- Mike Martinez
Scoundrels: Political Scandals in American History—Scandals of the 1870s
As I discuss in my forthcoming book Scoundrels: Political Scandals in American History, the United States suffered through a series of political scandals during the Grant administration in the 1870s. President Ulysses S. Grant was not a career politician, and he proved to be unprepared for the complex, nuanced political issues facing his administration after he entered office in March 1869. Grant had been trained in military affairs at the United States Academy at West Point. Rather than skillfully navigating through political and economic problems with a sense of possibilities and options, Grant operated his presidential administration in the same manner that he had managed his army campaigns during the Civil War. He installed a handful of trusted aides in positions of authority and relied on them to implement his directives with minimal direction or oversight. Largely ignored, his cabinet officials were not actively involved in many administration decisions, which freed them to act as rogue operators or advance their own interests. In the meantime, Grant’s close friends and allies engaged in malfeasance on an unprecedented scale. The president was an honest man, but he depended too much on his friendships for his own good.
The first major administration scandal occurred the same year that Grant became president. It began on Black Friday, September 24, 1869, when financiers Jay Gould and Jim Fisk, joined by a small-time speculator, Abel Corbin, who had married Grant’s sister-in-law, attempted to corner the gold market. Master manipulators who sought every advantage, fair or unfair, in the marketplace, Gould and Fisk had persuaded Corbin to introduce them to the new president. Hoping to glean insider information about government policy, the financiers believed they could corner the market and multiply their riches. As the president’s brother-in-law, Corbin used his connections with Grant to aid the enterprise. It worked initially, and the market manipulation undermined Grant’s public reputation. Only the administration’s decision to release more government gold into the marketplace prevented a larger panic. Nonetheless, the collapse of gold prices ruined many speculators and underscored weaknesses in the economy. It was not an auspicious beginning to a new presidential administration.
The 1870s were an era of economic turmoil for many Americans. Following the Black Friday debacle of 1869, a cataclysmic fire that destroyed much of Chicago in 1871, an equine influenza outbreak that swept the nation in 1872, and the Grant administration’s scandals, it was an uncertain epoch in the United States. Americans longed for a time of quiet prosperity after the Civil War, but the decade of the 1870s was anything but quiet.
The administration’s scandals stretched across the decade. In 1871, the New York Custom House was the leading collector of imports in the country. Charges of corruption among customs collectors led to congressional investigations as well as an investigation by the Treasury Department. Officials discovered that two Grantee appointees, collectors Moses H. Grinnell and Thomas Murphy, provided warehouse space to private merchants without requiring the goods to be listed, a clear violation of the law. Grinnell and Murphy charged lucrative fees for this service. Grant’s friend George K. Leet and his two secretaries, Horace Porter and Orville E, Babcock, received kickbacks from this scheme as well. After learning of the scam, Treasury Secretary George S. Boutwell recommended stronger record-keeping and insisted that imports be stored on company docks. A successor in the custom house, future president Chester A. Arthur, implemented the recommendations.
Postal route contracts were another source of corruption in the 1870s. It had long been official United States government policy that citizens should enjoy the right to mail service. In areas of the South and along the Pacific coast, government officials awarded postal delivery contracts to third parties to handle mail deliveries. Star routes, as they were called, usually involved long stretches of road in rural areas with few inhabitants. A contractor could earn exorbitant fees by agreeing to handle the star routes and subsequently providing shoddy service. With minimal or no oversight and few complaints lodged by rural mail recipients, a private contractor could promise much and deliver little. To make matters worse, contractors often offered bribes to federal postal employees, who would select a favored contractor’s bid even though it was not the lowest price among the competition. In some cases, there were no bids at all, but simply a preordained selection. In 1876, Democratic investigators closed the “ring” of corrupt star route contractors, although a new ring arose until another round of prosecutions closed it permanently in 1882.
One of the worst financial scandals of the era involved a company known as Crédit Mobilier. The Grant administration was tarnished by the scandal, but most of the events occurred during the administration of President Andrew Johnson. Unfortunately for President Grant, the facts did not become public until September 1872, shortly before his reelection bid. That month, Congressman Oakes Ames of Massachusetts, a member of the House Committee on Railroads and a leader in constructing the transcontinental railroad, was implicated in the Crédit Mobilier bribery scheme.
The Union Pacific Railroad originally created Crédit Mobilier in 1864 to oversee construction of the transcontinental railroad. The United States government as well as railroad companies had sought to build tracks from coast to coast as a means of connecting one end of the continent with the other. In time, the transcontinental railroad became a symbol of a unified nation.
