When Cornelius Vanderbilt died in 1877, America's first great industrial
combination had become an established fact. In that year the Standard
Oil Company of Ohio controlled at least ninety per cent of the business
of refining and marketing petroleum. A new portent had appeared in our
economic life, a phenomenon that was destined to affect not only the
social and business existence of the every-day American but even his
political and legal institutions.
It seems natural enough at the present time to refer to petroleum as an
indispensable commodity. At the beginning of the Civil War, however,
any such description would have been absurd. Though petroleum was not
unknown, millions of American households were still burning candles,
whale oil, and other illuminants. Not until 1859 did our ancestors
realize that, concealed in the rocky of western Pennsylvania, lay
apparently inexhaustible quantities of a liquid which, when refined,
would give a light exceeding in brilliancy anything they had hitherto
known. The mere existence of petroleum, it is true, had been a familiar
fact for centuries. Herodotus mentions the oil pits of Babylon, and
Pliny informs us that this oil was actually used for lighting in certain
parts of Sicily. It had never become an object of universal use, simply
because no one had discovered how to obtain it in sufficient quantities.
No one had suspected, indeed, that petroleum existed practically in the
form of great subterranean rivers, lakes, or even seas. For ages this
great natural treasure had been seeking to advertise its presence by
occasionally seeping through the rocks and appearing on the surface of
watercourses. It had been doing this all over the world--in China,
in Russia, in Germany, in England, in our own country. Yet our obtuse
ancestors had for centuries refused to take the hint. We can find much
cause for self-congratulation in that it was apparently the American
mind that first acted upon this obvious suggestion.
In Venango County, Pennsylvania, petroleum floated in such quantities
on the surface of a branch of the Allegheny River that this small
watercourse had for generations been known as Oil Creek. The neighboring
farmers used to collect the oil and use it to grease their wagon axles;
others, more enterprising, made a business of gathering the floating
substance, packing it in bottles, and selling it broadcast as a
medicine. The most famous of these concoctions, "Seneca Oil," was widely
advertised as a sure cure for rheumatism, and had an extensive sale in
this country. "Kier's Rock Oil" afterwards had an even more extended
use. Samuel M. Kier, who exploited this comprehensive cure-all, made no
lasting contributions to medical science, but his method of obtaining
his medicament led indirectly to the establishment of a great industry.
In this western Pennsylvania region salt manufacture had been a thriving
business for many years; the salt was obtained from salt water by
means of artesian wells. This salt water usually came to the surface
contaminated with that same evil-smelling oil which floated so
constantly on top of the rivers and brooks. The salt makers spent
much time and money "purifying" their water from this substance, never
apparently suspecting that the really valuable product of their wells
was not the salt water they so carefully preserved, but the
petroleum which they threw away. Samuel M. Kier was originally a salt
manufacturer; more canny than his competitors, he sold the oil which
came up with his water as a patent medicine. In order to give a
mysterious virtue to this remedy, Kier printed on his labels the
information that it had been "pumped up with salt water about four
hundred feet below the earth's surface." His labels also contained the
convincing picture of an artesian well--a rough woodcut which really
laid the foundation of the Standard Oil Company.
In the late fifties Mr. George H. Bissell had become interested in rock
oil, not as an embrocation and as a cure for most human ills, but as a
light-giving material. A professor at Dartmouth had performed certain
experiments with this substance which had sunk deeply into Bissell's
imagination. So convinced was this young man that he could introduce
petroleum commercially that he leased certain fields in western
Pennsylvania and sent a specimen of the oil to Benjamin Silliman, Jr.,
Professor of Chemistry at Yale. Professor Silliman gave the product
a more complete analysis than it had ever previously received and
submitted a report which is still the great classic in the scientific
literature of petroleum. This report informed Bissell that the
substance, could be refined cheaply and easily, and that, when refined,
it made a splendid illuminant, besides yielding certain byproducts, such
as paraffin and naphtha, which had a great commercial value. So far,
Bissell's enterprise seemed to promise success, yet the great problem
still remained: how could he obtain this rock oil in amounts large
enough to make his enterprise a practical one? A chance glimpse of
Kier's label, with its picture of an artesian well, supplied Bissell
with his answer. He at once sent E. L. Drake into the oil-fields with
a complete drilling equipment, to look, not for saltwater, but for oil.
