THE HISTORY OF
THE STANDARD OIL COMPANY
[Illustration:
_Copyright, 1904, by Ames_
JOHN DAVISON ROCKEFELLER IN 1904
Born July 8, 1839
]
THE HISTORY OF
THE STANDARD OIL COMPANY
BY
IDA M. TARBELL
AUTHOR OF THE LIFE OF ABRAHAM LINCOLN, THE LIFE OF NAPOLEON BONAPARTE,
AND MADAME ROLAND: A BIOGRAPHICAL STUDY
ILLUSTRATED WITH PORTRAITS, PICTURES AND DIAGRAMS
[Illustration]
VOLUME ONE
NEW YORK
McCLURE, PHILLIPS & CO.
MCMV
_Copyright, 1904, by_
McCLURE, PHILLIPS & CO.
Published, November, 1904
SECOND IMPRESSION
Copyright, 1902, 1903, 1904, by The S. S. McClure Co.
“_An Institution is the lengthened shadow of one man._”
EMERSON, IN ESSAY ON “SELF-RELIANCE.”
“_The American Beauty Rose can be produced in its splendor and fragrance
only by sacrificing the early buds which grow up around it._”
J. D. ROCKEFELLER, JR., IN AN ADDRESS ON TRUSTS,
TO THE STUDENTS OF BROWN UNIVERSITY.
PREFACE
This work is the outgrowth of an effort on the part of the editors of
McClure’s Magazine to deal concretely in their pages with the trust
question. In order that their readers might have a clear and succinct
notion of the processes by which a particular industry passes from the
control of the many to that of the few, they decided a few years ago to
publish a detailed narrative of the history of the growth of a
particular trust. The Standard Oil Trust was chosen for obvious reasons.
It was the first in the field, and it has furnished the methods, the
charter, and the traditions for its followers. It is the most perfectly
developed trust in existence; that is, it satisfies most nearly the
trust ideal of entire control of the commodity in which it deals. Its
vast profits have led its officers into various allied interests, such
as railroads, shipping, gas, copper, iron, steel, as well as into banks
and trust companies, and to the acquiring and solidifying of these
interests it has applied the methods used in building up the Oil Trust.
It has led in the struggle against legislation directed against
combinations. Its power in state and Federal government, in the press,
in the college, in the pulpit, is generally recognised. The perfection
of the organisation of the Standard, the ability and daring with which
it has carried out its projects, make it the pre-eminent trust of the
world—the one whose story is best fitted to illuminate the subject of
combinations of capital.
Another important consideration with the editors in deciding that the
Standard Oil Trust was the best adapted to illustrate their meaning, was
the fact that it is one of the very few business organisations of the
country whose growth could be traced in trustworthy documents. There is
in existence just such documentary material for a history of the
Standard Oil Company as there is for a history of the Civil War or the
French Revolution, or any other national episode which has divided men’s
minds. This has come about largely from the fact that almost constantly
since its organisation in 1870 the Standard Oil Company has been under
investigation by the Congress of the United States and by the
Legislatures of various states in which it has operated, on the
suspicion that it was receiving rebates from the railroads and was
practising methods in restraint of free trade. In 1872 and again in 1876
it was before Congressional committees, in 1879 it was before examiners
of the Commonwealth of Pennsylvania and before committees appointed by
the Legislatures of New York and of Ohio for investigating railroads.
Its operations figured constantly in the debate which led up to the
creation of the Interstate Commerce Commission in 1887, and again and
again since that time the Commission has been called upon to examine
directly or indirectly into its relation with the railroads.
In 1888, in the Investigation of Trusts conducted by Congress and by the
state of New York, the Standard Oil Company was the chief subject for
examination. In the state of Ohio, between 1882 and 1892, a constant
warfare was waged against the Standard in the courts and Legislature,
resulting in several volumes of testimony. The Legislatures of many
other states concerned themselves with it. This hostile legislation
compelled the trust to separate into its component parts in 1892, but
investigation did not cease; indeed, in the last great industrial
inquiry, conducted by the Commission appointed by President McKinley,
the Standard Oil Company was constantly under discussion, and hundreds
of pages of testimony on it appear in the nineteen volumes of reports
which the Commission has submitted.
This mass of testimony, all of it submitted under oath it should be
remembered, contains the different charters and agreements under which
the Standard Oil Trust has operated, many contracts and agreements with
railroads, with refineries, with pipe-lines, and it contains the
experiences in business from 1872 up to 1900 of multitudes of
individuals. These experiences have exactly the quality of the personal
reminiscences of actors in great events, with the additional value that
they were given on the witness stand, and it is fair, therefore, to
suppose that they are more cautious and exact in statements than many
writers of memoirs are. These investigations, covering as they do all of
the important steps in the development of the trust, include full
accounts of the point of view of its officers in regard to that
development, as well as their explanations of many of the operations
over which controversy has arisen. Hundreds of pages of sworn testimony
are found in these volumes from John D. Rockefeller, William
Rockefeller, Henry M. Flagler, H. H. Rogers, John D. Archbold, Daniel
O’Day and other members of the concern.
Aside from the great mass of sworn testimony accessible to the student
there is a large pamphlet literature dealing with different phases of
the subject, and there are files of the numerous daily newspapers and
monthly reviews, supported by the Oil Regions, in the columns of which
are to be found not only statistics but full reports of all
controversies between oil men. No complete collection of this voluminous
printed material has ever been made, but several small collections
exist, and in one or another of these I have been able to find
practically all of the important documents relating to the subject. Mrs.
Roger Sherman of Titusville, Pennsylvania, owns the largest of these
collections, and in it are to be found copies of the rarest pamphlets.
Lewis Emery, Jr., of Bradford, the late E. G. Patterson of Titusville,
the late Henry D. Lloyd, author of “Wealth _vs._ Commonwealth,” William
Hasson of Oil City, and P. C. Boyle, the editor of the Oil City Derrick,
have collections of value, and they have all been most generous in
giving me access to their books.
But the documentary sources of this work are by no means all printed.
The Standard Oil Trust and its constituent companies have figured in
many civil suits, the testimony of which is still in manuscript in the
files of the courts where the suits were tried. These manuscripts have
been examined on the ground, and in numerous instances full copies of
affidavits and of important testimony have been made for permanent
reference and study. I have also had access to many files of private
correspondence and papers, the most important being that of the officers
and counsel of the Petroleum Producers’ Union from 1878 to 1880, that
covering the organisation from 1887 to 1895 of the various independent
companies which resulted in the Pure Oil Company, and that containing
the material prepared by Roger Sherman for the suit brought in 1897 by
the United States Pipe Line against certain of the Standard companies
under the Sherman anti-trust law.
As many of the persons who have been active in the development of the
oil industry are still living, their help has been freely sought. Scores
of persons in each of the great oil centres have been interviewed, and
the comprehension and interpretation of the documents on which the work
is based have been materially aided by the explanations which the actors
in the events under consideration were able to give.
When the work was first announced in the fall of 1901, the Standard Oil
Company, or perhaps I should say officers of the company, courteously
offered to give me all the assistance in their power, an offer of which
I have freely taken advantage. In accepting assistance from Standard men
as from independents I distinctly stated that I wanted facts, and that I
reserved the right to use them according to my own judgment of their
meaning, that my object was to learn more perfectly what was actually
done—not to learn what my informants thought of what had been done. It
is perhaps not too much to say that there is not a single important
episode in the history of the Standard Oil Company, so far as I know it,
or a notable step in its growth, which I have not discussed more or less
fully with officers of the company.
It is needless to add that the conclusions expressed in this work are my
own.
I. M. T.
CONTENTS
PREFACE Pages vii–xi
CHAPTER ONE
THE BIRTH OF AN INDUSTRY
PETROLEUM FIRST A CURIOSITY AND THEN A
MEDICINE—DISCOVERY OF ITS REAL VALUE—THE STORY OF HOW
IT CAME TO BE PRODUCED IN LARGE QUANTITIES—GREAT FLOW
OF OIL—SWARM OF PROBLEMS TO SOLVE—STORAGE AND
TRANSPORTATION—REFINING AND MARKETING—RAPID EXTENSION
OF THE FIELD OF OPERATION—WORKERS IN GREAT NUMBERS
WITH PLENTY OF CAPITAL—COSTLY BLUNDERS FREQUENTLY
MADE—BUT EVERY DIFFICULTY BEING MET AND OVERCOME—THE
NORMAL UNFOLDING OF A NEW AND WONDERFUL OPPORTUNITY
FOR INDIVIDUAL ENDEAVOUR. Pages 1003–1037
CHAPTER TWO
THE RISE OF THE STANDARD OIL COMPANY
JOHN D. ROCKEFELLER’S FIRST CONNECTION WITH THE OIL
BUSINESS—STORIES OF HIS EARLY LIFE IN CLEVELAND—HIS
FIRST PARTNERS—ORGANISATION OF THE STANDARD OIL
COMPANY IN JUNE, 1870—ROCKEFELLER’S ABLE
ASSOCIATES—FIRST EVIDENCE OF RAILWAY DISCRIMINATIONS
IN THE OIL BUSINESS—REBATES FOUND TO BE GENERALLY
GIVEN TO LARGE SHIPPERS—FIRST PLAN FOR A SECRET
COMBINATION—THE SOUTH IMPROVEMENT COMPANY—SECRET
CONTRACTS MADE WITH THE RAILROADS PROVIDING REBATES
AND DRAWBACKS—ROCKEFELLER AND ASSOCIATES FORCE
CLEVELAND REFINERS TO JOIN THE NEW COMBINATION OR
SELL—RUMOUR OF THE PLAN REACHES THE OIL REGIONS. Pages 1038–1069
CHAPTER THREE
THE OIL WAR OF 1872
RISING IN THE OIL REGIONS AGAINST THE SOUTH IMPROVEMENT
COMPANY—PETROLEUM PRODUCERS’ UNION ORGANISED—OIL
BLOCKADE AGAINST MEMBERS OF SOUTH IMPROVEMENT COMPANY
AND AGAINST RAILROADS IMPLICATED—CONGRESSIONAL
INVESTIGATION OF 1872 AND THE DOCUMENTS IT
REVEALED—PUBLIC DISCUSSION AND GENERAL CONDEMNATION
OF THE SOUTH IMPROVEMENT COMPANY—RAILROAD OFFICIALS
CONFER WITH COMMITTEE FROM PETROLEUM PRODUCERS’
UNION—WATSON AND ROCKEFELLER REFUSED ADMITTANCE TO
CONFERENCE—RAILROADS REVOKE CONTRACTS WITH SOUTH
IMPROVEMENT COMPANY AND MAKE CONTRACT WITH PETROLEUM
PRODUCERS’ UNION—BLOCKADE AGAINST SOUTH IMPROVEMENT
COMPANY LIFTED—OIL WAR OFFICIALLY ENDED—ROCKEFELLER
CONTINUES TO GET REBATES—HIS GREAT PLAN STILL A
LIVING PURPOSE. Pages 1070–1103
CHAPTER FOUR
“AN UNHOLY ALLIANCE”
ROCKEFELLER AND HIS PARTY NOW PROPOSE AN OPEN INSTEAD
OF A SECRET COMBINATION—“THE PITTSBURG PLAN”—THE
SCHEME IS NOT APPROVED BY THE OIL REGIONS BECAUSE ITS
CHIEF STRENGTH IS THE REBATE—ROCKEFELLER NOT
DISCOURAGED—THREE MONTHS LATER BECOMES PRESIDENT OF
NATIONAL REFINERS’ ASSOCIATION—FOUR-FIFTHS OF
REFINING INTEREST OF UNITED STATES WITH HIM—OIL
REGIONS AROUSED—PRODUCERS’ UNION ORDER DRILLING
STOPPED AND A THIRTY DAY SHUT-DOWN TO COUNTERACT
FALLING PRICE OF CRUDE—PETROLEUM PRODUCERS’ AGENCY
FORMED TO ENABLE PRODUCERS TO CONTROL THEIR OWN
OIL—ROCKEFELLER OUTGENERALS HIS OPPONENTS AND FORCES
A COMBINATION OF REFINERS AND PRODUCERS—PRODUCERS’
ASSOCIATION AND PRODUCERS’ AGENCY SNUFFED
OUT—NATIONAL REFINERS’ ASSOCIATION
DISBANDS—ROCKEFELLER STEADILY GAINING GROUND. Pages 1104–1128
CHAPTER FIVE
LAYING THE FOUNDATIONS OF A TRUST
EVIDENCE OF REAPPEARANCE OF REBATES SOON AFTER
AGREEMENT OF MARCH 25 IS SIGNED—PRINCIPLE THOROUGHLY
ESTABLISHED THAT LARGE SHIPPERS SHALL HAVE ADVANTAGES
OVER SMALL SHIPPERS IN SPITE OF RAILROADS’ DUTY AS
COMMON CARRIERS—AGREEMENT WORKED OUT BY WHICH THREE
ROADS ARE TO HAVE FIXED PERCENTAGE OF EASTERN
SHIPMENTS—OIL REGIONS ROBBED OF THEIR GEOGRAPHICAL
ADVANTAGE—THE RUTTER CIRCULAR—ROCKEFELLER NOW
SECRETLY PLANS REALISATION OF HIS DREAM OF PERSONAL
CONTROL OF THE REFINING OF OIL—ORGANISATION OF THE
CENTRAL ASSOCIATION—H. H. ROGERS’ DEFENCE OF THE
PLAN—ROCKEFELLER’S QUIET AND SUCCESSFUL CANVASS FOR
ALLIANCES WITH REFINERS—THE REBATE HIS
WEAPON—CONSOLIDATION BY PERSUASION OR FORCE—MORE TALK
OF A UNITED EFFORT TO COUNTERACT THE MOVEMENT. Pages 1129–1166
CHAPTER SIX
STRENGTHENING THE FOUNDATIONS
FIRST INTERSTATE COMMERCE BILL—THE BILL PIGEON-HOLED
THROUGH EFFORTS OF STANDARD’S FRIENDS—INDEPENDENTS
SEEK RELIEF BY PROPOSED CONSTRUCTION OF
PIPE-LINES—PLANS FOR THE FIRST SEABOARD
PIPE-LINE—SCHEME FAILS ON ACCOUNT OF MISMANAGEMENT
AND STANDARD AND RAILROAD OPPOSITION—DEVELOPMENT OF
THE EMPIRE TRANSPORTATION COMPANY AND ITS PROPOSED
CONNECTION WITH THE REFINING BUSINESS—STANDARD, ERIE
AND CENTRAL FIGHT THE EMPIRE TRANSPORTATION COMPANY
AND ITS BACKER, THE PENNSYLVANIA RAILROAD—THE
PENNSYLVANIA FINALLY QUITS AFTER A BITTER AND COSTLY
WAR—EMPIRE LINE SOLD TO THE STANDARD—ENTIRE PIPE-LINE
SYSTEM OF OIL REGIONS NOW IN ROCKEFELLER’S HANDS—NEW
RAILROAD POOL BETWEEN FOUR ROADS—ROCKEFELLER PUTS
INTO OPERATION SYSTEM OF DRAWBACKS ON OTHER PEOPLE’S
SHIPMENTS—HE PROCEEDS RAPIDLY WITH THE WORK OF
ABSORBING RIVALS. Pages 1167–1207
CHAPTER SEVEN
THE CRISIS OF 1878
A RISE IN OIL—A BLOCKADE IN EXPORTS—PRODUCERS DO NOT
GET THEIR SHARE OF THE PROFITS—THEY SECRETLY ORGANISE
THE PETROLEUM PRODUCERS’ UNION AND PROMISE TO SUPPORT
PROPOSED INDEPENDENT PIPE-LINES—ANOTHER INTERSTATE
COMMERCE BILL DEFEATED AT WASHINGTON—“IMMEDIATE
SHIPMENT”—INDEPENDENTS HAVE TROUBLE GETTING
CARS—RIOTS THREATENED—APPEAL TO GOVERNOR
HARTRANFT—SUITS BROUGHT AGAINST UNITED PIPE-LINES,
PENNSYLVANIA RAILROAD AND OTHERS—INVESTIGATIONS
PRECIPITATED IN OTHER STATES—THE HEPBURN COMMISSION
AND THE OHIO INVESTIGATION—EVIDENCE THAT THE STANDARD
IS A CONTINUATION OF THE SOUTH IMPROVEMENT
COMPANY—PRODUCERS FINALLY DECIDE TO PROCEED AGAINST
STANDARD OFFICIALS—ROCKEFELLER AND EIGHT OF HIS
ASSOCIATES INDICTED FOR CONSPIRACY. Pages 1208–1240
CHAPTER EIGHT
THE COMPROMISE OF 1880
THE PRODUCERS’ SUIT AGAINST ROCKEFELLER AND HIS
ASSOCIATES USED BY THE STANDARD TO PROTECT
ITSELF—SUITS AGAINST THE TRANSPORTATION COMPANIES ARE
DELAYED—TRIAL OF ROCKEFELLER AND HIS ASSOCIATES FOR
CONSPIRACY POSTPONED—ALL OF THE SUITS WITHDRAWN IN
RETURN FOR AGREEMENTS OF THE STANDARD AND THE
PENNSYLVANIA TO CEASE THEIR PRACTICES AGAINST THE
PRODUCERS—WITH THIS COMPROMISE THE SECOND PETROLEUM
PRODUCERS’ UNION COMES TO AN END—PRODUCERS THEMSELVES
TO BLAME FOR NOT STANDING BEHIND THEIR
LEADERS—STANDARD AGAIN ENFORCES ORDERS OBJECTIONABLE
TO PRODUCERS—MORE OUTBREAKS IN THE OIL
REGIONS—ROCKEFELLER HAVING SILENCED ORGANISED
OPPOSITION PROCEEDS TO SILENCE INDIVIDUAL COMPLAINT. Pages 1241–1262
APPENDIX. Pages 1263–1406
LIST OF ILLUSTRATIONS
PORTRAIT OF JOHN DAVISON ROCKEFELLER IN 1904 _Frontispiece 1_
Born July 8, 1839.
FACING PAGE
PORTRAIT OF E. L. DRAKE 1008
In 1859 Drake drilled near Titusville,
Pennsylvania, the first artesian well put down
for petroleum. He is popularly said to have
“discovered oil.”
THE DRAKE WELL IN 1859—THE FIRST OIL WELL 1010
FAC-SIMILE OF A LABEL USED BY S. M. KIER IN
ADVERTISING ROCK-OIL OBTAINED IN DRILLING SALT WELLS
NEAR TARENTUM, PENNSYLVANIA 1034
FAGUNDUS—A TYPICAL OIL TOWN 1034
PORTRAIT OF JOHN D. ROCKEFELLER IN 1872 1040
PORTRAIT OF W. G. WARDEN 1053
Secretary of the South Improvement Company.
PORTRAIT OF PETER H. WATSON 1053
President of the South Improvement Company.
PORTRAIT OF CHARLES LOCKHART 1053
A member of the South Improvement Company, and
later of the Standard Oil Company. At his death
in 1904 the oldest living oil operator.
PORTRAIT OF HENRY M. FLAGLER IN 1882 1053
Active partner of John D. Rockefeller in the oil
business since 1867. Officer of the Standard
Oil Company since its organization in 1870.
PORTRAIT OF THOMAS A. SCOTT 1060
The contract of the South Improvement Company
with the Pennsylvania Railroad was signed by
Mr. Scott, then vice-president of the road.
PORTRAIT OF WILLIAM H. VANDERBILT 1060
The contract of the South Improvement Company
with the New York Central was signed by Mr.
Vanderbilt, then vice-president of the road.
PORTRAIT OF JAY GOULD 1060
President of the Erie Railroad in 1872. Signer of
the contract with the South Improvement
Company.
PORTRAIT OF COMMODORE CORNELIUS VANDERBILT 1060
President of the New York Central Railroad when
the contract with the South Improvement Company
was signed.
PORTRAIT OF JOHN D. ARCHBOLD IN 1872 1074
Now vice-president of the Standard Oil Company.
Mr. Archbold, whose home, in 1872, was in
Titusville, Pennsylvania, although one of the
youngest refiners of the Creek, was one of the
most active and efficient in breaking up the
South Improvement Company.
PORTRAIT OF HENRY H. ROGERS IN 1872 1088
Now president of the National Transit Company and
a director of the Standard Oil Company. The
opposition to the South Improvement Company
among the New York refiners was led by Mr.
Rogers.
PORTRAIT OF M. N. ALLEN 1110
Independent refiner of Titusville. Editor of the
_Courier_, an able opponent of the South
Improvement Company.
PORTRAIT OF JOHN FERTIG 1110
Prominent oil operator. Until 1893 active in
Producers’ and Refiners’ Company (independent).
PORTRAIT OF CAPT. WILLIAM HASSON 1110
President of the Petroleum Producers’ Association
of 1872.
PORTRAIT OF JOHN L. McKINNEY 1110
Prominent oil operator. Until 1889 an
independent. Now member of the Standard Oil
Company.
PORTRAIT OF JAMES S. TARR 1122
Owner of the “Tarr Farm,” one of the richest oil
territories on Oil Creek.
PORTRAIT OF WILLIAM BARNSDALL 1122
The second oil well on Oil Creek was put down by
Mr. Barnsdall.
PORTRAIT OF JAMES S. McCRAY 1122
Owner of the McCray Farm near Petroleum Centre.
PORTRAIT OF WILLIAM H. ABBOTT 1122
One of the most prominent of the early oil
producers, refiners and pipe-line operators.
FLEET OF OIL BOATS AT OIL CITY IN 1864 1136
PORTRAIT OF GEORGE H. BISSELL 1146
Founder of the first oil company in the United
States.
PORTRAIT OF JONATHAN WATSON 1146
One of the owners of the land on which the first
successful well was drilled for oil.
PORTRAIT OF SAMUEL KIER 1146
The first petroleum refined and sold for lighting
purpose was made by Mr. Kier in the ’50s in
Pittsburg.
PORTRAIT OF JOSHUA MERRILL 1146
The chemist and refiner to whom many of the most
important processes now in use in making
illuminating and lubricating oils are due.
PORTRAIT OF A. J. CASSATT IN 1877 1184
Third vice-president of the Pennsylvania Railroad
in charge of transportation when first contract
was made by that road with the Standard Oil
Company.
PORTRAIT OF GENERAL GEORGE B. McCLELLAN 1184
President of the Atlantic and Great Western
Railroad at the time of the South Improvement
Company. General McClellan did not sign the
contract.
PORTRAIT OF GENERAL JAMES H. DEVEREUX 1184
Who in 1868 as vice-president of the Lake Shore
and Michigan Southern Railroad first granted
rebates to Mr. Rockefeller’s firm.
PORTRAIT OF JOSEPH D. POTTS 1184
President of the Empire Transportation Company.
Leader in the struggle between the Pennsylvania
Railroad and the Standard Oil Company in 1877.
WOODEN CAR TANKS 1212
BOILER TANK CARS 1212
WOODEN TANKS FOR STORING OIL 1212
RAILROAD TERMINAL OF AN EARLY PIPE LINE 1212
PORTRAIT OF E. G. PATTERSON 1248
From 1872 to 1880 the chief advocate in the Oil
Region of an interstate commerce law. Assisted
in drafting the bills of 1876 and 1880.
Abandoned the independent interests at the time
of the compromise of 1880.
PORTRAIT OF ROGER SHERMAN 1248
Chief counsel of the Petroleum Producers’ Union
from 1878 to 1880. From 1880 to 1885 counsel
for the Standard Oil Company. From 1885 to his
death in 1893 counsel of the allied
independents.
PORTRAIT OF BENJ. B. CAMPBELL 1248
President of the Petroleum Producers’ Union from
1878 to 1880. Independent refiner and operator
until his death.
PORTRAIT OF JOSIAH LOMBARD 1248
Prominent independent refiner of N. Y. City,
whose firm was the only one to keep its
contract with the Tidewater Pipe Line Company
in 1880.
THE HISTORY OF
THE STANDARD OIL COMPANY
CHAPTER ONE
THE BIRTH OF AN INDUSTRY
PETROLEUM FIRST A CURIOSITY AND THEN A MEDICINE—DISCOVERY OF ITS REAL
VALUE—THE STORY OF HOW IT CAME TO BE PRODUCED IN LARGE
QUANTITIES—GREAT FLOW OF OIL—SWARM OF PROBLEMS TO SOLVE—STORAGE AND
TRANSPORTATION—REFINING AND MARKETING—RAPID EXTENSION OF THE FIELD
OF OPERATION—WORKERS IN GREAT NUMBERS WITH PLENTY OF CAPITAL—COSTLY
BLUNDERS FREQUENTLY MADE—BUT EVERY DIFFICULTY BEING MET AND
OVERCOME—THE NORMAL UNFOLDING OF A NEW AND WONDERFUL OPPORTUNITY FOR
INDIVIDUAL ENDEAVOUR.
One of the busiest corners of the globe at the opening of the year 1872
was a strip of Northwestern Pennsylvania, not over fifty miles long,
known the world over as the Oil Regions. Twelve years before this strip
of land had been but little better than a wilderness; its chief
inhabitants the lumbermen, who every season cut great swaths of primeval
pine and hemlock from its hills, and in the spring floated them down the
Allegheny River to Pittsburg. The great tides of Western emigration had
shunned the spot for years as too rugged and unfriendly for settlement,
and yet in twelve years this region avoided by men had been transformed
into a bustling trade centre, where towns elbowed each other for place,
into which three great trunk railroads had built branches, and every
foot of whose soil was fought for by capitalists. It was the discovery
and development of a new raw product, petroleum, which had made this
change from wilderness to market-place. This product in twelve years had
not only peopled a waste place of the earth, it had revolutionised the
world’s methods of illumination and added millions upon millions of
dollars to the wealth of the United States.
Petroleum as a curiosity, and indeed in a small way as an article of
commerce, was no new thing when its discovery in quantities called the
attention of the world to this corner of Northwestern Pennsylvania. The
journals of many an early explorer of the valleys of the Allegheny and
its tributaries tell of springs and streams the surfaces of which were
found covered with a thick oily substance which burned fiercely when
ignited and which the Indians believed to have curative properties. As
the country was opened, more and more was heard of these oil springs.
Certain streams came to be named from the quantities of the substance
found on the surface of the water, as “Oil Creek” in Northwestern
Pennsylvania, “Old Greasy” or Kanawha in West Virginia. The belief in
the substance as a cure-all increased as time went on and in various
parts of the country it was regularly skimmed from the surface of the
water as cream from a pan, or soaked up by woollen blankets, bottled,
and peddled as a medicine for man and beast.
Up to the beginning of the 19th century no oil seems to have been
obtained except from the surfaces of springs and streams. That it was to
be found far below the surface of the earth was discovered independently
at various points in Kentucky, West Virginia, Ohio and Pennsylvania by
persons drilling for salt-water to be used in manufacturing salt. Not
infrequently the water they found was mixed with a dark-green,
evil-smelling substance which was recognised as identical with the
well-known “rock-oil.” It was necessary to rid the water of this before
it could be used for salt, and in many places cisterns were devised in
which the brine was allowed to stand until the oil had risen to the
surface. It was then run into the streams or on the ground. This
practice was soon discovered to be dangerous, so easily did the oil
ignite. In several places, particularly in Kentucky, so much oil was
obtained with the salt-water that the wells had to be abandoned. Certain
of these deserted salt wells were opened years after, when it was found
that the troublesome substance which had made them useless was far more
valuable than the brine the original drillers sought.
Naturally the first use made of the oil obtained in quantities from the
salt wells was medicinal. By the middle of the century it was without
doubt the great American medicine. “Seneca Oil” seems to have been the
earliest name under which petroleum appeared in the East. It was
followed by a large output of Kentucky petroleum sold under the name
“American Medicinal Oil.” Several hundred thousand bottles of this oil
are said to have been put up in Burkesville, Kentucky, and to have been
shipped to the East and to Europe. The point at which the business of
bottling petroleum for medicine was carried on most systematically and
extensively was Pittsburg. Near that town, at Tarentum in Alleghany
County, were located salt wells owned and operated in the forties by
Samuel M. Kier. The oil which came up with the salt-water was sufficient
to be a nuisance, and Mr. Kier sought a way to use it. Believing it had
curative qualities he began to bottle it. By 1850 he had worked up this
business until “Kier’s Petroleum, or Rock-Oil” was sold all over the
United States. The crude petroleum was put up in eight-ounce bottles
wrapped in a circular setting forth in good patent-medicine style its
virtues as a cure-all, and giving directions about its use. While it was
admitted to be chiefly a liniment it was recommended for cholera morbus,
liver complaint, bronchitis and consumption, and the dose prescribed was
three teaspoonfuls three times a day! Mr. Kier’s circulars are crowded
with testimonials of the efficacy of rock-oil, dated anywhere between
1848 and 1853. Although his trade in this oil was so extensive he was
not satisfied that petroleum was useful only as a medicine. He was
interested in it as a lubricator and a luminant. That petroleum had the
qualities of both had been discovered at more than one point before
1850. More than one mill-owner in the districts where petroleum had been
found was using it in a crude way for oiling his machines or lighting
his works, but though the qualities of both lubricator and luminant were
present, the impurities of the natural oil were too great to make its
use general. Mr. Kier seems to have been the first man to have attempted
to secure an expert opinion as to the possibility of refining it. In
1849 he sent a bottle of oil to a chemist in Philadelphia, who advised
him to try distilling it and burning it in a lamp. Mr. Kier followed the
advice, and a five-barrel still which he used in the fifties for
refining petroleum is still to be seen in Pittsburg. His trade in the
oil he produced at his little refinery was not entirely local, for in
1858 we find him agreeing to sell to Joseph Coffin of New York at 62½
cents a gallon 100 barrels of “carbon oil that will burn in the ordinary
coal-oil lamp.”
Although Mr. Kier seems to have done a good business in rock-oil,
neither he nor any one else up to this point had thought it worth while
to seek petroleum for its own sake. They had all simply sought to
utilise what rose before their eyes on springs and streams or came to
them mixed with the salt-water for which they drilled. In 1854, however,
a man was found who took rock-oil more seriously. This man was George H.
Bissell, a graduate of Dartmouth College, who, worn out by an experience
of ten years in the South as a journalist and teacher, had come North
for a change. At his old college the latest curiosity of the laboratory
was shown him—the bottle of rock-oil—and the professor contended that it
was as good, or better, than coal for making illuminating oil. Bissell
inquired into its origin, and was told that it came from oil springs
located in Northwestern Pennsylvania on the farm of a lumber firm,
Brewer, Watson and Company. These springs had long yielded a supply of
oil which was regularly collected and sold for medicine, and was used
locally by mill-owners for lighting and lubricating purposes.
Bissell seems to have been impressed with the commercial possibilities
of the oil, for he at once organised a company, the Pennsylvania
Rock-Oil Company, the first in the United States, and leased the lands
on which these oil springs were located. He then sent a quantity of the
oil to Professor Silliman of Yale College, and paid him for analysing
it. The professor’s report was published and received general attention.
From the rock-oil might be made as good an illuminant as any the world
knew. It also yielded gas, paraffine, lubricating oil. “In short,”
declared Professor Silliman, “your company have in their possession a
raw material from which, by simple and not expensive process, they may
manufacture very valuable products. It is worthy of note that my
experiments prove that nearly the whole of the raw product may be
manufactured without waste, and this solely by a well-directed process
which is in practice in one of the most simple of all chemical
processes.”[1]
The oil was valuable, but could it be obtained in quantities great
enough to make the development of so remote a locality worth while? The
only method of obtaining it known to Mr. Bissell and his associates in
the new company was from the surface of oil springs. Could it be
obtained in any other way? There has long been a story current in the
Oil Regions that the Pennsylvania Rock-Oil Company received its first
notion of drilling for oil from one of those trivial incidents which so
often turn the course of human affairs. As the story goes, Mr. Bissell
was one day walking down Broadway when he halted to rest in the shade of
an awning before a drug store. In the window he saw on a bottle a
curious label, “Kier’s Petroleum, or Rock-Oil,” it read, “Celebrated for
its wonderful curative powers. A natural Remedy; Produced from a well in
Allegheny Co., Pa., four hundred feet below the earth’s surface,” etc.
On the label was the picture of an artesian well. It was from this well
that Mr. Kier got his “Natural Remedy.” Hundreds of men had seen the
label before, for it went out on every one of Mr. Kier’s circulars, but
this was the first to look at it with a “seeing eye.” As quickly as the
bottle of rock-oil in the Dartmouth laboratory had awakened in Mr.
Bissell’s mind the determination to find out the real value of the
strange substance, the label gave him the solution of the problem of
getting oil in quantities—it was to bore down into the earth where it
was stored, and pump it up.
Professor Silliman made his report to the Pennsylvania Rock-Oil Company
in 1855, but it was not until the spring of 1858 that a representative
of the organisation, which by this time had changed hands and was known
as the Seneca Oil Company, was on the ground with orders to find oil.
The man sent out was a small stockholder in the company, Edwin L. Drake,
“Colonel” Drake as he was called. Drake had had no experience to fit him
for his task. A man forty years of age, he had spent his life as a
clerk, an express agent, and a railway conductor. His only
qualifications were a dash of pioneer blood and a great persistency in
undertakings which interested him. Whether Drake came to Titusville
ordered to put down an artesian well or not is a mooted point. His
latter-day admirers claim that the idea was entirely his own. It seems
hardly credible that men as intelligent as Professor Silliman, Mr.
Bissell, and others interested in the Pennsylvania Rock-Oil Company,
should not have taken means of finding out how the familiar “Kier’s
Rock-Oil” was obtained. Professor Silliman at least must have known of
the quantities of oil which had been obtained in different states in
drilling salt wells; indeed, in his report (see Appendix, Number 1) he
speaks of “wells sunk for the purpose of accumulating the product.” In
the “American Journal of Science” for 1840—of which he was one of the
editors—is an account of a famous oil well struck near Burkesville,
Kentucky, about 1830, when drilling for salt. It seems probable that the
idea of seeking oil on the lands leased by the Petroleum Rock-Oil
Company by drilling artesian wells had been long discussed by the
gentlemen interested in the venture, and that Drake came to Titusville
with instructions to put down a well. It is certain, at all events, that
he was soon explaining to his superiors at home the difficulty of
getting a driller, an engine-house and tools, and that he was employing
the interval in trying to open new oil springs and make the old ones
more profitable.
[Illustration:
E. L. DRAKE
In 1859 Drake drilled near Titusville, Pennsylvania, the first
artesian well put down for petroleum. He is popularly said to have
“discovered oil.”
]
The task before Drake was no light one. The spot to which he had been
sent was Titusville, a lumberman’s hamlet on Oil Creek, fourteen miles
from where that stream joins the Allegheny River. Its chief connection
with the outside world was by a stage to Erie, forty miles away. This
remoteness from civilisation and Drake’s own ignorance of artesian
wells, added to the general scepticism of the community concerning the
enterprise, caused great difficulty and long delays. It was months
before Drake succeeded in getting together the tools, engine and rigging
necessary to bore his well, and before he could get a driller who knew
how to manipulate them, winter had come, and he had to suspend
operations. People called him crazy for sticking to the enterprise, but
that had no effect on him. As soon as spring opened he borrowed a horse
and wagon and drove over a hundred miles to Tarentum, where Mr. Kier was
still pumping his salt wells, and was either bottling or refining the
oil which came up with the brine. Here Drake hoped to find a driller. He
brought back a man, and after a few months more of experiments and
accidents the drill was started. One day late in August, 1859,
Titusville was electrified by the news that Drake’s Folly, as many of
the onlookers had come to consider it, had justified itself. The well
was full of oil. The next day a pump was started, and twenty-five
barrels of oil were gathered.
There was no doubt of the meaning of the Drake well in the minds of the
people of the vicinity. They had long ago accepted all Professor
Silliman had said of the possibilities of petroleum, and now that they
knew how it could be obtained in quantity, the whole countryside rushed
out to obtain leases. The second well in the immediate region was
drilled by a Titusville tanner, William Barnsdall—an Englishman who at
his majority had come to America to make his fortune. He had fought his
way westward, watching always for his chance. The day the Drake well was
struck he knew it had come. Quickly forming a company he began to drill
a well. He did not wait for an engine, but worked his drill through the
rock by a spring pole.[2] It took three months, and cost $3,000 to do
it, but he had his reward. On February 1, 1860, he struck
oil—twenty-five barrels a day—and oil was selling at eighteen dollars a
barrel. In five months the English tanner had sold over $16,000 worth of
oil.
[Illustration:
THE DRAKE WELL IN 1859. THE FIRST OIL WELL.
]
A lumberman and merchant of the village, who long had had faith in
petroleum if it could be had in quantity, Jonathan Watson, one of the
firm of Brewer, Watson and Company, whose land the Pennsylvania Rock-Oil
Company had leased, mounted his horse as soon as he heard of the Drake
well, and, riding down the valley of Oil Creek, spent the day in leasing
farms. He soon had the third well of the region going down, this too by
a spring pole. This well started off in March at sixty gallons a minute,
and oil was selling at sixty cents a gallon. In two years the farm where
this third well was struck had produced 165,000 barrels of oil.
Working an unfriendly piece of land a few miles below the Drake well
lived a man of thirty-five. Setting out for himself at twenty-two, he
had won his farm by the most dogged efforts, working in sawmills, saving
his earnings, buying a team, working it for others until he could take
up a piece of land, hoarding his savings here. For what? How could he
know? He knew well enough when Drake struck oil, and hastened out to buy
a share in a two-acre farm. He sold it at a profit, and with the money
put down a well, from which he realised $70,000. A few years later the
farm he had slaved to win came into the field. In 1871 he refused a
million dollars for it, and at one time he had stored there 200,000
barrels of oil.
A young doctor who had buried himself in the wilderness saw his chance.
For a song he bought thirty-eight acres on the creek, six miles below
the Drake well, and sold half of it for the price he had paid to a
country storekeeper and lumberman of the vicinity, one Charles Hyde. Out
of this thirty-eight acres millions of dollars came; one well alone—the
Mapleshade—cleared one and one-half millions.
On every rocky farm, in every poor settlement of the region, was some
man whose ear was attuned to Fortune’s call, and who had the daring and
the energy to risk everything he possessed in an oil lease. It was well
that he acted at once; for, as the news of the discovery of oil reached
the open, the farms and towns of Ohio, New York, and Pennsylvania poured
out a stream of ambitious and vigorous youths, eager to seize what might
be there for them, while from the East came men with money and business
experience, who formed great stock companies, took up lands in parcels
of thousands of acres, and put down wells along every rocky run and
creek, as well as over the steep hills. In answer to their drill, oil
poured forth in floods. In many places pumping was out of the question;
the wells flowed 2,000, 3,000, 4,000 barrels a day—such quantities of it
that at the close of 1861 oil which in January of 1860 was twenty
dollars a barrel had fallen to ten cents.
