Congress had assumed all the power that was claimed by the kings of old who claimed to rule by divine right; that is to give away the land of the nation to whomsoever they saw proper, and exempt it from all taxation for a term of years. In the exercise of this right they had given to individuals and corporations more land than there is in Great Britain; more land, in fact, than any king of England ever claimed to own. This land was given for the purpose of enabling these favored corporations to build railroads for themselves (not for the people); the people had no interest in the roads, and could only use them on such terms as the railroad companies might dictate.
Railroad companies could not build railroads with land; it took money to build them; but the English bondholders had $50,000,000 or $60,000,000 coming in every six months for interest on their United States bonds, and they were willing to lend it to the railroad companies and take railroad bonds, secured by mortgage upon the railroad and their lands. Now, as there were a great many railroad companies that wanted to borrow money, they began to offer extra inducements to secure loans; they offered their bonds at 10, 15, and often 20 per cent discount. These railroad bonds usually drew 6, 7, and even 8 per cent interest, which was paid semi-annually. The profits made by these English capitalists were immense. Never in the world's history had such profits been made. The wildest dreams of John Law and the South Sea schemers were more than realized.
To fully understand this, let us take the actual results of one year's operations. The English capitalists, we will say, in 1867, invested $500,000,000 in the purchase of $1,000,000,000 of our depreciated currency. They took it to the United States Treasurer and exchanged it for United States bonds drawing 6 per cent interest in coin. At the end of six months they drew $30,000,000 in gold coin, and took it to the gold-room and sold it for $45,000,000 in greenbacks. Then they exchanged their greenbacks for railroad bonds at 20 per cent discount. They would thus receive about $54,000,000 of railroad bonds drawing 7 per cent interest. At the end of the next six months they would draw another $30,000,000 in coin and sell it for $45,000,000 in greenbacks, and exchange them for another $54,000,000 in railroad bonds. They would also draw 7 per cent interest on the first $54,000,000 of railroad bonds, which, for six months, would be $1,840,000. The account of the first year would stand as follows: $500,000,000 in gold brought $1,000,000,000 of depreciated currency, and was exchanged for $1,000,000,000 of United States bonds; one year's interest on $1,000,000,000 amounted to $60,000,000. This was sold in the gold-room for $90,000,000 in greenbacks. Then the greenbacks were exchanged for railroad bonds at 20 per cent discount on the bonds. In this way at the end of the first year, for their investment of $500,000,000, they found themselves in possession of $1,000,000,000 of United States bonds, and $108,000,000 of railroad bonds, and $1,840,000 in cash for the first six months' interest on the first $54,000,000 of railroad bonds. Nor was this all the profit of the English capitalists, for in 1869 they secured the passage of a law by Congress pledging the Government to pay not only the interest but the principal of the United States bonds in coin. This rapidly increased the value of the bonds, and in a few years they were eagerly sought for by English capitalists, and they rose to a premium of 25 per cent in gold on their full face value.
Within five years after the passage of the law of 1866, the bonded debt of the United States reached the sum of over $1,800,000,000. The interest was paid in coin, and was sold in the gold-room in Wall Street at a premium until 1878, and the profits realized upon the sale of this gold were simply enormous. These profits were promptly invested in railroad bonds at a discount of from 5 to 25 per cent.
In 1866 the bonded indebtedness of the railroads had got up to $2,165,000,000, and was in the hands principally of English capitalists, who had paid for them with the profits they had made on the United States bonds they had bought at a discount of from 40 to 60 per cent.
Not only the British capitalists made enormous profits, but our railroad corporations and speculators made still greater profits. For every dollar of the bonds they sold to the English capitalists they issued a dollar or more of the railroad stocks, so that in 1876 the amount of railroad stock reached the sum of $2,248,000,000.
From 1876 to 1890 the English and European capitalists continued to invest the interest they drew upon their Government and railroad bonds in the new issues of railroad bonds, so that, in 1890, they had secured the enormous sum of $4,828,000,000 of railroad bonds, and it took $219,877,000 to pay the interest annually. During the same time the railroads had increased the amount of railroad stock to $4,495,000,000 and it took $80,000,000 to pay the dividends.
The railroad people not only made vast fortunes out of the $4,495,000,000 of watered stock (for it was in reality nothing but water, for the actual cost of building the roads was no more than was received from the sale of their bonds to the English capitalists), but they made hundreds of millions of dollars from the sale of the lands that had been given to them by the Government, and had not cost them one cent, not even for taxes. They ran their roads through their lands for thousands of miles, and wherever they thought proper they would lay out towns and cities and sell the lots at fabulous prices.
They also induced towns, counties, and cities to issue millions of dollars of bonds and give to the companies, as a bonus, to run their roads through such towns and cities.