California Rich

by Birmingham, Stephen;

  The Civil War years were ideally suited for the sort of scheme Huntington, Crocker, Hopkins, and Stanford had in mind. The entire country was caught up in the emotional and financial upheavals of those convulsive times, and everyone—including the United States Congress—was looking the other way. At the very beginning of the war the four organized the Central Pacific Railroad Company with a capital stock of $8,500,000. This figure was almost entirely a fiction. Actually the four had pooled only about $7000, but legislators in both Sacramento and Washington were too busy with other, more pressing matters to ask for a look at the books. Huntington was dispatched to Washington to lobby for congressional funds and support. Stanford, whose sober demeanor and pompous manner had been used to provide an aura of respectability for the group,’ now had another, more important function. He had been elected the first Republican governor of California, and from this post he was quickly able to work wonders for his business partners in the state. The city of Sacramento, for example, offered to donate $400,000 to the Central Pacific’s cause. Placer County offered to lend the railroad $550,000, and the state of California generously handed over $2,100,000 to Governor Stanford’s favorite cause. (The California legislature had often been charged with graft and corruption, and whenever these charges seemed a bit too threatening, the legislature would piously investigate itself for a week or so and then announce that the investigation had proved the legislative body to have been beyond reproach.)

  Collis Huntington meanwhile was doing excellent missionary work for the Central Pacific in Washington. In 1862 an act of Congress was passed by which some $25,000,000 in 6 percent government bonds, along with four and a half million acres of public lands, were placed at the disposal of the San Francisco foursome. Here and there a few mild voices were heard in protest over the government’s generosity, but the complaints were quickly dismissed. After all, the San Francisco group pointed out, the government was fully protected; its loans to the Central Pacific were covered by a first mortgage, and should the company default, the government could always step in and recover its money. It all sounded logical enough, and two years later Huntington succeeded in influencing Congress again, and the Central Pacific’s land grant was doubled.

  Other interesting perquisites for the railroad were worked out with Congress. The government offered to pay the Central Pacific $16,000 a mile for track laid over flatland and $32,000 a mile for track across foothills and mountains. Huntington accepted this but apparently felt that it was not quite generous enough, even though, with the cheap Chinese labor he planned to use, the actual cost of laying track was estimated at only half these figures. Huntington remedied this by drawing up a new map of California. In the Huntington version of the California topography the Sierra Nevada mountains were placed some twenty-five miles west of where they actually started. By coincidence, this was the exact point at which the Central Pacific planned to start laying track. For twenty-five miles of imaginary mountains the San Francisco quartet accepted an additional fee of $400,000 from the United States government.

  Now it was time to select the contractors to build the road. Theodore Judah, who had done the extensive original groundwork of making surveys, plans, and estimates—and who, in fact, had had the original idea for the line—quite naturally assumed that the plum would be given to him. He was mistaken. When the board of directors of the contracting company were announced, their names were Collis P. Huntington, Leland Stanford, Charles Crocker, and Mark Hopkins. Furious, Judah sailed off to Washington to protest this arrangement. Crossing the Isthmus, he contracted yellow fever and died. On January 8, 1863, amid much fanfare, celebrating, band music, and speechmaking, Governor Leland Stanford, president of the Central Pacific Railroad, lifted the first shovelful of earth from the bank of the Sacramento River and deposited it into a wagon draped with red, white, and blue bunting. Construction of the quartet’s railroad was under way.

  The four men divided their chores carefully. Huntington was in charge of finances and of dealing with Washington and the Congress. Stanford was in charge of political dealing and lawmaking in the California capitol. Crocker supervised the actual building of the railroad, and when criticized for employing 16,000 Chinese laborers instead of native whites, he airily replied, “They built the Great Wall of China, didn’t they?” As the line pushed eastward he followed it in his private railroad car, dismounting by day to take to his horse; from his mount he bellowed to his workers in the roadbeds and supply camps to dig harder and faster. Mark Hopkins’ bailiwick was office detail, and, a great string-saver, he saw to it that the partners’ money was spent as frugally as possible. He inspected office waste-baskets for bits of paper that might be reusable, and when he rode out to inspect the tracks he kept his eye out for stray nuts and bolts. It was Mr. Hopkins’ suggestion that the Chinese laborers be paid in cash, in gold and silver coins. Thus there would never be a clear record of just how much the Central Pacific had cost to build.

