CHAPTER III

THE RAILROADS AND THE PIPE LINES

The contract between the railroads and the South Improvement Company

was signed, and armed with this deadly weapon, Mr. Rockefeller went

round to all the rival refineries in Cleveland and explained to their

respective proprietors, gently but firmly, that they were as good as

dead men in the oil trade, and that the only way they could avoid

utter ruin was to turn over their refineries to the South Improvement

Company either for stock or cash at the latter’s valuation. It seems

scarcely credible, but it is an historical fact that no less than

twenty out of these five-and-twenty Cleveland refiners--who, by the

way, were approached one by one and under pledge of secrecy--as soon

as they learnt that they were thus morally dead, proceeded at once to

order their coffins. That is, they sold up as requested. The Cleveland

refiners fell at Mr. Rockefeller’s feet through sheer fright, and thus

in less than three months’ time the Standard Oil group absorbed twenty

other refineries and increased its capacity from 1,500 barrels a day to

10,000 barrels--from one-tenth to one-fifth the total capacity of the

United States.

Of course, the murder was soon out, and the Oil Regions, which

were interested in oil wells as distinct from refining, which was

the Standard’s business, were aflame with indignation. A Petroleum

Producers’ Union was formed in opposition. Mass meetings were held and

Congress was petitioned. The Pennsylvania Legislature repealed the

charter of the South Improvement Company, and on March 25th the peccant

railroads signed a contract with the Petroleum Producers’ Union, of

which the first and chief clause provided--

That all arrangements for the transportation of oil after this date

shall be upon a basis of perfect equality to all shippers, producers,

and refiners, and that no rebates, drawbacks, or other arrangements

of any character shall be made or allowed that will give any party

the slightest difference in rates or discrimination of any character

whatever.

On April 4th General McClellan (Atlantic and Great Western), Horace

F. Clark (Lake Shore and Michigan Southern), Thomas A. Scott

(Pennsylvania), and W. H. Vanderbilt (New York Central) all sent

emphatic messages to the Petroleum Producers’ Union declaring that

their roads had no understanding of any nature in regard to freights

with the _Standard Oil Company_. On April 8th John D. Rockefeller

telegraphed to the Petroleum Producers’ Union: “In answer to your

telegram, this Company holds no contract with the railroad companies

or any of them or with the South Improvement Company.” Yet we now know

from a contract thoughtlessly exhibited by H. M. Flagler seven years

later to a Commission of the Ohio State Legislature--a contract between

his Company and the railroads--that a rate had been fixed “From April

1st until the middle of November, 1872, about seven months, $1.25.” Now

the corresponding rate openly published and recorded in the contract

between the roads and the Petroleum Producers’ Union just quoted, which

was signed March 25th, was $1.50. A rebate of 16⅔ per cent.! Mr.

Rockefeller had it all the time, in spite of his own assertions and

those of the railroad officials to the contrary.

Mr. Rockefeller has committed very few indiscretions in his lifetime,

but he did achieve one at this early date in his career. He talked

under the smart of his rebuff, and so did others of his colleagues in

the late South Improvement Company. He was reported in the _Oil City

Derrick_ to have said to a prominent man of Oil City that the South

Improvement Company could work under the charter of the Standard Oil

Company, and to have added that in less than two months his auditor

would be glad to join him. One of his colleagues simply said: “The

business _now_ will be done by the Standard Oil Company.... We mean to

show the world that the South Improvement Company was organised for

business, and means business, in spite of opposition.” This went the

round of the American Press a few days after the repeal of the charter,

and since then to the present day the indiscreetly uttered threat has

been stealthily fulfilled to the letter. The South Improvement Company

was formally dissolved in order to calm the popular indignation, but

the same men continued to operate through the Standard Oil Company of

Cleveland, and, as we have seen, to receive similar rebates, which

enabled them to build up the Standard Oil Trust. On May 3, 1910--to

bring the matter well down to date by a concrete instance--the United

States Court of Appeal confirmed a decree of the Circuit Court of the

Western District of New York State fining the Standard Oil Company

$20,000 (£4,000) “for accepting concessions from the published rate

of the Pennsylvania, New York Central, and Rutland Railroads in

violation of Inter-State Commercial Law.” But the fine, of course, is

an ineffective flea-bite, and is only worth quoting to show that the

iniquitous conspiracy of injustice and robbery entered into by the

railroads and the Standard Oil Trust in 1872 still continues to baffle

justice in America and to outrage the moral sense of the civilised

world.

