Gilded Age Scandal and Corruption
The Tweed Ring and Machine Politics
The late nineteenth and very early twentieth centuries in America are often referred to as the “Gilded Age.” The origin of this name is usually attributed to Mark Twain who co-authored a novel entitled The Gilded Age. The term is metaphoric on several levels. It can be taken to reference an obsession with appearances. Unlike “golden,” which has positive associations of beauty and value, the word “gilded” carries connotations of cheap commercialization, shoddiness, and fakery. Twain’s novel is about social climbers and get-rich-quick schemers who are all show and no substance, like a gold-painted trinket. “Gilded Age” also suggests a fascination with gold itself and with the wealth and power that gold symbolizes.
Concern with gold was certainly heightened by U.S. money being minted in scarce gold coins. In addition, gilding, in the sense of gold plating, is often done to make objects beautiful that must also be strong and durable, because gold itself is a soft metal. This might reflect an American sentiment of that era that their efforts toward culture and refinement were just a veneer over a strong but coarse base. All interpretations of the meaning of “Gilded Age” carry an element of irony, however. Perhaps this sense of the ironic is more insightful than any particular interpretation of the term in describing an age of such extremes of wealth and poverty, opportunity and disaster, high standards and low practices, advancement and decay.
The population of post-Civil War America ballooned with a new tide of immigration. In spite of the terrible losses during the war, the census of 1870 reported a population of 39 million Americans, up over 25% from the decade before. The U.S. had become the third most populous nation in the Western world after Russia and France. While farmers struggled and barely maintained their numbers, business and industry boomed with America’s increasing demand for goods and services.
From afar, in countries with repressive social and political structures, stagnant economies, depressed wages, and high unemployment, America seem like a dreamland of opportunity to millions who had no hope of bettering their situation in their native country. Immigration surged, providing industry with a huge new labor force. Immigrants did well if they had a skill, money to start a business, or relatives already in the U.S. who could help them get started. Most immigrants, however, were unskilled, poor, and found themselves without support in America.
When the immigrants arrived on American shores, they gravitated toward established enclaves of people with the same language and customs. These cultural and ethnic clusters often amounted to little cities within cities that provided support, assistance, and protection for new arrivals. Cities became filled with tens of thousands of people who, because they could not afford the cost of public transportation, had to live within walking distance of their employment. As a result, huge labor-intensive factories and industries were ringed with multistory tenements that offered workers shelter from the elements and little more. Certain districts in Chicago had the highest population density in the world, exceeding even the crowding in cities such as Calcutta and Shanghai.
As immigrants were pouring into the cities, the old middle class was moving to the suburbs, taking with them most of the experience and expertise in governing an industrial metropolis. The posts of leadership were often then filled by people with less experience in city government and less of an understanding of traditional American culture.
In the nineteenth century, government at all levels saw itself a provider of essential services such as roads and as an advocate of justice, but not as responsible for the welfare of individuals. The law was supposed to protect people from being wronged, but beyond that they were responsible for their own fate. Neighborhood and fraternal associations bridged the gap between what government provided and what people needed. These organizations helped people in many ways: they gave material assistance to new arrivals, got people jobs, provided necessities for families in distress, supported small businesses, and provided legal assistance. Those who had received help and eventually made good were expected to help others in return.
Many of these associations gained considerable power using the “good old boy” system of giving preferential treatment, especially in business, to members of the group. Some began to wield their power by mobilizing large blocks of voters to influence candidates, elections, and local political parties.
Eventually the association leaders, generally called bosses, began to run for office and get elected themselves. Their first loyalty, however, was not to their government posts or to any political party but to the associations through whose ranks they had risen and to whom they owed their political and personal success.
In all the large industrial cities, such associations became embedded in city government. This new political landscape where the official government was supported and manipulated by a shadow government of bosses and associations became known as machine politics for its ability to call out the votes “like a machine” to sponsor any political agenda. It is important to remember that these associations sprang up to provide vital services to people who had no other recourse. But because shadow government operated outside the public eye, opportunities for graft and abuse of power abounded.
