Great Fortunes from Railroads

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One of the methods of defrauding the Government was peculiar. Under
the tariff act there was a heavy duty on imported zinc and lead,
while works of art were admitted free of duty. Phelps, Dodge and
Company had zinc and lead made into Europe into crude Dianas, Venuses
and Mercurys and imported them in that form, claiming exemption from
the customs duty on the ground of their being "works of art."]

THEIR PRESENT WEALTH TRACED TO FRAUD.

From these persistent frauds came, to a large extent, the great
collective and individual wealth of the members of this firm, and of
their successors. It was also by reason of these frauds that Phelps,
Dodge and Company were easily able to outdo competitors. Only
recently, let it be added, they formed themselves into a corporation
with a capital of $50,000,000. With the palpably great revenues from
their continuous frauds, they were in an advantageous position to buy
up many forms of property. Beginning in 1880 the mining of copper,
they obtained hold of many very rich mining properties; their copper
mines yield at present (1909) about 100,000,000 pounds a year.
Phelps, Dodge and Company also own extensive coal mines and lines of
railroads in the southwest Territories of the United States. Ten
thousand employees are directly engaged in their copper and coal
mines and smaller works, and on the 1,000 miles of railroad directly
owned and operated by them.

So greatly were the members of the firm enriched by their frauds that
when D. Willis James, one of the partners sued by the Government for
fraudulent undervaluations, died on September 13, 1907, he left an
estate of not less than $26,967,448. John F. Farrel, the appraiser,
so reported in his report filed on March 28, 1908, in the transfer
tax department of the Surrogate's department, New York City. But as
the transfer tax has been, and is, continuously evaded by ingenious
anticipatory devices, the estate, it is probable, reached much more.

James owned (accepting the appraiser's specific report at a time when
panic prices prevailed) tens of millions of dollars worth of stock in
railroad, mining, manufacturing and other industries. He owned, for
instance, $2,750,000 worth of shares in the Phelps-Dodge Copper Queen
Mining Company; $1,419,510 in the Old Dominion Company, and millions
more in other mining companies. His holdings in the Great Northern
Railway, the history of which is one endless chain of fraud, amounted
to millions of dollars--$3,840,000 of preferred stock; $3,924,000 of
common stock; $1,715,000 of stock in the Great Northern iron ore
properties; $1,405,000 of Great Northern Railway shares in the form
of subscription receipts, and so on. He was a large holder of stock
in the Northern Pacific Railway, the development of which, as we
shall see, has been one of incessant frauds. His interest in the
"good will" of Phelps, Dodge and Company was appraised at $180,000;
his interest in the same firm at $945,786; his cash on deposit with
that firm at $475,000. [Footnote: At his death he was eulogistically
described as "the merchant philanthropist." On the day after the
appraiser's report was filed, the New York "Times," issue of March
29, 1908, said: "Mr. James was a senior member of the firm of Phelps,
Dodge & Co., of 99 John Street. His interest in educational and
philanthropic work was very deep, and by his will he left bequests
amounting to $1,195,000 to various charitable and religious
institutions. The residue of the estate, amounting to $24,482,653, is
left in equal shares to his widow and their son." On the same day
that the appraiser's report was filed a large gathering of unemployed
attempted to hold a meeting in Union Square to plead for the starting
of public work, but were brutally clubbed, ridden down and dispersed
by the police.]

In the defrauding of the United States Government however, Phelps,
Dodge and Company were doing no uncommon thing. The whole importing
trade was incessantly and cohesively thriving upon this form of
fraud. In his annual report for 1874, Henry C. Johnson, United States
Commissioner of Customs, estimated that tourists returning from
Europe yearly smuggled in as personal effects 257,810 trunks filled
with dutiable goods valued at the enormous sum of $128,905,000. "It
is well known," he added, "that much of this baggage is in reality
intended to be put upon the market as merchandise, and that still
other portions are brought over for third parties who have remained
at home. Most of those engaged in this form of importation are people
of wealth"... [Footnote: Executive Documents, Forty-third Congress,
Second Session, 1874, No. 2: 225.] Similar and additional facts were
brought out in great abundance by a United States Senate committee
appointed, in 1886, to investigate customs frauds in New York. After
holding many sessions this committee declared that it had found
"conclusive evidence that the undervaluation of certain kinds of
imported merchandise is persistently practiced to an alarming extent
at the port of New York." [Footnote: U.S. Senate Report, No. 1990,
Forty-ninth Congress, Second Session, Senate Reports, iii, 1886-87.]
At all other ports the customs frauds were notorious.

