Great Fortunes from Railroads Part 11

Vanderbilt resolved to wrest the Erie Railroad out of Drew's hands.

By secretly buying its stock he was in a position in 1866 to carry out his designs. He threw Drew and his directors out, but subsequently realizing Drew's usefulness, reinstated him upon condition that he be fully pliable to the Vanderbilt interests.

Thereupon Drew brought in as fellow directors two young men, then obscure but of whom the world was to hear much--James Fisk, Jr., and Jay Gould. The narrative of how these three men formed a coalition against Vanderbilt; how they betrayed and then outgeneraled him at every turn; proved themselves of a superior cunning; sold him large quant.i.ties of spurious stock; excelled him in corruption; defrauded more than $50,000,000, and succeeded--Gould, at any rate--in keeping most of the plunder--this will be found in detail where it more properly belongs--in the chapter of the Gould fortune describing that part of Gould's career connected with the Erie Railroad.

Baffled in his frantic contest to keep hold of that railroad--a hold that he would have turned into many millions of dollars of immediate loot by fraudulently watering the stock, and then bribing the Legislature to legalize it as Gould did--Vanderbilt at once set in motion a fraudulent plan of his own by which he extorted about $44,000,000 in plunder, the greater portion of which went to swell his fortune.

The year 1868 proved a particularly busy one for Vanderbilt. He was engaged in a desperately devious struggle with Gould. In vain did his agents and lobbyists pour out stacks of money to buy legislative votes enough to defeat the bill legalizing Gould's fraudulent issue of stock. Members of the Legislature impa.s.sively took money from both parties. Gould personally appeared at Albany with a satchel containing $500,000 in greenbacks which were rapidly distributed. One Senator, as was disclosed by an investigating committee, accepted $75,000 from Vanderbilt and then $100,000 from Gould, kept both sums,--and voted with the dominant Gould forces. It was only by means of the numerous civil and criminal writs issued by Vanderbilt judges that the old man contrived to force Gould and his accomplices into paying for the stock fraudulently unloaded upon him. The best terms that he could get was an unsatisfactory settlement which still left him to bear a loss of about two millions. The veteran trickster had never before been overreached; all his life, except on one occasion, [Footnote: In 1837 when he had advanced funds to a contractor carrying the mails between Was.h.i.+ngton and Richmond, and had taken security which proved to be worthless.] he had been the successful sharper; but he was no match for the more agile and equally sly, corrupt and resourceful Gould. It took some time for Vanderbilt to realize this; and it was only after several costly experiences with Gould, that he could bring himself to admit that he could not hope to outdo Gould.

A NEW CONSOLIDATION PLANNED

However, Vanderbilt quickly and mult.i.tudinously recouped himself for the losses encountered in his Erie a.s.sault. Why not, he argued, combine the New York Central and the Hudson River companies into one corporation, and on the strength of it issue a vast amount of additional stock?

The time was ripe for a new mortgage on the labor of that generation and of the generations to follow. Population was wondrously increasing, and with it trade. For years the New York Central had been paying a dividend of eight per cent. But this was only part of the profits. A law had been pa.s.sed in 1850 authorizing the Legislature to step in whenever the dividends rose above ten per cent, on the railroad's actual cost, and to declare what should be done with the surplus. This law was nothing more or less than a blind to conciliate the people of the State, and let them believe that they would get some returns for the large outlay of public funds advanced to the New York Central. No returns ever came. Vanderbilt, and the different groups before him, in control of the road had easily evaded it, just as in every direction the whole capitalist cla.s.s pushed aside law whenever law conflicted with its aims and interests. It was the propertyless only for whom the execution of law was intended.

Profits from the New York Central were far more than eight per cent.; by perjury and frauds the directors retained sums that should have gone to the State. Every year they prepared a false account of their revenues and expenditures which they submitted to the State officials; they pretended that they annually spent millions of dollars in construction work on the road--work, in reality, never done. [Footnote: See Report of New York Special a.s.sembly Committee on Railroads, 1879, iv: 3,894.] The money was pocketed by them under this device--a device that has since become a favorite of many railroad and public utility corporations.

