Great Fortunes from Railroads

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HISTORY OF THE GREAT AMERICAN FORTUNES

BY GUSTAVUS MYERS

AUTHOR OF "THE HISTORY OF TAMMANY HALL," "HISTORY OF PUBLIC
FRANCHISES IN NEW YORK CITY," ETC.

VOL. II

GREAT FORTUNES FROM RAILROADS

I. THE SEIZURE OF THE PUBLIC DOMAIN

II. A NECESSARY CONTRAST

III. THE BEGINNINGS OF THE VANDERBILT FORTUNE

IV. THE ONRUSH OF THE VANDERBILT FORTUNE

V. THE VANDERBILT FORTUNE INCREASES MANIFOLD

VI. THE ENTAILING OF THE VANDERBILT FORTUNE

VII. THE VANDERBILT FORTUNE IN THE PRESENT GENERATION

VIII. FURTHER ASPECTS OF THE VANDERBILT FORTUNE

IX. THE RISE OR THE GOULD FORTUNE

X. THE SECOND STAGE OF THE GOULD FORTUNE

XI. THE GOULD FORTUNE BOUNDS FORWARD

XII. THE GOULD FORTUNE AND SOME ANTECEDENT FACTORS

XIII. FURTHER ASPECTS OF THE VANDERBILT FORTUNE 260

PART III

THE GREAT FORTUNES FROM RAILROADS

CHAPTER I

THE SEIZURE OF THE PUBLIC DOMAIN

Before setting out to relate in detail the narrative of the amassing
of the great individual fortunes from railroads, it is advisable to
present a preliminary survey of the concatenating circumstances
leading up to the time when these vast fortunes were rolled together.
Without this explanation, this work would be deficient in clarity,
and would leave unelucidated many important points, the absence of
which might puzzle or vex the reader.

Although industrial establishments, as exemplified by mills,
factories and shops, much preceded the construction of railroads, yet
the next great group of fortunes to develop after, and along with,
those from land were the fortunes plucked from the control and
manipulation of railroad systems.

THE LAGGING FACTORY FORTUNES.

Under the first stages of the old chaotic competitive system, in
which factory warred against factory, and an intense struggle for
survival and ascendency enveloped the whole tense sphere of
manufacturing, no striking industrial fortunes were made.

Fortunate was that factory owner regarded who could claim $250,000
clear. All of those modern and complex factors offering such
unbounded opportunities for gathering in spoils mounting into the
hundreds of millions of dollars, were either unknown or in an
inchoate or rudimentary state. Invention, if we may put it so, was
just blossoming forth. Hand labor was largely prevalent. Huge
combinations were undreamed of; paper capitalization as embodied in
the fictitious issues of immense quantities of bonds and stocks was
not yet a part of the devices of the factory owner, although it was a
fixed plan of the bankers and insurance companies.

The factory owner was the supreme type of that sheer individualism
which had burst forth from the restraints of feudalism. He stood
alone fighting his commercial contests with persistent personal
doggedness. Beneath his occasional benevolence and his religious
professions was a wild ardor in the checkmating or bankruptcy of his
competitors. These were his enemies; he fought them with every
mercantile weapon, and they him; and none gave quarter.

Apart from the destructive character of this incessant warfare,
dooming many of the combatants, other intervening factors had the
tendency of holding back the factory owners' quick progress--
obstacles and drawbacks copiously described in later and more
appropriate parts of this work.

MIGHT OF THE RAILROAD OWNERS.

In contrast to the slow, almost creeping pace of the factory owners
in the race for wealth, the railroad owners sprang at once into the
lists of mighty wealth-possessers, armed with the most comprehensive
and puissant powers and privileges, and vested with a sweep of
properties beside which those of the petty industrial bosses were
puny. Railroad owners, we say; the distinction is necessary between
the builders of the railroads and the owners. The one might
construct, but it often happened that by means of cunning, fraud and
corruption, the builders were superseded by another set of men who
vaulted into possession.

Looking back and summing up the course of events for a series of
years, it may be said that there was created over night a number of
entities empowered with extraordinary and far-reaching rights and
powers of ownership.

