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Credit Mobilier Scandal

Credit Mobilier Scandal

When the Union Pacific Railroad was authorized to construct a transcontinental railroad with substantial financial support from the federal government, officers and directors of the company devised a plan to make an immediate profit from its construction by fraud. The vehicle for this fraud was a company called Credit Mobilier of America.

The method was to have Credit Mobilier, which was entirely controlled by the same people, bill the Union Pacific for the costs of constructing the railroad. There was no "market value" of the work, as there were no other bidders, so UP paid much more than Credit Mobilier spent. As a publicly traded company, Credit Mobilier could point to a record of profits that demonstrated that it was efficient and profitable, so its shares traded at a high price.

In 1867, Congressman Oakes Ames of Massachusetts, whose family business had made him a fortune producing shovels and similar items, became the head of Credit Mobilier. Since the United States Treasury was indirectly the source of payment for Credit Mobilier`s invoices to UP, and since everything depended on the continued willingness of Congress to make appropriations, Ames distributed shares of Credit Mobilier to members of Congress at prices well below market. Those members merely had to sell the stock at market to reap large profits.

The scandal broke into public view during the Election of 1872. During the subsequent Congressional investigation, it was found that more than thirty individuals representing both parties had received benefits, including the future president James A. Garfield.

While improper, most if not all of the activities of Credit Mobilier were legal at the time. Ames was censured and his expulsion was recommended, but he died shortly afterwards. Years later, the Massachusetts Legislature "exonerated" Ames for his activities.


James Patterson Explusion Case

Issues
Bribery and corruption.
In addition to James W. Patterson, other members of Congress and two vice presidents were investigated, including William B. Allison, James A. Bayard, Jr., George S. Boutwell, Schuyler Colfax, James Harlan, John A. Logan, Roscoe Conkling, and Henry Wilson.

Chronology
Referred to committee: Feb. 4, 1873
Committee report: Feb. 27, 1873
Resolution introduced: Feb. 27, 1873
Senate vote: Mar. 26, 1873

Background
Rumors of financial scandal clouded the national celebrations over completion of the transcontinental railroad in 1869. Three years later, these suspicions were confirmed when a select committee of the House of Representatives uncovered a fraudulent relationship between the Union Pacific Railroad and the Crédit Mobilier of America Corporation, which had been formed to supervise the contracts to build the Union Pacific. A common group of stockholders secretly managed both companies, a scheme that permitted the construction firm to charge the railroad (and ultimately the government) two million dollars more than the actual building expenses. The major sensation of the exposé proved to be that many of the Crédit Mobilier stockholders were highly respected Republican members of Congress. The revelation shocked the nation and significantly weakened the Republican party's leadership.

Statement of the Case
The House investigation focused on the conduct of Representative Oakes Ames (R-MA), for many years an ardent spokesman for the railroad industry. In 1865 Ames permitted himself to be drawn into the machinations of the Crédit Mobilier. Since the secret organization of one group of stockholders under two different titles was questionable at best and since the government had initially granted the railroad exceedingly generous land and loan privileges, Thomas C. Durant, former president of the Crédit Mobilier and mastermind of the scheme, persuaded Ames to dispense company shares to his congressional associates, in order to deter any formal investigations into the shady dealings.

In September 1872 a New York newspaper, acting upon a tip from a disgruntled Ames crony, published the names of congressmen reported to have profited from the company's largesse. Unable to ignore the rising furor, the House of Representatives assembled a committee of inquiry chaired by Representative (and former Senator) Luke P. Poland (R-VT). By December of that year, the stunned Poland committee had received allegations against almost every important committee chairman of the House of Representatives, several senators, and Vice President Schuyler Colfax. Oakes Ames, the source of these charges, added to the confusion by giving rambling, erratic testimony that relied upon a complicated set of records kept on scraps of paper or in inscrutable ledgers. Nor were matters helped by Ames' repeated assertion that he was never good at remembering dates.

By February 1873, the House had become convinced that the Senate should be presented with the information. The House offered no recommendations to the Senate but simply made available all the testimony it had gathered. In this manner, the names of Senators William B. Allison (R-IA), James A. Bayard, Jr. (D-DE), George S. Boutwell (R-MA), Roscoe Conkling (R-NY), James Harlan (R-IA), John Logan (R-IL), James Patterson (R-NH), Henry Wilson (R-MA), and Vice President Schuyler Colfax (R-IN) formally came to the attention of the Senate.