Despite public pressure to complete the project as quickly as possible, it was a monumental, seemingly impossible demand. Crossing innumerable rivers, plains, and mountains to lay track was an unprecedented engineering feat, and it would require a Herculean effort to complete the task. Crédit Mobilier was supposed to be a company dedicated to solving the myriad problems associated with designing and building the transcontinental railroad, but instead it was a fraudulent entity. Through an elaborate series of contrived conveyances, Union Pacific drove up the price of its own stock by funneling money through a dummy company controlled by the railroad’s management, guaranteeing a huge profit even if the project was never completed. The ruse initially succeeded because the company appeared to be an independent construction management firm. Behind the façade, however, it was a shell company to allow Union Pacific’s board of directors and principal officers to execute contracts with their cronies. Dummy individuals also signed contracts with Union Pacific, and the railroad assigned the contracts to Crédit Mobilier. Crédit Mobilier officers used Union Pacific checks to purchase stocks and bonds in the Union Pacific project for par value and sell them on the open market for inflated prices. The company, working with other partners, eventually completed the transcontinental railroad, but the cost overruns were enormous.
Congressman Ames served as the Crédit Mobilier chairman while he also served in the United States House of Representatives—dual careers for members of Congress were fairly common in the nineteenth century—and he took it upon himself to advance the scheme by whatever means he could. He bribed influential members of Congress, offering them cash as well as discounted prices for Crédit Mobilier shares. After he was exposed, the congressman opened his records to public scrutiny. His records implicated many high-ranking officials, including Vice President Schuyler Colfax. Facing reelection, President Grant allowed Colfax to be dropped from the ticket in favor of Massachusetts Senator Henry Wilson. Wilson was implicated as well, but he was exonerated by the House committee investigating the scandal.
A well-known cartoon of the time showed Uncle Sam ordering Vice President Schuyler Colfax and members of the United States Congress who were disgraced by their involvement in the Crédit Mobilier scandal to commit Hari-Kari. Senator Carl Schurz of Missouri and Senator Charles Sumner of Massachusetts peer out from behind a screen. The image appeared in Frank Leslie’s Illustrated Newspaper on March 8, 1873. (See below.)
Despite his problems, Grant won a second term as president. He soon found that his problems only proliferated. The day before he was sworn in, Congress passed a law, the Legislative, Executive, and Judicial Expenses Appropriation Act, to double the salary of the president from $25,000, where it had stood since George Washington’s time, as well as double the salary for United States Supreme Court justices. The act also provided members of Congress with a retroactive pay increase amounting to a 50 percent raise. The law made the congressional pay raise retroactive for two years, which meant that members of Congress would receive a lump sum payment equal to $4,000 for “services rendered.” Grant signed the measure on March 3, 1873, the last day of the 42nd Congress.
The intent of the law was not unreasonable. Elected officials had not received pay raises in many decades; naturally, the purchasing power of their salaries had declined. In fact, members of Congress had last enjoyed a pay raise in 1852, more than two decades earlier. Because the president and legislators were expected to pay their own expenses, inadequate salaries sometimes drove scrupulous men of modest means from government office and unscrupulous men of great wealth into office, where their priority was to enact laws to assist them and their business colleagues with little or no regard for the public interest.
The genuine need for a pay increase was lost in the ensuing brouhaha. As soon as news of the new law became public, critics across the country expressed their outrage at the “salary steal,” or the “salary grab.” The $4,000 lump sum was far beyond the typical yearly wage of most Americans in 1873. Moreover, the seemingly underhanded way that Congress enacted the legislation—on the last day of the session, with little public notice—suggested that the measure was corrupt.
Unable to explain the need for more money to an increasingly incensed public, elected officials scrambled to distance themselves from the unpopular law. Coming as it did after numerous high-profile instances of corruption, the salary grab illustrated to many citizens that government could not be trusted to act in the public interest. The episode contributed to the widespread perception of the Grant administration as fundamentally dishonest. The “salary grab” so rankled the public that Congress subsequently rescinded the act.
Many Americans believed that Ulysses S. Grant was a nice enough man, but his administration was another matter. His associates were a collection of rogues and rascals, and his secretaries seemed especially lacking in morality. As an example, in 1874, the “Sanborn Incident” occurred. Grant’s treasury secretary, William A. Richardson, hired a private citizen, John D. Sanborn, to collect back taxes owed to the federal treasury. The process of using private parties to collect taxes based on commission was known as moiety, and it was a common practice in that era. As an incentive to collect as much money as possible, Richardson agreed that Sanborn could retain half of the funds he collected. Sanborn went to work, eventually collecting $213,000, with $156,000 earmarked for his assistants, including Richardson himself. The Republican Party campaign committee received funds as well. Reacting to public criticism, President Grant signed an anti-moiety law to guard against future abuses.
