p161  Chapter XIII
The Rig

The most gigantic and in all respects the most important thoroughfare ever projected is now fairly commenced. In a very few years the commerce of the world will roll across the American continent in one vast, never ceasing flood. The location of the road up the Platte Valley and through the South Pass, where the buffalo ages ago surveyed the route for it, and where it can be reached from the mining regions of Colorado and the still richer and more extensive gold deposits of Idaho, with equal facility, should be a source of congratulation to the nation and the entire commercial world, who will wait with deep anxiety the completion of this vast enterprise. . . . Editorial, Chicago Tribune (December 5, 1863).

The cash balance of Union Pacific on November 1, 1863, totaled less than $200,000. Omaha was 170 miles up Missouri River sand bars from the Hannibal & St. Joseph's railhead at St. Joseph, and •150 miles west of the Mississippi & Missouri's railhead in Iowa. Every rail, bolt, shovel and keg of blasting powder needed for construction must be hauled in over one of these routes. The new owners had enough cash on hand to finance less than five miles of track.

But Thomas Durant was a gambler. A study of his career and the web of high-interest loans, mortgage bonds and holding  p162 companies he spun around the captive Union Pacific during 1864 and 1865 leads to the conviction that the saga of the 1866‑9 construction was the haphazard aftermath of a stock swindle. Durant, like Huntington and The Associates, invested in the Pacific Railroad with the sole idea of wresting profits from stock manipulations. Somewhere along the way The Associates changed their technique — and built on to become "railroad kings."

Durant's goal never changed. His daring commands admiration. The hazards confronting Union Pacific were far greater than those looming before the Associates. Central Pacific was a California corporation. The Federal land grants and 6‑per‑cent loan were pledged for the trackage it was to build over the 140 miles of Judah's Donner Pass route to the California-Nevada border. Since it was a state enterprise and on the other side of the continent, Federal inspections were casual. But Union Pacific was a Federal project and its techniques and efficiency were literally "under the nose" of Congress and the violently partisan press of every Eastern city.

The Indian problem raised a second risk far more serious to Union Pacific than to Central Pacific. The Spanish and the Forty-Niners had killed off the last vestiges of Indian resistance in central California. The Paiute War of 1861‑2 broke the spirit of Nevada's tribes. Charles Crocker later boasted that he kept all the Indians along Central Pacific's right of way pacified by giving the tribal chiefs lifetime passes for free rides in day coaches. But Union Pacific's route aimed at the "sacred lands" of the Cheyenne, Sioux, Arapaho, Shoshone, and other tribes who had mastered the wild horse and bison economy. Inevitably, then, Union Pacific would become involved in the negotiations, and probable bloodshed, of new treaties between these tribes and the Federal Government. A feud already smoldered between the Army and the Department of the Interior's Indian Bureau. Every politician realized that the whisper of a gold or silver "strike" anywhere in Indian country would trigger a "rush" like the "Pikes Peak or Bust" ox trains of 1857, the  p163 invasion of the Comstock Lode and Western Nevada in 1859‑60, and the push to Montana in 1862‑63.

Finally, the Pacific Railroad Act assured Central Pacific of a monopoly on Federal loans and land grants east to the Nevada border, provided it could meet the time requirements. But political pressures forced Union Pacific into bitter competition by defining the 100th meridian as "the official beginning point" of the Pacific Railroad. The first branch line to reach there would win the right to build on toward the California border; and would be in a position to dominate, or take over, the Union Pacific. A revision of the Act could relocate "the commencement point" as easily as it could shift the Federal loans from a first- to a second-mortgage status.

Construction by the competition confronted Durant when his dummy stockholders enabled the October 29th birth of Union Pacific. A week or two before, Samuel Hallett & Company had broken ground for the Union Central Pacific Railroad at Leavenworth, Kansas. Its stockholders included Philadelphia and St. Louis bigwigs; the Union Central Pacific, then, was a realization of the Philadelphia-St. Louis "team-up" predicted during the Federal commissioners' convention in Chicago. Hallett pledged to have rails into Lawrence, Kansas, before January 1, then build on up the Kansas River Valley during 1865, and reach the 100th meridian "before 1866." The firm's circulars to prospective stockholders promised financial support from Colorado; the right of way would follow the Smoky Hill Stage route through Fort Riley to Denver, cross the Rockies via Berthoud Pass, and use "the Great Valley route" into Salt Lake City.