The frauds of the whiskey distillers in cheating the Government out
of the internal revenue tax were so enormous as to call forth several
Congressional investigations; [Footnote: Reports of Committees,
Fortieth Congress, Third Session, 1869-70. Report No. 3, etc.] the
millions of dollars thus defrauded were used as private capital in
extending the distilleries; virtually all of the fortunes in the
present Whiskey Trust are derived in great part from these frauds.
The banks likewise cheated the Government out of large sums in their
evasion of the stamp tax. "This stamp tax," reported the Comptroller
of Currency in 1874, "is to a considerable extent evaded by banks and
more frequently by depositors, by drawing post notes, or bills of
exchange at one day's sight, instead of on demand, and by
substituting receipts for checks." [Footnote: Executive Document, No.
2, 1874:140.]

It was from these various divisions of the capitalist class that the
most caustic and virtuous tirades against Gould came. The boards of
trade and chambers of commerce were largely made up of men who, while
assuming the most vaniloquent pretensions, were themselves malodorous
with fraud. To read the resolutions passed by them, and to observe
retrospectively the supreme airs of respectability and integrity they
individually took on, one would conclude that they were all men of
whitest, most irreproachable character. But the official reports
contradict their pretensions at every turn; and they are all seen in
their nakedness as perjurers, cheats and frauds, far more sinister in
their mask than Gould in his carelessly open career of theft and
corruption. Many of the descendants of that sordid aggregation live
to-day in the luxury of inherited cumulative wealth, and boast of a
certain "pride of ancestry" and "refinement of social position;" it
is they from whom the sneers at the "lower classes" come; and they it
is who take unto themselves the ordaining of laws and of customs and
definitions of morality. [Footnote: It is worthy of note that several
of the descendants of the Phelps-Dodge-Stokes families are men and
women of the highest character and most radical principles. J. G.
Phelps Stokes, for instance, joined the Socialist party to work for
the overthrow of the very system on which the wealth of his family is
founded. A man more devoted to his principles, more keenly alive to
the injustices and oppressions of the prevailing system, more
conscientious in adhering to his views, and more upright in both
public and private dealings, it would be harder to find than J. G.
Phelps Stokes. He is one of the very few distinguished exceptions
among his class.]

From the very foundation of the United States Government, not to
mention what happened before that time, the custom-house frauds have
been continuous up to the very present, without any intermission. The
recent suits brought by the Government against the Sugar Trust for
gigantic frauds in cheating in the importation of sugar, were only an
indication of the increasing frauds. The Sugar Trust was compelled to
disgorge about $2,000,000, but this sum, it was admitted, was only a
part of the enormous total out of which it had defrauded the
Government. The further great custom-house scandals and court
proceedings in 1908 and 1909 showed that the bribery of custom-house
weighers and inspectors had long been in operation, and that the
whole importing class, as a class, was profiting heavily by this
bribery and fraud. While the trials of importers were going on in the
United States Circuit Court at New York, despatches from Washington
announced, on October 22, 1909, that the Treasury Department
estimated that the same kind of frauds as had been uncovered at New
York, had flourished for decades, although in a somewhat lesser
degree, at Boston, Philadelphia, Norfolk, New Orleans, San Francisco
and at other ports.

"It is probable," stated these subdued despatches, "that these
systematic filchings from the Government's receipts cover a period of
more than fifty years, and that in this, the minor officials of the
New York Custom House have been the greatest offenders, although
their nefarious profits have been small in comparison with the
illegitimate gains of their employers, the great importers. These are
the views of responsible officials of the Treasury Department." These
despatches stated the truth very mildly. The frauds have been going
on for more than a century, and the Government has been cheated out
of a total of hundreds upon hundreds of millions of dollars, perhaps
billions.