The most infamous example of machine politics was Tammany Hall, headquarters of the Democratic Party in New York City. Headed by William Marcy Tweed, the Tammany Hall political machine of the late 1860s and early 1870s used graft, bribery, and rigged elections to bilk the city of over $200 million. Some of this money went to create public jobs that helped people and supported the local economy. Some went into constructing public buildings at hugely inflated expense thus lining the pockets of building contractors and suppliers of materials. But contractors and suppliers, and anyone else doing business in the city, had to give kickbacks to the bosses in order to stay in business. Many machine bosses, including Boss Tweed, amassed fortunes as a result of kickbacks and bribes.
Some of the city’s money also went for such laudable, though unauthorized, uses as support for widows, orphans, the poor, the aged, the sick, and the unemployed. Tammany supporters cited these diversions of public funds as benefits to society that worked to redistribute some of the wealth that big businesses reaped from having a pool of cheap labor. Many of the people of New York were not convinced by these arguments of the benefits of the boss system, but New York City residents who complained were threatened or had their property taxes raised.
In 1871, the New York Times published sufficient evidence of misuse of public funds to indict and eventually convict Boss Tweed and some of his Tammany cronies. The brilliant political cartoonist Thomas Nast conveyed Tweed’s abuses to even the illiterate and semi-illiterate masses of recent immigrants. Nast was offered a $100,000 bribe to “study art in Paris,” a euphemism for discontinuing his pictorial campaign against Tweed. Nast refused despite even higher offers.
To escape arrest, Tweed fled to Spain. Ironically, he was identified from Nast cartoons circulated in that country, and as a result was captured by Spanish authorities and extradited back to the United States. Samuel Tilden prosecuted Tweed, which paved the way for Tilden’s presidential nomination in 1876. Tweed was convicted in 1872 and died in jail.
In the wake of experience with political machines, reformers, who at first had simply been against the machines as a matter of principle, began lobbying for more government involvement in providing social services. These were the same services the machines purported to provide, but openly and under public scrutiny. Reformers pointed out that the social benefits provided by the political machines came at terrific public expense.
Americans have traditionally been resistant to any sort of socialism, but the arguments of the reformers made sense on both economic and humanitarian levels. City, state, and national governments began to consider the welfare of society in their planning and budgeting and to incorporate social services as an integral part of the function of government.
Corruption in Business and Government
In the decades between the end of the Civil War and the turn of the twentieth century, new technologies, cheap immigrant labor, maturing methods of industrialization, and a mechanized, streamlined transportation system of railroads and steam-powered ships proved a formula for astoundingly rapid growth in the business sector. Government, however, could not keep pace with these changes. Governments were naïve about business and the ways that individuals and companies made money, both legally and illegally. They were not able to deal with many cutthroat business practices, so these were allowed to continue. Competition was intense and business managers often had to adopt practices they disliked or be forced out of business.
America was founded on a philosophy of “hands off” of business, an approach known as “laissez-faire,” which is French for “leave to do.” Even when it became clear that some regulation was necessary, especially of credit and corporate practices, government did not know where or how to apply controls. 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.
Earlier in the century, businesses had been allowed to incorporate by obtaining a charter from a state government. Among other advantages, the owners of an incorporated business were shielded from most of the liabilities incurred by the business. This was beneficial since before incorporation was allowed, if a business failed, the owner was wholly liable for all the debts. In some cases businesses failed through no fault of the owner. Creditors could then take everything, even the owner’s home, and turn him and his family destitute into the street.
Without incorporation, business owners naturally tended to be very cautious in their dealings. If a company was owned jointly by stockholders, company managers were also reluctant to risk not only the stockholders’ investment but also their personal assets. Sometimes this excessive caution prevented beneficial and needed investment.
After incorporation was allowed, big companies discovered they could buy other companies and hold them under the umbrella of the parent company. This in itself was not bad, but unscrupulous holding companies could buy a company, transfer all the assets from it to another company that was also owned by the holding company, and bankrupt the first company. This caused the first company to default on all of its financial obligations and the stock and bondholders to lose their investment.
Another unscrupulous practice sometimes employed was to have a company form another company with the same board of directors running both companies. This duplicated board was called an interlocking directorate. Again, in itself this was not bad unless the intent of the directors was to build both companies, transfer all the benefits to one company and bankrupt the other, again at the expense of the stock and bondholders. This practice was so blatantly harmful that the government had to step in to outlaw it.
