“Yes, and that closed my connection with the Union Pacific road.”
This is a very beautiful picture and it makes out Mr. Gould to be a most public-spirited and generous man—one ready to sacrifice his own interests in obedience to the demand of public opinion. But, having looked on this picture, look upon that drawn by the Pacific Railroad Commission, appointed by President Cleveland in 1887, and composed of ex-Gov. Pattison, of Pennsylvania; E. Ellery Anderson, of New York, and David Littler, of Illinois. The commission made two reports, agreeing substantially, only that of ex-Gov. Pattison was more severe in its conclusions.
In the majority report, by Messrs. Anderson and Littler, the purchase of a controlling interest by Jay Gould in 1873, the subsequent increase in the capital stock to 200,000 shares, the inauguration of the policy of constructing branch lines in 1877 and the commencement of the action by the United States against the directors of the Union Pacific for misappropriating the assets of the company were detailed and the report went on to say: “It appears from the minutes of the company that while this litigation was pending certain proceedings were taken by the directors, whereby by their own acts and votes they undertook to release themselves from any obligations or liabilities to the company.” The Kansas Pacific’s financial operations from 1864 to 1880 were also taken up and the circumstances leading up to its consolidation in the Union Pacific system were detailed at great length. The acquisition by Jay Gould in 1877, at nominal figures, of several millions of securities of the Kansas Pacific was spoken of, and the reorganization of that company under the control of Gould was detailed and the methods severely condemned. The effect of the consolidation was to increase the stock of the Union Pacific from $38,000,000 to $50,000,000, and the bonded indebtedness from $88,000,000 to $126,000,000, and the other indebtedness from $4,000,000 to nearly $10,000,000. It was declared that “the three years following the consolidation were years of great business activity, and the receipts of the Union Pacific for 1880, 1881, 1882 and 1883 were largely increased,” but “in the face of a very large and apparently profitable business” the company found itself early in 1884 on the verge of bankruptcy.” Competition, the burden of its fixed charges, the extravagant sums paid for branch railroads of little or no earning power bought by Mr. Gould, and the “lavish and reckless distribution of the assets of the company in dividends, all combined to produce this result.” After stating that Gould’s connection with the road ceased in 1883, the report says: “It is with a sense of great relief that the commission turns from the history of this company from 1873 to 1883 [the period of Gould’s control—Ed.] to the conservative, energetic and intelligent management that has characterized the management from the opening of 1884 to the present time.”
Ex-Gov. Pattison, in his report, said:
“The Union Pacific company has received $176,294,793.53 in surplus earnings and land sales during eighteen years, and if its stock had been fully paid, as Congress required that it should be and as its officers certified under oath that it was, nearly all of that money would be applicable to-day to the payment of the government debt. The company has paid out $28,650,770 in dividends, and $82,742,850 in interest on bonds, nearly all of which were distributed to shareholders without consideration. It has sunk over $10,000,000 in Denver, South Park and Pacific; it paid out $10,000,000 to Jay Gould and his associates for branch lines and other investments which were worthless, and which were unloaded upon the Union Pacific because of the faithlessness of the management of the company. The gross mismanagement of the Union Pacific and the other Pacific railroads has injured the credit of foreign investors to such an extent that hundreds of millions of dollars, which otherwise would have been sent here for investment and aided in the development of the country, have been locked up abroad.”
Every line of this indictment is directed at Gould. Yet Charles Francis Adams, the author of “A Chapter in Erie,” and who became president of the Union Pacific about the time Gould retired, told the commission that he believed from careful scrutiny that Mr. Gould had always been more than fair to the company. But the commission, with all the facts before it, rejected his view of the case.
When Mr. Gould secured possession of the Union Pacific, Sidney Dillon was president of it, and they with other large stockholders agreed upon a plan to fund the floating debt in bonds, of which Mr. Gould took $1,000,000. Mr. Gould remained in practical control of the property until about 1880, when public opinion clamored for a change, and as Mr. Gould said to one of the numerous investigating committees before which he was called upon during his busy life to testify: “I bowed to public opinion. I let outside parties in and soon, instead of thirty or forty stockholders, there were 6,000 or 7,000.” Mr. Charles Francis Adams succeeded Sidney Dillon as president, and in a short time an astonished public beheld the spectacle of the author of the scathing “Chapter of Erie” standing sponsor for the man he had denounced. Mr. Gould managed to persuade Mr. Adams to view the future of Union Pacific through his (Gould’s) eyes, and in consequence Mr. Adams unconsciously assisted Mr. Gould in disposing of large blocks of the stock to good advantage. In 1891 Mr. Gould again got control of the Union Pacific road, owing to peculiar Wall street conditions, and he calmly turned Mr. Adams out of the presidency and put Sidney Dillon back there.
“In 1876 Mr. Gould began buying Kansas Pacific stock because it was cheap. At that time stock speculators did not regard the stock as being worth anything. Mr. Gould, however, was looking away ahead, and he bought largely of Denver Pacific securities and stock and bonds of the St. Joe and Western, the Kansas Central, and Central Branch roads. All of these securities he got at a very low price, and he realized an enormous profit when they were all turned in under the famous Union Pacific consolidation scheme in 1880. For his Central Branch stock alone he received $239 per share. Mr. Gould was one of the first to suggest the consolidation of the Kansas Pacific and its subsidiary roads with the Union Pacific. He employed Solon Humphreys and Gen. Dodge to go West, look over the situation, and make a report on the practicability of the consolidation.
In 1879 a consolidated mortgage was issued by the Kansas Pacific to wipe out the innumerable securities bearing different rates of interest which were then burdening the road. Jay Gould and Russel Sage were then directors of both the Union and the Kansas Pacific roads, and they were made trustees of this mortgage. Among the assets covered by this mortgage were 30,000 shares of the Denver Pacific railroad, then of little value, but which, under the plan of consolidation which Gould was then maturing, would become of great value. Sidney Dillon, who was associated with Gould and Sage in all three roads, asked them to release these stocks from the lien of the mortgage. Gould and Sage sat down at the same desk at which Dillon had written this modest request, and wrote suggesting that an action should be brought against them in the courts for the release of the stock. The action was immediately brought before Judge Donohue, to which Gould and Sage made no defense. Dillon testified that the stock was worth only $200,000 or $300,000. The order was given, the stock released, and the day after the consolidation was effected which made the stock worth its face value, or $3,000,000.
Stoop & Rens, of Amsterdam, claiming to be holders of the bonds, brought the charge against Mr. Gould and Mr. Sage that they had, without consulting with the other bondholders, appropriated to themselves the trust asset of $3,000,000.