Nothing seems quite so obvious today as drilling a well into the rock
to discover oil, yet so strange was the idea in Drake's time that the
people of Titusville, where he started work, regarded him as a lunatic
and manifested a hostility to his enterprise that delayed operations for
several months. Yet one day in August, 1859, the coveted liquid began
flowing from "Drake's folly" at the rate of twenty-five barrels a day.
Because of this performance Drake has gone down to fame as the man
who "discovered oil." In the sense that his operation made petroleum
available to the uses of mankind, Drake was its discoverer, and his
achievement seems really a greater one than that of the men who first
made apparent our beds of coal, iron, copper, or even gold. For Drake
really uncovered an entirely new substance. And the country responded
spontaneously to Drake's success. For anything approaching the sudden
rush to the oil-fields we shall have to go to the discovery of gold in
California ten years before. Men flocked into western Pennsylvania by
the thousands; fortunes were made and lost almost instantaneously. Oil
flowed so plentifully in this region that it frequently ran upon the
ground, and the "gusher," which threw a stream of the precious liquid
sometimes a hundred feet and more into the air, became an almost
every-day occurrence. The discovery took the whole section by surprise;
there were no towns, no railways, and no wagon roads except a few
almost impassable lumber trails. Yet, almost in a twinkling, the whole
situation changed; towns sprang up overnight, roads were built, over
which teamsters could carry the oil to the nearest shipping points, and
the great trunk lines began to extend branches into the regions. The
one thing, next to Drake's well, that made the oil available, was the
discovery, which was made by Samuel Van Syckel, that a two-inch pipe,
starting at the well, could convey the oil for several miles to the
nearest railway station. In a few years the whole oil region of Venango
County was an inextricable tangle of these primitive pipelines. Thus,
before the Civil war had ended, the western Pennsylvania wilderness had
been transformed into the busy headquarters of a new industry. Companies
had been formed, many of them the wildest stock-jobbing operations,
refineries had been started, in a few years the whalers of New England
had almost lost their occupation, but millions of American homes, that
had hitherto had to spend the long winter evenings almost in darkness,
suddenly found themselves flooded with light. In Cleveland, in
Pittsburgh, in Philadelphia, in New York, and in the oil regions,
the business of refining and selling petroleum had reached extensive
proportions. Europe, although it had great undeveloped oil-fields of
its own, drew upon this new American enterprise to such an extent that,
eleven years after Drake's "discovery," petroleum had taken fourth place
among our exported articles.
The very year that Bissell had organized his petroleum company a boy of
sixteen had obtained his first job in a produce commission office on
a dock in Cleveland. As the curtain rises on the career of John D.
Rockefeller, we see him perched upon a high stool, adding up figures and
casting accounts, faithfully doing every odd office job that came his
way, earning his employer's respect for his industry, his sobriety,
and his unmistakable talents for business. Nor does this picture
inadequately visualize Rockefeller's whole after-life, and explain the
business qualities that made possible his unexampled success. It is,
indeed, the scene to which Mr. Rockefeller himself most frequently
reverts when, in his famous autobiographical discourses to his Cleveland
Sunday School, he calls our attention to the rules that inevitably lead
to industrial prosperity. "Thrift, thrift, Horatio," is the one idea
upon which the great captain of the oil business has always insisted.
Many have detected in these habits of mind only the cheese-paring
activities of a naturally narrow spirit. Rockefeller's old Cleveland
associates remember him as the greatest bargainer they had ever known,
as a man who had an eye for infinite details and an unquenchable
patience and resource in making economies. Yet Rockefeller was clearly
more than a pertinacious haggler over trifles. Certainly such a
diagnosis does not explain a man who has built up one of the world's
greatest organizations and accumulated the largest fortune which
has ever been placed at the disposal of one man. Indeed, Rockefeller
displayed unusual business ability even before he entered the oil
business. A young man who, at the age of nineteen, could start a
commission house and do a business of nearly five hundred thousand the
first year must have had commercial capacity to an extraordinary degree.
