Great Fortunes from Railroads Part 14

Then and there was the modern trust born; and from the very inception of the Standard Oil Company Rockefeller and his a.s.sociates tenaciously pursued their design with a combined ability and unscrupulousness such as had never before been known since the rise of capitalism. One railroad after another was persuaded or forced into granting them secret rates and rebates against which it was impossible to compete. The railroad magnates--William H. Vanderbilt, for instance--were taken in the fold of the Standard Oil Company by being made stockholders. With these secret rates the Standard Oil Company was enabled to crush out absolutely a myriad of compet.i.tors and middlemen, and control the petroleum trade not only of the United States but of almost the entire world. Such fabulous profits acc.u.mulated that in the course of forty years, after one unending career of industrial construction on the one hand, and crime on the other, the Standard Oil Company was easily able to become owners of prodigious railroad and other systems, and completely supplant the scions of the magnates whom three or four decades before they had wheedled or brow-beaten into favoring them with discriminations.

CORPORATE WEALTH AND LABOR UNIONS.

The effects of this great industrial transition were clearly visible by 1877, so much so that two years later, Vanderbilt, more prophetically than he realized, told the Hepburn Committee that "if this thing keeps up the oil people will own the roads." But other noted industrial changes were concurrently going on. With the up- springing and growth of gigantic combinations or concentrations of capital, and the gradual disappearance of the small factors in railroad and other lines of business, workers were compelled by the newer conditions to organize on large and compact national lines.

At first each craft was purely local and disa.s.sociated from other trades unions. But comprehending the inadequacy and futility of existing separately, and of acting independently of one another, the unions had some years back begun to weld themselves into one powerful body, covering much of the United States. Each craft union still retained its organization and autonomy, but it now became part of a national organization embracing every form of trades, and centrally officered and led. It was in this way that the workers, step by step, met the organization of capital; the two forces, each representing a conflicting principle, were thus preparing for a series of great industrial battles.

Capital had the wealth, resources and tools of the country; the workers their labor power only. As it stood, it was an uneven contest, with every advantage in favor of capital. The workers could decline to work, but capital could starve them into subjection.

These, however, were but the apparent differences. The real and immense difference between them was that capital was in absolute control of the political governing power of the nation, and this power, strange to say, it secured by the votes of the very working cla.s.s constantly fighting it in the industrial arena. Many years were to elapse before the workers were to realize that they must organize and vote with the same political solidarity that they long had been developing in industrial matters. With political power in their hands the capitalists could, and did, use its whole weight with terrific effect to beat down the working cla.s.s, and nullify most of the few concessions and laws obtained by the workers after the severest and most self-sacrificing struggles.

One of the first memorable battles between the two hostile forces came about in 1877. In their rate wars the railroad magnates had cut incisively into one another's profits. The permanent gainers were such incipient, or fairly well developed, trusts or combinations as the Standard Oil Company. Now the magnates set about a.s.serting the old capitalist principle of recouping themselves by forcing the workers to make up their losses.

But these deficits were merely relative. Practically every railroad had issued vast amounts of bonds and watered stock, on which fixed charges and dividends had to be paid. Judged by the extent of this inflated stock, the profits of the railroads had certainly decreased.

Despite, however, the prevailing cutthroat compet.i.tion, and the slump in general business following the panic of 1873, the railroads were making large sums on their actual investment, so-called. Most of this investment, it will be recalled, was not private money but was public funds, which were later stolen by corrupt legislation. It was shown before the Hepburn Committee in 1879, as we have noted, that from 1869 the New York Central Railroad had been making sixteen, and perhaps more than twenty per cent., on the actual cost of the road.

Moreover, apart from the profits from ordinary traffic, the railroads were annually fattening on immense sums of public money gathered in by various fraudulent methods. One of these--and is well worth adverting to, for it exists to a greater degree than ever before--was the robbery of the people in the transportation of mails. By a fraudulent official construction, in 1873, of the postal laws, the railroads without cessation have cheated huge sums in falsifying the weight of mail carried, and since that time have charged ten times as much for mail carrying as have the express companies (the profits of which are very great) for equal haulage. But these are simply two phases of the postal plunder. In addition to the regular mail payments, the Government has long paid to the railroad companies an extra allowance of $6,250 a year for the rent of each postal car used, although official investigation has proved that the whole cost of constructing such a car averages but from $2,500 to $5,000. In rent alone, five millions a year have been paid for cars worth, all told, about four millions. From official estimates it would clearly seem that the railroads have long cheated the people out of at least $20,000,000 a year in excess rates--a total of perhaps half a billion dollars since 1873. The Vanderbilt family have been among the chief beneficiaries of this continuous looting. [Footnote: Postmaster General Vilas, Annual Report for 1887:56. In a debate in the United States Senate on February 11, 1905, Senator Pettigrew quoted Postmaster General Wanamaker as saying that "the railroad companies see to it that the representatives in Congress in both branches take care of the interests of the railway people, and that it is practically impossible to procure legislation in the way of reducing expenses."] Occasionally the postal officials have made pretences at stopping the plunder, but with no real effect.

