Essay, Research Paper: Credit Mobilier Scandal

In 1865 the United States had just concluded the Civil War, and plans of reconstruction of the Union were on the minds of every government official as their first priority, or so it seemed (Phillips 108). Everyone that is except Oakes Ames, a manufacturer, capitalist, and an elected member of the thirty-eighth Congress of the second district of Massachusetts (Brazad 251). After the war anything that would boost patriotism was passed by Congress and a transcontinental railroad was an ideal means by which to bind up the wounded Union (Phillips 107). Ames, in a way to get rich quick and get out, joined a corporation, of which he eventually gained full control, called Credit Mobilier (Wheeler 72). Credit Mobilier Corporation was given monetary and land grants from the government in order to complete the transcontinental railroad. The company took part in complex arrangements in which a several of the partners contracted with themselves for the construction of the railroad. As a result of this scandal, Credit Mobilier stocks paid dividends of three-hundred and forty-eight percent in the first year (Hoops 59). The real scandal took place not in the west, but in the House of Representatives, where Oakes Ames "sold"� stock at par value to "where they will do the most good (McPherson 585)."� In the investigation of the Credit Mobilier, only two men suffered disciplinary action from the Judiciary committee. However, many who were involved should have been subject to the same indictment for being involved in one of the greatest financial and political scandal of the 19th century.
Thomas Durant, an ingenious promoter and railroad executive, had originally conjured up Credit Mobilier in 1863 and saw it was an ingenious way of becoming rich. Durant had seen these possibilities while building the Mississippi and Missouri Line a few years earlier (Wheeler 72). Durant was a major supporter and proponent of the transcontinental railroad and was willing to put his wallet in front of his country by taking federal money and leaving as a result of Congress's decision in 1862 (Nevins 255). This decision was to incorporate the Union Pacific Railroad Company to the Central Pacific Railroad, thus connecting the East to the West by a central route from the border of Iowa to the California-Nevada line (Davis 147). Durant and his fellow followers conspired to create just the device they needed. Durant, in March of 1864, took possession of an old company called the Pennsylvania Fiscal Agency and changed its name to Credit Mobilier (Nevins 256). This company was the perfect place from which to operate Durant's plans. The government had chartered the agency to buy and sell railroad bonds as well as empowering the Agency, "To borrow and loan money with the limit upon the resources or without the resources of the company (Hoops 108)."� Soon Oakes and his brother Oliver became involved with Credit Mobilier, bringing with them an additional capital investment of $2.5 million (Nevins 256).
When the railroad was completed to the 100th meridian in 1869, the two brothers split the company into two fractions. Oakes took charge of Credit Mobilier, Oliver took control of the Union Pacific, and Durant was pushed aside and out of the way. In 1869 the railroad was completed (Nevins 256). Oakes interest in the company came from the support of the President Lincoln prior to his assassination. Lincoln advised Ames to take over the Union Pacific construction and transcontinental railroad in which he could gains funds necessary for the completion of the railroad (Wheeler 72).
Credit Mobilier was a company set up by the Union Pacific directors to perform the physical tasks of building the railroad. Railroad promoters in the east usually built their lines by founding such a corporation, then giving it a contract to grade roadbed, dig tunnels, lay track and all the other physical labors. However, Credit Mobilier was unique because promoters of this corporation were also the directors of the construction firm. In effect Credit Mobilier would be doing business with them. Profits were made when Union Pacific would pay inflated construction bills and the inner ring of Credit Mobilier stockholders would pocket the difference between actual and stated costs (Wheeler 72,75).
Both Union Pacific and Central Pacific received large government grants to build the railroad. Each road received a thirty-year loan of government bonds to value twenty seven million dollars (Smith 881). Federal money was needed because of the huge risk in providing capital which was going to build across forbidden terrain, and this kind and amount of money could only be provided by the government (McPherson 585). The first two hundred and twenty-eight miles of track under the Ames contract had been constructed at a per/mile cost of $27,500. The new contract specified a per/mile cost of $43,500. This exorbitant increase carried huge profits as a result of the scandal. With Credit Mobilier using Union Pacific's government authorized stocks and bonds to pay itself twice the cost of building the railway, the chances of congressional investigations increased dramatically (Hoops 108).
On November 21, 1867, Oakes Ames sold one hundred and sixty shares of Credit Mobilier stock at a minimum rate to Senators and Congressmen in fear that his fellow constituents would reject the Union Pacific-Credit Mobilier combination. Ames believed the stock to be worth twice the value he was selling it for and even allowed many to pay for the shares with future dividends (Nevins 256). Congress began to turn the other cheek and offered six thousand four hundred acres of public land and a loan of sixteen to forty-eight thousand dollars per mile depending upon the terrain (Davis 147).