These entities were called corporations, and were called into being
by law. Beginning as creatures of law, the very rights, privileges
and properties obtained by means of law, soon enabled them to become
the dictators and masters of law. The title was in the corporation,
not in the individual; hence the men who controlled the corporation
swayed the substance of power and ownership. The factory was usually
a personal affair, owned by one man or in co-partnership; to get
control of this property it was necessary to get the owner in a
financial corner and force him to sell out, for, as a rule, he had no
bond or stock issues. But the railroad corporation was a stock
corporation; whoever secured control of a majority of the stock
became the legal administrator of its policies and property. By
adroit manipulation, intimidation, superior knavery, and the corrupt
domination of law, it was always easy for those who understood the
science of rigging the stock market, and that of strategic
undermining, to wrest the control away from weak, or (treating the
word in a commercial sense) incompetent, holders. This has been long
shown by a succession of examples.

THE LEGALIZING OF CUNNING

Thus this situation, so singularly conflicting with the theoretical
majesty of the law, was frequently presented: A band of men styling
themselves a corporation received a perpetual charter with the most
sweeping rights and properties. In turn, the law interposed no
effective hindrance to the seizing of their possessions by any other
group proving its power to grasp them. All of this was done under
nominal forms of law, but differed little in reality from the methods
during medieval times when any baron could take another baron's
castle and land by armed force, and it remained his until a stronger
man came along and proved his title likewise.

Long before the railroad had been accepted commercially as a feasible
undertaking, the trading and land-owning classes, as has been
repeatedly pointed out, had demonstrated very successfully how the
forms of government could be perverted to enrich themselves at the
expense of the working population.

Taxation laws, as we have seen, were so devised that the burden in a
direct way fell lightly on the shipping, manufacturing, trading,
banking and land-owning classes, while indirectly it was shoved
almost wholly upon the workers, whether in shop, factory or on farm.
Furthermore, the constant response of Government, municipal, State
and National, to property interests, has been touched upon; how
Government loaned vast sums of public money, free of interest, to the
traders, while at the same time refusing to assist the impoverished
and destitute; how it granted immunity from punishment to the rich
and powerful, and inflicted the most drastic penalties upon poor
debtors and penniless violators of the law; how it allowed the
possessing classes to evade taxation on a large scale, and effected
summarily cruel laws permitting landlords to evict tenants for non-
payment of rent. These and many other partial and grievously
discriminative laws have been referred to, as also the refusal of
Government to interfere in the slightest with the commercial frauds
and impositions constantly practiced, with all their resulting great
extortions, upon the defenceless masses.

Of the long-prevailing frauds on the part of the capitalists in
acquiring large tracts of public land, some significant facts have
been brought out in preceding chapters. Those facts, however, are only
a few of a mass. When the United States Government was organized, most
of the land in the North and East was already expropriated. But
immense areas of public domain still remained in the South and in the
Middle West. Over much of the former Colonial land the various
legislatures claimed jurisdiction, until, one after another, they
ceded it to the National Government. With the Louisiana purchase, in
1805, the area of public domain was enormously extended, and
consecutively so later after the Mexican war.

THE LAND LAWS AGAINST THE POOR

From the very beginning of the government, the land laws were
arranged to discriminate against the poor settler. Instead of laws
providing simple and inexpensive ways for the poor to get land, the
laws were distorted into a highly effective mechanism by which
companies of capitalists, and individual capitalists, secured vast
tracts for trivial sums. These capitalists then either held the land,
or forced settlers to pay exorbitant prices for comparatively small
plots. No laws were in existence compelling the purchaser to be a
_bona fide_ settler. Absentee landlordism was the rule. The
capitalist companies were largely composed of Northern, Eastern and
Southern traders and bankers. The evidence shows that they employed
bribery and corruption on a great scale, either in getting favorable
laws passed, or in evading such laws as were on the statute books by
means of the systematic purchase of the connivance of Land Office
officials.

