his address by quoting this verse:
"There is a poor blind Samson in our land,
Shorn of his strength and bound with bonds of steel,
Who may in some grim revel raise his hand,
And shake the pillars of the Commonweal."]
Thus was the supremacy of "law and order" maintained. The day was
saved for well-fed respectability, and starving humanity was forced
back into its despairing haunts, there to reflect upon the club-
taught lesson that empty stomachs should remain inarticulate. For the
flash of a second, a nameless fright seized hold of the gilded
quarters, but when they saw how well the police did their dispersing
work, and choked up with their clubs the protests of aggregated
suffering, self-confidence came back, revelry was resumed, and the
saturnalia of theft went on unbrokenly.
And a lucky day was that for the police. The methods of the ruling
class were reflected in the police force; while perfumed society was
bribing, defrauding and expropriating, the police were enriching
themselves by a perfected system of blackmail and extortion of their
own. Police Commissioners, chiefs, inspectors, captains and sergeants
became millionaires, or at least, very rich from the proceeds of this
traffic. Not only did they extort regular payments from saloons,
brothels and other establishments on whom the penalties of law could
be visited, but they had a standing arrangement with thieves of all
kinds, rich thieves as well as what were classed as ordinary
criminals, by which immunity was sold at specified rates. [Footnote:
The very police captain, one Williams, who commanded the police at
the Tompkins Square gathering was quizzed by the "Lexow Committee" in
1893 as to where he got his great wealth. He it was who invented the
term "Tenderloin," signifying a district from which large collections
in blackmail and extortion could be made. By 1892, the annual income
derived by the police from blackmailing and other sources of
extortion was estimated at $7,000,000. (See "Investigation of the
Police Department of New York City," 1894, v:5734.) With the
establishment of Greater New York the amount about doubled, or,
perhaps, trebled.] The police force did not want this system
interfered with; hence at all times toadied to the rich and
influential classes as the makers of law and the creators of public
opinion. To be on the good side of the rich, and to be praised as the
defenders of law and order, furnished a screen of incalculable
utility behind which they could carry on undisturbedly their own
peculiar system of plunder.
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.
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.
[Illustration: RESIDENCE OF JAY GOULD, 759 Fifth Avenue, New York]
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 intrenched. 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." [Footnote: The Congressional Globe. Thirty-fifth
Congress, Second Session, 1858-59, Part II, Appendix: 291.] 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, retorts 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 had 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 been 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. [Footnote: The Congressional Globe, etc., 1858-9,
Part II, Appendix, 291.]
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 construction
pioneers, risking their every cent, and racking their health and
brains, in the construction of railways. It was in the very heyday of
the bribing and swindling, as numerous investigating committees
showed; there could be no glamour or illusion then.
The money lavishly poured out for the building of railroads was
almost wholly public money drawn from compulsory taxation of the
whole people. At this identical time practically every railroad
corporation in the country stood indebted for immense sums of public
money, little of which was ever paid back. In New York State more
than $40,000,000 of public funds had gone into the railroads; in
Vermont $8,000,000 and large sums in every other State and Territory.
The whole Legislature and State Government of Wisconsin had been
bribed with a total of $800,000, in 1856, to give a large land grant
to one company alone, details of which transaction will be found
elsewhere. [Footnote: See the chapters on the Russell Sage
fortune.]The State of Missouri had already disbursed $25,000,000 of
public funds; not content with these loans and donations two of its
railroads demanded, in 1859, that the State pay interest on their
bonds.
In both North and South the plundering was equally conspicuous. Some
of the Northern Senators were fond of pointing out the incompetency
and rascality of the Southern oligarchy, while ignoring the acts of
the capitalists in their own section. Senator Wilson, for instance,
enlarged upon the condition of the railroads in North and South
Carolina, describing how, after having been fed with enormous
subsidies, they were almost worthless. And if anything was calculated
to infuriate the Southerners it was the boast that the capitalists of
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."
[Footnote: The Congressional Globe, Thirty-seventh Congress, Third
Session, 1862-63. Part ii: 1241-1243.]
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. [Footnote: Reports of Committees, Credit Mobilier
Reports, Forty-second Congress, Third session, 1873; Doc. No.
78: xviii. The committee reported that the evidence proved that this
sum had been disbursed in connection with the passage of the
amendatory act of July 2, 1864.]
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. [Footnote: The full lists of these stockholders can
be found in Docs. No. 77 and No. 78, Reports of U. S. Senate
Committees, 1872-73. Morton, Bliss & Co. held 18,500 shares; Pullman,
8,400 shares, etc. The Morton referred to--Levi P. Morton--was later
(1888-1892) made Vice President of the United States by the money
interests.]
