Great Fortunes from Railroads Part 20

ALL BUSINESS REEKED WITH FRAUD.

A Congressional committee, probing, in 1847-1848, into frauds in the sale of drugs found that there was scarcely a wholesale or retail druggist who was not consciously selling spurious drugs which were a menace to human life. Dr. M. J. Bailey, United States Examiner of Drugs at the New York Custom House, was one of the many expert witnesses who testified. "More than one-half of many of the most important chemical and medicinal preparations," Dr. Bailey stated, "together with large quant.i.ties of crude drugs, come to us so much adulterated as to render them not only worthless as a medicine, but often dangerous." These drugs were sold throughout the United States at high prices. [Footnote: Report of Select Committee on the Importation of Drugs. House Reports, Thirtieth Congress, First Session, 1847-48, Report No. 664:9. In a previous chapter, other extracts from this report have been given showing in detail what many of these fraudulent practices were.] There is not a single record of any criminal action pressed against those who profited from selling this poisonous stuff.

The manufacture and sale of patent medicines were attended with the grossest frauds. At that time, to a much greater extent than now, the newspapers profited more (comparatively) from the publication of patent medicine advertis.e.m.e.nts; and even after a Congressional committee had fully investigated and exposed the nature of these nostrums, the newspapers continued publis.h.i.+ng the alluring and fraudulent advertis.e.m.e.nts.

After showing at great length the deceptive and dangerous ingredients used in a large number of patent medicines, the Committee on the Judiciary of the House of Representatives went on in its report of February 6, 1849: "The public prints, without exception, published these promises and commendations. The annual [advertising] fee for publis.h.i.+ng Brandeth's pills has amounted to $100,000. Morrison paid more than twice as much for the advertis.e.m.e.nt of his never-dying hygiene." The committee described how Morrison's nostrums often contained powerful poisons, and then continued: "Morrison is forgotten, and Brandeth is on the high road to the same distinction.

T. W. Conway, from the lowest obscurity, became worth millions from the sale of his nostrums, and rode in triumph through the streets of Boston in his coach and six. A stable boy in New York was enrolled among the wealthiest in Philadelphia by the sale of a panacea which contains both mercury and a.r.s.enic. Innumerable similar cases can be adduced." [Footnote: Report No. 52. Reports of Committees, Thirtieth Congress, Second Sess., i: 31.] Not a few multimillionaire families of to-day derive their wealth from the enormous profits made by their fathers and grandfathers from the manufacture and sale of these poisonous medicines.

SUCCESS AS GOULD LEARNED IT.

The frauds among merchants and manufacturers reached far more comprehensive and permeating proportions. In periods of peace these fraudulent methods were nauseating enough, but in times of war they were inexpressibly repellant and ghastly. During the Mexican War the Northern shoe manufacturers dumped upon the army shoes which were of so inferior a make that they could not be sold in the private market, and these shoes were found to be so absolutely worthless that it is on record that the American army in Mexico threw them away upon the sands in disgust. But it was during the Civil War that Northern capitalists of every kind coined fortunes from the national disasters, and from the blood of the very armies fighting for their interests shown how Commodore Vanderbilt and other s.h.i.+pping merchants fraudulently sold or leased to the Government for exorbitant sums, s.h.i.+ps for the transportation of soldiers--s.h.i.+ps so decayed or otherwise unseaworthy, that they had to be condemned. In those chapters such facts were given as applied mainly to Vanderbilt; in truth, however, they const.i.tuted but a mere part of the gory narrative. While Vanderbilt, as the Government agent, was leasing or buying rotten s.h.i.+ps, and making millions of dollars in loot by collusion, the most conspicuous and respectable s.h.i.+pping merchants of the time were unloading their old hulks upon the Government at extortionate prices.

