Great Fortunes from Railroads
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Gustavus Myers
Gustavus Myers (1872–1942) was an American journalist and historian who published a series of critical and influential studies on the social costs of wealth accumulation. His name has been associated with the muckraking era of US literature, somewhat erroneously, since his work was not journalistic, did not aim at popular magazine publication, and took a scholarly, investigative, and documentary approach to its subjects.
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Great Fortunes from Railroads - Gustavus Myers
Gustavus Myers
Great Fortunes from Railroads
EAN 8596547143789
DigiCat, 2022
Contact: [email protected]
Table of Contents
PART III
CHAPTER I
CHAPTER II
CHAPTER III
CHAPTER IV
CHAPTER V
CHAPTER VI
CHAPTER VII
CHAPTER VIII
CHAPTER IX
CHAPTER X
CHAPTER XI
CHAPTER XII
PART III
Table of Contents
THE GREAT FORTUNES FROM RAILROADS
CHAPTER I
Table of Contents
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.
From 1924 to 1834, the Wabash and Erie Canal Company obtained land grants from the Government amounting to 826,300 acres. The Miami and Dayton Canal Company secured from the Government, in 1828 and 1833, a total grant of 333,826 acres. The St. Mary's Falls Ship Canal Company received 750,000 acres in 1852; the Portage Lake and Lake Superior Ship Canal Company, 400,000 acres in 1865-66; and the Lac La Belle Ship Canal Company, 100,000 acres in 1866. Including a grant by Congress in 1828 of 500,000 acres of public land for general canal purposes, the land grants given by the National Government to aid canal companies, totalled 4,224,073.06 acres, mostly in Indiana, Ohio, Illinois, Wisconsin and Michigan.
Whatever political corruption accompanied the building of such State- owned canals as the Erie Canal, the primary and fundamental object was to construct. In the case of the private canal companies, the primary and fundamental object was to plunder. The capitalists controlling these companies were bent upon getting rich quickly; it was to their interest to delay the work as long as possible, for by this process they could periodically go to Legislatures with this argument: That the projects were more expensive and involved more difficulties than had been anticipated; that the original appropriations were exhausted, and that if the projects were to be completed, fresh appropriations were imperative. A large part of these successive appropriations, whether in money, or land which could be sold for money, were stolen in sundry indirect ways by the various sets of capitalist directors. The many documents of the Maryland Legislature, and the messages of the successive Governors of Maryland, do not tell the full story of how the Chesapeake and Ohio Canal project was looted, but they give abundantly enough information.
THE GRANTS FRAUDULENTLY MANIPULATED
Many of the canal companies, so richly endowed by the Government with great land grants, made little attempt to build canals. What some of them did was to turn about and defraud the Government out of incalculably valuable mineral deposits which were never included in the original grants.
In his annual report for 1885, Commisioner Sparks, of the United States General Land Office told (House Executive Documents, 1885-86, Vol. II) how, by 1885, the Portage Lake canal
was only a worthless ditch and a complete fraud. What had the company done with its large land grant? Instead of accepting the grant as intended by Congress, it had, by means of fraudulent surveys, and doubtless by official corruption, caused at least one hundred thousand acres of its grant to be surveyed in the very richest copper lands of Wisconsin.
The grants originally made by Congress were meant to cover swamp lands—that is, lands not particularly valuable for agricultural uses, but which had a certain value for other purposes. Mineral lands were strictly excluded. Such was the law: the practice was very different. The facility with which capitalists caused the most valuable mineral, grazing, agricultural and timber lands to be fraudulently surveyed as swamp
lands, is described at length a little later on in this work. Commissioner Sparks wrote that the one hundred thousand acres appropriated in violation of explicit law were taken outside of legal limits, and that the lands selected both without and within such limits were interdicted lands on the copper range
(p. 189). Those stolen copper deposits were never recovered by the Government nor was any attempt made to forfeit them. They comprise to-day part of the great copper mines of the Copper Trust, owned largely by the Standard Oil Company.
The St. Mary's Falls Canal Company likewise stole large areas of rich copper deposits. This fact was clearly revealed in various official reports, and particularly in the suit, a few years ago, of Chandler vs. Calumet and Hecla Mining Company (U. S. Reports, Vol. 149, pp. 79-95). This suit disclosed the fact that the mines of the Calumet and Hecla Mining Company were located on part of the identical alleged swamp
lands, granted by Congress in 1852. The plaintiff, Chandler, claimed an interest in the mines. Concluding the court's decision, favoring the Calumet and Hecla Mining Company, this significant note (so illustrative of the capitalist connections of the judiciary), appears: Mr. Justice Brown, being interested in the result, did not sit in this case and took no part in its decision.
Whatever superficial or partial writers may say of the benevolent origin of railroads, the fact is that railroad construction was ushered in by a widespread corruption of legislators that put to shame the previous debauchery in getting bank charters. In nearly every work on the subject the assertion is dwelt upon that railroad builders were regarded as public benefactors; that people and legislatures were only too glad to present them with public resources. There is just a slight substance of truth in this alleged historical writing, but nothing more. The people, it is true, were eager, for their own convenience, to have the railroads built, but unwilling to part with their hard-wrung taxes, their splendid public domain, and their rights only that a few men, part gamblers and part men of energy and foresight, should divert the entire donation to their own aggrandizement. For this attitude the railroad promoters had an alluring category of arguments ready.
CASH THE GREAT PERSUADER
Through the public press, and in speeches and pamphlets, the people were assured in the most seductive and extravagant language that railroads were imperative in developing the resources of the country; that they would be a mighty boon and an immeasurable stimulant to progress. These arguments had much weight, especially with a population stretched over such a vast territory as that of the United States. But alone they would not have accomplished the ends sought, had it not been for the quantities of cash poured into legislative pockets. The cash was the real eloquent persuader. In turn, the virtuous legislators, on being questioned by their constituents as to why they had voted such great subsidies, such immense land grants and such sweeping and unprecedented privileges to private corporations, could fall back upon the justification (and a legitimate one it seemed) that to get the railroads built, public encouragement and aid were necessary.
Many of the projectors of railroads were small tradesmen, landlords, mill owners, merchants, bankers, associated politicians and lawyers. Not infrequently, however, did it happen that some charters and grants were obtained by politicians and lawyers who, at best, were impecunious sharpers. Their greatest asset was a devious knowledge of how to get something for nothing. With a grandiloquent front and a superb bluff they would organize a company to build a railroad from this to that point; an undertaking costing millions, while perhaps they could not pay their board bill. An arrangement with a printer to turn out stock issues on credit was easy; with the promise of batches of this stock, they would then get a sufficient number of legislators to vote a charter, money and land.
After that, the future was