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part of Rice's money. Mr. Nash summoned a large number of witnesses and gradually untangled the story told above. Mr. Pease spoke truly, he had never paid the Standard Oil Company any part of Mr. Rice's money. A joint agent of the railroad and the pipe line had been appointed, at a salary of eighty-five dollars a month, sixty dollars paid by Pease and twenty-five dollars by the Standard, who collected the freight on independent shipments and divided the money between the two parties. It was from this agent that it was learned that, twelve days after Judge Baxter ordered Receiver Pease to bring his contracts into court, the money paid on Mr. Rice's oil had been returned by the Standard Oil Company.1 While the investigation in regard to Mr. Rice's oil was going on, complaints came to Commissioner Nash from two other oil works at Marietta that they had been suffering a like discrimination for a much longer time. The commissioner investigated the cases and found the complaints justified. The Standard Oil Company had received $649.15 out of the money paid by one concern to the railroad for carrying its oil, and $639.75 out of the sum paid by another concern! Both of these sums were returned by the Standard.2

Of course the case aroused violent comment. In 1888 it came before the Congressional Committee which was investigating trusts, and an effort was made to explain the twenty-five cents extra as a charge of the pipe line for carrying oil to the railway. Now, the practice in vogue in the Oil Regions then and now is that the purchaser of the oil pays the pipe-line charge. The railroad has nothing to do with it. Even if the Standard Oil Company puts a tax on railroads for allowing them to take oil carried by its pipe lines thus collecting double pay — the tax would not apply in Mr. Rice's case, for the oil came to the Cincinnati & Marietta road not through Standard pipes but through Mr. Rice's own pipes.

1 See Appendix, Number 47, Testimony of F. G. Carrel, freight agent of the Cleveland & Marietta Railroad Company.

2 See Appendix, Number 48, Report of the Special Master Commissioner George K. Nash to the Circuit Court.

IV

THE BUILDING AND THE COST OF THE UNION PACIFIC1

IT

T was not long after the passage of the Act of 1862 that work under it began. The Central Pacific Railroad Company, to which the building of the western end of the line was assigned, had been organized, in 1861, under California state law. On October 7, 1862, it formally accepted the terms offered by Congress, and the work of construction began January 8, 1863.

The Union Pacific Railroad Company, which was to build the eastern part of the line, effected its temporary organization according to the terms of the act, and books for stock subscriptions were opened in the leading cities of the country. Thirtyone shares of $1000 each were subscribed for, and $17,300 paid in. There the matter stopped. Railway men knew that a mile of road in Illinois cost $33,000; in Iowa, $35,000; in the level parts of California, $34,000. A considerable proportion of the able-bodied men of the country was in the army, and the prices of both labor and materials were abnormally high. Between the eastern system of railways and the initial point of the proposed road was a gap of hundreds of miles, making it necessary to carry materials by way of the Missouri River, a hazardous and costly mode of transportation. Under the circumstances, the capitalists of the country did not consider the Union Pacific a promising investment.

Meanwhile, Thomas C. Durant, of New York, a man of wide experience in railway building and of large resources, became

1 From History of the Union Pacific Railway by Henry Kirke White. The University of Chicago Press, 1895. By permission.

2 Forty-second Congress, third session; House Report No. 78, February 20, 1873 (Affairs of the Union Pacific Railroad Company Mr. J. M. Wilson, Chairman), Testimony taken by the Committee, p. 604.

3 Congressional Globe, Fortieth Congress, second session, p. 2427.

interested in the. enterprise and took hold of it with characteristic vigor. He not only made a stock subscription of his own, but also secured subscriptions among his friends. To do this he advanced for them the 10 per cent required by law to be paid in before the permanent organization could be effected, and agreed to find persons to take it off their hands in case they wished to withdraw from the venture. On October 29, 1863, 2177 shares of $1000 each had been subscribed for1 and a board of thirty directors was chosen. In the list we find such names as August Belmont, of New York; C. A. Lambard, of Boston; C. S. Bushnell, of New Haven; Joseph H. Scranton, of Scranton, Pennsylvania; J. Edgar Thompson, of Philadelphia; S. C. Pomeroy, of Atchison, Kansas, besides those who were next day chosen officers. These were: President, General John A. Dix; Vice President, Thomas C. Durant; Secretary, H. V. Poor, and Treasurer, J. J. Cisco, all of New York. Immediately after organization was effected men were put to work, ground being broken at Omaha December 2, 1863.3 The sum of $218,000 which had been paid in on stock subscriptions was used up, and debts contracted for from $200,000 to $300,000 more. The company was so hard pressed on these debts that it finally resorted to the expedient of selling part of the materials and cars to raise funds.