Response of the Senate
On February 4, 1873, James Patterson asked the Senate to appoint a select committee to investigate the charges. When Vice President Colfax excused himself from appointing the committee, the task fell to Henry B. Anthony (R-RI), who chose Lot M. Morrill (R-ME) to chair the group of five. Two Democratic committee members, John P. Stockton (NJ) and John W. Stevenson (KY), promptly asked to be replaced, claiming that they were already excessively burdened by their other Senate obligations, but their colleagues refused to excuse them from serving.

In its preliminary meeting on February 8, 1873, the Morrill committee tried to limit the scope of the investigation to ensure that the report would be completed before the close of the Forty-second Congress on March 3. Since less than a month remained for the committee to review all the evidence from the Poland Committee, interview witnesses, and hold public hearings, the thoroughness of the inquiry came into question from the outset.

William B. Allison, who had served in the House until 1871 and entered the Senate in 1873, described his financial association with Oakes Ames as a casual one, which he terminated by returning the Crédit Mobilier certificates when his Iowa constituents severely criticized him for holding any type of railroad stock. The Morrill committee made no mention of Allison in its final report. He continued to serve in the Senate and was chairman of the Appropriations Committee when he died in 1908.

James A. Bayard, Jr., who had left the Senate in 1869, submitted a letter disavowing knowledge of the nature of the corporation or personal acquaintance with Ames. As the seventy-four-year-old Bayard no longer served in the Senate, the Morrill committee gave only scant attention to the charges against him. His name was not included in the final report, and the elderly senator lived quietly until his death in 1880.

George S. Boutwell, one of the original founders of the Republican party and secretary of the treasury under President Ulysses S. Grant, also received little notice from the Morrill committee, which did not mention him in its report. Boutwell's connection to Ames stemmed from their joint service in the House of Representatives in the late 1860s, a tie that all witnesses agreed was tenuous. Boutwell did not actually enter the Senate until March 1873, after the investigation was completed. He served only one term and later was appointed to codify the Statutes at Large. Active in the field of international law, Boutwell died in 1905.

Roscoe Conkling also escaped the scandal unscathed. Conkling, a former member of the House of Representatives and a senator since 1867, had been alluded to briefly during the House hearings. Based on Conkling's testimony and that of other witnesses, the Morrill committee report specifically dismissed all charges against him as entirely unfounded. An aggressive and powerful senator, Conkling remained an influential member until his dramatic resignation from the Senate in 1881 in a dispute with President James A. Garfield over patronage. He died seven years later.

James Harlan, an outspoken supporter of railroad construction throughout the West, fared less well, despite his prestigious reputation, having served in the Senate before and during the Civil War and as Andrew Johnson's secretary of the interior. The Morrill committee was concerned to discover that in 1865, while he was secretary of the interior, Harlan had accepted a $10,000 contribution toward a future campaign for the Senate from Thomas Durant, the notorious former president of Crédit Mobilier, who was at the time a vice president of Union Pacific. Declaring that "the use of large sums of money to influence either popular or legislative elections strikes directly at the fundamental principle of a Republican government," the committee suggested that such action deserved censure, although it found no evidence that Harlan had permitted the money to influence his behavior as a senator. Time saved Harlan from the possibility of formal censure, for his term expired on March 3, 1873, before further action could be taken. Harlan's subsequent campaigns for senator and governor proved unsuccessful. He died in 1899.

John Logan, who had served in the House before and after the Civil War and entered the Senate in 1871, was completely exonerated by the committee report. In a straightforward account of his dealings with Ames, Logan explained that he refused Ames' original offer but that a few months later the Massachusetts congressman presented him with a $329 check for his dividends. A reluctant Logan accepted the check, cashed it at the sergeant at arms' office, held the money for two days, and then returned it to Ames with $2 interest. Logan's detailed testimony convinced the committee that the episode, which occurred while Logan served in the House, required no further action by the Senate. Logan's long public service was interrupted briefly when he was not reelected at the conclusion of his term, but in 1879 Illinois again sent him to the Senate, where he remained until his death in 1886. In 1884 he was the Republican nominee for vice president on the ticket with James G. Blaine.

