Editor’s note: On Dec. 17, I was privileged to speak at the Council on Government Ethics Laws annual convention in Chicago about the Credit Mobilier scandal. COGEL is “a professional organization for government agencies and other organizations working in ethics, elections, freedom of information, lobbying, and campaign finance.” Many, many thanks to Steve Berlin, who helped organize the event, and Madeleine Doubek, who moderated. Below is an edited transcript of my remarks.

The Credit Mobilier scandal, academics might say, is a rich text. It is classic tale of Gilded Age politics, featuring colorful, self-serving politicians who cravenly – and usually ineptly — tried to cover up their involvement in the affair.

It reflects growing concerns about the burgeoning economic and political power of wealthy corporations – in this case, railroads. And it is a story of journalism at a time when, as historian Mark Wahlgren Summers puts it, the profession was “fresh out of the eggshell.”

Above all else, however, the Credit Mobilier scandal is a story about right and wrong in the conduct of government affairs.

It is an honor and a delight to be talking about this chapter in American history to a room full of government ethics officers who wrestle with that dilemma every day. Credit Mobilier ranks as the most consequential scandal to come along in Washington until Teapot Dome in the early 1920s and then Watergate. It shines a harsh light on the ethical lassitude that was commonplace in the era of the telegraph and raises issues that remain all too relevant in the age of the internet.

The company known as Credit Mobilier was an unintended byproduct of the government’s commitment to construction of a transcontinental railroad. The Pacific Railroad Act of 1862 chartered the Union Pacific and authorized government-backed bonds and land grants for the railroad as construction proceeded.

The seemingly generous provisions of the act, however, failed to address a basic problem. Railroad investors were being asked to put their money into a railroad being built to serve markets and communities that did not yet exist. Additional provisions made the shares less attractive. Investors were barred by law from selling Union Pacific shares below the price at which they were issued. On top of everything else, investors would be held liable if the railroad went bankrupt.

Those conditions made the Union Pacific a less-than-desirable investment – and the railroad soon had trouble attracting capital.

The solution conceived by Union Pacific Vice President Thomas C. Durant (also known as “the Napoleon of Railways”) allowed investors to pay themselves by putting their money into the company building the railroad, rather than the railroad itself. Credit Mobilier overcharged for construction work and took payment in railroad securities. Unlike those who invested directly in the railroad, the company and its investors were free to sell Union Pacifi stock at the market price. Nor would Credit Mobilier investors be held liable if the railroad went bust.

Durant’s brainstorm was a huge success — and [Rep.Oakes] Ames (a railroad financier heavily invested in the Union Pacific and Credit Mobilier) had no trouble finding buyers for Credit Mobilier stock on Capitol Hill. He sold shares at their face value of $100 — $1,738 today — usually in blocks of 10. In two instances he sold thirty shares for $3,000, $52,140. These prices were a great bargain. By one estimate, the stock at this time was worth two-and-a-half times its $100 face value.

Purchasers included Schuyler Colfax, the Speaker of the House who would become vice president during the first term of President Grant; James. A. Garfield of Ohio, the rising star of the Republican caucus; Sen. Henry Wilson of Massachusetts, who succeeded Colfax as vice president; and Sen. James Patterson of New Hampshire. Rep. James Brooks, a New York Democrat, also bought shares, but from Durant instead of Ames.

Members of Congress weren’t the only ones buying Credit Mobilier shares from Ames. He sold thirty shares to Uriah Hunt Painter, a correspondent for the New York Sun and the Philadelphia Inquirer. Painter wanted more shares than Ames was able to sell and was angry, Ames recalled later, that he could not buy as much as he wanted. Nevertheless, Painter kept Ames’s activities to himself rather than share the news with his readers.

The headlong rush to buy the valuable stock occurred in spite of House rules aimed at preventing conflicts of interest. The parliamentary manual written by Thomas Jefferson in 1801 dictated that “Where the private interests of a Member are concerned in a bill or question he is to withdraw.” That proviso was subsequently memorialized in Rule 8 of the House, which barred members from voting when they had a “direct or pecuniary interest” in legislation.