Here was the oil, and in unheard-of quantities, and with it came all the
swarm of problems which a discovery brings. The methods Drake had used
were crude and must be improved. The processes of refining were those of
the laboratory and must be developed. Communication with the outside
world must be secured. Markets must be built up. Indeed, a whole new
commercial machine had to be created to meet the discovery. These
problems were not realised before the region teemed with men to wrestle
with them—men “alive to the instant need of things.” They had to begin
with so simple and elementary a matter as devising something to hold the
oil. There were not barrels enough to be bought in America, although
turpentine barrels, molasses barrels, whiskey barrels—every sort of
barrel and cask—were added to new ones made especially for oil.
Reservoirs excavated in the earth and faced with logs and cement, and
box-like structures of planks or logs were tried at first but were not
satisfactory. A young Iowa school teacher and farmer, visiting at his
home in Erie County, went to the region. Immediately he saw his chance.
It was to invent a receptacle which would hold oil in quantities.
Certain large producers listened to his scheme and furnished money to
make a trial tank. It was a success, and before many months the school
teacher was buying thousands of feet of lumber, employing scores of men,
and working them and himself—day and night. For nearly ten years he
built these wooden tanks. Then seeing that iron tanks—huge receptacles
holding thousands of barrels where his held hundreds—were bound to
supersede him, he turned, with the ready adaptability which
characterised the men of the region, to producing oil for others to
tank.
After the storing problem came that of transportation. There was one
waterway leading out—Oil Creek, as it had been called for more than a
hundred years,—an uncertain stream running the length of the narrow
valley in which the oil was found, and uniting with the Allegheny River
at what is now known as Oil City. From this junction it was 132 miles to
Pittsburg and a railroad. Besides this waterway were rough country roads
leading to the railroads at Union City, Corry, Erie and Meadville. There
was but one way to get the oil to the bank of Oil Creek or to the
railroads, and that was by putting it into barrels and hauling it.
Teamsters equipped for this service seemed to fall from the sky. The
farms for a hundred miles around gave up their boys and horses and
wagons to supply the need. It paid. There were times when three and even
four dollars a barrel were paid for hauling five or ten miles. It was
not too much for the work. The best roads over which they travelled were
narrow, rough, unmade highways, mere openings to the outer world, while
the roads to the wells they themselves had to break across fields and
through forests. These roads were made almost impassable by the great
number of heavily freighted wagons travelling over them. From the big
wells a constant procession of teams ran, and it was no uncommon thing
for a visitor to the Oil Regions to meet oil caravans of a hundred or
more wagons. Often these caravans were held up for hours by a dangerous
mud-hole into which a wheel had sunk or a horse fallen. If there was a
possible way to be made around the obstruction it was taken, even if it
led through a farmer’s field. Indeed, a sort of guerilla warfare went on
constantly between the farmers and the teamsters. Often the roads became
impassable, so that new ones had to be broken, and not even a shot-gun
could keep the driver from going where the passage was least difficult.
The teamster, in fact, carried a weapon which few farmers cared to face,
his terrible “black snake,” as his long, heavy black whip was called.
The man who had once felt the cruel lash of a “black snake” around his
legs did not often oppose the owner.
With the wages paid him the teamster could easily become a kind of
plutocrat. One old producer tells of having a teamster in his employ who
for nine weeks drew only enough of his earnings to feed himself and
horses. He slept in his wagon and tethered the team. At the end of the
time he “thought he’d go home for a clean shirt” and asked for a
settlement. It was found that he had $1,900 to his credit. The story is
a fair illustration both of the habits and the earnings of the Oil Creek
teamsters. Indispensable to the business they became the tyrants of the
region—working and brawling as suited them, a genius not unlike the
flatboat-men who once gave colour to life on the Mississippi, or the
cowboys who make the plains picturesque to-day. Bad as their reputation
was, many a man found in their ranks the start which led later to wealth
and influence in the oil business. One of the shrewdest, kindest, oddest
men the Oil Regions ever knew, Wesley Chambers, came to the top from the
teamster class. He had found his way to the creek after eight years of
unsuccessful gold-hunting in California. “There’s my chance,” he said,
when he saw the lack of teams and boats, and he set about organising a
service for transporting oil to Pittsburg. In a short time he was buying
horses of his own and building boats. Wide-awake to actualities, he saw
a few years later that the teamster and the boat were to be replaced by
the pipe-line and the railroad, and forestalled the change by becoming a
producer.
In this problem of transportation the most important element after the
team was Oil Creek and the flatboat. A more uncertain stream never ran
in a bed. In the summer it was low, in the winter frozen; now it was
gorged with ice, now running mad over the flats. The best service was
gotten out of it in time of low water through artificial freshets.
Milldams, controlled by private parties, were frequent along the creek
and its tributaries. By arrangement these dams were cut on a certain day
or days of the week, usually Friday, and on the flood or freshet the
flatboats loaded with barrels of oil were floated down stream. The
freshet was always exciting and perilous and frequently disastrous. From
the points where they were tied up the boatmen watched the coming flood
and cut themselves loose the moment after its head had passed them. As
one fleet after another swung into the roaring flood the danger of
collision and jams increased. Rare indeed was the freshet when a few
wrecks did not lie somewhere along the creek, and often scores lay piled
high on the bank—a hopeless jam of broken boats and barrels, the whole
soaked in petroleum and reeking with gas and profanity. If the boats
rode safely through to the river, there was little further danger.
The Allegheny River traffic grew to great proportions—fully 1,000 boats
and some thirty steamers were in the fleet, and at least 4,000 men. This
traffic was developed by men who saw here their opportunity of fortune,
as others had seen it in drilling or teaming. The foremost of these men
was an Ohio River captain, driven northward by the war, one J. J.
Vandergrift. Captain Vandergrift had run the full gamut of river
experiences from cabin-boy to owner and commander of his own steamers.
The war stopped his Mississippi River trade. Fitting up one of his
steamers as a gun-boat, he turned it over to Commodore Foote and looked
for a new stream to navigate. From the Oil Region at that moment the
loudest cry was for barrels. He towed 4,000 empty casks up the river,
saw at once the need of some kind of bulk transportation, took his hint
from a bulk-boat which an ingenious experimenter was trying, ordered a
dozen of them built, towed his fleet to the creek, bought oil to fill
them, and then returned to Pittsburg to sell his cargo. On one alone he
made $70,000.
But the railroad soon pressed the river hard. At the time of the
discovery of oil three lines, the Philadelphia and Erie, the Buffalo and
Erie (now the Lake Shore), connecting with the Central, and the Atlantic
and Great Western, connecting with the Erie, were within teaming
distance of the region. The points at which the Philadelphia and Erie
road could be reached were Erie, forty miles from Titusville, Union
City, twenty-two miles, and Corry, sixteen miles. The Buffalo and Erie
was reached at Erie. The Atlantic and Great Western was reached at
Meadville, Union City and Corry, and the distances were twenty-eight,
twenty-two and sixteen miles, respectively. Erie was the favourite
shipping point at first, as the wagon road in that direction was the
best. The amount of freight the railroads carried the first year of the
business was enormous. Of course connecting lines were built as rapidly
as men could work. By the beginning of 1863 the Oil Creek road, as it
was known, had reached Titusville from Corry. This gave an eastern
connection by both the Philadelphia and Erie and the Atlantic and Great
Western, but as the latter was constructing a branch from Meadville to
Franklin, the Oil Creek road became the feeder of the former
principally. Both of these roads were completed to Oil City by 1865.
The railroads built, the vexatious, time-taking, and costly problem of
getting the oil from the well to the shipping point still remained. The
teamster was still the tyrant of the business. His day was almost over.
He was to fall before the pipe-line. The feasibility of carrying oil in
pipes was discussed almost from the beginning of the oil business. Very
soon after the Drake well was struck oil men began to say that the
natural way to get this oil from the wells to the railroads was through
pipes. In many places gravity would carry it; where it could not, pumps
would force it. The belief that this could be done was so strong that as
early as February, 1862, a company was incorporated in Pennsylvania for
carrying oil in pipes or tubes from any point on Oil Creek to its mouth
or to any station on the Philadelphia and Erie Railroad. This company
seems never to have done more than get a charter. In 1863 at least three
short pipe-lines were put into operation. The first of these was a
two–inch pipe, through which distillate was pumped a distance of three
miles from the Warren refinery at Plumer to Warren’s Landing on the
Allegheny River. The one which attracted the most attention was a line
two and one-half miles in length carrying crude oil from the Tarr farm
to the Humboldt refinery at Plumer. Various other experiments were made,
both gravity and pumps being trusted for propelling the oil, but there
was always something wrong; the pipes leaked or burst, the pumps were
too weak; shifting oil centres interrupted experiments which might have
been successful. Then suddenly the man for the need appeared, Samuel Van
Syckel. He came to the creek in 1864 with some money, hoping to make
more. He handled quantities of oil produced at Pithole, several miles
from a shipping point, and saw his profits eaten up by teamsters. Their
tyranny aroused his ire and his wits and he determined to build a
pipe-line from the wells to the railroad. He was greeted with jeers, but
he went doggedly ahead, laid a two–inch pipe, put in three relay pumps,
and turned in his oil. From the start the line was a success, carrying
eighty barrels of oil an hour. The day that the Van Syckel pipe-line
began to run oil a revolution began in the business. After the Drake
well it is the most important event in the history of the Oil Regions.
The teamsters saw its meaning first and turned out in fury, dragging the
pipe, which was for the most part buried, to the surface, and cutting it
so that the oil would be lost. It was only by stationing an armed guard
that they were held in check. A second line of importance, that of
Abbott and Harley, suffered even more than that of Van Syckel. The
teamsters did more than cut the pipe; they burned the tanks in which oil
was stored, laid in wait for employees, threatened with destruction the
wells which furnished the oil, and so generally terrorised the country
that the governor of the state was called upon in April, 1866, to
protect the property and men of the lines. The day of the teamster was
over, however, and the more philosophical of them accepted the
situation; scores disappeared from the region, and scores more took to
drilling. They died hard, and the cutting and plugging of pipe-lines was
for years a pastime of the remnant of their race.
If the uses to which oil might be put and the methods for manufacturing
it had not been well understood when the Drake well was struck, there
would have been no such imperious demand as came for the immediate
opening of new territory and developing methods of handling and carrying
it on a large scale. But men knew already what the oil was good for,
and, in a crude way, how to distil it. The process of distillation also
was free to all. The essential apparatus was very simple—a cast-iron
still, usually surrounded by brickwork, a copper worm, and two tin- or
zinc-lined tanks. The still was filled with crude oil, which was
subjected to a high enough heat to vapourise it. The vapour passed
through a cast-iron goose-neck fitted to the top of the still into the
copper worm, which was immersed in water. Here the vapour was condensed
and passed into the zinc-lined tank. This product, called a distillate,
was treated with chemicals, washed with water, and run off into the
tin-lined tank, where it was allowed to settle. Anybody who could get
the apparatus could “make oil,” and many men did—badly, of course, to
begin with, and with an alarming proportion of waste and explosions and
fires, but with experience they learned, and some of the great
refineries of the country grew out of these rude beginnings.
Luckily not all the men who undertook the manufacturing of petroleum in
these first days were inexperienced. The chemists to whom are due
chiefly the processes now used—Atwood, Gessner, and Merrill—had for
years been busy making oils from coal. They knew something of petroleum,
and when it came in quantities began at once to adapt their processes to
it. Merrill at the time was connected with Samuel Downer, of Boston, in
manufacturing oil from Trinidad pitch and from coal bought in
Newfoundland. The year oil was discovered Mr. Downer distilled 7,500
tons of this coal, clearing on it at least $100,000. As soon as
petroleum appeared he and Mr. Merrill saw that here was a product which
was bound to displace their coal, and with courage and promptness they
prepared to adapt their works. In order to be near the supply they came
to Corry, fourteen miles from the Drake well, and in 1862 put up a
refinery which cost $250,000. Here were refined thousands of barrels of
oil, most of which was sent to New York for export. To the Boston works
the firm sent crude, which was manufactured for the home trade and for
shipping to California and Australia. The processes used in the Downer
works at this early day were in all essentials the same as are used
to-day.
In 1865 William Wright, after a careful study of “Petrolia,” as the Oil
Regions were then often called, published with Harper and Brothers an
interesting volume in which he devotes a chapter to “Oil Refining and
Refiners.” Mr. Wright describes there not only the Downer works at
Corry, but a factory which if much less important in the development of
the Oil Regions held a much larger place in its imagination. This was
the Humboldt works at Plumer. In 1862 two Germans, brothers, the Messrs.
Ludovici, came to the oil country and, choosing a spot distant from oil
wells, main roads, or water courses, erected an oil refinery which was
reported to have cost a half million dollars. The works were built in a
way unheard of then and uncommon now. The foundations were all of cut
stone. The boiler and engines were of the most expensive character. A
house erected in connection with the refinery was said to have been
finished in hard wood with marble mantels, and furnished with rich
carpets, mirrors, and elaborate furniture. The lavishness of the
Humboldt refinery and the formality with which its business was
conducted were long a tradition in the Oil Regions. Of more practical
moment are the features of the refinery which Mr. Wright mentions: one
is that the works had been so planned as to take advantage of the
natural descent of the ground so that the oil would pass from one set of
vessels to another without using artificial power, and the other that
the supply of crude oil was obtained from the Tarr farm three miles
away, being forced by pumps, through pipes, over the hills.
Mr. Wright found some twenty refineries between Titusville and Oil City
the year of his visit, 1865. In several factories that he visited they
were making naphtha, gasoline, and benzine for export. Three grades of
illuminating oils—“prime white,” “standard white,” and “straw
colour”—were made everywhere; paraffine, refined to a pure white article
like that of to-day, was manufactured in quantities by the Downer works;
and lubricating oils were beginning to be made.
As men and means were found to put down wells, to devise and build tanks
and boats and pipes and railroads for handling the oil, to adapt and
improve processes for manufacturing, so men were found from the
beginning of the oil business to wrestle with every problem raised. They
came in shoals, young, vigorous, resourceful, indifferent to
difficulties, greedy for a chance, and with each year they forced more
light and wealth from the new product. By the opening of 1872 they had
produced nearly 40,000,000 barrels of oil, and had raised their product
to the fourth place among the exports of the United States, over
152,000,000 gallons going abroad in 1871, a percentage of the production
which compares well with what goes to-day.[3] As for the market, they
had developed it until it included almost every country of the
earth—China, the East and West Indies, South America and Africa. Over
forty different European ports received refined oil from the United
States in 1871. Nearly a million gallons were sent to Syria, about a
half million to Egypt, about as much to the British West Indies, and a
quarter of a million to the Dutch East Indies. Not only were
illuminating oils being exported. In 1871 nearly seven million gallons
of naphtha, benzine, and gasoline were sent abroad, and it became
evident now for the first time that a valuable trade in lubricants made
from petroleum was possible. A discovery by Joshua Merrill of the Downer
works opened this new source of wealth to the industry. Until 1869 the
impossibility of deodorising petroleum had prevented its use largely as
a lubricant, but in that year Mr. Merrill discovered a process by which
a deodorised lubricating oil could be made. He had both the apparatus
for producing the oil and the oil itself patented. The oil was so
favourably received that the market sale by the Downer works was several
hundred per cent. greater in a single year than the firm had ever sold
before.
The oil field had been extended from the valley of Oil Creek and its
tributaries down the Allegheny River for fifty miles and probably
covered 2,000 square miles. The early theory that oil followed the
streams had been exploded, and wells were now drilled on the hills. It
was known, too, that if oil was found in the first sand struck in the
drilling, it might be found still lower in a second or third sand. The
Drake well had struck oil at 69½ feet, but wells were now drilled as
deep as 1,600 feet. The extension of the field, the discovery that oil
was under the hills as well as under streams, and to be found in various
sands, had cost enormously. It had been done by “wild-catting,” as
putting down experimental wells was called, by following superstitions
in locating wells, such as the witch-hazel stick, or the spiritualistic
medium, quite as much as by studying the position of wells in existence
and calculating how oil belts probably ran. As the cost of a well was
from $3,000 to $8,000,[4] according to its location, and as 4,374 of the
5,560 wells drilled in the first ten years of the business (1859 to
1869) were “dry-holes,” or were abandoned as unprofitable, something of
the daring it took to operate on small means, as most producers did in
the beginning, is evident. But they loved the game, and every man of
them would stake his last dollar on the chance of striking oil.
With the extension of the field rapid strides had been made in tools, in
rigs, in all of the various essentials of drilling a well. They had
learned to use torpedoes to open up hard rocks, naphtha to cut the
paraffine which coated the sand and stopped the flow of oil, seed bags
to stop the inrush of a stream of water. They lost their tools less
often, and knew better how to fish for them when they did. In short,
they had learned how to put down and care for oil wells.
Equal advances had been made in other departments, fewer cars were
loaded with barrels, tank cars for carrying in bulk had been invented.
The wooden tank holding 200 to 1,200 barrels had been rapidly replaced
by the great iron tank holding 20,000 or 30,000 barrels. The pipe-lines
had begun to go directly to the wells instead of pumping from a general
receiving station, or “dump,” as it was called, thus saving the tedious
and expensive operation of hauling. From beginning to end the business
had been developed, systematised, simplified.
Most important was the simplification of the transportation problem by
the development of pipe-lines. By 1872 they were the one oil gatherer.
Several companies were carrying on the pipe-line business, and two of
them had acquired great power in the Oil Regions because of their
connection with trunk lines. These were the Empire Transportation
Company and the Pennsylvania Transportation Company. The former, which
had been the first business organisation to go into the pipe-line
business on a large scale, was a concern which had appeared in the Oil
Regions not over six months before Van Syckel began to pump oil. The
Empire Transportation Company had been organised in 1865 to build up an
east and west freight traffic _via_ the Philadelphia and Erie Railroad,
a new line which had just been leased by the Pennsylvania. Some ten
railroads connected in one way or another with the Philadelphia and
Erie, forming direct routes east and west. In spite of their evident
community of interest these various roads were kept apart by their
jealous fears of one another. Each insisted on its own time-table, its
own rates, its own way of doing things. The shipper _via_ this route
must make a separate bargain with each road and often submit to having
his freight changed at terminals from one car to another because of the
difference of gauge. The Empire Transportation Company undertook to act
as a mediator between the roads and the shipper, to make the route
cheap, fast, and reliable. It proposed to solicit freight, furnish its
own cars and terminal facilities, and collect money due. It did not make
rates, however; it only harmonised those made by the various branches in
the system. It was to receive a commission on the business secured, and
a rental for the cars and other facilities it furnished.
It was a difficult task the new company undertook, but it had at its
head a remarkable man to cope with difficulties. This man, Joseph D.
Potts, was in 1865 thirty-six years old. He had come of a long and
honourable line of iron-masters of the Schuylkill region of
Pennsylvania, but had left the great forge towns with which his
ancestors had been associated—Pottstown, Glasgow Forge, Valley Forge—to
become a civil engineer. His profession had led him to the service of
the Pennsylvania Railroad, where he had held important positions in
connection with which he now undertook the organisation of the Empire
Transportation Company. Colonel Potts—the title came from his service in
the Civil War—possessed a clear and vigorous mind; he was far-seeing,
forceful in execution, fair in his dealings. To marked ability and
integrity he joined a gentle and courteous nature.
The first freight which the Empire Transportation Company attacked after
its organisation was oil. The year was a great one for the Oil Regions,
the year of Pithole. In January there had suddenly been struck on
Pithole Creek in a wilderness six miles from the Allegheny River a well,
located with a witch-hazel twig, which produced 250 barrels a day—and
oil was selling at eight dollars a barrel! Wells followed in rapid
succession. In less than ten months the field was doing over 10,000
barrels a day. This sudden flood of oil caused a tremendous excitement.
Crowds of speculators and investors rushed to Pithole from all over the
country. The Civil War had just closed, soldiers were disbanding, and
hundreds of them found their way to the new oil field. In six weeks
after the first well was struck Pithole was a town of 6,000 inhabitants.
In less than a year it had fifty hotels and boardinghouses; five of
these hotels cost $50,000 or more each. In six months after the first
well the post-office of Pithole was receiving upwards of 10,000 letters
per day and was counted third in size in the state—Philadelphia,
Pittsburg, and Pithole being the order of rank. It had a daily paper,
churches, all the appliances of a town.
The handling of the great output of oil from the Pithole field was a
serious question. There seemed not enough cars in the country to carry
it and shippers resorted to every imaginable trick to get
accommodations. When the agent of the Empire Transportation Company
opened his office in June, 1865, and demonstrated his ability to furnish
cars regularly and in large numbers, trade rapidly flowed to him. Now
the Empire agency had hardly been established when the Van Syckel
pipe-line began to carry oil from Pithole to the railroad. Lines began
to multiply. The railroads saw at once that they were destined speedily
to do all the gathering and hastened to secure control of them. Colonel
Potts’s first pipe-line purchase was a line running from Pithole to
Titusville, which as yet had not been wet.
When the Empire Transportation Company took over this line nothing had
been demonstrated but that oil could be driven, by relay pumps, five
miles through a two–inch pipe. The Empire’s first effort was to get a
longer run by fewer pumps. The agent in charge, C. P. Hatch, believed
that oil could be brought the entire ten and one-half miles from Pithole
to Titusville by one pump. He met with ridicule, but he insisted on
trying it in the new line his company had acquired. The experiment was
entirely successful. Improvements followed as rapidly as hands could
carry out the suggestions of ingenuity and energy. One of the most
important made the first year of the business was connecting wells by
pipe directly with the tanks at the pumping stations, thus doing away
with the expensive hauling in barrels to the “dump.” A new device for
accounting to the producer for his oil was made necessary by this
change, and the practice of taking the gauge or measure of the oil in
the producer’s tank before and after the run and issuing duplicate “run
tickets” was devised by Mr. Hatch. The producers, however, were not all
“square”; it sometimes happened that they sold oil by a transfer order
on the pipe-line, which they did not have in the line! To prevent these
the Empire Transportation Company in 1868 began to issue certificates
for credit balances of oil; these soon became the general mediums of
trade in oil, and remain so to-day.
One of the cleverest of the pipe-line devices of the Empire Company was
its assessment for waste and fire. In running oil through pipes there is
more or less lost by leaking and evaporation. In September, 1868, Mr.
Hatch announced that thereafter he would deduct two per cent. from oil
runs for wastage. The assessment raised almost a riot in the region,
meetings were held, the Empire Transportation Company was denounced as a
highway robber, and threats of violence were made if the order was
enforced. While this excitement was in progress there came a big fire on
the line. Now the company’s officials had been studying the question of
fire insurance from the start. Fires in the Oil Regions were as regular
a feature of the business as explosions used to be on the Mississippi
steamboats, and no regular fire insurance company would take the risk.
It had been decided that at the first fire there should be announced
what was called a “general average assessment,” that is, a fire tax, and
to be ready, blanks had been prepared. Now in the thick of the
resistance to the wastage assessment came a fire and the line announced
that the producers having oil in the line must pay the insurance. The
controversy at once waxed hotter than ever, but was finally compromised
by the withdrawal in this case of the fire insurance if the producers
would consent to the tax for waste. They did consent, and later when
fires occurred the general average assessment was applied without
serious opposition. Both of these practices prevail to-day. By the end
of 1871 the Empire Transportation Company was one of the most efficient
and respected business organisations in the oil country.
Its chief rival was the Pennsylvania Transportation Company, an
organisation which had its origin in the second pipe-line laid in the
Oil Regions. This line was built by Henry Harley, a man who for fully
ten years was one of the most brilliant figures in the oil country.
Harley was a civil engineer by profession, a graduate of the Troy
Polytechnic Institute, and had held a responsible position for some time
as an assistant of General Herman Haupt in the Hoosac Tunnel. He became
interested in the oil business in 1862, first as a buyer of petroleum,
then as an operator in West Virginia. In 1865 he laid a pipe-line from
one of the rich oil farms of the creek to the railroad. It was a
success, and from this venture Harley and his partner, W. H. Abbott, one
of the wealthiest and most active men in the country, developed an
important transportation system. In 1868 Jay Gould, who as president of
the Erie road was eager to increase his oil freight, bought a
controlling interest in the Abbott and Harley lines, and made Harley
“General Oil Agent” of the Erie system. Harley now became closely
associated with Fisk and Gould, and the three carried on a series of
bold and piratical speculations in oil which greatly enraged the oil
country. They built a refinery near Jersey City, extended their
pipe-line system, and in 1871, when they reorganised under the name of
the Pennsylvania Transportation Company, they controlled probably the
greatest number of miles of pipe of any company in the region, and then
were fighting the Empire bitterly for freight.
There is no part of this rapid development of the business more
interesting than the commercial machine the oil men had devised by 1872
for marketing oil. A man with a thousand-barrel well on his hands in
1862 was in a plight. He had got to sell his oil at once for lack of
storage room or let it run on the ground, and there was no exchange, no
market, no telegraph, not even a post-office within his reach where he
could arrange a sale. He had to depend on buyers who came to him. These
buyers were the agents of the refineries in different cities, or of the
exporters of crude in New York. They went from well to well on
horseback, if the roads were not too bad, on foot if they were, and at
each place made a special bargain varying with the quantity bought and
the difficulty in getting it away, for the buyer was the transporter,
and, as a rule, furnished the barrels or boats in which he carried off
his oil. It was not long before the speculative character of the oil
trade due to the great fluctuations in quantity added a crowd of brokers
to the regular buyers who tramped up and down the creek. When the
railroads came in the trains became the headquarters for both buyers and
sellers. This was the more easily managed as the trains on the creek
stopped at almost every oil farm. These trains became, in fact, a sort
of travelling oil exchange, and on them a large percentage of all the
bargaining of the business was done.
The brokers and buyers first organised and established headquarters in
Oil City in 1869, but there was an oil exchange in New York City as
early as 1866. Titusville did not have an exchange until 1871. By this
time the pipe-lines had begun to issue certificates for the oil they
received, and the trading was done to a degree in these. The method was
simple, and much more convenient than the old one. The producer ran his
oil into a pipe-line, and for it received a certificate showing that the
line held so much to his credit; this certificate was transferred when
the sale was made and presented when the oil was wanted.
One achievement of which the oil men were particularly proud was
increasing the refining capacity of the region. At the start the
difficulty of getting the apparatus for a refinery to the creek had been
so enormous that the bulk of the crude had been driven to the nearest
manufacturing cities—Erie, Pittsburg, Cleveland. Much had gone to the
seaboard, too, and Boston, New York, Philadelphia and Baltimore were all
doing considerable refining. There was always a strong feeling in the
Oil Regions that the refining should be done at home. Before the
railroads came the most heroic efforts were made again and again to get
in the necessary machinery. Brought from Pittsburg by water, as a rule,
the apparatus had to be hauled from Oil City, where it had been dumped
on the muddy bank of the river—there were no wharfs—over the
indescribable roads to the site chosen. It took weeks—months
sometimes—to get in the apparatus. The chemicals used in the making of
the oil, the barrels in which to store it—all had to be brought from
outside. The wonder is that under these conditions anybody tried to
refine on the creek. But refineries persisted in coming, and after the
railroads came, increased; by 1872 the daily capacity had grown to
nearly 10,000 barrels, and there were no more complete or profitable
plants in existence than two or three of those on the creek. The only
points having larger daily capacity were Cleveland and New York City.
Several of the refineries had added barrel works. Acids were made on the
ground. Iron works at Oil City and Titusville promised soon to supply
the needs of both drillers and refiners. The exultation was great, and
the press and people boasted that the day would soon come when they
would refine for the world. There in their own narrow valleys should be
made everything which petroleum would yield. Cleveland, Pittsburg—the
seaboard—must give up refining. The business belonged to the Oil
Regions, and the oil men meant to take it.
A significant development in the region was the tendency among many of
the oil men to combine different branches of the business. Several large
producers conducted shipping agencies for handling their own and other
people’s oil. The firm of Pierce and Neyhart was a prominent one
carrying on this double business in the sixties and early seventies. J.
J. Vandergrift, who has been mentioned already as one of the first men
to take hold of the transportation problem, early became interested in
production. As soon as the pipe-line was demonstrated to be a success he
began building lines. He also added to his interests a large refinery,
the Imperial of Oil City. Captain Vandergrift by 1870 produced,
transported and refined his own oil as well as transported and refined
much of other people’s. It was a common practice for a refinery in the
Oil Regions to pipe oil directly to its works by its own line, and in
1872 one refinery in Titusville, the Octave, carried its refined oil a
mile or more by pipe to the railroad. Although most of the refineries at
this period sold their products to dealers and exporters, the building
up of markets by direct contact with new territory was beginning to be a
consideration with all large manufacturers. The Octave of Titusville,
for instance, chartered a ship in 1872 to load with oil and send in
charge of its own agent into South American ports.
The odds against the oil men in developing the business had not been
merely physical ones. There had been more than the wilderness to
conquer, more than the possibilities of a new product to learn. Over all
the early years of their struggle and hardships hovered the dark cloud
of the Civil War. They were so cut off from men that they did not hear
of the fall of Sumter for four days after it happened, and the news for
the time blotted out interest even in flowing wells. Twice at least when
Lee invaded Pennsylvania the whole business came to a stand-still, men
abandoning the drill, the pump, the refinery to make ready to repel the
invader. They were taxed for the war—taxes rising to ten dollars per
barrel in 1865—one dollar on crude and twenty cents a gallon on refined
(the oil barrel is usually estimated at forty-two gallons). They gave up
their quota of men again and again at the call for recruits, and when
the end came and a million men were cast on the country, this little
corner of Pennsylvania absorbed a larger portion of men probably than
any other spot in the United States. The soldier was given the first
chance everywhere at work, he was welcomed into oil companies, stock
being given him for the value of his war record. There were lieutenants
and captains and majors—even generals—scattered all over the field, and
the field felt itself honoured, and bragged, as it did of all things, of
the number of privates and officers who immediately on disbandment had
turned to it for employment.
It was not only the Civil War from which the Oil Regions had suffered;
in 1870 the Franco-Prussian War broke the foreign market to pieces and
caused great loss to the whole industry. And there had been other
troubles. From the first, oil men had to contend with wild fluctuations
in the price of oil. In 1859 it was twenty dollars a barrel, and in 1861
it had averaged fifty-two cents. Two years later, in 1863, it averaged
$8.15, and in 1867 but $2.40. In all these first twelve years nothing
like a steady price could be depended on, for just as the supply seemed
to have approached a fixed amount, a “wildcat” well would come in and
“knock the bottom out of the market.” Such fluctuations were the natural
element of the speculator, and he came early, buying in quantities and
holding in storage tanks for higher prices. If enough oil was held, or
if the production fell off, up went the price, only to be knocked down
by the throwing of great quantities of stocks on the market. The
producers themselves often held their oil, though not always to their
own profit. A historic case of obstinate holding occurred in 1871 on the
“McCray farm,” the most productive field in the region at that time.
Prices were hovering around three dollars, and McCray swore he would not
sell under five dollars. He bought, hired and built iron tankage until
he had upward of 200,000 barrels. There was great loss from leakage and
from evaporation and there were taxes, but McCray held on, refusing four
dollars, $4.50, and even five dollars. Evil times came in the Oil
Regions soon after and with them “dollar oil.” McCray finally was
obliged to sell his stocks at about $1.20 per barrel. To develop a
business in face of such fluctuations and speculation in the raw product
took not only courage—it took a dash of the gambler. It never could have
been done, of course, had it not been for the streams of money which
flowed unceasingly and apparently from choice into the regions. In 1865
Mr. Wright calculated that the oil country was using a capital of
$100,000,000. In 1872 the oil men claimed the capital in operation was
$200,000,000. It has been estimated that in the first decade of the
industry nearly $350,000,000 was put into it.
Speculation in oil stock companies was another great evil. It reached
its height in 1864 and 1865—the “flush times” of the business. Stocks in
companies whose holdings were hardly worth the stamps on the
certificates were sold all over the land. In March, 1865, the aggregate
capital of the oil companies whose charters were on file in Albany, New
York, was $350,000,000, and in Philadelphia alone in 1864 and 1865 1,000
oil companies, mostly bogus, are said to have been formed. These
swindles were dignified by the names of officers of distinction in the
United States army, for the war was coming to an end and the name of a
general was the most popular and persuasive argument in the country. Of
course there came a collapse. The “oil bubble” burst in 1866, and it was
nothing but the irrepressible energy of the region which kept the
business going in the panic which followed.
Then there was the disturbing effect of foreign competition. What would
become of them if oil was found in quantities in other countries? A
decided depression of the market occurred in 1866 when the government
sent out reports of developments of foreign oil fields. If there was oil
in Japan, China, Burmah, Persia, Russia, Bavaria, in the quantities the
government reports said, why, there was trouble in store for
Pennsylvania, the oil men argued, and for a day the market fell—it was
only for a day. Men forgot easily in the Oil Regions in the sixties.
An evil in their business which they were only beginning to grasp fully
in 1871 was the unholy system of freight discrimination which the
railroads were practising. Three trunk lines competed for the business
by 1872—the Pennsylvania, which had leased the Philadelphia and Erie,
the Erie and the Central. (The latter road reached the Oil Regions by a
branch from Ashtabula on the Lake Shore and Michigan Southern division
to Oil City; this branch was completed in 1868.) The Pennsylvania
claimed the oil traffic as a natural right; for the Oil Regions were in
Pennsylvania, and did not Tom Scott own that state? The Erie road for
about five years had been in the hands of those splendid pirates, Jay
Gould and “Jim” Fisk. Naturally they took all they could get of the oil
traffic and took it by freebooting methods. “Corners” and “rings” were
their favourite devices for securing trade, and more than once their aid
had carried through daring and unscrupulous speculations in oil. The
Central in this period was waging its famous desperate war on the Erie,
Commodore Vanderbilt having marked that highway for his own along with
most other things in New York State. All three of the roads began as
early as 1868 to use secret rebates on the published freight rates in
oil as a means of securing traffic. This practice had gone on until in
1871 any big producer, refiner, or buyer could bully a freight agent
into a special rate. Those “on the inside,” those who had “pulls,” also
secured special rates. The result was that the open rate was enforced
only on the innocent and the weak.
Serious as all these problems were, there was no discouragement or
shrinking from them. The oil men had rid themselves of bunco men and
burst the “oil bubbles.” They had harnessed the brokers in exchanges and
made strict rules to govern them. They had learned not to fear the
foreigners, and to take with equal _sang froid_ the “dry-hole” which
made them poor, or the “gusher” which made them rich. For every evil
they had a remedy. They were not afraid even of the railroads, and
loudly declared that if the discriminations were not stopped they would
build a railroad of their own. Indeed, the evils in the oil business in
1871, far from being a discouragement, rather added to the interest.
They had never known anything but struggle—with conquest—and twelve
years of it was far from cooling their ardour for a fair fight.
More had been done in the Oil Regions in the first dozen years than the
development of a new industry. From the first there had gone with the
oil men’s ambition to make oil to light the whole earth a desire to
bring civilisation to the wilderness from which they were drawing
wealth, to create an orderly society from the mass of humanity which
poured pell-mell into the region. A hatred of indecency first drew
together the better element of each of the rough communities which
sprang up. Whiskey-sellers and women flocked to the region at the
breaking out of the excitement. Their first shelters were shanties built
on flatboats which were towed from place to place: They came to
Rouseville—a collection of pine shanties and oil derricks, built on a
muddy flat—as forlorn and disreputable a town in appearance as the earth
ever saw. They tied up for trade, and the next morning woke up from
their brawl to find themselves twenty miles away, floating down the
Allegheny River. Rouseville meant to be decent. She had cut them loose,
and by such summary vigilance she kept herself decent. Other towns
adopted the same policy. By common consent vice was corralled largely in
one town. Here a whole street was given up to dance-houses and saloons,
and those who must have a “spree” were expected to go to Petroleum
Centre to take it.
[Illustration:
FAC-SIMILE OF A LABEL USED BY S. M. KIER IN ADVERTISING ROCK-OIL
OBTAINED IN DRILLING SALT WELLS NEAR TARENTUM, PENNSYLVANIA
]
[Illustration:
FAGUNDUS—A TYPICAL OIL TOWN
]
Decency and schools! Vice cut adrift, they looked for a school teacher.
Children were sadly out of place, but there they were, and these men,
fighting for a chance, saw to it that a shanty, with a school teacher in
it, was in every settlement. It was not long, too, before there was a
church, a union church. To worship God was their primal instinct; to
defend a creed a later development. In the beginning every social
contrivance was wanting. There were no policemen, and each individual
looked after evil-doers. There were no firemen, and every man turned out
with a bucket at a fire. There were no bankers, and each man had to put
his wealth away as best he could until a peripatetic banker from
Pittsburg relieved him. At one time Dr. Egbert, a rich operator, is said
to have had $1,800,000 in currency in his house. There were no
hospitals, and in 1861, when the horrible possibilities of the oil fire
were first demonstrated by the burning of the Rouse well, a fire at
which nineteen persons lost their lives, the many injured found welcome
and care for long weeks in the little shanties of women already
overburdened by the difficulties of caring for families in the rough
community.
Out of this poverty and disorder they had developed in ten years a
social organisation as good as their commercial. Titusville, the hamlet
on whose outskirts Drake had drilled his well, was now a city of 10,000
inhabitants. It had an opera house, where in 1871 Clara Louise Kellogg
and Christine Nilsson sang, Joe Jefferson and Janauschek played, and
Wendell Phillips and Bishop Simpson spoke. It had two prosperous and
fearless newspapers. Its schools prepared for college. Oil City was not
behind, and between them was a string of lively towns. Many of the oil
farms had a decent community life. The Columbia farm kept up a library
and reading-room for its employees; there was a good schoolhouse used on
Sunday for services, and there was a Columbia farm band of no mean
reputation in the Oil Regions.
Indeed, by the opening of 1872, life in the Oil Regions had ceased to be
a mere make-shift. Comforts and orderliness and decency, even
opportunities for education and for social life, were within reach. It
was a conquest to be proud of, quite as proud of as they were of the
fact that their business had been developed until it had never before,
on the whole, been in so satisfactory a condition.
