The Erie Railroad, running from New York City to Buffalo and thence westward to Chicago, was started in 1832. In New York State alone, irrespective of gifts in other States, it received what was virtually a gift of $3,000,000 of State funds, and $3,217,000 interest, making $6,217,000 in all. Counties, municipalities and towns through which it passed were prevailed upon to contribute freely donations of money, lands and rights. From private proprietors in New York State it obtained presents of land then valued at from $400,000 to $500,000, [Footnote: Report on the New York and Erie Railroad Company, New York State Assembly Document, No. 50, 1842. See also, Investigation of the Railroads of the State of New York, 1879, I: 100.] but now worth tens of millions of dollars. In addition, an extraordinary series of special privileges and franchises was given to it. This process was manifolded in every State through which the railroad passed. The cost of construction and equipment came almost wholly from the grants of public funds. [Footnote: "The Erie railway was built by the citizens of this State with money furnished by its people. The State in its sovereign capacity gave the corporation $3,000,000. The line was subsequently captured, or we may say stolen, by the fraudulent issue of more than $50,000,000 of stock." … "An analysis of the Erie Reorganization bill, etc., submitted to the Legislature by John Livingston, Esq., counsel for the Erie Railway Shareholders, 1876.">[
Confiding in the fair promises of its projectors, the people credulously supposed that their interests would be safeguarded. But from time to time, Legislature after Legislature was corrupted or induced to enact stealthy acts by which the railroad was permitted to pass without restriction into the possession of a small clique of exploiters and speculators. Not only were the people cheated out of funds raised by public taxation and advanced to build the road—a common occurrence in the case of most railroads—but this very money was claimed by the capitalist owners as private capital, large amounts of bonds and stocks were issued against it, and the producers were assessed in the form of high freight and passenger rates to pay the necessary interest and dividends on those spurious issues.
THE SPECULATOR, DREW, GETS CONTROL.
Not satisfied with the thefts of public funds, the successive cliques in control of the Erie Railroad continually plundered its treasury, and defrauded its stockholders. So little attention was given to efficient management that shocking catastrophies resulted at frequent intervals. A time came, however, when the old locomotives, cars and rails were in such a state of decay, that the replacing of them could no longer be postponed. To do this money was needed, and the treasury of the company had been continuously emptied by looting.
The directors finally found a money loaner in Daniel Drew, an uncouth usurer. He had graduated from being a drover and tavern keeper to being owner of a line of steamboats plying between New York and Albany. He then, finally, had become a Wall street banker and broker. For his loans Drew exacted the usual required security. By 1855 he had advanced nearly two million dollars—five hundred thousand in money, the remainder in endorsements. The Erie directors could not pay up, and the control of the railroad passed into his hands. As ignorant of railroad management as he was of books, he took no pains to learn; during the next decade he used the Erie railroad simply as a gambling means to manipulate the price of its stocks on the Stock Exchange. In this way he fleeced a large number of dupes decoyed into speculation out of an aggregate of millions of dollars.
Old Cornelius Vanderbilt looked on with impatience. He foresaw the immense profits which would accrue to him if he could get control of the Erie Railroad; how he could give the road a much greater value by bettering its equipment and service, and how he could put through the same stock-watering operations that he did in his other transactions. Tens of millions of dollars would be his, if he could only secure control. Moreover, the Erie was likely at any time to become a dangerous competitor of his railroads. Vanderbilt secretly began buying stock; by 1866 he had obtained enough to get control. Drew and his dummy directors were ejected, Vanderbilt superseding them with his own.
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VANDERBILT OUSTS DREW, THEN RESTORES HIM.
The change was worked with Vanderbilt's habitual brusque rapidity. Drew apparently was crushed. He had, however, one final resource, and this he now used with histrionic effect. In tears he went to Vanderbilt and begged him not to turn out and ruin an old, self-made man like himself. The appeal struck home. Had the implorer been anyone else, Vanderbilt would have scoffed. But, at heart, he had a fondness for the old illiterate drover whose career in so many respects resembled his own. Tears and pleadings prevailed; in a moment of sentimental weakness—a weakness which turned out to be costly—Vanderbilt relented. A bargain was agreed upon by which Drew was to resume directorship and represent Vanderbilt's interests and purposes.
Reinstated in the Erie board, Drew successfully pretended for a time that he was fully subservient. Ostensibly to carry out Vanderbilt's plans he persuaded that magnate to allow him to bring in as directors two men whose pliancy, he said, could be depended upon. These were Jay Gould, demure and ingratiating, and James Fisk, Jr., a portly, tawdry, pompous voluptuary. In early life Fisk had been a peddler in Vermont, and afterwards had managed an itinerant circus. Then he had become a Wall street broker. Keen and suspicious as old Vanderbilt was, and innately distrustful of both of them, he nevertheless, for some inexplicable reason, allowed Drew to install Gould and Fisk as directors. He knew Gould's record, and probably supposed him, as well as Fisk, handy tools (as was charged) to do his "dirty work" without question. He put Drew, Gould and Fisk on Erie's executive committee. In that capacity they could issue stock and bonds, vote improvements, and generally exercise full authority.