Chapter 3 No.3

Mostly Financial.

Preliminary Organization - Board of Commissioners - Company Organized - Directors and Officers Elected - Hoxie Contract - Credit Mobilier - Ames' Interest - Compromise Contract - Davis Contract - Cost of Line - Land Grant.

When the Pacific Railroad Bill passed Congress and received the President's signature in 1862, there was a well organized company to take hold of the western or California end. The Union Pacific or eastern end was not in such good shape. Thomas C. Durant, who was afterwards Vice President of the Company had with a few associates taken a prominent part in the matter but no regular organization existed.

Under the Charter there were one hundred and fifty-eight persons named, who, together with five to be appointed by the Secretary of the Interior were to constitute a "Board of Commissioners" to effect a preliminary organization, open books for the subscription of stock and to call a meeting of the stockholders to elect a board of directors as soon as two thousand shares had been subscribed and ten dollars per share paid in.

When the board of directors had been elected, the property or rather the proposition was to be turned over to them and the duties of the Board of Commissioners should cease and terminate.

The Company thus organized, should follow established precedents, stockholders should hold annual meetings, elect a board of directors, and adopt bylaws and rules for the conduct of its affairs. The directors thus elected to be not less than thirteen in number, two to be added to their number by appointment of the President of the United States. The Board of Directors to elect the officers of the company and exercise supervision.

The Board of Commissioners met in Chicago in September, 1862, and organized, electing W. B. Ogden, President and H. V. Poor, Secretary, as called for in the charter, and subscription books were duly opened. There was no disposition on the part of moneyed men to subscribe for the stock and it was only owing to a few public-spirited men coming in and taking the two thousand shares that the Charter did not lapse. When the necessary stock had been subscribed, a meeting of the stockholders was held in New York City, in October, 1863, at which a Board of Directors were to be elected,-a strange situation confronted them, there being no man or set of men who were able to assume control, although there were no lack of cliques who were desirous of doing so, but these were largely irresponsible parties either lacking in the necessary capital or not command the confidence of those who did have it.

Something had to be done, and accordingly thirty men of more or less prominence were elected to the position of directors, some of them without their knowledge and some declined to serve. The Company was accordingly organized October 30th, 1863. General John A. Dix, who was elected President, had been a member of the Cabinet and later a general in the United States Army, was a man who was universally respected. The position was not of his seeking, and he gave notice he had neither the time nor inclination to give active attention to its affairs and the burden was practically assumed by the Vice-President Elect, Thomas C. Durant. But two hundred and eighteen thousand dollars the ten dollars per share called for by the Charter on two thousand one hundred and eighty shares had been paid in and further funds were not obtainable. Agitation was kept up and due representation made to Congress, resulting in an amendment to the Charter being passed. After the passage of the Supplementary Act in 1864 made necessary by the failure to secure funds, it was still regarded as an unpromising investment for the reason that investors could not feel any assurance that they or their friends would have any voice in the management of affairs or control of the Company. The capital of the Company was fixed by the supplementary act at one hundred million dollars, (one million shares at one hundred dollars each), consequently any interest holding over fifty millions of the stock would be paramount and vice versa. Until it was determined who would be in control, investors fought shy. Under the Charter the subscription books must remain open until the completion of the road, making it possible for outsiders to wait until the road was near completion and then step in and by large subscriptions acquire control.

As there were some funds available, a contract was entered into in May, 1864, with H. M. Hoxie, to build the first hundred miles. This contract was extended to cover from Omaha to the hundredth Meridian, two hundred and forty-seven miles, on October 3rd, 1864, and on the 7th of the same month assigned to a company (simple partnership) composed of Vice-President Durant and six others, all stockholders of the Railroad Company. The capital of this partnership consisted of four hundred thousand dollars (but a small percentage of the amount necessary to carry out the Hoxie contract). The members of the firm were unable or else unwilling, owing to the immense personal liability involved, to put up further funds and some other action was necessary.