One of the most ultra-respectable merchants of the time, ranked of high commercial standing and austere social prestige, was, for instance, Marshall O. Roberts. This was the identical Roberts so deeply involved in the great mail-subsidy frauds. This was also the same sanctimonious Roberts, who, as has been brought out in the chapters on the Astor fortune, joined with John Jacob Astor and others in signing a testimonial certifying to the honesty of the Tweed Regime. A select Congressional committee, inquiring into Government contracts in 1862-63, brought forth volumes of facts that amazed and sickened a committee accustomed to ordinary political corruption. Here is a sample of the testimony: Samuel Churchman, a Government vessel expert engaged by Welles, Secretary of the Navy, told in detail how Roberts and other merchants and capitalists had contrived to palm off rotten s.h.i.+ps on the Government; and, in his further examination on January 3, 1863, Churchman was asked:

Q. Did Roberts sell or chatter any other boats to the Government?

A. Yes, sir. He sold the Winfield Scott and the Union to the Government.

Q. For how much?

A. One hundred thousand dollars each, and one was totally lost and the other condemned a few days after they went to sea. [Footnote: Report of Select Committee to Inquire into Government Contracts, House Reports, Thirty-seventh Congress, Third Session, 1862-63, Report No. 49:95.]

In the course of later inquiries in the same examination, Churchman testified that the Government had been cheated out of at least $25,000,000 in the chartering and purchase of vessels, and that he based his judgment upon "the chartered and purchased vessels I am acquainted with, and the enormous sums wasted there to my certain knowledge." [Footnote: Ibid, 95-97.] This $25,000,000 swindled from the Government in that one item of s.h.i.+ps alone formed the basis of many a present plutocratic fortune.

FRAUD UNDERLIES RESPECTABILITY.

But this was not by any means the only schooling Gould received from the respectable business element. It can be said advisedly that there was not a single avenue of business in which the most shameless frauds were not committed upon both Government and people. The importers and manufacturers of arms scoured Europe to buy up worthless arms, and then cheated the Government out of millions of dollars in supplying those guns and other ordnance, all notoriously unfit for use. "A large proportion of our troops," reported a Congressional Commission in 1862, "are armed with guns of very inferior quality, and tens of thousands of the refuse arms of Europe are at this moment in our a.r.s.enals, and thousands more are still to arrive, all unfit." [Footnote: House Reports of Committees, Thirty- seventh Congress, Second Session, 1861-62, vol. ii, Report No. 2: lxxix.] A Congressional committee appointed, in 1862, to inquire into the connection between Government employees on the one hand, and banks and contractors on the other, established the fact conclusively, that the contractors regularly bribed Government inspectors in order to have their spurious wares accepted. [Footnote: House Reports of Committees, Thirty-seventh Congress, 1862-63, Report No. 64. The Chairman of this committee, Representative C. H. Van Wyck, of New York, in reporting to the House of Representatives on February 23, 1863, made these opening remarks:

"In the early history of the war, it was claimed that frauds and peculations were unavoidable; that the cupidity of the avaricious would take advantage of the necessities of the nation, and for a time must revel and grow rich amidst the groans and griefs of the people; that pressing wants must yield to the extortion of the base; that when the capital was threatened, railroad communication cut off, the most exorbitant prices could safely be demanded for steam and sailing vessels; that when our a.r.s.enals had been robbed of arms, gold could not be weighed against cannon and muskets; that the Government must be excused if it suffered itself to be overreached. Yet, after the lapse of two years, we find the same system of extortion prevailing, and robbery has grown more unblus.h.i.+ng in its exactions as it feels secure in its immunity from punishment, and that species of fraud which shocked the nation in the spring of 1861 has been increasing.

The fitting out of each expedition by water as well as land is but a refinement upon the extortion and immense profits which preceded it.

The freedom from punishment by which the first greedy and rapacious horde were suffered to run at large with ill-gotten gains seems to have demoralized too many of those who deal with the Government."-- Appendix to The Congressional Globe, Third Session, Thirty-seventh Congress, 1862-63, Part ii: 117.]

In fact, the ramifications of the prevalent frauds were so extensive that a number of Congressional committees had to be appointed at the same time to carry on an adequate investigation; and even after long inquiries, it was admitted that but the surface had been scratched.