  Once the initial government loans and gifts had been collected, the foursome abandoned all pretense of honesty and set out to defraud any and all in sight—not only the state and federal governments but also the other states, cities, and counties through which the Central Pacific was to pass. At one point a gift of $50,000,000 was received from the state of Nevada. In addition the partners issued themselves $33,722,000 in bonds and $49,005,000 worth of stock. In the meantime work progressed with astonishing speed under the driving whip hand of Mr. Crocker. On good days, where the terrain was relatively flat, as much as a mile of track a day was laid, and depending on whether the territory appeared on Mr. Huntington’s new map as flatland or mountain, the company received another $16,000 or $32,000 from the United States government. A feverish race had begun between the Union Pacific Railroad, in the East, which was building westward, and the Central Pacific, moving eastward, each line determined to outdo the other in the number of miles of track laid. Finally, on May 10, 1869, six years after construction had started, the two railroads met at Promontory, Utah. Two locomotives draped in flags moved slowly toward each other, one from the East and one from the West, and pulled to a stop a few feet apart. There was tumultuous cheering, and Governor Stanford made a long, windy speech promising vast riches to every town and hamlet through which the transcontinental railroad passed. The last polished tie was ceremoniously laid in place. A final golden spike was set into place, and the portly governor solemnly raised a silver mallet, aimed at the golden spike, swung, and missed. The miss was symbolic of the chaotic state of American railroads at the time, but no one caught the symbolism.

  When the news reached San Francisco by telegraph that the east and west coasts were now linked by a ribbon of steel, there was great public celebration. Church bells rang and fire and police whistles blew. From the bars of the steamy Tenderloin to the mansions of Nob Hill there was more singing, shouting, and cheering. Across the coast-to-coast railroad, Californians were assured, would come even greater riches to the West.

  And indeed the riches did come—for a while, at least. But by far the greatest riches from the Central Pacific had already accrued to Messrs. Stanford, Crocker, Hopkins, and Huntington. Just how much they had made has never become quite clear, but according to one estimate it had cost $27,217,000 to build the 1171 miles of Central Pacific track, while the foursome had collected more than three times that sum. After the completion of their line they loaded it down with a capitalization of $139,000,000, which was only the beginning of still more stock inflation. The money that the four men made, furthermore, was based on not a dollar of their own investment.

  The first to die was Mr. Hopkins, in 1876. The size of his estate was “nominally” estimated at $50,000,000, an indication that he may have been worth a good deal more. His widow, Mary, inherited it all. The Hopkinses had already built a palatial house in San Francisco, and Mary Hopkins now embarked on a career of building castles. She built a huge place called Kellogg Terrace in Great Barrington, Massachusetts. It cost $2,000,000. She
built a townhouse in New York, another summer place on Block Island, and yet another house in Massachusetts. In 1887, when she was quite an old lady, she married a man named Edward F. Searles, who was twenty-two years her junior. Mr. Searles had been Mrs. Hopkins’ interior decorator, and she could not, she said, live without his constant advice on matters of decor, despite the fact that when Mr. Searles moved into her house he brought with him a male friend named Arthur T. Walker. Mrs. Hopkins’ adopted son, Timothy, became alarmed at the situation, and four years later his alarm was justified when his mother died, leaving her entire fortune to Mr. Searles.

  A familiar battle began for the Hopkins millions, and Timothy Hopkins sued the estate. A settlement was eventually made, and Timothy was given some $8,000,000. The rest went to Mr. Searles, who, with Mr. Walker still at his side, lived as a recluse behind high walls on his estate in Methuen, Massachusetts. When Mr. Searles died in 1920 the bulk of his estate went to Mr. Walker. One Searles nephew, dissatisfied with a bequest of only $250,000, sued the Searles estate. Again a settlement was made; the nephew received $4,000,000. Now Mr. Walker had the rest of the Hopkins fortune. When a reporter called on Walker about a year before his death—which occurred in 1927—to see how the new multimillionaire was spending his money, the reporter was disappointed. Walker, with the lion’s share of the penny-pinching Mark Hopkins’ fortune, was living in a tiny two-room walk-up flat on Pierrepont Street in Brooklyn. With him lived seventeen cats. In the six years he had spent as a very rich man Arthur Walker had not even purchased a single stick of furniture.