This forced Durant to announce a groundbreaking ceremony for Union Pacific at Omaha. Early in November he sent Herbert M. Hoxie on to Council Bluffs to hire work crews, contact local politicians, and ballyhoo the celebration. A courthouse "fixer" in Des Moines, Hoxie had met Durant during the lobbying for Mississippi & Missouri's Iowa charter. Indications are that Durant kept Hoxie on his personal pay roll as a scout  p164 on political developments. Hoxie performed his job well. The "Grand Opening Ceremony" must have gobbled a fourth of the $200,000 in Union Pacific's treasury. The committee on arrangements sent sheaves of telegrams to state governors, Federal officials, bankers and newspaper editors urging each to attend the "gala ceremony and banquet." Companies of Nebraska and Iowa militia hauled cannon out to the Missouri's banks and began firing salutes at noon on December 2. More than 1,000 people followed Nebraska's Governor Saunders up the frozen trail to the spot Durant and Peter Dey finally agreed on, two miles north of Omaha's ferry landing. Peter Dey and Governor Saunders turned the first clods of half-frozen clay. George Francis Train, as principal orator, prophesied that "Immigration will pour into these valleys. Tens of millions of immigrants will settle in this golden land in twenty years."

New York and Midwest newspapers described the groundbreaking in detail. On December 3, the Chicago Tribune printed another beaming Union Pacific Railway editorial, avowing that the project "is in the hands of the largest capitalists and most reliable men in the nation." It closed with a roar at Hallett & Company for attempting to "humbug the people of Chicago, and the Northwest, by any distorted maps and such special addresses as your last circular contains . . . The true policy of Hallett & Company, when they find that the people cannot be wheedled into the belief that they are the Union Pacific Railway, will be to connect their road with the great trunk line at or near Fort Kearney." Thus the Chicago-St. Louis battle to be Queen City of the Pacific Railroad was joined.

The Tribune's promotion of Union Pacific during the next four years was primarily responsible for creation of the "Western trade commissions" sent out to the new railhead communities by Chicago's board of trade. Before 1870 they contracted the bulk of the retail and jobber orders in Nebraska, Wyoming, Colorado, Montana and Utah for Chicago manufacturers. But  p165 the Tribune's assumption that "the largest capitalists and most reliable men in the nation" were behind Union Pacific was either wishful thinking or another product of an interview with Durant. The company needed more than $1,000,000 of capital, or credit, to build its first •40 miles of track. The December publicity sold only a few bonds.​a

On January 1, General Dix signed an order appointing Peter Dey as chief engineer of Union Pacific and Colonel Silas Seymour as consulting engineer. Two weeks later Durant was using his old trick of fanning town feuds as a means of promoting stock sales. It geared with his plan to boost Chicago & Northwestern stock and to postpone Union Pacific construction work until George Francis Train perfected a plan for holding companies.

Grenville Dodge received the first news of Durant's "rig" when his brother Nathan wrote from Council Bluffs during January: "Omaha is in trouble again over the treatment received of Durant and his clique. Orders came yesterday to land all iron at Bellevue, and Omaha people are given to understand that the terminal of the railroad is to be down there." Next came a grumble from Herbert Hoxie: "I just got a dispatch from Durant to ship to Bellevue instead of Omaha, and he says he has ordered freight at Omaha reshipped. This is damn bad."

General Sherman's Corps was advancing on Meridian, Mississippi. Dodge knew this preluded a drive toward Atlanta. He was under orders to organize rail-repair and bridge crews. But he took time to send a telegram of angry protest to Durant. Durant's reply was prompt and stubborn: "My plan will be carried out or the work abandoned. Iron is being shipped from St. Joseph to Bellevue. This is too important an enterprise to be controlled by local interest. The road can be built by the Kansas line, if no other way. No road through Iowa will terminate at Omaha."

