Undaunted Courage

  It was too risky a proposition for most American capitalists. No one knew if a train could be run over the Rockies in winter, or what the road over the mountains and through the desert would cost to build. With a war on, there were too many, too fat, profits to be made in shorter-term, less risky investments. People could not imagine how big this project was going to be, or the potential returns.

  But with the 10 percent in hand, the UP was able, on September 25, 1863, to call for a meeting of the stockholders for October 29, 1863. On that day, the original commissioners were discharged and a board of thirty directors elected. The next day, the board elected General John A. Dix, who had been associated with the M&M Railroad, as president. Dignified, polite, but at sixty-five years of age an old man by mid–nineteenth century standards, Dix was known to everyone of note in New York and most of those in Washington. But he was a titular chief only.

  The real leader of the corporation was Doc Durant, who took the title of vice-president, with Henry Poor as secretary. Durant had in his hands reports of the earlier surveys by Peter Dey and his then assistant Grenville Dodge. Durant told the board that two months earlier he had sent Dey west again, with four parties of engineers and a geologist, to survey the entire route, all paid for by his own money.14

  So the Union Pacific was born, more than a year after Congress passed the Pacific Railroad Bill and Lincoln signed it.

  VICE-PRESIDENT Durant went right to work. “Want preliminary surveys at once to make location of starting point,” he telegraphed Peter Dey in Omaha. “Delay is ruinous. Everything depends on you.” On November 5, 1863, Dey hurried to New York. Over the next two weeks, Durant pressed Lincoln to make his decision on the starting point. He finally did so on November 17, a day when the President was distracted: in two days, he was to make some remarks at the dedication of the Union cemetery at Gettysburg. Nevertheless, Lincoln managed to scratch off an executive order defining the terminus as “so much of the western boundary of the State of Iowa as lies between the north and south boundaries of . . . the city of Omaha.”

  Lincoln put more thought into what he would say in Gettysburg, and it came out much better. Still, Durant was satisfied. Despite the lack of a railroad running to Council Bluffs, not to mention a bridge there over the Missouri River, the Union Pacific would make Omaha the starting point.15

  DURANT wanted to get started yesterday. The Central Pacific had already had its groundbreaking ceremony, eleven months earlier. Doc decided the UP must have a ceremony of its own in Omaha, if only to get some publicity. He ordered Dey to rush preparations and be ready on December 1, 1863. On November 30, he sent a telegram to his chief engineer: “You are behind time for so important an enterprise. Break ground on Wednesday.”16

  Dey did so, and the ceremony was grand. Citizens of Omaha flocked to the bottomland near the ferry landing at Seventh and Davenport Streets. The governor of Nebraska Territory turned the first shovel of dirt. There were bands, whistles, cannon, flags, and fireworks. George Francis Train was the orator, wearing the only white suit west of the Mississippi. He was described as “visionary to the verge of insanity.” His speech put to shame any previous hyperbole. “America possesses the biggest head and the finest quantity of brain in the phrenology of nations,” was one of his opening stretchers. He was said to be “a man who might have built the pyramids.” He read congratulations from Lincoln and other dignitaries. Secretary of State William Seward, a longtime promoter of the Pacific railroad, had written: “When this shall have been done disunion will be rendered forever after impossible. There will be no fulcrum for the lever of treason to rest upon.”17

  Later, the mayor hosted a banquet and ball at the Herndon House. Train wired Durant: “Five (5) o’clock the child is born.” The Doctor was not impressed. “May as well have had no celebration as to have sent such meager accounts. Send full particulars.”18

  The groundbreaking had brought the speculators into Omaha in droves, and the local residents tried to accommodate them. Train bought five hundred acres, some of it for as much as $175 per acre.19 Dodge’s brother Nathan wrote him, “Every man, woman and child who owned enough ground to bury themselves upon was a millionaire, prospectively.”

  But then it turned out that Omaha might not be the terminus after all. Durant was exploring a line north of the city, through Florence, and another south of Omaha, at Bellevue; indeed, on the same day as the groundbreaking he had chosen the Florence line.

