The Credit Mobilier Scandal, or the True Cost of the Transcontinental Railroad

S.C. Durant - NARA - 527403.jpg
Thomas C. Durant, the mastermind of the Credit Mobilier fraud.

In January 1865, President Abraham Lincoln, looking to the end of the War of the Rebellion, was looking to the next big thing: the Transcontinental Railroad. He summoned Massachusetts Republican Congressman Oakes Ames (1804-1873) to the White House to discuss the matter with him. Ames, a descendant of Founding Father Fisher Ames, was known as the “King of Spades” for his family business of manufacturing shovels and had a reputation as a staunch and effective advocate for railroads. At this meeting, the president told him, “Ames, you take hold of this. The road must be built, and you are the man to do it. Take hold of it yourself. By building the Union Pacific, you will be the remembered man of your generation” (Langeveld, 2014).  Two years later, Ames managed to oust Thomas C. Durant from control of Credit Mobilier and placed his younger brother Oliver in control. On May 10, 1869, the Ames brothers had succeeded in making the vision of a transcontinental railroad realized, with the golden spike being driven by Leland Stanford of the Central Pacific at Promontory Summit in the Utah territory where the two railroads met. Lincoln would be right about Ames, he would be remembered, but both in fame and infamy; this glorious and vital achievement was tainted by corrupt practices.

To construct the railroad, the Union Pacific contracted with Credit Mobilier, a construction company, which was financed with unmarketable bonds. This was portrayed as an independent company, but in truth UP’s vice president at the time, Durant, had created Credit Mobilier, with himself at the head of this sham business. The principle means of fraud was through indirect billing, the billing between Union Pacific and Credit Mobilier. Credit Mobilier presented fraudulent bills to Union Pacific, and Union Pacific presented the bills to the federal government, which were on their face legitimate (White, 32). While Credit Mobilier incurred operating costs of $50,720,959, Congress paid out per the bill $94,650,287 (Rhodes, 1-19). This massive graft was pocketed by executives as profit, with $9 million of it used to influence members of Congress for favorable policy to the Union Pacific. Ames was the man in Congress who sold discounted stock options inflated through fraudulent profits to numerous fellow legislators to produce favorable policy and protect the Union Pacific from investigation.

Oakes Ames, who bought influence for the Union Pacific in Congress.

The Scandal Breaks

On September 4, 1872, The New York Sun, a notoriously anti-Grant and anti-Republican newspaper, broke the scandal after receiving three damning letters from disgruntled Ames associate Henry Simpson McComb, who had wanted more shares in Credit Mobilier. These letters, written from Ames to McComb in 1868 to push back against his efforts at getting more shares, exposed his scheme to buy influence so as to turn the interests of the Union Pacific and Credit Mobilier into those of Congress as well. As Ames wrote, “We want more friends in this Congress, & if a man will look into the law (& it is difficult to get them to do so unless they have an interest to do so,) he cannot help but being convinced that we should not be interfered with” (Mitchell). Ames revealed in these letters as he didn’t consider what he was doing bribery as he had neither asked for support for the Union Pacific or conditioned the sales of discounted stock on support of the Union Pacific. However, he also realized he had no need to say such things, as he wrote, “I have found that there is no difficulty in inducing men to look after their own property” (Mitchell). Although some Republican partisans were dismissive as it came from the Sun, and indeed the story did contain significant bias and errors, such as dramatically exaggerating the number of stocks that had been sold to members of Congress and that it outright called for voters to oust GOP members of Congress, it did reveal a real scandal (Mitchell). The King of Spades had now gotten new names, such as “The King of Frauds” and “Hoax Ames”. Although the exposure of the scandal was close to the election and impacted Republicans, it wasn’t enough to tip the scales in favor of the weak and erratic campaign of Liberal Republican challenger Horace Greeley and the full extent would not be known until after the election.

Congress Responds

Speaker James G. Blaine (R-Me.), who had been exonerated by the letters, organized an investigation and placed Rep. Luke Poland (R-Vt.) as chair. Members of Congress named in the letters proceeded to deny ownership and Ames stepped forward to testify. Additional documentation provided by him proved that numerous members of Congress who had denied ownership of stock outright lied. This included former Speaker of the House and then-Vice President Schuyler Colfax, who denied ownership of Credit Mobilier stock despite records that he received a $1200 dividend payment from it (Mitchell). Future President James A. Garfield (R-Ohio) was one of the members who bought the discounted stock, as did Representatives William D. Kelley (R-Penn.), James Wilson (R-Iowa), G.W. Scofield (R-Penn.), John A. Bingham (R-Ohio), Henry L. Dawes (R-Mass.), and the late Senator James W. Grimes (R-Iowa). Some, like Garfield, claimed that they had no knowledge of intent, and indeed Ames appeared to have leaned on him heavily to buy 10 shares.