THE GREAT STRIKE OF 1877.

Making a loud and plaintive outcry about their declining revenues, some of the railroad systems prepared to a.s.sess their fict.i.tious losses upon the workers by cutting down wages. They had already reduced wages to the point of the merest subsistence; and now they decreed that wages must again be curtailed ten cents on every dollar.

The Baltimore and Ohio Railroad, then in the hands of the Garrett family, with a career behind it of consecutive political corruption and fraud, in some ways surpa.s.sing that of the Vanderbilts, led in reducing the wages of its workers. The Pennsylvania Railroad followed, and then the Vanderbilts gave the order for another reduction.

At once the Baltimore and Ohio Railroad employees retaliated by declaring a strike; the example was followed by the Pennsylvania men.

In order to alienate the sympathy of the general public and to have a pretext for suppressing the strike with armed force, the railroads, it is quite certain, instigated riots at Martinsburg, W. Va., and at Pittsburg. Troops were called out and the so-called mobs were fired on, resulting in a number of strikers being killed and many wounded.

That the railroads deliberately destroyed their own property and then charged the culpability to the strikers, was common report. So conservative an authority as Carroll D. Wright, for a long time United States Commissioner of Labor, tells of the railroad agents setting a large number of old, decayed, worthless freight cars at Pittsburg on fire, and accusing the strikers of the act. He further tells of the Pennsylvania Railroad subsequently extorting millions of dollars from the public treasury on the ground that the destruction of these cars resulted from riot. Wright says that from all that he has been able to gather, he believes the reports of the railroads manufacturing riots to have been true. [Footnote: "The Battles of Labor": 122. In all, the railroad companies secured approximately $22,000,000 from the public treasury in Pennsylvania as indemnity for property destroyed during these "riots." In a subsequent chapter, the corruption of the operation is described.] Vanderbilt acted with greater wisdom than his fellow magnates. Adopting a conciliatory stand, he averted a strike on his lines by restoring the old rate of wages and by other mollifying measures.

He was now a.s.sailed from a different direction. The long gathering anger and enmity of the various sections of the middle cla.s.s against the corporate wealth which had possessed itself of so dictatorial a power, culminated in a manner as instructive as it was ineffective.

In New York State, the Legislature was prevailed upon, in 1879, to appoint an investigating committee. Vanderbilt and other railroad owners, and a mult.i.tude of complaining traders were haled up to give testimony; the stock-jobbing transactions of Vanderbilt and Gould were fully and tediously gone into, as also were the methods of the railroads in favoring certain corporations and mercantile establishments with secret preferential freight rates.

Not in the slightest did this long-drawn investigation have any result calculated to break the power of the railroad owners, or their predominant grip upon governmental functions.

The magnate cla.s.s preferred to have no official inquiries; there was always the annoying possibility that in some State or other inconvenient laws might be pa.s.sed, or harra.s.sing legal actions begun; and while revocation or amendment of these laws could be put through subsequently when the popular excitement had died away, and the suits could be in some way defeated, the exposures had an inflaming effect upon a population as yet ill-used to great one-man power of wealth.

But if the middle cla.s.s insisted upon action against the railroad magnates, there was no policy more suitable to these magnates than that of being investigated by legislative committees. They were not averse to their opponents amusing themselves, and finding a vent for their wrath, in volumes of talk which began nowhere and ended nowhere. In reply to charges, the magnates could put in their skillful defense, and inject such a maze of argument, pettifoggery and technicalities into the proceedings, that before long the public, tired of the puzzle, was bound to throw up its hands in sheer bewilderment, unable to get any concrete idea of what it was all about.

FRAUD BECOMES RESPECTABLE WEALTH

So the great investigation of 1879 pa.s.sed by without the least deterrent effect upon the constantly-spreading power and wealth of such men as Vanderbilt and Gould. Every new development revealed that the hard-dying middle cla.s.s was being gradually, yet surely, ground out. But the investigation of 1879 had one significant unantic.i.p.ated result.

What William H. Vanderbilt now did is well worth noting. As the owner of four hundred thousand shares of New York Central stock he had been rabidly denounced by the middle cla.s.s as a plutocrat dangerous to the interests of the people. He decided that it would be wise to sell a large part of this stock; by this stroke he could advantageously exchange the forms of some of his wealth, and be able to put forward the plausible claim that the New York Central Railroad, far from being a one-man inst.i.tution, was owned by a large number of investors. In November, 1879, he sold through J. Pierpont Morgan more than two hundred thousand shares to a syndicate, chiefly, however, to British aristocrats.