  A week after the groundbreaking ceremony in Omaha, Lincoln, in his Annual Message to Congress, praised the Central Pacific and the Union Pacific, with what most railroad men would regard as little cause, when he referred to “the actual commencement of work upon the Pacific Railroad, under auspices so favorable to rapid progress and completion.”20

  DURANT was into this thing to make money, not to build a railroad. He was as flamboyant as the most freewheeling man on Wall Street could be. He would bet a fortune on almost anything. He moved too fast for other fast-money boys to keep up with him. In this case, he had bought land north and south of Omaha and wanted to play the three contenders against each other. In January 1864, Durant ordered Dey to survey yet another line, this one from De Soto (more than twenty miles north of Omaha) west. Dey was furious. He wrote Dodge that Durant was “managing it as he has everything else that is in his hands. A good deal spread and a good deal do nothing. He considers it a big thing, the Big Thing of the age, and himself the father of it.”

  Instead of deciding on a line, Durant bombarded Dey with new possibilities. “If the geography was a little larger,” Dey wrote Dodge, “I think he [Durant] would order a survey round by the moon and a few of the fixed stars, to see if he could not get some more depot grounds.”

  It was Dodge’s turn to grow furious. “Let me advise you to drop the De Soto idea,” he wrote Durant. “It is one of the worst.” Logic, nature, and President Lincoln dictated that the route run from Omaha to the Platte River and then west along the Platte Valley.21

  Still the Doctor persisted in his bewildering variety of schemes. He was negotiating with the businessmen of Omaha, Bellevue, Florence, and De Soto all at once, demanding they give the railroad land for depots, rails, water storage, and more, and he had them in competition against each other.

  On January 1, 1864, President Dix signed a document formally appointing Peter Dey the chief engineer of the UP. He named Colonel Silas Seymour the consulting engineer, also at Durant’s suggestion. Seymour was a crusty, overweight, eccentric, domineering dandy with little railroad experience and was later referred to as the “interfering engineer.” But his brother Horatio was governor of New York and a leading Democratic candidate for president, and Durant thought it wise to have friends in both parties.22

  Engineer Dey wanted to get going on his surveys. He had hired two fine engineers, Samuel B. Reed and James A. Evans, to run a line from the Black HillsIII to Salt Lake—that is, across the southern part of today’s Wyoming and northeastern Utah. They needed to start at once if they were going to finish by the autumn of 1864. But Durant would not approve their expenditures—or Dey’s salary, for that matter.

  On April 4, 1864, Dey wrote Dodge, “Durant is vacillating and changeable and to my mind utterly unfit to head such an enterprise. . . . It is like dancing with a whirlwind to have anything to do with him. Today matters run smoothly and tomorrow they don’t.” If the men in charge back in New York would only give him the money to run the operation and otherwise leave him alone, Dey said, “I could build the work for less money and more rapidly than can be done the way they propose to do it.” But of course that couldn’t be done.

  As Maury Klein, author of a two-volume history of the Union Pacific and easily its finest historian, comments, “Thus was the Union Pacific charged with mismanagement before it had laid a single rail.”23

  THIS was hardly a surprise, because conservative capitalists (the majority) would not risk their fortunes or reputations on the road. They regarded its stocks and bonds as a
reckless gamble for high stakes at long odds. Who was there among them willing to wager on long shots?

  George Francis Train was one. He knew that construction would require an enormous amount of capital, that it would be years before the road could return any dividends, and that therefore some way had to be found to raise money and provide short-term profits. He further knew that a construction company would attract investment, because it could make money through the government loans plus the company’s sale of the land grant and of its own stocks and bonds. A separate construction company would also limit the liability of investors to the stock they held. Moreover, as stockholders in both the construction and the railroad company, the investors could make a contract with themselves. “I determined,” Train said later, “upon introducing this new style of finance into the country.”24

  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 eve
r 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 Empire,” 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.