  In the meantime the remaining three directors of the Central Pacific had not been exactly idle. No sooner had the golden spike been driven home in Promontory than Stanford, Huntington, and Crocker leased their own lines to themselves for $3,400,000 a year, to be paid to them out of freight and passenger revenues. Then, as they had done earlier, they hired themselves as contractors to build a hundred-and-three-mile extension to the Central Pacific, and to finance this they issued $8,000,000 worth of stock plus $4,500,000 worth of bonds. Both the stock and the bond issues sold out, despite the fact—which didn’t seem worth commenting upon at the time—that the total market value of the stock and bonds was then only $8,340,000. The cost of building the extra hundred and three miles was $3,505,000, and so the personal profits of the three men from that transaction alone came to about $4,834,000.

  In 1871, Congress had chartered the Texas & Pacific Railroad to run from Marshall, Texas, to San Diego. At the same time a charter was granted to the Southern Pacific Railroad to run from El Paso to San Francisco. With the charter of the Texas & Pacific went 18,000,000 acres of public lands, and with that of the Southern Pacific, 5,000,000 acres. At the head of the Texas & Pacific group was an eastern capitalist named Thomas A. Scott, of the Pennsylvania Railroad; the right to build the Southern Pacific was given to Collis P. Huntington et al. A glance at a map would have revealed that at some point the two lines would, if built, be on a collision course, and that throughout much of New Mexico and most of Arizona they would be running roughly parallel to each other and competing for the same markets. Naturally each group quickly introduced bills in Congress designed to destroy the other, and, understandably, it became a contest to see which railroad could bribe congressmen more effectively.

  On the surface it seemed that Mr. Scott’s forces had certain advantages. During the Civil War, Scott had been placed in charge of government supervision of railroad transportation, and he had made quite a nice thing out of charging excessive fees for transporting troops, equipment, and supplies. This fortune had been the basis for Scott’s acquisition of the Pennsylvania Railroad. The Pennsylvania, furthermore, served Washington, D.C., which enabled Scott to serve congressmen and senators from, as it were, their home bases. Congress found itself showered with free Pennsylvania Railroad passes. “Scott,” Huntington wrote in 1876, “is making a terrible effort to pass his bill.… It has cost money to fix things, so I know his bill would not pass. I believe with $200,000 we can pass our bill.” A few months later, however, it appeared that Huntington had underestimated this cost, and he was writing to his West Coast partners to say, “I am glad to learn that you will send to this office $2,000,000 by the first of January.”* It had come to Huntington’s attention that Scott had offered at least one member of Congress $1,000 in cash outright if he would vote for Scott’s bill, plus an additional $5,000 when the bill was passed, along with $10,000 worth of bonds in the Texas & Pacific, when issued. Still, despite these inducements, the victory went to Huntington and in a later Congressional investigation of Huntington’s machinations it was estimated by the investigating committee “that a large portion of $4,818,535 was used for the purpose of influencing legislation.”

  As far as Huntington was concerned, it was money well spent. He and his partners then proceeded to force the eastern group out of the Texas & Pacific and, quite illegally, to absorb that line into their own, claiming with it the Texas & Pacific’s eighteen-million-acre land grant.

  In 1882, when the committee on the Judiciary finally got around to looking into what was going on with western railroads, it was noted that Thomas Scott’s charter, along with the eighteen million acres, had been granted only on condition that the line be completed within ten years’ time. More than ten years had gone by and not a single foot of track had been laid between Marshall and San Diego. The committee declared that the Southern Pacific should be forced to forfeit this swath of territory across Texas, New Mexico, Arizona, and California, and it righteously drafted a bill of forfeiture and urged its passage by Congress by joint resolution. This bill was presented to Congress. It did not pass.

