Great Fortunes from Railroads

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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, whitewashing 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 class 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 passed 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 Documents,
Forty-fifth Congress, Second Session, Ex. Document 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
passage 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 repetition 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 ownership 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, municipalities and towns through which
it passed 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 Assembly Document, 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 passed. 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
analysis 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
pass 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 assessed in the form of high freight and passenger rates to pay
the necessary interest and dividends on those spurious issues.

THE SPECULATOR, DREW, GETS CONTROL.

Not satisfied with the thefts of public funds, the successive cliques
in control of the Erie Railroad continually plundered its treasury,
and defrauded its stockholders. So little attention was given to
efficient management that shocking catastrophies resulted at frequent
intervals. A time came, however, when the old locomotives, cars and
rails were in such a state of decay, that the replacing of them could
no longer be postponed. To do this money was needed, and the treasury
of the company had been continuously emptied by looting.

The directors finally found a money loaner in Daniel Drew, an uncouth
usurer. He had graduated from being a drover and tavern keeper to
being owner of a line of steamboats plying between New York and
Albany. He then, finally, had become a Wall street banker and broker.
For his loans Drew exacted the usual required security. By 1855 he
had advanced nearly two million dollars--five hundred thousand in
money, the remainder in endorsements. The Erie directors could not
pay up, and the control of the railroad passed into his hands. As
ignorant of railroad management as he was of books, he took no pains
to learn; during the next decade he used the Erie railroad simply as
a gambling means to manipulate the price of its stocks on the Stock
Exchange. In this way he fleeced a large number of dupes decoyed into
speculation out of an aggregate of millions of dollars.

Old Cornelius Vanderbilt looked on with impatience. He foresaw the
immense profits which would accrue to him if he could get control of
the Erie Railroad; how he could give the road a much greater value by
bettering its equipment and service, and how he could put through the
same stock-watering operations that he did in his other transactions.
Tens of millions of dollars would be his, if he could only secure
control. Moreover, the Erie was likely at any time to become a
dangerous competitor of his railroads. Vanderbilt secretly began
buying stock; by 1866 he had obtained enough to get control. Drew and
his dummy directors were ejected, Vanderbilt superseding them with
his own.

* * * * * * *

VANDERBILT OUSTS DREW, THEN RESTORES HIM.

The change was worked with Vanderbilt's habitual brusque rapidity.
Drew apparently was crushed. He had, however, one final resource, and
this he now used with histrionic effect. In tears he went to
Vanderbilt and begged him not to turn out and ruin an old, self-made
man like himself. The appeal struck home. Had the implorer been
anyone else, Vanderbilt would have scoffed. But, at heart, he had a
fondness for the old illiterate drover whose career in so many
respects resembled his own. Tears and pleadings prevailed; in a
moment of sentimental weakness--a weakness which turned out to be
costly--Vanderbilt relented. A bargain was agreed upon by which Drew
was to resume directorship and represent Vanderbilt's interests and
purposes.

Reinstated in the Erie board, Drew successfully pretended for a time
that he was fully subservient. Ostensibly to carry out Vanderbilt's
plans he persuaded that magnate to allow him to bring in as directors
two men whose pliancy, he said, could be depended upon. These were
Jay Gould, demure and ingratiating, and James Fisk, Jr., a portly,
tawdry, pompous voluptuary. In early life Fisk had been a peddler in
Vermont, and afterwards had managed an itinerant circus. Then he had
become a Wall street broker. Keen and suspicious as old Vanderbilt
was, and innately distrustful of both of them, he nevertheless, for
some inexplicable reason, allowed Drew to install Gould and Fisk as
directors. He knew Gould's record, and probably supposed him, as well
as Fisk, handy tools (as was charged) to do his "dirty work" without
question. He put Drew, Gould and Fisk on Erie's executive committee.
In that capacity they could issue stock and bonds, vote improvements,
and generally exercise full authority.

* * * * * * *

DREW, GOULD AND FISK BETRAY VANDERBILT.

At first, they gave every appearance of responding obediently to
Vanderbilt's directions. Believing it to his interest to buy as much
Erie stock as he could, both as a surer guarantee of control, and to
put his own price upon it, Vanderbilt continued purchasing. The trio,
however, had quietly banded to mature a plot by which they would
wrest away Vanderbilt's control.

This was to be done by flooding the market with an extra issue of
bonds which could be converted into stock, and then by running down
the price, and buying in the control themselves. It was a trick that
Drew had successfully worked several years before. At a certain
juncture he was apparently "caught short" in the Stock Exchange, and
seemed ruined. But at the critical moment he had appeared in Wall
street with fifty-eight thousand shares of stock, the existence of
which no one had suspected. These shares had been converted from
bonds containing an obscure clause allowing the conversion. The
projection of this large number of shares into the stock market
caused an immediate and violent decline in the price. By selling
"short"--a Wall street process which we have described elsewhere--
Drew had taken in large sums as speculative winnings.