The line as first projected ran west from Omaha, but as heavy grades would thus be encountered, a somewhat circuitous route was finally settled upon, starting south from the city. Still the first thirty or forty miles were expensive.

As this section of the road approached completion it was seen that New York capitalists were not to be induced to put the enterprise through; work must soon cease for lack of funds. On May 12, 1864, therefore, a committee was appointed to let a contract for building one hundred miles of road.

1 Affairs of the Union Pacific Railroad Company, p. 599.

* Report of the Directors of the Union Pacific Railroad Company for 1884. 4 Affairs of the Union Pacific Railroad Company, p. 63.

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7 Forty-second Congress, third session; House Report No. 77, February 18, 1873 (Credit Mobilier Investigation — Mr. Poland, Chairman), Testimony taken by the Committee, p. 365.

The enactment of the Act of 1864 followed soon after this, doubling, as has been said, the funds from which to build the road.

Even then the friends of Durant were so doubtful of the success of the enterprise that they availed themselves of the offer made them when they subscribed, and Durant was made responsible for three fourths of the sum ($2,000,000) required to be subscribed before organization was authorized.1

As a result of the labors of the committee appointed in the preceding May, a proposal was received on August 8, 1864, from H. M. Hoxie, to build one hundred miles of road at $50,000 per mile. This matter was arranged at New York between Durant and H. C. Crane, who acted as Hoxie's attorney.2 Crane was intimately connected with the Union Pacific as stockholder, director and otherwise; Hoxie was an employee of the road. Oliver Ames says distinctly that Hoxie was a man of no means,3 of no responsibility. Still Durant declares that the Hoxie contract was made in good faith. At any rate it was accepted, and October 4, 1864, Hoxie proposed its extension to cover the line from Omaha to the one hundredth meridian. This proposal was likewise accepted. So H. M. Hoxie, whatever his financial standing may have been, stood bound to construct for the Union Pacific Company 247-45 miles of road, for which he was to receive over $12,000,000.

Aside from the relations existing between Durant, Crane and Hoxie, the terms of the contract would lead one to suspect that there was some purpose in mind other than that which appeared on the face of the matter. The contractor was specifically exempted from paying more than $85,000 for any one bridge; the excess in price of iron above $130 per ton at Omaha was to be borne by the Company; if required to Burnetize 8 ties, an

1 Credit Mobilier Investigation, p. 388; Affairs of the Union Pacific Railroad Company, p. 515.

2 Affairs of the Union Pacific Railroad Company, Part II, p. 2.

3 Ibid., p. 256.

4 Ibid., p. 285.

7 Ibid., Part II, p. 4.

5 Ibid., p. 69.

6 bid., Part II, p. 4.

8 A process by which cottonwood ties were made more durable.

d/and,

additional 16 cents per tie was to be paid; and, most important, acceptance of the contract bound the contractor to subscribe, or cause to be subscribed to the capital stock of the Union Pacific, $500,000.

As early as September 30, 1864, that is, some time before its extension had been voted, Hoxie had agreed with Durant to assign his contract to such parties as he (Durant) might designate October 7, 1864, an agreement was drawn up binding its signers to take the contract from Hoxie and to subscribe for carrying it out the sum of $1,600,000. This liability was divided as follows: Thomas C. Durant, $600,000; C. S. Bushnell, $400,000; Charles A. Lambard, $100,000; H. S. McComb, $100,000; H. W. Gray, $200,000; etc. According to the terms of the agreement one fourth of the sums subscribed was paid in, $400,000 in all, and this amount was used on the road. The men who had assumed the Hoxie contract now stood in the relation of partners, liable not only for the sums subscribed, but to the extent of their fortunes. Some of them became fearful and concluded that it would be better to lose the sums already sunk in the enterprise than to go on and take greater risks. They therefore failed to respond to the call for the second installment of their subscriptions.*

About this time, August 1865, an important step was taken in getting the brothers, Oakes and Oliver Ames, to take hold of the project. Oakes Ames had become interested in the Pacific railway while a member of the Committee on Railroads in the House of Representatives, and his personal influence in Massachusetts, together with his great financial strength, made him a valuable ally of those who had started the road. Plans for proceeding were again discussed and it was agreed that the only feasible way to enlist the necessary capital was to make use of a construction company./ The scheme of building railways by

1 Affairs of the Union Pacific Railroad Company, Part II, p. 2.

2 Ibid., Part II, p. 5.

3 Ibid., p. 64, and Credit Mobilier Investigation, p. 365.

4 Affairs of the Union Pacific Railroad Company, p. 365.

Ibid., p. 4.

• Oakes Ames Memoir, p. 5.

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