Durant and his friends accordingly purchased the Charter of a Pennsylvania Corporation of limited liability and elastic powers, known as the "Pennsylvania Fiscal Agency" changed its name by legislative enactment to the Credit Mobilier of America. Subscribers of the two million one hundred and eighty thousand dollars of Union Pacific Stock were given the option of either exchanging Union Pacific stock for that of the Credit Mobilier, sell their Union Pacific stock to the Credit Mobilier, or turn it back to the Union Pacific Railroad Company and have it redeemed. By this the stockholders of the Credit Mobilier became the sole holders of the Union Pacific stock.

The Hoxie contract was reassigned to the Credit Mobilier who duly completed the work, finishing the line to the point specified October 5th, 1866. Owing to their inability to raise funds, it seemed as though the two companies, Union Pacific and Credit Mobilier, would fall down. There was no sale for the First Mortgage bonds of the railroad, the Government bonds were but little better, being worth but sixty-five cents on the dollar. Durant and his friends were not men of wealth nor did they command the confidence of wealthy men. The Company had become greatly involved and was compelled to sell some of its rolling stock to pay pressing debts. It was at this junction that Oakes Ames entered the field, being persuaded, it is said, to do so by President Lincoln who desired to enlist his well-known executive ability and capital in the enterprise. Through the efforts of himself and associates the paid up subscriptions were increased to two and a half million dollars.

The original or first contract made with Hoxie for a hundred miles had been extended to cover up to the hundredth Meridian, and the line to that point, two hundred and forty-seven miles from Omaha, was completed October 5th, 1866.

The second contract made was with a Mr. Boomer for one hundred and fifty-three and thirty-five hundredths miles from the hundredth Meridian west, at the rate of nineteen thousand five hundred dollars per mile for that part of the distance East of the North Platte River and twenty thousand dollars per mile west thereof. Bridges, station buildings, and equipment to be additional. This contract was also assigned to the Credit Mobilier. On this, fifty-eight miles were completed when dissensions arose, occasioned by financial stringency among the stockholders of the Credit Mobilier. Vice-President Durant going into court, compelled suspension of action on the third contract, made March 1st, 1867, with one J. M. Williams who had assigned it to the Credit Mobilier. This covered two hundred and sixty-six and fifty-two hundredths miles, commencing at the hundredth Meridian at the rate of fifty thousand dollars per mile. For a time matters were at a standstill, injunctions preventing the completion of present or the making of new contracts.

Finally a compromise was affected between the two factions, Durant and his friends on the one side, and the Ames interests on the other.

Under this, a fourth contract was made with Oakes Ames for which he was to receive from forty-two thousand to ninety-six thousand dollars per mile or forty-seven million nine hundred and fifteen thousand dollars for six hundred and sixty-seven miles, commencing at the hundredth Meridian. This it is supposed is the largest contract ever made by one individual. It was later transferred by Oakes Ames to seven trustees acting for the Credit Mobilier, he and his brother Oliver Ames being among the number. This last contract carried the line to nine hundred and fourteen miles from Omaha.

The fifth contract was made with J. W. Davis for one hundred and twenty-two miles at twenty-three million four hundred thousand dollars, and was in turn assigned to the same seven trustees for completion. In adjustment of accounts the Union Pacific Railroad Company would turn over to the Credit Mobilier or the Trustees for the Credit Mobilier in payment for the work as fast as it was completed First Mortgage (Union Pacific Railroad) Bonds, Government Bonds, Union Pacific Railroad Income Bonds and Union Pacific Railroad Stock, these being sold or hypothecated by the trustees, furnished them the necessary funds required to pay for the construction work.

As the Union Pacific Stock could only be sold for cash at par according to act of Congress, notwithstanding it was only worth thirty cents on the market, the Railroad Company would give their check to the Credit Mobilier on construction account and this check could then be used in payment of stock, making it a cash transaction.