By act of Congress, passed on April 21, 1792, the Ohio Land Company,
for example, received 100,000 acres, and in the same year it bought
892,900 acres for $642,856.66. But this sum was not paid in money.
The bankers and traders composing the company had purchased, at a
heavy discount, certificates of public debt and army land warrants,
and were allowed to tender these as payment. [Footnote: U. S. Senate
Executive Documents, Second Session, Nineteenth Congress, Doc. No.
63.] The company then leisurely disposed of its land to settlers at
an enormous profit. Nearly all of the land companies had banking
adjuncts. The poor settler, in order to settle on land that a short
time previously had been national property, was first compelled to
pay the land company an extortionate price, and then was forced to
borrow the money from the banking adjuncts, and give a heavy
mortgage, bearing heavy interest, on the land. [Footnote: U. S.
Senate Documents, First Session, Twenty-fourth Congress, 1835-36,
Doc. No. 216: 16.] The land companies always took care to select the
very best lands. The Government documents of the time are full of
remonstrances from legislatures and individuals complaining of these
seizures, under form of law, of the most valuable areas. The tracts
thus appropriated comprised timber and mineral, as well as
agricultural, land.

VAST TRACTS SECURED BY BRIBERY.

One of the most scandalous land-company transactions was that
involving a group of Southern and Boston capitalists. In January,
1795, the Georgia Legislature, by special act, sold millions of acres
in different parts of the State of Georgia to four land companies.
The people of the State were convinced that this purchase had been
obtained by bribery. It was made an election issue, and a
Legislature, comprising almost wholly new members, was elected. In
February, 1796, this Legislature passed a rescinding act, declaring
the act of the preceding year void, on the ground of its having been
obtained by "improper influence." In 1803 the tracts in question were
transferred by the Georgia Legislature to the United States
Government.

The Georgia Mississippi Land Company was one of the four companies.
In the meantime, this company had sold its tract, for ten cents an
acre, to the New England Mississippi Land Company. Although committee
after committee of Congress reported that the New England Mississippi
Land Company had paid little or no actual part of the purchase price,
yet that company, headed by some of the foremost Boston capitalists,
lobbied in Congress for eleven years for an act giving it a large
indemnity. Finally, in 1814, Congress passed an indemnification act,
under which the eminent Bostonians, after ten years more lobbying,
succeeded in getting an award from the United States Treasury of
$1,077,561.73. The total amount appropriated by Congress on the
pretense of settling the claims of the various capitalists in the
"Yazoo Claims" was $1,500,000. [Footnote: Senate Documents,
Eighteenth Congress, Second Session, 1824-25, Vol. ii, Doc. No. 14,
and Senate Documents, Twenty-fourth Congress, 1836-37, Vol. ii, No.
212. After the grants were secured, the companies attempted to
swindle the State of Georgia by making payments in depreciated
currency. Georgia refused to accept it. When the grant was rescinded,
both houses of the Georgia Legislature marched in solemn state to the
Capitol front and burned the deed.] The ground upon which this
appropriation was made by Congress was that the Supreme Court of the
United States had decided that, irrespective of the methods used to
obtain the grant from the Georgia Legislature, the grant, once made,
was in the nature of a contract which could not be revoked or
impaired by subsequent legislation. This was the first of a long line
of court decisions validating grants and franchises of all kinds
secured by bribery and fraud.

It was probably the scandal arising from the bribery of the Georgia
Legislature that caused popular ferment, and crystallized a demand
for altered laws. In 1796 Congress declared its intention to abandon
the prevailing system of selling millions of acres to companies or
individuals. The new system, it announced, was to be one adapted to
the interests of both capitalist and poor man. Land was thereafter to
be sold in small quantities on credit. Could the mechanic or farmer
demand a better law? Did it not hold out the opportunity to the
poorest to get land for which payment could be gradually made?

But this law worked even better to the advantage of the capitalist
class than the old. By bribing the land officials the capitalists
were able to cause the choicest lands to be fraudulently withheld,
and entered by dummies. In this way, vast tracts were acquired.
Apparently the land entries were made by a large number of intending
settlers, but these were merely the intermediaries by which
capitalists secured great tracts in the form of many small
allotments. Having obtained the best lands, the capitalists then
often held them until they were in demand, and forced actual settlers
to pay heavily for them. During all of this time the capitalists
themselves held the land "on credit." Some of them eventually paid
for the lands out of the profits made from the settlers, but a great
number of the purchasers cheated the Government almost entirely out
of what they owed. [Footnote: On Sept. 30, 1822, "credit purchasers"
owed the Government: In Ohio, $1,260,870.87; in Indiana,
$1,212,815.28; in Illinois, $841,302.80; in Missouri, $734,108.87; in
Alabama, $5,760,728.01; in Mississippi, $684,093.50; and in Michigan,
$50,584.82--a total of nearly $10,550,000. (Executive Reports, First
Session, Eighteenth Congress, 1824, Report No. 61.) Most of these
creditors were capitalist land speculators.]

