Case study: Corporate political corruption, 19th century-style

According to Feross Aboukhadijeh in "Gilded Age Scandal and Corruption," the drive for economic progress in the 19th century superseded the need to prevent corrupt business practices:[12]

"Americans disliked many of the abuses they saw in business, but were reluctant to advocate government interference for fear of doing anything to cool the remarkable engines of progress and production."            

Aboukhadijeh describes how some 19th century U.S. corporations would use a holding company to buy another company, transferring all of the acquired company's assets to the holding company, and then bankrupting the acquired company, leaving the first company's investors with nothing. A related unscrupulous practice at the time was the use of interlocking directorates, such as those created by Union Pacific Railroad and Crédit Mobilier: the latter was incorporated by the former ostensibly to supply the railroad with labor and material, but the railroad directors kept their involvement with Crédit Mobilier a secret.[13]

After Union Pacific went bankrupt, the co-ownership arrangement was revealed in 1872. Investigators determined that Union Pacific had paid Crédit Mobilier "hugely inflated prices" for its labor and material in an attempt to transfer assets from the railroad to the supplier.[14] Union Pacific had received "heavy infusions of government money," according to Aboukhadijeh, so the railroad's scheme defrauded not only its investors, but also U.S. taxpayers.

The scandal broke just before the 1872 national election, when Ulysses S. Grant was seeking his second term. Implicated in a lawsuit against Crédit Mobilier as having received stock in the company were the incumbent Vice President Schuyler Colfax, Vice Presidential nominee Henry Wilson, Speaker of the House James G. Blaine, and Congressman James Garfield, among other politicians. Garfield would himself be elected President eight years later, only to be assassinated after 200 days in office by a crazy former supporter, Charles J. Guiteau, who had expected a post-election political appointment.[15]

The fear of government oversight impeding economic growth cited by Wallis and others was the underlying cause of corporate-political scandals such as Crédit Mobilier. It is also the same reasoning used to justify the more recent deregulation of financial markets and the resulting usurpation of political power by the financial industry. The threat to our democracy posed by the resulting plutocracy is the subject of "Corporate ownership of the U.S. government."


[12] Aboukhadijeh, Feross. "Gilded Age Scandal and Corruption," November 17, 2012, http://www.apstudynotes.org/us-history/topics/gilded-age-scandal-and-corruption/
[13] http://www.pbs.org/wgbh/americanexperience/features/general-article/tcrr-scandal/
[14] http://www.apstudynotes.org/us-history/topics/gilded-age-scandal-and-corruption/
[15] http://en.wikipedia.org/wiki/James_A._Garfield