Those provisions might well have given lawmakers pause as they lined up to buy Credit Mobilier shares because Washington in the years after the Civil War brimmed with legislation promoting railroad construction. Some of those bills directly challenged the business interests of the Union Pacific.

For example: A year before Ames began selling Credit Mobilier shares to his colleagues the Union Pacific suffered two significant defeats in Congress. The Central Pacific railroad – the Union Pacific’s partner-cum-rival in the transcontinental railroad project – won a significant victory when Congress authorized its extension into territory the Union Pacific expected to claim as its own. In addition, the owners of a Kansas-based railroad chartered as a feeder line for the Union Pacific won congressional approval to extend its line to Denver – an act Ames would later charge authorized a “rival parallel road” to the Union Pacific. These defeats, I believe, were uppermost in Ames’s mind as he began to sell his shares.

In spite of the profusion of railroad bills and the common knowledge that Capitol Hill was awash in railroad money, there were no mechanisms for enforcing either Jefferson’s rule about the private interests of legislators or Rule 8 of the House. There was no ethics committee. There were no requirements that lawmakers report political contributions, assets or sources of income, as there are today.

While the House and Senate expelled members for disloyalty during the early years of the Civil War (three by the House and 14 by the Senate), this power was rarely used in cases involving individual malfeasance. In fact, two members of the House in the 1850s – Democratic Reps. Daniel Sickles of New York and Philemon T. Herbert of California – remained on the job while they were being tried for murder (both, by the way, were acquitted – Herbert because he was ineptly prosecuted and Sickles because he used what was then the novel legal defense of temporary insanity).

Congressional ethics, then, were almost entirely a matter of personal probity. An incident related to Credit Mobilier and the Union Pacific highlights the inadequacy of this safeguard.

In the winter of 1867, Rep. Henry Dawes of Massachusetts proposed that the Union Pacific charter be amended to allow the railroad to move its headquarters out of New York. Ames and Durant had just ended a bitter feud for control of the railroad in which Durant’s proximity to New York judges and Wall Street allies gave him an advantage.

The otherwise routine piece of legislation was larded with conflicts of interest related to Credit Mobilier.

For example:

• Dawes had been talking with Ames that month about buying Credit Mobilier shares and subsequently purchased 10 at $100 apiece – a fact that would not be confirmed until 1873.
• James Brooks of New York protested that a “private quarrel” was the underlying reason for the Dawes proposal. Brooks would know: That month he bought 100 shares of Credit Mobilier stock from Durant, Ames’s corporate rival – another transaction that would not be revealed until 1873.
• When Brooks protested that he was “totally uninterested in this matter” (an obvious lie in view of subsequent disclosures) Rep. James A. Garfield demanded that the clerk read the House rule barring members from voting on matters in which they held a personal stake. A few weeks later, Garfield himself would take 10 shares of Credit Mobilier on very favorable terms from Ames.

Clearly, personal honor was a weak reed on which to rest the ethical standards of Congress. That would become even clearer as three congressional committees formed in the aftermath of the Sun’s scoop examined Credit Mobilier’s reach into the halls of Congress.

When the House voted in December, 1872 to form a special committee to investigate Credit Mobilier, Ames was one of its first witnesses – and the only one who, in the words of the New York Tribune, “remorselessly told the truth” about his actions and motivations. Testifying in closed session – the hearings would be opened to the press and public one month later – Ames admitted that he was looking to cultivate influence through the sale of Credit Mobilier stock.

He saw nothing wrong with what he was doing and drew a revealing – if fallacious – distinction between his actions and bribery. “If you want to bribe a man,” he told the committee, “you want to bribe the one who is opposed to you, and not to bribe one who is your friend.” And he freely admitted to the committee that his motivation for selling the stock was exactly as he described it to McComb.

“I strove to use them,” he told lawmakers, referring to the shares, “in a way that I thought most advantageous in spreading our influence everywhere.” He never backed away from this position.

Ames’s admitted interest cultivating the railroad’s “friends” reflected a fundamental tenet of Gilded Age politics, according to historian Richard White. In his majestic study of the period, The Republic for Which It Stands, White observes that “friendship” was the governing ethos of Gilded Age politics. “Friendship was the preferred way of phrasing connections between businessmen and politicians,” according to White. “To be a friend, it was not necessary to actually like someone; bonds of obligations and reciprocity were sufficient.”