The capitalists of the period contrived to use the land laws wholly
to their own advantage and profit. In 1824, the Illinois Legislature
memorialized Congress to change the existing laws. Under them, it
recited, the best selections of land had been made by non-resident
speculators, and it called upon Congress to pass a law providing for
selling the remaining lands at fifty cents an acre. [Footnote: U. S.
Senate Documents, Second Session, Eighteenth Congress, 1824-25, Vol.
ii, Doc. No. 25.] Other legislatures petitioned similarly. Yet,
notwithstanding the fact that United States officials and committees
of Congress were continually unearthing great frauds, no real change
for the benefit of the poor settler was made.

GREAT EXTENT OF THE LAND FRAUDS.

The land frauds were great and incessant. In a long report, the
United States Senate Committee on Public Lands, reporting on June 20,
1834, declared that the evidence it had taken established the fact
that in Ohio and elsewhere, combinations of capitalist speculators,
at the public sales of lands, had united for the purpose of driving
other purchasers out of the market and in deterring poor men from
bidding. The committee detailed how these companies and individuals
had fraudulently bought large tracts of land at $1.25 an acre, and
sold the land later at exorbitant prices. It showed how, in order to
accomplish these frauds, they had bought up United States Land Office
Registers and Receivers. [Footnote 8: U. S. Senate Documents, First
Session, Twenty-third Congress, 1833-34, Vol. vi, Doc. No. 461:1-91.]

Another exhaustive report was handed in by the United States Senate
Committee on Lands, on March 3, 1835. Many of the speculators, it
said, filled high offices in States where public lands bought by them
were located; others were people of "wealth and intelligence." All of
them "naturally united to render this investigation odious among the
people." The committee told how an attempt had been made to
assassinate one of its members. "The first step," it set forth,
"necessary to the success of every scheme of speculation in the
public lands, is to corrupt the land officers, by a secret
understanding between the parties that they are to receive a certain
portion of the profits." [Footnote: U. S. Senate Documents, Second
Session, Twenty-third Congress, Vol. iv, Doc. No. 151: 2.] The
committee continued:

The States of Alabama, Mississippi and Louisiana have been the
principal theatre of speculations and frauds in buying up the public
lands, and dividing the most enormous profits between the members of
the different companies and speculators. The committee refers to the
depositions of numerous respectable witnesses to attest the various
ramifications of these speculations and frauds, and the means by
which they have been carried into effect.... [Footnote: Ibid., 3]

Describing the great frauds in Louisiana, Benjamin F. Linton, U. S.
District Attorney for the Western District of Louisiana, wrote, on
August 25, 1835, to President Jackson: "Governments, like
corporations, are considered without souls, and according to the code
of some people's morality, should be swindled and cheated on every
occasion." Linton gave this picture of "a notorious speculator who
has an immense extent of claims":

He could be seen followed to and from the land office by crowds of
free negroes, Indians and Spaniards, and the very lowest dregs of
society, in the counties of Opelousas and Rapides, with their
affidavits already prepared by himself, and sworn to before some
justice of the peace in some remote county. These claims, to an
immense extent, are presented and allowed. And upon what evidence?
Simply upon the evidence of the parties themselves who desire to make
the entry! [Footnote: U. S. Senate Documents, Second Session, Twenty-
fourth Congress, 1836-37, Vol. ii, Doc. No. 168: 5.]

The "credit" system was gradually abandoned by the Government, but
the auction system was retained for decades. In 1847, the Government
was still selling large tracts at $1.25 an acre, nominally to
settlers, actually to capitalist speculators or investors. More than
two million acres had been sold every year for a long period. The
House Committee on Public Lands, reporting in 1847, disclosed how
most of the lands were bought up by capitalists. It cited the case of
the Milwaukee district where, although 6,441 land entries had been
made, there were only forty actual settlers up to 1847. "This clearly
shows," the committee stated, "that those who claimed the land as
settlers, are either the tools of speculators, to sequester the best
lands for them... or the claim is made on speculation to sell out."
[Footnote: Reports of Committees, First Session, Thirtieth Congress,
1847-48, Vol. iii, Report No. 732:6.]