Fate had placed Rockefeller in Cleveland in the days when the oil
business had got well under way. In the early sixties a score or so of
refineries had started in this town, many of which were making large
profits. It is not surprising that Rockefeller, gazing at these black
and evil-smelling buildings from the vantage point of his commission
office, should have felt an impulse to join in the gamble. He plunged
into this new activity at the age of twenty-three. He possessed two
great advantages over most of his adventurous competitors; one was
a heavy bank account, representing his earnings in the commission
business, and the other a partner, Samuel Andrews, who was generally
regarded as a mechanical genius in the production of illuminating oil.
At the beginning, therefore, Rockefeller had the two essentials which
largely explain his subsequent career; an adequate liquid capital
and high technical resources. In the first few years the Rockefeller
houses--he rapidly organized three, one after another--competed with a
large number of other units in the oil business on somewhat more than
even terms. At this time Rockefeller was merely one of a large number of
successful oil refiners, yet during these early days a grandiose scheme
was taking shape in that quiet, insinuating, far-reaching brain. He
said nothing about it, even to his closest associates, yet it filled his
every waking hour. For this young man was taking a comprehensive sweep
of the world and he saw millions of people, in the Americas, in Europe,
and in Asia, whose need for the article in which he dealt would grow
more insistent every day. He saw that he was handling a product which
was becoming as much a necessity of life as the air itself. The young
man reached out to grasp this business. "All of it," we can picture
Rockefeller saying to himself, "all of it shall be mine." Any study of
Rockefeller's career must lead to the conclusion that, before he had
reached his thirtieth year, he had determined to monopolize this
growing necessity. The mere fact that this young man could form such a
stupendous plan indicates that in him we are meeting for the first time
a new type of industrial leader. At that time monopolies were unknown in
the United States. That certain old English Kings had frequently
granted exclusive trading privileges to favored merchants most educated
Americans knew; and their knowledge of monopolies extended little
further than this. Yet about 1868 John D. Rockefeller started
consciously to revive this ancient practice, and to bring under
one ownership the magnificent industry to which Drake's sensational
discovery had given rise.
Daring as was this conception, the resourcefulness and the skill with
which Rockefeller executed it were more startling still. Merely to
catalogue, one by one, the achievements of the ten succeeding fruitful
years, almost takes one's breath away. Indeed the whole operation
proceeded with such a Napoleonic rapidity of action that the outside
world had hardly grasped Rockefeller's intention before the monopoly
had been made complete. We catch one glimpse of Rockefeller, in 1868, as
head of the prosperous house of Rockefeller, Andrews, and Flagler,
and eight years afterwards we see him once more, this time the man who
controlled practically the entire petroleum business of the world. His
career of conquest began in 1870, when the firm of Rockefeller, Andrews,
and Flagler, joining hands with several large capitalists in Cleveland
and New York, was incorporated under the name of the Standard Oil
Company of Ohio. In 1870 about twenty-five independent refineries, many
of them prosperous and powerful, were manufacturing oil in the city
of Cleveland; two years afterward this new Standard Oil Company had
absorbed all of them except five: In these two critical years the oil
business of the largest refining center in the United States had thus
passed into Rockefeller's hands. By 1874 the greatest refineries in New
York and Philadelphia had likewise merged their identity with his own.
When Rockefeller began his acquisition, there were thirty independent
refineries operating in Pittsburgh, all of which, in four or five years,
passed one by one under his control. The largest refineries of Baltimore
surrendered in 1875.
These capitulations left only one important refining headquarters in the
United States which the Standard had not absorbed. This was that section
of western Pennsylvania where the oil business had had its origin. The
mere fact that this area was the headquarters of the oil supply gave it
great advantages as a place for manufacturing the finished product.