Nobody realised more fully what had been accomplished in the Oil Regions
than the oil men themselves. Nobody rehearsed their achievements so
loudly. “In ten years,” they were fond of saying, “we have built this
business up from nothing to a net product of six millions of barrels per
annum. We have invented and devised all the apparatus, the appliances,
the forms needed for a new industry. We use a capital of $200,000,000,
and support a population of 60,000 people. To keep up our supply we
drill 100 new wells per month, at an average cost of $6,000 each. We are
fourth in the exports of the United States. We have developed a foreign
market, including every civilised country on the globe.”
But what had been done was, in their judgment, only a beginning. Life
ran swift and ruddy and joyous in these men. They were still young, most
of them under forty, and they looked forward with all the eagerness of
the young who have just learned their powers, to years of struggle and
development. They would solve all these perplexing problems of
over-production, of railroad discrimination, of speculation. They would
meet their own needs. They would bring the oil refining to the region
where it belonged. They would make their towns the most beautiful in the
world. There was nothing too good for them, nothing they did not hope
and dare. But suddenly, at the very heyday of this confidence, a big
hand reached out from nobody knew where, to steal their conquest and
throttle their future. The suddenness and the blackness of the assault
on their business stirred to the bottom their manhood and their sense of
fair play, and the whole region arose in a revolt which is scarcely
paralleled in the commercial history of the United States.
CHAPTER TWO
THE RISE OF THE STANDARD OIL COMPANY
JOHN D. ROCKEFELLER’S FIRST CONNECTION WITH THE OIL BUSINESS—STORIES
OF HIS EARLY LIFE IN CLEVELAND—HIS FIRST PARTNERS—ORGANISATION OF
THE STANDARD OIL COMPANY IN JUNE, 1870—ROCKEFELLER’S ABLE
ASSOCIATES—FIRST EVIDENCE OF RAILWAY DISCRIMINATIONS IN THE OIL
BUSINESS—REBATES FOUND TO BE GENERALLY GIVEN TO LARGE SHIPPERS—FIRST
PLAN FOR A SECRET COMBINATION—THE SOUTH IMPROVEMENT COMPANY—SECRET
CONTRACTS MADE WITH THE RAILROADS PROVIDING REBATES AND
DRAWBACKS—ROCKEFELLER AND ASSOCIATES FORCE CLEVELAND REFINERS TO
JOIN THE NEW COMBINATION OR SELL—RUMOUR OF THE PLAN REACHES THE OIL
REGIONS.
The chief refining competitor of Oil Creek in 1872 was Cleveland, Ohio.
Since 1869 that city had done annually more refining than any other
place in the country. Strung along the banks of Walworth and Kingsbury
Runs, the creeks to which the city frequently banishes her heavy and
evil-smelling burdens, there had been since the early sixties from
twenty to thirty oil refineries. Why they were there, more than 200
miles from the spot where the oil was taken from the earth, a glance at
a map of the railroads of the time will show: By rail and water
Cleveland commanded the entire Western market. It had two trunk lines
running to New York, both eager for oil traffic, and by Lake Erie and
the canal it had for a large part of the year a splendid cheap waterway.
Thus, at the opening of the oil business, Cleveland was destined by
geographical position to be a refining center.
Men saw it, and hastened to take advantage of the opportunity. There was
grave risk. The oil supply might not hold out. As yet there was no
certain market for refined oil. But a sure result was not what drew
people into the oil business in the early sixties. Fortune was running
fleet-footed across the country, and at her garment men clutched. They
loved the chase almost as they did success, and so many a man in
Cleveland tried his luck in an oil refinery, as hundreds on Oil Creek
were trying it in an oil lease. By 1865 there were thirty refineries in
the town, with a capital of about a million and a half dollars and a
daily capacity of some 2,000 barrels. The works multiplied rapidly. The
report of the Cleveland Board of Trade for 1866 gives the number of
plants at the end of that year as fifty, and it dilates eloquently on
the advantages of Cleveland as a refining point over even Pittsburg, to
that time supposed to be the natural centre for the business. If the
railroad and lake transportation men would but adopt as liberal a policy
toward the oil freights of Cleveland as the Pennsylvania Railroad was
adopting toward that of Pittsburg, aided by her natural advantages the
town was bound to become the greatest oil refining centre in the United
States. By 1868 the Board of Trade reported joyfully that Cleveland was
receiving within 300,000 barrels as much oil as Pittsburg. In 1869 she
surpassed all competitors. “Cleveland now claims the leading position
among the manufacturers of petroleum with a very reasonable prospect of
holding that rank for some time to come,” commented the Board of Trade
report. “Each year has seen greater consolidation of capital, greater
energy and success in prosecuting the business, and, notwithstanding
some disastrous fires, a stronger determination to establish an
immovable reputation for the quantity and quality of this most important
product. The total capital invested in this business is not less than
four millions of dollars and the total product of the year would not
fall short of fifteen millions.”
Among the many young men of Cleveland who, from the start, had an eye on
the oil-refining business and had begun to take an active part in its
development as soon as it was demonstrated that there was a reasonable
hope of its being permanent, was a young firm of produce commission
merchants. Both members of this firm were keen business men, and one of
them had remarkable commercial vision—a genius for seeing the
possibilities in material things. This man’s name was Rockefeller—John
D. Rockefeller. He was but twenty-three years old when he first went
into the oil business, but he had already got his feet firmly on the
business ladder, and had got them there by his own efforts. The habit of
driving good bargains and of saving money had started him. He himself
once told how he learned these lessons so useful in money-making, in one
of his frequent Sunday-school talks to young men on success in business.
The value of a good bargain he learned in buying cord-wood for his
father: “I knew what a cord of good solid beech and maple wood was. My
father told me to select only the solid wood and the straight wood and
not to put any limbs in it or any punky wood. That was a good training
for me. I did not need any father to tell me or anybody else how many
feet it took to make a cord of wood.”
And here is how he learned the value of investing money:
“Among the early experiences that were helpful to me that I recollect
with pleasure was one in working a few days for a neighbour in digging
potatoes—a very enterprising, thrifty farmer, who could dig a great many
potatoes. I was a boy of perhaps thirteen or fourteen years of age, and
it kept me very busy from morning until night. It was a ten-hour day.
And as I was saving these little sums I soon learned that I could get as
much interest for fifty dollars loaned at seven per cent.—the legal rate
in the state of New York at that time for a year—as I could earn by
digging potatoes for 100 days. The impression was gaining ground with me
that it was a good thing to let the money be my slave and not make
myself a slave to money.” Here we have the foundation principles of a
great financial career.
[Illustration:
JOHN D. ROCKEFELLER IN 1872
]
When young Rockefeller was thirteen years old, his father moved from the
farm in Central New York, where the boy had been born (July 8, 1839), to
a farm near Cleveland, Ohio. He went to school in Cleveland for three
years. In 1855 it became necessary for him to earn his own living. It
was a hard year in the West and the boy walked the streets for days
looking for work. He was about to give it up and go to the country when,
to quote the story as Mr. Rockefeller once told it to his Cleveland
Sunday-school, “As good fortune would have it I went down to the dock
and made one more application, and I was told that if I would come in
after dinner—our noon-day meal was dinner in those days—they would see
if I could come to work for them. I went down after dinner and I got the
position, and I was permitted to remain in the city.” The position, that
of a clerk and bookkeeper, was not lucrative. According to a small
ledger which has figured frequently in Mr. Rockefeller’s religious
instructions, he earned from September 26, 1855, to January, 1856, fifty
dollars. “Out of that,” Mr. Rockefeller told the young men of his
Sunday-school class, “I paid my washerwoman and the lady I boarded with,
and I saved a little money to put away.”
[Illustration:
Fragment of a page in the city directory of Cleveland, Ohio, for 1857.
This is the first year in which the name John D. Rockefeller appears
in the directory. The same entry is made in 1858. The next year,
1859, Mr. Rockefeller is entered as a member of the firm of Clark
and Rockefeller.
]
He proved an admirable accountant—one of the early-and-late sort, who
saw everything, forgot nothing and never talked. In 1856 his salary was
raised to twenty-five dollars a month, and he went on always “saving a
little money to put away.” In 1858 came a chance to invest his savings.
Among his acquaintances was a young Englishman, M. B. Clark. Older by
twelve years than Rockefeller he had left a hard life in England when he
was twenty to seek fortune in America. He had landed in Boston in 1847,
without a penny or a friend, and it had taken three months for him to
earn money to get to Ohio. Here he had taken the first job at hand, as
man-of-all-work, wood-chopper, teamster. He had found his way to
Cleveland, had become a valuable man in the houses where he was
employed, had gone to school at nights, had saved money. They were two
of a kind, Clark and Rockefeller, and in 1858 they pooled their earnings
and started a produce commission business on the Cleveland docks. The
venture succeeded. Local historians credit Clark and Rockefeller with
doing a business of $450,000 the first year. The war came on, and as
neither partner went to the front, they had full chance to take
advantage of the opportunity for produce business a great army gives. A
greater chance than furnishing army supplies, lucrative as most people
found that, was in the oil business (so Clark and Rockefeller began to
think), and in 1862, when an Englishman of ability and energy, one
Samuel Andrews, asked them to back him in starting a refinery, they put
in $4,000 and promised to give more if necessary. Now Andrews was a
mechanical genius. He devised new processes, made a better and better
quality of oil, got larger and larger percentages of refined from his
crude. The little refinery grew big, and Clark and Rockefeller soon had
$100,000 or more in it. In the meantime Cleveland was growing as a
refining centre. The business which in 1860 had been a gamble was by
1865 one most promising industries of the town. It was but the
beginning—so Mr. Rockefeller thought—and in that year he sold out his
share of the commission business and put his money into the oil firm of
Rockefeller and Andrews.
In the new firm Andrews attended to the manufacturing. The pushing of
the business, the buying and the selling, fell to Rockefeller. From the
start his effect was tremendous. He had the frugal man’s hatred of waste
and disorder, of middlemen and unnecessary manipulation, and he began a
vigorous elimination of these from his business. The residuum that other
refineries let run into the ground, he sold. Old iron found its way to
the junk shop. He bought his oil directly from the wells. He made his
own barrels. He watched and saved and contrived. The ability with which
he made the smallest bargain furnishes topics to Cleveland story-tellers
to-day. Low-voiced, soft-footed, humble, knowing every point in every
man’s business, he never tired until he got his wares at the lowest
possible figure. “John always got the best of the bargain,” old men tell
you in Cleveland to-day, and they wince though they laugh in telling it.
“Smooth,” “a _savy_ fellow,” is their description of him. To drive a
good bargain was the joy of his life. “The only time I ever saw John
Rockefeller enthusiastic,” a man told the writer once, “was when a
report came in from the creek that his buyer had secured a cargo of oil
at a figure much below the market price. He bounded from his chair with
a shout of joy, danced up and down, hugged me, threw up his hat, acted
so like a madman that I have never forgotten it.”
He could borrow as well as bargain. The firm’s capital was limited;
growing as they were, they often needed money, and had none. Borrow they
must. Rarely if ever did Mr. Rockefeller fail. There is a story handed
down in Cleveland from the days of Clark and Rockefeller, produce
merchants, which is illustrative of his methods. One day a well-known
and rich business man stepped into the office and asked for Mr.
Rockefeller. He was out, and Clark met the visitor. “Mr. Clark,” he
said, “you may tell Mr. Rockefeller, when he comes in, that I think I
can use the $10,000 he wants to invest with me for your firm. I have
thought it all over.”
“Good God!” cried Clark, “we don’t want to invest $10,000. John is out
right now trying to borrow $5,000 for us.”
It turned out that to prepare him for a proposition to borrow $5,000 Mr.
Rockefeller had told the gentleman that he and Clark wanted to invest
$10,000!
“And the joke of it is,” said Clark, who used to tell the story, “John
got the $5,000 even after I had let the cat out of the bag. Oh, he was
the greatest borrower you ever saw!”
These qualities told. The firm grew as rapidly as the oil business of
the town, and started a second refinery—William A. Rockefeller and
Company. They took in a partner, H. M. Flagler, and opened a house in
New York for selling oil. Of all these concerns John D. Rockefeller was
the head. Finally, in June, 1870, five years after he became an active
partner in the refining business, Mr. Rockefeller combined all his
companies into one—the Standard Oil Company. The capital of the new
concern was $1,000,000. The parties interested in it were John D.
Rockefeller, Henry M. Flagler, Samuel Andrews, Stephen V. Harkness, and
William Rockefeller.[5]
[Illustration:
Map of Northwestern Pennsylvania, showing the relation of the Oil
Regions to the railroads in 1859, when oil was “discovered.”
]
The strides the firm of Rockefeller and Andrews made after the former
went into it were attributed for three or four years mainly to his
extraordinary capacity for bargaining and borrowing. Then its chief
competitors began to suspect something. John Rockefeller might get his
oil cheaper now and then, they said, but he could not do it often. He
might make close contracts for which they had neither the patience nor
the stomach. He might have an unusual mechanical and practical genius in
his partner. But these things could not explain all. They believed they
bought, on the whole, almost as cheaply as he, and they knew they made
as good oil and with as great, or nearly as great, economy. He could
sell at no better price than they. Where was his advantage? There was
but one place where it could be, and that was in transportation. He must
be getting better rates from the railroads than they were. In 1868 or
1869 a member of a rival firm long in the business, which had been
prosperous from the start, and which prided itself on its methods, its
economy and its energy, Alexander, Scofield and Company, went to the
Atlantic and Great Western road, then under the Erie management, and
complained. “You are giving others better rates than you are us,” said
Mr. Alexander, the representative of the firm. “We cannot compete if you
do that.” The railroad agent did not attempt to deny it—he simply agreed
to give Mr. Alexander a rebate also. The arrangement was interesting.
Mr. Alexander was to pay the open, or regular, rate on oil from the Oil
Regions to Cleveland, which was then forty cents a barrel. At the end of
each month he was to send to the railroad vouchers for the amount of oil
shipped and paid for at forty cents, and was to get back from the
railroad, in money, fifteen cents on each barrel. This concession
applied only to oil brought from the wells. He was never able to get a
rebate on oil shipped eastward.[6] According to Mr. Alexander, the
Atlantic and Great Western gave the rebates on oil from the Oil Regions
to Cleveland up to 1871 and the system was then discontinued. Late in
1871, however, the firm for the first time got a rebate on the Lake
Shore road on oil brought from the field.
Another Cleveland man, W. H. Doane, engaged in shipping crude oil, began
to suspect about the same time as Mr. Alexander that the Standard was
receiving rebates. Now Mr. Doane had always been opposed to the
“drawback business,” but it was impossible for him to supply his
customers with crude oil at as low a rate as the Standard paid if it
received a rebate and he did not, and when it was first generally
rumoured in Cleveland that the railroads were favouring Mr. Rockefeller
he went to see the agent of the road. “I told him I did not want any
drawback, unless others were getting it; I wanted it if they were
getting it, and he gave me at that time ten cents drawback.” This
arrangement Mr. Doane said had lasted but a short time. At the date he
was speaking—the spring of 1872—he had had no drawback for two years.
A still more important bit of testimony as to the time when rebates
first began to be given to the Cleveland refiners and as to who first
got them and why, is contained in an affidavit made in 1880 by the very
man who made the discrimination.[7] This man was General J. H. Devereux,
who in 1868 succeeded Amasa Stone as vice-president of the Lake Shore
Railroad. General Devereux said that his experience with the oil traffic
had begun with his connection with the Lake Shore; that the only written
memoranda concerning oil which he found in his office on entering his
new position was a book in which it was stated that the representatives
of the twenty-five oil-refining firms in Cleveland had agreed to pay a
cent a gallon on crude oil removed from the Oil Regions. General
Devereux says that he soon found there was a deal of trouble in store
for him over oil freight. The competition between the twenty-five firms
was close, the Pennsylvania was “claiming a patent right” on the
transportation of oil and was putting forth every effort to make
Pittsburg and Philadelphia the chief refining centres. Oil Creek was
boasting that it was going to be the future refining point for the
world. All of this looked bad for what General Devereux speaks of as the
“then very limited refining capacity of Cleveland.” This remark shows
how new he was to the business, for, as we have already seen, Cleveland
in 1868 had anything but a limited refining capacity. Between three and
four million dollars were invested in oil refineries, and the town was
receiving within 35,000 barrels of as much oil as New York City, and
within 300,000 as much as Pittsburg, and it was boasting that the next
year it would outstrip these competitors, which, as a matter of fact, it
did.
The natural point for General Devereux to consider, of course, was
whether he could meet the rates the Pennsylvania were giving and
increase the oil freight for the Lake Shore. The road had a branch
running to Franklin, Pennsylvania, within a few miles of Oil City. This
he completed, and then, as he says in his affidavit, “a sharper contest
than ever was produced growing out of the opposition of the Pennsylvania
Railroad in competition. Such rates and arrangements were made by the
Pennsylvania Railroad that it was publicly proclaimed in the public
print in Oil City, Titusville and other places that Cleveland was to be
wiped out as a refining centre as with a sponge.” General Devereux goes
on to say that all the refiners of the town, without exception, came to
him in alarm, and expressed their fears that they would have either to
abandon their business there or move to Titusville or other points in
the Oil Regions; that the only exception to this decision was that
offered by Rockefeller, Andrews and Flagler, who, on his assurance that
the Lake Shore Railroad could and would handle oil as cheaply as the
Pennsylvania Company, proposed to stand their ground at Cleveland and
fight it out on that line. And so General Devereux gave the Standard the
rebate on the rate which Amasa Stone had made with all the refiners. Why
he should not have quieted the fears of the twenty-four or twenty-five
other refiners by lowering their rate, too, does not appear in the
affidavit. At all events the rebate had come, and, as we have seen, it
soon was suspected and others went after it, and in some cases got it.
But the rebate seems to have been granted generally only on oil brought
from the Oil Regions. Mr. Alexander claims he was never able to get his
rate lowered on his Eastern shipments. The railroad took the position
with him that if he could ship as much oil as the Standard he could have
as low a rate, but not otherwise. Now in 1870 the Standard Oil Company
had a daily capacity of about 1,500 barrels of crude. The refinery was
the largest in the town, though it had some close competitors.
Nevertheless on the strength of its large capacity it received the
special favour. It was a plausible way to get around the theory
generally held then, as now, though not so definitely crystallised into
law, that the railroad being a common carrier had no right to
discriminate between its patrons. It remained to be seen whether the
practice would be accepted by Mr. Rockefeller’s competitors without a
contest, or, if contested, would be supported by the law.
What the Standard’s rebate on Eastern shipments was in 1870 it is
impossible to say. Mr. Alexander says he was never able to get a rate
lower than $1.33 a barrel by rail, and that it was commonly believed in
Cleveland that the Standard had a rate of ninety cents. Mr. Flagler,
however, the only member of the firm who has been examined under oath on
that point, showed, by presenting the contract of the Standard Oil
Company with the Lake Shore road in 1870, that the rates varied during
the year from $1.40 to $1.20 and $1.60, according to the season. When
Mr. Flagler was asked if there was no drawback or rebate on this rate he
answered, “None whatever.”
It would seem from the above as if the one man in the Cleveland oil
trade in 1870 who ought to have been satisfied was Mr. Rockefeller. His
was the largest firm in the largest refining centre of the country; that
is, of the 10,000 to 12,000 daily capacity divided among the twenty-five
or twenty-six refiners of Cleveland he controlled 1,500 barrels. Not
only was Cleveland the largest refining centre in the country, it was
gaining rapidly, for where in 1868 it shipped 776,356 barrels of refined
oil, in 1869 it shipped 923,933, in 1870 1,459,500, and in 1871
1,640,499.[8] Not only did Mr. Rockefeller control the largest firm in
this most prosperous centre of a prosperous business, he controlled one
of amazing efficiency. The combination, in 1870, of the various
companies with which he was connected had brought together a group of
remarkable men. Samuel Andrews, by all accounts, was the ablest
mechanical superintendent in Cleveland. William Rockefeller, the brother
of John D. Rockefeller, was not only an energetic and intelligent
business man, he was a man whom people liked. He was open-hearted,
jolly, a good story-teller, a man who knew and liked a good horse—not
too pious, as some of John’s business associates thought him, not a man
to suspect or fear, as many a man did John. Old oil men will tell you on
the creek to-day how much they liked him in the days when he used to
come to Oil City buying oil for the Cleveland firm. The personal quality
of William Rockefeller was, and always has been, a strong asset of the
Standard Oil Company. Probably the strongest man in the firm after John
D. Rockefeller was Henry M. Flagler. He was, like the others, a young
man, and one who, like the head of the firm, had the passion for money,
and in a hard self-supporting experience, begun when but a boy, had
learned, as well as his chief, some of the principles of making it. He
was untiring in his efforts to increase the business, quick to see an
advantage, as quick to take it. He had no scruples to make him hesitate
over the ethical quality of a contract which was advantageous. Success,
that is, making money, was its own justification. He was not a secretive
man, like John D. Rockefeller, not a dreamer, but he could keep his
mouth shut when necessary and he knew the worth of a financial dream
when it was laid before him. It must have been evident to every business
man who came in contact with the young Standard Oil Company that it
would go far. The firm itself must have known it would go far. Indeed
nothing could have stopped the Standard Oil Company in 1870—the oil
business being what it was—but an entire change in the nature of the
members of the firm, and they were not the kind of material which
changes.
With such a set of associates, with his organisation complete from his
buyers on the creek to his exporting agent in New York, with the
transportation advantages which none of his competitors had had the
daring or the persuasive power to get, certainly Mr. Rockefeller should
have been satisfied in 1870. But Mr. Rockefeller was far from satisfied.
He was a brooding, cautious, secretive man, seeing all the possible
dangers as well as all the possible opportunities in things, and he
studied, as a player at chess, all the possible combinations which might
imperil his supremacy. These twenty-five Cleveland rivals of his—how
could he at once and forever put them out of the game? He and his
partners had somehow conceived a great idea—the advantages of
combination. What might they not do if they could buy out and absorb the
big refineries now competing with them in Cleveland? The possibilities
of the idea grew as they discussed it. Finally they began tentatively to
sound some of their rivals. But there were other rivals than these at
home. There were the creek refiners! They were there at the mouth of the
wells. What might not this geographical advantage do in time? Refining
was going on there on an increasing scale; the capacity of the Oil
Regions had indeed risen to nearly 10,000 barrels a day—equal to that of
New York, exceeding that of Pittsburg by nearly 4,000 barrels, and
almost equalling that of Cleveland. The men of the oil country loudly
declared that they meant to refine for the world. They boasted of an oil
kingdom which eventually should handle the entire business and compel
Cleveland and Pittsburg either to abandon their works or bring them to
the oil country. In this boastful ambition they were encouraged
particularly by the Pennsylvania Railroad, which naturally handled the
largest percentage of the oil. How long could the Standard Oil Company
stand against this competition?
There was another interest as deeply concerned as Mr. Rockefeller in
preserving Cleveland’s supremacy as a refining centre, and this was the
Lake Shore and New York Central Railroads. Let the bulk of refining be
done in the Oil Regions and these roads were in danger of losing a
profitable branch of business. This situation in regard to the oil
traffic was really more serious now than in 1868 when General Devereux
had first given the Standard a rebate. Then it was that the
Pennsylvania, through its lusty ally the Empire Transportation Company,
was making the chief fight to secure a “patent right on oil
transportation.” The Erie was now becoming as aggressive a competitor.
Gould and Fisk had gone into the fight with the vigour and the utter
unscrupulousness which characterised all their dealings. They were
allying themselves with the Pennsylvania Transportation Company, the
only large rival pipe-line system which the Empire had. They were
putting up a refinery near Jersey City, and they were taking advantage
shrewdly of all the speculative features of the new business.
As competition grew between the roads, they grew more reckless in
granting rebates, the refiners more insistent in demanding them. By 1871
things had come to such a pass in the business that every refiner
suspected his neighbour to be getting better rates than he. The result
was that the freight agents were constantly beset for rebates, and that
the large shippers were generally getting them on the ground of the
quantity of oil they controlled. Indeed it was evident that the rebate
being admitted, the only way in which it could be adjusted with a show
of fairness was to grade it according to the size of the shipment.
[Illustration:
W. G. WARDEN
Secretary of the South Improvement Company.
]
[Illustration:
PETER H. WATSON
President of the South Improvement Company.
]
[Illustration:
CHARLES LOCKHART
A member of the South Improvement Company, and later of the Standard
Oil Company. At his death in 1904 the oldest living oil operator.
]
[Illustration:
HENRY M. FLAGLER IN 1882
Active partner of John D. Rockefeller in the oil business since 1867.
Officer of the Standard Oil Company since its organization in 1870.
]
Under these conditions of competition it was certain that the New York
Central system must work if it was to keep its great oil freight, and
the general freight agent of the Lake Shore road began to give the
question special attention. This man was Peter H. Watson. Mr. Watson was
an able patent lawyer who served under the strenuous Stanton as an
Assistant-Secretary of War, and served well. After the war he had been
made general freight agent of the Lake Shore and Michigan Southern
Railroad, and later president of the branch of that road which ran into
the Oil Regions. He had oil interests principally at Franklin,
Pennsylvania, and was well known to all oil men. He was a business
intimate of Mr. Rockefeller and a warm friend of Horace F. Clark, the
son-in-law of W. H. Vanderbilt, at that time president of the Lake Shore
and Michigan Southern Railroad. As the Standard Oil Company was the
largest shipper in Cleveland and had already received the special favour
from the Lake Shore which General Devereux describes, it was natural
that Mr. Watson should consult frequently with Mr. Rockefeller on the
question of holding and increasing his oil freight. It was equally
natural, too, that Mr. Rockefeller should use his influence with Mr.
Watson to strengthen the theory so important to his rapid growth—the
theory that the biggest shipper should have the best rate.
Two other towns shared Cleveland’s fear of the rise of the Oil Regions
as a refining centre, and they were Pittsburg and Philadelphia, and Mr.
Rockefeller and Mr. Watson found in certain refiners of these places a
strong sympathy with any plan which looked to holding the region in
check. But while the menace in their geographical positions was the
first ground of sympathy between these gentlemen, something more than
local troubles occupied them. This was the condition of the refining
business as a whole. It was unsatisfactory in many particulars. First,
it was overdone. The great profits on refined oil and the growing demand
for it had naturally caused a great number to rush into its manufacture.
There was at this time a refining capacity of three barrels to every one
produced. To be sure, few if any of these plants expected to run the
year around. Then, as to-day, there were nearly always some stills in
even the most prosperous works shut down. But after making a fair
allowance for this fact there was still a much larger amount of refining
actually done than the market demanded. The result was that the price of
refined oil was steadily falling. Where Mr. Rockefeller had received on
an average 58¾ cents a gallon for the oil he exported in 1865, the year
he went into business, in 1870 he received but 26⅜ cents. In 1865 he had
a margin of forty-three cents, out of which to pay for transportation,
manufacturing, barrelling and marketing and to make his profits. In 1870
he had but 17⅛ cents with which to do all this. To be sure his expenses
had fallen enormously between 1865 and 1870, but so had his profits. The
multiplication of refiners with the intense competition threatened to
cut them down still lower. Naturally Mr. Rockefeller and his friends
looked with dismay on this lowering of profits through gaining
competition.
Another anxiety of the American refiners was the condition of the export
trade. Oil had risen to fourth place in the exports of the United States
in the twelve years since its discovery, and every year larger
quantities were consumed abroad, but it was crude oil, not refined,
which the foreigners were beginning to demand; that is, they had found
they could import crude, refine it at home, and sell it cheaper than
they could buy American refined. France, to encourage her home
refineries, had even put a tax on American refined.
In the fall of 1871, while Mr. Rockefeller and his friends were occupied
with all these questions, certain Pennsylvania refiners, it is not too
certain who, brought to them a remarkable scheme, the gist of which was
to bring together secretly a large enough body of refiners and shippers
to persuade all the railroads handling oil to give to the company formed
special rebates on its oil, and drawbacks on that of other people. If
they could get such rates it was evident that those outside of their
combination could not compete with them long and that they would become
eventually the only refiners. They could then limit their output to
actual demand, and so keep up prices. This done, they could easily
persuade the railroads to transport no crude for exportation, so that
the foreigners would be forced to buy American refined. They believed
that the price of oil thus exported could easily be advanced fifty per
cent. The control of the refining interests would also enable them to
fix their own price on crude. As they would be the only buyers and
sellers, the speculative character of the business would be done away
with. In short, the scheme they worked out put the entire oil business
in their hands. It looked as simple to put into operation as it was
dazzling in its results. Mr. Flagler has sworn that neither he nor Mr.
Rockefeller believed in this scheme.[9] But when they found that their
friend Peter H. Watson, and various Philadelphia and Pittsburg parties
who felt as they did about the oil business, believed in it, they went
in and began at once to work up a company—secretly. It was evident that
a scheme which aimed at concentrating in the hands of one company the
business now operated by scores, and which proposed to effect this
consolidation through a practice of the railroads which was contrary to
the spirit of their charters, although freely indulged in, must be
worked with fine discretion if it ever were to be effective.
The first thing was to get a charter—quietly. At a meeting held in
Philadelphia late in the fall of 1871 a friend of one of the gentlemen
interested mentioned to him that a certain estate then in liquidation
had a charter for sale which gave its owners the right to carry on any
kind of business in any country and in any way; that it could be bought
for what it would cost to get a charter under the general laws of the
state, and that it would be a favour to the heirs to buy it. The
opportunity was promptly taken. The name of the charter bought was the
“South (often written Southern) Improvement Company.” For a beginning it
was as good a name as another, since it said nothing.
With this charter in hand Mr. Rockefeller and Mr. Watson and their
associates began to seek converts. In order that their great scheme
might not be injured by premature public discussion they asked of each
person whom they approached a pledge of secrecy. Two forms of the
pledges required before anything was revealed were published later. The
first of these, which appeared in the New York Tribune, read as follows:
I, A. B., do faithfully promise upon my honour and faith as a
gentleman that I will keep secret all transactions which I may have
with the corporation known as the South Improvement Company; that,
should I fail to complete any bargains with the said company, all
the preliminary conversations shall be kept strictly private; and,
finally, that I will not disclose the price for which I dispose of
my product, or any other facts which may in any way bring to light
the internal workings or organisation of the company. All this I do
freely promise.
Signed..............................
Witnessed by..............................
A second, published in a history of the “Southern Improvement Company,”
ran:
The undersigned pledge their solemn words of honour that they will
not communicate to any one without permission of Z (name of director
of Southern Improvement Company) any information that he may convey
to them, or any of them, in relation to the Southern Improvement
Company.
Witness..............................
That the promoters met with encouragement is evident from the fact that,
when the corporators came together on January 2, 1872, in Philadelphia,
for the first time under their charter, and transferred the company to
the stockholders, they claimed to represent in one way or another a
large part of the refining interest of the country. At this meeting
1,100 shares of the stock of the company, which was divided into 2,000
$100 shares, were subscribed for, and twenty per cent. of their value
was paid in. Just who took stock at this meeting the writer has not been
able to discover. At the same time a discussion came up as to what
refiners were to be allowed to go into the new company. Each of the men
represented had friends whom he wanted taken care of, and after
considerable discussion it was decided to take in every refinery they
could get hold of. This decision was largely due to the railroad men.
Mr. Watson had seen them as soon as the plans for the company were
formed, and they had all agreed that if they gave the rebates and
drawbacks all refineries then existing must be taken in upon the same
level. That is, while the incorporators had intended to kill off all but
themselves and their friends, the railroads refused to go into a scheme
which was going to put anybody out of business—the plan if they went
into it must cover the refining trade as it stood. It was enough that it
could prevent any one in the future going into the business.
Very soon after this meeting of January 2 the rest of the stock of the
South Improvement Company was taken. The complete list of stockholders,
with their holdings, was as follows:
William Frew, Philadelphia 10 shares
W. P. Logan, Philadelphia 10 〃
John P. Logan, Philadelphia 10 〃
Charles Lockhart, Pittsburg 10 〃
Richard S. Waring, Pittsburg 10 〃
W. G. Warden, Philadelphia 475 〃
O. F. Waring, Pittsburg 475 〃
P. H. Watson, Ashtabula, Ohio 100 〃
H. M. Flagler, Cleveland 180 〃
O. H. Payne, Cleveland 180 〃
William Rockefeller, Cleveland 180 〃
J. A. Bostwick, New York 180 〃
John D. Rockefeller, Cleveland[10] 180 〃
—————
2,000 shares
Mr. Watson was elected president and W. G. Warden of Philadelphia
secretary of the new association. It will be noticed that the largest
individual holdings in the company were those of W. G. Warden and O. F.
Waring, each of whom had 475 shares. The company most heavily interested
in the South Improvement Company was the Standard Oil of Cleveland, J.
D. Rockefeller, William Rockefeller and H. M. Flagler, all stockholders
of that company, each having 180 shares—540 in the company. O. H. Payne
and J. A. Bostwick, who soon after became stockholders in the Standard
Oil Company, also had each 180 shares, giving Mr. Rockefeller and his
associates 900 shares in all.
It has frequently been stated that the South Improvement Company
represented the bulk of the oil-refining interests in the country. The
incorporators of the company in approaching the railroads assured them
that this was so. As a matter of fact, however, the thirteen gentlemen
above named, who were the only ones ever holding stock in the concern,
did not control over one-tenth of the refining business of the United
States in 1872. That business in the aggregate amounted to a daily
capacity of about 45,000 barrels—from 45,000 to 50,000, Mr. Warden put
it—and the stockholders of the South Improvement Company owned a
combined capacity of not over 4,600 barrels. In assuring the railroads
that they controlled the business, they were dealing with their hopes
rather than with facts.
The organisation complete, there remained contracts to be made with the
railroads. Three systems were to be interested: The Central, which, by
its connection with the Lake Shore and Michigan Southern, ran directly
into the Oil Regions; the Erie, allied with the Atlantic and Great
Western, with a short line likewise tapping the heart of the region; and
the Pennsylvania, with the connections known as the Allegheny Valley and
Oil Creek Railroad. The persons to be won over were: W. H. Vanderbilt,
of the Central; H. F. Clark, president of the Lake Shore and Michigan
Southern; Jay Gould, of the Erie; General G. B. McClellan, president of
the Atlantic and Great Western; and Tom Scott, of the Pennsylvania.
There seems to have been little difficulty in persuading any of these
persons to go into the scheme after they had been assured by the leaders
that all of the refiners were to be taken in. This was a verbal
condition, however, not found in the contracts they signed. This
important fact Mr. Warden himself made clear when three months later he
was on the witness stand before a committee of Congress appointed to
look into the great scheme. “We had considerable discussion with the
railroads,” Mr. Warden said, “in regard to the matter of rebate on their
charges for freight; they did not want to give us a rebate unless it was
with the understanding that all the refineries should be brought into
the arrangement and placed upon the same level.”
_Q._ You say you made propositions to railroad companies, which they
agreed to accept upon the condition that you could include all the
refineries?
_A._ No, sir; I did not say that; I said that was the understanding
when we discussed this matter with them; it was no proposition on
our part; they discussed it, not in the form of a proposition that
the refineries should be all taken in, but it was the intention and
resolution of the company from the first that that should be the
result; we never had any other purpose in the matter.
_Q._ In case you could take the refineries all in, the railroads
proposed to give you a rebate upon their freight charges?
_A._ No, sir; it was not put in that form; we were to put the
refineries all in upon the same terms; it was the understanding with
the railroad companies that we were to have a rebate; there was no
rebate given in consideration of our putting the companies all in,
but we told them we would do it; the contract with the railroad
companies was with us.
_Q._ But if you did form a company composed of the proprietors of
all these refineries, you were to have a rebate upon your freight
charges?
_A._ No; we were to have a rebate anyhow, but were to give all the
refineries the privilege of coming in.
_Q._ You were to have the rebate whether they came in or not?
_A._ Yes, sir.
* * *
“What effect were these arrangements to have upon those who did not
come into the combination...?” asked the chairman.
“I do not think we ever took that question up,” answered Mr. Warden.
A second objection to making a contract with the company came from Mr.
Scott of the Pennsylvania road and Mr. Potts of the Empire
Transportation Company. The substance of this objection was that the
plan took no account of the oil producer—the man to whom the world owed
the business. Mr. Scott was strong in his assertion that they could
never succeed unless they took care of the producers. Mr. Warden
objected strongly to forming a combination with them. “The interests of
the producers were in one sense antagonistic to ours: one as the seller
and the other as the buyer. We held in argument that the producers were
abundantly able to take care of their own branch of the business if they
took care of the quantity produced.” So strongly did Mr. Scott argue,
however, that finally the members of the South Improvement Company
yielded, and a draft of an agreement, to be proposed to the producers,
was drawn up in lead pencil; it was never presented. It seems to have
been used principally to quiet Mr. Scott.
[Illustration:
THOMAS A. SCOTT
The contract of the South Improvement Company with the Pennsylvania
Railroad was signed by Mr. Scott, then vice-president of the road.
]
[Illustration:
JAY GOULD
President of the Erie Railroad in 1872. Signer of the contract with
the South Improvement Company.
]
[Illustration:
WILLIAM H. VANDERBILT
The contract of the South Improvement Company with the New York
Central was signed by Mr. Vanderbilt, then vice-president of the
road.
]
[Illustration:
COMMODORE CORNELIUS VANDERBILT
President of the New York Central Railroad when the contract with the
South Improvement Company was signed.
]
The work of persuasion went on swiftly. By the 18th of January the
president of the Pennsylvania road, J. Edgar Thompson, had put his
signature to the contract, and soon after Mr. Vanderbilt and Mr. Clark
signed for the Central system, and Jay Gould and General McClellan for
the Erie. The contracts to which these gentlemen put their names fixed
gross rates of freight from all _common points_, as the leading shipping
points within the Oil Regions were called, to all the great refining and
shipping centres—New York, Philadelphia, Baltimore, Pittsburg and
Cleveland. For example, the open rate on crude to New York was put at
$2.56. On this price the South Improvement Company was allowed a rebate
of $1.06 for its shipments; but it got not only this rebate, it was
given in cash a like amount on each barrel of crude shipped by parties
outside the combination.
The open rate from Cleveland to New York was two dollars, and fifty
cents of this was turned over to the South Improvement Company, which at
the same time received a rebate enabling it to ship for $1.50. Again, an
independent refiner in Cleveland paid eighty cents a barrel to get his
crude from the Oil Regions to his works, and the railroad sent forty
cents of this money to the South Improvement Company. At the same time
it cost the Cleveland refiner in the combination but forty cents to get
his crude oil. Like drawbacks and rebates were given for all
points—Pittsburg, Philadelphia, Boston and Baltimore.
An interesting provision in the contracts was that full way-bills of all
petroleum shipped over the roads should each day be sent to the South
Improvement Company. This, of course, gave them knowledge of just who
was doing business outside of their company—of how much business he was
doing, and with whom he was doing it. Not only were they to have full
knowledge of the business of all shippers—they were to have access to
all books of the railroads.