A noteworthy development of the conspiracy between the Standard Oil

Company and the railroads was what became known as Standard control

of the railroad “terminal facilities.” By terminal facilities is

understood the unloading, storing, and handling of oil at the railroad

termini, chiefly in the vicinity of New York harbour. The railroads

handed over the entire control and management of their oil yards and

wharves to this one favoured oil company, authorising it to collect

the oil-yard charges from its rivals, and to handle its rivals’ oil

consignments according to its own goodwill and pleasure. Fancy one of

our British railway companies putting all its railway sidings in London

under the control of a single firm of Newcastle coal merchants, and

allowing this firm to load or unload, forward or delay the consignment

of rival firms according to its own convenience or good pleasure! Fancy

the outcry that would be raised against this privileged firm when

it became known that the only check upon its dealing unjustly with

its rivals was that, whatever charges it elected to make for loading,

unloading, and storage at the railway company’s sidings, such charges

were to be uniform in all cases! This last proviso was a mere mockery.

The only authority appointed to see that no advantage was given to

one competitor over another was the arch-competitor--the Standard Oil

Company. The companies entering into this special conspiracy were the

Erie, the New York Central and Hudson River, the Baltimore and Ohio,

and the Pennsylvania railroads at the Atlantic seaboard. I have before

me as I write copies of the contracts made by all these railroads,

excepting the Pennsylvania, with the Standard Oil Company, and they

make astounding reading.

This matter of the “terminal facilities” very naturally received

attention in the United States Government prosecution of the Standard

Oil Company of New Jersey, in the State of Missouri, when the Court

found that the Company was identical with the Standard Oil Trust, which

had previously been ordered by the Court to be dissolved as an illegal

conspiracy in restraint of trade. The effect of the decision has been

suspended by an appeal to the Supreme Court of the United States, which

would have been decided last spring had it not been for the death of

Judge Brewer, the presiding judge. The appeal is expected to be decided

under his tardily appointed successor, Judge Hughes, this spring or

early summer. In the meantime, the finding of the Missouri Circuit

Court, before which the case was argued, is that of “Guilty.” When Mr.

Rockefeller had, with the greatest difficulty, been haled before this

court and asked to explain these contracts on oath, all he could urge

in his favour was that “the Standard interests were handling very large

quantities of oil, and were the _natural parties_ to have control of

the warehousing, receiving, and shipping of oil.” Cross-examination

could extract very little from him. He could not even say when the

Standard Oil interests got possession of the terminals nor how long

they retained them. He admitted that the Standard levied terminal

charges on the oil of independents, but did not know the amount. He

relapsed, in short, into that painfully afflicting condition of amnesia

which seems to be constitutional with Standard Oil officials when

subjected to the rude shock of public examination.

But, luckily, the written letter of the contracts is now to hand to

supplement this lamentable want of memory. Take, for instance, that

with the Erie Company dated April 17, 1874, in Section 7 of which the

Standard agrees to pay 5 cents a barrel to the Erie Railroad for the

use of its yards, and further agrees “to make the charges uniform

to all parties who use the yards or for whom services are performed

therein, and always as low as any other oil yard, affording proper

facilities for the transfer, storage, preparation, and shipment of

the oil at any terminus of any railway or other line competing with

the Erie Railway at or adjacent to the port of New York.” There is

something like humour in the phrase “as low as any other oil yard.”