The oil regions regarded these advantages as giving them the right to
dominate the growing industry, and they had frequently proclaimed the
doctrine that the business belonged to them. They hated Rockefeller
as much as they feared him, yet at the very moment when the Titusville
operators were hanging him in effigy and posting the hoardings with
cabalistic signs against his corporation, this mysterious, almost
uncanny power was encircling them: Men who one night were addressing
public meetings denouncing the Standard influence would suddenly sell
out their holdings the next day. In 1875 John D. Archbold, a brilliant
young refiner who had grown up in the oil regions and who had gained
much local fame as opponent of the Standard, appeared in Titusville
as the President of the Acme Oil Company. At that time there were
twenty-seven independent refineries in this section. Archbold began
buying and leasing these establishments for his Acme Company, and in
about four years practically every one had passed under his control. The
Acme Company was merely a subsidiary of the Standard Oil. These rapid
purchasing campaigns gave the Standard ninety per cent of all the
refineries in the United States, but Rockefeller's scheme comprehended
more than the acquisition of refineries. In the main the Rockefeller
group left the production of crude oil in the hands of the private
drillers, but practically every other branch of the business passed
ultimately into their hands. Both the New York Central and the Erie
railroads surrendered to the Standard the large oil terminal stations
which they had maintained for years in New York. As a consequence, the
Standard obtained complete supervision of all oil sent by railroad into
New York, and it also secured the machinery of a complete espionage
system over the business of competitors. The Standard acquired companies
which had built up a large business in marketing oil. Even more dramatic
was its success in gathering up, one after another, these pipe lines
which represented the circulatory system of the oil industry. In the
early days these pipe lines were small and comparatively simple affairs.
They merely carried the crude oil from the wells to railroad centers;
from these stations the railroads transported it to the refineries at
Cleveland, New York, and other places. At an early day the construction
and management of these pipe lines became a separate industry. And now,
in 1873, the Standard Oil Company secured possession of a one-third
interest in the largest of these privately owned companies, the American
Transfer Company. Soon afterward the United Pipe Line Company went under
their control. In 1877 the Empire Transportation Company, a large
pipe line and refining corporation which the Pennsylvania Railroad had
controlled for many years, became a Standard subsidiary.
Meanwhile certain hardy spirits in the oil regions had conceived a much
more ambitious plan. Why not build great underground mains directly from
the oil regions to the seaboard, pump the crude oil directly to the city
refineries, and thus free themselves from dependence on the railroads?
At first the idea of pumping oil through pipes over the Alleghany
Mountains seemed grotesque, but competent engineers gave their
indorsement to the plan. A certain "Dr." Hostetter built for the
Columbia Conduit Company a trunk pipe line that extended thirty miles
from the oil regions to Pittsburgh. Hardly had Hostetter completed his
splendid project when the Standard Oil capitalists quietly appeared and
purchased it! For four years another group struggled with an even more
ambitious scheme, the construction of a conduit, five hundred miles
long, from the oil regions to Baltimore. The American people looked on
admiringly at the splendid enterprise whose projectors, led by General
Haupt, the builder of the Hoosac Tunnel, struggled against bankruptcy,
strikes, railroad opposition, and hostile legislatures, in their
attempts to push their pipe line to the sea. In 1879 the Tidewater
Company first began to pump their oil, and the American press hailed
their achievement as something that ranked with the laying of the
Atlantic Cable and the construction of the Brooklyn Bridge. But in less
than two years the Rockefeller interest had entered into agreements with
the Tidewater Company that practically placed this great seaboard pipe
line in its hands.
Thus in less than ten years Rockefeller had realized his ambitious
dream; he now controlled practically everything concerned in the
manufacture and sale of petroleum. The change had come about so
stealthily, so secretly, and even so remorselessly that it impressed the
public almost as the work of some uncanny genius. What were the forces,
personal and economic, that had produced this new phenomenon in our
business life? In certain particulars the Standard Oil monopoly was the
product of well-understood principles. From his earliest days John D.
Rockefeller had struggled to eliminate the middleman. He established
factories to build his own barrels, to make his own acids; he created
his own selling firms, and, instead of paying large storage charges, he
constructed his own warehouses in New York. From his earliest days as a
refiner, he had adopted the principle of paying no man a profit, and of
performing all the intermediate acts that had formerly resulted in large
tribute to middlemen. Moreover, the Standard Oil Company was apparently
the first great American industrial enterprise that realized the
necessity of operating with an abundant capital. Not the least of Mr.
