
The Crédit Mobilier scandal () was a two-part fraud conducted from 1864 to 1867 by the
Union Pacific Railroad
The Union Pacific Railroad is a Railroad classes, Class I freight-hauling railroad that operates 8,300 locomotives over routes in 23 U.S. states west of Chicago and New Orleans. Union Pacific is the second largest railroad in the United Stat ...
and the Crédit Mobilier of America construction company in the building of the eastern portion of the
first transcontinental railroad
America's first transcontinental railroad (known originally as the "Pacific Railroad" and later as the "Overland Route (Union Pacific Railroad), Overland Route") was a continuous railroad line built between 1863 and 1869 that connected the exis ...
from the Missouri River to Utah Territory. The story was broken by ''
The New York Sun
''The New York Sun'' is an American Conservatism in the United States, conservative Online newspaper, news website and former newspaper based in Manhattan, Manhattan, New York. From 2009 to 2021, it operated as an (occasional and erratic) onlin ...
'' during the
1872 campaign of
Ulysses S. Grant
Ulysses S. Grant (born Hiram Ulysses Grant; April 27, 1822July 23, 1885) was the 18th president of the United States, serving from 1869 to 1877. In 1865, as Commanding General of the United States Army, commanding general, Grant led the Uni ...
.
A new company, Crédit Mobilier of America, was created by Union Pacific executives to actually build the line, but at inflated construction costs. Though the railroad cost only $50 million to build, Crédit Mobilier billed $94 million and Union Pacific executives pocketed the excess $44 million. Part of the excess cash and $9 million in discounted stock was then used to bribe several Washington politicians for laws, funding, and regulatory rulings favorable to the Union Pacific.
The scandal negatively affected the careers of many politicians and nearly bankrupted Union Pacific. For years afterward, partisan newspapers used the scandal to create
Gilded Age
In History of the United States, United States history, the Gilded Age is the period from about the late 1870s to the late 1890s, which occurred between the Reconstruction era and the Progressive Era. It was named by 1920s historians after Mar ...
public distrust of Republicans, Congress, and the federal government.
Background
The scandal's origins dated to 1864, when the
Union Pacific Railroad
The Union Pacific Railroad is a Railroad classes, Class I freight-hauling railroad that operates 8,300 locomotives over routes in 23 U.S. states west of Chicago and New Orleans. Union Pacific is the second largest railroad in the United Stat ...
was chartered by Congress and the associated corporation Crédit Mobilier of America was established. This company had no relation to the major French bank ''
Crédit Mobilier''.
In the
Pacific Railroad Acts
The Pacific Railroad Acts of 1862 were a series of acts of Congress that promoted the construction of a "transcontinental railroad" (the Pacific Railroad) in the United States through authorizing the issuance of government bonds and the grants ...
of 1864–68, Congress authorized and chartered the Union Pacific Railroad and provided $100 million (approximately $ billion in ) in capital investment to complete a transcontinental line west from the
Missouri River
The Missouri River is a river in the Central United States, Central and Mountain states, Mountain West regions of the United States. The nation's longest, it rises in the eastern Centennial Mountains of the Bitterroot Range of the Rocky Moun ...
to the
Pacific coast
Pacific coast may be used to reference any coastline that borders the Pacific Ocean.
Geography Americas North America
Countries on the western side of North America have a Pacific coast as their western or south-western border. One of th ...
. The federal government offered to assist the railroad with a loan of $16,000 to $48,000 per mile of track, variable according to location, for a total of more than $60 million in all, and a
land grant
A land grant is a gift of real estate—land or its use privileges—made by a government or other authority as an incentive, means of enabling works, or as a reward for services to an individual, especially in return for military service. Grants ...
of , worth $50 to $100 million.
The offer initially attracted no subscribers for additional financing, as the conditions were financially daunting.
Obstacles to investment
The railroad would have to be built for through desert and mountains, incurring extremely high freight costs for supplies. There was the high risk of armed conflict with hostile tribes of
Native Americans, who occupied many territories in the interior, and no probable early business to pay dividends.
There was no existing demand for railroad freight or passenger traffic for virtually the entire proposed route. Since no towns or cities of any size yet existed on the western prairies, there was no commercial activity between Nebraska and the California border. Nor were there any branch lines running either north or south of the proposed route that would have been able to feed their traffic to a new transcontinental railway. As a result, private investors refused to invest.
In spite of this, the entire railroad scheme was proposed as a "
going concern
A going concern is an accounting term for a business that is assumed will meet its financial obligations when they become due. It functions without the threat of liquidation for the foreseeable future, which is usually regarded as at least the n ...