The word battle sputtered on. Rumors spread that Mississippi & Missouri planned to by-pass Des Moines and build northwest to a Pacific Railroad terminal 10 to 25 miles north  p166 of Omaha. Two weeks later the same gossipers had it "on authority" that "the millionaires are going to pull clear out of Iowa and build from St. Joseph to Fort Kearney." Iowa legislators drew up a bill that would rescind Mississippi & Missouri's charter if it veered from the Peter Dey-Grenville Dodge route through Des Moines to Council Bluffs. Chicagoans, Iowans and Nebraskans sent angry petitions to their Congressmen.

Sometime during the winter, too, a brawling group of Union Central Pacific employees shot Samuel Hallett. He died a few hours later. The St. Louis-Pennsylvania backers spent weeks trying to locate a contractor who could carry on. Before construction got under way again late in the spring of 1864, the corporation had reorganized as "the Union Pacific, Eastern Division," had abandoned Hallett's plan to build into Denver via the Smoky Hill route, and concentrated on beating Union Pacific to the 100th meridian line in the Platte Valley.

In New York City, Durant, Olcott and Cisco — with casual approval by General Dix — concentrated on lobbying activities for revision of the Pacific Railroad Act. Inevitably they conferred with Collis Huntington. Huntington, in a rare burst of confidence, may have outlined the scheme of The Associates' holding company. This was precisely the type of "rig" Durant wanted for Union Pacific, since it removed all detail accounting for construction materials' costs from the books of the parent corporation, concealing them from any ambitious politician or embittered stockholder. Both Huntington and Durant were commuting between New York, Washington, and Boston in January and February, 1864. They solicited the same bankers for loans and argued with the same brokers about bond sales.

Moreover, Huntington needed advice. The Associates had named Samuel Montague acting chief engineer of Central Pacific a few days after Theodore Judah's death. But Montague had neither Judah's reputation nor experience. Central Pacific needed a consulting engineer with a quotable background of  p167 achievement. Judah's death had rekindled the charges about "end of the line at Dutch Flat" and "using Federal funds to build a feeder line for the Donner Pass wagon road." Appointment of an engineer with a sound reputation should help scotch "the Dutch Flat Scandal."

Durant could afford to be gracious. Union Pacific had already hired Horatio Seymour's brother Silas. George Gray, chief engineer of the New York City, was a likely prospect. Cornelius Vanderbilt was sparring with the Central's owners; Vanderbilt hadn't lost a fight yet. When the Commodore took over New York City he'd probably put on his own engineering staff. Gray might consider a move to California. Huntington interviewed George Gray, and recommended him to Leland Stanford. Gray sailed for California during the spring of 1864, settled in amiably with Montague and Clement, and decades later succeeded Montague as chief engineer of the Southern Pacific system.

During the conversations about Gray, Huntington may have dropped hints about the Associates' techniques to Durant. If so, they coincided with the discovery that George Francis Train made in Pennsylvania during January or early February. In the early spring of 1859 a group of Pennsylvanians had organized a holding company specifically intended to finance the construction of railroads. It was approved by the State Legislature under the name of the Pennsylvania Fiscal Agency. A board of directors was elected in May, 1863. But no projects were under way when George Francis Train appeared at the Philadelphia office in midwinter, 1864. Train's report to Durant led to a series of meetings.

On March 3, Durant purchased the charter of the Pennsylvania Fiscal Agency. Three weeks later Pennsylvania's Legislature pushed through a special act ruling, "From and after the passage of this act, 'the Pennsylvania Fiscal Agency' shall be named instead thereof 'the Crédit Mobilier of America,' with all the powers, privileges and authorities they had under their former name." Permission was also granted to revise the  p168 charter of the company so that an agency "empowered with the authority of the board of directors" could be established in New York City. A railroad bureau could be also established at the "New York agency," the new charter ruled, with "sole management of railroad contracts" under direction of Crédit Mobilier's managers.

