In the middle of the Civil War, President Lincoln set into motion the building of the first cross-continental railroad in the United States. While he grandly supported the railroads’ construction, Lincoln knew it would have to be built by private companies–the U.S. had too much on its hands to be responsible for such an endeavor at the moment.
The government agreed to finance part of the railroad via loans, but no private investor wanted to invest in its construction because the railroad was just too damn ambitious. Think about it: the railroad would have to cross mountains and desert and all other kinds of terrain–not to mention land still occupied by potentially-dangerous Native Americans. And what was more, there’d be no guaranteed return on investment. No one knew how they’d recoup their money if they handed it over to the Union and Central Pacific lines.
In 1864, George Francis Train (yes, that’s his real name) and Thomas D Durant set up the Credit Mobilier company, America’s first “Trust.” Basically what they did was set up a sham company which would then overcharge the government for construction costs and fees on the railroad.
Train and Durant, figuring the railroad would never turn a profit in itself, decided they’d instead line their pockets through Credit Mobilier.
Here’s how it worked: The Union Pacific made contracts with Train and Durant’s company to build the railroad. They charged rates significantly above cost, turning a profit. Simplified even further: the US government paid $90,000 to Credit Mobilier via Union Pacific when the actual cost of building the railroad was only about $50,000. That $40,000 difference went to Credit Mobilier’s stockholders.
Interested in what the railroad meant to many of the towns along its potential route? Check out my book Fortune’s Flame, set during this tumultuous time in America’s history.