During the Civil War, prominent merchants, with eloquent outbursts of patriotism, formed union defense committees in various Northern cities, and solicited contributions of money and commodities to carry on the war. It was disclosed before the Congressional investigating committees that not only did the leading members of these union defense committees turn their patriotism to thrifty account in getting contracts, but that they engaged in great swindles upon the Government in the process. Thus, Marcellus Hartley, a conspicuous dealer in military goods, and the founder of a multimillionaire fortune, [Footnote: When Marcellus Hartley died in 1902, his personal property alone was appraised at $11,000,000. His entire fortune was said to approximate $50,000,000. His chief heir, Marcellus Hartley Dodge, a grandson, married, in 1907, Edith Geraldine Rockefeller, one of the richest heiresses in the world. Hartley was the princ.i.p.al owner of large cartridge, gun and other factories.] admitted that he had sold a large consignment of Hall's carbines to a member of the New York Union Defense Committee. In a sudden burst of contrition he went on, "I think the worst thing this Government has been swindled upon has been these confounded Hall's carbines; they have been elevated in price to $22.50, I think." [Footnote: House Report No.2, etc., 1861-62, vol. ii: 200-204] He could have accurately added that these carbines were absolutely dangerous; it was found that their mechanism was so faulty that they would shoot off the thumbs of the very soldiers using them. Hartley was one of the importers who brought over the refuse arms of Europe, and sold them to the Government at extortionate prices. He owned up to having contracts with various of the States (as distinguished from the National Government) for $600,000 worth of these worthless arms. [Footnote: Ibid.] That corruscating patriot and philanthropic multimillionaire of these present times, J. Pierpont Morgan, was, as we shall see, profiting during the Civil War from the sale of Hall's carbines to the Government.

One of the Congressional committees, investigating contracts for other army material and provisions, found the fullest evidences of gigantic frauds. Exorbitant prices were extorted for tents "which were valueless"; these tents, it appeared, were made from cheap or old "farmers'" drill, regarded by the trade as "truck." Soldiers testified that they "could better keep dry out of them than under."

[Footnote: House Report No. 64, etc., 1862-63: 6.] Great frauds were perpetrated in pa.s.sing goods into the a.r.s.enals. One manufacturer in particular, Charles C. Roberts, was awarded a contract for 50,000 haversacks and 50,000 knapsacks. "Every one of these," an expert testified, "was a fraud upon the Government, for they were not linen; they were shoddy." [Footnote: Ibid.] A Congressional committee found that the provisions supplied by contractors were either deleterious or useless. Captain Beckwith, a commissary of subsistence, testified that the coffee was "absolutely good for nothing and is worthless. It is of no use to the Government."

Q. Is the coffee at all merchantable?

A. It is not.

Q. Describe that coffee as nearly as you can.

A. It seems to be a compound of roasted peas, of licorice, and a variety of other substances, with just coffee enough to give it a taste and aroma of coffee. [Footnote: House Report No. 2, etc. 1861- 62, ii: 1459.]

This committee extracted much further evidence showing how all other varieties of provisions were of the very worst quality, and how "rotten and condemned blankets" in enormous quant.i.ties were pa.s.sed into the army by bribing the inspectors. It disclosed, at great length, how the railroads in their schedule of freight rates were extorting from the Government fifty per cent. more than from private parties. [Footnote: House Report No. 2, etc., 1861-62, xxix.] Don Cameron, leader of the corrupt Pennsylvania political machine, and a railroad manipulator, [Footnote: He had been involved in at least one scandal investigated by a Pennsylvania Legislative Committee, and also in several dubious railroad transactions in Maryland.] was at that time Secretary of War. Whom did he appoint as the supreme official in charge of railroad transportation? None other than Thomas A. Scott, the vice-president of the Pennsylvania Railroad. Scott, it may be said, was another capitalist whose work has so often been fulsomely described as being that of "a remarkable constructive ability." The ability he displayed during the Civil War was unmistakable. With his collusion the railroads extorted right and left. The committee described how the profits of the railroads after his appointment rose fully fifty per cent in one year, and how quartermasters and others were bribed to obtain the transportation of regiments. "This," stated the committee, "ill.u.s.trates the immense and unnecessary profits which was spirited from the Government and secured to the railroads by the schedule fixed by the vice-president of the Pennsylvania Central under the auspices of Mr. Cameron."

