Crédit Mobilier of America scandal (1872)
The Crédit Mobilier of America scandal, which came to light in 1872, revolved around a complex scheme involving the financing of the westward expansion of the railroad system in the United States during the 1860s. Created by George Francis Train, Crédit Mobilier was designed to oversee the construction of the Union Pacific Railroad, introducing innovative corporate practices such as limited liability, which protected shareholders from personal financial risk beyond their investments. However, the scandal emerged when Thomas C. Durant, a major investor in the Union Pacific, exploited the situation by arranging inflated contracts and engaging in corrupt practices. In a bid to secure congressional support and additional funding, Crédit Mobilier sold shares of stock at significantly reduced prices to members of Congress. This manipulation came to light when a whistleblower, Henry Simpson McComb, revealed that Crédit Mobilier had overcharged Union Pacific by $19 million for construction work. The ensuing investigation implicated several congressmen, leading to widespread public outrage, although the ultimate punishment for those involved was limited to a censure of Oakes Ames, a key figure in the scandal. The revelations underscored the intersection of politics and corporate interests during a period of significant economic expansion in the United States.
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Subject Terms
Crédit Mobilier of America scandal (1872)
The Event Revelation by the New York Sun that a construction company had bribed U.S. representatives with cheap stock to facilitate the company’s illegal manipulation of railroad contracts
Date 1872
Place Washington, D.C.
The Crédit Mobilier of America scandal entered the annals of American business as an example of corruption typical in post-Civil War commerce, especially in railroad construction.
During the 1860’s, westward expansion of the railroad system was of prime importance to the economy of the United States, and the government was prepared to provide substantial subsidies to ensure the project’s completion. In 1862, George Francis Train, a vice president for publicity of Union Pacific Railroad, created two companies, Crédit Mobilier of America and Crédit Foncier, to oversee the railroad’s western expansion. Both companies were modeled after French companies and introduced new concepts of corporate organization into the American system. Crédit Mobilier was one of the first companies to take advantage of limited liability in its financial structure. Stockholders were liable only for the amount of their investment in the company, rather than to the full extent of their personal assets.
![Editorial cartoon: Uncle Sam directs U.S. Senators (and Representatives?) implicated in the Credit Mobilier scheme to commit Hari-Kari. Carl Schurz and Charles Sumner peer out from behind a screen By Joseph Keppler [Public domain], via Wikimedia Commons 89550880-77434.jpg](https://imageserver.ebscohost.com/img/embimages/ers/sp/embedded/89550880-77434.jpg?ephost1=dGJyMNHX8kSepq84xNvgOLCmsE2epq5Srqa4SK6WxWXS)
Seeing an opportunity for enormous profit, Thomas C. Durant, Union Pacific’s major investor, quickly assumed control of Crédit Mobilier, the company involved with financing the railroad’s construction. In 1864, he arranged for Herbert W. Hoxie to bid on construction of one hundred miles of rail from Omaha, Nebraska, west. There were no other bidders. Hoxie obtained a contract, which he signed over to Durant, who immediately transferred it to Crédit Mobilier as a subcontractor. Crédit Mobilier billed Union Pacific twice the normal fees for track work. The company also sold members of Congress shares of stock at extremely low cost in exchange for their advocacy of additional funding for the project.
When construction failed to proceed at a reasonable pace, President Abraham Lincoln asked U.S. representative Oakes Ames to remedy the situation. In 1867, Ames arranged for his brother Oliver Ames II, to become president of Union Pacific and he became president of Crédit Mobilier. Ames continued the practices of giving stock options to representatives and of overcharging for the construction.
In 1872, Ames got into a serious disagreement with one of his associates, Henry Simpson McComb, who gave information to the New York Sun newspaper. During the presidential campaign, the newspaper, which opposed the reelection of President Ulysses S. Grant, revealed that Crédit Mobilier had charged Union Pacific $72 million for $53 million worth of work, almost bankrupting the railroad company. It also exposed the fact that members of Congress had received large amounts of the resulting profit. The congressional investigation by chief counsel Aaron F. Perry resulted in accusations against thirteen representatives and a recommendation that Ames be expelled from Congress. Congress, however, decided merely to censure him.
Bibliography
Crawford, Jay Boyd. The Crédit Mobilier: Its Origin and History, Its Work of Constructing the Union Pacific Railroad, and the Relation of Members of Congress. Providence, R.I.: AMS Press, 1980.
Martin, Edward Winslow. Behind the Scenes in Washington: Being a Complete and Graphic Account of the Crédit Mobilier Investigation. Whitefish, Mont.: Kessinger, 2007.