Probably the most damning of the administration’s abuses involved criminal enterprises labeled “rings.” The Whiskey Ring involved whiskey distillers who bribed Treasury Department officials to evade taxes, reportedly as much as $2 million a year. Corrupt government officials quietly refused to collect required taxes. Instead, they shared the funds that should have been paid into the United States Treasury with the distillers. Treasury Secretary Benjamin Bristow broke up the ring, but several Grant advisers were implicated in the criminal enterprise, including two of the president’s private secretaries, Orville E. Babcock and Horace Porter.
Babcock was caught up in another scandal. On April 15, 1876, just 51 days after Babcock was acquitted in the Whiskey Ring scandal, prosecutors indicted him again. This time, he was charged with complicity in the so-called Safe Burglary Conspiracy. The strange case began in 1874, when an assistant district attorney for Washington, D.C., Richard Harrington, decided to plant false evidence against a well-known reformer, Columbus Alexander. Alexander had prosecuted a ring of corrupt building contractors. At Harrington’s direction, dishonest Secret Service agents broke into the safe of another assistant district attorney using explosives. The plot required the agents to stage the break-in, take materials from the safe, and transport the materials to Alexander. Afterward, authorities would arrest Alexander for accepting stolen documents.
The scheme fell apart when Alexander refused to answer his door or accept any materials from the corrupt agents. In a fruitless effort to rehabilitate the criminal enterprise, the Secret Service agents arrested two other men and persuaded them to sign false affidavits swearing that they had stolen the contents of the safe at Alexander’s behest. The supposed thieves later turned state’s evidence, leading to Alexander’s exoneration in court.
During an investigation into the affair, Babcock’s name surfaced as a conspirator in the theft. Although he was acquitted at trial, Babcock’s reputation, already poor, suffered. Evidence suggested that the jury had been tampered with, which further suggested that Babcock could not be trusted with public business. Although he was one of Grant’s oldest and closest advisers, Babcock had become a political liability. The president dismissed him from the White House, although he appointed Babcock to a lower-profile post. In his new position as chief lighthouse inspector, Babcock drowned at sea while on duty.
If Babcock had been the only unsavory character in the administration, his absence might have solved Grant’s problems. Unfortunately for the president, news of criminal rings in the administration seemed endless. The Trading Post Ring involved Secretary of War William Belknap, who accepted bribes to allow a trading post agent to remain on duty at Fort Sill, Oklahoma. In another episode, a House investigative committee discovered that the navy secretary, George M. Robeson, had purchased 18 home lots in Washington, D.C. with $15 million in naval construction appropriations in a crime known as the Naval Ring. In yet another case, Interior Secretary Columbus Delano resigned in disgrace when he was charged with accepting bribes to allow fraudulent land grants.
President Grant knew he had multiple problems that required major reforms. He appointed a former United States senator from Michigan, Zachariah Chandler, to succeed Delano at the Interior Department. Chandler unearthed numerous instances of malfeasance. The department was staffed with fictitious clerks who supposedly earned salaries that unscrupulous administration officials pocketed. Even when real clerks held positions, they often performed little or no work. Chandler discovered similar abuses in the Department of Indian Affairs.
Recognizing the damage that Delano had caused for the administration, Grant had reached the end of his tether. Referring to the employees who had been Delano’s supporters, the president believed it was time to clean house. “Have those men dismissed before 3 o’clock this afternoon or shut up the bureau,” he instructed Chandler. The new secretary did as he was told. It was a constructive move. A group of “Indian attorneys” had collected fees to represent Native Americans in Washington, D.C., but they had performed few services. Chandler banned these agents from appearing before the Department of Indian Affairs.
In the Justice Department, Attorney General George H. Williams had carried out his duties in a reputedly lackadaisical manner. In fact, he was so lax that some critics charged that Williams had accepted bribes to forgo prosecuting pending criminal cases. In one high profile case involving a merchant house, Pratt & Boyd, that had allowed fraudulent customhouse entries, Williams refused to prosecute the case. Investigating the matter, the Senate Judiciary Committee discovered that the attorney general’s wife had received $30,000 from Pratt & Boyd. To add insult to injury, the Williamses had commingled funds, using Justice Department money to pay their household expenses. Mrs. Williams enjoyed the use of an expensive carriage as well as a liveried coachman and a footman. When these facts came to light in 1875, Grant insisted on Williams’ resignation.
Aside from the political corruption that overwhelmed the administration, the Panic of 1873 occurred just after the start of Grant’s second term. The panic was not Grant’s fault, of course, but his mismanagement only heightened the public perception that his administration was not equal to the crises of the time. The panic could be traced to frenetic railroad construction expansion that began as soon as the Civil War ended in 1865. Railroads laid more than 35,000 miles of track between 1866 and 1873. Both the Johnson and Grant administrations provided generous grants and subsidies to spur economic development. Railroads were good for American business and for citizens, who enjoyed transportation benefits unknown to earlier generations.