" – a financially viable enterprise that relied on "below-market" financing and then could continue to function as a business enterprise, covering its operating expenses with freight and passenger revenues while providing profits for investors and interest payments to the US government for the borrowed capital (at the federal rate based upon the U.S. government bond rates), and ultimately retiring its debt to the U.S. government.
Opposition
Opponents of the
Pacific Railroad Acts
The Pacific Railroad Acts of 1862 were a series of acts of Congress that promoted the construction of a "transcontinental railroad" (the Pacific Railroad) in the United States through authorizing the issuance of government bonds and the grants ...
felt the construction and its routing were being developed without regard for creating a viable and profitable transportation enterprise.
They believed the whole project was a bare-faced fraud by some capitalists to build a "railroad to nowhere" and to make tremendous profits doing so, while getting the United States government to bear the costs.
Formation of Crédit Mobilier of America
George Francis Train
George Francis Train (March 24, 1829 – January 18, 1904) was an American businessman who organized the clipper ship line that sailed around Cape Horn to San Francisco; he also organized the Union Pacific Railroad and the Credit Mobilier in the ...
and
Thomas C. Durant, the vice president of the
Union Pacific Rail Road, formed Crédit Mobilier of America in 1864.
Crédit Mobilier of America was a deliberate façade. Train and Durant aimed to present to both the government and to the public the appearance that an independent corporate enterprise had been impartially chosen as the principal contractor and construction management firm for the project. In fact, Crédit Mobilier was created to shield the company's shareholders and management from the common charge that they were using the ''construction'' phase of the project, as opposed to the ''operating'' phase, to generate profit. Because the conspirators believed they could not expect conventional profits from the operation of the railroad, they created the sham company so they could charge the U.S. government extortionate fees and expenses during the construction phase.
Allegations
In simplified terms, the scheme worked as follows:
* The Union Pacific contracted with Crédit Mobilier to build the railway at rates greatly above cost. However the UP usually paid with UP shares, which were not highly rated because of the uncertainty that the huge project could be completed and would generate future profits.
* The railroad was eventually a success and made money from selling land. Thus it eventually brought high profits to Crédit Mobilier, which was owned by
Durant and the Union Pacific's other directors and principal stockholders.
* The outsize profits were divided among the Union Pacific stockholders.
The directors of the Union Pacific also engaged in stock manipulation circumventing requirements that they receive full payment for stock issued at par by instead paying Crédit Mobilier in bank checks, which Crédit Mobilier then used to purchase Union Pacific stock.
In every major construction contract drawn up between the Union Pacific and Crédit Mobilier, the contract's terms, conditions, and price were offered and accepted through the actions of the same corporate officers and directors, operating on both sides of the contract. The underlying fraud of a common and unified ownership of two companies that shared principal officers and directors was not revealed for years.
Coverup
The principal means of the scheme was the method of indirect billing.
The Union Pacific presented genuine and accurate invoices to the U.S. government as evidence of actual construction costs billed to them by Crédit Mobilier of America for payment. Any audit of the Union Pacific invoices to the government would have revealed no evidence of fraud or profiteering, because the fraud took place one level deeper, on the invoices from Crédit Mobilier to Union Pacific. Union Pacific was accepting for payment genuine Crédit Mobilier invoices (based on fraudulent accounting)
and was applying only an overhead expense for management and administration.
If the Union Pacific's corporate officers had openly undertaken the management and construction of the railroad, this scheme to make windfall profits immediately from charges made during construction would have been exposed to public scrutiny by the opponents of the railroad project from the start.
Extent
The Union Pacific contracted at inflated prices with Crédit Mobilier to build the railway.
The UP paid by check, and Crédit Mobilier used the checks to buy Union Pacific stock and bonds at par value.
Crédit Mobilier then sold the UP stock and bonds on the open market, which resulted in a substantial gain for Crédit Mobilier.
These inflated construction contracts and securities sales brought in enormous profits, which Crédit Mobilier split with the Union Pacific's directors and principal stockholders, who also owned Crédit Mobilier.
The result of these machinations was that the U.S. Congress paid $94,650,287 to the Union Pacific and $50,720,959 to Crédit Mobilier.
The arrangement between the Union Pacific and Crédit Mobilier thus generated $43,929,328 in profits for Crédit Mobilier.
(Equivalent to over $1.1 billion in 2025.) Crédit Mobilier directors reported this as a cash profit of only $23,366,319.81, which amounted to a serious financial misrepresentation, since the same directors were the recipients of the undisclosed $20,563,010 that represented the Union Pacific's share of the profits.