The parties to the contracts agreed that if anybody appeared in the
business offering an equal amount of transportation, and having equal
facilities for doing business with the South Improvement Company, the
railroads might give them equal advantages in drawbacks and rebates, but
to make such a miscarriage of the scheme doubly improbable each railroad
was bound to co-operate as “far as it legally might to maintain the
business of the South Improvement Company against injury by competition,
and lower or raise the gross rates of transportation for such times and
to such extent as might be necessary to overcome the competition. The
rebates and drawbacks to be varied _pari passu_ with the gross
rates.”[11]
The reason given by the railroads in the contract for granting these
extraordinary privileges was that the “magnitude and extent of the
business and operations” purposed to be carried on by the South
Improvement Company would greatly promote the interest of the railroads
and make it desirable for them to encourage their undertaking. The
evident advantages received by the railroad were a regular amount of
freight,—the Pennsylvania was to have forty-five per cent. of the
East-bound shipments, the Erie and Central each 27½ per cent., while
West-bound freight was to be divided equally between them—fixed rates,
and freedom from the system of cutting which they had all found so
harassing and disastrous. That is, the South Improvement Company, which
was to include the entire refining capacity of the company, was to act
as the evener of the oil business.[12]
It was on the second of January, 1872, that the organisation of the
South Improvement Company was completed. The day before the Standard Oil
Company of Cleveland increased its capital from $1,000,000 to
$2,500,000, “all the stockholders of the company being present and
voting therefor.”[13] These stockholders were greater by five than in
1870, the names of O. B. Jennings, Benjamin Brewster, Truman P. Handy,
Amasa Stone, and Stillman Witt having been added. The last three were
officers and stockholders in one or more of the railroads centring in
Cleveland. Three weeks after this increase of capital Mr. Rockefeller
had the charter and contracts of the South Improvement Company in hand,
and was ready to see what they would do in helping him carry out his
idea of wholesale combination in Cleveland. There were at that time some
twenty-six refineries in the town—some of them very large plants. All of
them were feeling more or less the discouraging effects of the last
three or four years of railroad discriminations in favour of the
Standard Oil Company. To the owners of these refineries Mr. Rockefeller
now went one by one, and explained the South Improvement Company. “You
see,” he told them, “this scheme is bound to work. It means an absolute
control by us of the oil business. There is no chance for anyone
outside. But we are going to give everybody a chance to come in. You are
to turn over your refinery to my appraisers, and I will give you
Standard Oil Company stock or cash, as you prefer, for the value we put
upon it. I advise you to take the stock. It will be for your good.”
Certain refiners objected. They did not want to sell. They did want to
keep and manage their business. Mr. Rockefeller was regretful, but firm.
It was useless to resist, he told the hesitating; they would certainly
be crushed if they did not accept his offer, and he pointed out in
detail, and with gentleness, how beneficent the scheme really
was—preventing the creek refiners from destroying Cleveland, ending
competition, keeping up the price of refined oil, and eliminating
speculation. Really a wonderful contrivance for the good of the oil
business.
That such was Mr. Rockefeller’s argument is proved by abundant testimony
from different individuals who succumbed to the pressure. Mr.
Rockefeller’s own brother, Frank Rockefeller, gave most definite
evidence on this point in 1876 when he and others were trying to
interest Congress in a law regulating interstate commerce.
“We had in Cleveland at one time about thirty establishments, but the
South Improvement Company was formed, and the Cleveland companies were
told that if they didn’t sell their property to them it would be
valueless, that there was a combination of railroad and oil men, that
they would buy all they could, and that all they didn’t buy would be
totally valueless, because they would be unable to compete with the
South Improvement Company, and the result was that out of thirty there
were only four or five that didn’t sell.”
“From whom was that information received?” asked the examiner.
“From the officers of the Standard Oil Company. They made no bones about
it at all. They said: ‘If you don’t sell your property to us it will be
valueless, because we have got advantages with the railroads.’”
“Have you heard those gentlemen say what you have stated?” Frank
Rockefeller was asked.
“I have heard Rockefeller and Flagler say so,” he answered.
W. H. Doane, whose evidence on the first rebates granted to the
Cleveland trade we have already quoted, told the Congressional committee
which a few months after Mr. Rockefeller’s great coup tried to find out
what had happened in Cleveland: “The refineries are all bought up by the
Standard Oil works; they were forced to sell; the railroads had put up
the rates and it scared them. Men came to me and told me they could not
continue their business; they became frightened and disposed of their
property.” Mr. Doane’s own business, that of a crude oil shipper, was
entirely ruined, all of his customers but one having sold.
To this same committee Mr. Alexander, of Alexander, Scofield and
Company, gave his reason for selling:
“There was a pressure brought to bear upon my mind, and upon almost
all citizens of Cleveland engaged in the oil business, to the effect
that unless we went into the South Improvement Company we were
virtually killed as refiners; that if we did not sell out we should
be crushed out. My partner, Mr. Hewitt, had some negotiations with
parties connected with the South Improvement Company, and they gave
us to understand, at least my partner so represented to me, that we
should be crushed out if we did not go into that arrangement. He
wanted me to see the parties myself; but I said to him that I would
not have any dealings with certain parties who were in that company
for any purpose, and I never did. We sold at a sacrifice, and we
were obliged to. There was only one buyer in the market, and we had
to sell on their terms or be crushed out, as it was represented to
us. It was stated that they had a contract with railroads by which
they could run us into the ground if they pleased. After learning
what the arrangements were I felt as if, rather than fight such a
monopoly, I would withdraw from the business, even at a sacrifice. I
think we received about forty or forty-five cents on the dollar on
the valuation which we placed upon our refinery. We had spent over
$50,000 on our works during the past year, which was nearly all that
we received. We had paid out $60,000 or $70,000 before that; we
considered our works at their cash value worth seventy-five per
cent. of their cost. According to our valuation our establishment
was worth $150,000, and we sold it for about $65,000, which was
about forty or forty-five per cent. of its value. We sold to one of
the members, as I suppose, of the South Improvement Company, Mr.
Rockefeller; he is a director in that company; it was sold in name
to the Standard Oil Company, of Cleveland, but the arrangements
were, as I understand it, that they were to put it into the South
Improvement Company. I am stating what my partner told me; he did
all the business; his statement was that all these works were to be
merged into the South Improvement Company. I never talked with any
members of the South Improvement Company myself on the subject; I
declined to have anything to do with them.”
Mr. Hewitt, the partner who Mr. Alexander says carried on the
negotiations for the sale of the business, appeared before an
investigating committee of the New York State Senate in 1879 and gave
his recollections of what happened. According to his story the entire
oil trade in Cleveland became paralysed when it became known that the
South Improvement Company had “grappled the entire transportation of oil
from the West to the seaboard.” Mr. Hewitt went to see the freight
agents of the various roads; he called on W. H. Vanderbilt, but from no
one did he get any encouragement. Then he saw Peter H. Watson of the
Lake Shore Railroad, the president of the company which was frightening
the trade. “Watson was non-committal,” said Mr. Hewitt. “I got no
satisfaction except, ‘You better sell—you better get clear—better sell
out—no help for it.’” After a little time Mr. Hewitt concluded with his
partners that there was indeed “no help for it,” and he went to see Mr.
Rockefeller, who offered him fifty cents on the dollar on the
constructive account. The offer was accepted. There was nothing else to
do, the firm seems to have concluded. When they came to transfer the
property Mr. Rockefeller urged Mr. Hewitt to take stock in the new
concern. “He told me,” said Mr. Hewitt, “that it would be sufficient to
take care of my family for all time, what I represented there, and
asking for a reason, he made this expression, I remember: ‘_I have ways
of making money that you know nothing of_.’”
A few of the refiners contested before surrendering. Among these was
Robert Hanna, an uncle of Mark Hanna, of the firm of Hanna, Baslington
and Company. Mr. Hanna had been refining since July, 1869. According to
his own sworn statement he had made money, fully sixty per cent. on his
investment the first year, and after that thirty per cent. Some time in
February, 1872, the Standard Oil Company asked an interview with him and
his associates. They wanted to buy his works, they said. “But we don’t
want to sell,” objected Mr. Hanna. “You can never make any more money,
in my judgment,” said Mr. Rockefeller. “You can’t compete with the
Standard. We have all the large refineries now. If you refuse to sell,
it will end in your being crushed.” Hanna and Baslington were not
satisfied. They went to see Mr. Watson, president of the South
Improvement Company and an officer of the Lake Shore, and General
Devereux, manager of the Lake Shore road. They were told that the
Standard had special rates; that it was useless to try to compete with
them. General Devereux explained to the gentlemen that the privileges
granted the Standard were the legitimate and necessary advantage of the
larger shipper over the smaller, and that if Hanna, Baslington and
Company could give the road as large a quantity of oil as the Standard
did, with the same regularity, they could have the same rate. General
Devereux says they “recognised the propriety” of his excuse. They
certainly recognised its authority. They say that they were satisfied
they could no longer get rates to and from Cleveland which would enable
them to live, and “reluctantly” sold out. It must have been reluctantly,
for they had paid $75,000 for their works, and had made thirty per cent.
a year on an average on their investment, and the Standard appraiser
allowed them $45,000. “Truly and really less than one-half of what they
were absolutely worth, with a fair and honest competition in the lines
of transportation,” said Mr. Hanna, eight years later, in an
affidavit.[14]
Under the combined threat and persuasion of the Standard, armed with the
South Improvement Company scheme, almost the entire independent oil
interest of Cleveland collapsed in three months’ time. Of the twenty-six
refineries, at least twenty-one sold out. From a capacity of probably
not over 1,500 barrels of crude a day, the Standard Oil Company rose in
three months’ time to one of 10,000 barrels. By this manœuvre it became
master of over one-fifth of the refining capacity of the United
States.[15] Its next individual competitor was Sone and Fleming, of New
York, whose capacity was 1,700 barrels. The Standard had a greater
capacity than the entire Oil Creek Regions, greater than the combined
New York refiners. The transaction by which it acquired this power was
so stealthy that not even the best informed newspaper men of Cleveland
knew what went on. It had all been accomplished in accordance with one
of Mr. Rockefeller’s chief business principles—“Silence is golden.”
While Mr. Rockefeller was working out the “good of the oil business” in
Cleveland, his associates were busy at other points. Charles Lockhart in
Pittsburg and W. G. Warden in Philadelphia were particularly active,
though neither of them accomplished any such sweeping benefaction as Mr.
Rockefeller had. It was now evident what the stockholders of the South
Improvement Company meant when they assured the railroads that all the
refiners were to go into the scheme, that, as Mr. Warden said, they
“never had any other purpose in the matter!” A little more time and the
great scheme would be an accomplished fact. And then there fell in its
path two of those never-to-be-foreseen human elements which so often
block great manœuvres. The first was born of a man’s anger. The man had
learned of the scheme. He wanted to go into it, but the directors were
suspicious of him. He had been concerned in speculative enterprises and
in dealings with the Erie road which had injured these directors in
other ways. They didn’t want him to have any of the advantages of their
great enterprise. When convinced that he could not share in the deal, he
took his revenge by telling people in the Oil Regions what was going on.
At first the Oil Regions refused to believe, but in a few days another
slip born of human weakness came in to prove the rumour true. The
schedule of rates agreed upon by the South Improvement Company and the
railroads had been sent to the freight agent of the Lake Shore Railroad,
but no order had been given to put them in force. The freight agent had
a son on his death-bed. Distracted by his sorrow, he left his office in
charge of subordinates, but neglected to tell them that the new
schedules on his desk were a secret compact, whose effectiveness
depended upon their being held until all was complete. On February 26,
the subordinates, ignorant of the nature of the rates, put them into
effect. The independent oil men heard with amazement that freight rates
had been put up nearly 100 per cent. They needed no other proof of the
truth of the rumours of conspiracy which were circulating. It now
remained to be seen whether the Oil Regions would submit to the South
Improvement Company as Cleveland had to the Standard Oil Company.
CHAPTER THREE
THE OIL WAR OF 1872
RISING IN THE OIL REGIONS AGAINST THE SOUTH IMPROVEMENT
COMPANY—PETROLEUM PRODUCERS’ UNION ORGANISED—OIL BLOCKADE AGAINST
MEMBERS OF SOUTH IMPROVEMENT COMPANY AND AGAINST RAILROADS
IMPLICATED—CONGRESSIONAL INVESTIGATION OF 1872 AND THE DOCUMENTS IT
REVEALED—PUBLIC DISCUSSION AND GENERAL CONDEMNATION OF THE SOUTH
IMPROVEMENT COMPANY—RAILROAD OFFICIALS CONFER WITH COMMITTEE FROM
PETROLEUM PRODUCERS’ UNION—WATSON AND ROCKEFELLER REFUSED ADMITTANCE
TO CONFERENCE—RAILROADS REVOKE CONTRACTS WITH SOUTH IMPROVEMENT
COMPANY AND MAKE CONTRACT WITH PETROLEUM PRODUCERS’ UNION—BLOCKADE
AGAINST SOUTH IMPROVEMENT COMPANY LIFTED—OIL WAR OFFICIALLY
ENDED—ROCKEFELLER CONTINUES TO GET REBATES—HIS GREAT PLAN STILL A
LIVING PURPOSE.
It was not until after the middle of February, 1872, that the people of
the Oil Regions heard anything of the plan which was being worked out
for their “good.” Then an uneasy rumour began running up and down the
creek. Freight rates were going up. Now an advance in a man’s freight
bill may ruin his business; more, it may mean the ruin of a region.
Rumour said that the new rate meant just this; that is, that it more
than covered the margin of profit in any branch of the oil business. The
railroads were not going to apply the proposed tariffs to everybody.
They had agreed to give to a company unheard of until now—the South
Improvement Company—a special rate considerably lower than the new open
rate. It was only a rumour and many people discredited it. _Why_ should
the railroads ruin the Oil Regions to build up a company of outsiders?
But facts began to be reported. Mr. Doane, the Cleveland shipper already
quoted, told how suddenly on the 22d of February, without notice, his
rate from the Oil Regions to Cleveland was put up from thirty-five cents
a barrel to sixty-five cents, an advance of twenty-four dollars on a
carload.[16] Mr. Josiah Lombard of the New York refining firm of Ayres,
Lombard and Company was buying oil for his company at Oil City. Their
refinery was running about 12,000 barrels a month. On the 19th of
February the rate from Oil City to Buffalo, which had been forty cents a
barrel, was raised to sixty-five cents, and a few days later the rate
from Warren to New York was raised from eighty-seven cents to $2.14. Mr.
Lombard was not aware of this change until his house in New York
reported to him that the bills for freight were so heavy that they could
not afford to ship and wanted to know what was the matter.[17]
On the morning of February 26, 1872, the oil men read in their morning
papers that the rise which had been threatening had come; moreover, that
all members of the South Improvement Company were exempt from the
advance. At the news all oildom rushed into the streets. Nobody waited
to find out his neighbour’s opinion. On every lip there was but one
word, and that was “conspiracy.” In the vernacular of the region, it was
evident that “a torpedo was filling for that scheme.”
In twenty-four hours after the announcement of the increase in freight
rates a mass-meeting of 3,000 excited, gesticulating oil men was
gathered in the opera house at Titusville. Producers, brokers, refiners,
drillers, pumpers were in the crowd. Their temper was shown by the
mottoes on the banners which they carried: “Down with the
conspirators”—“No compromise”—“Don’t give up the ship!” Three days later
as large a meeting was held at Oil City, its temper more warlike if
possible; and so it went. They organised a Petroleum Producers’
Union,[18] pledged themselves to reduce their production by starting no
new wells for sixty days and by shutting down on Sundays, to sell no oil
to any person known to be in the South Improvement Company, but to
support the creek refiners and those elsewhere who had refused to go
into the combination, to boycott the offending railroads, and to build
lines which they would own and control themselves. They sent a committee
to the Legislature asking that the charter of the South Improvement
Company be repealed, and another to Congress demanding an investigation
of the whole business on the ground that it was an interference with
trade. They ordered that a history of the conspiracy, giving the names
of the conspirators and the designs of the company, should be prepared,
and 30,000 copies sent to “judges of all courts, senators of the United
States, members of Congress and of State Legislatures, and to all
railroad men and prominent business men of the country, _to the end that
enemies of the freedom of trade may be known and shunned by all honest
men_.”
They prepared a petition ninety-three feet long praying for a free
pipe-line bill, something which they had long wanted, but which, so far,
the Pennsylvania Railroad had prevented their getting, and sent it by a
committee to the Legislature; and for days they kept 1,000 men ready to
march on Harrisburg at a moment’s notice if the Legislature showed signs
of refusing their demands. In short, for weeks the whole body of oil men
abandoned regular business and surged from town to town intent on
destroying the “Monster,” the “Forty Thieves,” the “Great Anaconda,” as
they called the mysterious South Improvement Company. Curiously enough,
it was chiefly against the combination which had secured the
discrimination from the railroads—not the railroads which had granted
it—that their fury was directed. They expected nothing but robbery from
the railroads, they said. They were used to that; but they would not
endure it from men in their own business.
When they began the fight the mass of the oil men knew nothing more of
the South Improvement Company than its name and the fact that it had
secured from the railroads advantages in rates which were bound to ruin
all independent refiners of oil and to put all producers at its mercy.
Their tempers were not improved by the discovery that it was a secret
organisation, and that it had been at work under their very eyes for
some weeks without their knowing it. At the first public meeting this
fact came out, leading refiners of the region relating their experience
with the “Anaconda.” According to one of these gentlemen, J. D.
Archbold—the same who afterward became vice-president of the Standard
Oil Company, which office he now holds—he and his partners had heard of
the scheme some months before. Alarmed by the rumour, a committee of
independent refiners had attempted to investigate, but could learn
nothing until they had given a promise not to reveal what was told them.
When convinced that a company had been formed actually strong enough to
force or persuade the railroads to give it special rates and refuse them
to all persons outside, Mr. Archbold said that he and his colleagues had
gone to the railway kings to remonstrate, but all to no effect. The
South Improvement Company by some means had convinced the railroads that
they owned the Oil Regions, producers and refiners both, and that
hereafter no oil of any account would be shipped except as they shipped
it. Mr. Archbold and his partners had been asked to join the company,
but had refused, declaring that the whole business was iniquitous, that
they would fight it to the end, and that in their fight they would have
the backing of the oil men as a whole. They excused their silence up to
this time by citing the pledge[19] exacted from them before they were
informed of the extent and nature of the South Improvement Company.
Naturally the burning question throughout the Oil Regions, convinced as
it was of the iniquity of the scheme, was, Who are the conspirators?
Whether the gentlemen concerned regarded themselves in the light of
“conspirators” or not, they seem from the first to have realised that it
would be discreet not to be identified publicly with the scheme, and to
have allowed one name alone to appear in all signed negotiations. This
was the name of the president, Peter H. Watson. However anxious the
members of the South Improvement Company were that Mr. Watson should
combine the honours of president with the trials of scapegoat, it was
impossible to keep their names concealed. The Oil City Derrick, at that
time one of the most vigorous, witty, and daring newspapers in the
country, began a black list at the head of its editorial columns the day
after the raise in freight was announced, and it kept it there until it
was believed complete. It stood finally as it appears on the opposite
page.
This list was not exact, but it was enough to go on, and the oil
blockade, to which the Petroleum Producers’ Union had pledged itself,
was now enforced against the firms listed, and as far as possible
against the railroads. All of these refineries had their buyers on the
creek, and although several of them were young men generally liked for
their personal and business qualities, no mercy was shown them. They
were refused oil by everybody, though they offered from seventy-five
cents to a dollar more than the market price. They were ordered at one
meeting “to desist from their nefarious business or leave the Oil
Region,” and when they declined they were invited to resign from the oil
exchanges of which they were members. So strictly, indeed, was the
blockade enforced that in Cleveland the refineries were closed and
meetings for the relief of the workmen were held. In spite of the
excitement there was little vandalism, the only violence at the opening
of the war being at Franklin, where a quantity of the oil belonging to
Mr. Watson was run on the ground.
[Illustration:
JOHN D. ARCHBOLD IN 1872
Now vice-president of the Standard Oil Company. Mr. Archbold, whose
home, in 1872, was in Titusville, Pennsylvania, although one of the
youngest refiners of the Creek, was one of the most active and
efficient in breaking up the South Improvement Company.
]
THE BLACK LIST.
[Illustration:
Behold “The Anaconda” in all his hideous deformity!
]
The sudden uprising of the Oil Regions against the South Improvement
Company did not alarm its members at first. The excitement would die
out, they told one another. All that they needed to do was to keep quiet
and stay out of the oil country. But the excitement did not die out.
Indeed, with every day it became more intense and more wide-spread. When
Mr. Watson’s tanks were tapped he began to protest in letters to a
friend, F. W. Mitchell, a prominent banker and oil man of Franklin. The
company was misunderstood, he complained. “Have a committee of leading
producers appointed,” he wrote, “and we will show that the contracts
with the railroads are as favourable to the producing as to other
interests; that the much-denounced rebate will enhance the price of oil
at the wells, and that our entire plan in operation and effect will
promote every legitimate American interest in the oil trade.” Mr.
Mitchell urged Mr. Watson to come openly to the Oil Regions and meet the
producers as a body. A mass-meeting was never a “deliberative body,” Mr.
Watson replied, but if a few of the leading oil men would go to Albany
or New York, or any place favourable to calm investigation and
deliberation, and therefore outside of the atmosphere of excitement
which enveloped the oil country, he would see them. These letters were
read to the producers, and a motion to appoint a committee was made. It
was received with protests and jeers. Mr. Watson was afraid to come to
the Oil Regions, they said. The letters were not addressed to the
association, they were private—an insult to the body. “We are lowering
our dignity to treat with this man Watson,” declared one man. “He is
free to come to these meetings if he wants to.” “What is there to
negotiate about?” asked another. “To open a negotiation is to concede
that we are wrong. Can we go halves with these middlemen in their
swindle?” “He has set a trap for us,” declared another. “We cannot treat
with him without guilt,” and the motion was voted down.
The stopping of the oil supply finally forced the South Improvement
Company to recognise the Producers’ Union officially by asking that a
committee of the body be appointed to confer with them on a compromise.
The producers sent back a pertinent answer. They believed the South
Improvement Company meant to monopolise the oil business. If that was so
they could not consider a compromise with it. If they were wrong, they
would be glad to be enlightened, and they asked for information. First:
the charter under which the South Improvement Company was organised.
Second: the articles of association. Third: the officers’ names. Fourth:
the contracts with the railroads which signed them. Fifth: the general
plan of management. Until we know these things, the oil men declared, we
can no more negotiate with you than we could sit down to negotiate with
a burglar as to his privileges in our house.
The Producers’ Union did not get the information they asked from the
company at that time, but it was not long before they had it, and much
more. The committee which they had appointed to write a history of the
South Improvement Company reported on March 20, and in April the
Congressional Committee appointed at the insistence of the oil men made
its investigation. The former report was published broadcast, and is
readily accessible to-day. The Congressional Investigation was not
published officially, and no trace of its work can now be found in
Washington, but while it was going on reports were made in the
newspapers of the Oil Regions, and at its close the Producers’ Union
published in Lancaster, Pennsylvania, a pamphlet called “A History of
the Rise and Fall of the South Improvement Company,” which contains the
full testimony taken by the committee. This pamphlet is rare, the writer
never having been able to find a copy save in three or four private
collections. The most important part of it is the testimony of Peter H.
Watson, the president, and W. G. Warden, the secretary of the South
Improvement Company. It was in these documents that the oil men found
full justification for the war they were carrying on and for the losses
they had caused themselves and others. Nothing, indeed, could have been
more damaging to a corporation than the publication of the charter of
the South Improvement Company. As its president told the Congressional
Investigating Committee, when he was under examination, “this charter
was a sort of clothes-horse to hang a scheme upon.” As a matter of fact
it was a clothes-horse big enough to hang the earth upon. It granted
powers practically unlimited. There really was no exaggeration in the
summary of its powers made and scattered broadcast by the irate oil men
in their “History of the Rise and Fall of the South Improvement
Company”:[20]
The South Improvement Company can own, contract, or operate any
work, business, or traffic (save only banking); may hold and
transfer any kind of property, real or personal; hold and operate on
any leased property (oil territory, for instance); make any kind of
contract; deal in stock, securities, and funds; loan its credit,
guarantee any one’s paper; manipulate any industry; may seize upon
the lands of other parties for railroading or _any other purpose_;
may absorb the improvements, property or franchises of any other
company, _ad infinitum_; may fix the fares, tolls, or freights to be
charged on lines of transit operated by it, or on any business it
gives to _any other company_ or line, without limit.
Its capital stock can be expanded or “watered” at liberty; it can
change its name and location at pleasure; can go anywhere and do
almost anything. It is not a Pennsylvania corporation only; it can,
so far as these enactments are valid, or are confirmed by other
Legislatures, operate in any state or territory; its directors must
be only citizens of the United States—not necessarily of
Pennsylvania. It is responsible to no one; its stockholders are only
liable to the amount of their stock in it; its directors, when
wielding all the princely powers of the corporation, are also
responsible only to the amount of their stock in it; it may control
the business of the continent and hold and transfer millions of
property, and yet be rotten to the core. It is responsible to no
one; makes no reports of its acts or financial condition; its
records and deliberations are secret; its capital illimitable; its
object unknown. It can be here to-day, to-morrow away. Its domain is
the whole country; its business everything. Now it is petroleum it
grasps and monopolises; next year it may be iron, coal, cotton, or
breadstuffs. They are landsmen granted perpetual letters of marque
to prey upon all commerce everywhere.
When the course of this charter through the Pennsylvania Legislature
came to be traced, it was found to be devious and uncertain. The company
had been incorporated in 1871, and vested with all the “powers,
privileges, duties and obligations” of an earlier company—incorporated
in April, 1870—the Pennsylvania Company; both of them were children of
that interesting body known as the “Tom Scott Legislature.” The act
incorporating the company was not published until after the oil war; its
sponsor was never known, and no votes on it are recorded. The origin of
the South Improvement Company has always remained in darkness. It was
one of several “improvement” companies chartered in Pennsylvania at
about the same time, and enjoying the same commercial _carte blanche_.
Bad as the charter was in appearance, the oil men found that the
contracts which the new company had made with the railroads were worse.
These contracts advanced the rates of freight from the Oil Regions over
100 per cent.—an advance which more than covered the margin of profit on
their business—but it was not the railroad that got the greater part of
this advance; it was the South Improvement Company. Not only did it ship
its own oil at fully a dollar a barrel cheaper on an average than
anybody else could, but it received fully a dollar a barrel “rake-off”
on every barrel its competitors shipped. It was computed and admitted by
the members of the company who appeared before the investigating
committee of Congress that this discrimination would have turned over to
them fully $6,000,000 annually on the carrying trade. The railroads
expected to receive about one and a half millions more than from the
existing rates. That is, an additional cost of about $1.25 a barrel was
added to crude oil, and it was computed that this would enable the
refiners to advance their wholesale price at least four cents a gallon.
It is hardly to be wondered at that when the oil men had before them the
full text of these contracts they refused absolutely to accept the
repeated assertions of the members of the South Improvement Company that
their scheme was intended only for “the good of the oil business.” The
committee of Congress could not be persuaded to believe it either. “Your
success meant the destruction of every refiner who refused for any
reason to join your company, or whom you did not care to have in, and it
put the producers entirely in your power. It would make a monopoly such
as no set of men are fit to handle,” the chairman of the committee
declared. Of course Mr. Warden, the secretary of the company, protested
again and again that they meant to take in all the refiners, but when he
had to admit that the contracts with the railroads were not made on this
condition, his protestations met with little credence. Besides, there
was the damning fact that no refiners had come in except those in
Cleveland, and that they with one accord testified that they had yielded
to force. Not a single factory in either New York or the Oil Regions was
in the combination. The fact that the producers had never been
approached in any way looked very bad for the company, too. Mr. Watson
affirmed and reaffirmed before the committee that it was the intention
of the company to take care of the producers. “It was an essential part
of this contract that the producers should join it,” he declared. But no
such condition was embodied in the contract. It was verbal only, and,
besides, it had never been submitted to the producers themselves in any
form until after the trouble in the Oil Regions began. The committee,
like the oil men, insisted that under the circumstances no such verbal
understanding was to be trusted.[21]
No part of the testimony before the committee made a worse impression
than that showing that the chief object of the combination was to put up
the price of refined oil to the consumer, though nobody had denied from
the first that this was the purpose. In a circular, intended for private
circulation, which appeared in the newspapers about this time explaining
the objects of the South Improvement Company, this was made clear:
“The object of this combination of interests,” ran the circular, “is
understood to be twofold: firstly, to do away, at least in a great
measure, with the excessive and undue competition now existing between
the refining interest, by reason of there being a far greater refining
capacity than is called for or justified by the existing
petroleum-consuming requirements of the world; secondly, to avoid the
heretofore undue competition between the various railroad companies
transporting oil to the seaboard, by fixing a uniform rate of freight,
which it is thought can be adhered to by some such arrangement as
guaranteeing to each road some such percentages of the profit of the
aggregate amount of oil transported, whether the particular line carries
it or not. It is also asserted that a prominent feature of the
combination will be to limit the production of refined petroleum to such
amounts as may serve, in a great measure, to do away with the serious
periodical depressions in the article. Is it also to be expected that,
desiring to curtail the production of refined petroleum in this country,
the railroads will not offer any additional facilities for exportation
of the crude article.”
A writer in the Oil City Derrick, quoted in the Cleveland Herald, March
2, 1872, said: “The ring pretend that they will make their margin out of
the consumers. That is, that they will put refined up to a figure that
will enable them to pay well for crude.... The consumers are the avowed
victims, since they must pay a price which will warrant the ring in
going on with their operations. And the producers’ security for the
price is a mere matter of discretion.”
Wherever the members of the company discussed the subject they put
forward this object as one sufficient to justify the combination. If
refined oil was put up everybody in the trade would make more money. To
this end the public ought to be willing to pay more.
When Mr. Warden was under examination by the committee the chairman said
to him: “Under your arrangement, the public would have been put to an
additional expense of $7,500,000 a year.” “What public?” said Mr.
Warden. “They would have had to pay it in Europe.” “But to keep up the
price abroad you would have to keep up the price at home,” said the
chairman. Mr. Warden conceded the point: “You could not get a better
price for that exported without having a better price here,” he
said.[22]
Mr. Watson contended that the price could be put up with benefit to the
consumer. And when he was asked how, he replied: “By steadying the
trade. You will notice what all those familiar with this trade know,
that there are very rapid and excessive fluctuations in the oil market;
that when these fluctuations take place the retail dealers are always
quick to note a rise in price, but very slow to note a fall. Even if two
dollars a barrel had been added to the price of oil under a steady
trade, I think the price of the retail purchaser would not have been
increased. That increased price would only amount to one cent a quart
(four cents a gallon), and I think the price would not have been
increased to the retail dealer because the fluctuations would have been
avoided. That was one object to be accomplished.”[23]
The committee were not convinced, however, that a scheme which began by
adding four cents to the price of a gallon of oil could be to the good
of the consumer. Nor did anything appear in the contracts which showed
how the fluctuations in the price of oil were to be avoided. These
fluctuations were due to the rise and fall in the crude market, and that
depended on the amount of crude coming from the ground. The South
Improvement Company might assert that they meant to bring the producers
into their scheme and persuade them to keep down the amount of
production in the same way they meant to keep down refined, so that the
price could be kept steadily high, but they had nothing to prove that
they were sincere in the intention, nothing to prove that they had
thought of the producer seriously until the trouble in the Oil Regions
began. It looked very much to the committee as if the real intention of
the company was to keep up the price of refined to a certain figure by
limiting the output, and that there was nothing to show that it would
not go up with crude though it might not go down with it! Under these
circumstances it seemed as if a fluctuating market which gave a moderate
average was better for the consumer than the steady high price which Mr.
Watson thought so good for the public. Thirty-two cents a gallon was the
ideal price they had in view, though refined had not sold for that since
1869, the average price in 1870 being 26⅜ and in 1871 24¼. The refiner
who in 1871 sold his oil at 24¼ cents a gallon cleared easily fifty-two
cents a barrel—a large profit on his investment,—but the refiners in the
early stages of this new industry had made much larger profits. It was
to perpetuate these early profits that they had gone into the South
Improvement Company.
It did not take the full exposition of the objects of the South
Improvement Company, brought out by the Congressional Investigating
Committee, with the publication of charters and contracts, to convince
the country at large that the Oil Regions were right in their
opposition. From the first the sympathy of the press and the people were
with the oil men. It was evident to everybody that if the railroads had
made the contracts as charged (and it daily became more evident they had
done so), nothing but an absolute monopoly of the whole oil business by
this combination could result. It was robbery, cried the newspapers all
over the land. “Under the thin guise of assisting in the development of
oil-refining in Pittsburg and Cleveland,” said the New York Tribune,
“this corporation has simply laid its hand upon the throat of the oil
traffic with a demand to ‘stand and deliver.’” And if this could be done
in the oil business, what was to prevent its being done in any other
industry? Why should not a company be formed to control wheat or beef or
iron or steel, as well as oil? If the railroads would do this for one
company, why not for another? The South Improvement Company, men agreed,
was a menace to the free trade of the country. If the oil men yielded
now, all industries must suffer from their weakness. The railroads must
be taught a lesson as well as would-be monopolists.
The oil men had no thought of yielding. With every day of the war their
backbone grew stiffer. The men were calmer, too, for their resistance
had found a ground which seemed impregnable to them, and arguments
against the South Improvement Company now took the place of
denunciations. On all sides men said, This is a transportation question,
and now is the time to put an end once and forever to the rebates. The
sentiment against discrimination on account of amount of freight or for
any other reason had been strong in the country since its beginning, and
it now crystallised immediately. The country so buzzed with discussion
on the duties of the railroads that reporters sent from the Eastern
newspapers commented on it. Nothing was commoner, indeed, on the trains
which ran the length of the region and were its real forums, than to
hear a man explaining that the railways derived their existence and
power from the people, that their charters were contracts with the
people, that a fundamental provision of these contracts was that there
should be no discriminating in favour of one person or one town, that
such a discrimination was a violation of charter, that therefore the
South Improvement Company was founded on fraud, and the courts must
dissolve it if the railways did not abandon it. The Petroleum Producers’
Union which had been formed to grapple with the “Monster” actually
demanded interstate regulation, for in a circular sent out to newspapers
and boards of trade asking their aid against the conspiracy they
included this paragraph: “We urge you to exert all your influence with
your representatives in Congress to support such measures offered there
as will prohibit for all future time any monopoly of railroads or other
transportation companies from laying embargoes upon the trade between
states by a system of excessive freights or unjust discrimination
against buyers or shippers in any trade by the allowance of rebates or
drawbacks to any persons whatever. This is a matter of national
importance, and only the most decided action can protect you and us from
the scheming strength of these monopolies.”
How the whole question appeared to an intelligent oil man, one, too, who
had had the courage to resist in the attack on the trade in Cleveland,
and who still was master of his own refinery, is shown by the following
letter to the Cleveland Herald:
EDS. HERALD: As I understand, the financial success of this South
Improvement Company is based upon contracts made with the officers
(either individually or otherwise) of all the railroads leading out
of the Oil Region, by which they (the South Improvement Company)
receive as a drawback certain excess of freights, not only on every
barrel of oil shipped out of the Oil Regions by or to themselves,
but also on every barrel of oil shipped out of the Oil Regions by or
to other refiners, or dealers, or consumers.
The first advance in freights to Cleveland has already been made,
viz.: on crude oil, from forty cents to sixty-five cents per barrel.
This seemingly slight advance has already caused one party that I
know of to pay an excess of over $2,000. Other firms have paid
larger or smaller sums, according to the quantity of oil they were
compelled to have. This excess, we suppose, goes directly to swell
the profits of the South Improvement Company.
_This is only the beginning._ The whole extent of the evil that may
be done to producers, refiners, dealers and consumers, and to the
public generally, if this corporation—or rather combination of
corporations—is successful, is so deep and varied and far reaching,
that it cannot be fully comprehended and I will not attempt it in
detail, but only suggest a few inquiries.
Where will be their limits?
How high will they advance freights?
How low will they force the price of crude?
How high refined?
Will they adopt a liberal policy for producers, or will they destroy
their interests and _crush out_ the oil production entirely? Will
they be liberal with dealers and consumers and adopt uniform rules
with steady prices, or will they take advantage of times and
circumstances and force ruinous corners upon the trade?
These and many other questions are pertinent, for clearly if they
can control the shipment they can control the price of oil, and if
they can control the price to the extent of twenty-five cents per
barrel, they can control it entirely. If they can control it
entirely, where will be their limit? Who will dictate a line of
policy to them? And may not one of the greatest and most important
industries of this country be destroyed and hundreds of thousands of
business men be made bankrupt if this combination is successful and
has the disposition to work ruin? I do not say that I think they
will work ruin. They undoubtedly will attempt to make all the money
they can and will pursue such a policy as in their judgment will
bring them the utmost amount of profits, regardless of consequences,
but what that policy will be, of course, we can not judge.
It is understood that the parties to this combination excuse
themselves and their action before the public by reciting the
undoubted facts in the case. They are these: that the refining of
oil as a business has been of late and is now overdone; that the
capacity for refining petroleum in this country exceeds the
production in the ratio of three barrels to one; that the railroads
have reduced freights to the lowest extreme, and were even losing
money; that refiners, in spite of all their efforts, could not earn
their running expenses; that the _special interests of Cleveland_ as
a refining point were in danger of being lost; and that this great
business might go to other points, and the millions of dollars in
refining property here be sacrificed, and thousands of men thrown
out of employment; that real estate would depreciate, and that many
other collateral troubles connected with the loss of this business
would follow; and that _now_, by the consummation of the plans of
this monopoly, all these evils will be avoided.
In answer to this—assuming that the refining interest of Cleveland
is a _unit_ in this corporation, that of Pittsburg another, that of
New York another, and that of Philadelphia another—it follows that
it is immaterial to the stockholders of the “South Improvement
Company” whether the oil produced at the Oil Regions is refined by
them at their works in Cleveland, or at Pittsburg, or in New York,
or in Philadelphia. It would not affect their dividends at all,
provided they refined the oil at the cheapest point for them to do
so. That place might be Cleveland; it might be Pittsburg, or it
might _not_ be either of them; but it might be New York or
Philadelphia. Therefore, so long as it is for the pecuniary
advantage of this combination to refine at Cleveland they may do so,
but no longer, and should it be for the interest of the combination
to discontinue their works at Cleveland, what would become of the
oil-refining interest at this point? That question everyone can
answer. Therefore I see little weight to the argument used that this
monopoly is for the benefit of Cleveland. Hence, I do not consider
the _special danger_ to Cleveland by any means as averted.
