Sounds simple, and it was. Although he had failed to sell the UP, Train said, “an idea occurred to me that cleared the sky.” He mentioned it to the Doctor, who gave him $50,000 to put it into action. In March 1864, Train and Durant bought control of an obscure Pennsylvania corporation called the Pennsylvania Fiscal Agency that had been chartered five years earlier to do damn near anything it wished. The company had not even organized until May 1863, and then it had transacted no business until March 3, 1864, when Durant and Train were made directors. In May the board of directors was expanded to bring in more men from the UP. Train renamed it the Crédit Mobilier of America and made it into a construction company. The two principals, Durant and Train, were able to sell lots of stock in a company that couldn’t miss. Ben Holladay, founder and owner of the stagecoach line, bought $100,000; so did many others. Train took $150,000, Durant more than double that. Train later claimed that he had created “the first so-called ‘Trust’ organized in this country.”25 Crédit Mobilier was on its way.
Greatly simplified, the process worked this way: The Union Pacific awarded construction contracts to dummy individuals, who in turn assigned them to the Crédit Mobilier. The UP paid the Crédit Mobilier by check, with which the Crédit Mobilier purchased from the UP stocks and bonds—at par, the trick to the whole thing—and then sold them on the open market for whatever they would fetch, or used them as security for loans. The construction contracts brought huge profits to the Crédit Mobilier, which in turn was owned by the directors and principal stockholders of the UP. In short, it didn’t matter if the UP ever got up and running and made a profit, because the Crédit Mobilier would make a big profit on building it. Profit that it would pay out to its stockholders in immense amounts.
As historian Thomas Cochran comments, “The procedure was a general one in the building of western railroads, and often resulted badly for the original small investors who had bought the railroad bonds or stocks at or near par.” But for the insiders it meant excessive profits. “In addition, it necessarily tended to vest control of the railroad in the hands of the chief stockholders of the construction company.”26
CHARLES Francis Adams, Jr., grandson of two presidents and one of America’s leading intellectuals and columnists, became a principal critic of the Crédit Mobilier, which became the greatest financial scandal of America in the nineteenth century. But when he became president of the Union Pacific in the 1880s, he would see things in a different light. He told Halsey Merriman, a scathing critic of the original board of directors of the railroad, “It is very easy to speak of these men as thieves and speculators. But there was no human being, when the Union Pacific railroad was proposed, who regarded it as other than a wild-cat venture. The government did not dare to take hold of it. Those men went into the enterprise because the country wanted a transcontinental railroad, and was willing to give almost any sum to those who would build it. The general public refused to put a dollar into the enterprise. Those men took their financial lives in their hands, and went forward with splendid energy and built the road the country called for. They played a great game, and they played for either a complete failure or a brilliant prize.”27
ALMOST everyone in Congress knew that the 1862 act would have to be revised, modified, changed. Representative James G. Blaine of Maine, a future perpetual candidate for president, later observed, “Such was the anxiety in the public mind to promote the connection with the Pacific that an enlarged and most generous provision was made for the completion of the road.” The struggle with the South, he added, meant “that no pains should be spared and no expenditures stinted to insure the connection with … the interests of the Atlantic and Pacific Coasts.”28
One congressman noted, “Mr. Lincoln said to us that his experience in the West was that every railroad that had been undertaken there had broken down before it was half completed…. He had but one advice to us and that was to ask sufficient aid…. He said further that he would hurry it up so that when he retired from the presidency he could take a trip over it, it would be the proudest thing of his life that he had signed the bill in aid of its construction.”29
In May 1864, a bill to provide sufficient aid was introduced into the House; a similar bill was introduced into the Senate by Senator John Sherman, General William Sherman’s brother. They and most others believed that there had to be more inducement for capitalists to invest. Representative Hiram Price of Iowa put it this way: “I do not believe that there is one man in five hundred who will invest his money, and engage in the building of this road, as the law now stands.”30 But some politicians still held back. Representative E. B. Washburne of Illinois called the revised bill “the most monstrous and flagrant attempt to overreach the government and the people that can be found in all the legislative annals of the country.” He charged that the bill had fallen into the hands of “Wall Street stock jobbers who are using this great engine for their own private means.”31
Washburne was right about that last. Durant was in Washington handing out money and stocks of the UP. Huntington of the CP was also there, working for the new bill. When it finally passed in late June, Washburne noted a “tempest of wildest disorder” in the packed galleries and corridors in which “lobbyists, male and female,” crowded and jostled each other.32
On July 2, 1864, Lincoln, always the railroads’ first and finest friend, signed the bill into law. It was everything Durant and his fellow directors, and Huntington and his, could have wanted.