And the thieving importers of these times comprise the respectable
and highly virtuous chambers of commerce and boards of trade, as was
the case in Gould's day. They are ever foremost in pompously
denouncing the very political corruption which they themselves cause
and want and profit from; they are the fine fellows who come together
in their solemn conclaves and resolve this and resolve that against
"law-defying labor unions," or in favor of "a reform in our body
politic," etc., etc. A glorious crew they are of excellent, most
devout church members and charity dispensers; sleek, self-sufficient
men who sit on Grand Juries and Trial Juries, and condemn the petty
thieves to conviction carrying long terms of imprisonment. Viewing
commercial society, one is tempted to conclude that the worthiest
members of society, as a whole, are to be found within the prisons;
yes, indeed, the time may not be far away, when the stigma of the
convict may be considered a real badge of ancestral honor.

But the comparison of Gould and the trading classes is by no means
complete without adding anew a contrast between how the propertied
plunderers as a class were immune from criminal prosecution, and the
persecution to which the working class was subjected.

Although all sections of the commercial and financial class were
cheating, swindling and defrauding with almost negligible molestation
from Government, the workers could not even plead for the right to
work without drawing down upon themselves the full punitive animosity
of governing powers whose every move was one of deference to the
interests of property. Apart from the salient fact that the prisons
throughout the United States were crowded with poor criminals, while
the machinery of the criminal courts was never seriously invoked
against the commercial and financial classes, the police and other
public functionaries would not even allow the workers to meet
peacefully for the petitioning of redress. Organized expressions of
discontent are ever objectionable to the ruling class, not so much
for what is said, as for the movements and reconstructions they may
lead to--a fact which the police authorities, inspired from above,
have always well understood.

THE CLUBBING OF THE UNEMPLOYED.

"The winter of 1873-74," says McNeill, was one of extreme suffering.
Midwinter found tens of thousands of people on the verge of
starvation, suffering for food, for the need of proper clothing, and
for medical attendance. Meetings of the unemployed were held in many
places, and public attention called to the needs of the poor. The men
asked for work and found it not, and children cried for bread.... The
unemployed and suffering poor of New York City determined to hold a
meeting and appeal to the public by bringing to their attention the
spectacle of their poverty. They gained permission from the Board of
Police to parade the streets and hold a meeting in Tompkins Square on
January 13, 1874, but on January 12 the Board of Police and Board of
Parks revoked the order and prohibited the meeting. It was impossible
to notify the scattered army of this order, and at the time of the
meeting the people marched through the gates of Tompkins Square....
When the square was completely filled with men, women and children,
without a moment's warning, the police closed in upon them on all
sides.

One of the daily papers of the city confessed that the scene could
not be described. People rushed from the gates and through the
streets, followed by the mounted officers at full speed, charging
upon them without provocation. Screams of women and children rent the
air, and the blood of many stained the streets, and to the further
shame of this outrage it is to be added that when the General
Assembly of New York State was called to this matter they took
testimony, but made no sign. [Footnote: "The Labor Movement":147-148.
In describing to the committee on grievances the horrors of this
outrage, John Swinton, a writer of great ability, and a man whose
whole heart was with the helpless, suffering and exploited, closed
his address by quoting this verse:

"There is a poor blind Samson in our land,
Shorn of his strength and bound with bonds of steel,
Who may in some grim revel raise his hand,
And shake the pillars of the Commonweal."]

Thus was the supremacy of "law and order" maintained. The day was
saved for well-fed respectability, and starving humanity was forced
back into its despairing haunts, there to reflect upon the club-
taught lesson that empty stomachs should remain inarticulate. For the
flash of a second, a nameless fright seized hold of the gilded
quarters, but when they saw how well the police did their dispersing
work, and choked up with their clubs the protests of aggregated
suffering, self-confidence came back, revelry was resumed, and the
saturnalia of theft went on unbrokenly.