A more serious case was that of James Patterson, who had served in the Senate since 1867. He testified that, on separate occasions, he had given Ames $3,000 and $4,000 to invest for him. The $4,000 was invested in Union Pacific and the $3,000 in Crédit Mobilier. Patterson had told the House committee that, since Ames gave him no receipt in writing, he was unaware that he owned the Crédit Mobilier stock. Ames, however, contradicted Patterson on this point, producing a receipt signed by the senator that specified the stock as Crédit Mobilier. Patterson attributed the contradictions between his testimony and that of Ames to a faulty memory and his ignorance of financial matters. He also asserted strongly that there was no reason he should not own stock in that corporation. The Senate committee, however, concluded that Patterson, as a U.S. senator, knowingly arranged with Representative Ames "for the purchase of thirty shares in the stock of the Crédit Mobilier of America at rates greatly below its esteemed value," obtained the stock, received the dividends on it, and later bought and sold Union Pacific stock, knowing about the relations between the two companies and about Ames' involvement in them. He also knew that Ames' goal was to influence his actions as a senator in relation to the two companies. The committee therefore charged in its February 27, 1873, report to the Senate that Patterson gave false testimony to both the House and Senate committees. It unanimously recommended that he be expelled.

On March 3, the day his term expired, Patterson asked the Senate to take up the committee's resolution, so that there would be a full discussion of the case. The Senate, however, pleading the press of end-of-session business, decided not to consider the recommendation until the next session of Congress. On March 14, 1873, during the special session of the new Senate, Henry B. Anthony submitted a resolution declaring that inaction on the committee's resolution should be interpreted neither as approval nor disapproval. The resolution would also have permitted Patterson to submit a statement to be published in the Congressional Record, which just days earlier had begun publication as the official proceedings of Congress and the successor to the privately produced Congressional Globe. After a lengthy discussion, the Senate on March 26 amended the resolution to state only that a pamphlet prepared by Patterson in his defense would be printed, bound, and distributed with the report of the committee. The Senate adopted the amended resolution, believing that this would be the fairest way to give Patterson a chance to state his defense, since he had had no opportunity to defend himself on the Senate floor. At the same time, this approach avoided setting the dangerous precedent of permitting someone who was no longer a member of the body to place a statement in the official Congressional Record.

The unrepentant Patterson, whose friends felt he deserved expulsion no more than several other members, returned to New Hampshire, where he served in the state legislature and later as state superintendent of public instruction. He died in 1893.

Henry Wilson offered the committee the most imaginative explanation for his connection with Ames. He related that in 1865 his wife had received a monetary gift of $3,800, $1,000 of which she then lost through an unfortunate investment Wilson recommended. Wilson reimbursed her for this loss from his own money, then, anxious to provide his wife with a successful investment, he turned to the Crédit Mobilier Corporation. He had learned about the company from dinner-table conversation with Ames at their Washington boardinghouse. Mrs. Wilson, placing undeserved trust in her husband's financial skills, did purchase the stocks, although she never received the certificates. Wilson later had second thoughts about the propriety of the business deal and asked Ames to refund his wife's money, which Wilson returned to her. Out of his own pocket, he added the $814 that Ames told him would have been the profit on the transaction. Thus, Wilson told the committee, he was "and ever shall be, $1,814 poorer than I should have been had . . . the investment with Mr. Ames not been made." The Morrill committee agreed that these actions in no way benefitted or tainted Wilson, who in March 1873 had become vice president of the United States after the political ruin of Schuyler Colfax through his part in the Crédit Mobilier scandal. The Morrill committee report did, however, mildly reprimand Wilson for insisting vehemently and erroneously during his election campaign that he had never known anything of the infamous company or any person connected with it. Wilson, who&mdashunlike many of his colleagues&mdashwas a poor man, having been a shoemaker before entering politics, died in office in 1875.