Rockefeller's achievements was his success in associating with the
new company men having great financial standing--Amasa Stone, Benjamin
Brewster, Oliver Jennings, and the like, capitalists whose banking
resources, placed at the disposition of the Standard, gave it an immense
advantage over its rivals. While his competitors were "kiting" checks
and waiting, hat in hand, on the good nature of the money lenders,
Rockefeller always had a large bank balance, upon which he could
instantly draw for his operations.
Nor must we overlook the fact that the Standard group contained a large
number of exceedingly able men. "They are mighty smart men," said the
despairing W. H. Vanderbilt, in 1879, when pressed to give his reasons
for granting rebates to the Rockefeller group. "I guess if you ever
had to deal with them you would find that out." In Rockefeller the
corporation possessed a man of tireless industry and unshakable
determination. Nothing could turn him aside from the work to which
he had put his hand. Public criticism and even denunciation, while
he resented it as unjust and regarded it as the product of a general
misunderstanding, never caused the leader of Standard Oil even
momentarily to flinch. He was a man of one idea, and he worked at it
day and night, taking no rest or recreation, skillfully turning to his
purpose every little advantage that came his way. His associates--men
like Flagler, Archbold, and Rogers--also had unusual talents, and
together they built up the splendid organization that still exists. They
exacted from their subordinates the last ounce of attention and energy
and they rewarded generously everybody who served them well. They showed
great judgment in establishing refineries at the most strategic points
and in giving up localities, such as Boston and Portland, which were
too far removed from their supplies. They established a marketing system
which enabled them to bring their oil directly from their own refineries
to the retailer, all in their own tank cars and tank wagons. They
extended their markets in foreign countries, so that now the Standard
sells the larger part of its products outside the United States.
They established chemical research laboratories which devised new and
inexpensive methods for refining the product and developed invaluable
byproducts, such as paraffin, naphtha, vaseline, and lubricating oils.
It is impossible to study the career of the Standard Oil Company
without concluding that we have here an example of a supreme business
intelligence working in a field which gave the widest possible scope of
action.
A high quality of organization, however, does not completely explain the
growth of this monopoly. The Standard Oil Company was the beneficiary of
methods that have deservedly received great public opprobrium. Of these
the one that stands forth most conspicuously is the railroad rebate.
Those who have attempted to trace the very origin of the Rockefeller
preeminence to railroad discrimination have not entirely succeeded. Only
the most hazy evidence exists that the firm of Rockefeller, Andrews,
and Flagler greatly profited from rebates. In fact, refined oil was not
transported from Cleveland to the seaboard by railroad until 1870, the
year that this firm dissolved; practically all of the product then went
by way of the Great Lakes and the Erie Canal. Possibly the Rockefeller
firm did get occasional rebates on crude oil from the oil regions to
the refineries, but so did their competitors. It is therefore not likely
that such favors had great influence in making this single firm the most
successful in the largest refining center. With the organization of
the Standard Oil Company, however, rebates became a more important
consideration.
The turning-point in the history of the oil industry came when the
Rockefeller interests acquired the Cleveland refineries. The details
concerning this act of generalship are fairly well known. The South
Improvement Company is a corporation that necessarily bulks large in
the history of the Standard Oil. Mr. Rockefeller and his associates have
always disclaimed the parentage of this organization. They assert--and
their assertion is doubtless true--that the only responsible begetters
were Thomas A. Scott, President of the Pennsylvania Railroad, and
certain refineries in Pittsburgh and Philadelphia which, though they
were afterwards absorbed by the Standard, were at that time their
competitors. These refiners and the Pennsylvania, over which the
Standard Oil then was making no shipments, thus represented a group,
composed of railroads and refiners, which was antagonistic to the
Rockefeller interests. The South Improvement Company was an association
of refiners with which the railroads, chiefly the Pennsylvania, the New
York Central, and the Erie, made exclusive contracts for shipping oil.