[Footnote: House Report No. 2, etc., 1861-62, xix. The Pennsylvania Railroad, for example, made in 1862 the sum of $1,350,237.79 more in profits than it did in the preceding year.]

These many millions of dollars extorted in frauds "came," reported the committee, "out of the impoverished and depleted Treasury of the United States, at a time when her every energy and resources were taxed to the utmost to maintain the war." [Footnote: Ibid., 4.]

These are but a few facts of the glaring fraud and corruption prevailing in every line of mercantile and financial business. Great and audacious as Gould's thefts were later, they could not be put on the same indescribably low plane as those committed during the Civil War by men most of whom succeeded in becoming noted for their fine respectability and "solid fortunes." So many momentous events were taking place during the Civil War, that amid all the preparations, the battles and excitement, those frauds did not arouse that general gravity of public attention which, at any other time, would have inevitably resulted. Consequently, the men who perpetrated them contrived to hide under cover of the more absorbing great events of those years. Gould committed his thefts at a period when the public had little else to preoccupy its attention; hence they loomed up in the popular mind as correspondingly large and important.

A SPECIMEN OF GOULD'S TUITION.

At the very dawn of his career in 1857, as a railroad owner, Gould had the opportunity of securing valuable and gratuitous instruction in the ways by which railroad projects and land grants were being bribed through Congress. He was then only twenty-one years old, ready to learn, but, of course, without experience in dealing with legislative bodies. But the older capitalists, veterans at bribing, who for years had been corrupting Congress and the Legislatures, supplied him with the necessary information. Not voluntarily did they do it; their greatest ally was concealment; but one crowd of them had too baldly bribed Congress to vote for an act giving an enormous land grant in Iowa, Minnesota and other states, to the Des Moines Navigation and Railroad Company. The facts unearthed must have been a lasting lesson to Gould as to how things were done in the exalted halls of Congress. The charges made an ugly stir throughout the United States, and the House of Representatives, in self defense, had to appoint a special committee to investigate itself.

This committee made a remarkable and unusual report. Ordinarily in charges of corruption, investigating committees were accustomed to reporting innocently that while it might have been true that corruption was used, yet they could find no evidence that members had received bribes; almost invariably such committees put the blame, and the full measure of their futile excoriations, on "the iniquitous lobbyists." But this particular committee, surprisingly enough, handed in no such flaccid, whitewas.h.i.+ng report. It found conclusively that corrupt combinations of members of Congress did exist; and in recommended the expulsion of four members whom it declared guilty to receiving either money or land in exchange for their votes. One of these four expelled member, Orasmus B. Matteson, it appeared, was a leader of a corrupt combination; the committee branded him as having arranged with the railroad capitalists to use "a large sum of money [$100,000] and other valuable considerations corruptly." [Footnote: Reports of Committees, House of Representatives, Thirty-fourth Congress, Third Session, 1856/57. Report No. 243, Vol. iii. In subsequent chapters many further details are given of the corruption during this period.]

But it was essentially during the Civil War that Gould received his completest tuition in the great art of seizing property and privileges by bribing legislative bodies. While many sections of the capitalist cla.s.s were, as we have seen, swindling manifold hundreds of millions of dollars from a hard-pressed country, and reaping fortunes by exploiting the lives of the very defenders of their interests, other sections, equally mouthy with patriotism, were sneaking through Congress and the Legislatures act after act, further legalizing stupendous thefts.

PATRIOTISM AT FIFTY PER CENT.

Some of these acts, demanded by the banking interests, made the people of the United States pay an almost unbelievable usurious interest for loans. These banking statutes were so worded that nominally the interest did not appear high; in reality, however, by various devices, the bankers, both national and international, were often able to extort from twenty to fifty, and often one hundred per cent., in interest, and this on money which had at some time or somehow been squeezed out of exploited peoples in the United States or elsewhere.

By these laws the bankers were allowed to get annual payment from the Government of six per cent. interest in gold on the Government bonds that they bought. They could then deposit those same bonds with the Government, and issue their own bank notes against ninety per cent.

of the bonds deposited. They drew interest from the Government on the deposited bonds, and at the time charged borrowers an exorbitant rate of interest for the use of the bank notes, which pa.s.sed as currency.