Schuyler Colfax, the bright and popular vice president under Grant, who had previously served in the House for fourteen years, six of them as Speaker, contributed to his own downfall by delivering an impassioned speech asserting his innocence in the scandal shortly before the House convened the Poland committee. The resulting testimony implicated Colfax so clearly that his political credibility never recovered. Colfax tried to cloak each new revelation with respectability, but he could not explain away a $1,200 canceled check in his name that Ames held. Colfax's status as president of the Senate made his position slightly different from that of the charged senators. Neither the Poland committee nor the Morrill committee reports discussed the allegations against him. On February 20, 1873, a resolution introduced in the House called for the impeachment of Colfax, but four days later the House Judiciary Committee rejected the measure. Again, time aided the accused. Before further action could be taken in either the House or the Senate, Congress adjourned and the term ended for Colfax, who had failed to be renominated for vice president. No formal adjudication resolved the Colfax scandal. Although he remained active in politics and gave many speeches, his brilliant career was destroyed. Colfax died in 1885.

Conclusion
The Morrill committee completed its work in less than three weeks. Given the complexity and the seriousness of the charges, many believed the investigations in both the House and the Senate had been little more than cosmetic cover-ups. Political observers wondered how many other politicians had escaped undetected. Still, the reputations of several leading Republicans, and indeed of the entire party, suffered from the scandal. Although the Republicans hoped to limit the damage, it became clear that the Crédit Mobilier affair had seriously undermined the Republican party. Despite several senators being implicated in the scandal, only in the case of James Patterson was expulsion recommended.


It Was Bad Last Time Too: The Crédit Mobilier Scandal of 1872

The S&L crisis has been described again and again as the worst case of business and government corruption since the Crédit Mobilier scandal of the Grant administration, and the similarities extend far beyond the staggering amounts of money involved. In both cases the U.S. government virtually gave the businessmen involved license to loot the Treasury the looting went on for years, and when it finally came to light, it was apparent that close attention by Congress or the administration could have prevented it.

The story begins with the 1862 legislation chartering the Union Pacific Company to build a transcontinental midway. It authorized the sale of $100 million dollars of stock, promised $16,000 to $48,000 per mile in thirtyyear government bonds, to be issued as track was completed, and provided for a two-hundred-foot-wide right of way across the continent. The directors and stockholders of the new company claimed—with some justification—that it would be difficult to get businessmen to invest in a risky transcontinental railroad. And so, with the help of bribes, they persuaded Congress to pass a second transcontinental-railroad act in 1864. This allowed the company to sell bonds of its own and back them with the railroad’s real estate. In addition, that real estate was doubled and made to include iron and coal rights.

The businessmen behind the venture proceeded in effect to mortgage the land for twenty-seven million dollars, and the unbuilt road for ten million. And they devised a holding-and-construction company to route profits to themselves by owning both financial shell and construction firm, they could pay themselves inordinate amounts to erect the railway. They found the perfect structure, the Pennsylvania Fiscal Agency, a little investment firm that the government had chartered to buy and sell railroad bonds and had empowered “to borrow and loan money without limit upon the resources or without the resources of the company.”

In organizing the structure, two often bickering factions emerged. One was headed by George Francis Train, who had built the Atlantic and Great Western Railroad in Ohio, and Thomas C. Durant, a vice president of the Union Pacific who said forthrightly that his goal was to “grab a wad from construction fees—and get out.” Train, who had admired new French organizations devised to amass credit, rechristened the agency the Crédit Mobilier of America.

The other faction was headed by two brothers named Oakes and Oliver Ames. Oakes Ames was the perfect man to head Crédit Mobilier, which had decided to place its stock “where it will do most good for us"—he happened to be a Republican member of Congress from Massachusetts.

With Crédit Mobilier using Union Pacific’s government-authorized stocks and bonds to pay itself roughly twice the cost of building the road, there was always the danger of congressional investigation, so stock shares went to approximately twenty congressmen and the Vice President of the United States. Ames assured his fellow congressmen that Crédit Mobilier was a “diamond mine.” If they could not afford to buy shares, he simply gave key members the stock, promising to pay for it out of its dividends. In one year Crédit Mobilier paid a dividend of 348 percent in another, five dividends totaling 805 percent.