Unenforced as it was, this law was nevertheless an obstacle in the way of Vanderbilt's plans. Likewise was another, a statute prohibiting both the New York Central Railroad and the Hudson River Railroad from increasing their stock. To understand why this latter law was pa.s.sed it is necessary to remember that the middle cla.s.s--the factory owners, jobbers, retail tradesmen and employing farmers--were everywhere seeking by the power of law to prevent the too great development of corporations. These, they apprehended, and with reason, would ultimately engulf them and their fortunes and importance. They knew that each new output of watered stock meant either that the prevailing high freight rates would remain unchanged or would be increased; and while all the charges had to be borne finally by the working cla.s.s, the middle cla.s.s sought to have an unrestricted market on its own terms.

ALARM OF THE TRADING CLa.s.s

It was the opposition of the various groups of this cla.s.s that Vanderbilt expected and provided against. He was fully aware that the moment he revealed his plan of consolidation boards of trade everywhere would rise in their wrath, denounce him, call together ma.s.s meetings, insist upon railroad compet.i.tion and send pretentious, firebreathing delegates to the State Capitol. Let them thunder, said Vanderbilt placidly. While they were exploding in eruptions of talk he would concentrate at Albany a ma.s.s of silent arguments in the form of money and get the necessary legislative votes, which was all he cared about.

Then ensued one of the many comedies familiar to observers of legislative proceedings. It was amusing to the sophisticated to see delegations indignantly betake themselves to Albany, submit voluminous briefs which legislators never read, and with immense gravity argue away for hours to committees which had already been bought. The era was that of the Tweed regime, when the public funds of New York City and State were being looted on a huge scale by the politicians in power, and far more so by the less vulgar but more crafty business cla.s.ses who spurred Tweed and his confederates on to fresh schemes of spoliation.

Laws were sold at Albany to the highest bidder. "It was impossible,"

Tweed testified after his downfall, "to do anything there without paying for it; money had to be raised for the pa.s.sing of bills."

[Footnote: Statement of William M. Tweed before Special Investigating Committee of the New York Board of Aldermen. Doc.u.ments of the Board of Aldermen, 1877, Part II. Doc.u.ment No. 8:15-16.] Decades before this, legislators had been so thoroughly taught by the landowners and bankers how to exchange their votes for cash that now, not only at Albany and Was.h.i.+ngton, but everywhere in the United States, both legislative and administrative officials haggled in real astute business style for the highest price that they could get.

One noted lobbyist stated in 1868 that for a favorable report on a certain bill before the New York Senate, $5,000 apiece was paid to four members of the committee having it in charge. On the pa.s.sage of the bill, a further $5,000 apiece with contingent expenses was added.

In another instance, where but a solitary vote was needed to put a bill through, three Republicans put their figures up to $25,000 each; one of them was bought. About thirty Republicans and Democrats in the New York Legislature organized themselves into a clique (long styled the "Black Horse Cavalry"), under the leaders.h.i.+p of an energetic lobbyist, with a mutual pledge to vote as directed. [Footnote: Doc.u.ments of the Board of Aldermen, 1877, Part II, No. 8; 212-213.]

"Any corporation, however extensive and comprehensive the privileges it asked"--to quote from "The History of Tammany Hall"--"and however much oppression it sought to impose upon the people in the line of unjust grants, extortionate rates or monopoly, could convince the Legislature of the righteousness of its request upon 'producing' the proper sum."

A LEGALIZED THEFT OF $44,000,000

One act after another was slipped through the Legislature by Vanderbilt in 1868 and 1869. On May 20, 1869, Vanderbilt secured, by one bill alone, the right to consolidate railroads, a free grant of franchises, and other rights worth hundreds of millions of dollars, and the right to water stock and bonds to an enormous extent.

The printing presses were worked overtime in issuing more than $44,000,000 of watered stock. The capital stock of the two roads was thus doubled. Pretending that the railroads embraced in the consolidation had a great surplus on hand, Vanderbilt, instead of distributing this alleged surplus, apportioned the watered stock among the stockholders as a premium. The story of the surplus was, of course, only a pretense. Each holder of a $100 share received a certificate for $180--that is to say, $80 in plunder for every $100 share that he held. [Footnote: Report of a.s.sembly Committee on Railroads, testimony of Alexander Robertson, an expert accountant, 1879, i:994-999.] "Thus," reported the "Hepburn Committee" (the popular name for the New York State a.s.sembly investigating committee of 1879), "as calculated by this expert, $53,507,060 were wrongfully added to the capital stock of these roads." Of this sum $44,000,000 was issued in 1869; the remainder in previous years. "The only answer made by the roads was that the legislature authorized it," the committee went on. "It is proper to remark that the people are quite as much indebted to the venality of the men elected to represent them in the Legislature as to the rapacity of the railroad managers for this state of affairs." [Footnote: Ibid., i:21.]