Every “other oil yard” was similarly controlled by the Standard. One

of its directors, Mr. Jabez A. Bostwick, stated on oath before the

Hepburn Committee on October 16, 1879, that the Standard at that

time controlled the terminals of the Erie and the New York Central

railroads, and that the New York Central had no other oil terminals at

New York Harbour except those controlled by the Standard. At the time

he was testifying he had charge of the New York Central yards, and

declined to answer as to his relation with the Standard Oil Company

in that connection. The usual atmosphere of mystery! It is dissipated,

however, at the present date, for we have now the text of the contract

between the New York Central and the Standard before us, signed January

1, 1876, and referring to a previous contract of July 22, 1875.

One more point and I have done with the “terminal facilities.” Section

8 of the Erie contract provides that the Standard Oil Company shall

assume the collection of freights and charges on all oil received at

the yard and render accounts weekly. “This provision,” observes the

“Brief for the United States,” given to the Attorney-General in the

Missouri case, “gave the Standard Company the power to collect the

Erie’s freight charges for transportation of competitors’ oil, thereby

giving the Standard the great advantage of knowledge of all competitive

shipments and of the rates of freight, and enabling it to compel those

parties to pay the full rate, while the Standard could obtain any

rate it might arrange for with the railroad companies, and it will be

shown that the Standard had rebates from all of them.” In the light of

all this, what becomes of the Standard Oil claim to superior business

acumen and cleverness? Under the conditions shown, a mere schoolboy

could outstrip and ruin the most seasoned merchant in the race for

commercial success. The claim to superior business methods is an

absolutely unfounded one, and might as well be urged by a burglar who

can make a fortune in a night; but, then, his avocation is not usually

referred to as “business.”

By this time the pumping of crude oil from the wells through pipe

lines had commenced, first for short distances to collecting points

on the railroads, but later for long distances, largely superseding

the railroads. The Standard’s pipe lines, called the United Pipe

Lines, were under the management of the late Mr. Daniel O’Day, the

big Irishman mentioned in the first chapter. At first the railroads

and Standard pipe lines worked together to harass and delay the

“independent” shipper and refiner. Here is evidence of how the Standard

Oil Company’s secret agreements with the railroads made it the interest

of the latter to decrease the shipments of independent oil by refusing

to furnish adequate cars and by delaying delivery. In 1878 Mr. W. H.

Nicholson, the representative of Mr. Ohlen, a New York shipper of

petroleum, appeared before an investigation ordered by the Secretary of

Internal Affairs of the State of Pennsylvania and gave evidence upon

oath that he began to have a difficulty in getting cars in May of that

year. One day, he stated, Mr. Ohlen telegraphed to the officials of

the Erie road to know if he could get 100 cars to run east. The reply

came back, “Yes.” About noon Mr. Nicholson saw Mr. O’Day, the manager

of the United Pipe Lines (Standard Oil property), in which his oil was

stored, and told him he was waiting to have his cars loaded. Mr. O’Day

at once said he could not load the cars. “But I have an order from

the Erie officials giving me the cars,” Mr. Nicholson objected. “That

makes no difference,” O’Day replied; “I cannot load cars except upon

an order from Pratt.” Nor would he do it. The cars were not loaded for

Mr. Nicholson, though at the time he had 10,000 barrels of oil in the

United Pipe Lines and an order for 100 cars from the officials of the

Erie in his hand. “Pratt,” of course, was the late Mr. Charles Pratt,

whose refinery was at this time merged in the Standard combine, and

whose name is memorialised in this country by the well-known “Pratt’s

motor spirit.”

High-handed proceedings of this sort by the Pennsylvania Railroad

gradually created such a hubbub that the State of Pennsylvania

instituted a suit against it. This is the evidence given by Mr. B. B.