The policy of granting enormous tracts of land to corporations was
revived for the benefit of canal and railroad companies. The first
railroad company to get a land grant from Congress was the Illinois
Central, in 1850. It received as a gift 2,595,053 acres of land in
Illinois. Actual settlers had to pay the company from $5 to $15 an
acre.

Large areas of land bought from the Indian tribes by the Government,
almost at once became the property of canal or railroad corporations
by the process of Government grants. A Congressional document in 1840
(Senate Document No. 616) made public the fact that from the
establishment of the Federal Government to 1839, the Indian tribes
had ceded to the Government a total of 442,866,370 acres. The Indian
tribes were paid either by grants of land elsewhere, or in money and
merchandise. For those 442,866,370 acres they received exchange land
valued at $53,757,400, and money and merchandise amounting to
$31,331,403.

THE SWAYING OF GOVERNMENT.

The trading, banking and landed class had learned well the old, all-
important policy of having a Government fully susceptible to their
interests, whether the governing officials were put in office by
them, and were saturated with their interests, views and ideals, or
whether corruption had to be resorted to in order to attain their
objects. At all events, the propertied classes, in the main, secured
what they wanted. And, as fast as their interests changed, so did the
acts and dicta of Government change.

While the political economists were busy promulgating the doctrine
that it was not the province of Government to embark in any
enterprise other than that of purely governing--a doctrine precisely
suiting the traders and borrowed from their demands--the commercial
classes, early in the nineteenth century, suddenly discovered that
there was an exception. They wanted canals built; and as they had not
sufficient funds for the purpose, and did not see any immediate
profit for themselves, they clamored for the building of them by the
States. In fine, they found that it was to their interest to have the
States put through canal projects on the ground that these would
"stimulate trade." The canals were built, but the commercial classes
in some instances made the blunder of allowing the ownership to rest
in the people.

Never again was this mistake repeated. If it proved so easy to get
legislatures and Congress to appropriate millions of the public funds
for undertakings profitable to commerce, why would it not be equally
simple to secure the appropriation plus the perpetual title? Why be
satisfied with one portion, when the whole was within reach?

True, the popular vote was to be reckoned with; it was a time when
the people scanned the tax levy with far greater scrutiny than now;
and they were not disposed to put up the public funds only that
private individuals might reap the exclusive benefit. But there was a
way of tricking and circumventing the electorate. The trading and
land-owning classes knew its effectiveness. It was they who had
utilized it; who from the year 1795 on had bribed legislatures and
Congress to give them bank and other charters. Bribery had proved a
signal success. The performance was extended on a much wider scale,
with far greater results, and with an adroitness revealing that the
capitalist class had learned much by experience, not only in reaching
out for powers that the previous generation would not have dared to
grant, but in being able to make plastic to its own purposes the
electorate that believed itself to be the mainspring of political
power.

GRANTS TO CANAL CORPORATIONS.

The first great canal, built in response to the demands of the
commercial class, was the Erie Canal, completed in 1825. This
waterway was constructed at public expense, and was owned by New York
State. The commercial men could succeed in having it managed for
their purposes and profit, and the politicians could often extract
plunder from the successive contracts, but there was no opportunity
or possibility for the exercise of the usual capitalist methods of
fraudulent diversion of land, or of over-capitalization and
exorbitant rates with which to pay dividends on fictitious stock.

Very significantly, from about the very time when the Erie Canal was
finished, the era of the private canal company, financed by the
Government, began. One after another, canal companies came forward to
solicit public funds and land grants. These companies neither had any
capital of their own, nor was capital necessary. The machinery of
Government, both National and State, was used to supply them with
capital.

The Chesapeake and Ohio Canal Company received, up to 1839, the sum
of $2,500,000 in funds appropriated by the United States Government,
and $7,197,000 from the State of Maryland.

In 1824 the United States Government began giving land grants for
canal projects. The customary method was the granting by Congress of
certain areas of land to various States, to be expressly given to
designated canal companies. The States in donating them, sometimes
sold them to the canal companies at the nominal rate of $1.25 an
acre. The commuting of these payments was often obtained later by
corrupt legislation.

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