Rapid investment in railroad companies created a colossal employer, the largest in the nation outside of the agricultural sector. It seemed that the good times would last forever. Large infrastructure projects can be risky, but virtually everyone believed that the expansion would not end in the foreseeable future. Outside of the railroad industry, ancillary businesses enjoyed benefits as well—everything from docks, factories, steel mills, lumber companies, and suppliers of farm animals, among others. As the years passed, stock prices in railroad companies and attendant businesses rose beyond the underlying value of the companies, creating an artificial bubble.
The bubble created problems for small farmers, who found that banks possessed few funds to lend outside of the railroad industry. Before railroads claimed the available private capital, farmers had used bank loans to purchase seed, equipment, livestock, and day-to-day necessities to finance their operations until their crops were harvested. With a lack of capital, cash-starved small businessmen were squeezed out of the marketplace.
Anxious to move beyond the horrors of the Civil War and promote a robust economy, the federal government accommodated the postwar bonanza by passing a series of laws to create the modern banking system. The first laws required each bank designated as part of the national system to accept each other’s notes as legal tender for all public and private debts. Citizens were pleased that the national public policy was geared to something apart from the war and Reconstruction. Policies championing a larger, more robust economy were enormously popular. If the new system triggered inflation, hurt small farmers, or interfered with treaties signed with Native Americans as tribal lands were gobbled up, many American were not bothered by the costs of progress. Grant and his advisers were only too happy to tout economic expansion to counterbalance innumerable tales of administration corruption.
Financial concerns dominated the decade. In 1873, Congress passed, and President Grant signed, the Coinage Act, which decreed that the national currency would not be backed with silver and gold. Gold would become the standard. The new law caused a depression in silver prices. Although silver miners and producers made up for their losses by investing abroad, the downturn roiled financial markets and created enormous anxiety.
Administration officials finally turned their attention to the problem of inflation following the unprecedented economic growth of the late 1860s and early 1870s. The administration resolved to contract the money supply. Regrettably, investment capital devoted almost exclusively to infrastructure projects coupled with fewer government notes in circulation left many a company strapped for funding. Jay Cooke & Company, a large investor in railroads, did not accept the possibility that the railroad expansion bubble would burst sooner or later. Cooke had gambled that a second transcontinental railroad would mirror the success of the initial enterprise. He was mistaken. Ignoring warning signs of an impending economic slowdown, Cooke and his investors developed plans to support a new railroad line after ground was broken near Duluth, Minnesota, in 1870. Yet Cooke could not obtain an expected $300 million government loan, and he did not have cash on hand to fund his operations. To the shock and dismay of many market observers, Jay Cooke & Company declared bankruptcy on September 18, 1873.
The collapse of Cooke’s company triggered a chain reaction of bank failures throughout the nation’s industrial centers. To halt widespread panic, the New York Stock Exchange closed for 10 days beginning on September 20, but the damage was done. The United States slipped into a depression as industrial demand declined and factories laid off workers in droves. The national unemployment rate ticked up to 14 percent. From 1873 until 1875—the period when so many of the Grant administration’s failures came to light—89 of the country’s 364 railroads declared bankruptcy and 18,000 business concerns folded permanently.
Ulysses S. Grant had won the presidency in 1868 because he was a Republican, and Republicans, having successfully put down the rebellion and prosecuted the war, supposedly were virtuous. Grant had never been politically active, nor did he prove to be politically astute. The multiple scandals during his years in office demonstrated his naivete when it came to controlling his subordinates and allies. He simply could not or would not believe that the men he had befriended could be so callous and greedy that they would abuse the public trust. As for the financial meltdown that occurred during the 1870s, it demonstrated how inept Grant was in producing effective policies to lessen the effects of a national economic crisis.
Incredibly, the public understood that Ulysses S. Grant the man was far more trustworthy than his administration. He had generated a vast reservoir of goodwill as the commanding general of Union armed forces in the Civil War. That good will allowed him to win a second term and even contemplate running for a third term. Despite the scandals and the depression, Grant enjoyed an enviable level of personal popularity during his heyday. Even after he had been absent from the presidency for a term, Republicans in 1880 debated whether he should be returned to office.
History has not been as forgiving to Grant as his contemporaries were. Despite occasional reappraisals, his reputation has suffered from the scandals and economic problems of the 1870s. Historians generally have ranked him in the bottom quartile of American presidents. Whether any rankings of presidents are valuable assessment tools remain a debatable point, but the hapless Grant probably will be forever tarnished by the corruption and failures that characterized his time in office.