But without discussing this position, its advantages or
disadvantages, as an oil-refining center—for it has both in a marked
degree—on general principles I will assert that the laws of business
and manufacturing interests, like the laws of supply and demand, are
unchangeable, and that a prosperity such as this monopoly would
bring us is a forced prosperity, consequently not permanent, but
temporary and fictitious in character, and damaging in its ultimate
results; and more than all this, if the refining prosperity of
Cleveland could be re-established permanently by means of the
success of this monopoly, we could not afford to accept it at the
cost proposed, viz., that of enriching ourselves at the expense of
those who are weaker, but are in power.
We have just refused to build an opera house because we should, by
using the only means we could command to do so, compromise our
morality. How much more emphatically should we refuse to accept any
benefits to our city which have their origin in unmitigated fraud!
In the opera house instance just cited the managers use no
compulsion, no unwilling man was to be forced by them to buy a
ticket and take his chances; but the South Improvement Company force
every producer to take a less price for his oil without rendering
him an equivalent.
They force every refiner who is in their way to prosecute his
business against them as competitors at fearful odds, and perhaps at
the expense of a royalty on every barrel; or to sell his works and
abandon his business to the South Improvement Company at any paltry
price they may dictate.
They also force every consumer of oil on this broad continent, after
paying all the legitimate cost of producing, refining, and
transportation on oil, to pay them also an additional tribute—for
what? Absolutely nothing.
The railroad companies derive their existence and power to act under
charters granted them by the citizens (through their Legislatures)
of the several states in which they exist. This charter is a
contract made by and between the citizens of the one part and the
railroad company on the other, and both parties bind themselves
alike to the faithful performance of the conditions of the contract.
One of the fundamental provisions of this contract is that there
shall be no discrimination shown to any individuals, or body of
individuals, as to facilities or privileges of doing business with
such railroad company; on the contrary, the railroad company is
expressly required in all cases to charge uniform rates for the
transportation of freight and passengers.
They must, if desired, carry the freight for A that they do for B,
AND ALWAYS AT THE SAME PRICE. Any deviation from this stipulated
condition is a wilful and fraudulent violation of their contract. If
it is by means of such violations of contracts on the part of the
several railroad companies connected with them that the South
Improvement Company expects success, then the whole gigantic
STRUCTURE IS ESTABLISHED UPON FRAUD AS A BASIS, AND IT OUGHT TO COME
DOWN.
Very respectfully,
F. M. BACKUS.
CLEVELAND, OHIO, March 5, 1872.
The oil men now met the very plausible reasons given by the members of
the company for their combination more intelligently than at first.
There were grave abuses in the business, they admitted; there was too
great refining capacity; but this they argued was a natural development
in a new business whose growth had been extraordinary and whose limits
were by no means defined. Time and experience would regulate it. Give
the refiners open and regular freights, with no favours to any one, and
the stronger and better equipped would live, the others die—but give all
a chance. In fact, time and energy would regulate all the evils of which
they complained if there were fair play.
[Illustration:
HENRY H. ROGERS IN 1872
Now President of the National Transit Company and a director of the
Standard Oil Company. The opposition to the South Improvement
Company among the New York refiners was led by Mr. Rogers.
]
The oil men were not only encouraged by public opinion and by getting
their minds clear on the merits of their case; they were upheld by
repeated proofs of aid from all sides; even the women of the region were
asking what they could do, and were offering to wear their “black velvet
bonnets” all summer if necessary. Solid support came from the
independent refiners and shippers in other parts of the country who were
offering to stand in with them in their contest. New York was already
one of the chief refining centres of the country, and the South
Improvement Company had left it entirely out of its combination. As
incensed as the creek itself, the New York interests formed an
association, and about the middle of March sent a committee of three,
with H. H. Rogers, of Charles Pratt and Company, at its head, to Oil
City, to consult with the Producers’ Union. Their arrival in the Oil
Regions was a matter of great satisfaction. What made the oil men most
exultant, however, was their growing belief that the railroads—the crux
of the whole scheme—were weakening.
However fair the great scheme may have appeared to the railroad kings in
the privacy of the council chamber, it began to look dark as soon as it
was dragged into the open, and signs of a scuttle soon appeared. General
G. B. McClellan, president of the Atlantic and Great Western, sent to
the very first mass-meeting this telegram:
NEW YORK, February 27, 1872.
Neither the Atlantic and Great Western, nor any of its officers, are
interested in the South Improvement Company. Of course the policy of
the road is to accommodate the petroleum interest.
G. B. MCCLELLAN.
A great applause was started, only to be stopped by the hisses of a
group whose spokesman read the following:
Contract with South Improvement Company signed by George B.
McClellan, president for the Atlantic and Great Western Railroad. I
only signed it after it was signed by all the other parties.
JAY GOULD.
The railroads tried in various ways to appease the oil men. They did not
enforce the new rates. They had signed the contracts, they declared,
only after the South Improvement Company had assured them that all the
refineries and producers were to be taken in. Indeed, they seem to have
realised within a fortnight that the scheme was doomed, and to have been
quite ready to meet cordially a committee of oil men which went East to
demand that the railroads revoke their contracts with the South
Improvement Company. This committee, which was composed of twelve
persons, three of them being the New York representatives already
mentioned, began its work by an interview with Colonel Scott at the
Colonial Hotel in Philadelphia. With evident pride the committee wrote
back to the Producers’ Union: “Mr. Scott, differing in this respect from
the railroad representatives whom we afterwards met, notified us that he
would call upon us at our hotel.” An interesting account of their
interview was given to the Hepburn Committee in 1879 by W. T. Scheide,
one of the number:
We saw Mr. Scott on the 18th of March, 1872, in Philadelphia, and he
said to us that he was very much surprised to hear of this agitation
in the Oil Regions; that the object of the railroads in making this
contract with the South Improvement Company was to obtain an evener
to pool the freight—pool the oil freights among the different roads;
that they had been cutting each other on oil freights for a number
of years, and had not made any money out of it, although it was a
freight they should have made money from; that they had endeavoured
to make an arrangement among themselves, but had always failed; he
said that they supposed that the gentlemen representing the South
Improvement Company represented the petroleum trade, but as he was
now convinced they did not, he would be very glad to make an
arrangement with this committee, who undoubtedly did represent the
petroleum trade; the committee told him that they could not make any
such contract; that they had no legal authority to do so; he said
that could be easily fixed, because the Legislature was then in
session, and by going to Harrisburg a charter could be obtained in a
very few days; the committee still said that they would not agree to
any such arrangement, that they did not think the South Improvement
Company’s contract was a good one, and they were instructed to have
it broken, and so they did not feel that they could accept a similar
one, even if they had the power.
Leaving Colonel Scott the committee went on to New York, where they
stayed for about a week, closely watched by the newspapers, all of which
treated the “Oil War” as a national affair. Their first interview of
importance in New York was with Commodore Vanderbilt, who said to them
very frankly at the beginning of their talk: “I told Billy (W. H.
Vanderbilt) not to have anything to do with that scheme.” The committee
in its report said that the Commodore fully agreed with them upon the
justice of their claims, and frequently asserted his objections to any
combination seeking a monopoly of other men’s property and interests. He
told them that if what they asked was that the railroads should fix a
tariff which, while giving them a paying rate, would secure the oil men
against drawbacks, rebates, or variations in the tariff, he would
willingly co-operate. The Commodore ended his amiable concessions by
reading the committee a letter just received from the South Improvement
Company offering to co-operate with the producers and refiners or to
compromise existing differences. The oil men told the Commodore
emphatically that they would not treat with the South Improvement
Company or with anyone interested in it nor would they recognise its
existence. And this stand they kept throughout their negotiations though
repeated efforts were made by the railroad men, particularly those of
the Central system, to persuade them to a compromise.
At the meeting with the officials of the Erie and the Atlantic and Great
Western the committee was incensed by being offered a contract similar
to that of the South Improvement Company—on consideration that the
original be allowed to stand. It seemed impossible to the railroad men
that the oil men really meant what they said and would make no terms
save on the basis of no discriminations of any kind to anybody. They
evidently believed that if the committee had a chance to sign a contract
as profitable as that of the South Improvement Company, all their fair
talk of “fair play”—“the duty of the common carrier”—“equal chance to
all in transportation”—would at once evaporate. They failed utterly at
first to comprehend that the Oil War of 1872 was an uprising against an
injustice, and that the moral wrong of the thing had taken so deep a
hold of the oil country that the people as a whole had combined to
restore right. General McClellan of the Atlantic and Great Western and
Mr. Diven, one of the Erie’s directors, were the only ones who gave the
committee any support in their position.
The final all-important conference with the railroad men was held on
March 25, at the Erie offices. Horace Clark, president of the Lake Shore
and Michigan Southern Railroad, was chairman of this meeting, and,
according to H. H. Rogers’ testimony before the Hepburn Committee, in
1879, there were present, besides the oil men, Colonel Scott, General
McClellan, Director Diven, William H. Vanderbilt, Mr. Stebbins, and
George Hall. The meeting had not been long in session before Mr. Watson,
president of the South Improvement Company, and John D. Rockefeller
presented themselves for admission. Up to this time Mr. Rockefeller had
kept well out of sight in the affair. He had given no interviews,
offered no explanations. He had allowed the president of the company to
wrestle with the excitement in his own way, but things were now in such
critical shape that he came forward in a last attempt to save the
organisation by which he had been able to concentrate in his own hands
the refining interests of Cleveland. With Mr. Watson he knocked for
admission to the council going on in the Erie offices. The oil men
flatly refused to let them in. A dramatic scene followed, Mr. Clark, the
chairman, protesting in agitated tones against shutting out his
“lifelong friend, Watson.” The oil men were obdurate. They would have
nothing to do with anybody concerned with the South Improvement Company.
So determined were they that although Mr. Watson came in he was obliged
at once to withdraw. A Times reporter who witnessed the little scene
between the two supporters of the tottering company after its president
was turned out of the meeting remarked sympathetically that Mr.
Rockefeller soon went away, “looking pretty blue.”
The acquiescence of the “railroad kings” in the refusal of the oil men
to recognise representatives of the South Improvement Company was
followed by an unwilling promise to break the contracts with the
company. Another strong effort was made to persuade the independents to
make the same contracts on condition that they shipped as much oil, but
they would not hear of it. They demanded open rates, with no rebates to
anyone. Horace Clark and W. H. Vanderbilt particularly stuck for this
arrangement. Their opposition to the oil men’s position was so strong
that the latter in reporting it to the Union said: “We feel it proper to
say that we are in no wise indebted to these gentlemen for any courtesy
or consideration received at their hands.” So well did the committee
fight its battle and so strongly were they supported by the New York
refiners that the railroads were finally obliged to consent to revoke
the contracts and to make a new one embodying the views of the Oil
Regions. The contract finally signed at this meeting by H. F. Clark for
the Lake Shore road, O. H. P. Archer for the Erie, W. H. Vanderbilt for
the Central, George B. McClellan for the Atlantic and Great Western, and
Thomas A. Scott for the Pennsylvania, agreed that all shipping of oil
should be made on “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 discriminations of any
character whatever.”[24] It was also agreed that the rates should not be
liable to change either for increase or decrease without first giving
William Hasson, president of the Producers’ Union, at least ninety days’
notice.
The same rate was put on refined oil from Cleveland, Pittsburg and the
creek, to Eastern shipping points; that is, Mr. Rockefeller could send
his oil from Cleveland to New York at $1.50 per barrel; so could his
associates in Pittsburg; and this was what it cost the refiner on the
creek; but the latter had this advantage: he was at the wells. Mr.
Rockefeller and his Pittsburg allies were miles away, and it cost them,
by the new contract, fifty cents to get a barrel of crude to their
works. The Oil Regions meant that geographical position should count,
that the advantages Mr. Rockefeller had by his command of the Western
market and by his access to a cheap Eastward waterway should be
considered as well as their own position beside the raw product.
This contract was the first effective thrust into the great bubble.
Others followed in quick succession. On the 28th the railroads
officially annulled their contracts with the company. About the same
time the Pennsylvania Legislature repealed the charter. On March 30 the
committee of oil men sent to Washington to be present during the
Congressional Investigation, now about to begin, spent an hour with
President Grant. They wired home that on their departure he said:
“Gentlemen, I have noticed the progress of monopolies, and have long
been convinced that the national government would have to interfere and
protect the people against them.” The President and the members of
Congress of both parties continued to show interest in the
investigation, and there was little or no dissent from the final
judgment of the committee, given early in May, that the South
Improvement Company was the “most gigantic and daring conspiracy” a free
country had ever seen. This decision finished the work. The “Monster”
was slain, the Oil Regions proclaimed exultantly.
And now came the question, What should they do about the blockade
established against the members of the South Improvement Company? The
railroads they had forgiven; should they forgive the members of the
South Improvement Company? This question came up immediately on the
repeal of the charter. The first severe test to which their temper was
put was early in April, when the Fisher Brothers, a firm of Oil City
brokers, sold some 20,000 barrels of oil to the Standard Oil Company.
The moment the sale was noised a perfect uproar burst forth. Indignant
telegrams came from every direction condemning the brokers. “Betrayal,”
“infamy,” “mercenary achievement,” “the most unkindest cut of all,” was
the gist of them. From New York, Porter and Archbold telegraphed
annulling all their contracts with the guilty brokers. The Oil Exchange
passed votes of censure, and the Producers’ Union turned them out. A few
days later it was learned that a dealer on the creek was preparing to
ship 5,000 barrels to the same firm. A mob gathered about the cars and
refused to let them leave. It was only by stationing a strong guard that
the destruction of the oil was prevented.
But something had to be done. The cooler heads argued that the blockade,
which had lasted now forty days, and from which the region had of course
suffered enormous loss, should be entirely lifted. The objects for which
it had been established had been accomplished—that is, the South
Improvement Company had been destroyed—now let free trade be
established. If anybody wanted to sell to “conspirators,” it was his
lookout. A long and excited meeting of men from the entire oil country
was held at Oil City to discuss the question.
The president of the Petroleum Producers’ Union, Captain William Hasson,
in anticipation of the meeting, had sent to the officers of all the
railroads which had been parties to the South Improvement Company, the
following telegram:
OFFICE PETROLEUM PRODUCERS’ UNION,
OIL CITY, PENNSYLVANIA, April 4, 1872.
We are informed by parties known as members of the South Improvement
Company, now representing the Standard Oil Company, who are in the
market overbidding other shippers, that all contracts between the
railroad companies and South Improvement and Standard Companies are
cancelled. Will you please give us official notice whether such
contracts are cancelled or not? The people in mass-meeting assembled
have instructed the executive committee not to sell or ship any oil
to these parties until we receive such notice. Please answer at
once, as we fear violence and destruction of property.
Signed WILLIAM HASSON, _President_.
General McClellan, Horace F. Clark, Thomas A. Scott, and W. H.
Vanderbilt all sent emphatic telegrams in reply, asserting that the
South Improvement contracts had been cancelled and that their roads had
no understanding of any nature in regard to freights with the Standard
Oil Company. “The only existing arrangement is with you,” telegraphed
General McClellan. W. H. Vanderbilt reminded Mr. Hasson that the
agreement of March 25, between the railroad companies and the joint
committee of producers and refiners, was on a basis of perfect equality
for all, and the inference was, how could Mr. Vanderbilt possibly make a
special arrangement with the Standard? From the Standard Oil Company the
following was received:
CLEVELAND, OHIO, April 8, 1872.
TO CAPTAIN WILLIAM HASSON: In answer to your telegram, this company
holds no contract with the railroad companies or any of them, or
with the South Improvement Company. The contracts between the South
Improvement Company and the railroads have been cancelled, and I am
informed you have been so advised by telegram. I state unqualifiedly
that reports circulated in the Oil Region and elsewhere, that this
company, or any member of it, threatened to depress oil, are false.
JOHN D. ROCKEFELLER, _President_.
After reading all the telegrams the committee submitted its report. The
gist of it was that since they had official assurance that the hated
contracts were cancelled, and that since they had secured from all the
trunk lines a “fair rate of freight, equal to all shippers and
producers, great or small, with an abolition of the system of rebates
and drawbacks,” the time had arrived “to open the channels of trade to
all parties desiring to purchase or deal in oil on terms of equality.”
The report was received with “approbation and delight” and put an
official end to the “Oil War.”
But no number of resolutions could wipe out the memory of the forty days
of terrible excitement and loss which the region had suffered. No
triumph could stifle the suspicion and the bitterness which had been
sown broadcast through the region. Every particle of independent manhood
in these men whose very life was independent action had been outraged.
Their sense of fair play, the saving force of the region in the days
before law and order had been established, had been violated. These were
things which could not be forgotten. There henceforth could be no trust
in those who had devised a scheme which, the producers believed, was
intended to rob them of their property.
It was inevitable that under the pressure of their indignation and
resentment some person or persons should be fixed upon as responsible,
and should be hated accordingly. Before the lifting of the embargo this
responsibility had been fixed. It was the Standard Oil Company of
Cleveland, so the Oil Regions decided, which was at the bottom of the
business, and the “Mephistopheles of the Cleveland company,” as they put
it, was John D. Rockefeller. Even the Cleveland Herald acknowledged this
popular judgment. “Whether justly or unjustly,” the editor wrote,
“Cleveland has the odium of having originated the scheme.” This opinion
gained ground as the days passed. The activity of the president of the
Standard in New York, in trying to save the contracts with the
railroads, and his constant appearance with Mr. Watson, and the fact
brought out by the Congressional Investigation that a larger block of
the South Improvement Company’s stock was owned in the Standard than in
any other firm, strengthened the belief. But what did more than anything
else to fix the conviction was what they had learned of the career of
the Standard Oil Company in Cleveland. Before the Oil War the company
had been known simply as one of several successful firms in that city.
It drove close bargains, but it paid promptly, and was considered a
desirable customer. Now the Oil Regions learned for the first time of
the sudden and phenomenal expansion of the company. Where there had been
at the beginning of 1872 twenty-six refining firms in Cleveland, there
were but six left. In three months before and during the Oil War the
Standard had absorbed twenty plants. It was generally charged by the
Cleveland refiners that Mr. Rockefeller had used the South Improvement
scheme to persuade or compel his rivals to sell to him. “Why,” cried the
oil men, “the Standard Oil Company has done already in Cleveland what
the South Improvement Company set out to do for the whole country, and
it has done it by the same means.”
By the time the blockade was raised, another unhappy conviction was
fixed on the Oil Regions—the Standard Oil Company meant to carry out the
plans of the exploded South Improvement Company. The promoters of the
scheme were partly responsible for the report. Under the smart of their
defeat they talked rather more freely than their policy of silence
justified, and their remarks were quoted widely. Mr. Rockefeller was
reported in the Derrick to have said to a prominent oil man of Oil City
that the South Improvement Company could work under the charter of the
Standard Oil Company, and to have predicted that in less than two months
the gentlemen would be glad to join him. The newspapers made much of the
following similar story reported by a New York correspondent:
A prominent Cleveland member of what was the South Improvement
Company had said within two days: “The business _now_ will be done
by the Standard Oil Company. We have a rate of freight by water from
Cleveland to New York at seventy cents. No man in the trade shall
make a dollar this year. We purpose to manipulating the market as to
run the price of crude on the creek as low as two and a half. We
mean to show the world that the South Improvement Company was
organised for business and means business in spite of opposition.
The same thing has been said in substance by the leading
Philadelphia member.”
“The trade here regards the Standard Oil Company as simply taking the
place of the South Improvement Company and as being ready at any moment
to make the same attempt to control the trade as its progenitors did,”
said the New York Bulletin about the middle of April. And the Cleveland
Herald discussed the situation under the heading, “South Improvement
Company _alias_ Standard Oil Company.” The effect of these reports in
the Oil Regions was most disastrous. Their open war became a kind of
guerilla opposition. Those who sold oil to the Standard were ostracised,
and its president was openly scorned.
If Mr. Rockefeller had been an ordinary man the outburst of popular
contempt and suspicion which suddenly poured on his head would have
thwarted and crushed him. But he was no ordinary man. He had the
powerful imagination to see what might be done with the oil business if
it could be centered in his hands—the intelligence to analyse the
problem into its elements and to find the key to control. He had the
essential element of all great achievement, a steadfastness to a purpose
once conceived which nothing can crush. The Oil Regions might rage, call
him a conspirator, and all those who sold him oil, traitors; the
railroads might withdraw their contracts and the Legislature annul his
charter; undisturbed and unresting he kept at his great purpose. Even if
his nature had not been such as to forbid him to abandon an enterprise
in which he saw promise of vast profits, even if he had not had a mind
which, stopped by a wall, burrows under or creeps around, he would
nevertheless have been forced to desperate efforts to keep up his
business. He had increased his refining capacity in Cleveland to 10,000
barrels on the strength of the South Improvement Company contracts.
These contracts were annulled, and in their place was one signed by
officials of all the oil-shipping roads refusing rebates to everybody.
His geographical position was such that it cost him under these new
contracts fifty cents more to get oil from the wells to New York than it
did his rivals on the creek. True, he had many counterbalancing
advantages—a growing Western market almost entirely in his hands, lake
traffic, close proximity to all sorts of accessories to his
manufacturing, but this contract put him on a level with his rivals. By
his size he should have better terms than they. What did he do?
He got a rebate. Seven years later Mr. Rockefeller’s partner, H. M.
Flagler, was called before a commission of the Ohio State Legislature
appointed to investigate railroads. He was asked for the former
contracts between his company and the railroads, and among others he
presented one showing that from “the first of April until the middle of
November, 1872,” their East-bound rate was $1.25, twenty-five cents less
than that set by the agreement of March 25th, between the oil men and
the railroads.[25] The discrepancy between the date Mr. Flagler gives
for this contract and that of Mr. Vanderbilt’s telegram to Mr. Hasson
stating that his road had no contract with the Standard Oil Company,
April 6, and of Mr. Rockefeller’s own telegram stating he had no
contracts with the railroads, April 8, the writer is unable to explain.
How had Mr. Rockefeller been able to get this rebate? Simply as he had
always done—by virtue of the quantity he shipped. He was able to say to
Mr. Vanderbilt, I can make a contract to ship sixty car-loads of oil a
day over your road—nearly 4,800 barrels; I cannot give this to you
regularly unless you will make me a concession; and Mr. Vanderbilt made
the concession while he was signing the contract with the oil men. Of
course the rate was secret, and Mr. Rockefeller probably understood now,
as he had not two months before, how essential it was that he keep it
secret. His task was more difficult now, for he had an enemy active,
clamorous, contemptuous, whose suspicions had reached that acute point
where they could believe nothing but evil of him—the producers and
independent refiners of the Oil Regions. It was utterly impossible that
he should ever silence this enemy, for their points of view were
diametrically opposed.
They believed in independent effort—every man for himself and fair play
for all. They wanted competition, loved open fight. They considered that
all business should be done openly; that the railways were bound as
public carriers to give equal rates; that any combination which favoured
one firm or one locality at the expense of another was unjust and
illegal. This belief long held by many of the oil men had been
crystallised by the uprising into a common sentiment. It had become the
moral code of the region.
Mr. Rockefeller’s point of view was different. He believed that the
“good of all” was in a combination which would control the business as
the South Improvement Company proposed to control it. Such a combination
would end at once all the abuses the business suffered. As rebates and
special rates were essential to this control, he favoured them. Of
course Mr. Rockefeller must have known that the railroad was a common
carrier, and that the common law forbade discrimination. But he knew
that the railroads had not obeyed the laws governing them, that they had
regularly granted special rates and rebates to those who had large
amounts of freight. That is, you were able to bargain with the railroads
as you did with a man carrying on a strictly private business depending
in no way on a public franchise. Moreover, Mr. Rockefeller probably
believed that, in spite of the agreements, if he did not get rebates
somebody else would; that they were for the wariest, the shrewdest, the
most persistent. If somebody was to get rebates, why not he? This point
of view was no uncommon one. Many men held it and felt a sort of scorn,
as practical men always do for theorists, when it was contended that the
shipper was as wrong in taking rates as the railroads in granting them.
Thus, on one hand there was an exaggerated sense of personal
independence, on the other a firm belief in combination; on one hand a
determination to root out the vicious system of rebates practised by the
railway, on the other a determination to keep it alive and profit by it.
Those theories which the body of oil men held as vital and fundamental
Mr. Rockefeller and his associates either did not comprehend or were
deaf to. This lack of comprehension by many men of what seems to other
men to be the most obvious principles of justice is not rare. Many men
who are widely known as good, share it. Mr. Rockefeller was “good.”
There was no more faithful Baptist in Cleveland than he. Every
enterprise of that church he had supported liberally from his youth. He
gave to its poor. He visited its sick. He wept with its suffering.
Moreover, he gave unostentatiously to many outside charities of whose
worthiness he was satisfied. He was simple and frugal in his habits. He
never went to the theatre, never drank wine. He gave much time to the
training of his children, seeking to develop in them his own habits of
economy and of charity. Yet he was willing to strain every nerve to
obtain for himself special and unjust privileges from the railroads
which were bound to ruin every man in the oil business not sharing them
with him. He was willing to array himself against the combined better
sentiment of a whole industry, to oppose a popular movement aimed at
righting an injustice, so revolting to one’s sense of fair play as that
of railroad discriminations. Religious emotion and sentiments of
charity, propriety and self-denial seem to have taken the place in him
of notions of justice and regard for the rights of others.
Unhampered, then, by any ethical consideration, undismayed by the
clamour of the Oil Regions, believing firmly as ever that relief for the
disorders in the oil business lay in combining and controlling the
entire refining interest, this man of vast patience and foresight took
up his work. That work now was to carry out some kind of a scheme which
would limit the output of refined oil. He had put his competitors in
Cleveland out of the way. He had secured special privileges in
transportation, but there were still too many refineries at work to make
it possible to put up the price of oil four cents a gallon. It was
certain, too, that no scheme could be worked to do that unless the Oil
Regions could be mollified. That now was Mr. Rockefeller’s most
important business. Just how he began is not known. It is only certain
that the day after the newspapers of the Oil Regions printed the report
of the Congressional Committee on Commerce denouncing the South
Improvement Company as “one of the most gigantic and dangerous
conspiracies ever attempted,” and declaring that if it had not been
checked in time it “would have resulted in the absorption and arbitrary
control of trade in all the great interests of the country.”[26] Mr.
Rockefeller and several other members of the South Improvement Company
appeared in the Oil Regions. They had come, they explained, to present a
new plan of co-operation, and to show the oil men that it was to their
interest to go into it. Whether they would be able to obtain by
persuasion what they had failed to obtain by assault was now an
interesting uncertainty.
CHAPTER FOUR
“AN UNHOLY ALLIANCE”
ROCKEFELLER AND HIS PARTY NOW PROPOSE AN OPEN INSTEAD OF A SECRET
COMBINATION—“THE PITTSBURG PLAN”—THE SCHEME IS NOT APPROVED BY THE
OIL REGIONS BECAUSE ITS CHIEF STRENGTH IS THE REBATE—ROCKEFELLER NOT
DISCOURAGED—THREE MONTHS LATER BECOMES PRESIDENT OF NATIONAL
REFINERS’ ASSOCIATION—FOUR-FIFTHS OF REFINING INTEREST OF UNITED
STATES WITH HIM—OIL REGIONS AROUSED—PRODUCERS’ UNION ORDER DRILLING
STOPPED AND A THIRTY DAY SHUT-DOWN TO COUNTERACT FALLING PRICE OF
CRUDE—PETROLEUM PRODUCERS’ AGENCY FORMED TO ENABLE PRODUCERS TO
CONTROL THEIR OWN OIL—ROCKEFELLER OUTGENERALS HIS OPPONENTS AND
FORCES A COMBINATION OF REFINERS AND PRODUCERS—PRODUCERS’
ASSOCIATION AND PRODUCERS’ AGENCY SNUFFED OUT—NATIONAL REFINERS’
ASSOCIATION DISBANDS—ROCKEFELLER STEADILY GAINING GROUND.
The feeling of outrage and resentment against the Standard Oil Company,
general in the Oil Regions at the close of the Oil War because of the
belief that it intended to carry on the South Improvement Company in
some new way, was intensified in the weeks immediately following the
outbreak by the knowledge that Mr. Rockefeller had been so enormously
benefited by the short-lived concern. Here he was shipping Eastward over
one road between 4,000 and 5,000 barrels of refined oil a day—oil wrung
from his neighbours by an outrageous conspiracy, men said bitterly. This
feeling was still keen when Mr. Rockefeller and several of his
colleagues in the South Improvement scheme suddenly, in May, 1873,
appeared on the streets of Titusville. The men who had fought him so
desperately now stared in amazement at the smiling, unruffled
countenance with which he greeted them. Did not the man know when he was
beaten? Did he not realise the opinion the Oil Regions held of him? His
placid demeanour in the very teeth of their violence was disconcerting.
Not less of a shock was given the country by the knowledge that Mr.
Rockefeller, Mr. Flagler, Mr. Waring and the other gentlemen in their
party were pressing a new alliance, and that they claimed that their new
scheme had none of the obnoxious features of the defunct South
Improvement Company, though it was equally well adapted to work out the
“good of the oil business.”
For several days the visiting gentlemen slipped around, bland and
smiling, from street corner to street corner, from office to office,
explaining, expostulating, mollifying. “You misunderstand our
intention,” they told the refiners. “It is to save the business, not to
destroy it, that we are come. You see the disorders competition has
wrought in the oil industry. Let us see what combination will do. Let us
make an experiment—that is all. If it does not work, then we can go back
to the old method.”
Although Mr. Rockefeller was everywhere, and heard everything in these
days, he rarely talked. “I remember well how little he said,” one of the
most aggressively independent of the Titusville refiners told the
writer. “One day several of us met at the office of one of the refiners,
who, I felt pretty sure, was being persuaded to go into the scheme which
they were talking up. Everybody talked except Mr. Rockefeller. He sat in
a rocking-chair, softly swinging back and forth, his hands over his
face. I got pretty excited when I saw how those South Improvement men
were pulling the wool over our men’s eyes, and making them believe we
were all going to the dogs if there wasn’t an immediate combination to
put up the price of refined and prevent new people coming into the
business, and I made a speech which, I guess, was pretty warlike. Well,
right in the middle of it John Rockefeller stopped rocking and took down
his hands and looked at me. You never saw such eyes. He took me all in,
saw just how much fight he could expect from me, and I knew it, and then
up went his hands and back and forth went his chair.”
For fully a week this quiet circulation among the oil men went on, and
then, on May 15 and 16, public meetings were held in Titusville, at
which the new scheme which they had been advocating was presented
publicly. This new plan, called the “Pittsburg Plan”[27] from the place
of its birth, had been worked out by the visiting gentlemen before they
came to the Oil Regions. It was a most intelligent and comprehensive
proposition.
As in the case of the South Improvement scheme, a company was to be
formed to run the refining business of the whole country, but this
company was to be an open instead of a secret organisation, and all
refiners were to be allowed to become stockholders in it. The owners of
the refineries who went into the combination were then to run them in
certain particulars according to the direction of the board of the
parent company; that is, they were to refine only such an amount of oil
as the board allowed, and they were to keep up the price for their
output as the board indicated. The buying of crude oil and the
arrangements for transportation were also to remain with the directors.
Each stockholder was to receive dividends whether his plant operated or
not. The “Pittsburg Plan” was presented tentatively. If anything better
could be suggested they would gladly accept it, its advocates said. “All
we want is a practical combination. We are wed to no particular form.”
The first revelation of the public meetings at which the “Pittsburg
Plan” was presented was that in the days Mr. Rockefeller and his friends
had been so diligently shaking hands with the oil men from Titusville to
Oil City they had made converts—that they had not entered these open
meetings until they had secured the assurance of co-operation in any
plan of consolidation which might be effected from some of the ablest
refiners and business men of the creek, notably from J. J. Vandergrift
of Oil City, and from certain firms of Titusville with which John D.
Archbold was connected. All of these persons had fought the South
Improvement Company, and they all now declared that if the proposed
organisation copied that piratical scheme they would have nothing to do
with it, that their allegiance to the plan was based on their conviction
that it was fair to all—who went in!—and that it was made necessary by
over-refining, underselling, and by the certainty that the railroads
could not be trusted to keep their contracts. It was evident that the
possible profits and power to be gained by a successful combination had
wiped out their resentment against the leaders of the South Improvement
Company, and that if they had the assurance, as they must have had, that
rebates were a part of the game, they justified themselves by the
reflection that somebody was sure to get them, and that it might as well
be they as anybody.
The knowledge that a considerable body of the creek refiners had gone
over to Mr. Rockefeller awakened a general bitterness among those who
remained independent. “Deserters,” “ringsters,” “monopolists,” were the
terms applied to them, and the temper of the public meetings, as is
evident from the full reports the newspapers of the Oil Region
published, became at once uncertain. There were long pauses in the
proceedings, everybody fearing to speak. Mr. Rockefeller is not reported
as having spoken at all, the brunt of defense and explanation having
fallen on Mr. Flagler, Mr. Frew and Mr. Waring. Two or three times the
convention wrangled to the point of explosion, and one important
refiner, M. N. Allen, who was also the editor of the Titusville Courier,
one of the best papers in the region, took his hat and left. Before the
end of the convention the supporters of combination ought to have felt,
if they did not, that they had been a little too eager in pressing an
alliance on the Oil Regions so soon after outraging its moral sentiment.
The press and people were making it plain enough, indeed, that they did
not trust the persuasive advocates of reform. On every street corner and
on every railroad train men reckoned the percentage of interest the
stockholders of the South Improvement Company would have in the new
combination. It was too great. But what stirred the Oil Region most
deeply was its conviction that the rebate system was regarded as the
keystone of the new plan. “What are you going to do with the men who
prefer to run their own business?” asked a representative of the Oil
City Derrick of one of the advocates of the plan. “Go through them,” was
reported to be his laconic reply. “But how?” “By the co-operation of
transportation”—that is, by rebates. Now the Oil Region had been too
recently convicted of the sin of the rebate, and had taken too firm a
determination to uproot the iniquitous practice to be willing to ally
itself with any combination which it suspected of accepting privileges
which its neighbours could not get or would not take.
At the very time the association of refiners was under consideration an
attempt was made to win over the producers by offering, through their
union, to buy all their oil at five dollars a barrel for five years. Oil
was four dollars at the time. The producers refused. Such an agreement
could only be kept, they said, by an association which was an absolute
monopoly, fixing prices of refined to satisfy its own greed. All they
wanted of the producer was to be a party to their conspiracy. When they
had destroyed his moral force and completed their monopoly they would
pay him what they pleased for oil, and the price would not be five
dollars! What could he do then? He would be their slave, there would be
no other buyer—could be none, since they would control the entire
transportation system.
The upshot of the negotiations was that again the advocates of
combination had to retire from the Oil Regions defeated. “_Sic semper
tyrannis, sic transit gloria_ South Improvement Company,” sneered the
Oil City Derrick, which was given to sprinkling Latin phrases into its
forceful and picturesque English. But the Derrick underrated both the
man and the principle at which it sneered. A great idea was at work in
the commercial world. It had come to them saddled with crime. They now
saw nothing in it but the crime. The man who had brought it to them was
not only endowed with far vision, he was endowed with an indomitable
purpose. He meant to control the oil business. By one manœuvre, and that
a discredited one, he had obtained control of one-fifth of the entire
refining output of the United States. He meant to secure the other
four-fifths. He might retire now, but the Oil Region would hear of him
again. It did. Three months later, in August, 1872, it was learned that
the scheme of consolidation which had been presented in vain at
Titusville in May had been quietly carried out, that four-fifths of the
refining interest of the United States, including many of the creek
refiners, had gone into a National Refiners’ Association, of which Mr.
Rockefeller was president, and one of their own men, J. J. Vandergrift,
was vice-president. The news aroused much resentment in the Oil Regions.
The region was no longer solid in its free-trade sentiment, no longer
undividedly true to its vow that the rebate system as applied to the oil
trade must end. There was an enemy at home. The hard words which for
months men had heaped on the distant heads of Cleveland and Pittsburg
refiners, they began to pour out, more discreetly to be sure, on the
heads of their neighbours. It boded ill for the interior peace of the
Oil Regions.
The news that the refiners had actually consolidated aroused something
more than resentment. The producers generally were alarmed. If the
aggregation succeeded they would have one buyer only for their product,
and there was not a man of them who believed that this buyer would ever
pay them a cent more than necessary for their oil. Their alarm aroused
them to energy. The association which had scattered the South
Improvement Company was revived, and began at once to consider what it
could do to prevent the consolidated refiners getting the upper hand in
the business.
The association which now prepared to contest the mastery of the oil
business with Mr. Rockefeller and those who had joined him was a curious
and a remarkable body. Its membership, drawn from the length and breadth
of the Oil Regions, included men whose production was thousands of
barrels a day and men who were pumping scarcely ten barrels; it included
college-bred men who had come from the East with comfortable sums to
invest, and men who signed their names with an effort, had never read a
book in their lives, and whose first wells they had themselves “kicked
down.” There were producers in it who had made and lost a half-dozen
fortunes, and who were, apparently, just as buoyant and hopeful as when
they began. There were those who had never put down a dry well, and were
still unsatisfied. However diverse their fortunes, their breeding, and
their luck, there was no difference in the spirit which animated them
now.
[Illustration:
M. N. ALLEN
Independent refiner of Titusville. Editor of the _Courier_, an able
opponent of the South Improvement Company.
]
[Illustration:
JOHN FERTIG
Prominent oil operator. Until 1893 active in Producers’ and Refiners’
Company (independent).
]
[Illustration:
CAPT. WILLIAM HASSON
President of the Petroleum Producers’ Association of 1872.
]
[Illustration:
JOHN L. MC KINNEY
Prominent oil operator. Until 1889 an independent. Now member of the
Standard Oil Company.