The contract for construction was turned over to the Credit Mobilier
Company. This, in turn, engaged subcontractors. The work was really
done by these subcontractors with their force of low-paid labor.
Oakes Ames and his 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 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. [Footnote: Doc. No. 78, Credit Mobilier
Investigation: xiv.] The committee admitted that "the road had been
built chiefly with the resources of the Government." [Footnote:
Ibid., xx.] A decided mistake; it had been entirely built so. The
committee itself showed how the entire cost of building the road had
been "wholly reimbursed from the proceeds of the Government bonds and
first mortgage bonds," and that "from the stock, income bonds, and
land grant bonds, the builders received in cash value $23,366,000 as
profit--about forty-eight per cent. on the entire cost." [Footnote:
Ibid., xvii.]
The total "profits" represented the difference between the cost of
building the railroad and the amount charged--about $44,000,000 in
all, of which $23,000,000 or more was in immediate cash. It was more
than proved that the amount was even greater; the accounts had been
falsified to show that the cost of construction was $50,000,000.
Large sums of money, borrowed ostensibly to build the road, had at
once been seized as plunder, and divided in the form of dividends
upon stock for which the clique had not paid a cent in money,
contrary to law.
THRIFTY, SAGACIOUS PATRIOTISM.
Who could deny that the phalanx of capitalists scrambling forward to
share in this carnival of plunder were not gifted with unerring
judgment? From afar they sighted their quarry. Nearly all of them
were the fifty per cent. "patriot" capitalists of the Civil War; and,
just as in all extant biographies, they are represented as heroic,
self-sacrificing figures during that crisis, when in historical fact,
they were defrauding and plundering indomitably, so are they also
glorified as courageous, enterprising men of prescience, who hazarded
their money in building the Pacific railroads at a time when most of
the far West was an untenanted desert. And this string of arrant
falsities has passed as "history!"
If they had that foresight for which they were so inveterately
lauded, it was a foresight based upon the certainty that it would
yield them forty-eight per cent. profit and more from a project on
which not one of them did the turn of a hand's work, for even the
bribing of Congress was done by paid agents. Nor did they have to
risk the millions that they had obtained largely by fraud in trade
and other channels; all that they had to do was to advance that money
for a short time until they got it back from the Government
resources, with forty-eight per cent profit besides.
The Senate Committee's report came out at a time of panic when many
millions of men, women and children were out of work, and other
millions in 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.
Buts Ames and his brother capitalists bribed at least one of the
Government directors with $25,000 to connive at the frauds:
[Footnote: Document No. 78, Credit Mobilier Investigation: xvii] he
was a cheaply bought tool, that director. And immediately after the
railroad was built and in operation, its owners scented more millions
of plunder if they could get a law enacted by Congress allowing them
exorbitant rates for the transportation of troops and Government
supplies and mails. They corruptly paid out, it seems, $126,000 to
get this measure of March 3, 1871, passed. [Footnote: Doc. No. 78,
etc., xvii.]
What was the result of all this investigation? Mere noise. The
oratorial tom-toms in Congress resounded vociferously for the gulling
of home 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. [Footnote: 98 U.S. 569.]
Thus these great thieves escaped both criminal and civil process, as
they were confident that they would, and as could have been
accurately foretold. The immense plunder and the stolen railroad
property the perpretrators of these huge frauds were allowed to keep.
Congress could have forfeited upon good legal grounds the charter of
the Union Pacific Railroad Company then and there. So long as this
was note done, and so long as they were unmolested in the possession
of their loot, the 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 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 informed--that, twenty
years previously, Government geologists had reported that extensive
coal deposits lay in Wyoming and other parts of the West. These
deposits would become of incalculable value; and while they were not
included in the railroad grants, some had already been stolen, and it
would be easy to get hold of many more by fraud. And that he was not
in error in this calculation was shown by the fact that the Union
Pacific Railroad and other allied railroads under his control, and
under that of his successors, later seized hold of many of these coal
deposits by violence and fraud. [Footnote: The Interstate Commerce
Commission reported to the United States Senate in 1908 that the
acquisition of these coal lands had "been attended with fraud,
perjury, violence and disregard of the rights of individuals," and
showed specifically how. Various other Government investigations
fully supported the charges.] Gould also knew that every year
immigration was pouring into the West; that in time its population,
agriculture and industries would form a rich field for exploitation.
By the well-understood canons of capitalism, this futurity could be
capitalized in advance. Moreover, he had in mind other plans by which
tens of millions could be stolen under form of law.
Fisk had been murdered, but Gould now leagued himself with much abler
confederates, the 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 Project Gutenberg's Great Fortunes from Railroads, by Gustavus Myers