Under these contracts rates to the seaboard were to be generally raised,
though the members of the South Improvement Company were to receive
liberal rebates. The refiners of Cleveland and Pittsburgh were to get
lower rates than the refiners located in the oil regions. But the clause
in these contracts that caused the greatest amazement and indignation
was one which gave the inside group rebates on every barrel of oil
shipped by its competitors.
It would be difficult to imagine any transaction more wicked than these
contracts. Carried into execution they inevitably meant the extinction
of every refiner who had not been admitted into the inside ring. Of the
two thousand shares of the South Improvement Company, the gentlemen who
were at that time most conspicuously identified with the Standard Oil
Company subscribed to five hundred and forty. Mr. Rockefeller has always
protested that he did not favor the scheme and that he became a party
to it simply because he could not afford to antagonize the powerful
Pennsylvania Railroad, which had originated it. When the details became
public property, a wave of indignation swept from the Atlantic to the
Pacific; the oil regions, which would have been the heaviest sufferers,
shut down their wells and so cut off the supply of crude oil; the New
York newspapers started a "crusade" against the South Improvement group
and Congress ordered an investigation. So fiercely was the public wrath
aroused that the railroads ran to cover, abrogated the contracts, signed
an agreement promising never more to grant rebates to any one, while the
Pennsylvania Legislature repealed the charter of the South Improvement
Company. This particular scheme, therefore, never came to maturity.
Before the South Improvement Company ended its corporate existence,
however, a great change had taken place in the oil situation.
Practically all the refineries in Cleveland had passed into the control
of the Standard Oil Company. The Standard has always denied that there
was any connection between the purchase of these great refineries and
the organization of the South Improvement Company. But there is
much evidence sustaining a contrary view, for many of these refiners
afterward went on the witness stand and told circumstantial stories, all
of which made precisely the same point. This was that the Standard men
had come to them, shown the contracts which had been made by the South
Improvement Company, and argued that, under these new conditions, the
refineries left outside the combination could not long survive. The
Standard's rivals were therefore urged to "come in," to take Standard
stock in return for their refineries, or, if they preferred, to sell
outright. Practically all saw the force in this argument and sold--in
most cases taking cash.
The acquisition of these Cleveland refineries made inevitable the
Rockefeller conquest of the oil industry. Up to that time the Standard
had refined about fifteen hundred barrels a day, and now suddenly its
capacity jumped to more than twelve thousand barrels. This one strategic
move had made Rockefeller master of about one-third of all the oil
business in the United States, and this fact explains the rapidity with
which the other citadels fell. There is no evidence that the Standard
exercised any pressure upon the great refineries in New York,
Pittsburgh, and Philadelphia. Indeed these concerns manifested an
eagerness to join. The fact that, unlike the Cleveland refiners, many of
the firms in these other cities took Standard stock, and so became
parts of the new organization, is in itself significant. They evidently
realized that they were casting their fortunes with the winning side.
The huge shipments which the Standard now controlled explain this change
in front. Every day Mr. Rockefeller could send from Cleveland to
the seaboard a train, sixty cars long, loaded with the blue barrels
containing his celebrated liquid. That was a consideration for which any
railroad would at that time sell its soul. And the New York Central road
promptly made this sacrifice. Hardly had the ink dried on its written
promise not to grant any rebates when it began granting them to the
Standard Oil Company.
In those days the railroad rate was not the sacred, immutable thing
which it subsequently became, although the argument for equal treatment
of shippers existed theoretically just as strongly forty years ago as
it does today. The rebate was just as illegal then as it is at present;
there was no precise statute, it is true, which made it unlawful until
the Interstate Commerce Act was passed in 1887; but the common law had
always prohibited such discriminations. In the seventies and eighties,
however, railroad men like Cornelius Vanderbilt and Thomas A. Scott
were less interested in legal formalities than in getting freight. They
regarded transportation as a commodity to be bought and sold, like
so much sugar or wheat or coal, and they believed that the ordinary
principles which regulated private bargaining should also regulate the
sale of the article in which they dealt. According to this reasoning,
which was utterly false and iniquitous, but generally prevalent at the
time, the man who shipped the largest quantities of oil should get the
lowest rate.