In immediate the aftermath of the Sun’s blockbuster (published Sept. 4, 1872 it broke open the story of the scandal), one lawmaker after another denied buying Credit Mobilier shares from Ames. But when the House committee led by Rep. Luke Potter Poland of Vermont began its inquiry, a different tale began to emerge.

Many who had initially denied buying stock from Ames admitted that they had, in fact, done so – although a number insisted that they quickly returned the shares. Others said they agreed to purchase the shares but that the deal was never finalized. Many – most notably Garfield – said they would have had nothing to do with Credit Mobilier if they had known more about what it was and how it worked.

But one lawmaker – Rep. Glenni Scofield of Pennsylvania – admitted it might not have made a difference to him. He told the Poland committee: “‘Avoid the appearance of evil,’ is an injunction that, I think, sometimes rogues are more careful to observe than honest men,’”

A common argument during the hearings was that there would have been nothing wrong with buying Credit Mobilier shares. Interestingly, this position was most often taken by officials who denied actually buying the stock but were later found to have done so.

The garrulous William F. Kelley of Pennsylvania, whose earnest advocacy of iron and steel tariffs earned him the nickname “Pig Iron,” claimed he never actually consummated a deal with Ames but asserted he would have been within his rights to do so. “I cannot see that any member of Congress was precluded from making a purchase of that stock more than he would be from buying a flock of sheep, the value of which could be affected by a change of the tariff on wool or woolen goods.” Poland’s committee later concluded that Kelley had, in fact, bought 10 shares from Ames.

Not everyone subscribed to the cynical views advanced by Kelley and Scofield. Sen. James A. Bayard of Delaware turned down a chance to buy Credit Mobilier shares because “I could not consistently with my views of duty vote upon a question in which I had a pecuniary interest.”

In other words, stripped of its Victorian legalese, Bayard smelled a rat.

As the House began its investigation of the scandal, Ames testified that he had sold shares to most of those named by the Sun. His explosive testimony, delivered behind closed doors, might not have been too embarrassing for those involved had it stayed confidential.

But the decision to probe the scandal in secret outraged the public and newspaper editors across the country. In the face of withering criticism of the closed-door hearings, the House opened them to the press and public in early January, 1873, and released transcripts of the closed-door proceedings.

As one lawmaker after another appeared before the committee to put as much distance as possible between themselves and Credit Mobilier, the King of Spades watched with rising anger.

Ames wasn’t the only one who was infuriated. His rival, Durant, spoke for Ames and many others associated with the Union Pacific when he argued that there would have been no scandal at all if lawmakers had simply told the truth from the outset. “But they winced, made up pitiful martyr mouths, prevaricated, and tried to wriggle out of it,” Durant told the Sun. “Now they are wriggling back and trying to explain last summer’s explanations. Their great error was in making any effort to conceal this matter. There was nothing to conceal.”

That view, it must be said, was not widely shared.

Ames returned to the Poland committee to document his transactions with his colleagues. One member of Congress, Sen. James Patterson of New Hampshire, was forced to concede – in spite of vigorous denials made only weeks earlier – that he had in fact bought shares from the King of Spades. As he did so, the Sun noted, the former schoolteacher nervously fidgeted “like one of the poor delinquents he used to torture in the classroom.”

Colfax attempted to deny that he received a $1,200 dividend payment from Ames – the equivalent of $21,736 today – but did such a poor job that the National Republican newspaper observed that he appeared willing to say or do anything “to clear his skirts of the disgrace that sticks to them.”

Garfield was outraged by Ames’s testimony. “He is evidently determined to drag down as many men with him as possible,” Garfield wrote in his diary. “He seems to me as bad a man as can well be.”

Ames’s sensational evidence raised the stakes for everyone involved and appeared to throw into doubt the counsel Garfield had received confidentially in the early days of the scandal from Jeremiah S. Black.

The high-powered Democratic attorney was representing Credit Mobilier investor Henry S. McComb in the lawsuit that led to the Credit Mobilier disclosures. He was also Garfield’s friend and co-counsel in the famous Supreme Court case Ex-Parte Milligan, which established the supremacy of civilian courts over military tribunals.