By the time of Grant’s second presidential campaign, in 1872, the railroad was completed. Union Pacific was bankrupt, stripped of what Congress had intended to be a permanent endowment. Crédit Mobilier was out of business, having made a profit estimated at between thirty-three and fifty million dollars on an original investment of less than one million. Train boasted that he had three generations of his family living off Crédit Mobilier.

The unprecedented dividends had produced rumors of a scandal, but nothing substantial surfaced until the fall of 1872, when a squabble among the factions over the division of the spoils resulted in the publication of some incriminating letters of Oakes Ames’s in the New York Sun . At a hearing the next year, Ames read the list of men he had sold or given stock to, and they included some big names: the future President, James A. Garfield Speaker of the House James G. Blaine and Vice President Schuyler Colfax.

A congressional investigation whitewashed almost everyone except Ames. The committee recommended his expulsion, but the House refused to take action. Ames’s defenders argued that he had done nothing wrong except the patriotic act of building a railroad, and everybody built railroads with bribery and corruption (which was probably true).

Grant, with a new running mate, won the election of 1872, but most historians agree that the Crédit Mobilier scandal, the first of many to be exposed during Grant’s second term, played a significant role in bringing on the panic of 1873.

The government eventually took Union Pacific to court for misappropriation of funds, but the Supreme Court ruled that the government could not sue until 1895, when the company’s debt matured, and that it had no real cause for complaint anyway. After all—and herein lies the greatest difference between Crédit Mobilier and the S&L mess—the country had come out of it all with a transcontinental railroad.


Fraud and Corruption at Credit Mobilier

Editorial cartoon: Uncle Sam directs U.S. Congressmen implicated in the Crédit Mobilier scheme to commit hara-kiri.

Following the Civil War, the Credit Mobilier company used taxpayer money to bribe politicians and make profits for railroad executives at the expense of the people.

The Credit Mobilier scandal exposed a massive abuse of taxpayer money by the federal government and businesses vying for government contracts. The scandal involved many prominent politicians, mostly Republicans, including Vice President Schuyler Colfax and future President James Garfield.

Background to Credit Mobilier

During the Civil War, Congress had created the Union Pacific (UP) Railroad, and this company was granted massive amounts of land and taxpayer money to build a transcontinental railroad. UP executives created their own construction company, the Credit Mobilier of America, to build the railroad line.

Since the stockholders for UP and Credit Mobilier were identical, these investors essentially hired themselves to do the work. The investors and their accomplices billed the government for construction, which was about twice the actual cost of building the line. The conspirators then pocketed the rest of the money, which totaled about $33 million.

Keeping the Scheme Secret

Quarrels between the conspirators and those threatening litigation began generating publicity. To keep the scheme quiet, congressman and Credit Mobilier executive Oakes Ames of Massachusetts was directed to distribute free railroad passes and stock options to prominent members of Congress and the (President Ulysses S.) Grant administration. Many politicians were bribed into buying the stock at par, which was $5 per share. The large dividend assigned to the stock soon made it worth more than $100 per share.

The Scheme Is Exposed

When Ames feuded with fellow conspirator Henry McComb, McComb went to the New York Sun with a list of the politicians whom Ames had bribed. The Sun reported that Credit Mobilier was granted a construction contract worth $72 million when the railroad line only cost $53 million to build. To keep Congress from investigating, it was alleged that several prominent politicians were paid from the enormous profits to keep quiet.

Many of those who were implicated angrily denied the charges. Some admitted to receiving the payments and were honestly surprised that anyone would have seen misconduct in such transactions. Since most involved were Republicans, the Democrats charged that the Republicans were using government expansion and business connections to finance their re-election campaigns.

Most Americans were outraged that their own tax dollars had been used by railroad executives to bribe their own elected officials. Even without the Credit Mobilier scandal, there had been complaints about the misappropriation of land and tax funds by Union Pacific, which had recently declared bankruptcy.

Congressional Investigation

A congressional committee conducted hearings into the Credit Mobilier scandal. This investigation brought startling revelations about the nation’s top politicians. Over 30 congressmen admitted to either buying or having been given stock. However since Congress was dominated by Republicans, and most of the politicians involved were fellow Republicans, the committee’s wrath turned on Ames himself.