It was by this system of double interest that they were able to sweep into their coffers hundreds upon hundreds of millions of dollars, not a dollar of which did they earn, and all of which were sweated out of the adversities of the people of the United States. From 1863 to 1878 alone the Government paid out to national banks as interest on bonds the enormous sum of $252,837,556.77. [Footnote: House Doc.u.ments, Forty-fifth Congress, Second Session, Ex. Doc.u.ment No. 34, Vol. xiv., containing the reply of Secretary of the Treasury Sherman, in answer to a resolution of the House of Representatives.] On the other hand, the banks were entirely relieved from paying taxes; they secured the pa.s.sage of a law exempting Government bonds from taxation. Armies were being slaughtered and legions of homes desolated, but it was a rich and safe time for the bankers; a very common occurrence was it for banks to declare dividends of twenty, forty, and sometimes one hundred, per cent.

It was also during the stress of this Civil War period, when the working and professional population of the nation was fighting on the battlefield, or being taxed heavily to support their brothers in arms, that the capitalists who later turned up as owners of various Pacific railroad lines were bribing through Congress acts giving them the most comprehensive perpetual privileges and great grants of money and of land.

Gould saw how all of the others of the wealth seekers were getting their fortunes; and the methods that he now plunged into use were but in keeping with theirs, a little bolder and more brutally frank, perhaps, but nevertheless nothing more than a repet.i.tion of what had long been going on in the entire sphere of capitalism.

CHAPTER X

THE SECOND STAGE OF THE GOULD FORTUNE

The first medium by which Jay Gould transferred many millions of dollars to his owners.h.i.+p was by his looting and wrecking of the Erie Railroad. If physical appearance were to be accepted as a gauge of capacity none would suspect that Gould contained the elements of one of the boldest and ablest financial marauders that the system in force had as yet produced. About five feet six inches in height and of slender figure, he gave the random impression of being a mild, meek man, characterized by excessive timidity. His complexion was swarthy and partly hidden by closely-trimmed black whiskers; his eyes were dark, vulpine and acutely piercing; his forehead was high. His voice was very low, soft and insinuating.

PRIVATE CONFISCATION OF THE ERIE RAILROAD.

The Erie Railroad, running from New York City to Buffalo and thence westward to Chicago, was started in 1832. In New York State alone, irrespective of gifts in other States, it received what was virtually a gift of $3,000,000 of State funds, and $3,217,000 interest, making $6,217,000 in all. Counties, munic.i.p.alities and towns through which it pa.s.sed were prevailed upon to contribute freely donations of money, lands and rights. From private proprietors in New York State it obtained presents of land then valued at from $400,000 to $500,000, [Footnote: Report on the New York and Erie Railroad Company, New York State a.s.sembly Doc.u.ment, No. 50, 1842. See also, Investigation of the Railroads of the State of New York, 1879, I: 100.] but now worth tens of millions of dollars. In addition, an extraordinary series of special privileges and franchises was given to it. This process was manifolded in every State through which the railroad pa.s.sed. The cost of construction and equipment came almost wholly from the grants of public funds. [Footnote: "The Erie railway was built by the citizens of this State with money furnished by its people. The State in its sovereign capacity gave the corporation $3,000,000. The line was subsequently captured, or we may say stolen, by the fraudulent issue of more than $50,000,000 of stock." ... "An a.n.a.lysis of the Erie Reorganization bill, etc., submitted to the Legislature by John Livingston, Esq., counsel for the Erie Railway Shareholders, 1876."]

Confiding in the fair promises of its projectors, the people credulously supposed that their interests would be safeguarded. But from time to time, Legislature after Legislature was corrupted or induced to enact stealthy acts by which the railroad was permitted to pa.s.s without restriction into the possession of a small clique of exploiters and speculators. Not only were the people cheated out of funds raised by public taxation and advanced to build the road--a common occurrence in the case of most railroads--but this very money was claimed by the capitalist owners as private capital, large amounts of bonds and stocks were issued against it, and the producers were a.s.sessed in the form of high freight and pa.s.senger rates to pay the necessary interest and dividends on those spurious issues.