  * Huntington’s revealing letters to his partners came to light in a lawsuit between the two adversaries. They were later published in full in Driven from Sea to Sea by C. C. Post.

  CHAPTER FOUR

  How to Buy a King

  Still another newly arrived Californian had begun to concern himself with the possibilities of profits that could be turned as a result of the vagaries of western transportation. He was Claus Spreckels, who had been born in Germany in 1828. Many years later the Spreckels family would enjoy claiming that the name had originally been Von Spreckelsen, which would indicate membership in the German nobility, but this was a charming fiction and there is no indication that the family was entitled to the ennobling “von.” Claus, a tall, heavy, muscular youth with a distinctly Hanoverian mien, was the oldest of six children of John Diedrich Spreckels and Geseina Spreckels, poor German peasants, and in 1848, at the age of twenty—faced with revolutionary upheavals in Germany and with the threat of conscription into the German military—Spreckels did what many young Germans were doing. He scraped enough money together—about forty dollars—to book steerage passage to “the land of limitless opportunity” and crossed the Atlantic, taking nine weeks.

  Claus Spreckels arrived in New York penniless and was able to find work as a grocery delivery boy. Within two years he was promoted to clerk and permitted to handle money. He was apparently frugal. Though he had met and married a young German-born girl named Anna Mangles, who promptly began bearing his children—thirteen in all, eight of whom died in infancy—by 1856 he had been able to put aside the imposing sum of eight hundred dollars. With this, though the gold rush was virtually over, Spreckels decided to move his family to San Francisco, where he opened a small grocery store of his own.

  One of the first things Spreckels noticed, now that he was a food merchant on his own, was the high California price of that important household staple sugar. Sugar was largely derived from cane grown in Hawaii, and it was expensively shipped to refineries on the East Coast of the United States, particularly to those owned and operated by Mr. Henry O. Havemeyer’s American Sugar Refining Company in Philadelphia. From there refined sugar made its way back to California. Surely, Spreckels reasoned, there had to be a cheaper and more economical way to do it. In his native Germany, for example, the entire population was supplied with
sugar derived from German-grown beets. After a quick trip back to Germany to study German beet-sugar refining methods, Claus Spreckels in 1863 built a small beet-sugar refinery of his own in San Francisco, using beets grown in the rich adobe soil around Salinas. Now Mr. Spreckels’ sugar was the least expensive that could be found in the state. To be sure, beet sugar—as table sugar—was not of the same quality as cane sugar, but, he was able to demonstrate, it was excellent when it came to fattening beef cattle for the slaughterhouse. Led by such men as Henry Miller, California’s beef-cattle industry was flourishing. Soon Mr. Spreckels’ Western Sugar Refining Company was also prospering, though, compared with Havemeyer’s East Coast operation, Spreckels’ was still very much small potatoes.

  All went well for Claus Spreckels’ beet-sugar business until 1876, when there was terrible news. That year the United States government entered into a treaty with the kingdom of Hawaii that provided for Hawaiian cane to be brought into the country duty-free. This was to the decided advantage of cane refiners such as Mr. Havemeyer, but it threatened to be the ruination of beet-sugar refiners such as Spreckels. Spreckels bitterly opposed the new treaty, and to see what could be done to salvage the situation he journeyed to Hawaii. Here he soon managed to get on friendly terms with King Kalakua, the islands’ easygoing monarch. The two men became poker-playing cronies, and at the end of one evening’s playing, Claus Spreckels found himself the winner of a large part of the island of Maui.

  According to a persistent (though seemingly improbable) family story, Claus won the Maui property through the following ploy. He declared that his poker hand contained four kings. When he laid down the hand, however, he had only three. Kalakua asked where the fourth king was and Claus Spreckels replied, “The fourth king, sir, is yourself.” The king supposedly thought this a wonderful joke. In any case, the youthful monarch accepted his loss in good spirits, and the two men remained lifelong friends. Later Kalakua knighted Claus’s eldest son, John, and presented to him a handsome medal.