The term "Crédit Mobilier of America" is conceded to have been George Francis Train's brain child. It was remarkably bad judgment as the name for an organization that would seek short- and long-term loans from Boston, Philadelphia and New York bankers. Train had appropriated the name of a joint stock company that had scandalized Europe's bankers for a decade. Founded by the Périer Brothers in Paris in 1852, Crédit Mobilier of France announced its intention to "facilitate the construction of public works and develop internal industry." It launched a promotion campaign for European railroad construction in 1855; and paid some dividends. But the bulk of its investments, banking circles learned, was routed to the accounts of Périer Brothers. Few of the railroads materialized. By 1864, the firm's bankruptcy seemed inevitable — and was. Still, Train borrowed the name and convinced Durant of its merit. Simultaneously, Train financed a second organization to deal in real-estate developments along Union Pacific trackage. He gave this the town of "Crédit Foncier of America." Another "borrowed" foreign firm name.

The initial capital of Crédit Mobilier of America was $1,400,000, invested by Durant, Train, Bushnell, McComb and other Union Pacific directors. Of this, $218,000 was used to repurchase the outstanding shares of the Union Pacific Railroad & Telegraph Company. This not only reimbursed Durant for the $160,000‑plus he had invested in the take-over of the railroad from the Federal commissioners, but made him a majority stockholder in Crédit Mobilier; and made Union Pacific a property of Crédit Mobilier — in flagrant violation of the Pacific Railroad Act.

During May and June, Durant joined Bushnell, McComb,  p169 Huntington — and probably Train — in Washington to push through a revision of the 1862 Act.

Huntington was already as much of a Capitol Hill fixture as Ted Judah had been five years before. Matters were looking up for Central Pacific. Its track was approaching Newcastle, 31 miles out of Sacramento. A semidaily schedule of passenger and freight trains operated to railhead. Loans were a bit easier to secure now, especially with the first 40 miles of construction — and more than $1,000,000 worth of Government bonds — in sight. The Associates' prospects would be dazzling if Congress could be persuaded to shift the Federal bonds back to a second mortgage status and permit the railroad companies to issue their own first-mortgage bonds.

A Massachusetts member of the House committee on the Pacific Railroad was proving an outspoken champion for "more aid to the Pacific Railroad." His name was Oakes Ames. He and his brother Oliver owned Oliver Ames & Sons, the Easton, Massachusetts, factory that produced "Old Colony" shovels, hoes and hand tools. The fine Old Colony shovel was in a hallowed category at California mining camps. Major General Grenville Dodge's engineers and "muckers" whacked Old Colony shovels into the red Georgia clay that spring as they rebuilt bridges and rail lines for Sherman's march toward Atlanta. Lieutenant General Grant's sappers and road builders wielded thousands of others on the artillery roads and entrenchments in Virginia's "wilderness." The use of Old Colony shovels and tools on the Pacific Railroad would be a wondrous hedge against postwar depression in Easton. Durant and Ames became dinner companions. Eventually Durant extended Ames an invitation to invest in Crédit Mobilier.

Republican "whips" shared President Lincoln's conviction that the 1862 Act should be liberalized. During May, House and Senate sponsors maneuvered the new bill through committees. Yet the Pacific Railway Act of 1864 encountered bitter debate on both floors and passed with a majority of less than two-thirds. But Huntington and Durant won the clause imperative  p170 to the success of The Associates and Crédit Mobilier; the Act moved Federal loans back to a second-mortgage status and enabled Central Pacific and Union Pacific to print an issue of first-mortgage bonds. The new Act also doubled Federal land grants to ten sections per mile "with •20 miles on each side of the tracks." (A total of •12,800 acres a mile.) And it liberalized the term "mineral rights" by forfeiting all iron and coal deposits on the grant lands to the railroad companies.

Some of the other clauses drew charges of fraud from the opposition who contended that the Act was rewritten after it had passed the committees and that the final draft was voted "blindly, without awareness of its changes by most members of Congress." The Federal loan bonds were to be paid out by the Secretary of the Interior, ruled one of these clauses, upon completion of each •20 miles of track in the mountain areas; two-thirds of these bonds could be collected by the railroad companies before the trackage had been accepted by Federal inspectors. Transportation and telegraph uses by the Federal Government would be paid for at standard rates — one half in cash and one half in credit toward the construction loans. Union Pacific capital stock was shifted from 100,000 thousand-dollar bonds to 1,000,000 hundred-dollar bonds. The president of the United States would appoint, subject to Congressional approval, three inspection commissioners for each road. The number of Federal appointees to Union Pacific's board was increased to five. Both the inspection commissioners and the railroad's government directors would come under the jurisdiction of the Secretary of the Interior of the United States.