In settlement of the several contracts, the Union Pacific Railroad Company paid the Credit Mobilier:

Miles

Hoxie Contract

Omaha to 100th Meridian 247 $12,974,416.24

Ames Contract

100th Meridian West 667 57,140,102.94

Davis Contract

To point five miles west of Ogden 125 23,431,768.10

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1039 $93,546,287.28

These figures represent stocks and bonds at par and deducting amount of depreciation, would bring the actual cost of the Main Line Omaha to Ogden to about seventy-three million dollars.

There were issued in payment for this construction, equipment, station building, and the expense of the Company during the construction period.

Government Bonds $ 27,236,512.00

First Mortgage Bonds 27,213,000.00

Income Bonds 9,355,000.00

Land Grant Bonds 9,224,000.00

Union Pacific Stock 36,000,000.00

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$109,028,512.00

There were granted to the Union Pacific Railroad Company under its Charter land grants of eleven million three hundred and nine thousand eight hundred and forty-four acres. Up to December 31st, 1866, sales of this land had brought in nineteen million ninety thousand six hundred and seventy-two dollars and forty-two cents and unsold land was then valued at two million three hundred and ninety five thousand five hundred and seven dollars.

During the palmy days of the Credit Mobilier following the adjustment of the differences with the Durant faction, thousands of dollars were spent in advertising and placing the stock. Display advertisements were inserted in all the prominent newspapers and paid agents located in all the important cities. The result demonstrated the wisdom of the expenses, as not only were large quantities of its stock sold but the prices obtained for it were greatly advanced.

No sooner was the completion of the road assured than did antagonism and hostility appear. For instance in 1867 a government inspector appointed for the purpose of examining and accepting completed sections of the road, refused to do so, until he received "his fee" (?) which he put at twenty-five thousand dollars, he being in no way entitled to anything from the Company. By his refusal he tied up the issue of the Government bonds, seriously affecting the credit of the Company at a critical time.

In Washington the lobbyists were demanding blackmail with threats of organized hostility. Speculators in Well Street were a unit in bearing the stock and in attacking the credit of the Company.

The stock of the Credit Mobilier up to the assignment by Ames to the seven trustees, had not met with anything like a ready sale. For reasons of policy, some of this was assigned to members of Congress, Senators, and other public men. Some being paid for, others had it carried on their account. After the crisis had passed, the value of the stock rapidly appreciated and in the forthcoming political campaign the subornation of Congress in the interest of the Credit Mobilier by the use of this stock was made an issue and occasioned a great outcry. The accusation was thoroughly investigated by two committees during the next session and it was clearly proven to have been unfounded, so far as members of Congress having received the stock as bribes, it being demonstrated that the Company had no further favors to ask from Congress and that the members receiving it had paid the market value therefor. Notwithstanding, Oakes Ames was called to the bar of the House and severely censured for having sold it to them. The facts were, popular clamor demanded a scapegoat and Ames was selected. This, and the anxiety and strain of the load he had been carrying proved too much for him and he died May 8th, 1873. After his death the voice of calumny silenced, his work and character received the recognition it so well deserved.

The cost of material used in the construction of the road was enormous, thus the ties brought from the East ran as high as two dollars and fifty cents laid down in Omaha. The rails for the first four hundred and forty miles one hundred and thirty-five dollars per ton. This was before railroad connection was established between Council Bluffs and the East. After that the price got down to ninety-seven dollars and fifty cents per ton.

The pay of laborers ran from two dollars and twenty-five cents to three dollars and fifty cents per day. Train men two hundred dollars per month for conductors, one hundred and twenty-five dollars for brakemen, two hundred dollars to two hundred and fifty dollars for engineers, and one hundred and fifty dollars to one hundred and seventy-five dollars for firemen. Telegraph operators eighty dollars to a hundred dollars.

At times the Company (Credit Mobilier) was paying as high as five hundred thousand dollars per month interest. And in fact it was claimed by several of the directors that the paramount reason for the haste displayed in building the road was not so much the competition with the Central Pacific as it was to get rid of the enormous interest charges they were paying and which they would cut off upon the road being accepted by the Government and the consequent receipt of Government Bonds.(Back to Content)