The same ruse Drew, Gould and Fisk now proceeded to execute on
Vanderbilt. Apparently to provide funds for improving the railroad,
they voted to issue a mass of bonds. Large quantities of these they
turned over to themselves as security for pretended advances of
moneys. These bonds were secretly converted into shares of stock, and
then distributed among brokerage houses of which the three were
members. Vanderbilt, intent upon getting in as much as he could,
bought the stock in unsuspectingly. Then came revelations of the
treachery of the three men, and reports of their intentions to issue
more stock.

Vanderbilt did not hesitate a moment. He hurried to invoke the
judicial assistance of Judge George C. Barnard, of the New York State
Supreme Court. He knew that he could count on Barnard, whom at this
time he corruptly controlled. This judge was an unconcealed tool of
corporate interests and of the plundering Tweed political "ring"; for
his many crimes on the bench he was subsequently impeached.
[Footnote: At his death $1,000,000 in bonds and cash were found among
his effects.] Barnard promptly issued a writ enjoining the Erie
directors from issuing further stock, and ordered them to return to
the Erie treasury one-fourth of that already issued. Furthermore, he
prohibited any more conversion of bonds into stock on the ground that
it was fraudulent.

So pronounced a victory was this considered for Vanderbilt, that the
market price of Erie stock went up thirty points. But the plotters
had a cunning trick in reserve. Pretending to obey Barnard's order,
they had Fisk wrench away the books of stock from a messenger boy
summoned ostensibly to carry them to a deposit place on Pine street.
They innocently disclaimed any knowledge of who the thief was; as for
the messenger boy, he "did not know." These one hundred thousand
shares of stock Drew, Gould and Fisk instantly threw upon the stock
market. No one else had the slightest suspicion that the court order
was being disobeyed. Consequently, Vanderbilt's brokers were busily
buying in this load of stock in million-dollar bunches; other persons
were likewise purchasing. As fast as the checks came in, Drew and his
partners converted them into cash.

GOULD AND HIS PARTNERS FLEE WITH MILLIONS.

It was not until the day's activity was over that Vanderbilt, amazed
and furious, realized that he had been gouged out of $7,000,000.
Other buyers were also cheated out of millions. The old man had been
caught napping; it was this fact which stung him most. However, after
the first paroxysm of frenzied swearing, he hit upon a plan of
action. The very next morning warrants were sworn out for the arrest
of Drew, Fisk and Gould. A hint quickly reached them; they thereupon
fled to Jersey City out of Barnard's jurisdiction, taking their cargo
of loot with them. According to Charles Francis Adams, in his
"Chapters of Erie," one of them bore away in a hackney coach bales
containing $6,000,000 in greenbacks. [Footnote: "Chapters of Erie":
30.] The other two fugitives were loaded down with valises crammed
with bonds and stocks.

Here in more than one sense was an instructive and significant
situation. Vanderbilt, the foremost blackmailer of his time, the
plunderer of the National Treasury during the Civil War, the arch
briber and corruptionist, virtuously invoking the aid of the law on
the ground that he had been swindled! Drew, Gould and Fisk
sardonically jested over it. But joke as they well might over their
having outwitted a man whose own specialty was fraud, they knew that
their position was perilous. Barnard's order had declared their sales
of stock to be fraudulent, and hence outlawed; and, moreover, if they
dared venture back to New York, they were certain, as matters stood,
of instant arrest with the threatened alternative of either
disgorging or of a criminal trial and possibly prison. To themselves
they extenuated their thefts with the comforting and self-sufficient
explanation that they had done to Vanderbilt precisely what he had
done to others, and would have done to them. But it was not with
themselves that the squaring had to be done, but with the machinery
of law; Vanderbilt was exerting every effort to have them imprisoned.

How was this alarming exigency to be met? They speedily found a way
out. While Vanderbilt was thundering in rage, shouting out streaks of
profanity, they calmly went ahead to put into practice a lesson that
he himself had thoroughly taught. He controlled a sufficient number
of judges; why should not they buy up the Legislature, as he had
often done? The strategic plan was suggested of getting the New York
Legislature to pass an act legalizing their fraudulent stock issues.
Had not Vanderbilt and other capitalists often bought up Congress and
Legislatures and common councils? Why not now do the same? They well
knew the approved method of procedure in such matters; an onslaught
of bribing legislators, they reckoned, would bring the desired
result.

GOULD BRIBES THE LEGISLATURE WITH $500,000.