Bribery
Maury Klein, in his wide-ranging analysis of the scandal boils down the issue: "Did the builders of the road defraud the government? And did they attempt to gain influence in Congress through bribery? The evidence suggested that the answer to the first was no, and to the second a qualified yes."
In 1867, Crédit Mobilier replaced Thomas Durant with
Oakes Ames
Oakes Ames (January 10, 1804 – May 8, 1873) was an American businessman, investor, and politician. He was a member of the United States House of Representatives from Massachusetts. As a congressman, he is credited by many historians as being ...
.
Ames, a member of Congress, distributed cash bribes and discounted shares of Crédit Mobilier stock to fellow congressmen and other politicians in exchange for votes and actions favorable to the Union Pacific.
Ames offered to members of Congress shares in Crédit Mobilier at its discounted
par value
In finance and accounting, par value means stated value or face value of a financial instrument. Expressions derived from this term include at par (at the par value), over par (over par value) and under par (under par value).
Bonds
A bond selli ...
rather than the
market value
Market value or OMV (open market valuation) is the price at which an asset would trade in a competitive auction setting. Market value is often used interchangeably with ''open market value'', ''fair value'' or '' fair market value'', although t ...
, which was much higher due to its superb (but fraudulent) profits and exclusive contract with the Union Pacific Railroad. It also declared substantial quarterly
dividends
A dividend is a distribution of profits by a corporation to its shareholders, after which the stock exchange decreases the price of the stock by the dividend to remove volatility. The market has no control over the stock price on open on the ex ...
on its stock.
Those allowed to purchase shares at par value could reap enormous
capital gain
Capital gain is an economic concept defined as the profit earned on the sale of an asset which has increased in value over the holding period. An asset may include tangible property, a car, a business, or intangible property such as shares.
...
s simply by offering these discounted shares on the market, knowing that they would be purchased at a higher price by investors desiring to own stock in such a profitable company.
Revelation and political impact

Following a disagreement with Ames, Henry Simpson McComb leaked compromising letters to ''
The New York Sun
''The New York Sun'' is an American Conservatism in the United States, conservative Online newspaper, news website and former newspaper based in Manhattan, Manhattan, New York. From 2009 to 2021, it operated as an (occasional and erratic) onlin ...
'', a reformist newspaper highly critical of incumbent President
Ulysses S. Grant
Ulysses S. Grant (born Hiram Ulysses Grant; April 27, 1822July 23, 1885) was the 18th president of the United States, serving from 1869 to 1877. In 1865, as Commanding General of the United States Army, commanding general, Grant led the Uni ...
and his administration.
On September 4, 1872, the ''Sun'' broke the story. The newspaper reported that Crédit Mobilier had received $72 million in contracts for building a railroad worth only $53 million.
After the revelations, the Union Pacific and other investors were left nearly
bankrupt
Bankruptcy is a legal process through which people or other entities who cannot repay debts to creditors may seek relief from some or all of their debts. In most jurisdictions, bankruptcy is imposed by a court order, often initiated by the de ...
.
[
]
Congressional investigation
In 1872, the (Republican) House of Representatives submitted the names of nine politicians to the (Republican) Senate for investigation:
* Representative William B. Allison
William Boyd Allison (March 2, 1829 – August 4, 1908) was an American politician. An early leader of the Iowa Republican Party, he represented northeastern Iowa in the United States House of Representatives before representing his state in t ...
of Iowa
* Former Senator James A. Bayard Jr. of Delaware
* Former Representative George S. Boutwell of Massachusetts (then serving as United States Secretary of the Treasury
The United States secretary of the treasury is the head of the United States Department of the Treasury, and is the chief financial officer of the federal government of the United States. The secretary of the treasury serves as the principal a ...
)
* Senator Roscoe Conkling
Roscoe Conkling (October 30, 1829April 18, 1888) was an American lawyer and Republican Party (United States), Republican politician who represented New York (state), New York in the United States House of Representatives and the United States Se ...
of New York
* Senator James Harlan of Iowa (retiring)
* Senator John Logan of Illinois
* Representative James W. Patterson of New Hampshire
* Senator Henry Wilson
Henry Wilson (born Jeremiah Jones Colbath; February 16, 1812 – November 22, 1875) was the 18th vice president of the United States, serving from 1873 until his death in 1875, and a United States Senate, senator from Massachusetts from 1855 to ...
of Massachusetts, also Grant's current running mate for Vice President
* Vice President Schuyler Colfax
Schuyler Colfax Jr. ( ; March 23, 1823January 13, 1885) was an American journalist, businessman, and politician who served as the 17th vice president of the United States from 1869 to 1873, and prior to that as the 25th Speaker of the United Sta ...
