(September 19, 2017) After the first transcontinental railroad connected Omaha with Sacramento during President Grant’s first term in 1869, other tycoons sought government financing to build additional lines. One was Jay Cooke whose investment company was the leading underwriter of federal bonds during the Civil War. Cooke backed the Northern Pacific Railroad, which was to connect Lake Superior with Puget Sound.
Originally chartered by Congress in 1864, the Northern Pacific had not built a mile of track by 1870. Cook reasoned that he could buy the company at a bargain price if he could later get Congress to extend the life of its charter and provide him other concessions. After paying consulting fees to one of President Grant’s personal secretaries, Horace Porter, he learned that Grant was as “firm as a rock” on a bill tailor-made to his needs.
The 1870 act gave the company more time to complete construction without losing rights to its land subsidies, which were unusually generous. It also permitted Cooke to collect a $200 fee in stock for each $1,000 bond sold as well as a 12% cash commission. As the railroad stretched westward from Minnesota rumors of corruption filtered back east. Still, Cooke was selling about a million dollars in bonds every month. Overseas investors arrived on junkets to ride the rails to the ever-lengthening end of the line. By the late summer of 1873 it had reached Bismarck in present-day North Dakota.
But the railroad was generating little revenue. Nearly all its operations and construction were funded by debt. Anything that prevented Cooke from selling more bonds and stock would cause the Northern Pacific to coast to a halt. A March 1873 congressional report into corruption and political bribery involving the first transcontinental railroad was just such a factor. The public perceived the scandal as an indictment of widespread immorality within the railroad industry and the federal government.
Nonetheless, when Jay Cooke & Company collapsed on September 18, 1873 there could hardly have been a bigger blow to the public confidence. One Philadelphia newspaper reported, “No one could have been more surprised if snow had fallen during a summer noon.” Without new sales of Northern Pacific securities, Cooke & Company soon ran out of cash. The night before it shut down President Grant was a Cooke houseguest. The two shared a breakfast the vey morning of the debacle.
Cooke’s failure triggered a panic that led to a five-year depression. The New York Stock Exchange closed for ten days, amplifying the panic. Business failures in 1873 climbed to 5,000, from 4,000 in 1872 and 3,000 in 1871. Track construction across the nation declined by a third in 1874, causing 500,000 layoffs within the railroad eco-system including the iron and steel industry. Prices fell. Pig iron dropped from $56 a ton in 1872 to $17 five years later. Wages fell about 50% from 1873 to 1877. The country seemed to be overrun with vagrants.
As the economy progressively weakened during the months following Cooke’s bankruptcy, President Grant reflected upon how earlier gold discoveries in California and the Rocky Mountains had promptly energized America’s economy. Thus, in the summer of 1874 he sent a military expedition into the Black Hills of present-day South Dakota to look for evidence of rumored gold deposits. Since the Hills were part of a Lakota Sioux reservation—officially off limits to white civilians—the expedition’s goal was falsely represented as a site search for a military fort, which was permissible.
Lieutenant-Colonel George Custer led the thousand-man expedition that included President Grant’s eldest son as well as three newspaper reporters, a photographer and two gold miners. Although the group saw few Indians they discovered tempting quantities of gold. Soon the first rush of prospectors began tearing through the Hills. Within two years the largest deposit in the Continental United States—ultimately to become the Homestake Mine—was discovered. A year after discovery, George Hearst and two partners purchased the mine for $70,000. Before ending production in 2001, Homestake yielded over $1 billion in gold and helped finance the legendary career of George’s son, William Randolph Hearst.
Initially Grant made little effort to control the prospecting, but within a year there were so many prospectors that the he decided that the government must buy the Black Hills from the Sioux. When he learned that the Sioux refused to sell, he resolved to contrive a reason to start a war in order to take it from them by force.
In November 1875 he summoned the general commanding the region and the commissioner of Indian affairs to a White House meeting. Although the general and the commissioner were both on record as reporting that the Lakota had been peaceful in recent years, a contrary report was issued a week after the meeting by an inspector of the Indian Affairs Bureau. According to historian James Donovan the report “cited various trumped-up accusations and smoothly worded falsehoods regarding Indian violations.” Accordingly, the “wild” Indians in the hunting territories were told that they must return to the reservation by January 31, 1876 or be declared hostile, which would thereby authorize the army to force their return.
It was an impossible demand. The weather-weakened Indian ponies could not move entire villages, which included women and children. One warrior later said, “It was very cold and many of our people and ponies would have died in the snow. We were in our own country and doing no harm.” Even the departmental military commander admitted the ultimatum “will in all probability be regarded as a joke by the Indians.”
After an abortive winter campaign, the army launched a three-pronged offensive against the off-reservation Lakota in June 1876. They converged on the Powder River country in southeastern Montana. One column approached from the south out of Wyoming and a second approached downstream along the Yellowstone River from western Montana. A third column under General Alfred Terry marched upstream along the Yellowstone from the column’s starting point in present-day North Dakota. Terry’s force included the Seventh Cavalry Regiment under Custer’s command.
In response, the scattered Indian settlements concentrated into a single big village along a tributary of the Big Horn River, blandly named the Little Big Horn. The soldiers’ Wyoming column was quickly turned back at the Battle of the Rosebud. As Terry continued marching westward along the Yellowstone with his infantry, he sent the Seventh Cavalry south of the river on a reconnaissance in force to find the Indian village, or villages. Custer found the Little Big Horn village on 25 June. He divided his command into three separate components and attacked the Indians with two of them. The third guarded the regiment’s slower-moving pack train but was also sent on a vague reconnaissance mission to the southwest, perhaps to search for unseen hostiles.
The village had about 1,800 warriors as compared to 500 soldiers in the entire Seventh Cavalry. Custer’s column totaled 225 men. He allocated 150 men to a group under Major Marcus Reno to attack the village from the south. The final pack train guard under Captain Frederick Benteen included 125 men. After Reno’s attack was repulsed his command retreated to a defensive position on a bluff overlooking the Little Big Horn where Benteen’s pack train joined him. The Indians killed all the troopers in Custer’s command east of the village. Reno and Benteen suffered 53 killed and 60 wounded. The Lakota moved their village beyond sight the evening before General Terry’s infantry arrived on 27 June.
The Indian victory was merely temporary and only intensified white hostility. Within nine months the federal government forced the Lakota to cede the Black Hills. An 1877 act usurped the 1868 Treaty of Laramie requirement that it could only be amended by a three-quarter vote of adult male Sioux, which was not obtained. Instead, the federal authorities told the Indians that the 75% supermajority applied only to the Lakota residing on the reservation. Even given the narrower interpretation, however, it is doubtful that a three-quarter vote was obtained.