In February 1873, the Senate investigated some of their own members and Vice President Schuyler Colfax under the Morrill (R-Me.) Committee. They found that the evidence against James A. Bayard Jr. (D-Del.) and George S. Boutwell (R-Mass.) was insufficient to continue and exonerated Roscoe Conkling (R-N.Y.) and John A. Logan (R-Ill.). However, for four others and the vice president, matters were more complicated. William B. Allison (R-Iowa) had held discounted stock in Credit Mobilier briefly before returning it as his constituents condemned him for holding railroad stock. Senator James Harlan (R-Iowa), who had been a longtime advocate for railroads, was found to have received $10,000 in campaign contributions from Thomas C. Durant, and the Committee recommended censure for him, despite finding no evidence that the funds influenced his actions. Senator Henry Wilson (R-Mass.), who was the recently elected vice president, had an alibi that relied upon a story of unwise investment actions regarding him and his wife in 1865; she had conveniently died in 1870. However, Wilson’s testimony was backed up by Ames. The worst case among the senators was found to be James Patterson (R-N.H.), who testified that he had given Ames sums of $3000 for Credit Mobilier and $4000 for Union Pacific for investment and claimed that he was not aware that he owned Credit Mobilier stock, which was contradicted by documentary evidence provided by Ames (U.S. Senate). Although Patterson claimed financial ignorance and poor memory, the Morrill Committee wasn’t buying it. The Committee found that Patterson had full guilty knowledge of the operations of Union Pacific and Credit Mobilier, that he actively sought to profit from it, and that he knew Ames was trying to influence him (U.S. Senate). The Morrill Committee unanimously recommended expulsion, and Patterson was only saved from it as his term had come to an end.

The Aftermath

Despite there being more implicated parties than two in the House, it was only Ames and Rep. James A. Brooks (D-N.Y.), a government director for the Union Pacific and Tammany Hall man who had profited mightily through a workaround with his son-in-law buying the stock and handing it to him, who were recommended for expulsion by the House’s Poland Committee for their activities. However, a vote for expulsion failed. The two were censured by Congress on February 27, 1873. Ames’ term was already expiring and Brooks’ health was poor.  Both Brooks and Ames, their disgraces having taxed their health, died only about two months later. Curiously, the Massachusetts state legislature would pass a resolution on May 10, 1883, exonerating the latter. As it turns out, Ames’s son, Oliver, was lieutenant governor. That such minor consequences came out of such a major influence buying scandal reflected what was in truth politically normal in that day and age; the Gilded Age was a corrupt era in politics. Ames also had his defenders; as Roy Hoopes (1991) writes, “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)”. Indeed, Canada had a similar scandal with the Pacific Scandal on their efforts to build a transcontinental railroad at roughly the same time. Unlike in the US, the scandal temporarily brought down the Conservative Party under John A. Macdonald and the railroad was not completed until 1885 (McIntosh, Yarhi, & McIntosh). The scandal would, however, weigh on the Republican Party and with Reconstruction and the Panic of 1873 contribute to their loss of the House in the 1874 midterms. The executives of the Union Pacific, although they didn’t ultimately face legal consequences as the Supreme Court ruled the government couldn’t sue until 1895, the date of the maturity of the company debt, they did face market consequences as they were nearly bankrupted by the revelations as well as by the Panic of 1873.

Although the career of Oakes Ames ended in disgrace, the family business continues to prosper; it was his family that began the company today known as Ames True Temper in 1774 and to this day it produces 85% of wheelbarrows used in the US and Canada (Penn-Live).

P.S.:

I will be removing the 2018 posts for archiving after Saturday, November 13th. If you wish to read what I have written at that time, do so before then!

References

Hoopes, R. (1991). It Was Bad Last Time Too: The Credit Mobilier Sandal of 1872. American Heritage, 42(1).

Retrieved from

https://www.americanheritage.com/it-was-bad-last-time-too-credit-mobilier-scandal-1872

James Patterson Expulsion Case. U.S. Senate.

Retrieved from

https://www.senate.gov/artandhistory/history/common/expulsion_cases/064JamesPatterson_expulsion.htm

Langeveld, D. (2014, August 12). Oakes Ames: digging himself a hole. The Downfall Dictionary.

Retrieved from

http://downfalldictionary.blogspot.com/2014/08/oakes-ames-digging-himself-hole.html

McIntosh, G., Yarhi, E. & McIntosh, A. (2006, February 7). Pacific Scandal. The Canadian Encyclopedia.

Retrieved from

https://www.thecanadianencyclopedia.ca/en/article/pacific-scandal

Mitchell, R. (2017, July 18). Buying ‘friends in this Congress’: The smoking gun that triggered a political scandal. The Washington Post.

Retrieved from

https://www.washingtonpost.com/news/retropolis/wp/2017/07/18/buying-friends-in-this-congress-the-smoking-gun-that-triggered-a-political-scandal/

Oakes Ames. PBS.

Retrieved from

https://www.pbs.org/wgbh/americanexperience/features/tcrr-ames/

Where are 85 percent of the country’s wheelbarrows made? (2019, January 5). Penn-Live.

Retrieved from

https://www.pennlive.com/news/2017/06/ames_company_harrisburg_wheelb.html

Langeveld, D. (2010, January 9). James Brooks: out of stock. The Downfall Dictionary.

Retrieved from

http://downfalldictionary.blogspot.com/2010/01/

Rhodes, J.F. (1916). History of the United States from the compromise of 1850 to the final restoration of home rule at the South in 1877: 1872-1877. Vol. 7. New York, NY: The Macmillan Company.

Trent, L. D. (1981). The Credit Mobilier. New York, NY: Arno Press, Inc.

White, R. (2011). Railroaded: the transcontinentals and the making of modern America. New York, NY: W.W. Norton & Co.

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