Durant later alleged that he spent $437,000 on "expense accounts" during the months of lobbying for the 1864 Act. In 1873, Oakes Ames testified that there was no evident of such lavishness and charged that "Durant must have put the money in his own pocket." Whatever the truth, Oakes and Oliver Ames were bustling around Boston by September, 1864, soliciting loans for Union Pacific and investments in Crédit Mobilier. During the next six months they sold more than  p171 $400,000 worth of Crédit Mobilier stock to friends and political contacts, and invested another $400,000 of the family fortune in the holding company. By the spring of 1865 they held voting options on more than one-third of this company's stock.

With Crédit Mobilier launched and the Railroad Act revised, Durant was ready to start construction. The new Act stated that all of the branch lines to the 100th meridian must have •100 miles of trackage approved by Federal inspectors not later than June 27, 1866, and must be at the 100th meridian by mid-December; thereafter construction was to proceed at a rate of not less than •100 miles a year. The feud with Omaha, Council Bluffs and Des Moines about the Eastern terminal still sputtered. Peter Dey wrote sardonic letters to Grenville Dodge that labelled Durant as "needing common sense more than anything else." But Dey held on as chief engineer and ran location surveys from Omaha over the bluffs to the Elkhorn Creek-Platte junction.

Formally, on Union Pacific stationery, Durant offered the construction contract for the first •100 miles of Union Pacific to his "advance man"-lobbyist, Herbert Hoxie. Hoxie's reply asked that his contract be extended another •147 miles to the 100th meridian, and wrote, "I will subscribe, or cause to be subscribed, for $500,000 of the stock of your company." The request was formally granted. Hoxie then assigned his contract, at $50,000 per mile, to Crédit Mobilier of America. His fee as dummy in the transaction is estimated to have been $10,000 in Union Pacific first-mortgage bonds.

Dey held his temper, accepted orders from Hoxie, and began building grade. The only work gangs available were river-boat roustabouts and farm youngsters. He had no assurance that Hoxie or Crédit Mobilier could meet pay rolls. A few boxes of shovels and some kegs of blasting powder showed up on steamboats from St. Louis. That was it. Rails and ties, Hoxie said, would "get to rolling" during the winter.

Dey drove the gangs on a dawn-to‑dusk schedule, fighting  p172 for embankment mileage before freeze-up. Their grading was atop the bluffs, •15 miles out of Omaha, the morning that Colonel Silas Seymour and Federal Inspector Jesse Williams rode into camp. Seymour carried a letter of introduction from Durant. Seymour and Williams would, the letter said, inspect all grading to date.

The frosts came. So did Seymour's disapproval of Dey's grade. Trackage, he was grieved to report, must run farther south toward Bellevue; a pity that so much of the firm's funds had been used for this "unrealistic" dirt pile. All of it would have to be abandoned, and a fresh start made in the spring.

Early in January, 1865, Peter Dey sent his resignation to Durant. "I am giving up," he wrote Grenville Dodge, "the best position this country has ever offered any man." Like Ted Judah, he had held the position of chief engineer for one year and was forced out by the office politics of a holding-company monopoly.

Silas Seymour settled into an Omaha boardinghouse, as acting chief engineer. The Union Pacific Railroad was still a stock-juggler's mirage, with •247 miles of track to be built during the next 23 months; otherwise the Federal grants would be forfeited.

---

Thayer's Note:

a Unless I am mistaken, this is a slip for "shares of stock". At any rate, one unpleasantly disingenuous reviewer claimed that our author didn't know the difference between a stock and a bond, which is hardly the case; seizing on some such single slip — where, he didn't say. Faults there are with Howe's book, as I point out on my orientation page, but this is not one of them.

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