Despite the fact that the report of the committee recorded that the transaction was piracy, the euphemistic wording of the committee's statement was characteristic of the reverence shown to the rich and influential, and the sparing of their feelings by the avoidance of harsh language. "Wrongfully added" would have been quickly changed into such inconsiderate terms as theft and robbery had the case been even a trivial one of some ordinary citizen lacking wealth and power.

The facts would have immediately been presented to the proper officials for criminal prosecution.

But not a suggestion was forthcoming of haling Vanderbilt to the criminal bar; had it been made, nothing except a farce would have resulted, for the reason that the criminal machinery, while extraordinarily active in hurrying petty lawbreakers to prison, was a part of the political mechanism financed by the big criminals and subservient to them.

"The $44,000,000," says Simon Sterne, a noted lawyer who, as counsel for various commercial organizations, unravelled the whole matter before the "Hepburn Committee," in 1879, "represented no more labor than it took to print the script." It was notorious, he adds, "that the cost of the consolidated railroads was less than $44,000,000,"

[Footnote: "Life of Simon Sterne," by John Foord, 1903:179-181.] In increasing the stock to $86,000,000 Vanderbilt and his confederates therefore stole the difference between the cost and the maximum of the stock issue. So great were the profits, both open and concealed, of the consolidated railroads that notwithstanding, as Charles Francis Adams computed, "$50,000 of absolute water had been poured out for each mile of road between New York and Buffalo," the market price of the stock at once shot up in 1869 from $75 a share to $120 and then to $200.

And what was Vanderbilt's share of the $44,000,000? His inveterate panegyrist, Croffut, in smoothly defending the transaction gives this illuminating depiction of the joyous event: "One night, at midnight, he (Cornelius Vanderbilt) carried away from the office of Horace F.

Clark, his son-in-law, $6,000,000 in greenbacks as a part of his share of the profits, and he had $20,000,000 more in new stock."

[Footnote: "The Vanderbilts": 103. Croffut in a footnote tells this anecdote: "When the Commodore's portrait first appeared on the bonds of the Central, a holder of some called one day and said: 'Commodore, glad to see your face on them bonds. It's worth ten per cent. It gives everybody confidence.' The Commodore smiled grimly, the only recognition he ever made of a compliment. ''Cause,' explained the visitor, 'when we see that fine, n.o.ble brow, it reminds us that you'll never let anybody else steal anything.'"]

By this coup Vanderbilt about doubled his previous wealth. Scarcely had the mercantile interests recovered from their utter bewilderment at being routed than Vanderbilt, flushed with triumph, swept more railroads into his inventory of possessions.

His process of acquisition was now working with almost automatic ease.

First, as we have narrated, he extorted millions of dollars in blackmail. With these millions he bought, or rather manipulated into his control, one railroad after another, amid an onslaught of bribery and glaring violations of the laws. Each new million that he seized was an additional resource by which he could bribe and manipulate; progressively his power advanced; and it became ridiculously easier to get possession of more and more property. His very name became a terror to those of lesser capital, and the mere threat of pitting his enormous wealth against compet.i.tors whom he sought to destroy was generally a sufficient warrant for their surrender. After his consummation of the $44,000,000 theft in 1869 there was little withstanding of him. By the most favorable account--that of Croffut-- his own allotment of the plunder amounted to $26,000,000. This sum, immense, and in fact of almost inconceivable power in that day, was enough of itself, independent of Vanderbilt's other wealth, to force through almost any plan involving a seizing of competing property.

HE SCOOPS UP MORE RAILROADS.

Vanderbilt did not wait long. The ink on the $44,000,000 had barely dried, before he used part of the proceeds to buy a controlling interest in the Lake Sh.o.r.e Railroad, a competing line. Then rapidly, by the same methods, he took hold of the Canada Southern and Michigan Central.