Stuffing $500,000 in his satchel, Gould surreptitiously hurried to
Albany. Detected there and arrested, he was released under heavy bail
which a confederate supplied. He appeared in court in New York City a
few days later, but obtained a postponement of the action. No time
was lost by him. "He assiduously cultivated," says Adams, "a thorough
understanding between himself and the Legislature." In the face of
sinister charges of corruption, the bill legalizing the fraudulent
stock issues was passed. Ineffectually did Vanderbilt bribe the
legislators to defeat it; as fast as they took and kept his money,
Gould debauched them with greater sums. One Senator in particular, as
we have seen, accepted $75,000 from Vanderbilt, and $100,000 from
Gould, and pocketed both amounts.

A brisk scandal naturally ensued. The usual effervescent expedient of
appointing an investigating committee was adopted by the New York
State Senate on April 10, 1868. This committee did not have to
investigate to learn the basic facts; it already knew them. But it
was a customary part of the farce of these investigating bodies to
proceed with a childlike assumption of entire innocence.

Many witnesses were summoned, and much evidence was taken. The
committee reported that, according to Drew's testimony, $500,000 had
been drawn out of the Erie railroad's treasury, ostensibly for
purposes of litigation, and that it was clear "that large sums of
money did come from the treasury of the Erie Railroad Company, which
were expended for some purpose in Albany, for which no vouchers seem
to have been filed in the offices of the company." The committee
further found that "large sums of money were expended for corrupt
purposes by parties interested in legislation concerning railways
during the session of 1868."

But who specifically did the bribing? And who were the legistators
bribed? These facts the committee declared that it did not know. This
investigating sham resulted, as almost always happened in the case of
similar inquisitions, in the culpability being thrown upon certain
lobbyists "who were enriched." These lobbyists were men whose trade
it was to act as go-betweens in corrupting legistators. Gould and
Thompson--the latter an accomplice--testified that they had paid
"Lon" Payn, a lobbyist who subsequently became a powerful Republican
politician, $10,000 "for a few days' services in Albany in advocating
the Erie bill"; and it was further brought out that $100,000 had been
given to the lobbyists Luther Caldwell and Russell F. Hicks, to
influence legislation and also to shape public opinion through the
press. Caldwell, it appeared, received liberal sums from both
Vanderbilt and Gould. [Footnote: Report of the Select Committee of
the New York Senate, appointed April 10, 1868, in Relation to Members
Receiving Money from Railway Companies. Senate Document No. 52,
1869:3-12, and 137, 140-146. ] A subsequent investigation committee
appointed, in 1873, to inquire into other charges, reported that in
one year of 1868 the Erie railroad directors, comprising Drew, Gould,
Fisk and their associates, had spent more than a million dollars for
"extra and legal services," and that it was "their custom from year
to year to spend large sums to control elections and to influence
legislation." [Footnote: Report of the Select Committee of the
Assembly, Assembly Documents, 1873, Doc. No. 98: xix.] [Footnote:
"What the Erie has done," the Committee reported, "other great
corporations are doubtless doing from year to year. Combined as they
are, the power of the great moneyed corporations of this country is a
standing menace to the liberties of the people.

"The railroad lobby flaunts its ill-gotten gains in the faces of our
legislatures, and in all our politics the debasing effect of its
influence is felt" (p. 18).]

Vanderbilt later succeeded in compelling the Erie Railroad to
reimburse him for the sums that he thus corruptly spent in fighting
Drew, Gould and Fisk. [Footnote: Railroad Investigation of the State
of New York, 1879, ii: 1654.]

Their huge thefts having been legalized, Drew, Gould and Fisk
returned to Jersey City. But their path was not yet clear. Vanderbilt
had various civil suits in New York against them; moreover they were
adjudged in contempt of court. Parleying now began. With the severest
threats of what the courts would do if they refused, Vanderbilt
demanded that they buy back the shares of stock that they had
unloaded upon him.

Drew was the first to compromise; Gould and Fisk shortly afterward
followed. They collectively paid Vanderbilt $2,500,000 in cash,
$1,250,000 in securities for fifty thousand Erie shares, and another
million dollars for the privilege of calling upon him for the
remaining fifty thousand shares at any time within four months.
Although this settlement left Vanderbilt out of pocket to the extent
of almost two million dollars, he consented to abandon his suits. The
three now left their lair in Jersey City and transferred the Erie
offices to the Grand Opera House, at Eighth avenue and Twenty-third
street, New York City. In this collision with Vanderbilt, Gould
learned a sharp lesson he thereafter never overlooked; namely, that
it was not sufficient to bribe common councils and legislatures; he,
too, must own his judges. Events showed that he at once began
negotiations.

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