Campbell, President of the Producers’ Union, on the occasion:--

“I never heard of a scarcity of cars until the early part of June,

1878. I came to Parker (a town in Pennsylvania) about five o’clock

in the evening, and found the citizens in a state of terrible

excitement. The Pipe Lines would not run oil unless it was sold;

the only shippers we had in Parker of any account, viz., the agents

of the Standard Oil Company, would not buy oil, stating that they

could not get cars; hundreds of wells were stopped to their great

injury; thousands more, whose owners were afraid to stop them

for fear of damage by salt water, were pumping the oil on the

ground.... On Saturday morning I spoke very plainly to Mr. Shinn

(Vice-President of the Allegheny Valley Railroad Company, controlled

by the Pennsylvania), telling him that the idea of a scarcity of cars

on daily shipments of less than 30,000 barrels a day was such an

absurd, barefaced pretence that he could not expect men of ordinary

intelligence to accept it, as the preceding fall (_anglice_, autumn),

when business required, the railroads could carry day after day from

50,000 to 60,000 barrels of oil.... I requested him to be the vehicle

of communicating to the Pennsylvania Railroad officials my views on

the subject, telling him that I was convinced that, unless immediate

relief was furnished and cars afforded, there would be an outbreak

in the Oil Regions.... On the next Monday I returned to Parker.

After passing Redbank, where the low-grade road, the connecting-link

between the Valley Road and the Philadelphia and Erie Road, meets the

Valley Road--between that point and Parker--the express train was

delayed for over half an hour in passing through _hundreds of empty

oil cars_!”

In August, 1872, Mr. Rockefeller, as the result of much plotting and

planning, succeeded in persuading about four-fifths of the refining

interest in the United States to go into a National Refiners’

Association, with himself as president, the object being to checkmate

the Petroleum Producers’ Union, which had just exposed the South

Improvement Company. This refiners’ association was to operate on what

was known as the “Pittsburg Plan”--so called from the place where the

scheme was first organised--according to which all the refineries were

subject to a central board. They were to refine only such an amount as

the board allowed, not to undersell prices fixed by the board, and to

leave their buying of crude oil and the arrangements for transportation

entirely in the hands of the board. In the aggregate they would thus

form a company, presided over by one central board; their participation

in this company would be expressed in terms of stock, and each

stockholder would receive dividends whether his plant operated or

not. It was, in short, the germ of a “Trust,” with Mr. Rockefeller as

trustee. The refiners had put their heads into the lion’s mouth with a

vengeance.

The Petroleum Producers’ Union was up in arms at once to protect the

price of crude, and made an heroic effort to do so by restricting

output. They also set up a producers’ selling agency to cut out the

Refiners’ Association by refusing to sell it oil except at their

own price. They were no match in generalship, however, for Mr.

Rockefeller, especially when aided, as he was, by the hand of Nature.

Nature was unkind enough to send the producers “gushers” with floods

of oil when they wanted it least, and they found restriction of output

practically impossible. At the same time most of the producers were

badly in want of ready cash, and the Refiners’ Association had the

longer purse.

At the psychological moment Mr. Rockefeller struck the judicious blow

of offering to throw in his lot with the producers and buy crude only

from the Producers’ Selling Agency (and that at $4.75 a barrel, a

clear dollar over the then current market price), if the producers

on their part would undertake to maintain the price and sell to no

one outside the Refiners’ Association. The coup succeeded, and, half

tempted, half constrained by cash necessities, the producers were

ill-advised enough to trust their enemy and sign what was known as “The

Treaty of Titusville” on the lines proposed. They at once received

an order from Mr. Rockefeller for 200,000 barrels of crude at $3.25,

not quite as good a price as that first mentioned, but which, under

the circumstances, they were glad to accept. The “treaty” was signed

on December 19, 1872. The producers had shipped about 50,000 of the

barrels ordered by Mr. Rockefeller, when, on January 14, 1873, they

were suddenly electrified to hear that that gentleman _refused to take

any more of the contract oil_!

When taken to task Mr. Rockefeller urged in his defence the pitiful

plea that the producers had not kept their part of the contract by

limiting the supply of oil. It was true that the Producers’ Union was

pledged by its own internal organisation to limit the supply of crude,

but no such stipulation appeared in the contract signed by it with

the Refiners’ Association. It was its own domestic arrangement. Had

the matter been taken to court it is difficult to see how an alleged

verbal understanding could have prevailed against a written contract.

But no such step was taken. The Producers’ Union collapsed in utter

demoralisation and never made another united effort for the next five

years. The Refiners’ Association also found itself unable to keep up

the internal discipline it had imposed upon itself. It dissolved in

June, 1873, and Mr. Rockefeller was left sole master of the situation.