And a lucky day was that for the police. The methods of the ruling
class were reflected in the police force; while perfumed society was
bribing, defrauding and expropriating, the police were enriching
themselves by a perfected system of blackmail and extortion of their
own. Police Commissioners, chiefs, inspectors, captains and sergeants
became millionaires, or at least, very rich from the proceeds of this
traffic. Not only did they extort regular payments from saloons,
brothels and other establishments on whom the penalties of law could
be visited, but they had a standing arrangement with thieves of all
kinds, rich thieves as well as what were classed as ordinary
criminals, by which immunity was sold at specified rates. [Footnote:
The very police captain, one Williams, who commanded the police at
the Tompkins Square gathering was quizzed by the "Lexow Committee" in
1893 as to where he got his great wealth. He it was who invented the
term "Tenderloin," signifying a district from which large collections
in blackmail and extortion could be made. By 1892, the annual income
derived by the police from blackmailing and other sources of
extortion was estimated at $7,000,000. (See "Investigation of the
Police Department of New York City," 1894, v:5734.) With the
establishment of Greater New York the amount about doubled, or,
perhaps, trebled.] The police force did not want this system
interfered with; hence at all times toadied to the rich and
influential classes as the makers of law and the creators of public
opinion. To be on the good side of the rich, and to be praised as the
defenders of law and order, furnished a screen of incalculable
utility behind which they could carry on undisturbedly their own
peculiar system of plunder.

CHAPTER XII

THE GOULD FORTUNE AND SOME ANTECEDENT FACTORS

With his score or more of millions of booty, Jay Gould now had much
more than sufficient capital to compete with many of the richest
magnates; and what he might lack in extent of capital when combated
by a combination of magnates, he fully made up for by his pulverizing
methods. His acute eye had previously lit upon the Union Pacific
Railroad as offering a surpassingly prolific field for a new series
of thefts. Nor was he mistaken. The looting of this railroad and
allied railroads which he, Russell Sage and other members of the
clique proceeded to accomplish, added to their wealth, it was
estimated perhaps $60,000,000 or more, the major share of which Gould
appropriated.

It was commonly supposed in 1873 that the Union Pacific Railroad had
been so completely despoiled that scarcely a vestige was left to prey
upon. But Gould had an extraordinary faculty for devising new and
fresh schemes of spoliation. He would discern great opportunities for
pillage in places that others dismissed as barren; projects that
other adventurers had bled until convinced nothing more was to be
extracted, would be taken up by Gould and become plethora of plunder
under his dexterous touch. Again and again Gould was charged with
being a wrecker of property; a financial beachcomber who destroyed
that he might profit. These accusations, in the particular exclusive
sense in which they were meant, were distortions. In almost every
instance the railroads gathered in by Gould were wrecked before he
secured control; all that he did was to revive, continue and
elaborate the process of wrecking. It had been proved so in the case
of the Erie Railroad; he now demonstrated it with the Union Pacific
Railroad.

THE MISLEADING ACCOUNTS HANDED DOWN.

This railroad had been chartered by Congress in 1862 to run from a
line on the one hundredth meridian in Nebraska to the western
boundary of Nevada. The actual story of its inception and
construction is very different from the stereotyped accounts shed by
most writers. These romancers, distinguished for their sycophancy and
lack of knowledge, would have us believe that these enterprises
originated as splendid and memorable exhibitions of patriotism,
daring and ability. According to their version Congress was so
solicitous that these railroads should be built that it almost
implored the projectors to accept the great gifts of franchises, land
and money that it proffered as assistance. A radiantly glowing
description is forged of the men who succeeded in laying these
railroads; how there stretched immense reaches of wilderness which
would long have remained desolate had it not been for these
indomitable pioneers; and how by their audacious skill and
persistence they at last prevailed, despite sneers and ridicule, and
gave to the United States a chain of railroads such as a few years
before it had been considered folly to attempt.

Very limpidly these narratives flow; two generations have drunk so
deeply of them that they have become inebriated with the
contemplation of these wonderful men. When romance, however, is
hauled to the archives, and confronted with the frigid facts, the old
dame collapses into shapeless stuffing.

[Illustration: RESIDENCE OF JAY GOULD, 759 Fifth Avenue, New York]

In the opening chapter of the present part of this work it was
pointed out by a generalization (to be frequently itemized by
specifications later on) that the accounts customarily written of the
origin of these railroads have been ridiculously incorrect. To prove
them so it is only necessary to study the debates and the reports of
Congress before, and after, the granting of the charters.

SECTIONAL INTERESTS IN CONFLICT.