The Pacific Railroad Act of 1864 allowed the directors of the UP and the CP to issue their own first-mortgage bonds in an amount equal to the government bonds, thus putting the government bonds in the status of a second mortgage. The government bonds (actually, the loan to the railroads) would be handed over by Washington upon the completion of twenty miles of track rather than forty. In mountainous regions the companies could collect two-thirds of their subsidy once the roadbed of a twenty-mile section was prepared—that is, graded. Also, the companies were given rights previously denied, to coal and iron and other minerals in their land grants, which were meanwhile doubled to provide ten alternate sections on each side of every mile, or about 12,800 acres per mile. To attract investors, the par value of UP stock was reduced from $1,000 to $100, and the limit on the amount held by any one person was removed.
The act allowed the Central Pacific to build up to 150 miles east of the California-Nevada border and limited the UP to building no more than three hundred miles west of Salt Lake City, but no meeting point was designated. Maury Klein has pronounced his judgment: the act included these and other provisions that were “monuments to ambiguity.” But as he also points out, “The object was to induce private parties to build the road that everyone agreed must be built.”33
Lincoln did two other things for the UP. First, on November 4, 1864, he approved the first hundred miles of the permanent location of the tracks, as requested by Durant—from Omaha to the west. Second, as directed by the bill, he set the gauge at four feet eight and a half inches, the so-called “standard gauge” urged on him by Eastern railroaders.
HOW much Durant and Huntington spent to make the 1864 act pass no one has ever found out. A lobbyist hired by Durant, Joseph P. Stewart, distributed $250,000 in UP bonds, with $20,000 of them going to Charles T. Sherman, eldest brother of the senator and the general, for “professional services.” Doc also gave to congressmen’s campaign funds, including one for S. S. “Sunset” Cox. Others got their shares, including a young New York lawyer named Clark Bell who got $20,000 for drawing up the act.
Durant was a genial paymaster. An associate called him “the most extravagant man I ever knew in my life.” Another called Durant “a fast man. He started fast, and I tried to hold him back awhile, but he got me to going pretty fast before we got through. He was a man who when he undertook to help to build a railroad didn’t stop at trifles in accomplishing his end.” So too with George Francis Train. As soon as the bill passed, he went off to Omaha (“the seat of Empi
re,” as he called it) for the first of three trips that year. He charged the UP $4,000 for “expenses and services.”34
ON July 2, 1864, the day Lincoln signed the act, Confederate General Jubal Early, commanding a part of Robert E. Lee’s army, crossed the Potomac River to invade Maryland, and by July 11 he was within five miles of Washington. On July 13, Early was driven back. Grant then gave command of the Army of the Shenandoah to General Philip Sheridan, who in the late summer and fall turned defeat into victory. Grant meanwhile was fighting the terribly costly but ultimately successful battles around Petersburg, Virginia, while Sherman was marching with a hundred thousand men through Georgia. On September 1, 1864, Sherman would march into Atlanta and later burn it to the ground.