This sale in no way diminished his actual control of the New York Central Railroad; not only did he retain a sufficient number of shares, but he owned an immense block of the railroad's bonds. The sale of the stock brought him $35,000,000. What did he do with this sum? He at once reinvested it in United States Government bonds.

Thus, the proceeds of a part of the stock obtained by outright fraud, either by his father or himself, were put into Government bonds. This surely was a very sagacious move. Stocks do not have the solid, honest air that Government bonds do; nothing is more finely and firmly respectable than a Government bondholder.

From the blackmailer, corruptionist and defrauder of one generation to the stolid Government bondholder of the next, was not a long step, but it was a sufficient one. The process of investing in Government bonds Vanderbilt continued; in a few years he owned not less than $54,000,000 worth of four per cents. In 1884 he had to sell $10,000,000 of them to make good the losses incurred by his sons on the Stock Exchange, but he later bought $10,000,000 more. Also he owned $4,000,000 in Government three and one-half per cent. bonds, many millions of State and city bonds, several millions of dollars in manufacturing stocks and mortgages, and $22,000,000 of railroad bonds. The same Government of which his father had defrauded millions of dollars now stood as a direct guarantee behind at least $70,000,000 of his bonded wealth, and the whole population of the United States was being taxed to pay interest on bonds, the purchase of which was an outgrowth of the theft of public money committed by Cornelius Vanderbilt.

In the years following his father's death, William H. Vanderbilt found no difficulty in adding more extended railroad lines to his properties, and in increasing his wealth by tens of millions of dollars at a leap.

MORE RAILROADS ACQUIRED.

The impact of his vast fortune was well-nigh resistless. Commanding both financial and political power, his money and resources were used with destructive effect against almost every compet.i.tor standing in his way. If he could not coerce the owners of a railroad, the possession of which he sought, to sell to him at his own price, he at once brought into action the wrecking tactics his father had so successfully used.

The West Sh.o.r.e Railroad, a competing line running along the west bank of the Hudson River, was bankrupted by him, and finally, in 1883, bought in under foreclosure proceedings. By lowering his freight rates he took away most of its business; through a series of years he methodically caused it to be harra.s.sed and burdened by the exercise of his great political power; he thwarted its plans and secretly hindered it in its application for money loans or other relief. Other means, open and covert, were employed to insure its ruination. When at last he had driven its owners into a corner, he calmly stepped in and bought up its control cheaply, and then turned out many millions of dollars of watered stock.

He attempted to break in upon the territory traversed by the Pennsylvania Railroad by building a competing line, the South Pennsylvania Railroad. In the construction of this road he had an agreement with the Philadelphia and Reading Railroad, an intense compet.i.tor of the Pennsylvania; and, as a precedent to building his line, he obtained a large interest in the Reading Railroad. Out of this arrangement grew a highly important sequence which few then foresaw--the gradual a.s.sumption by the Vanderbilt family of a large share of the owners.h.i.+p and control of the anthracite coal mines of Pennsylvania.

Vanderbilt, aiming at sharing in the profits from the rich coal, oil and manufacturing traffic of Pennsylvania, went ahead with his building of the South Pennsylvania line. But there was an easy way of getting millions of dollars before the road was even opened. This was the fraudulent one, so widely practiced, of organizing a bogus construction company, and charging three and four times more than the building of the railroad actually cost. Vanderbilt got together a dummy construction company composed of some of his clerks and brokers, and advanced the sum, about $6,500,000, to build the road.

In return, he ordered this company to issue $20,000,000 in bonds, and the same amount in stock. Of this $40,000,000 in securities, more than $30,000,000 was loot. [Footnote: Van Oss' "American Railroads As Investments": 126. Professor Frank Parsons, in his "Railways, the Trusts and the People," incorrectly ascribes this juggling to Commodore Vanderbilt.]

If, however, Vanderbilt antic.i.p.ated that the Pennsylvania Railroad would remain docile or pa.s.sive while his compet.i.tive line was being built, he soon learned how sorely mistaken he was. This time he was opposing no weak, timorous or unsophisticated compet.i.tors, but a group of the most powerful and astute organizers and corruptionists.

Their methods in Pennsylvania and other States were exactly the same as Vanderbilt's in New York State; their political power was as great in their chosen province as his in New York. His incursion into the territory they had apportioned to themselves for exploitation was not only resented but was fiercely resisted. Presently, overwhelmed by the crus.h.i.+ng financial and political weapons with which they fought him, Vanderbilt found himself compelled to compromise by disposing of the line to them.

THE SEQUEL TO A "GENTLEMEN'S AGREEMENT."