]
The president of the association was Captain William Hasson, a young man
both by his knowledge of the Oil Regions and the oil business well
fitted for the position. Captain Hasson was one of the few men in the
association who had been in the country before the discovery of oil. His
father had bought, in the fifties, part of the grant of land at the
mouth of Oil Creek, made in 1796 to the Indian chief Cornplanter, and
had moved on it with his family. Four years after the discovery of oil
he and his partner disposed of 300 acres of the tract they owned for
$750,000. Young Hasson had seen Cornplanter, as the site of his father’s
farm was called, become Oil City; he had seen the mill, blacksmith shop
and country tavern give way to a thriving town of several thousand
inhabitants. All of his interests and his pride were wrapped up in the
industry which had grown up about him. Independent in spirit, vigorous
in speech, generous and just in character, William Hasson had been
thoroughly aroused by the assault of the South Improvement Company, and
under his presidency the producers had conducted their successful
campaign. The knowledge that the same man who had been active in that
scheme had now organised a national association had convinced Captain
Hasson of the necessity of a counter move, and he threw himself
energetically into an effort to persuade the oil producers to devise an
intelligent and practical plan for controlling their end of the
business, and then stand by what they decided on.
Captain Hasson and those who were working with him would have had a much
more difficult task in arousing the producers to action if it had not
been for the general dissatisfaction over the price of oil. The average
price of crude in the month of August, 1872, was $3.47½. The year before
it had been $4.42½, and that was considered a poverty price. It was
pretty certain that prices would fall still lower, that “three-dollar
oil” was near at hand. Everybody declared three dollars was not a
“living price” for oil, that it cost more than that to produce it. The
average yield of the wells in the Oil Region in 1872 was five barrels a
day. Now a well cost at that time from $2,500 to $8,000, exclusive of
the price of the lease. It cost eight to ten dollars a day to pump a
well, exclusive of the royalty interest—that is, the proportion of the
production turned over to the land-owner, usually one-fourth.[28] If a
man had big wells, and many of them, he made big profits on
“three-dollar oil,” but there were comparatively few “big producers.”
The majority of those in the business had but few wells, and these
yielded only small amounts.
If he had been contented to economise and to accept small gains, even
the small producer could live on a much lower price than three dollars;
but nobody in the Oil Regions in 1872 looked with favour on economy, and
everybody despised small things. The oil men as a class had been brought
up to enormous profits, and held an entirely false standard of values.
As the Derrick told them once in a sensible editorial, “their business
was born in a balloon going up, and spent all its early years in the
sky.” They had seen nothing but the extreme of fortune. One hundred per
cent. per annum on an investment was in their judgment only a fair
profit. If their oil property had not paid for itself entirely in six
months, and begun to yield a good percentage, they were inclined to
think it a failure. Now nothing but five-dollar oil would do this, so
great were the risks in business; and so it was for five-dollar oil,
regardless of the laws of supply and demand, that they struggled. They
were notoriously extravagant in the management of their business. Rarely
did an oil man write a letter if he could help it. He used the telegraph
instead. Whole sets of drilling tools were sometimes sent by express. It
was no uncommon thing to see near a derrick broken tools which could
easily have been mended, but which the owner had replaced by new ones.
It was anything to save bother with him. Frequently wells were abandoned
which might have been pumped on a small but sure profit. In those days
there were men who looked on a ten-barrel (net) well as hardly worth
taking care of. And yet even at fifty cents a barrel such a well would
have paid the owner $1,800 a year. The simple fact was that the profits
which men in trades all over the country were glad enough to get, the
oil producer despised. The one great thing which the Oil Regions did not
understand in 1872 was economy. As a matter of fact the oil-producing
business was going through a stage in its natural development similar to
oil refining. Both, under the stimulus of the enormous profits in the
years immediately following the discovery of oil, had been pushed until
they had outstripped consumption. The competition resulting from the
inrush of producers and refiners and the economies which had been worked
out were bringing down profits. The combinations attempted by both
refiners and producers in these years were really efforts to keep up
prices to the extravagant point of the early speculative years.
Now the drop in the price of oil everybody recognised to be due to a
natural cause. Where a year before the production had been 12,000
barrels a day, it was now 16,000. The demand for refined had not
increased in proportion to this production of crude, and oil stocks had
accumulated until the tanks of the region were threatening to overflow.
And there was no sign of falling off. Under these circumstances it
needed little argument to convince the oil men that if they were to get
a better price they must produce no more than the world would use. There
was but one way to effect this—to put down no new wells until the stocks
on hand were reduced and the daily production was brought down to a
marketable amount.
Under the direction of the Producers’ Association an agitation at once
began in favour of stopping the drill for six months. It was a drastic
measure. There was hardly an oil operator in the entire region who had
not on hand some piece of territory on which he was planning to drill,
or on which he had not wells under way. Stopping the drill meant that
all of the aggressive work of his business should cease for six months.
It meant that his production, unreplenished, would gradually fall off,
until at the end of the period he would have probably not over half of
what he had now; that then he must begin over again to build up. It
meant, too, that he was at the mercy of neighbours who might refuse to
join the movement, and who by continuing to drill would drain his
territory. It seemed to him the only way of obtaining a manageable
output of crude, however, and accordingly, when late in the month of
August the following pledge to stop the drill was circulated, the great
majority of the producers signed it:
_Whereas_, The extreme low price of oil requires of producers that
operations therefor shall cease for the present: Now we, the
producers, land-owners and others, residents of the Pennsylvania Oil
Region, do hereby bind ourselves to each other not to commence the
drilling of any more wells for the period of six months from the
first day of September next, not to lease any lands owned or
controlled by us for the purpose of operations during the same
period, and we also agree to use all honourable means to prevent
others from boring. This we agree to, and bind ourselves to each
other under a forfeiture of $2,000 for each well commenced by either
of us within the period above limited—the same to be collected as
any other debt. It is, however, understood by the undersigned that
this forfeiture is not to apply to any wells where the erection of
rigs is completed or under way, or that may be commenced before the
first day of September aforesaid.
The chief objection to this pledge came from land-owners in Clarion
County. They were the “original settlers,” plodding Dutch farmers, whose
lives had always been poor and hard and shut-in. The finding of oil had
made them rich and greedy. They were so ignorant that it was difficult
to transact business of any nature with them. It was not unusual for a
Clarion County farmer, if offered an eighth royalty, to refuse it on the
ground that it was too little, and to ask a tenth. A story used to be
current in the Oil Regions of a producer who, returning from an
unsuccessful land hunt in Clarion County was asked why he had not
secured a certain lease. “Well,” he said, “farmers wanted seven-eighths
of the oil as a royalty, wanted me to furnish barrels and to paint
_both_ heads. I agreed to everything but the last. I could afford to
paint but one head, and so he wouldn’t sign the lease.” When the
proposition to stop the drill for six months was brought to these men,
who at the time owned the richest territory in the oil field, no amount
of explanation could make them understand it. They regarded it simply as
a scheme to rob them, and would not sign. Outside of this district,
however, the drill stopped over nearly all the field on the first of
September.
There was nothing but public opinion to hold the producers to their
pledge. But public opinion in those days in the Oil Regions was fearless
and active and asserted itself in the daily newspapers and in every
meeting of the association. The whole body of oil men became a vigilance
committee intent on keeping one another loyal to the pledge. Men who
appeared at church on Sunday in silk hats, carrying gold-headed
canes—there were such in the Oil Region in 1872—now stole out at night
to remote localities to hunt down rumours of drilling wells. If they
found them true, their dignity did not prevent their cutting the tools
loose or carrying off a band wheel.
Stopping the drill afforded no immediate relief to the producers. It was
for the future. And as soon as the Petroleum Producers’ Association had
the movement well under way, it proposed another drastic measure—a
thirty days’ shut-down—by which it was meant that all wells should cease
pumping for a month. Nothing shows better the compact organisation and
the determination of the oil producers at this time than the immediate
response they gave to this suggestion. In ten days scarcely a barrel of
oil was being pumped from end to end of the Oil Regions. “That a
business producing three million dollars a month, employing 10,000
labouring men and fifty million dollars of capital, should be entirely
suspended, dried up, stopped still as death by a mutual voluntary
agreement, made and perfected by all parties interested, within a space
of ten days—this is a statement that staggers belief—a spectacle that
takes one’s breath away,” cried the Derrick, which was using all its
wits to persuade the producers to limit their production. It was
certainly a spectacle which saddened the heart, however much one might
applaud the grim resolution of the men who were carrying it out. The
crowded oil farms where creaking walking-beams sawed the air from
morning until night, where engines puffed, whistles screamed, great gas
jets flared, teams came and went, and men hurried to and fro, became
suddenly silent and desolate, and this desolation had an ugliness all
its own—something unparalleled in any other industry of this country.
The awkward derricks, staring cheap shanties, big tanks with miles and
miles of pipe running hither and thither, the oil-soaked ground,
blackened and ruined trees, terrible roads—all of the common features of
the oil farm to which activity gave meaning and dignity—now became
hideous in inactivity. Oil seemed a curse to many a man in those days as
he stood by his silent wells and wondered what was to become of his
business, of his family, in this clash of interests.
While the producers were inaugurating these movements, Captain Hasson
and a committee were busy making out the plan of the permanent
association which was to control the business of oil-producing and
prevent its becoming the slave of the refining interest. The knowledge
that such an organisation was being worked out kept the oil country in a
ferment. In every district suggestions, practical and impractical, wise
and foolish, occupied every producers’ meeting and kept the idle oil men
discussing from morning until night. At one mass-meeting the following
resolution was actually passed by a body of revengeful producers:
_Resolved_, that to give a wider market throughout the world to
petroleum, to enhance its price and to protect producers from unjust
combinations of home refiners, a committee be appointed to ask the
representatives of foreign governments at Washington to request
their respective governments to put a proper tariff on refined oil
and to admit crude oil free into the ports of their respective
governments.
Toward the end of October Captain Hasson presented the scheme which he
and the committee had prepared. It proposed that there should be
established what was called a Petroleum Producers’ Agency.[29] This
agency was really an incorporated company with a capital of one million
dollars, the stock of which was to be subscribed to only by the
producers or their friends. This agency was to purchase all the oil of
the members of the association at at least five dollars a barrel. If
stocks could be kept down so that the market took all of the oil at
once, the full price was to be paid at once in cash; if not, the agency
was to store the oil in tanks it was to build, and a portion of the
price was to be paid in tank certificates. By thus controlling all the
oil, the agency expected to protect the weakest as well as the strongest
producer, to equalise the interest of different localities, to prevent
refiners and exporters from accumulating stocks, and to prevent gambling
in oil. The agency was to take active means to collect reliable
information about the oil business—the number of wells drilling, the
actual production, the stocks on hand—things which had never been done
to anybody’s satisfaction. Indeed, one of the standing causes for
quarrels between the various newspapers of the region was their
conflicting statistics about production and stocks. It was to make a
study of the market and see what could be done to increase consumption.
It was to oppose monopolies and encourage competition, and, if
necessary, it was to provide co-operative refineries which the producers
should own and control.
The spirit of the agency, as explained by Captain Hasson, was most
liberal, considering the interests of even the drillers and pumpers.
“Advise every employee to take at least one share of stock for himself,”
he said in his address, “and one for his wife and each of his children,
and encourage him to pay for it out of his saved earnings or out of his
monthly pay. If he is not able to keep up his instalments, assure him
that you will help him, and then take care to do it. You will thus do
him a double kindness, and benefit his family by encouraging habits of
thrift and economy. You owe this much to him who so nobly seconded your
efforts to gain control of the market by stopping work. You had all to
gain, and he had nothing to hope for but your benefit. Now show your
appreciation of his acts by this evidence of your regard for his
welfare.”
The plan was received with general enthusiasm, and when it came up for
adoption it went through with a veritable whoop. Indeed, within a few
moments after its official acceptance, which took place in Oil City on
October 24, $200,000 worth of stock was taken, and less than two weeks
later it was announced that more than the desired million dollars had
been subscribed, that the trustees and officers had been elected, and
that the agency was ready for work. For the first time in the history of
the oil business the producers were united in an organisation, which, if
carried out, would regulate the production of oil to something like the
demand for it, would prevent stocks from falling into the hands of
speculators, and would provide a strong front to any combination with
monopolistic tendencies. Only one thing was necessary now to make the
producer a fitting opponent to his natural enemy, the refiner. That
thing was loyalty to the agency he had established. The future of the
producer at that moment was in his own hand. Would he stick? By every
sign he would. He thought so himself. He had acted so resolutely and
intelligently up to this point that even Mr. Rockefeller seems to have
thought so.
During the entire three months that the producers had been organising,
the refiners had been making divers overtures to them. In August several
of the refiners sought certain of the big producers and privately
proposed a two-headed combination which should handle the whole
business, from drilling to exportation. The proposition they made was
most alluring to men suffering from low prices. “Carry out your plans to
limit your production and guarantee to sell only to us,” said Mr.
Rockefeller’s representative, “and we will give you four dollars a
barrel for your oil. We will also establish a sliding scale, and for
every cent a gallon that refined oil advances we will give you
twenty-five cents more on your barrel of crude.” The market price of
crude oil, when this offer was made, was hovering around three dollars.
“How,” asked the producer, “can you do this?” “We expect, by means of
our combination, to get a rebate of seventy-five cents a barrel,” was
the answer. “But the railroads have signed an agreement to give no
rebates,” objected the producers.
“As if the railroads ever kept an agreement,” answered the worldly-wise
refiners. “Somebody will get the rebates. It is the way the railroads do
business. If it is to be anybody, we propose it shall be our
combination.” Now it was clear enough to the men approached that the
great body of their association would never go into any scheme based on
rebates, and they said so. The refiners saw no disadvantage in that
fact. “We don’t want _all_ the producers. We only want the big ones. The
small producer under our arrangement must die, as the small refiner
must.” The proposition never got beyond the conference chamber. It was
too cynical. Several conferences of the same nature took place later
between representatives of the two interests, but nothing came of them.
The two associations were kept apart by the natural antagonism of their
ideals and their policy. Captain Hasson and his followers were working
on an organisation which aimed to protect the weakest as well as the
strongest; which welcomed everybody who cared to come into the business;
which encouraged competition and discountenanced any sort of special
privilege. Mr. Rockefeller and his associates proposed to save the
strong and eliminate the weak, to limit the membership to those who came
in now, to prevent competition by securing exclusive privileges. Their
program was cold-blooded, but it must be confessed that it showed a much
firmer grasp on the commercial practices of the day, and a much deeper
knowledge of human nature as it operates in business, than that of the
producers.
The formation of the Producers’ Agency brought the refiners back to the
Oil Regions in greater earnest than ever. The success of that
organisation gave them an active antagonist, one which, as it held the
raw material, could at any time actually shut up their refineries by
withholding oil. The vigour, the ability, the determination the new
organisation had displayed made it a serious threat to the domination
Mr. Rockefeller and his associates had dreamed. It must be placated. On
November 8, immediately after it was announced that the entire million
dollars’ worth of stock was taken, an agent of the Standard Oil Company
in Oil City was ordered to buy oil from the agency—6,000 barrels of oil
at $4.75 a barrel—and the order was followed by this telegram from Mr.
Rockefeller:
“It has been represented to us that if we would buy of the
producers’ agent at Oil City and pay $4.75 per barrel, they would
maintain the price. We are willing to go farther and buy only of the
producers’ agent, hence the order we have given you. See Hasson and
others and let there be a fair understanding on this point. We will
do all in our power to maintain prices, and continue to buy,
provided our position is fully understood. We do this to convince
producers of our sincerity, and to assist in establishing the
market.”
A more adroit move could not have been made at this moment. This
purchase was a demonstration that the Refiners’ Association could and
would pay the price the producers asked; that they asked nothing better,
in fact, than to ally themselves with the agency. The events of the next
three weeks, on the contrary, showed the agency that it would be some
time before anybody else would pay them any such price as that Mr.
Rockefeller promised. The reason was evident enough. In spite of the
stopping of the drill, in spite of the thirty days’ shut-down,
production was increasing. Indeed, the runs[30] for November were
greater than they had ever been in any single month since the beginning
of the oil business. A large number of wells under way when the drill
was stopped had “come in big.” New territory had been opened up by
unexpected wildcats. The shut-down had done less than was expected to
decrease stocks. It was evident that the Producers’ Association had a
long and severe task before it to bring the crude output down to
anything like the demand. Could the great body of producers be depended
upon to take still further measures to lessen their production, and at
the same time would they hold their oil until the agency had the mastery
of the situation? Their tanks were overflowing. Many of them were in
debt and depending on their sales to meet their obligations—even to meet
their daily personal expenses. It was little wonder that they grew
restive as they began to realise that the agency in which they had seen
immediate salvation from all their ills could only be made effective by
months more of self-sacrifice, of agitation, of persistent effort from
every man of them. With every day they became more impatient of the
bonds the agency had set for them, and the leaders soon realised that
some immediate tangible results must be given the mass of oil men, or
there was danger of a stampede.
A strong feature of the genius of John D. Rockefeller has always been
his recognition of the critical moment for action in complicated
situations. He saw it now, and his representatives again came to the
creek seeking an alliance. Their arguments, as they found their way from
the private meetings into the press and the street, ran something like
this: “Our combination is the only big buyer. We are in the thing to
stay, and shall remain the only big buyer. You might erect refineries
and oppose us, but it would take months, and while you are waiting how
are you going to hold the producers? You cannot do it. We can easily get
all the oil we want to-day at our own price from the men who sell from
necessity, and yet your agency is in the first flush of enthusiasm. Sell
only to us and we will buy 15,000 barrels a day from you. Refuse an
alliance with us and you will fail.”
Overwhelmed by the length and severity of the struggle before them if
they insisted on independence, fearful lest the scattered and restless
producers could not be held much longer, convinced by their confident
arguments that the refiners could keep their promise, the council
finally agreed to a plan of union which the Derrick dubbed the “Treaty
of Titusville.” A terrible hubbub followed the announcement that a
treaty was proposed and would probably be adopted by the association.
The same old arguments which had greeted each overture from the refiners
were gone over again. It would be a monopoly. The price they offered for
crude depended upon their getting an unnaturally high price for refined.
The markets of the world would refuse to pay this price when it was
discovered that it was kept up by an agreement which was contrary to the
laws of supply and demand. And, besides, the parties could not trust
each other. “_Timeo Danaos et dona ferentes._” Liberal translation—“Mind
your eye when the Cleveland refiners get generous,” cautioned the
Derrick. As always, the ghost of the South Improvement Company was
between them. On the other hand, it was argued that it was Hobson’s
choice, “combine or bust,” there is no other market. We cannot wait for
one. We have a million barrels of oil on hand—the refiners will take
15,000 barrels a day for “spot cash.” And after all, concluded the
“philosophical,” if you can’t do as well as you want to, do the best you
can.
[Illustration:
JAMES S. TARR
Owner of the “Tarr Farm,” one of the richest oil territories on Oil
Creek.
]
[Illustration:
WILLIAM BARNSDALL
The second oil well on Oil Creek was put down by Mr. Barnsdall.
]
[Illustration:
JAMES S. MCCRAY
Owner of the McCray Farm near Petroleum Centre.
]
[Illustration:
WILLIAM A. ABBOTT
One of the most prominent of the early oil producers, refiners and
pipe-line operators.
]
On December 12 the proposed treaty was laid before the producers at Oil
City. It aroused a debate so acrimonious that even the Derrick
suppressed it. Captain Hasson led the opposition. In his judgment there
was but one course for the producers—to keep themselves free from all
entanglements and give themselves time to build up solidly the structure
they had planned. If they had followed his advice the whole history of
the Oil Regions would have been different. But they did not follow it.
The treaty was ratified by a vote of twenty-seven to seven. The
excitement and the personalities the association indulged in at their
meeting augured ill for its future, but when a week later a committee
sent to see the refiners came back from New York with a contract signed
by Mr. Rockefeller,[31] the president, and bearing with them an order
for 200,000 barrels of oil at $3.25, there was a general feeling that,
after all, an alliance might not be so bad a thing. 200,000 barrels was
a big order and would do much to relieve their distress. Their formal
sense was quieted, too, by the assurance that the producers before
signing the contract had insisted that the Refiners’ Combination enter
into an agreement to take no rebates as long as the alliance lasted. The
main points of the agreement decided upon were that the Refiners’
Association should admit all _existing_ refiners to its society, and the
Producers’ Association _all_ producers present and to come—that the
former company should buy only of the latter, the latter sell only to
the former, and that the agency should bind all producers enjoying its
privileges to handle their oil through it. The refiners were to buy such
daily quantities as the markets of the world would take and at a price
governed by the price of refined, five dollars per barrel when refined
was selling at twenty-six cents a gallon. Either association could
discontinue the agreement on ten days’ notice. The producers, before
signing the contract, insisted that the Refiners’ Combination sign an
agreement to take no rebates as long as the alliance lasted. This
agreement in regard to rebates read as follows:
“_Whereas_, it is deemed desirable to execute a contract of even
date herewith between the Petroleum Producers’ Association and the
Petroleum Refiners’ Association for the purpose of securing a
co-operation for mutual protection, it is agreed by the Refiners’
Association that sections one and three of a contract made the 25th
of March, 1872, between certain trunk lines of railroads and a
committee of producers and refiners shall be and remain in full
force.
“Petroleum Refiners’ Association,
“JOHN D. ROCKEFELLER, _President_.”
The sections of the contract of the 25th of March referred to agreed
that no rebates or contracts or other arrangements should be made which
would give any party the slightest difference in rates, and that the
rates should not be changed either for increase or decrease without
first giving Mr. Hasson, the president of the Producers’ Union, at least
ninety days’ notice in writing. As we now know, Mr. Rockefeller himself
was receiving rebates when he signed this agreement.
And now, at last, after five months of incessant work, the agency was
ready to begin disposing of oil. They set to work diligently at once to
apportion the 200,000 barrels the refiners had bought among the
different districts. It was a slow and irritating task, for a method of
apportionment and of gathering had to be devised, and, as was to be
expected, it aroused more or less dissatisfaction and many charges of
favouritism. The agency had the work well under way, however, and had
shipped about 50,000 barrels when, on January 14, it was suddenly
announced that the refiners had _refused to take any more of the
contract oil_!
There was a hurried call of the Producers’ Council and a demand for an
explanation. A plausible one was ready from Mr. Rockefeller. “You have
not kept your part of the contract—you have not limited the supply of
oil[32]—there is more being pumped to-day than ever before in the
history of the region. We can buy all we want at $2.50, and oil has sold
within the week at two dollars. If you will not, or cannot, stop
over-production, can you expect us to pay your price? We keep down the
output of refined, and so keep up the price. If you will not do the
same, you must not expect high prices.”
What could the producers reply? In spite of their heroic measures, they
had not been able to curtail their output. It seemed as if Nature,
outraged that her generosity should be so manipulated as to benefit only
the few, had opened her veins to flood the earth with oil, so that all
men might know that here was a light cheap enough for the poorest of
them. Her lavish outpouring now swept away all of the artificial
restraints the producers and refiners had been trying to build. The
Producers’ Association seemed suddenly to comprehend their folly in
supposing that when 5,000 barrels more of oil was produced each day than
the market demanded any combination could long keep the contract the
refiners had made with them; and their unhappy session, made more
unhappy by the reading of bitter and accusing letters from all over the
discontented region, ended in a complete stampede from the refiners, the
vote for dissolving the alliance having but one dissenting voice.
There were few tears shed in the Oil Regions over the rupture of the
contract. The greater part of the oil men had called it from the
beginning an “unholy alliance,” and rejoiced that it was a fiasco. If
the alliance had been all that came to an end, the case would not have
been so serious, but it was not. The breaking of the alliance proved the
death of the agency and the association. The leaders who had disapproved
of the treaty withdrew from active work; the supporters of the alliance,
demoralised by its failure, were glad to keep quiet. A few spasmodic
efforts to stop the drill, to inaugurate another shut-down, were made,
but failed. Most of the producers felt that, as oil was so low, their
only safety was in getting as large a production as they could, and a
perfect fever of development followed. The Producers’ Association, after
ten months of as exciting and strenuous effort as an organisation has
ever put in, was snuffed out almost in a day. It was to be five years
before the oil men recovered sufficiently from the shock of this
collapse to make another united effort. If Mr. Rockefeller felt in the
fall of 1872 that the “good of the oil business” required the
dissolution of the Producers’ Agency, he could not have acted with more
acumen than he did in leading them into an alliance, and at the
psychological moment throwing up his contract.
Humiliated as the producers were by their failure, they soon found
consolation in the knowledge that the Refiners’ Association was in
trouble. A serious thing, in fact, had happened. When the official
report of the year’s exports and imports came out, it was shown that the
exports of refined oil had fallen off for the first time in the history
of the business. In 1871, 132,178,843 gallons had been exported. In
1872, only 118,259,832 were exported. Just as alarming was the proof
that the shale and coal-oil refineries of Europe had taken a fresh
start—that they were selling their products more cheaply than kerosene
could be imported and sold. There was a general outcry from all over the
country that Mr. Rockefeller and his associates were running the oil
business by keeping up the price of refined oil beyond what the price of
crude justified. The producers, eager for a scapegoat, argued that the
low price of crude was due to decreased consumption as well as
over-production, and their ill-will against Mr. Rockefeller flared up
anew. In the meantime the Refiners’ Association was having troubles of
its own. The members were not limiting their output as they had
agreed—that is, it was discovered every now and then that a refinery was
making more oil than Mr. Rockefeller had directed. Again, what was more
fatal to the success of the association, members sometimes sold at a
lower price than that set by Mr. Rockefeller. These restrictions were
fundamental to the success of the combination, and the members were
called together at Saratoga in June, 1873, and after a long session the
association was dissolved.
There was loud exultation in the unthinking part of the Oil Regions over
the dissolution of the refiners. The “Junior Anaconda” was dead. The
wiser part of the region did not exult. They knew that though the
combination might dissolve, the Standard Oil Company of Cleveland still
controlled its one-fifth of the capacity of the country; that not only
had Mr. Rockefeller been able to hold the twenty refineries he had
bolted so summarily at the opening of 1872, but he had assimilated them
so thoroughly that he was making enormous profits. Mr. Rockefeller’s
contracts with the Central Railroad alone in 1873 and 1874 obliged him
for seven months of the year to ship at least 100,000 barrels of refined
oil a month to the seaboard. As a matter of fact he never shipped less
than 108,000 barrels, and in one month of the period it rose to
180,000.[33] Now in 1873 he made, at the very lowest figure, three cents
a gallon on his oil. Estimating his shipments simply at 700,000 barrels
a year—and they were much more—his profits for that year were
$1,050,000, and this accounts for no profits on about thirty-five per
cent. of the Standard output, which was sold locally or shipped
Westward. Little wonder that the Cleveland refiners who had been snuffed
out the year before, and who saw their plants run at such advantage,
grew bitter, or that gossip said the daily mail of the president of the
Standard Oil Company was enlivened by so many threats of revenge that he
took extraordinary precautions about appearing unguarded in public.
It is worth noticing that these great profits were not being used for
private purposes. In 1872 the Standard Oil Company paid a dividend of
thirty-seven per cent., but in 1873 they cut it to fifteen per cent. The
profits were going almost solidly into the extension and solidification
of the business. Mr. Rockefeller was building great barrel factories,
thus cutting down to the minimum one of a refiner’s heaviest expenses.
He was buying tank cars that he might be independent of the vagaries of
the railroads in allotting cars. He was gaining control of terminal
facilities in New York. He was putting his plants into the most perfect
condition, introducing every improved process which would cheapen his
manufacturing by the smallest fraction of a cent. He was diligently
hunting methods to get a larger percentage of profit from crude oil.
There was, perhaps, ten per cent. of waste at that period in crude oil.
It hurt him to see it unused, and no man had a heartier welcome from the
president of the Standard Oil Company than he who would show him how to
utilise any proportion of his residuum. In short, Mr. Rockefeller was
strengthening his line at every point, and to no part of it was he
giving closer attention than to transportation.
CHAPTER FIVE
LAYING THE FOUNDATIONS OF A TRUST
EVIDENCE OF REAPPEARANCE OF REBATES SOON AFTER AGREEMENT OF MARCH 25
IS SIGNED—PRINCIPLE THOROUGHLY ESTABLISHED THAT LARGE SHIPPERS SHALL
HAVE ADVANTAGES OVER SMALL SHIPPERS IN SPITE OF RAILROADS’ DUTY AS
COMMON CARRIERS—AGREEMENT WORKED OUT BY WHICH THREE ROADS ARE TO
HAVE FIXED PERCENTAGE OF EASTERN SHIPMENTS—OIL REGIONS ROBBED OF
THEIR GEOGRAPHICAL ADVANTAGE—THE RUTTER CIRCULAR—ROCKEFELLER NOW
SECRETLY PLANS REALISATION OF HIS DREAM OF PERSONAL CONTROL OF THE
REFINING OF OIL—ORGANISATION OF THE CENTRAL ASSOCIATION—H. H.
ROGERS’ DEFENCE OF THE PLAN—ROCKEFELLER’S QUIET AND
SUCCESSFUL CANVASS FOR ALLIANCES WITH REFINERS—THE REBATE HIS
WEAPON—CONSOLIDATION BY PERSUASION OR FORCE—MORE TALK OF A UNITED
EFFORT TO COUNTERACT THE MOVEMENT.
Throughout 1872, while the producers and refiners were working out
associations and alliances to regulate the output of crude and refined
oil, the freight rates over the three great oil-carrying roads were
publicly supposed to be those settled by the agreement of March 25.
Except by the sophisticated it was believed that the railroads were
keeping their contracts. The Lake Shore and Michigan Southern and the
New York Central had never kept them, as we have seen. Mr. Flagler’s
statement that the Standard received a rebate of twenty-five cents a
barrel from April 1 to November 15, 1872, would seem to show that while
with one hand Mr. Clark and Mr. Vanderbilt signed the agreement with the
oil men that henceforth freights should be “on a basis of perfect
equality to all shippers, producers and refiners, and that no rebates,
drawbacks, or other arrangements of any character should be made or
allowed that would give any party the slightest difference in rates or
discriminations of any character whatever,” with the other they had
signed an arrangement to give a twenty-five-cent rebate to Mr.
Rockefeller! They certainly had a strong incentive for ignoring their
pledge. Consider what Mr. Rockefeller could offer the road—sixty
car-loads of oil a day, over 4,000 barrels. General Devereux points out
in the affidavit already mentioned[34] what this meant. It permitted
them to make up a solid oil train and run it out every day. By running
nothing else they reduced the average time of a freight car from
Cleveland to New York and return from thirty days to ten days. The
investment for cars to handle their freight was reduced by this
arrangement to about one-third what it would have been if several
different persons were shipping the same amount every day. Promptness
was insured in forwarding and returning (a drawback of from fifty
dollars to $150 a day accrued if it was late, so that the Standard was
bound to ship promptly), and all the inconvenience of dealing with many
shippers each with his peculiar whim or demand was avoided. It was
certainly worth a rebate to the Central, and the Central not having any
prejudices in favour of keeping agreements because they were agreements
naturally conceded what Mr. Rockefeller wanted. There was another point.
If the Central did not concede to Mr. Rockefeller’s terms it undoubtedly
would lose the freight. There was the lake and the canal and there was
the Erie!
Now it is not supposable that such an arrangement would go on long
without leaking out in the upper oil circles. We have evidence that it
did not. Indeed, there was among certain intelligent oil men a
conviction when the agreement was signed that the New York roads would
not regard it—that if they did it would ruin the refining business of
Cleveland. W. T. Scheide, a member of the oil men’s committee making
this contract, the agent of one of the largest oil shippers in the
country, Adnah Neyhart, in some frank and suggestive testimony given to
the Hepburn Committee in 1879, said that at the time the arrangement was
made he did not think anybody connected with the business expected it
would last. “My reason for that was that it was an impossible
agreement,” said Mr. Scheide. “The immediate effect of it would have
been to have utterly destroyed fifty-five per cent. of the refining
interest of the country; that is to say, Cleveland and Pittsburg, which
during the previous four years had shipped fifty-five per cent. of all
the oil out of the Oil Regions—they, in addition to paying the rates of
freights which all other refiners would have had to pay, were required
to pay fifty cents a barrel on their crude oil to their works.” The
refiners in Cleveland and Pittsburg had of course always paid to get
crude oil to their works, even the South Improvement Company tariffs
provided for that, and under that arrangement Cleveland had come to be
in 1871 the chief refining centre of the country. The chairman of the
committee examining Mr. Scheide suggested it was a “temporary
impossibility which would have adjusted itself,” which Mr. Scheide
admitted. “Yes, sir, naturally, it would have adjusted itself I suppose,
but the effect was very marked at the time.”
So strong was Mr. Scheide’s conviction that the New York roads would not
stand the new rates that on the 10th of April he went to the
Pennsylvania railroad and asked for a rebate on Mr. Neyhart’s crude
shipments—and got it. What the rebate was he does not state, but Mr.
Flagler tells us in his testimony[35] that in December he discovered
that the Pennsylvania was shipping for as low as $1.05 a barrel. And for
one month he got from Mr. Vanderbilt a rate of $1.05 on his 4,000
barrels a day.
Mr. Scheide was also shipping refined oil over the Erie. George R.
Blanchard, who in October, 1872, became the general freight agent of the
Erie, told the Hepburn Committee in 1879 that he found on entering his
position that $7,000 in rebates had been paid Mr. Scheide for Mr.
Neyhart in the month of September, 1872, on this refined. He does not
say how long this had been going on. Mr. Blanchard found at the same
time the March 25 agreement. He asked why it was not observed, and the
reply convinced him that it had not been kept more than two weeks by the
Pennsylvania and Central systems. “The representations made to me,” says
Mr. Blanchard, “also convinced the Atlantic and Great Western as to what
our rivals were doing, and that railway company and our own decided to
continue to pay the twenty-four cents per barrel drawback then being
paid on the rate of $1.35, provided by their producers’ agreement of
March 25, 1872.”
But Mr. Blanchard was shipping only Mr. Neyhart’s refined, and naturally
he looked for more business and was willing to give a rebate to get it.
He soon had some from another of the oil men who had signed the
agreement of March 25. This was Mr. Bennett, of Titusville, who with J.
D. Archbold and his other partners entered into a contract with Mr.
Blanchard to ship their entire product for a year at a rate considerably
below the one agreed upon on March 25.[36] The contract was a
short-lived one, for in November Mr. Bennett and his partners turned
their shipments over to the Pennsylvania. The Erie had some
compensation, however, in the fact that in July, 1873, Mr. Neyhart’s
crude shipments had all come to them. Mr. Scheide, Mr. Neyhart’s agent,
explained to the Hepburn Commission that he left the Pennsylvania
because of what he considered “very bad treatment—a discrimination
against us in furnishing us cars.” The Pennsylvania had indeed
undertaken to carry out the clause in the agreement of March 25 which
stipulated that there should be no discrimination in furnishing cars.
Mr. Scheide, considering himself “their shipper,” that is, shipping
larger quantities more regularly than anybody else, and as a consequence
having better rates, thought it unfair that the cars should be pro
rated,[37] and left the road, giving his business to the Erie, where
presumably he got assurances that cars would be furnished to shippers
according to the quantity and regularity of shipments. Mr. Scheide’s
excellent testimony is good evidence of how deep a hold the principle
that the large shippers are to have all the advantages had taken hold of
some of the best men in the oil country, although the oil country as a
whole utterly repudiated the “rebate business.” These details, all drawn
from sworn testimony, show how, before a year had passed after the end
of the Oil War, all the roads were practising discrimination, how a few
shippers were again engaged in a scramble for advantages, and how the
big shippers were bent on re-establishing the principle supposed to have
been overthrown by the Oil War that one shipper is more convenient and
profitable for a road than many, and this being so, the matter of a
road’s duty as a common carrier has nothing to do with the question.[38]
This was the situation when in June, 1873, General Devereux, whom we
have met on the Lake Shore road, became president of the Atlantic and
Great Western. Now at this time Peter H. Watson, the president of the
South Improvement Company, was president of the Erie. The two at once
looked into the condition of their joint oil traffic. They found the
rebate system abolished a year before again well intrenched.
Nevertheless the Erie was not doing much business. The entire shipments
of oil over the Erie for 1873 were but 762,000 barrels out of a total of
4,963,000. Naturally they went to work to build up a trade, and their
relations being what they had been with the Standard, the company
controlling a third of the country’s refining capacity, they went to
them to see if they could not get a percentage of their seaboard
shipments from Cleveland. Mr. Rockefeller was willing to give them
shipments if they would make the rates as low as were given to any of
his competitors on any of the roads, and if they would deliver his oil
at Hunter’s Point, Brooklyn, where he had oil yards, and where the
Central delivered, or if they would not do that if they would lease
their own oil yards to him. There was an excellent business reason for
making that latter demand, which Mr. Blanchard explained to the Hepburn
Commission:
“The Standard,” said Mr. Blanchard, “had a force of men, real estate,
houses, tanks and other facilities at Hunter’s Point for receiving and
coopering the oil; and they had their cooperage materials delivered over
there. The arrangement prior to that time was that the Erie Company
performed this service for its outside refiners at Weehawken, for which
the Erie Company made specific charges and added them to their rates for
freight. The Standard Company said to us: ‘We do the business at low
cost at Hunter’s Point because we are expert oil men and know how to
handle it; we pay nobody a profit, and cannot and ought not to pay you a
profit for a service that is not transportation any more than inspecting
flour or cotton; and the New York Central delivers our oil at that
point. Now if you will deliver our oil at Hunter’s Point and permit us
to do this business, you may do so; we want to do that business, and we
cannot pay to the Erie Railway Company at Weehawken a profit on all of
those staves, heads, cooperage, filling, refilling and inspection, for
we have our own forces of men and our own yards necessary for this work
in another part of the harbour of New York; and it is not a part of your
business as a carrier, anyway.’
“In lieu thereof and for the profits that we could have made from the
aggregate of these charges, we said to them: ‘If you will pay us a fixed
profit upon each one of these barrels of oil arriving here, you may take
the yards and run them subject to certain limitations as to what you
shall do for other people who continue to ship oil to the same yards.’
They were only able to make this arrangement with us because of their
controlling such a large percentage of shipment, and because of
permanent facilities in Brooklyn; if the larger percentage of shipments
had belonged to outside parties, and they had had no yards of their own,
we would probably have retained the yards ourselves.”
A contract was signed on April 17, 1874. By it the Standard agreed to
ship fifty per cent. of the products of its refineries by the Erie at
rates “no higher than is paid by the competitors of the Standard Oil
Company from competing Western refineries to New York by all rail
lines,” and to give all oil patrons of the Erie system a uniform price
and fair and equal facilities at the Weehawken yards.[39] It was a very
wise business deal for both parties. It made Mr. Rockefeller the
favoured shipper of a second trunk line (the Central system was already
his) and it gave him the control of that road’s oil terminal so that he
could know exactly what other oil patrons of the road were doing—one of
the advantages the South Improvement contract looked out for, it will be
remembered. As for the Erie, it tied up to them an important trade and
again put them into a position to have something to say about the
division of the oil traffic, the bulk of which outside of the Standard
Oil Company the Pennsylvania was handling. In connection with the
Central the Erie now said to the Pennsylvania that henceforth they
proposed to maintain their position as oil shippers.