Dodge served Sherman in two ways, first as commander of the left wing of the Sixteenth Army Corps, second as Sherman’s personal director of a pioneer corps of fifteen hundred men rebuilding railroads and bridges destroyed by the Confederates as they retreated. Sherman later said that the greatest single piece of bridge construction he ever saw was at Roswell, Georgia, where Dodge’s men built a bridge fourteen hundred feet long. Sherman wrote Dodge, “I know you have a big job, but that is nothing new for you…. The bridge at Roswell is important and you may destroy all Georgia to make it strong.”35
Just before Sherman occupied Atlanta, Dodge went to the front to look over the field before attacking. It was mid-afternoon when he reached the entrenchments. “The boys cautioned me about exposing myself,” he later wrote, “and one of them said that if I wanted to see the enemy I could look through a peep-hole they had made under a log. I put my eye to this peep-hole, and the moment I did so, I was shot in the head. I went down immediately.”36
It was a bad wound. He was unconscious for two days, and word went out that he was dead. But Sherman reached him at the end of the second day, just as he was regaining consciousness. “Doctor,” Sherman said, “Dodge isn’t going to die. See, he’s coming to.”37
DODGE went to the hospital, first in Chattanooga, then in Nashville, finally at Council Bluffs, where the whole town turned out to hear him. “I trust that I can return to Sherman’s army in a few days,” was all he said.38 He had been in town for but a week when he received a telegram from Durant, urging him as soon as he could travel to come to New York to meet with UP officials. In the first week in October, Dodge did so. Doc wanted him to resign from the army and take the position of chief engineer with the railroad. Dodge said no. Instead he took a boat down to City Point, Virginia, where Grant had his headquarters.
He stayed a week. Grant had him inspect the various divisions and corps in his army, then asked Dodge if he would take command of one of them. No, Dodge answered—he preferred to serve in the West. Grant did not think he was up to serving with Sherman again, but humored him, and suggested that he go west by way of Washington and call on President Lincoln. Grant gave no special reason.
Dodge went to Washington on Grant’s own boat. In the capital he went to the White House, where Lincoln greeted him cordially. After pleasantries, Dodge got up to leave. Lincoln reached out with that long arm of his, put his hand once again on Dodge’s forearm, and told him to wait until the two of them were alone. By and by they were, and Lincoln locked the door. After reading aloud something by humorist Artemus Ward, which always gave him a laugh, Lincoln turned to the Army of the Potomac. Did Dodge think Grant could defeat Lee? Could he take Richmond? Dodge said yes. Lincoln placed his hand on Dodge’s and said with great emotion, “You don’t know how glad I am to hear you say that.”39
Shortly thereafter, Grant and Lincoln sent Dodge farther west than he had bargained for, all the way to St. Louis, where he became commander of the Department of the Missouri. Lincoln wanted him there because Missouri, although still in the Union, was a slave state with markedly mixed motives. Grant wanted him there because of the problems confronting the government from the Indian situation on the Great Plains, because of the tides of emigration just moving out onto the Plains, and to protect the UP when it began building.
Dodge’s record in the Civil War could not have been better. What counted most was his skill with railroads. But what mattered for his future was more than what he had learned about the construction of railroads; it was the friendships he had earned. Grant, Sherman, and Sheridan had started a relationship with Dodge that grew over time. They trusted him, as he did them. They would do anything in their power for him, and he for them. Union General O. O. Howard observed that “Dodge could talk to Sherman as no other officer dared to do.”40
ON December 6, 1864, the newly re-elected Lincoln, who had Sherman’s capture of Atlanta and Grant’s triumphs in northern Virginia behind him, delivered his Annual Message to Congress. The war was his principal topic, but he gave a paragraph to the transcontinental railroad, calling it “this great enterprise.” He said it “has been entered upon with a vigor that gives assurance of success, notwithstanding the embarrassments arising from the prevailing high prices of materials and labor. The route of the main line of the road has been definitely located for one hundred miles westward from the initial point at Omaha City, Nebraska, and a preliminary location of the Pacific Railroad of California has been made from Sacramento, eastward, to the great bend of the Truckee River, in Nevada.”41
BY that December, engineer Dey had graded and spent $100,000 on twenty-three miles of line from Omaha west to the Platte Valley. And he exploded when Silas Seymour, the consulting engineer, demanded that it be abandoned. Seymour—and his backer, Durant—favored a route up Mud Creek, a detour to the south in the shape of an oxbow, which added nine miles. It would bring in an extra $144,000 in government and company bonds, plus 115,200 acres of federal land grants, and more profits for the Crédit Mobilier.