The commercial interests looked on dumfounded. Under their very eyes a process of centralization was going on, of which they but dimly, stupidly, grasped the purport. That compet.i.tion which they had so long shouted for as the only sensible, true and moral system, and which they had sought to b.u.t.tress by enacting law after law, was being irreverently ground to pieces.

Out of their own ranks were rising men, trained in their own methods, who were amplifying and intensifying those methods to shatter the cla.s.s from which they had sprung. The different grades of the propertied cla.s.s, from the merchant with his fortune of $250,000 to the retail tradesman, felt very comfortable in being able to look down with a conscious superiority upon the working cla.s.s from whom their money was wrung. Scoffing at equality, they delighted in setting themselves up as a cla.s.s infinitely above the toilers of the shop and factory; let him who disputes this consult the phrases that went the rounds--phrases, some of which are still current--as, for instance, the preaching that the moderately well-to-do cla.s.s is the solid, substantial element of any country.

Now when this mercantile cla.s.s saw itself being far overtopped and outcla.s.sed in the only measurement to which it attached any value-- that of property--by men with vast riches and power, it began to feel its relegation. Although its ideal was money, and although it set up the acquisition of wealth as the all-stimulating incentive and goal of human effort, it viewed sullenly and enviously the development of an established magnate cla.s.s which could look haughtily and dictatorially down upon it even as it constantly looked down upon the working cla.s.s. The factory owner and the shopkeeper had for decades commanded the pa.s.sage of summary legislation by which they were enabled to fleece the worker and render him incapable of resistance.

To keep the worker in subjection and in their power they considered a justifiable proceeding. But when they saw the railroad magnates applying those same methods to themselves, by first wiping out compet.i.tion, and then by enforcing edicts regardless of their interests, they burst out in furious rage.

VANDERBILT AND HIS CRITICS.

They denounced Vanderbilt as a bandit whose methods were a menace to the community. To the onlooker this campaign of virulent a.s.sault was extremely suggestive. If there was any one line of business in which fraud was not rampant, the many official reports and court proceedings of the time do not show it.

This widespread fraud was not occasional; it was persistent. In one of the earlier chapters, the prevalence, more than a century ago, of the practise of fraudulent subst.i.tution of drugs and foods was adverted to. In the middle of the nineteenth century it was far more extensive. In submitting, on June 2, 1848, a ma.s.s of expert evidence on the adulteration of drugs, to the House of Representatives, the House Select Committee on the Importation of Drugs pointed out:

For a long series of years this base traffic has been constantly increasing, until it has become frightfully enormous. It would be presumed, from the immense quant.i.ties, and the great variety of inferior drugs that pa.s.s our custom houses, and particularly the custom-house at New York, in the course of a single year, that this country had become the great mart and receptacle of all of the refuse merchandise of that description, not only from the European warehouses, but from the whole Eastern market. [Footnote: Reports of Committees, First Session, Thirtieth Congress, 1847-48, Vol. iii, Report No. 664:3--The committee reported that opium was adulterated with licorice paste and bitter vegetable extract; calomel, with chalk and sulphate of barytes; quinine, with silicine, chalk and sulphate of barytes; castor, with dried blood, gum and ammonia; gum a.s.safoetida with inferior gums, chalk and clay, etc., etc. (pp. 10 and 11).]

In presenting a formidable array of expert testimony, and in giving a list of cases of persons having died from eating foods and drugs adulterated with poisonous substances, the House Committee on Epidemic Diseases, of the Forty-Sixth Congress, reported on February 4 1881:

That they have investigated, as far as they could ... the injurious and poisonous compounds used in the preparation of food substances, and in the manufacture of wearing apparel and other articles, and find from the evidence submitted to them that the adulteration of articles used in the every day diet of vast numbers of people has grown, and is now practised, to such an extent as to seriously endanger the public health, and to call loudly for some sort of legislative correction. Drugs, liquors, articles of clothing, wall paper and many other things are subjected to the same dangerous process. [Footnote: House Reports, Third Session, Forty-sixth Congress, 1880-81, Vol. i, Report No. 199: 1. The committee drafted a bill for the prevention of these frauds; the capitalists concerned smothered it.]

The House Committee on Commerce, reporting the next year, on March 4, stated that "the evidence regarding the adulterations of food indicates that they are largely of the nature of frauds upon the consumer ... and injure both the health and morals of the people."