After the Sun broke the story Black assured Garfield he had nothing to worry about as long as he argued he had no idea what Credit Mobilier did or that it had an interest in any legislation before Congress. Such claims, Black counseled, would enable Garfield to argue that he was not a party to Ames’s scheme “but the victim of his deception.”

In the end, Garfield’s anxieties were unfounded. Black’s advice foreshadowed the much-anticipated conclusions of Poland’s investigating committee, which recommended the expulsion of Ames and Brooks but no action against anyone who bought Credit Mobilier shares. That recommendation infuriated many in the press and public who wanted at least some kind of sanction against everyone implicated. But the House was in no mood to crack down.

If Credit Mobilier purchasers were not guilty of receiving a bribe, some asked, how could Ames be guilty of making one? A single person cannot commit bribery, Rep. John Franklin Farnsworth of Illinois said, “any more than one person can commit a conspiracy, or more than any one person can commit matrimony.” In the end, the House voted to censure Ames and Brooks but took no action against anyone else. A Senate committee recommended the expulsion of Patterson, but the matter never came up for a vote.

Few outside Washington were pleased by the result. Poland warned of what was at stake as the House deliberated on how to sanction those involved. The hearings highlighted the malevolent influence of corporate interests – Poland called them “associations” – that could suborn the legislative process by dispensing vast quantities of boodle. “The people are fast learning that when necessary to secure aims and interests of their own these associations can lay temptations in the way of their public servants too strong for them to resist, and that, unless some check be found, their rights, if not their liberties, will soon be at the mercy of these great and fast-increasing monopolies.”

Poland proved a better prophet than inquisitor. While his committee produced a flawed report and recommendation, he foresaw what would become one of the defining questions of the Gilded Age – the challenge of keeping monopolies from corrupting the legislative process.

Journalist Henry Demarest Lloyd elaborated on the same concerns raised by Poland when he was writing about Standard Oil several years later. “When monopolies succeed, the people fail; when a rich criminal escapes justice, the people are punished; when a legislature is bribed, the people are cheated.”

Those warnings from Poland and Demarest remain timely and relevant. The Credit Mobilier scandal opened decades of debate about political corruption and monopoly power in government. The scandal that shook Washington less than ten years after the end of the Civil War reverberates to this day.

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Over the past several years readers of this blog have become well-acquainted with the New York Sun.

Its hyper-partisan approach to news, sensational investigations (most particularly about the Credit Mobilier scandal), and colorful editor, Charles A. Dana, make it one of the most important sources for understanding the politics of the Gilded Age. It epitomizes the rough-and-tumble newspapers of the last half of the nineteenth century.

So it is a source of some wonder that the Sun is also responsible for one of the most enduring – and endearing – pieces of sentimental Christmas holiday prose: Yes, Virginia, There Is a Santa Claus.

Happy Holidays!

Joseph B. Stewart wanted his inquisitors to understand something.

He was not a lobbyist.

Sure, he may have been hired by Thomas C. Durant in 1864 as Durant campaigned for Congress to amend the Pacific Railroad Act to aid the struggling Union Pacific.

Of course he was well compensated for his work. Durant, the vice president of the Union Pacific, paid him $30,000 (the equivalent of $491,743.95 in today’s dollars according to this inflation calculator), he admitted.

And, yes, Durant provided him with $250,000 in bonds to disburse as needed Capitol Hill to smooth over disagreements — Stewart called them “disputes and demands” — and ease passage of the measures sought by the tycoon known as the “Napoleon of Railways.”

But he was definitely not a lobbyist. “I disclaim the performance of that service,” he declared.

Stewart was testifying before an investigative committee led by Rep. Jeremiah Wilson, R-Ind., empaneled by the House in early January 1873 after Congress returned to Washington following the Christmas holidays. The committee was charged with investigating the “character and purpose” of Credit Mobilier, the lucrative construction arm of the Union Pacific that was suddenly at the center of an enormous scandal on Capitol Hill.