The natural result of the determination of the Central and Erie to get
from the Pennsylvania a percentage of its freight was, of course,
increased cutting, and it looked as if a rate war was inevitable. At
this juncture Colonel Potts of the Empire Transportation Company,
handling all of the Pennsylvania freight, suggested to his rivals that
it would be a favourable time for the three trunk lines to pool their
seaboard oil freight. In the discussions of this proposition, which, of
course, involved a new schedule of rates, there being now practically
none, it was suggested that henceforth freights be so adjusted that they
would be equal to all refiners, on crude and refined from all points.
Such an equalisation seems at first glance an unsolvable puzzle. The
agents found it intricate enough. Throughout the summer of 1874 they
worked on it, holding meetings at Long Branch and Saratoga and calling
into their counsels a few of the leading refiners, pipe-line men and
producers whom they could trust to keep quiet about the project.
By the first of September they had an agreement worked out by which each
of the three roads was to have a fixed percentage of Eastern shipments.
The rates to the seaboard were to amount to the same for all refiners
wherever located. That is, to use one of the illustrations employed by
Mr. Blanchard in explaining the scheme to the Hepburn Commission:
“Suppose 100 barrels of refined oil to have been sent from Cleveland to
New York by rail; the consignee was required to first pay freight
therefor at New York upon delivery $1.90; to make this quantity of
refined oil at that time, he had already paid freight on say 133½
barrels of crude oil from the pipes to Cleveland at thirty-five cents
per barrel or say $46.67; he had therefore paid out from the pipes to
the refinery and thence to New York by transportation only, on 100
barrels refined and the quantity of crude oil required to make it,
$236.67 or $2.37 per barrel; therefore, at the end of the month we
refunded the $46.67 already paid on the crude oil. So that the rate paid
net was $1.90 to him and all other refiners.”
[Illustration:
FLEET OF OIL BOATS AT OIL CITY IN 1864
]
In case of the refineries situated at the seaboard the cost of carrying
from the Oil Regions the 133½ barrels of crude oil required to make 100
barrels of refined was made exactly the same as carrying the 100 barrels
of refined made in the West and transported East. This really amounted
to charging nothing for getting the crude oil to a refinery wherever it
was situated, as the following clause in the agreement shows: “The roads
transporting the refined oil shall refund to the refiners as a drawback
the charges paid by them upon the crude oil reaching their refineries by
rail.” This paragraph provided for this crude rebate contained a second
clause, which read: “And the roads transporting through crude oil to the
Eastern seaboard shall refund to the shippers twenty-two cents per
barrel; both of said drawbacks to be paid only on oil reaching the
initial points of rail shipment, through pipes, the owners of which
maintain agreed rates of pipage.” The paragraph announced two new and
startling intentions on the part of the oil-carrying roads: first, that
they intended to strip the Oil Regions of the advantage of geographical
position at the wells by sending oil free to Cleveland and Pittsburg,
New York and Philadelphia, at the same time leaving these cities the
advantages accruing from their position as manufacturing centres and
close to domestic markets; second, that they had entered into a
combination with certain pipe-lines to drive certain others out of
existence.
Mr. Blanchard gave the reasons of these two revolutionary moves to the
Hepburn Committee. It was “urgently represented to the trunk lines,” he
said, “by some refiners at the West as well as by others at the
seaboard, and also by crude shippers and receivers and by owners of
pipe-lines, that it was in every way desirable that the refiners of
Cleveland and Pittsburg, and those at the seaboard be put upon a basis
of equalisation in the gross rates of transportation to and from the
refineries.” Now to do this the element of distance had to be
disregarded. Cleveland was 150 miles west of the Oil Regions, but she
must be treated as if she were at the same distance from the seaboard.
As soon as the proposition was made, certain of the refiners and
producers objected unless the railroads went further and equalised rates
on coal, acids, cooperage, etc. This, however, the roads declined to do.
As for the second clause—the rebate on all oil coming from pipes which
kept up a fixed pipage—it came about in this way. While the railroad men
were in conference at Long Branch, Henry Harley, the president of the
Pennsylvania Transportation Company, came to them and said that he
believed the scheme of equalisation could not be carried out unless some
kind of an alliance was made with the pipe-lines. There had been a large
increase in the number of pipes in the four or five years preceding, and
a situation had arisen not unlike that in every other branch of the oil
business. There was perhaps twice the pipe capacity needed for gathering
all the oil produced, and as the pipes were under at least a dozen
different managements, each fighting for business, the result was, of
course, just what it had been on the railroads and in the markets—severe
cutting of prices, rebates, special secret arrangements, confusion and
loss. It had been only nine years since the first pipe-line had been a
success, and considering the phenomenal growth of the business and the
important part the pipe played in it, it was of course a situation
natural enough. Like the overgrowth of refining and of production, it
was something only time and solidification of business could remedy.
Mr. Harley laid the situation before the railroad men and said to them:
“We want you to help us keep up an even and equal pipage rate. Here we
are representatives of the nine most important lines in the Oil Regions.
We want to put a stop to cutting and keep up a rate of thirty cents.
Can’t you help us?” Now up to this time the railroad had had nothing to
do with pipe-line charges. It was, and still is, the custom for the
buyer of the oil to pay the pipage, that is, the oil producer on running
the oil into the pipe-line received a credit certificate for the oil. If
he held it in the line long he paid a storage charge. When he sold the
oil, the line ran it, and the buyer paid the charge for running. Now the
United Pipe Lines proposed to the railroads a through rate from the
wells to the seaboard as low as they currently made from the receiving
points on the railway, the pipes to get twenty per cent. of this through
rate. The railroads were to agree not to receive oil from buyers except
at as high a rate as the pipes charged; and to allow no pipe-line
outside of the alliance a through rate from the wells. The memorandum
said squarely that the intent and purpose of this was to make the United
Pipes the sole feeders of the railroads. It was a plan not unlike the
South Improvement Company in design—to put everybody but yourself out of
business, and it had the merit of stating its intent and purpose with
perfect candour.[40]
The railroad men seem not to have objected to the purpose, only to the
terms of the proposed arrangement. Mr. Blanchard told the pipe committee
that he regarded it as the most violent attempt on the part of the tail
to wag the dog that he had ever seen, and the representatives of the
other roads agreed. They saw at once, however, how much more solid their
own position would be if they could be sure that no pipe-line delivering
to them would cut its rate, if there could be in effect a through rate
from the wells, and after some discussion they proposed to the
pipe-lines to add twenty-two cents a barrel to the rail charges; that
is, if the rate to the seaboard was $1.25, to collect from the shipper
$1.47, and in case he could show that he had taken his oil from one of
the United Pipes to give him a rebate of twenty-two cents. Mr. Blanchard
said that they proposed to do this until proof was had that the
associated pipe-lines were acting in good faith. Of course this
arrangement did not change the pipe-lines’ methods of collecting in the
least. It simply forced a uniform charge, and this charge was to be, it
should be noticed, regardless of distance. The charge for collecting and
delivering oil was to be thirty cents a barrel whether it was carried
one or ten miles—a practice which prevails to-day.
While these negotiations were going on, the Oil Regions as a whole was
troubled by a vague rumour that freight rates were to be advanced. In
the two years since the Oil War the region, as a whole, had adjusted
itself to the tariff schedule of March 25, 1872, and was doing very well
though working on a very much smaller margin of profits than ever
before. The margin was sufficient, however, to keep the refineries in
the valley running most of the time, and several of the large ones were
increasing their plants. Detailed accounts of the condition of the works
are to be had in the newspapers of the day. Thus, in the summer of 1874
an editor of the Oil City Derrick made a tour of the creek refineries
and reported all of the larger ones in Titusville and Oil City as
prosperous and growing, and the small ones in the little towns between
these two points as “jogging along pleasantly.” The keen competition
between the different refining points made it necessary to do business
with economy, and a rumour of a raise of freight rates naturally was
looked on with dread. It was not until September 12, however, that the
new arrangements were made known, and this was some time earlier than
was intended. The slip came about in this way. The general freight agent
of the New York Central road, James H. Rutter, sent out on September 9 a
private circular announcing the new arrangement,[41] an advance of fifty
cents a barrel on refined oil shipped to the seaboard, no corresponding
advance for Cleveland and Pittsburg, a rebate of the cost of getting oil
to the refineries and a rebate of twenty-two cents to those who
patronised certain pipe-lines. And to this new schedule was appended
this consoling 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.”
Among the refiners to whom the circular went was M. N. Allen of
Titusville. Now Mr. Allen was the editor of an aggressive and lively
newspaper—the Courier. He had fought rings and deals from the beginning
of his career as a refiner and as an editor. He had been one of the
strong opponents of the South Improvement Company and of the Refiners’
Association which followed, and he saw at once the cloven foot in the
Rutter circular and hastened to denounce it in a strong editorial:
If by an agreement of the New York Central, the Erie, and the
Pennsylvania Railway Companies, crude oil—delivered from the
Titusville pipe—should be hauled from Titusville to Chicago, and
there refined, and the refined product then hauled to New York, all
at two dollars a barrel, for the refined thus carried, it would be
placing, by the railway companies, Chicago refiners upon the same
level with the Titusville refiners who, on and after October 1,
shall ship to New York refined made from crude oil taken from the
Titusville pipe. The new freight arrangement does not make such
provision for refiners at Chicago. But a Cleveland refiner may come
to Titusville and buy oil for delivery from the Titusville, the
Pennsylvania, the Church Run, or the Octave pipes, at this point,
take it to Cleveland, and, after refining, carry the product to the
seaboard at the same expense of freight, all told, that a refiner
here, taking his crude oil directly from the above pipes, would have
in placing his refined oil at the seaboard. This is stating the
matter exactly, and we see no necessity for comment hereupon.
Again, 1,000 barrels of crude oil are to be carried to the seaboard
for the same amount of money that will be required for carrying
there 715 barrels of refined, notwithstanding that crude oil is a
much more hazardous article of freight, from fire, than refined. If
this is not a very large discrimination in favour of seaboard
refiners, for which there is no compensation given to refiners in
the Oil Region, our perceptions are utterly weak.
Now, before putting into effect this new freight arrangement, it may
be well for the railway officials having the matter in charge to
take into consideration a certain little article of agreement, which
the people of Pennsylvania, on the 16th day of December last,
entered into among themselves, respecting railroads in this state.
In Article 17, Section 7, of our new constitution is the following
decree of the sovereign people of this commonwealth: “No
discrimination in charges or facilities for transportation shall be
made between transportation companies and individuals, or in favour
of either, by abatement, drawback or otherwise.”
Petroleum is a product of this state, and transportation companies
in taking it away must respect the fundamental law of the state.
And, while we ask for no favours, always supporting free trade from
principle, speaking in behalf of the refining interests of the Oil
Region, we do not propose quietly to submit to any discrimination by
transportation companies, doing business in the state, against our
interests. If by reason of our position we possess advantages for
refining oil here, over refiners outside, we have strong objections
against the action of the railway companies in taking from us such
advantages, by requiring us to pay for hauling a given quantity of
oil as much as they require of Cleveland refiners for hauling the
same amount of oil 300 miles greater distance; or for requiring us
to pay as much for hauling 715 barrels of refined oil as they
require for hauling 1,000 barrels of crude oil the same distance. If
the railroad companies will make all expenses of refining oil equal
to all points, we shall be satisfied. If they will make the price of
sulphuric acid 1½ cents a pound, the same as it is in New York,
instead of 2½ cents; if they will deliver caustic soda here free of
freight from New York; if they will put paints and glues here at the
same prices as those articles sell for in New York; if they will put
staves and heading and hoops for barrels here at the same figures
those articles cost in Cleveland, whether they do all these by
giving us rebates sufficient to cover all differences now against
us, or in any other way that will bring the same results, we will
accept the new arrangement without complaint. Until this shall be
done we shall ask the railway companies in hauling oil to confine
themselves to legitimate business, and to obey the new constitution,
in letter and spirit. It will behoove our citizens to see that their
new constitution is carefully respected.
We are opposed to the new arrangement for the large advance in the
price of freight upon oil. If the railroad companies have lost money
in carrying oil for the Cleveland refineries during several years
past, let not the whole petroleum interest, in its depressed
condition, be required to sustain the penalty. We submit to the
railway managers whether it is not right to charge for hauling goods
in proportion to the distance hauled, allowing a small discount,
perhaps, upon the rate per mile for the greater distance.
Our remarks upon this subject may have the colour of assurance, but,
from the large majority given last winter in favour of the new
constitution of this state, we have great confidence that the people
will not part with their sovereign rights, nor allow themselves to
be ruled by King Pool.
At first the Oil Region was puzzled by the Rutter circular. It certainly
was plausible. Was it not true that every man shared equally under it?
As the days passed, the dazed mental condition into which it had thrown
the oil men cleared up. Mr. Allen’s editorials began to take effect. The
pipe-lines left out of the pool began to ask how it could be legal that
the railroads should enter into an arrangement which obviously would
drive them out of business. The creek refiners began to ask by what
right the advantage of geographical position at the wells should be
taken from them, and Cleveland be allowed to retain the advantages of
her proximity to the Western market; Pittsburg her position on the Ohio
River and the market it commanded; all of the cities the advantage of
their proximity to great local markets and to such necessary supplies as
barrels and acids. Besides, was it constitutional for the railroads thus
to regulate interstate commerce? Was not the arrangement, as far as the
Pennsylvania was concerned, plainly prohibited by the new constitution
of the state of Pennsylvania? The producers slowly began to realise,
too, that the Rutter circular, like the South Improvement charter and
contracts, did not recognise them as a body. The contract of March 25,
1872, provided that the rates fixed should not be “liable to any change
either for increase or decrease without first giving to William Hasson,
president of the Producers’ Union, at Oil City, at least ninety days’
notice in writing of such contemplated change.” This agreement was
totally ignored. It was an “insolent equalisation,” the oil men
concluded, and the sum total of their dissatisfaction finally found
expression at a mass-meeting at Parker’s Landing, on October 2. Directly
after this meeting a committee appointed sent to Messrs. Scott,
Vanderbilt and Jewett, the new president of the Erie, letters calling
their attention to the Rutter circular, and stating the objections of
the producers to it. These letters sent on October 6 received no
attention from any of the railroad presidents addressed for over three
weeks, when the following was received from the Pennsylvania:
_Gentlemen_:—Your communication of the 6th inst., to Thomas A.
Scott, president, was received, and has been referred to me.
In establishing the recent rates and arrangements for the
transportation of oil, the object which was at all times kept in
view was to place all interests on an equality, giving to no one an
undue advantage over any other.
We believe that this object has been accomplished, and that by
adhering to our present rates the interests both of the producers,
refiners and transporters will be promoted.
Very truly yours,
A. J. CASSATT.
“Brief, tardy and unsatisfactory,” was the Derrick’s characterisation of
Mr. Cassatt’s letter. It was evidence to the oil men that if anything
was to be done to break the new tariff it would have to be done in
court, for the railroads meant to stand by their creation.
In this discussion of the Rutter circular Mr. Rockefeller’s name
scarcely appeared. It was known that he had been admitted to the
conferences at which the tariff was arranged. This was taken as a matter
of course. There was nothing which concerned the oil business which John
Rockefeller was not on the inside of. Mr. Blanchard later stated that
the “crude equivalent” scheme was suggested by certain Western refiners.
The tremendous advantage Cleveland secured by the new arrangement,
practically 300 miles of free transportation, seemed to prove, too, that
Mr. Rockefeller had not been inactive during the conference. Whether he
had or had not suggested the points in the “Rutter circular” so
advantageous to his interests, he used them now to aid him in
accomplishing one of the shrewdest and most far-reaching moves of his
life—the move which was to lead at last to the realisation of his Great
Purpose—the concentration of the oil business in his own hands. For Mr.
Rockefeller, quiet as he had been since the breaking up of the Refiners’
Association in the summer of 1873, had by no means given up the idea of
doing for the refining interest of the whole country what he had done
for that of Cleveland through the South Improvement Company.
Mr. Rockefeller has shown repeatedly in his conquering business career
remarkable ability to learn from experience. The breaking up of the
Refiners’ Association _may_ have seemed a disaster to him. He did not
allow it to be a profitless disaster. He extracted useful lessons from
the experience, and, armed with this new wisdom, bent his whole mind to
working out a third plan of campaign. He now knew that he could not hope
to make again so rich a haul as he had made through the defunct South
Improvement scheme. The experience of the past year with the refiners
convinced him that it would take time to educate them to his idea of
combination; but he had learned who of them were capable of this
education. As for the producers, the alliance attempted with them was
enough to demonstrate that they would never endure long the restraints
of any association. Besides, the bulk of them still held the, to him,
unpractical belief that rebates were _wrong_. Mr. Rockefeller had also
re-learned in these eighteen months what he knew pretty well before,
that the promise to give or take away a heavy freight traffic was enough
to persuade any railroad king of the day to break the most solemn
compact.
With all these reflections fresh in mind, Mr. Rockefeller again bent
over a map of the refining interests of the United States. Here was the
world he sighed to conquer. If we may suppose him to have begun his
campaign as a great general with whom he has many traits in common—the
First Napoleon—used to begin his, by studding a map with red-headed pegs
marking the points he must capture, Mr. Rockefeller’s chart would have
shown in and around Boston perhaps three pegs, representing a crude
capacity of 3,500 barrels; in and around New York fifteen pegs, a
capacity of 9,790 barrels; in and around Philadelphia twelve pegs, a
capacity of 2,061 barrels; in Pittsburg twenty-two pegs, a capacity of
6,090 barrels; on the creek twenty-seven pegs, a capacity of 9,231
barrels.[42] His work was to get control of this multitude of red pegs
and to fly above them the flag of what the irreverent call the “holy
blue barrel.”[43]
Some time in the summer of 1874, after it had become certain that
Colonel Potts’s plan for an equalisation of oil freights would be
carried out, Mr. Rockefeller wrote to his former colleague in the South
Improvement Company, W. G. Warden, of Philadelphia, telling him he
wanted to talk over the condition of the oil business with him, and
inviting him to bring Charles Lockhart, of Pittsburg, to that Mecca of
American schemers, Saratoga, for a conference with him and Mr. Flagler.
Mr. Warden hesitated. He had been much abused for his relation with the
South Improvement Company. He had seen the National Refiners’
Association fail. He had begun to feel a distaste for combination.
Besides, he was doing very well in Philadelphia. However, after some
hesitation, he and Mr. Lockhart went to Saratoga. The four gentlemen
breakfasted together and later strolled out to a pavilion. Here they
discussed again, as they had nearly three years before, when they
prepared the South Improvement assault, the condition of the oil
business.
[Illustration:
GEORGE H. BISSELL
Founder of the first oil company in the United States.
]
[Illustration:
JONATHAN WATSON
One of the owners of the land on which the first successful well was
drilled for oil.
]
[Illustration:
SAMUEL KIER
The first petroleum refined and sold for lighting purpose was made by
Mr. Kier in the ’50s in Pittsburg.
]
[Illustration:
JOSHUA MERRILL
The chemist and refiner to whom many of the most important processes
now in use in making illuminating and lubricating oils are due.
]
Mr. Rockefeller now had something besides a theory to present to the
gentlemen he wished to go into his third scheme. He had the most
persuasive of all arguments—an actual achievement. “Three years ago,” he
could tell them, “I took over the Cleveland refineries. I have managed
them so that to-day I pay a profit to nobody. I do my own buying, I make
my own acid and barrels, I control the New York terminals of both the
Erie and Central roads, and ship such quantities that the railroads give
me better rates than they do any other shipper. In 1873 I shipped over
700,000 barrels by the Central, and my profit on my capitalisation,
$2,500,000, was over $1,000,000. This is the result of combination in
one city. The railroads now have arranged a new tariff, by which they
mean to put us all on an equal footing. They say they will give no
rebates to anyone, but if we can join with Cleveland the strongest
forces in other great shipping points, and apply to them the same
tactics I have employed, we shall become the largest shipper, and can
demand a rebate in return for an equal division of our freight. We
proved in 1872–1873 that we could not do anything by an open
association. Let us who see what a combination strictly carried out will
effect unite secretly to accomplish it. Let us become the nucleus of a
_private_ company which gradually shall acquire control of all
refineries everywhere, become the only shippers, and consequently the
master of the railroads in the matter of freight rates.” It was six
hours before the gentlemen in conference left the pavilion, and when
they came out Mr. Warden and Mr. Lockhart had agreed to transfer their
refineries in Philadelphia and Pittsburg to the Standard Oil Company, of
Cleveland, taking stock in exchange. They had also agreed to absorb, as
rapidly as persuasion or other means could bring it about, the
refineries in their neighbourhood. Their union with the Standard was to
remain an absolute secret—the concerns operating under their respective
names.[44]
On October 15, 1874, Mr. Rockefeller consummated another purchase of as
great importance. He bought the works of Charles Pratt and Company, of
New York city. As before, the purchase was secret. The strategic
importance of these purchases for one holding Mr. Rockefeller’s vast
ambition was enormous. It gave him as allies men who were among the most
successful refiners, without doubt, in each of the three greatest
refining centres of the country outside of Cleveland, where he ruled,
and of the creek, where he had learned that neither he nor any member of
the South Improvement Company could do business with facility. To meet
these purchases the stock of the Standard Oil Company was increased, on
March 10, 1875, to $3,500,000.[45] The value of the concern as a
money-earner at this early date, 1874, is shown by the fact that Pratt
and Company paid not less than $265 for the Standard stock they received
in exchange for their works.[46]
The first intimation that the Oil Region had that Mr. Rockefeller was
pushing another combination was in March of 1875, when it was announced
that an organisation of refiners, called the Central Association, of
which he was president, had been formed. Its main points were that if a
refiner would lease to the association his plant for a term of months he
would be allowed to subscribe for stock of the new company. The lease
allowed the owner to do his own manufacturing, but gave Mr.
Rockefeller’s company “irrevocable authority” to make all purchases of
crude oil and sales of refined, to decide how much each refinery should
manufacture, and _to negotiate for all freight and pipe-line expenses_.
The Central Association was a most clever device. It furnished the
secret partners of Mr. Rockefeller a plausible proposition with which to
approach the firms of which they wished to obtain control.
Little as the Oil Regions knew of the real meaning of the Central
Association, the news of its organisation raised a cry of monopoly, and
the advocates of the new scheme felt called upon to defend it. The
defense took the line that the conditions of the trade made such a
combination of refineries necessary. Altogether the ablest explanation
was that of H. H. Rogers, of Charles Pratt and Company, to a reporter of
the New York Tribune:
“There are five refining points in the country,” said Mr. Rogers,
“Pittsburg, Philadelphia, Cleveland, the Oil Regions and New York
city. Each of these has certain local advantages which may be
briefly stated as follows: Pittsburg, cheap oil; Philadelphia, the
seaboard; Cleveland, cheap barrels, and canal as well as railroad
transportation; the Oil Regions, crude oil at the lowest figure; and
all the products of petroleum have the best market in New York city.
The supply of oil is three or four times greater than the
demand.[47] If the oil refineries were run to their full capacity,
the market would be overstocked. The business is not regular, but
spasmodic. When the market is brisk and oil is in demand, all the
oil interests are busy and enjoy a fair share of prosperity. At
other times, the whole trade is affected by the dullness. It has
been estimated that not less than twenty millions of dollars are
invested in the oil business. It is therefore to the interest of
every man who has put a dollar in it to have the trade protected and
established on a permanent footing. Speculators have ruined the
market. The brokers heretofore have been speculating upon the market
with disastrous effects upon the trade, and this new order of things
will force them to pursue their legitimate calling, and realise
their profits from their industry and perseverance. Two years ago an
attempt was made to organise an oil refiners’ association, but it
was subsequently abandoned. There was no cohesion of interests, and
agreements were not kept. The movement at the present time is a
revival of the former idea, and, it is believed, has already secured
fully nine-tenths of the oil refiners in the country in its favour.
I do not believe there is any intention among the oil men to ‘bull’
the market. The endeavour is to equalise all around and protect the
capital invested. If by common consent, in good faith, the refiners
agree to reduce the quantities to an allotment for each, made in
view of the supply and demand, and the capacity for production, the
market can be regulated with a reasonable profit for all. The price
of oil to-day is fifteen cents per gallon. The proposed allotment of
business would probably advance the price to twenty cents. To make
an artificial increase, with immense profits, would be recognised as
speculative instead of legitimate, and the oil interests would
suffer accordingly. Temporary capital would compete with permanent
investment and ruin everything. The oil producers to-day are
bankrupt. There have been more failures during the last five months
than in five years previously. An organisation to protect the oil
capital is imperatively needed. Oil to yield a fair profit should be
sold for twenty-five cents per gallon. That price would protect
every interest and cover every outlay for getting out the crude
petroleum, transporting by railroad, refining and the incidental
charges of handling, etc. The foreign markets will regulate the
price to a great extent, because they are the greatest consumers.
The people of China, Germany, and other foreign countries cannot
afford to pay high prices. Kerosene oil is a luxury to them, and
they do not receive sufficient compensation for their labour to
enable them to use this oil at an extravagant price. The price,
therefore, must be kept within reasonable limits.”
The Oil Regions refused flatly to accept this view of the situation. The
world would not buy refined at twenty-five cents, they argued. “You
injured the foreign market in 1872 by putting up the price. Our only
hope is in increasing consumption. The world is buying more oil to-day
than ever before, because it is cheap. We must learn to accept small
profits, as other industries do.” “The formation of the Refiners’
Association has thrust upon the trade an element of uncertainty that has
unsettled all sound views as to the general outlook,” said the Derrick.
“The scope of the Association,” wrote a Pittsburg critic, “is an attempt
to control the refining of oil, with the ultimate purpose of advancing
its price and reaping a rich harvest in profits. This can only be done
by reducing the production of refined oil, and this will in turn act on
crude oil, making the stock so far in excess of the demand as to send it
down to a lower figure than it has yet touched.”
“The most important feature of this contract,” said a “veteran refiner,”
“is perhaps that part which provides that the Executive Committee of the
Central Association are to have the exclusive power to arrange with the
railroads for the carrying of the crude and refined oil. It is intended
by this provision to enable the Executive Committee to speak for the
whole trade in securing special rates of freight, whereby independent
shippers of crude oil, and such refiners as refuse to join the
combination, and any new refining interest that may be started, may be
driven out of the trade. The whole general purpose of the combination is
to reap a large margin by depressing crude and raising the price of
refined oil, and the chief means employed is the system of
discrimination in railroad freights to the seaboard.”
“The veteran refiner” was right in his supposition that Mr. Rockefeller
intended to use the enormous power his combination gave him to get a
special rate. As a matter of fact he had seen to that before the
“veteran refiner” expressed his mind. It will be remembered that in
April, 1874, Mr. Rockefeller had made a contract with the Erie by which
he was to ship fifty per cent. of his refined oil over that road at a
rate as low as any competing line gave any shipper and he was to have a
lease of the Weehawken oil terminal. Now this contract remained in force
until the first of March, 1875, when a new one was made with the Erie
guaranteeing the road the same percentage of freight and giving the
Standard a ten per cent. rebate on whatever open tariff should be fixed.
This rebate Mr. Blanchard says was quite independent of what the Central
might be giving the Standard. He says that one reason the Standard was
given the rebate was that it was suspected the Pennsylvania was allowing
the Empire Transportation Company an even larger one. If true, this
would not affect any refiner necessarily as the Empire was not a refiner
in March, 1875. The real reason, of course, was what Mr. Blanchard gives
later—that by this rebate they kept the Standard trade, now greatly
increased by the purchase of the outside works already mentioned,
although it should be noticed the Erie officials knew nothing of the
Standard having control of any other refinery than that of Charles Pratt
and Company.
The announcement of the Central Association put an altogether new
feature on oil transportation. If this organisation succeeded, and the
refiners in it claimed nine-tenths of the capacity of the country—it
gave Mr. Rockefeller “irrevocable authority” to negotiate freights. The
Pennsylvania road immediately felt the pressure. The oil they had
carried for big firms like those of Charles Lockhart in Pittsburg and of
Warden, Frew and Company in Philadelphia was in the hands of the
Standard Oil Company, and Mr. Rockefeller asked a rebate of ten per
cent. on open rates. The road demurred. Colonel Potts objected
strenuously. Three years later in a paper discussing this rebate and its
consequences he said:
“The rebate was a modest one, as was its recipient. Yet the railway
Cassandras prophesied from it a multitude of evils—a gradual
destruction of all other refiners and a gradual absorption of their
property by the favourite, who, with this additional armament, would
rapidly progress towards a control of all cars, all pipes, all
production, and finally of the roads themselves. Their prophecies
met but little faith or consideration. The Standard leaders
themselves were especially active in discouraging any such radical
purpose. Their little rebate was enough for them. Everybody else
should prosper, as would be shortly seen. They needed no more
refineries; they had already more than they could employ—why should
they hunger after greater burdens? It was the railroads they chiefly
cared for, and next in their affections stood the 100 rival
refineries. Such beneficent longings as still remained (and their
bosoms overflowed with them) spread out their steady waves toward
the poor producers whom, not to be impious, they had always been
ready to gather under their wings, yet they would not.
“This unselfish language soothed all alarm into quiet slumbering. It
resembles the gentle fanning of the vampire’s wings, and it had the
same end in view—the undisturbed abstraction of the victim’s blood.”
Colonel Potts’s argument against the rebate—doubtless clothed in much
less picturesque language in 1875 than his feelings stirred him to in
1878, for a good enough reason, too, as we shall see—failed to convince
the Pennsylvania officials. They decided to yield to the Standard. Mr.
Cassatt, then third vice-president of the road, in charge of
transportation, said in 1879 that the rebate was given because they
found the Standard was getting very strong, that they had the backing of
the other roads, and that if the Pennsylvania wanted to retain its full
share of business and at fair rates they must make arrangements to
protect themselves.
No one of the roads knew certainly what the others were doing for the
Standard until October 1, 1875. The freight agents then met to discuss
again the freight pool they had formed in 1874. It had not been working
with perfect satisfaction. The clause granting the rebate of twenty-two
cents to the pipe-lines which sustained an agreed rate of pipage had
been abandoned after about five months’ experiment. It was thought to
stimulate new pipes. The roads in making a new adjustment made no effort
to regulate pipe-line tariffs. The “crude rebate” as it was
called—carrying oil to a refinery for nothing—was left in force. At this
meeting Mr. Blanchard found that both of the Erie’s big rivals were
granting the Standard a ten per cent. rebate. He also found that he was
not getting fifty per cent. of the Standard’s business as the contract
called for—that the Standard controlled not only the Cleveland and New
York works of which he knew, but large works in Pittsburg and
Philadelphia.[48]
Mr. Rockefeller was certainly now in an excellent condition to work out
his plan of bringing under his own control all the refineries of the
country. The Standard Oil Company owned in each of the great refining
centres, New York, Pittsburg and Philadelphia, a large and aggressive
plant run by the men who had built it up. These works were, so far as
the public knew, still independent and their only relation that of the
“Central Association.” As a matter of fact they were the “Central
Association.” Not only had Mr. Rockefeller brought these powerful
interests into his concern; he had secured for them a rebate of ten per
cent. on a rate which should always be as low as any one of the roads
gave any of his competitors. He had done away with middlemen, that is,
he was “paying nobody a profit.” He had undeniably a force wonderfully
constructed for what he wanted to do and one made practically
impregnable as things were in the oil business then, by virtue of its
special transportation rate.
As soon as his new line was complete the work of acquiring all outside
refineries began at each of the oil centres. Unquestionably the
acquisitions were made through persuasion when this was possible. If the
party approached refused to lease or sell, he was told firmly what Mr.
Rockefeller had told the Cleveland refiners when he went to them in 1872
with the South Improvement contracts, that there was no hope for him;
that a combination was in progress which was bound to work; and that
those who stayed out would inevitably go to the wall. Naturally the
first fruits to fall into the hands of the new alliance were those
refineries which were embarrassed or discouraged by the conditions which
Mr. Rogers explains above. Take as an example the case of the Citizens’
Oil Refining Company of Pittsburg, as it was explained in 1888 to the
House Committee on Manufactures in its trust investigation. A. H. Tack,
a partner in the company, told the story:[49]
“We began in 1869 with a capacity of 1,000 barrels a day. At the
start everything was _couleur de rose_, so much so that we put our
works in splendid shape. We manufactured all the products. We even
got it down to making wax, and using the very last residuum in the
boilers. We got the works in magnificent order and used up
everything. We began to feel the squeeze in 1872. We did not know
what was the matter. Of course we were all affected the same way in
Pennsylvania, and of course we commenced shifting about, and meeting
together, and forming delegations, and going down to Philadelphia to
see the Pennsylvania Railroad, meeting after meeting and delegation
after delegation. We suspected there was something wrong, and told
those men there was something wrong somewhere; that we felt, so far
as position was concerned, we had the cheapest barrels, the cheapest
labour, and the cheapest coal, and the route from the crude district
was altogether in our favour. We had a railroad and a river to bring
us our raw material. We had made our investment based on the
seaboard routes, and we wanted the Pennsylvania Railroad to protect
us. But none of our meetings or delegations ever amounted to
anything. They were always repulsed in some way, put off, and we
never got any satisfaction. The consequence was that in two or three
years there was no margin or profit. In order to overcome that we
commenced speculating, in the hope that there would be a change some
time or other for the better. We did not like the idea of giving up
the ship. Now, during these times the Standard Oil Company increased
so perceptibly and so strong that we at once recognised it as the
element. Instead of looking to the railroad I always looked to the
Standard Oil Company. In 1874 I went to see Rockefeller to find if
we could make arrangements with him by which we could run a portion
of our works. It was a very brief interview. He said there was no
hope for us at all. He remarked this—I cannot give the exact
quotation—‘There is no hope for us,’ and probably he said, ‘There is
no hope for any of us’; but he says, ‘The weakest must go first.’
And we went.”
All over the country the refineries in the same condition as Mr. Tack’s
firm sold or leased. Those who felt the hard times and had any hope of
weathering them resisted at first. With many of them the resistance was
due simply to their love for their business and their unwillingness to
share its control with outsiders. The thing which a man has begun, cared
for, led to a healthy life, from which he has begun to gather fruit,
which he knows he can make greater and richer, he loves as he does his
life. It is one of the fruits of his life. He is jealous of it—wishes
the honour of it, will not divide it with another. He can suffer heavily
his own mistakes, learn from them, correct them. He can fight
opposition, bear all—so long as the work is his. There were refiners in
1875 who loved their business in this way. Why one should love an oil
refinery the outsider may not see; but to the man who had begun with one
still and had seen it grow by his own energy and intelligence to ten,
who now sold 500 barrels a day where he once sold five, the refinery was
the dearest spot on earth save his home. He walked with pride among its
evil-smelling places, watched the processes with eagerness, experimented
with joy and recounted triumphantly every improvement. To ask such a man
to give up his refinery was to ask him to give up the thing which, after
his family, meant most in life to him.
To Mr. Rockefeller this feeling was a weak sentiment. To place love of
independent work above love of profits was as incomprehensible to him as
a refusal to accept a rebate because it was _wrong_! Where persuasion
failed then, it was necessary, in his judgment, that pressure be
applied—simply a pressure sufficient to demonstrate to these blind or
recalcitrant individuals the impossibility of their long being able to
do business independently. It was a pressure varied according to
locality. Usually it took the form of cutting their market. The system
of “predatory competition” was no invention of the Standard Oil Company.
It had prevailed in the oil business from the start. Indeed, it was one
of the evils Mr. Rockefeller claimed his combination would cure, but
until now it had been used spasmodically. Mr. Rockefeller never did
anything spasmodically. He applied underselling for destroying his
rivals’ market with the same deliberation and persistency that
characterised all his efforts, and in the long run he always won. There
were other forms of pressure. Sometimes the independents found it
impossible to get oil; again, they were obliged to wait days for cars to
ship in; there seemed to be no end to the ways of making it hard for men
to do business, of discouraging them until they would sell or lease, and
always at the psychological moment a purchaser was at their side. Take
as an example the case of the Harkness refinery in Philadelphia, a story
told to the same committee as that of Mr. Tack:
“I was the originator of the enterprise,” said William W. Harkness,
“believing that there was no better place than Philadelphia to
refine oil, particularly for export. We commenced then, as near as I
can now recollect, about 1870, and we made money up to probably
1874. We managed our business very close and did not speculate in
oil. We bought and we sold, and we paid a great deal of attention to
the statistical part of our business so as to save waste, and we did
a nice business. But we found in some years that probably five
months out of a year we could not sell our oil unless it would be at
a positive loss, and then we stopped. Then when we could sell our
oil, we found a difficulty about getting cars. My brother would
complain of it, but I believed that the time would come when that
would be equalised. I had no idea of the iniquity that was going on;
I could not conceive it. I went on in good faith until about 1874,
and then the trouble commenced. We could not get our oil and were
compelled to sell at a loss. Then Warden, Frew and Company formed
some kind of running arrangement where they supplied the crude, and
we seemed to get along a little better. After a while the business
got complicated, and I got tired and handed it over to my brother; I
backed out. That was about 1875. I was dissatisfied and wanted to do
an independent business, or else I wanted to give it up. In 1876—I
recollect that very well, because it was the year of the Centennial
Exposition—we were at the Centennial Exposition. I was sitting in
front of the great Corliss engine, admiring it, and he told me there
was a good opportunity to get out. Warden, Frew and Company, he
said, were prepared to buy us out, and I asked him whether he
considered that as the best thing to do; whether we had not better
hold on and fight it through, for I believed that these difficulties
would not continue; that we would get our oil. I knew he was a
competent refiner, and I wanted to continue business, but he said he
thought he had better make this arrangement, and I consented, and we
sold out; we got our investment back.”[50]
Here we have a refiner discouraged by the conditions which Mr.
Rockefeller claims his aggregation will cure. Under the Rutter circular
and the discrimination in freight to the Standard which followed, his
difficulty in getting oil increases, and he consents to a running
arrangement with Mr. Rockefeller’s partner in Philadelphia, but he wants
to do an “independent business.” Impossible. As he sits watching the
smooth and terrible power of that famous Corliss engine of 1876, an
engine which showed to thousands for the first time what great power
properly directed means, he realised that something very like it was at
work in the oil business—something resistless, silent, perfect in its
might—and he sold out to that something. Everywhere men did the same.