Ames was demonized because he had supposedly tried to influence simple-minded officials who were unaware of Ames’s motives when he distributed the favors. Ames was censured along with James Brooks, one of the few Democrats involved. Most others, including Vice President Schuyler Colfax and future President James Garfield, were exonerated despite overwhelming evidence of their guilt. Garfield had even perjured himself by testifying that he had received no stock, but no further action was taken against him.

The Legacy of Credit Mobilier

This scandal revealed not only the shady relationship between Union Pacific and Credit Mobilier, but the even shadier relationship between business executives and politicians. While the scheme technically broke no laws since Congress did not specify that the parties involved could not make a profit, Americans were furious that their tax dollars were used for such fraudulent and unethical means.

Congress responded to this scandal by enacting a wave of regulations on the railroads that virtually assured that they could never operate efficiently again. Credit Mobilier demonstrated the corruption and abuse of the public trust that often happens when government subsidizes business.


Crédit Mobilier Scandal

Political cartoon illustrating people involved in the scandal being sentenced to hara-kiri (a form of ritual japanese suicide, in this case the company going bankrupt and congressmen involved getting kicked out) by uncle sam who represents the american people.

In 1967 Rep. Amens replaced Keeter as the head of credit mobilier, which founded by and working with Union Pacific allowed people involved to sign contracts with themselves to get double the profit while working on a government sponsored rail line. In that year Amens offered discounted shares of the corporation to members of congress, which protected the deal as congressmen who accepted those shares let a blind eye and accepted the inflated costs of the project.

The story was leaked to the general public in 1872 by Herry McComb who provided the materials to New York Sun.


Crédit Mobilier Scandal Emerges

The Crédit Mobilier was positioned as a supposedly independent, and thus impartial, company that Union Pacific could hire for construction and contract management of the railroad. Instead, UP directors funneled projects through Crédit Mobilier — of which they were also investors — paying the transparent holding company inflated prices and pocketing the difference. The fraud came to a head when the New York Sun revealed that several members of Congress had accepted cash bribes or shares of Crédit Mobilier stock. The scandal resulted in a Congressional investigation that censured two participants and caused a financial collapse that left UP on the verge of bankruptcy.

Event Media

Additional Information

CPRR – Credit Mobilier Investigation – 1873

In the mid-1860s Thomas Durant and Union Pacific Director George Train bought control of the Pennsylvania Fiscal Agency. Impressed with the work of the Crédit Mobilier de France, an international banking firm, they changed the name of the Pennsylvania company to the Crédit Mobilier of America.

Union Pacific celebrates the shared stories that have shaped our country since 1862. We invite you to explore how the nation’s largest railroad came to be and how UP continues to build America with innovation and tenacity, touching the lives of nearly every citizen.


Crédit Mobilier of America scandal


The Crédit Mobilier scandal of 1872 involved the Union Pacific Railroad and the Crédit Mobilier of America construction company in the building of the eastern portion of the First Transcontinental Railroad.

The scandal's origins dated back to the Abraham Lincoln presidency, when the Union Pacific Railroad was chartered in 1864 by the federal government and the associated Crédit Mobilier was established. In 1868, during the Andrew Johnson presidency, Congressman Oakes Ames had distributed Crédit Mobilier shares of stock to other congressmen, in addition to making cash bribes. The story was broken by the New York newspaper, The Sun, during the 1872 presidential campaign, when Ulysses S. Grant was running for re-election. The scandal involved Grant's Vice President, Schuyler Colfax, and Henry Wilson, a Congressman who Grant selected to replace Colfax during the 1872 Presidential election. The scandal caused widespread public distrust of Congress and the federal government during the Gilded Age.


In American History

Oakes Ames, Thomas C. Durant, and others formed the company in 1864 out of an existing Pennsylvania charter as the Pennsylvania Fiscal Agency. Ames and other Union Pacific investors headed the new firm, meaning that they could sell contracts from the railroad to their own company.

Union Pacific bonds, which were to sell at $100 per share, in fact sold well below that. To cover the costs of construction, Durant and Ames founded Crédit Mobilier, in which the railroad would give grossly inflated construction contracts to the company and Crédit Mobilier would use those contracts to purchase Union Pacific stock at par value.