While Stewart was willing provide the committee with general details of his activities on Durant’s behalf — and more than eager to make sure no one regarded him as a lobbyist — he refused to tell Wilson and his colleagues what they really wanted to know: Who, exactly, was on the receiving end of his munificence?

Stewart argued that the confidentiality of those transactions was protected by attorney-client privilege.

“No part of that fund was paid, directly or indirectly, to a member of Congress or Senator,” Stewart told Wilson’s committee. “When you go outside of that, I claim to have duties to observe and obligations to perform as well as you, and they cannot be disregarded.”

In other words: Good luck learning anything more from me.

Stewart’s obstinacy on the question of who was paid as Congress deliberated on amendments to the Pacific Railroad Act set in motion one of the lesser-known but most intriguing dramas of the Credit Mobilier affair.

The investigation into the scandalous allegations detailed by the New York Sun had begun in early December behind closed doors, but because it was conducted in secret it only managed to inflame suspicions about the Union Pacific, Credit Mobilier, and the House.

When lawmakers came back to Washington after the Christmas holiday, they were in no mood to tolerate closed-door inquiries or stonewalling witnesses. They opened to the public the investigation led by Rep. Luke Potter Poland, R-Vt., and created the second committee led by Wilson to get to the bottom of Credit Mobilier’s business practices and dealings on Capitol Hill.

When it became clear Wilson wasn’t going to get what he wanted from Stewart, he let the matter go temporarily. But Stewart remained intransigent when he returned to the committee more than a week later. “I refuse to speak about the business of my clients,” he said.

Wilson and his colleagues referred the stalemate to the House – and Washington settled in for the spectacle.

Stewart seemed perfectly cast for the role. At least six-and-a-half feet tall (the Chicago Tribune put him at close to 7 feet) “with an immense frame and erect carriage,” Stewart was about 50 years old, the Tribune reported. “Taken altogether, he is a very noticeable character.” As for how to describe his activities on Capitol Hill, the newspaper dismissed Stewart’s protestations. He was a “lawyer of some prominence, and a lobbyist of skill and daring.”

The day after refusing to disclose to whom he gave the bonds, Stewart appeared before the House to make his case. “A contumacious witness case always brings a crowd to the Capitol, and there was an unusual attendance today, of all classes, and the galleries were closely packed,” the Tribune observed. A group of distinguished visitors that included former New York governor Horatio Seymour and Gen. Ambrose Burnside looked on from the rear of the House.

Stewart came ready. He prepared a written speech and studied the legal precedents, according to the Tribune. The heart of his argument was that he was being persecuted simply because he insisted on respecting the trust of his clients. For that, “I am now arraigned and put into the attitude of a criminal,” he said.

“His voice was excellent,” The Tribune reported, “and, except for the fact that he appeared to have but one joint in his body, that being at the hips, his manner of delivery was good.”

Stewart earned some applause from the gallery, but the House displayed little patience with him. At one point, Rep. Henry W. Slocum, D-N.Y., asked with obvious exasperation: “I would inquire how long this thing is to continue. Is there no limit to it?”

Stewart’s high-sounding appeals to the rights and privileges of American citizens “evidently aroused the ire of many members,” the Washington Evening Star reported. On the House floor, according to the Star, the view was “pretty general” that he was “abusing the privilege granted him of purging himself of contempt by lecturing the House as to its duties.”

But that may not have mattered to the wily lobbyist. As the Tribune put it:

His speech was not intended for the House, but for the steamship interest, the Senatorial election interest, the railroad interest, the Postal telegraph interest, the land grant interest, and all others who have business to do and money to spend to procure legislation for the benefit of corporations. He wanted to show the managers of these enterprises that he could be trusted with money, and would not reveal the purposes for which he applied it.

When Stewart was through, the only question lawmakers were willing to consider was where he would be confined. A proposal to send him to the D.C. Jail failed but earned 56 votes. In the end, the House voted to confine him to the Capitol until Congress adjourned.

That night, as Stewart waited to begin his sentence, the lobbyist was praised for his stubbornness. “Stewart is floundering about one of the principal hotels tonight, receiving the congratulations of men, who tell him if he had answered the questions it would have a tendency to destroy the business of Congress,” the Tribune reported.

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