Vanderbilt's methods and his duplicity in the disposition of this project were strikingly revealed in the court proceedings inst.i.tuted by the State of Pennsylvania. It appeared from the testimony that he had made a "gentlemen's agreement" with the Reading Railroad, the bitterest compet.i.tor of the Pennsylvania Railroad, for a close alliance of interests. Vanderbilt owned eighty-two thousand shares of Reading stock, much of which he had obtained on this agreement.

Strangely confiding in his word, the Reading management proceeded to expend large sums of money in building terminals at Harrisburg and elsewhere to make connections with his proposed South Pennsylvania Railroad.

The Pennsylvania Railroad, however, set about retaliating in various effective ways. At this point, J. Pierpont Morgan--whose career we shall duly describe--stepped boldly in. Morgan was Vanderbilt's financial agent; and it was he, according to his own testimony on October 13, 1885, before the court examiner, who now suggested and made the arrangements between Vanderbilt and the Pennsylvania Railroad magnates, by which the South Pennsylvania Railroad was to become the property of the Pennsylvania system, and the Reading Railroad magnates were to be as thoroughly thrown over by as deft a stroke of treachery as had ever been put through in the business world.

To their great astonishment, the Reading owners woke up one morning to find that Vanderbilt and his a.s.sociates had completely betrayed them by disposing of a majority of the stock of the partly built South Pennsylvania line to the Pennsylvania Railroad system for $5,600,000 in three per cent. railroad debenture bonds. It is interesting to inquire who Vanderbilt's a.s.sociates were in this transaction. They were John D. Rockefeller, William Rockefeller, D.

O. Mills, Stephen B. Elkins, William C. Whitney and other founders of large fortunes. For once in his career, Vanderbilt met in the Pennsylvania Railroad a compet.i.tor powerful enough to force him to compromise.

Elsewhere, Vanderbilt was much more successful. Out through the fertile wheat, corn and cattle sections of Wisconsin, Minnesota, Iowa, Dakota and Nebraska ran the Chicago and Northwestern Railroad, a line 4,000 miles long which had been built mostly by public funds and land grants. Its history was a succession of corrupt acts in legislatures and in Congress, and comprised the usual process of stock watering and exploitation.

[Ill.u.s.tration: THE ORIGINAL VANDERBILT HOMESTEAD, Near New Dorp, Staten Island, N. Y.]

[Ill.u.s.tration: PALACES BUILT BY WILLIAM H. VANDERBILT, And Resided in by Him and His Descendants.]

By a series of manipulations ending in 1880, Vanderbilt secured a controlling interest in this railroad, so that he had a complete line from New York to Chicago, and thence far into the Northwest. During these years he also secured control of other railroad lines.

HE EXPANDS IN SPLENDOR.

It was at this time that he, in accord with the chrysalid tendency manifested by most other millionaires, discarded his long-followed sombre method of life, and invested himself with a gaudy magnificence. On Fifth avenue, at Fifty-first and Fifty-second streets, he built a s.p.a.cious brown-stone mansion. In reality it was a union of two mansions; the southern part he planned for himself, the northern part for his two daughters. For a year and a half more than six hundred artisans were employed on the interior; sixty stoneworkers were imported from Europe. The capaciousness, the glitter and the cluttering of splendor in the interior were regarded as of unprecedented lavishness in the United States.

All of the luxury overloading these mansions was, as was well known, the fruit of fraud piled upon fraud; it represented the spoliation, misery and degradation of the many; but none could deny that Vanderbilt was fully ent.i.tled to it by the laws of a society which decreed that its rulers should be those who could best use and abuse it. And rulers must ever live imperiously and impressively; it is not fitting that those who command the resources, labor and Government of a nation should issue their mandates from pinched and meager surroundings. Mere pseudo political rulers, such as governors and presidents, are expected to be satisfied with the plain, unornamental official residences provided by the people; thereby they keep up the appearance of that much-bespoken republican simplicity which is part of the mask of political formulas. Luckily for themselves, the financial and industrial rulers are bound by no circ.u.mscribing tradition; hence they have no set of buckramed rules to stick close to for fear of an indignant electorate.

The same populace that glowers and mutters whenever its political officials show an inclination to pomp, regards it as perfectly natural that its financial and industrial rulers should body forth all of the most obtrusive evidences of grandeur. Those Vanderbilt twin palaces, still occupied by the Vanderbilt family, were appropriately built and fitted, and are more truly and specifically historic as the abode of Government than official mansions; for it is the magnates who have in these modern times been the real rulers of nations; it is they who have usually been able to decide who the political rulers should be; political parties have been simply their adjuncts; the halls of legislation and the courts their mouthpieces and registering bureaus. Theirs has been the power, under cover though it has lurked, of elevating or destroying public officials, and of approving or cancelling legislation. Why, indeed, should they not have their gilded palaces?

A SUDDEN TRANSFORMATION.