The committee declared that the practise of fraudulent subst.i.tutions "had become universal." [Footnote: House Reports, First Session, Forty-seventh Congress, 1881-82, Vol. ii, Report No. 634: 1-5.]

These few significant extracts, from a ma.s.s of official reports, show that the commercial frauds were continuous, and began long before Commodore Vanderbilt's time, and have prevailed up to the present.

Everywhere was fraud; even the little storekeepers, with their smug pretensions to homely honesty, were profiting by some of the vilest, basest forms of fraud, such as robbing the poor by the light-weight and short-weight trick, [Footnote: These forms of cheating exist at present to a greater extent than ever before. It is estimated that manufacturers and shopkeepers cheat the people of the United States out of $200,000,000 a year by the light-weight and short-weight frauds. In 1907 the New York State Sealer of Weights and Measures a.s.serted that, in that State alone, $20,000,000 was robbed from the consumers annually by these methods. Recent investigations by the Bureau of Standards of the United States Department of Commerce and Labor have shown that immense numbers of "crooked" scales are in use.

It has been conclusively established by the investigations of Federal, State and munic.i.p.al inspectors of weights and measures that there is hardly an article put up in bottled or canned form that is not short of the weight for which it is sold, nor is there scarcely a retail dealer who does not swindle his customers by the light-weight fraud. There are manufacturers who make a specific business of turning out fraudulent scales, and who freely advertise the cheating merits of these scales.] or (far worse) by selling skim milk, or poisonous drugs or adulterated food or shoddy material. These practises were so prevalent, that the exceptions were rarities indeed.

If any administration had dared seriously to stop these forms of theft the trading cla.s.ses would have resisted and struck back in political action. Yet these were the men--these traders--who vociferously come forth with their homiletic trades against Vanderbilt's criminal transactions, demanding that the power of him and his kind be curbed.

It was not at all singular that they put their protests on moral grounds. In a form of society where each man is compelled to fight every other man in a wild, demoralizing struggle for self- preservation, self-interest naturally usurps the supreme functions, and this self-interest becomes transposed, by a comprehensible process, into moralities. That which is profitable is perverted into a moral code; the laws pa.s.sed, the customs introduced and persisted in, and the weight of the dominant cla.s.ses all conspire to put the stamp of morality on practices arising from the lowest and most sordid aims. Thus did the trading cla.s.s make a moral profession of its methods of exploitation; it congratulated and sanctified itself on its purity of life and its saving stability.

From this cla.s.s--a cla.s.s interpenetrated in every direction with commercial frauds--was largely empanelled the men who sat on those grand juries and pet.i.t juries solemnly pa.s.sing verdict on the poor wretches of criminals whom environment or poverty had driven into crime. They were the arbiters of justice, but it was a justice that was never allowed to act against themselves. Examine all the penal codes of the period; note the laws proscribing long sentences in prison for thefts of property; the larceny of even a suit of clothes was severely punishable, and begging for alms was a misdemeanor. Then contrast these asperities of law with the entire absence of adequate protection for the buyer of merchandise. Following the old dictum of Roman jurisprudence, "Let the buyer beware," the factory owner could at will oppress his workers, and compel them, for the scantiest wages, to make for his profit goods unfit for consumption. These articles the retailer sold without scruple over his counter; when the buyer was cheated or overcharged, as happened with great frequency, he had practically no redress in law. If the merchant were robbed of even ever so little he could retaliate by sending the guilty one to prison. But the merchant himself could invidiously and continuously rob the customer without fear of any law. All of this was converted into a code of moralities; and any bold spirit who exposed its cant and sham was denounced as an agitator and as an enemy of law and order. [Footnote: A few progressive jurists in the International Prison Congress are attempting to secure the recognition in law of the principle that society, as a supreme necessity, is obligated to protect its members from being made the victims of the cunning and unscrupulous. They have received no encouragement, and will receive none, from a trading cla.s.s profiting from the very methods which it is sought to place under the inhibition of criminal law.]

Vanderbilt did better than expose it; he improved upon, and enlarged, it and made it a thing of magnitude; he and others of his quality discarded petty larceny and ascended into a sphere of superlative grand larceny. They knew with a cynical perception that society, with all its pompous pretensions to morality, had evolved a rule which worked with almost mathematical certainty. This rule was the paradoxical, but nevertheless true, one that the greater the theft the less corresponding danger there was of punishment.