The purchase of the Cleveland refineries made the Standard Oil group the
largest shippers and therefore they obtained the most advantageous terms
for transporting their product. Under these conditions they naturally
obtained the monopoly, the extent of which has been already described.
Their competitors could rage, hold public meetings, start riots,
threaten to lynch Mr. Rockefeller and all his associates, but they could
not long survive in face of these advantages. The only way in which
the smaller shippers could overcome this handicap was by acquiring
new methods of transportation. It was this necessity that inspired the
construction of pipe lines; but the Standard, as already described,
succeeded in absorbing these just about as rapidly as they were
constructed.
Not only did the Standard obtain railroad rebates but it developed the
most death-dealing methods in its system of marketing its oil. In
these campaigns it certainly overstepped the boundaries of legitimate
business, even according to the prevailing morals of its own or of any
other time. While it probably did not set fire to rival refineries, as
it has sometimes been accused of doing, it undoubtedly did resort to
somewhat Prussian methods of destroying the foe. This great corporation
divided the United States into several sections, over each of which it
appointed an agent, who in turn subdivided his territory into smaller
divisions, each one of which likewise had its captain. The order
imperatively issued to each agent was, "Sell all the oil that is sold
in your district." To these instructions he was rigidly held; success in
accomplishing his task meant advancement and an increased salary, with
a liberal pension in his old age, whereas failure meant a pitiless
dismissal. He was expected to supervise not only his own business, but
that of his rivals as well, to obtain access to their accounts, their
shipments, and their customers. It has been asserted, and the assertion
has been supported by considerable evidence, that these agents did not
hesitate to bribe railroad employees and in this way get access to their
competitors' bills of lading and records of their shipments, and that
they would even bribe dealers to cancel such orders and take the oil
from them at a lower price. This information laid the foundation for
those price-cutting campaigns that have brought the name of the Standard
Oil into such disfavor. And when the Standard cut, it cut to kill; the
only purpose was to drive the competitor from the field, and, when this
had been accomplished, the price of oil would promptly go up again. The
organization of "bogus companies," started purely for the purpose of
eliminating competitors, seems to have been a not infrequent practice.
This latter method emphasizes another quality that accompanied the
Standard's operations and so largely explains its unpopularity--the
secrecy with which it so commonly worked. Though the independent oil
refiners were combating the most powerful financial power of the time,
they were frequently fighting in the dark, never knowing where to
deliver their blows.
This same characteristic was manifested in the form of corporate
existence which the Standard adopted. The first great "trust" was a
trust not only in name but in fact. The Standard introduced not only a
new economic development into our national organization; it introduced
a new word into our language and an issue into American politics that
provided sustenance for the presidential campaigns of twenty-five years.
From the beginning the Standard Oil had always been a close corporation.
Originally it had had only ten stockholders, and this number had
gradually grown until, in 1881, there were forty-one. These men had
adopted a new and secretive method of combining their increasing
possessions into a single ownership. In 1873 the Standard Company had
increased its capital stock (originally $1,000,000) to $3,500,000, the
new certificates being exchanged for interests in the great New York
and Philadelphia refineries The Standard Oil Company of Ohio never had a
larger capital stock than that. As additional properties were acquired,
the interests were placed in the hands of trustees, who held them for
the joint benefit of the stockholders in the original company. In 1882
this idea was carried further, for then the Standard Oil Trust was
organized. The fact that the properties lay in so many different States,
many of which had laws intended to curb corporations, was evidently what
led to this form of consolidation. A trust was formed, consisting
of nine trustees, who held, for the benefit of the Standard Oil
stockholders, all the stock in the Standard and in the subsidiary
companies. Instead of certificates of stock the trustees issued
certificates of trust amounting to $70,000,000. Each Standard
stockholder received twenty of these certificates for each share which
he held of Standard stock. These certificates could be bought and sold
and passed on by inheritance precisely the same as stocks.