He had outgeneralled everybody.

In 1874 the Erie, Central, and Pennsylvania Railroads entered into a

combination with certain of the pipe lines, to the effect that equal

rates should be charged by both the railroads and the pipe lines in

the combination. The railroads were to starve out the independent

pipe lines by refusing them the advantages given to the United Pipe

Lines. Both railway freights and pipage rates were to be raised

simultaneously, and on such a schedule that henceforth the cost of

transport would be equal to all refiners, on crude and refined, from

all points! This combination was announced curtly by a private circular

sent out by James H. Rutter, freight agent of the New York Central,

containing the paragraph:

You will observe that under this system the rate is even and fair

to all parties, preventing one locality taking advantage of its

neighbour by reason of some alleged or real facility it may possess.

Oil refiners and shippers have asked the roads from time to time to

make all rates even, and they would be satisfied. This scheme does

it, and we trust will work satisfactorily to all.

The refiners and shippers referred to as complacently as if they formed

the bulk of the refining and shipping interest were, of course, Mr.

Rockefeller and his friends, assumed for the nonce, as in the case of

the South Improvement Company, to be “the trade.”

This astounding circular, commonly referred to in American Trust

history as the Rutter circular, introduces us to the second species

of unjust discrimination enjoyed by Mr. Rockefeller, and perhaps--of

late years, at any rate--with an even more disastrous effect than

that of the secret rebate--namely, the “discriminatory rate.” In some

cases the discriminatory rate was secret, in others published. The

Rutter circular projected the idea into a sort of quasi-publicity as an

ostensibly fair one. The brief for the Government in the pending appeal

by the Standard Oil Company of New Jersey against the Missouri judgment

characterises these discriminatory rates as follows:--

The testimony in this case will show that in the open published

rates, as well as in secret and unfiled rates, there was radical

discrimination against the independent shipping points and in

favour of the Standard shipping points.... It is impossible that

without connivance with the Standard Oil Company the railroads of

this country should have uniformly made a system of rates whereby

with scarcely an exception the independent shipping points were

discriminated against in favour of the Standard shipping points....

It is a well-known fact that this group of defendants is the most

influential in financial circles in the United States. This influence

has undoubtedly been used to obtain these preferential rates, because

it could not be possible that it merely happened in the ordinary

course of business that practically every Standard shipping point

would be favoured with advantageous rates as against competitors.

This contention has, of course, been already sustained by the finding

of the Missouri Circuit Court, as it is sustained by the common sense

of any one who takes the trouble to go through the schedules of rate

charges made by the railroads recently brought to light. The Standard

Oil Company’s main refinery is at Whiting, in Indiana, a trifle to the

south-east of Chicago. To take a few instances, the rate from Whiting

to Chattanooga, a distance of 849 miles, by the route actually used on

the road, was fixed by the railroad at 25.9 cents per hundred gallons,

while the rate from Pittsburg--an independent refining centre--to

Chattanooga, a distance of only 651 miles, was as much as 47 cents

per hundred. In other words, the Standard Oil Company paid 21 cents a

hundred less for shipping 200 miles further. This difference amounts to

over 1¼ cents per gallon, which is in itself a large profit on oil.

The discrimination against Cleveland and Toledo--two other independent

shipping centres--on shipments to Chattanooga was equally great. Again,

take the destination of Birmingham, in the State of Alabama. The open

rate from Pittsburg, a distance of 794 miles, was 51.5 cents; from

Whiting, a distance of 820 miles, it was 29.5 cents, a difference of 22

cents. Similarly there was an equal discrimination against Cleveland

and Toledo on shipments to Birmingham. And so on to the end of the

chapter of conspiracy all over the States.

THE BIRTH OF THE TRUST

“The American Beauty rose can be produced in its splendour and

fragrance only by sacrificing the early buds which grow up around it.”

J. D. ROCKEFELLER, Jun.,

_to the students of Brown University_.

The great oil octopus · 第 3 / 15 章