Ames then resold the stock on the open market at market prices, covering the difference with some of the inflated construction costs. In 1867, for example, Ames assigned contracts for the construction of nearly 670 miles of railroad that brought the Crédit Mobilier owners between $7 and $23 million and left the railroad in financial trouble.

Ames ensured the acquiescence of Congress by bribing the members through stock offers: Ames (who was also a U.S. congressman) sold shares of the railroad at a discount to other lawmakers, even allowing them to purchase the stock on credit, paying for the stock out of the dividends earned by the securities.

Sending a list of names to receive stock to an associate, Ames made certain to enlist the services of Representatives Schuyler Colfax and James A. Garfield and Senator James W. Patterson, although Ames’s list soon found its way into Charles Dana’s newspaper, the New York Sun. Publication of the “preferred customer” list set off a firestorm in 1872—an election year.

Congress undertook an investigation of the company. Already, allegations circulated about President Ulysses Grant’s involvement in the “Gold Corner” of 1869 (an attempt by speculators to “corner” the market in gold and thus manipulate prices), while the Reconstruction governments being established in the South were gaining a reputation for graft. Bribing public officials to build railroads, or to benefit from existing routes, was nothing new.

For two decades, Cornelius Vanderbilt had battled Jay Gould, Daniel Drew, and Jim Fisk over several railroads, especially the New York Harlem Railroad. But, as one contemporary writer observed about Crédit Mobilier, “there was a film of decency thrown over the transaction by Mr. Ames,” and many members of Congress willingly accepted the shares.

Famous railroader Collis P. Huntington of the Central Pacific Railroad—the other end of the transcontinental—and other important “captains of industry” were called to testify before Congress about construction costs. Although Congress issued a pair of reports, which tarnished the reputations of Colfax, Patterson, and Rep. James Brooks of New York, as well as Ames, only Brooks and Ames were censured, and no one was prosecuted.

Brooks, ironically, had only received his position as a government director on the railroad after he, as a former Whig, had come out in opposition to the impeachment of the Democratic president, Andrew Johnson. Since the Crédit Mobilier scandal occurred on Grant’s watch, and was followed by the “Whiskey Ring” (the resignation of Grant’s secretary of war for accepting kickbacks), the “salary grab,” and other scandals, the episode damaged Grant’s public image. Crédit Mobilier also made a permanent enemy of cartoonist Thomas Nast, who lost $329 in the scandal, and who supported the Democratic Party after that.

A larger problem stemmed from the federal funding of the railroads through the subsidy system, which encouraged graft and corruption. The government gave land grants to transcontinental railroads to sell as a means to raise construction cash. However, the grants were based on miles of rail laid, ensuring that both the Union and Central Pacific Railroads would lay far more track than needed to link them together.

Indeed, at times, the railroads built away from each other, delaying the connection in order to continue receiving funds. This stood in stark contrast to James J. Hill’s Great Northern Railroad, which received no federal subsidies, and which did not suffer financially in the panic of 1873.

More than the delays in building the Union and Central Pacific Railroads more than the circuitous routes they used and more than their ultimate financial distress caused by their original privileged subsidized positions, the Crédit Mobilier scandal revealed the dangers of linking large-scale business projects with the government, outside the control of the market and the discipline of prices.

For the conspiracy-minded, however, the bribery of public officials dovetailed with the influence of such shadowy forces as the Bank of England or the Masons. Crédit Mobilier also implicated Grant, weakening his presidency. Coming on the heels of the infamous “Tweed Ring” (the network of political and financial corruption in New York City presided over by William Tweed from the 1860s), Crédit Mobilier convinced many that government was corrupt at every level.


BIBLIOGRAPHY

Bain, David Haward. Empire Express: Building the First Transcontinental Railroad. New York: Viking, 1999. Richly detailed account of the scandal.

Crawford, Jay Boyd. The Crédit Mobilier of America Its Origin and History, Its Work of Constructing the Union Pacific, and the Relation of Members of Congress Therewith. Boston: C. W. Calkins, 1880. A pioneer account and still one of the best sources for understanding the corrupt incident.

Huneke, William F. The Heavy Hand: The Government and the Union Pacific, 1862–1898. New York: Garland, 1985. A bit revisionist in emphasis.


Watch the video: Credit Mobilier Scandal (January 2022).