Ingenious as was this legal device, it did not stand the test of the
courts. In 1892 the Ohio Supreme Court declared the Standard Oil Trust
a violation of the law and demanded its dissolution. The persistent
attempts of the Standard to disregard this order increased its
reputation for lawlessness. Finally, in 1899, after Ohio had brought
another action, the trust was dissolved. The Standard interests now
reorganized all their holdings under the name of the Standard Oil
Company of New Jersey. Again, in 1911, the United States Supreme Court
declared this combination a violation of the Sherman Anti-Trust Act,
and ordered its dissolution. By this time the Standard capitalists had
learned the value of public opinion as a corporate asset, and made no
attempt to evade the order of the court. The Standard Oil Company of New
Jersey proceeded to apportion among its stockholders the stock which it
held in thirty-seven other companies--refineries, pipe lines, producing
companies, marketing companies, and the like. Chief Justice White, in
rendering his decision, specifically ordered that, in dissolving their
combination, the Standard should make no agreement, contractual or
implied, which was intended still to retain their properties in one
ownership. As less than a dozen men owned a majority interest in the
Standard Oil Company of New Jersey, these same men naturally continued
to own a majority interest in the subsidiary companies. Though the
immediate effect of this famous decision therefore was not to cause a
separation in fact, this does not signify that, as time goes on, such a
real dissolution will not take place. It is not unlikely that, in a few
years, the transfers of the stock by inheritance or sale will weaken the
consolidated interest to a point where the companies that made up the
Standard Company will be distinct and competitive.
This is more likely to be the case since, long before the decision of
1911, the Standard Oil Company had ceased to be a monopoly. In the
early nineties there came to the front in the oil regions a man whose
organizing ability and indomitable will suggested the Standard Oil
leaders themselves. This man's soul burned with an intense hatred of the
Rockefeller group, and this sentiment, as much as his love of success,
inspired all his efforts. There is nothing finer in American business
history than the fifteen years' battle which Lewis Emery, Jr., fought
against the greatest financial power of the day. In 1901 this long
struggle met with complete success. Its monuments were the two great
trunk pipe lines which Emery had built from the Pennsylvania regions
to Marcus Hook, near Philadelphia, one for pumping refined and one for
pumping crude. The Pure Oil Company, Emery's creation, has survived
all its trials and has done an excellent business. And meanwhile other
independents sprang up with the discovery of oil in other parts of
the country. This discovery first astonished the Standard Oil men
themselves; when someone suggested to Archbold, thirty-five years ago,
that the midcontinent field probably contained large oil supplies,
he laughed, and said that he would drink all the oil ever discovered
outside of Pennsylvania. In these days a haunting fear pursued the
oil men that the Pennsylvania field would be exhausted and that their
business would be ended. This fear, as developments showed, had a
substantial basis; the Pennsylvania yield began to fail in the eighties
and nineties, until now it is an inconsiderable element in this gigantic
industry. Ohio, Indiana, Illinois, Kansas, Oklahoma, Texas, California,
and other states in turn became the scene of the same exciting
and adventurous events that had followed the discovery of oil in
Pennsylvania. The Standard promptly extended its pipe lines into these
new areas, but other great companies also took part in the development.
These companies, such as the Gulf Refining Company and the Texas
Refining Company, have their gathering pipe lines, their great trunk
lines, their marketing stations, and their export trade, like the
Standard; the Pure Oil Company has its tank cars, its tank ships, and
its barges on the great rivers of Europe. The ending of the rebate
system has stimulated the growth of independents, and the production of
crude oil and the market demand in a thousand directions has increased
the business to an extent which is now far beyond the ability of any
one corporation to monopolize. The Standard interests refine perhaps
something more than fifty per cent of the crude oil produced in this
country. But in recent years, Standard Oil has meant more than a
corporation dealing in this natural product. It has become the synonym
of a vast financial power reaching in all directions. The enormous
profits made by the Rockefeller group have found investments in other
fields. The Rockefellers became the owners of the great Mesaba iron ore
range in Minnesota and of the Colorado Fuel and Iron Company, the chief
competitor of United States Steel. It is the largest factor in several
of the greatest American banks. Above all, it is the single largest
railroad power in America today.