All of those named were Republicans except Bayard, a Democrat who was largely dropped from the investigation after he wrote a letter disavowing any knowledge. Ultimately, Congress investigated 13 of its members in a probe that led to the censure of Oakes Ames and James Brooks, a Democrat from New York.
During the 1872 campaign, Grant's running mate Henry Wilson initially denied involvement. However, in the February 1873 Senate investigation, Wilson admitted involvement and provided a complicated explanation claiming he had paid for stock in his wife's name, and with her money but had never taken possession of the shares. According to Wilson, when his wife (and later he himself) had concerns about the transaction, the transaction was reversed. Wilson's wife had died in 1870, so senators had to rely on Wilson's word and that of Ames, whose account corroborated Wilson's. The Senate accepted Wilson's explanation, and took no action against him, but his reputation for integrity was somewhat damaged because of his initial denial.
Senator Henry L. Dawes of Massachusetts was also implicated. Dawes had purchased $1,000 in stock and had received a dividend. Dawes later had doubts about the propriety of the stock purchase and cancelled it. Ames returned the purchase price to Dawes with interest and Dawes returned the dividend to Ames. Dawes received $100 in interest on his returned purchase price, but he was not further implicated.
Department of Justice investigation
A Department of Justice
A justice ministry, ministry of justice, or department of justice, is a ministry or other government agency in charge of the administration of justice. The ministry or department is often headed by a minister of justice (minister for justice in a ...
investigation was also made with Aaron F. Perry as chief counsel. During the investigation, the government found that the company had given shares to more than 30 politicians from both parties, including James A. Garfield, Colfax, Patterson, and Wilson.
No charges were filed against any of the participants in the scandal. James A. Garfield denied the charges and was elected president in 1880.
In popular culture
This scheme was referenced in the AMC
AMC may refer to:
Film and television
* AMC Theatres, an American movie theater chain
* AMC Networks, an American entertainment company
** AMC (TV channel)
** AMC+, streaming service
** AMC Networks International, an entertainment company
*** ...
television series '' Hell on Wheels'' (2011–2016) with the portrayal of Thomas Durant.
The scheme and scandal was proposed as a topic for a musical cabaret in the third episode of the tenth season of the FXX television series '' Archer''.
See also
* Crédit Mobilier, a bank in France that had no connection to the American company or the scandal
* Grantism
References
Further reading
* Ambrose, Stephen E. ''Nothing like It in the World: The Men Who Built the Transcontinental Railroad 1863–1869'' (2000
excerpt
popular history
* Bain, David Haward. ''Empire Express: Building the First Transcontinental Railroad'' (1999); minute detail in 800 page
online
* Duran, Xavier. "The First US transcontinental railroad: Expected profits and government intervention." ''Journal of Economic History'' 73.1 (2013): 177-200
online
* Fogel, Robert William. ''The Union Pacific Railroad: A case in premature enterprise'' (Johns Hopkins Press, 1960).
* Green, Fletcher M. "Origins of the Credit Mobilier of America." ''Mississippi Valley Historical Review'' 46.2 (1959): 238–251
in JSTOR
* Heier, Jan Richard. "Building the Union Pacific Railroad: a study of mid-nineteenth-century railroad construction accounting and reporting practices" ''Accounting, Business & Financial History'' 19#3 (2009) pp 327-351 http://dx.doi.org/10.1080/09585200903246775
* Kens, Paul. "The Crédit Mobilier Scandal and the Supreme Court: Corporate Power, Corporate Person, and Government Control in the Mid‐nineteenth Century." ''Journal of Supreme Court History'' (2009) 34#2 pp: 170–182.
* Klein, Maury (1987). ''Union Pacific, Volume I: Birth of a Railroad, 1862-1893.'' (''References above.'') The standard scholarly history. No footnotes in 1st edition, but they are included in the paperback edition of 2006
Excerpt
* Martin, Edward Winslow (1873).
- ''Behind the Scenes in Washington''. - (c/o Central Pacific Railroad Photographic History Museum).
* Mitchell, Robert B. ''Congress and the King of Frauds: Corruption and the Credit Mobilier Scandal'' (Edinborough Press, 2018
online review
External links
*
*
*
{{DEFAULTSORT:Credit Mobilier Of America Scandal
Political scandals in the United States
History of rail transportation in the United States
19th-century scandals
1872 in the United States
Congressional scandals
Investigations and hearings of the United States Congress
Union Pacific Railroad
Schuyler Colfax
Henry Wilson