The worst scandal involving an interlocking directorate occurred when the American government decided to underwrite a transcontinental railroad. The western half was built by the Union Pacific Railroad Company with substantial federal subsidies. The Union Pacific directors created a company called Crédit Mobilier that was to supply materials and labor. Though they were also the directors of Crédit Mobilier, they kept their involvement with that company quiet.
The Union Pacific built its half of the transcontinental railroad, but within a few years of operating the railroad, the company was bankrupt in spite of heavy infusions of government money. A New York newspaper exposed the scandalous co-ownership of the companies in 1872, and charges were confirmed by congressional investigation. Crédit Mobilier tried to divert attention by giving congressmen shares of its valuable stock that paid dividends of as much as 348%. Two congressmen and Grant’s Vice President were censured for accepting these bribes.
Investigators discovered that Union Pacific paid Crédit Mobilier hugely inflated prices for all its services and materials. In this way the directors transferred the assets of the railroad to the supply company. The losers were not only the thousands of Union Pacific shareholders who had invested millions in the railroad and lost their money, but also the American public that had supported Union Pacific through tax dollars. The Crédit Mobilier scandal broke during Grant’s presidency, tarnishing his reputation even though most of the corruption occurred during previous administrations.
In the wake of Andrew Johnson’s impeachment, the American public grew tired of politicians and political wrangling. In 1868, the Republicans nominated the popular Civil War hero Ulysses S. Grant for president. Grant won the election, but though an excellent general, he was wholly unprepared to be president. Grant presided over an era of unprecedented growth in the nation, but also one of unprecedented corruption. Honest to a fault himself, Grant was either unable or unwilling to stop the graft. Besides Crédit Mobilier, Grant’s administration was held responsible for the Whiskey Ring Scandal, Gould and Fiske’s attempt to corner the gold market, and Secretary of War William Belknap’s bribe-taking from Indian reservation suppliers.
One of the few bright lights in Grant’s cabinet was Secretary of State Hamilton Fish who negotiated the Treaty of Washington in 1871. During the Civil War, the Alabama, a British fighting ship with Confederate officers, did enormous damage to Northern merchant ships, sinking 64. In the Treaty of Washington, Britain agreed to pay the U.S. $15.5 million in reparations for damages done by the Alabama. Fish also averted war with Spain by persuading Grant to remain neutral in Cuba’s struggle for independence.
Adding to the problems in Gilded Age politics was the spoils system, whereby a newly elected official distributed favors to his friends, relatives, and political supporters. Often these favors came in the form of government jobs. Nepotism, or giving jobs to one’s relatives, combined with patronage, or giving jobs in payment for political favors, sapped the vitality of government. Besides passing out political jobs to more than the usual number of party cronies, Grant reportedly installed several dozen of his wife’s relations in jobs with the federal government.
Hamilton Fish reorganized the State Department and attempted to adhere to the merit system in civil service where an applicant for a job had to demonstrate competency, often by examination, in order to be considered for a position. Grant’s failure to embrace civil service reform throughout the rest of the federal government caused widespread protest. This dissatisfaction led to the creation of the Liberal Republican Party, which nominated Horace Greeley, the editor of the New York Tribune, for president in 1872.
In spite of the opposition of many people and organizations, including President Hayes who won the election of 1876, the spoils system continued unabated until disaster struck. By the election of 1881, the Republican Party had divided into two factions, the Stalwarts and the Half-Breeds. The Stalwarts supported Grant, radical reconstruction in the South, and the patronage system. The Half-Breeds opposed Grant and radical policies for the South and advocated civil service reform. The 1881 Stalwart Republican candidate, James A. Garfield, won the election but was fatally shot just six months later by a lawyer named Charles J. Guiteau, who was distraught at not being given a government job. Garfield‘s successor, Chester A. Arthur, supported civil service reform in the wake of public demand for an overhaul of the spoils system of filling government posts through patronage rather than merit. The Civil Service Commission was created during Arthur’s tenure as president, but originally affected only about ten percent of all government jobs. It had a provision, however, that the president could expand the categories of jobs protected by Civil Service. Each new president then had an incentive to enlarge this percentage in order to protect his own appointments from being replaced by the next president. Much of government thus came to be under Civil Service and the merit system.
Originally published by AP Study Notes, republished with permission for educational, non-commercial purposes.