Several months after the stock was given out, Col. H.S. McComb of Delaware and Oakes Ames began to quarrel because McComb alleged that an unfilled subscription entitled him to twenty-five thousand dollars worth of stock, which he should have received. Col. McComb threatened to uncover the scandal if Ames did not give him his stock. Ames, however, did not bend at the threat of blackmail by McComb. Following through with his threats, McComb proceeded to fill out affidavits in a Pennsylvania court in the summer of 1872, alleging Ames's misuse of government money. Along with McComb's affidavits, McComb mailed original letters, providing evidence of the scandal, from Oakes Ames to Congress, to congressman Washbourne (Brazad 252). McComb warned Ames that the letter had been sent and he couldn't stop it. Knowing the corruption would be exposed; the corporation created a board of criminals to retrieve the letter. Thankfully for Ames, the letters were retrieved out of the mail before they could reach their destination, and the scandal was kept in secrecy for a few more months (Smith 882).
Washbourne, the supposed recipient of McComb's letter, was known in the Legislature as the watchdog of the treasury and could sniff out corruption. It was not Washbourne who exposed the scandal, but the thieves exposed themselves in disagreement over whether the Agency headquarters should be located in New York or Boston (Smith 882). In September of 1872, the New York Sun exposed Congressman Ames alleging that he had bribed the entire Congress (Phillips 108).
The scandal was uncovered at the height of the Presidential campaign, and those who had accepted the stock and were up for re-election seemed so panic-stricken that many denied being friends with Ames or the company and let Ames stand alone (Brazad 252). To investigate those involved, the Republican Party appointed a Republican committee and was told to question "all persons who received any of the stock (Smith 883)."� Due to public pressure the hearings were no longer secret and disclosure was given day by day which caught the nation's attention (Brazad 252). Representative Poland led the attack upon Ames with effectiveness. In debate Ames declared that his motive had strictly been patriotic and that he took a large financial risk taking over the company. He continued to say that he wished he never heard of Union Pacific, for at the completion of the railroad, Oakes had lost six million dollars or so he said. One of Poland's counterparts, Jeremiah Wilson of Indiana, led another group to find out if the government had been "defrauded (Brazad 253)."� On account of the national attention, political cartoonists, such as Thomas Nast, had a field day exploiting the scandal and those involved.
The group who accepted stock were both Democrats and Republicans, but more Republicans because their votes were more valuable to the corrupters (Williams 154). Many men confessed to accepting shares but then felt guilty because their actions were improper, and thus returned their shares to Ames (Brazad 253). Four of these men who were involved would become candidates for the nomination of their party to the presidency of the United States. One, (Garfield) became President, and two (Wilson and Colfax) became Vice President of the United States. Four graduates of the Citadel, a Senator and three Congressmen were guilty, as well as nine others who continued on to become Senators (Smith 884). The men induced into taking this stock were some of the most influential men in their respected houses *.
Ames was charged with defrauding the government, but Ames denied this by saying, "Credit Mobilier profits were less than ten million dollars upon seventy million dollars in expenditure."� Ames did not get expelled from Congress but rather the Judiciary committee condemned his actions, and he and James Brooks of New York were censured for offering bribes (Froner 467). James Brooks was the only other Congressman censured, primarily because of his party, Democrat. However, James Brooks was no guiltier than future Vice President Colfax or future President Garfield (Phillips 108).
Unfortunately, Ulysses S. Grant's administration is characterized by scandal because the Credit Mobilier Scandal was exposed early in his Grant's first term (Foner 153). However, by the time Grant took office in 1869, the railroad was complete, Union Pacific was bankrupt, and stripped of what Congress would be a permanent endowment, and Credit Mobilier was out of business having made profits between $33 and $50 million on an original investment of only one million dollars. Those men who escaped the wrath of the Judiciary committee were just as guilty as James Brooks (Hoops 59). Some men who were more involved in the scandal avoided punishment by their party classification.

* Turn to Appendix "A"� to see The New York Sun publication of this event in September 1872
Although tearing apart Congress immediately following the Civil War would probably have been worse for the country's morale, all men involved were guilty of defrauding the government and should have all received equal disciplinary action.
Works Cited
Brazard, Abbe. "Oakes Ames."� Dictionary of American Biography. Vol. I. New York: Charles Scribner and Sons, 1957.
Davis, J.P., Paul Gates. "Union Pacific Railroad."� Dictionary of American History. Vol. II. New York: Charles Scribner and Sons, 1978.
Foner, Eric. Reconstruction of America's Unfinished Revolution. Cambridge: Haper and Row, 1988.
Hoops, Roy. "It Was Bad Last Time Too: The Credit Mobilier Scandal of 1872. " American Heritage. Vol. 42, February/ March 1991. New York: Forbes Inc, 1991.
McPherson, James. Ordeal by Fire. The Civil War and Reconstruction. New York: Alfred D. Knopf, 1983.
Nevins, Allan. "Credit Mobilier. " Dictionary of American History. Vol. II. NewYork: Charles Scribner and Sons, 1978.
Phillips, John L. "Credit Mobilier."� American Heritage. Vol. 10. April, 1969. New York: Forbes Inc, 1969.
Smith, Page. Trial by Fire. Vol. 5. New York: McGraw Hill Brook Company, 1982.
Wheeler, Keith. The Railroads. New York: Time Life Books, 1973.
Williams, T. Harry. "The Politics of Reconstruction."� The Life History of the United States, The Union Restored, 1861 to 1876. New York: Time Life Books, 1967.