Far greater forces than individual capitalists, or isolated groups of
capitalists, were at work to promote or prevent the construction of
this or that Pacific road. In the struggle before the Civil War
between the capitalist system of the North and the slave oligarchy of
the South, the chattel slavery forces exerted every effort to use the
powers of Government to build railroads in sections where their power
would be extended and further intrenched. Their representatives in
Congress feverishly strained themselves to the utmost to bring about
the construction of a trans-continental railroad passing through the
Southwest. The Northern constituents stubbornly fought the project.
In reprisal, the Southern legislators in Congress frustrated every
move for trans-continental railroads which, traversing hostile or too
doubtful territory, would add to the wealth, power, population and
interests of the North. The Government was allowed to survey routes,
but no comprehensive trans-continental Pacific railroad bills were
passed.

The debates in Congress during the session of 1859 over Pacific
railroads were intensely aciduous. Speaking of the Southern slave
holders, Senator Wilson, of Massachusetts, denounced them as
"restless, ambitious gentlemen who are organizing Southern leagues to
open the African slave trade, and to conquer Mexico and Central
America." He added with great acerbity: "They want a railroad to the
Pacific Ocean; they want to carry slavery to the Pacific and have a
base line from which they can operate for the conquest of the
continent south." [Footnote: The Congressional Globe. Thirty-fifth
Congress, Second Session, 1858-59, Part II, Appendix: 291.] In fiery
verbiage the Southern Senators slashed back, taunting the Northerners
with seeking to wipe out the system of chattel slavery, only to
extend and enforce all the more effectually their own system of white
slavery. The honorable Senators unleashed themselves; Senatorial
dignity fell askew, and there was snarling and growling, retorts and
backtalk and bad blood enough.

The disclosures that day were extremely delectable. In the exchange
of recriminations, many truths inadvertently came out. The
capitalists of neither section, it appeared, were faithful to the
interests of their constituencies. This was, indeed, no discovery;
long had Northern representatives been bribed to vote for land and
money grants to railroads in the South, and vice versa. But the
charges further brought out by Senator Wilson angered and exasperated
his Southern colleagues. "We all remember," said he, "that Texas made
a grant of six thousand dollars and ten thousand acres of land a mile
to a Pacific railway company." Yes, in truth, they all remembered;
the South had supported that railroad project as one that would aid
in the extension of her power and institutions. "I remember," Wilson
went on, "that when that company was organized the men who got it up
could not, by any possibility, have raised one hundred thousand
dollars if they paid their honest debts. Many of them were political
bankrupts as well as pecuniary bankrupts--men who had not had a
dollar; and some of them were men who not only never paid a debt, but
never recognized an obligation."

At this thrust a commotion was visible in the exalted chamber; the
blow had been struck, and not far from where Wilson stood.

"Years have passed away," continued the Senator, "and what has Texas
got?" Twenty-two or twenty-three miles of railway, with two cars upon
it, with no depot, the company owning everything within hailing
distance of the road; and they have imported an old worn-out engine
from Vermont. And this is part of your grand Southern Pacific
Railroad. These gentlemen are out in pamphlets, proving each other
great rascals, or attempting to do so; and I think they have
generally succeeded. ... The whole thing from the beginning has been
a gigantic swindle. [Footnote: The Congressional Globe, etc., 1858-9,
Part II, Appendix, 291.]

What Senator Wilson neglected to say was that the capitalists of his
own State and other Northern States had effected even greater
railroad swindles; the owners of the great mills in Massachusetts
were, as we shall see, likewise bribing Congress to pass tariff acts.

A MYTH OF MODERN FABRICATION

The myth had not then been built up of putative great construction
pioneers, risking their every cent, and racking their health and
brains, in the construction of railways. It was in the very heyday of
the bribing and swindling, as numerous investigating committees
showed; there could be no glamour or illusion then.

The money lavishly poured out for the building of railroads was
almost wholly public money drawn from compulsory taxation of the
whole people. At this identical time practically every railroad
corporation in the country stood indebted for immense sums of public
money, little of which was ever paid back. In New York State more
than $40,000,000 of public funds had gone into the railroads; in
Vermont $8,000,000 and large sums in every other State and Territory.
The whole Legislature and State Government of Wisconsin had been
bribed with a total of $800,000, in 1856, to give a large land grant
to one company alone, details of which transaction will be found
elsewhere. [Footnote: See the chapters on the Russell Sage
fortune.]The State of Missouri had already disbursed $25,000,000 of
public funds; not content with these loans and donations two of its
railroads demanded, in 1859, that the State pay interest on their
bonds.

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