What was "Crédit Mobilier"?

The explosive growth and economic success the First Transcontinental Railroad brought to America also brought a considerable amount of greed and corruption. The Crédit Mobililer of America scandal was representative of how corruption would taint the Gilded Age (1870 to ~1900), a time of expansive growth in the North and the West. Some would say the Crédit Mobililer scandal was the biggest scandal of the Gilded Age. The company was basically a "fake" contracting and construction management firm that extracted excessive fees from the government to make the officials and officers very rich and wealthy.

Above: Political illustration of a congressmen committing "hari-kiri", a Japanese form of suicide in which one dies in honor. The text on the left reads "Punishment: Found guilty by the unanimous Voice of the people, and condemned to perform the "Hari-Kiri". The text on the right reads "Crimes: Fraud upon the Government, Corruption in Office, Accepting bribes, Perjury".

Crédit Mobilier was a construction company that held contracts to build the First Transcontinental Railroad. They worked alongside with the Union Pacific Railroad. The Union Pacific Railroad was and still is the largest railroad network in the United States. Investors in America were not interested in a Railroad, they thought this would be "train tracks to nowhere" while the Government had their eyes set on geographic advancement. In order to get investors and congressmen for the construction of the railroad, many bribes were given out for support of Credit Mobilier for stocks that were sure to become profitable. By the time the Railroad was built Union Pacific was given land grants for each mile completed, mineral rights for the land the RR was on, and nice fat subsidies for the construction.

How the Scam Worked

What happened was that the public was overcharged for the cost of the construction of the railroad. The government would pay for whatever fees the Union Pacific Railroad wrote up, and the money was sent to Crédit Mobililer.
Crédit Mobililer was really just a fraud company to leech Union Pacific and take advantage of their lucrative position.

Thomas Durant (VP of Union Pacific) saw that the real money was not in operating the railroad - it was in building it.external image thomas-durant.jpgexternal image thomas-durant.gif
Left: The character Thomas D. Durant loosely based on the real Thomas C. Durant, portrayed in the AMC drama 'Hell on Wheels" (from pilot)
Right: The real Thomas Durant

Step 1: Crédit Mobililer acts as the fake construction company responsible for building the railroad - in reality Durant was just paying subcontractors for the railroad work and charging the government inflated estimates
Step 2: Crédit Mobililer charges Union Pacific sometimes twice the cost of construction - tens of millions extra
Step 3: Union Pacific gets money from the government to pay Credit Mobilier, who are eager to build the railroad
Step 4: Leech funding from Union Pacific until they are on the verge of bankruptcy
Step 4.5: Investors in Crédit Mobililer are not liable for the high risk in Union Pacific (actually building the railroad)
Step 4.75: Give stocks in Credit Mobilier to politicians as bribes, obtain political power
Step 5: Profit???

Cultural Impact

There was bribery of Congressmen. Massachusetts congressman Oakes Ames bribed congressmen with stocks in Crédit Mobililer. When the scam was realized (the government was overpaying for the work), the public exploded in discontent. Interestingly, only Republican congressmen were implicated in the charges. While Oakes Ames (Republican) was found guilty of giving out bribes, no one in Congress was found guilty of receiving bribes. In the end no "real crimes" were found and there were few repercussions. The reputation of Congress was now tainted. Crédit Mobililer had tainted the legitimacy of whether or not Congress was for the people or just for money. This scandal was representative of how corruption would taint the Gilded Age (1870 to ~1900), a time of expansive growth in the North and the West.

By Paul Phou