Fraud and Corruption at Credit Mobilier

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Editorial cartoon: Uncle Sam directs U.S. Congressmen implicated in the Crédit Mobilier scheme to commit hara-kiri.

Following the Civil War, the Credit Mobilier company used taxpayer money to bribe politicians and make profits for railroad executives at the expense of the people.

The Credit Mobilier scandal exposed a massive abuse of taxpayer money by the federal government and businesses vying for government contracts. The scandal involved many prominent politicians, mostly Republicans, including Vice President Schuyler Colfax and future President James Garfield.

Background to Credit Mobilier

During the Civil War, Congress had created the Union Pacific (UP) Railroad, and this company was granted massive amounts of land and taxpayer money to build a transcontinental railroad. UP executives created their own construction company, the Credit Mobilier of America, to build the railroad line.

Since the stockholders for UP and Credit Mobilier were identical, these investors essentially hired themselves to do the work. The investors and their accomplices billed the government for construction, which was about twice the actual cost of building the line. The conspirators then pocketed the rest of the money, which totaled about $33 million.

Keeping the Scheme Secret

Quarrels between the conspirators and those threatening litigation began generating publicity. To keep the scheme quiet, congressman and Credit Mobilier executive Oakes Ames of Massachusetts was directed to distribute free railroad passes and stock options to prominent members of Congress and the (President Ulysses S.) Grant administration. Many politicians were bribed into buying the stock at par, which was $5 per share. The large dividend assigned to the stock soon made it worth more than $100 per share.

The Scheme Is Exposed

When Ames feuded with fellow conspirator Henry McComb, McComb went to the New York Sun with a list of the politicians whom Ames had bribed. The Sun reported that Credit Mobilier was granted a construction contract worth $72 million when the railroad line only cost $53 million to build. To keep Congress from investigating, it was alleged that several prominent politicians were paid from the enormous profits to keep quiet.

Many of those who were implicated angrily denied the charges. Some admitted to receiving the payments and were honestly surprised that anyone would have seen misconduct in such transactions. Since most involved were Republicans, the Democrats charged that the Republicans were using government expansion and business connections to finance their re-election campaigns.

Most Americans were outraged that their own tax dollars had been used by railroad executives to bribe their own elected officials. Even without the Credit Mobilier scandal, there had been complaints about the misappropriation of land and tax funds by Union Pacific, which had recently declared bankruptcy.

Congressional Investigation

A congressional committee conducted hearings into the Credit Mobilier scandal. This investigation brought startling revelations about the nation’s top politicians. Over 30 congressmen admitted to either buying or having been given stock. However since Congress was dominated by Republicans, and most of the politicians involved were fellow Republicans, the committee’s wrath turned on Ames himself.

Ames was demonized because he had supposedly tried to influence simple-minded officials who were unaware of Ames’s motives when he distributed the favors. Ames was censured along with James Brooks, one of the few Democrats involved. Most others, including Vice President Schuyler Colfax and future President James Garfield, were exonerated despite overwhelming evidence of their guilt. Garfield had even perjured himself by testifying that he had received no stock, but no further action was taken against him.

The Legacy of Credit Mobilier

This scandal revealed not only the shady relationship between Union Pacific and Credit Mobilier, but the even shadier relationship between business executives and politicians. While the scheme technically broke no laws since Congress did not specify that the parties involved could not make a profit, Americans were furious that their tax dollars were used for such fraudulent and unethical means.

Congress responded to this scandal by enacting a wave of regulations on the railroads that virtually assured that they could never operate efficiently again. Credit Mobilier demonstrated the corruption and abuse of the public trust that often happens when government subsidizes business.

Sources:

  1. Bowers, Claude: The Tragic Era (Cambridge, MA: The Riverside Press, 1929)
  2. DiLorenzo, Thomas J.: Hamilton’s Curse (New York, NY: Crown Forum, 2008)
  3. Richardson, Heather Cox: West from Appomattox (New Haven, CT: Yale University Press, 2007)