In 1862, Congress enacted the
Pacific Railroad Act, tasking the Central Pacific and Union Pacific Railroad
companies with the daunting task of constructing a railroad that would span
across the continental United States. However, underlying this accomplishment,
a brilliant scam was developed that defined history and left the reputation of
Congress tarnished.
In the late 1800s, Americans
were optimistic about the future and eager for opportunities of success. It was
a time of growth, wealth, and prospect as American History writes: “The process
of westward expansion had […] renewed American ideas […] and had, therefore,
shaped not just the west, but the nation as a whole.” The revolutionary
business of railroads was still relatively new to the public by the time of the
Transcontinental Railroad, and Thomas Durant, a board member on the Union
Pacific, used society’s ignorance to launch his scheme.
Although Union Pacific
received land and funding from the government to complete the Transcontinental
Railroad, financial difficulty was still present. Congress contractually
disallowed the Union Pacific from selling it stocks at underpar rates, yet
investors refused to buy at full value until the project was completed.
Investing in Railroads was considered very risky, and, oftentimes, companies
found it difficult to profit and receive the necessary funding for their
business. The majority of railroad funding went towards construction, and
owners were not usually paid until its completion. Union Pacific lacked the requisite
means to continue long-term construction, and failure looked very possible. In
response to their obstacle, the board of the Union Pacific created a company
called the Crédit Mobilier to earn profits by selling stocks and bonds.
The new company acted as a
middleman, taking stock from the Union Pacific at face value and selling it to
investors at lower rates. In order to make up for this problematic loss, Durant
exaggerated the construction fees and overcharged the government. The Stark
County Democrat described the situation: “The directors of the road were
forbidden by law from […] holding other interests of profit. They could not
become beneficiaries of their trust [but] they soon found a way to do it.” The process
allowed Durant and his insiders to flourish. Approximately $16.5 million was
made in profits, and by the time of the Transcontinental Railroad’s completion
in mid 1869, Union Pacific stock value had risen 750%. The scandal guaranteed
the criminals profits free from the risks of the arising west, and writers at
the Stark County Democrat reflect: “They swindled the United States, the
bondholders and the stockholders for the benefit of their own close
corporation.”
In this time period of
expansion and new beginnings, Durant found away to steal a piece of the success
for himself and his colleagues. To historians of the time period, Durant’s
motives thougts make sense, yet his actions are unforgivable. Rather than
worrying about financially detrimental Indian attacks, stalls, and uneducated,
reckless workers, Durant scammed his success against the odds. The scheme
quickly turned into a political scandal as Congressman Oakes Ames of
Massachusetts became involved. Being a member of the House Pacific Railroad
Committee, Ames had a financial interest in Iowa railroads, and he wanted the Transcontinental
Railroad to involve his interests. Congressman Ames reached out to the Crédit
Mobilier, and they agreed. In return, Ames would sell stock to other
influential Congressmen at rates far below market value in a means of covering
up the criminal workings. Ames’ offer was appealing, and many state members
bought into the scheme. According to PBS historians, he “distributed stock to
two senators and nine representatives […] Some eventually returned the gift […]
[as] all recipients held influence over railroad legislation”. Ames was quoted
saying he wanted to sell the stocks and bonds “where they would do the most
good to us”. The politicians granted Crédit Mobilier its funding and often
overlooked the actual expenses. They were bribed, in a way, to keep quiet. The
agreement assured Crédit Mobilier fabulous profits and allowed Congressmen to
make money off of an essentially rigged stock.
During the election season of
1872, the New York Sun exposed the Crédit Mobilier scandal and Speaker of the
House, Jaimes G. Blaine, established a Congressional Committee to investigate.
Many politicians denied involvement, and in an attempt to avoid prosecution,
Oakes Ames stated: “We want[ed] more friends in Congress, and if a man will
look into the law, he can not help being convinced that we should not be
interfered with”. Despite efforts to deceive the Committee, Oakes Ames was removed
form Congress along with other members who accepted the stock. Furthermore, the
scandal left outgoing Vice President Schuyler Colfax with a reputation for
being corrupt and placed James A. Garfield’s political career in jeopardy.
Like many in question,
Garfield denied involvement. The Crédit Mobilier crisis was difficult to
correct due to the great deal of people involved and the lack of solid
evidence. The media led most of the public rage and accusations with frequent
articles and political cartoons, yet singling out the actual criminals proved
difficult for the Congressional Committee. The Stark County Democrat described
the dilemma Congress faced: “The Crédit Mobilier affair is complicated by the
most unfortunate contradictions of the testimony which the committee did not
undertake to unravel […] Garfield perjured himself in his testimony [as] a man
of truth and veracity.” In response to accusations during his election
campaign, Garfield responded: “I never received or agreed to receive any stock
of the Crédit Mobilier […] nor any profits arising from them”. Garfield
eventually avoided serious punishment, yet the remainder of his career was
surrounded in controversy.
Through the ideals of western
expansion, a scheme boomed. The Crédit Mobilier scandal left the United States government
more aware and sensitive to corruption, and exposed the venerability of the
stock market. More importantly, its effect on Congress would far outlive the
people involved. What started from a simple idea of success would plague the government
for years to come and ruin the reputations and integrity of the convicted politicians.
Congressmen, accused of owning Credit Mobilier stock and being involved in the scandal, (right) face the judgement and disgrace of the capitol (left) in this political cartoon. New York Times- Credit Mobilier Scandal
Thomas Durant, a board member of the Union Pacific Railroad Company, created the Credit Mobilier company to scam millions of dollars from the government. Wikipedia- Thomas C. Durant
Congressman Oakes Ames distributed Credit Mobiler stock to members of the House and Senate, causing the scandal to have severe political implications. Wikipedia- Oakes Ames
This political cartoon shows Uncle Sam shaming Durant, Ames, and all of the congressmen involved in the scandal. Mstartzman- Credit Mobilier Scandal
A train makes its way across a railroad in the 1800s. Seemingly an innocent business of transportation, the railroad construction of Union Pacific had underlying criminal activity. NPR- How Trains 'Railroaded' The American Economy
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