CREDIT 



1629 



CREDIT MOBILIER OF AMERICA 



we see around us. Without it the building of 

 railways, the development of natural resources, 

 the establishment of great factories and the 

 growth of towns, to give only a few examples, 

 would have been impossible. 



The word is derived from the Latin verb 

 credere, which means to trust. Credit is pri- 

 marily based on the confidence placed in the 

 honor and ability of a purchaser or of a debtor 

 to pay for his purchases at some future time, 

 or to meet his obligations. This form of 

 personal credit is illustrated in the so-called 

 "trust," or book accounts, allowed by many 

 retail merchants to their customers. 



In large commercial transactions credit is 

 given upon the deposit of security, which 

 usually takes the form of promissory notes, 

 bills, drafts, mortgages or bonds. These are 

 called instruments of credit, and through them 

 the creditor establishes claims to a portion of 

 the debtor's estate and thereby assures him- 

 self of the repayment of his debt. Through a 

 well-organized system of credit it is possible 

 to carry on a great number of enterprises with 

 a comparatively small amount of money. An 

 effective organization of credit draws out 

 wealth and increases its usefulness. It is in 

 this way that modern banks play such an 

 important part in the development of the in- 

 dustry and commerce of a country. Banks are 

 reservoirs of credit. They collect wealth 'which 

 lies idle in the hands of a great number of 

 persons, and then loan it to those who can 

 offer security for its repayment and are able 

 to use it to the best advantage. See BANKS 

 AND BANKING. 



The term public credit signifies the confi- 

 dence which men feel in the ability and dispo- 

 sition of a nation to pay its debts. See NA- 

 TIONAL DEBT. 



CREDIT, LETTER OF. If a person is going to 

 journey in a foreign country he must arrange 

 to have money at his command, wherever he 

 may be. To carry gold and silver is out of 

 the question, and for large amounts notes and 

 checks are often inconvenient. But if he carries 

 a letter from a bank which says that up to a 

 certain sum the bank will repay whatever 

 money a foreign bank may be asked to furnish, 

 he may at any time draw any amount, large 

 or small, which suits his convenience. Some- 

 times such a letter of credit is addressed only 

 to one banker, but for tourists a more suitable 

 form is the circular letter, good in almost any 

 part of the world. The letter carries the 

 person's description, so that if lost it is value- 



less to the finder. When money is thus ob- 

 tained in a foreign country the banker pays 

 in the current rate of exchange (see EXCHANGE) 

 and inscribes on the letter, both in the cur- 

 rency of his nation and in that of the tourist, 

 the amount given. If at the journey's end the 

 sum named in the letter has not been ex- 

 hausted the balance is returned by the bank 

 of issue. 



CREDIT MOBILIER OF AMERICA, kred'it 

 mobeel'yer, a joint stock company organized 

 in 1865 for the purpose of constructing the 

 Union Pacific Railroad. The actual construc- 

 tion work cost the company a little less than 

 $51,000,000, and the cash and securities which 

 it received as payment from the railroad com- 

 pany amounted to $94,650,000. The difference 

 between these amounts $43,929,000 was profit 

 in the pockets of the Credit Mobilier stock- 

 holders, who were also the promoters and chief 

 stockholders of the Union Pacific Railroad 

 Company. The exposure of these facts, and 

 the bribery which was used in an attempt to 

 conceal them, formed a serious political scandal. 



The Credit Mobilier of America was char- 

 tered by Pennsylvania to do a general loan 

 business. In the next year control of the 

 company was purchased by the promoters of 

 the Union Pacific. The railroad company had 

 just been chartered by the government of the 

 United States, which offered to give it a land 

 grant valued at $50,000,000, and to lend it 

 $16,000 to $48,000 a mile for construction. 

 These great inducements, however, resulted in 

 few and small subscriptions from outsiders. 

 Prominent among the railroad promoters were 

 Oakes Ames, a Representative from Massachu- 

 setts, and John A. Dix, later governor of New 

 York; these men realized that the govern- 

 ment's subsidy and loan was approximately 

 double the amount which would be required to 

 build the road. To get all of this subsidy they 

 gave the contract for construction to the Credit 

 Mobilier of America, of which they were the 

 owners, and in payment for the work gave 

 stock of the railroad company and the bonds 

 issued by the government as a loan. 



The plan worked well. Credit Mobilier stock 

 was worth about five cents on the dollar in 

 1864; in 1868 the earnings began to be dis- 

 tributed and in a short time the stock was 

 worth three, four and five times its par value. 

 In one year, 1868, the company's dividends 

 amounted to 430 per. cent. The sudden rise 

 in the value of Credit Mobilier stock led to 

 quarrels among the promoters and finally to a 