There was another dispute. Dey had estimated $30,000 per mile as the cost out of Omaha and up the Platte Valley, But in the fall of 1864, the UP had accepted a proposal from Herbert “Hub” Hoxie, an Iowa politician selected by Durant as a front man—meaning most of all that he was willing to carry out Doc’s intentions. Hoxie said he would build the road for $50,000 to $60,000 per mile for the first 247 miles. On September 23, the contract was signed, and almost immediately turned over to Crédit Mobilier. Durant then instructed Dey to resubmit his own proposal and make it $60,000 per mile. Dey brooded over Durant’s order for five weeks before writing Durant that he believed that amount “would so cripple the road that it would be impossible to ever build [it].”
Dey thought about it some more, and on December 7, one day after Lincoln’s triumphal speech to Congress, he wrote President Dix to tender his resignation. “My reasons,” he said, “are, simply, that I do not approve of the contract made with Mr. Hoxie … and I do not care to have my name so connected with the railroad that I shall appear to endorse this contract.” He wanted no part of the whole thing, and so, reluctantly, he “resigned the best position in my profession this country has ever offered to any man.”42
When Dey left Omaha on the last day of 1864, the Union Pacific had yet to lay a single rail. The corporation had graded just over twenty miles of roadbed and put down not one tie, much less rail.
FOR all its problems and travail in getting started, the UP and its western mate the CP were about to become the biggest businesses in America. The Erie, the New York Central, the Pennsylvania, the Baltimore and Ohio, the Illinois Central, the Michigan Central, and the Michigan Southern, all railroads built before the war, were then the largest business enterprises in the nation. Running them required wholly new methods, just as financing and building the UP and the CP did, and the last two were destined to be much larger than their predecessors.
The general superintendent of the Erie, Daniel C. McCallum, described his problems and practices in dealing with the new methods of management brought on by the sheer size of the railroads:
A Superintendent of a road fifty miles in length can give its business his personal attention and may be constantly on the line engaged in the direction of i
ts details; each person is personally known to him, and all questions in relation to its business are at once presented and acted upon….
In the government of a road five hundred miles in length a very different state exists. Any system which might be applicable to the business and extent of a short road would be found entirely inadequate to the wants of a long one.43
The UP and the CP and the other, lesser railroads were about to bring a revolution to America. As historian Alfred D. Chandler says, “As the first private enterprises in the United States with modern administrative structures, the railroads provided industrialists with useful precedents for organization building…. More than this, the building of the railroads, more than any other single factor, made possible this growth of the great industrial enterprise. By speedily enlarging the market for American manufacturing, mining, and marketing firms, the railroads permitted and, in fact, often required that these enterprises expand and subdivide their activities.”44
Alexander Hamilton and Henry Clay had wanted American manufacturing to grow, but they could imagine nothing like what happened after the Civil War. Nor could Lewis and Clark, who had led the way west. Nor Thomas Jefferson. And none could foresee the way in which the UP and the CP created a precedent for government aid to business, or how the government could create a new class of capitalists. Men of great fortune, already tied to the Republican Party. Men ready to take great risks and to accept great profits.
* As Representative William Holman of Indiana said during the debate over the original Pacific Railroad Bill, “This road could never be constructed on terms applicable to ordinary roads…. It is to be constructed through almost impassable mountains, deep ravines, canyons, gorges, and over arid and sandy plains. The Government must come forward with a liberal hand, or the enterprise must be abandoned forever.”
Nothing Like It in the World The Men Who Built the Transcontinental Railroad 1863-1869 Page 11