The history of oil refining on Oil Creek from 1875 to 1879 is almost
uncanny. There were at the beginning of that period twenty-seven plants
in the region, most of which were in a fair condition, considering the
difficulties in the business. During 1873 the demand for refined oil had
greatly increased, the exports nearly doubling over those of 1872. The
average profit on refined that year in a well-managed refinery was not
less than three cents a gallon. During the first half of 1874 the oil
business had been depressed, but the oil refiners were looking for
better times when the Rutter circular completely demoralised them by
putting fifty cents extra freight charges on their shipments without an
equivalent raise on competitive points. It was not only this extra
charge, enough to cut off their profits, as business then stood, but it
was that the same set of men who had thrown their business into
confusion in 1872 was again at work. The announcement of the Central
Association with Mr. Rockefeller’s name at its head confirmed their
fears. Nevertheless at first none of the small refiners would listen to
the proposition to sell or lease made them in the spring of 1875 by the
representative first sent out by the Central Association. They would
have nothing to do, they said bluntly, with any combination engineered
by John D. Rockefeller. The representative withdrew and the case was
considered. In the mean time conditions on the creek grew harder. All
sorts of difficulties began to be strewn in their way—cars were hard to
get, the markets they had built up were cut under them—a demoralising
conviction was abroad in the trade that this new and mysterious
combination was going to succeed; that it was doing rapidly what its
members were reported to be saying daily: “We mean to secure the entire
refining business of the world.” Such was the state of things on the
creek when in the early fall of 1875 an energetic young refiner and oil
buyer well known in the Oil Regions, J. D. Archbold, appeared in
Titusville as the representative of a new company, the Acme Oil Company,
a concern which everybody believed to be an offshoot of the Standard Oil
Company of Cleveland, though nobody could prove it. As a matter of fact
the Acme was capitalised and controlled entirely by Standard men, its
stockholders being, in addition to Mr. Archbold, William Rockefeller,
William G. Warden, Frank Q. Barstow, and Charles Pratt. It was evident
at once that the Acme Oil Company had come into the Oil Regions for the
purpose of absorbing the independent interests as Mr. Rockefeller and
his colleagues were absorbing them elsewhere. The work was done with a
promptness and despatch which do great credit to the energy and
resourcefulness of the engineer of the enterprise. In three years, by
1878, all but two of the refineries of Titusville had “retired from the
business gloriously,” as Mr. Archbold, flushed with victory, told the
counsel of the Commonwealth of Pennsylvania in 1879, when the state
authorities were trying to find what was at work in the oil interests to
cause such a general collapse. Most of the concerns were bought
outright, the owners being convinced that it was impossible for them to
do an independent business, and being unwilling to try combination. All
down the creek the little refineries which for years had faced every
difficulty with stout hearts collapsed. “Sold out,” “dismantled,” “shut
down,” is the melancholy record of the industry during these four years.
At the end practically nothing was left in the Oil Regions but the Acme
of Titusville and the Imperial of Oil City, both of them now under
Standard management. To the oil men this sudden wiping out of the score
of plants with which they had been familiar for years seemed a crime
which nothing could justify. Their bitterness of heart was only
intensified by the sight of the idle refiners thrown out of business by
the sale of their factories. These men had, many of them, handsome sums
to invest, but what were they to put them in? They were refiners, and
they carried a pledge in their pockets not to go into that business for
a period of ten years. Some of them tried the discouraged oil man’s
fatal resource, the market, and as a rule left their money there. One
refiner who had, according to popular report, received $200,000 for his
business, speculated the entire sum away in less than a year. Others
tried new enterprises, but men of forty learn new trades with
difficulty, and failure followed many of them. The scars left in the Oil
Regions by the Standard Combination of 1875–1879 are too deep and ugly
for men and women of this generation to forget them.
In Pittsburg the same thing was happening. At the beginning of the work
of absorption—1874—there were between twenty-two and thirty refineries
in the town.[51] As we have seen, Lockhart and Frew sold to the Standard
Oil Company of Cleveland some time in 1874. In the fall of that year a
new company was formed in Pittsburg, called the Standard Oil Company of
Pittsburg. Its president was Charles Lockhart; its directors William
Frew, David Bushnell, H. M. Flagler, and W. G. Warden—all members of the
Standard Oil Company and four of them stockholders in the South
Improvement Company. This company at once began to lease or buy
refineries. Many of the Pittsburg refiners made a valiant fight to get
rates on their oil which would enable them to run independently. To save
expense they tried to bring oil from the oil fields by barge; the
pipe-lines in the pool refused to run oil to barges, the railroad to
accept oil brought down by barge. An independent pipe-line attempted to
bring it to Pittsburg, but to reach the works the pipe-line must run
under a branch of the Pennsylvania railroad. It refused to permit this,
and for months the oil from the line was hauled in wagons from the point
where it had been held up, over the railroad track, and there repiped
and carried to Pittsburg. At every point they met interference until
finally one by one they gave in. According to Mr. Frew, who in 1879 was
examined as to the condition of things in Pittsburg, the company began
to “acquire refiners” in 1875. In 1877 they bought their last one; and
at the time Mr. Frew was under examination he could not remember but
_one_ refinery in operation in Pittsburg not controlled by his company.
Nor was it refiners only who sold out. All departments of the trade
began to yield to the pressure. There was in the oil business a class of
men known as shippers. They bought crude oil, sent it East, and sold it
to refineries there. Among the largest of these was Adnah Neyhart, whose
active representative was W. T. Scheide. Now to Mr. Rockefeller the
independent shipper was an incubus; he did a business which, in his
judgment, a firm ought to do for itself, and reaped a profit which might
go direct into the business. Besides, so long as there were shippers to
supply crude to the Eastern refineries at living prices, so long these
concerns might resist offers to sell or lease.
Some time in the fall of 1872 Mr. Scheide began to lose his customers in
New York. He found that they were making some kind of a working
arrangement with the Standard Oil Company, just what he did not know.
But at all events they no longer bought from him but from the Standard
buyer, J. A. Bostwick and Company. At the same time he became convinced
that Mr. Rockefeller was after his business. “I knew that they were
making some strenuous efforts to get our business,” he told the Hepburn
Commission in 1879, “because I used to meet Mr. Rockefeller in the Erie
office.” At the same time that he was facing the loss of customers and
the demoralising conviction that the Standard Oil Company wanted his
business, he was experiencing more or less disgust over business
conditions in New York. “I did not like the character of my customers
there,” Mr. Scheide told the committee. “I did not think they were
treating us fairly and squarely. There was a strong competition in
handling oil. The competition had got to be so strong that ‘outside
refiners,’ as they called themselves then, used to go around bidding up
the price of their works on the Standard Oil Company, and they were
using me to sell their refineries to the Standard. They would say to
refiners: ‘Neyhart will do so and so, and we are going to continue
running.’ And they would say to us that the Standard was offering lower
prices. I recollect one instance in which they, after having made a
contract to buy oil from me if I would bring it over the Erie Railway,
broke that contract for the 1–128th part of a cent a gallon. I sold out
the next week.” When Mr. Scheide went to the freight agent of the Erie
road, Mr. Blanchard, and told him of his decision to sell, Mr. Blanchard
tried to dissuade him. During the conversation he let out a fact which
must have convinced Mr. Scheide more fully than ever that he had been
wise in determining to give up his business. Mr. Blanchard told him as a
reason for his staying and trusting to the Erie road to keep its
contracts with him that the Standard Oil Company had been offering him
five cents more a barrel than Mr. Scheide was paying them, and would
take all their cars, and load them all regularly if they would throw him
over and give them the business. It is interesting to note that when Mr.
Scheide sold in the spring of 1875, it was, as he supposed, to Charles
Pratt and Company. Well informed as he was in all the intricacies of the
business—and there were few abler or more energetic men in trade at the
time—he did not know that Charles Pratt and Company had been part and
parcel of the Standard Oil Company since October, 1874.
Of course securing a large crude shipping business like Mr. Neyhart’s
was a valuable point for the Standard. It threw all of the refiners whom
he had supplied out of crude oil and forced several of them to come to
the Standard buyer—a first step, of course, toward a lease or sale. At
every point, indeed, making it difficult for the refiner to get his raw
product was one of the favourite manœuvres of the combination. It was
not only to crude oil it was applied. Factories which worked up the
residuum or tar into lubricating oil and depended on Standard plants for
their supply were cut off. There was one such in Cleveland—the firm of
Morehouse and Freeman. Mr. Morehouse had begun to experiment with
lubricating oils in 1861, and in 1871 the report of the Cleveland Board
of Trade devoted several of its pages to a description of his business.
According to this account he was then making oils adapted to lubricating
all kinds of machinery—he held patents for several brands and trade
marks, and had produced that year over 25,000 barrels of different
lubricants besides 120,000 boxes of axle grease. At this time he was
buying his stock or residuum from one or another of the twenty-five
Cleveland refiners. Then came the South Improvement Company and the
concentration of the town’s refining interest in Mr. Rockefeller’s
hands. Mr. Morehouse, according to the testimony he gave the Hepburn
Commission in 1879, went to Mr. Rockefeller, after the consolidation, to
arrange for supplies. He was welcomed—the Standard Oil Company had not
at that time begun to deal in lubricating oils—and encouraged to build a
new plant. This was done at a cost of $41,000, and a contract was made
with the Standard Oil Company for a daily supply of eighty-five barrels
of residuum. Some time in 1874 this supply was cut down to twelve
barrels. The price was put up too, and contracts for several months were
demanded so that Mr. Morehouse got no advantage from the variation in
crude prices. Then the freights went up on the railroads. He paid $1.50
and two dollars for what he says he felt sure his big neighbour was
paying but seventy or seventy-five cents (there is no evidence of any
such low rate to the Standard from Cleveland to New York by rail). Now
it was impossible for Mr. Morehouse to supply his trade on twelve
barrels of stock. He begged Mr. Rockefeller for more. It was there in
the Standard Oil works. Why could he not have it? He could pay for it.
He and his partner offered to buy 5,000 barrels and store it, but Mr.
Rockefeller was firm. All he could give Mr. Morehouse was twelve barrels
a day. “I saw readily what that meant,” said Mr. Morehouse, “that meant
squeeze you out—buy your works. They have got the works and are running
them; I am without anything. They paid about $15,000 for what cost me
$41,000. He said that he had facilities for freighting and that the
coal-oil business belonged to them; and any concern that would start in
that business, they had sufficient money to lay aside a fund to wipe
them out—these are the words.”[52]
At every refining centre in the country this process of consolidation
through persuasion, intimidation, or force, went on. As fast as a
refinery was brought in line its work was assigned to it. If it was an
old and poorly equipped plant it was usually dismantled or shut down. If
it was badly placed, that is, if it was not economically placed in
regard to a pipe-line and railroad, it was dismantled even though in
excellent condition. If it was a large and well-equipped plant
advantageously located it was assigned a certain quota to manufacture,
and it did nothing but manufacture. The buying of crude, the making of
freight rates, the selling of the output remained with Mr. Rockefeller.
The contracts under which all the refineries brought into line were run
were of the most detailed and rigid description, and they were executed
as a rule with a secrecy which baffles description. Take, for example, a
running arrangement made by Rockefeller in 1876, with a Cleveland
refinery, that of Scofield, Shurmer and Teagle. The members of this
concern had all been in the refining business in Cleveland in 1872 and
had all handed over their works to Mr. Rockefeller, when he notified
them of the South Improvement Company’s contracts. Mr. Shurmer declared
once in an affidavit that he alone lost $20,000 by that manœuvre. The
members of the firm had not stayed out of business, however. Recovering
from the panic caused by the South Improvement Company, they had united
in 1875, building a refinery worth $65,000, with a yearly capacity of
180,000 barrels of crude. On the first year’s business they made
$40,000. Although this was doing well, they were convinced they might do
better if they could get as good freight rates as the Standard Oil
Company, and in the spring of 1876 they brought suit against the Lake
Shore and Michigan Southern and the New York Central and Hudson River
Railroads for “unlawful and unjust discrimination, partialities and
preferences made and practised ... in favour of the Standard Oil
Company, enabling the said Standard Oil Company to obtain to a great
extent the monopoly of the oil and naphtha trade of Cleveland.” The suit
was not carried through at the time. Mr. Rockefeller seems to have
suggested a surer way to the firm of getting the rates they wanted. This
was to make a running arrangement with him. He seems to have
demonstrated to them that they could make more money under his plan than
outside, and they signed a contract for a remarkable “joint adventure.”
According to this document Scofield, Shurmer and Teagle put into the
business a plant worth at that time about $73,000 and their entire time.
Mr. Rockefeller put in $10,000 and his rebates! That is, he secured for
the firm the same preferential rates on their shipments that the
Standard Oil Company enjoyed. The firm bound itself not to refine over
85,000 barrels a year and neither jointly nor separately to engage in
any other form of oil business for ten years—the life of the contract.
Scofield, Shurmer and Teagle were guaranteed a profit of $35,000 a year.
Profits over $35,000 went to Mr. Rockefeller up to $70,000; any further
profits were divided.
The making of this contract and its execution were attended by all the
secret rites peculiar to Mr. Rockefeller’s business ventures. According
to the testimony of one of the firm given a few years later on the
witness stand in Cleveland the contract was signed at night at Mr.
Rockefeller’s house on Euclid Avenue in Cleveland, where he told the
gentlemen that they must not tell even their wives about the new
arrangement, that if they made money they must conceal it—they were not
to drive fast horses, “put on style,” or do anything to let people
suspect there were unusual profits in oil refining. That would invite
competition. They were told that all accounts were to be kept secret.
Fictitious names were to be used in corresponding, and a special box at
the post-office was employed for these fictitious characters. In fact,
smugglers and house-breakers never surrounded their operations with more
mystery.
But make his operations as thickly as he might in secrecy, the effect of
Mr. Rockefeller’s steady and united attack on the refining business was
daily becoming more apparent. Before the end of 1876 the alarm among oil
producers, the few independent refineries still in business, and even in
certain railroad circles was serious. On all sides talk of a united
effort to meet the consolidation was heard.
CHAPTER SIX
STRENGTHENING THE FOUNDATIONS
FIRST INTERSTATE COMMERCE BILL—THE BILL PIGEON-HOLED THROUGH EFFORTS
OF STANDARD’S FRIENDS—INDEPENDENTS SEEK RELIEF BY PROPOSED
CONSTRUCTION OF PIPE-LINES—PLANS FOR THE FIRST SEABOARD
PIPE-LINE—SCHEME FAILS ON ACCOUNT OF MISMANAGEMENT AND STANDARD AND
RAILROAD OPPOSITION—DEVELOPMENT OF THE EMPIRE TRANSPORTATION COMPANY
AND ITS PROPOSED CONNECTION WITH THE REFINING BUSINESS—STANDARD,
ERIE AND CENTRAL FIGHT THE EMPIRE TRANSPORTATION COMPANY AND ITS
BACKER, THE PENNSYLVANIA RAILROAD—THE PENNSYLVANIA FINALLY QUITS
AFTER A BITTER AND COSTLY WAR—EMPIRE LINE SOLD TO THE
STANDARD—ENTIRE PIPE-LINE SYSTEM OF OIL REGIONS NOW IN ROCKEFELLER’S
HANDS—NEW RAILROAD POOL BETWEEN FOUR ROADS—ROCKEFELLER PUTS INTO
OPERATION SYSTEM OF DRAWBACKS ON OTHER PEOPLE’S SHIPMENTS—HE
PROCEEDS RAPIDLY WITH THE WORK OF ABSORBING RIVALS.
From the time the Central Association announced itself, independent
refiners and the producers as a body watched developments with
suspicion. They had little to go on. They had no means of proving what
was actually the fact that the Central Association was the Standard Oil
Company working secretly to bring its competitors under control or drive
them out of business. They had no way of knowing what was actually the
fact that the Standard had contracts with the Central, Erie and the
Pennsylvania which gave them rebates on the lowest tariff which others
paid. That this must be the case, however, they were convinced, and they
determined early in 1876 to call on Congress for another investigation.
A hearing was practically insured, for Congress since 1872 had given
serious attention to the transportation troubles. The Windom Committee
of 1874 had made a report, the sweeping recommendations of which gave
much encouragement to those who suffered from the practices of the
railroads. Among other things this committee recommended that all rates,
drawbacks, etc., be published at every point and no changes allowed in
them without proper notification. It recommended the Bureau of Commerce
which, in 1902, twenty-eight years later, was created. So serious did
the Windom Committee consider the situation in 1874, that it made the
following radical recommendations:
The only means of securing and maintaining reliable and effective
competition between railways is through national or state ownership,
or control of one or more lines which, being unable to enter into
combinations, will serve as a regulation of other lines.
One or more double-track freight-railways honestly and thoroughly
constructed, owned or controlled by the government, and operated at
a low rate of speed, would doubtless be able to carry at a much less
cost than can be done under the present system of operating fast and
slow trains on the same road; and, being incapable of entering into
combinations, would no doubt serve as a very valuable regulator of
existing railroads within the range of their influence.
With Congress in such a temper the oil men felt that there might be some
hope of securing the regulation of interstate commerce they had asked
for in 1872. The agitation resulted in the presentation in the House of
Representatives, in April, of the first Interstate Commerce Bill which
promised to be effective. The bill was presented by James H. Hopkins of
Pittsburg. Mr. Hopkins had before his eyes the uncanny fate of the
independent oil interests of Pittsburg, some twenty-five factories in
that town having been reduced to two or three in three and one-half
years. He had seen the oil-refining business of the state steadily
reduced, and he thought it high time that something was done. In aid of
his bill a House investigation was asked. It was soon evident that the
Standard was an enemy of this investigation. Through the efforts of a
good friend of the organisation—Congressman H. B. Payne, of
Cleveland—the matter was referred to the Committee on Commerce, where a
member of the house, J. N. Camden, whose refinery, the Camden
Consolidated Oil Company, if it had not already gone, soon after went
into the Standard Oil Alliance, appeared as adviser of the chairman! Now
what Mr. Hopkins wanted was to compel the railroads to present their
contracts with the Standard Oil Company. The Committee summoned the
proper railroad officers, Messrs. Cassatt, Devereux and Rutter, and O.
H. Payne, treasurer of the Standard Oil Company. Of the railroad men,
only Mr. Cassatt appeared, and he refused to answer the questions asked
or to furnish the documents demanded. Mr. Payne refused also to furnish
the committee with information. The two principal witnesses of the oil
men were E. G. Patterson of Titusville, to whose energy the
investigation was largely due, and Frank Rockefeller of Cleveland, a
brother of John D. Rockefeller. Mr. Patterson sketched the history of
the oil business since the South Improvement Company identified the
Standard Oil Company with that organisation, and framed the specific
complaint of the oil men, as follows: “The railroad companies have
combined with an organisation of individuals known as the Standard Ring;
they give to that party the sole and entire control of all the petroleum
refining interest and petroleum shipping interest in the United States,
and consequently place the whole producing interest entirely at their
mercy. If they succeed they place the price of refined oil as high as
they please. It is simply optional with them how much to give us for
what we produce.”
Frank Rockefeller gave a pretty complete story of the trials of an
independent refiner in Cleveland during the preceding four years. His
testimony in regard to the South Improvement Company has already been
quoted. He declared that at the moment, his concern, the Pioneer Oil
Company, was unable to get the same rates as the Standard; the freight
agent frankly told him that unless he could give the road the same
amount of oil to transport that the Standard did he could not give the
rate the Standard enjoyed. Mr. Rockefeller said that in his belief there
was a pooling arrangement between the railroads and the Standard and
that the rebate given was “divided up between the Standard Oil Company
and the railroad officials.” He repeatedly declared to the committee
that he did not know this to be a positive fact, that he had no proof,
but that he believed such was the truth. Among the railroad officials
whom he mentioned as in his opinion enjoying spoils were W. H.
Vanderbilt, Thomas Scott and General Devereux. Of course the newspapers
had it that he had sworn that such was the fact. Colonel Scott promptly
wired the following denial:
“The papers of this morning publish that a man named Rockefeller
stated before your committee that myself and other officers of this
company were participants in rebates made to the Standard Oil
Company. So far as the statement relates to myself and the officers
of this company it is unqualifiedly false, and I have to ask that
you will summon the officers of the Standard Oil Company, or any
other parties that may have any knowledge of that subject, in order
that such villainous and unwarranted statements may be corrected.”
General Devereux published in the Cleveland press an equally emphatic
denial. Although Mr. Rockefeller promptly declared that he had stated to
the committee that he had no personal knowledge that there was such a
pool as he had intimated between the railroad men and the Standard, that
he had only given his suspicions, there were plenty of people to
overlook his explanation and assert that he had given proof of such a
division of spoils. The belief spread and is met even to-day in oil
circles. Now the only basis for any such assertion was the fact that W.
H. Vanderbilt, Peter H. Watson and Amasa Stone were at that time, 1876,
stockholders in the Standard Oil Company. There is no evidence of which
the writer knows that General Devereux or Colonel Scott ever held any
stock in the concern. Indeed, in 1879, when A. J. Cassatt was under
examination as to the relations of the Pennsylvania Railroad and the
Standard Oil Company, his own lawyer took pains to question him on this
point—an effort, no doubt, to silence the accusation which at that date
was constantly repeated.
“Mr. Cassatt,” Mr. MacVeagh said, “I want to direct your attention
to a personal matter which was asked you to a certain extent. You
were asked whether you had any knowledge that Mr. Vanderbilt,
representing the New York Central, or Mr. Jewett, representing the
Erie, had any interest whatever in the Standard Oil Company or any
of its affiliated companies. I wish to extend that question to the
other trunk lines. I wish you would state whether or not to your
knowledge Mr. Garrett, or anybody representing the Baltimore and
Ohio, had any such interest?”
“They have not to my knowledge.”
* * * * *
“Then I wish you would state whether Mr. Scott or yourself, or any
other officers of the Pennsylvania Railroad Company, had any such
interest?”
“Never to my knowledge. I speak of absolute knowledge as to myself,
but as to Mr. Scott to the best of my knowledge and belief.”
Of course after this controversy the railroads were more obdurate than
ever. Mr. Payne and Mr. Camden were active, too, in securing the
suppression of the investigations and they soon succeeded not only in
doing that but in pigeon-holing for the time Mr. Hopkins’s Interstate
Commerce Bill.
But the oil men had not been trusting entirely to Congressional relief.
From the time that they became convinced that the railroads meant to
stand by the terms of the “Rutter Circular” they began to seek an
independent outlet to the sea. The first project to attract attention
was the Columbia Conduit Pipe Line. This line was begun by one of the
picturesque characters of Western Pennsylvania, “Dr.” David Hostetter,
the maker of the famous Hostetter’s Bitters. Dr. Hostetter’s Bitters’
headquarters were in Pittsburg. He had become interested in oil there,
and had made investments in Butler County. In 1874 he found himself
hampered in disposing of his oil and conceived the idea of piping it to
Pittsburg, where he could make a connection with the Baltimore and Ohio
road, which up to this time had refused to go into the oil pool. Now at
that time the right of eminent domain for pipes had been granted in but
eight counties of Western Pennsylvania. Allegheny County, in which
Pittsburg is located, was not included in the eight, a restriction which
the oil men attributed rightly, no doubt, to the influence of the
Pennsylvania Railroad in the State Legislature. That road could hardly
have been expected to allow the pipes to go to Pittsburg and connect
with a rival road if it could help it. Dr. Hostetter succeeded in buying
a right of way through the county, however, and laid his pipes within a
few miles of the city to a point where he had to pass under a branch of
the Pennsylvania Railroad. The spot chosen was the bed of a stream over
which the railroad passed by a bridge. Dr. Hostetter claimed he had
bought the bed of the run and that the railroad owned simply the right
to span the run. He put down his pipes, and the railroad sent a force of
armed men to the spot, tore up the pipes, fortified their position and
prepared to hold the fort. The oil men came down in a body, and, seizing
an opportune moment, got possession of the disputed point. The railroad
had thirty of them arrested for riot, but was not able to get them
committed; it did succeed, however, in preventing the relaying of the
pipes and a long litigation over Dr. Hostetter’s right to pass under the
road ensued. Disgusted with this turn of affairs Dr. Hostetter leased
the line to three young independent oil men of whom we are to hear more
later. They were B. D. Benson, David McKelvy and Major Robert E.
Hopkins, all of Titusville. Resourceful and determined they built tank
wagons into which the oil from the pipe was run and was carted across
the tracks on the public highway, turned into storage tanks and again
repiped and pumped to Pittsburg. They were soon doing a good business.
The fight to get the Columbia Conduit Line into Pittsburg aroused again
the agitation in favour of a free pipe-line bill, and early in 1875
bills were presented in both the Senate and House of the state and
bitter and long fights over them followed. It was charged that the bills
were in the interest of Dr. Hostetter. He wants to transport his blood
bitters cheaply, sneered one opponent! Many petitions for the bill were
circulated, but there were even stronger remonstrances and the source of
some of them was suspicious enough; for instance, that of the “Pittsburg
refiners representing about one-third of the refining capacity of the
Pennsylvania district and nearly one-third of the entire capacity now in
business.” As the Pittsburg refiners were nearly all either owned or
leased by the Standard concern, and the few independents had no hope
save in a free pipe-line, there seems to be no doubt about the origin of
that remonstrance. Although the bills were strongly supported, they were
defeated, and the Columbia Conduit Line continued to “break bulk” and
cart its oil over the railroad track.
Another route was arranged which for a time promised success. This was
to bring crude oil by barges to Pittsburg, then to carry the refined
down the Ohio River to Huntington and thence by the Richmond and
Chesapeake road to Richmond. This scheme, started in February, was well
under way by May, and “On to Richmond!” was the cry of the independents.
Everything possible was done to make this attempt fail. An effort was
even made to prevent the barges which came down the Allegheny River from
unloading, and this actually succeeded for some time. There seemed to be
always some hitch in each one of the channels which the independents
tried, some point at which they could be so harassed that the chance of
a living freight rate which they had seen was destroyed.
Some time in April, 1876, the most ambitious project of all was
announced. This was a seaboard pipe-line to be run from the Oil Regions
to Baltimore. Up to this time the pipe-lines had been used merely to
gather the oil from the wells and carry it to the railroads. The longest
single line in operation was the Columbia Conduit, and it was built
thirty miles long. The idea of pumping oil over the mountains to the sea
was regarded generally as chimerical. To a trained civil engineer it did
not, however, present any insuperable obstacles, and in the winter of
1875 and 1876 Henry Harley, whose connection with the Pennsylvania
Transportation Company has already been noted, went to his old chief in
the Hoosac Tunnel, General Herman Haupt, and laid the scheme before him.
If it was a feasible idea would General Haupt take charge of the
engineering for the Pennsylvania Transportation Company? At the same
time Mr. Harley employed General Benjamin Butler to look after the legal
side of such an undertaking. Both General Haupt and General Butler were
enthusiastic over the idea and took hold of the work with a will. It was
not long before the scheme began to attract serious attention. The
Eastern papers in particular took it up. The references to it were, as a
whole, favourable. It was regarded everywhere as a remarkable
undertaking: “Worthy,” the New York Graphic said, “to be coupled with
the Brooklyn Bridge, the blowing up of Hell Gate, and the tunnelling of
the Hudson River.” As General Haupt’s plans show, it was a tremendous
undertaking, for the line would be, when finished, at least 500 miles
long, and it would be worked by thirty or more tremendous pumps. On July
25 a meeting was held at Parker’s Landing, presenting publicly the
reports of General Haupt and General Butler. The authority and
seriousness of the scheme as set forth at this meeting alarmed the
railroads. If this seaboard line went through it was farewell to the
railroad-Standard combination. Oil could be shipped to the seaboard by
it at a cost of 16⅔ cents a barrel, General Haupt estimated. All of the
interests, little and big, which believed that they would be injured by
the success of the line, began an attack.
Curiously enough one of the first points of hostility was General Haupt
himself. An effort was made to discredit his estimate in order to scare
people from taking stock. They recalled the Hoosac Tunnel scandal and
the fact that the General once built a bridge which had tumbled down,
ridiculed his estimate of the cost, etc., etc. The “card” in which
General Haupt answered his chief critic, one who signed himself “Vidi,”
was admirable:
A CARD FROM GENERAL HAUPT
What are the charges that I am requested to “smash”?
They are, as I understand them from others, for some I have not
seen:
1. That I once built a bridge that tumbled down.
2. That I was connected with the Hoosac Tunnel that cost seventeen
millions of dollars.
3. That my estimates of cost of transportation are ridiculously low
and unreliable.
1. I did design a bridge some twenty years ago, and constructed a
span near Greenfield, in Massachusetts, which gave way, owing to a
defective casting, while being tested. The bridge was not finished;
had not been opened to the public; had not been accepted from the
contractor, who repaired the damage in such a manner that a
recurrence of a break would have been impossible. I have built spans
of bridges and tested them until they broke, to ascertain their
ultimate strength, but I supposed that this was a matter that
concerned myself and not the public. If the bridge had been thrown
open for public use, and an accident had then occurred from
defective design or material, the engineer might have been
censurable, but not otherwise. In an experience of nearly forty
years I have never had a bridge to fail, after being opened for
travel, or a piece of masonry to give way. No accident occurred even
upon the temporary military bridges constructed during the war,
which President Lincoln used to say were built of bean poles and
corn stalks.
2. How about the Hoosac Tunnel?
In 1856 I undertook to build the Hoosac Tunnel, at that time
ridiculed as visionary and utterly impracticable. I carried it on
until 1862, when its practicability was so fully demonstrated that
it was considered some discredit to Massachusetts to allow the work
to proceed under engineers from another state, and honourable
members of the Legislature declared that Massachusetts had engineers
as competent as any that could be found in Pennsylvania. The work in
my hands, as was proved by reports of investigating committees, was
costing less than $2,000,000, and the trouble then was that the
margin was considered too large, and that I was making too much
money on the $2,000,000, which the state had agreed to advance. In
1862 the state took the work out of my hands and put it under
control of state commissioners and engineers. The result was that
instead of getting the Hoosac Tunnel completed for $2,000,000, which
was amply sufficient in the hands of H. Haupt and Company, it has
now cost, _under state management_, nearly $17,000,000.
I hope this explanation will be considered sufficient to “smash”
Number 2.
3. As to Number 3, the insufficiency of my estimate.
The items which enter into such an estimate are pure and simple.
There has been but one omission, and that is malicious mischief or
deviltry, and this item is so uncertain that, without a more
intimate acquaintance with “Vidi” and his supporters, I could not
undertake to estimate it.
I have put coal at five dollars per ton or eighteen cents per
bushel, now worth five cents at Brady’s and eight at Pittsburg. Is
not this enough? I have allowed fifty per cent. greater consumption
at each station than has been estimated by others. I have allowed
$1,000 a year for each of two engine men at each station. Will
anyone say this is not sufficient? And I have, to be safe, estimated
the work down below the results given by any of the ordinary
hydraulic formula. It would be absurd to tell experienced pipe men
that oil cannot be pumped fifteen miles under 900 pounds pressure
through a four–inch pipe with a discharge of 5,000 barrels per day,
which is all that the estimate is based upon, and it allows
sixty-five days’ stoppage besides.
Please, gentlemen, let me alone. I have had enough of newspaper
controversy in former years. I am sick of it.
H. HAUPT.
At the same time that General Haupt was attacked the Pennsylvania
Transportation Company was criticised for bad management. A long letter
to the Derrick August 14, 1876, claimed that the company in the past had
been mismanaged; that the credit it asked could not be given safely;
that its management had been such that it had scarcely any business
left. Indeed this critic claimed that the last pipe-line organised, a
small line known as the Keystone, had during the last six months done
almost double the business of the Pennsylvania. Under the direction of
the Pennsylvania Railroad, it was believed, the Philadelphia papers
began to attack the plan. Their claim was that the charters under which
the Pennsylvania Transportation Company expected to operate would not
allow them to lay such a pipe-line. The opposition became such that the
New York papers began to take notice of it. The Derrick on September 16,
1876, copies an article from the New York Bulletin in which it is said
that the railroads and the Standard Oil Company, “now stand in
gladiatorial array, with shields poised and sword ready to deal the
cut.” An opposition began to arise, too, from farmers through whose
property an attempt was being made to obtain right of way. In Indiana
and Armstrong counties the farmers complained to the secretary of
internal affairs, saying that the company had no business to take their
property for a pipe-line. One of the common complaints of the farmers’
newspapers was that leakage from the pipes would spoil the springs of
water, curdle milk, and burn down barns. The matter assumed such
proportions that the secretary referred it to the attorney-general for a
hearing. In the meantime the Pennsylvania Transportation Company made
the most strenuous efforts to secure the right of way. A large number of
men were sent out to talk over the farmers into signing the leases. Hand
bills were distributed with an appeal to be generous and to free the oil
business from a monopoly that was crushing it. These same circulars told
the farmers that a monopoly had hired agents all along the route
misrepresenting the facts about their intentions. Mr. Harley, under the
excitement of the enterprise and the opposition it aroused, became a
public figure, and in October the New York Graphic gave a long interview
with him. In this interview Mr. Harley claimed that the pipe-line scheme
was gotten up to escape the Standard Oil monopoly. Litigation, he
declared, was all his scheme had to fear. “John D. Rockefeller,
president of the Standard monopoly,” he said, “is working against us in
the country newspapers, prejudicing the farmers and raising issues in
the courts, and seeking also to embroil us with other carrying lines.”
It was not long, however, before something more serious than the farmers
and their complaints got in the way of the Pennsylvania Transportation
Company. This was a rumour that the company was financially embarrassed.
Their certificates were refused on the market, and in November a
receiver was appointed. Different members of the company were arrested
for fraud, among them two or three of the best known men in the Oil
Regions. The rumours proved only too true. The company had been grossly
mismanaged, and the verification of the charges against it put an end to
this first scheme for a seaboard pipe-line.
While all these efforts doomed to failure or to but temporary success
were making, a larger attempt to meet Mr. Rockefeller’s consolidation
was quietly under way. Among those interested in the oil business who
had watched the growing power of the Standard with most concern was the
head of the Empire Transportation Company, Colonel Joseph D. Potts. In
connection with the Pennsylvania Railroad Colonel Potts had built up
this concern, founded in 1865, until it was the most perfectly developed
oil transporter in the country. It operated 500 miles of pipe, owned a
thousand oil-tank cars, controlled large oil yards at Communipaw, New
Jersey, was in every respect indeed a model business organisation, and
it had the satisfaction of knowing that what it was it had made itself
from raw material, that its methods were its own, and that the practices
it had developed were those followed by other pipe-line companies. While
the Empire had far outstripped all its early competitors, there had
grown up in the last year a rival concern which Colonel Potts must have
watched with anxiety. This concern, known as the United Pipe Line, was
really a Standard organisation, for Mr. Rockefeller, in carrying out his
plan of controlling all the oil refineries of the country, had been
forced gradually into the pipe-line business.
His first venture seems to have been in 1873. In that year the
oil-shipping firm of J. A. Bostwick and Company laid a short pipe in the
Lower Field, as the oil country along the Allegheny River was called.
Now J. A. Bostwick was one of the charter members of the South
Improvement Company, and when Mr. Rockefeller enlarged his business in
1872 because of the power that enterprise gave him, he took Mr. Bostwick
into the Standard. This alliance, like all the operations of that
venture, was secret. The bitterness of the Oil Regions against the
members of the South Improvement Company was so great for many months
after the Oil War that Mr. Bostwick and Mr. Rockefeller seem to have
concluded in 1873 that it would be a wise precautionary measure for them
to lay a pipe-line upon which they could rely for a supply of oil in
case the oil men attempted again to cut them off from crude, as they had
succeeded in doing in 1872. Accordingly, a line was built and put in the
charge of a man who has since become known as one of the “strong men” of
the Standard Oil Company. This man, Daniel O’Day, was a young Irishman
who had first appeared in the oil country in 1867, and had at once made
so good a record for himself as transporting agent, that in 1869, when
the oil-shipping firm of J. A. Bostwick needed a man to look after its
shipments, he was employed. The record he made in the next two years was
such that it reached the ear of Jay Gould himself, the president of the
Erie, over which Mr. Bostwick was doing most of his shipping. Now the
Erie at this time was making a hard fight to meet the growth of the
Empire Transportation Company. So important did Jay Gould think this
struggle that in 1871 he himself came to the Oil Regions to look after
it. One of the first men summoned to his private car as it lay in
Titusville was the young Irishman, O’Day. He came as he was, begrimed
with the oil of the yards, but Mr. Gould was looking for men who could
do things, and was big enough to see through the grime. When the
interview was concluded, Daniel O’Day had convinced Jay Gould that he
was the man to divert the oil traffic from the Pennsylvania to the Erie
road, and he walked out with an order in his pocket which lifted him
over the head of everybody on the road so far as that particular freight
was concerned, for it gave him the right to seize cars wherever he found
them. For weeks after this he practically lived on the road, turning
from the Pennsylvania in this time a large volume of freight, and making
it certain that it would have to look to its laurels as it never had
before.
The next year after this episode came the Oil War. The anger of the oil
men was poured out on everyone connected in any way with the
stockholders of the South Improvement Company, and among others on Mr.
O’Day. He knew no more of the South Improvement Company at the start
than the rest of the region, but he did know that it was his business to
take care of certain property intrusted to him. Resolutions calling on
him to resign were passed by oil exchanges and producers’ unions. Mobs
threatened his cars, his stations, his person, but with the grit of his
race he hung to his post. There was, perhaps, but one other man in the
employ of members of the South Improvement Company who showed the same
courage, and that was Joseph Seep of Titusville. Almost every other
employee fled, the principals in the miserable business took care to
stay out of the country, but Mr. O’Day and Mr. Seep polished their
shillalahs and stood over their property night and day until the war was
over. Their courage did not go unrewarded. They were made the chief
executive representatives, in the region, of the consolidated Standard
interests which followed the war, though neither of them knew at the
time that they were in the Standard employ. They supposed that the
shipper Bostwick was an independent concern. It was a man of grit and
force and energy then who took hold of the Standard’s pipe-line in 1873.
Rapid growth went on. The little line with which they started became the
American Transfer Company, gradually extending its pipes to seventy or
eighty miles in Clarion County, and in 1875 building lines in the
Bradford Field.
The American Transfer Company was soon working in harmony with the
United Pipe Lines, of which Captain J. J. Vandergrift was the president.
This system had its nucleus, like all the others of the country, in a
short private line, built in 1869 by Captain Vandergrift. It had grown
until in 1874 it handled thirty per cent. of the oil of the region. Now
in 1872, after the Oil War, Captain Vandergrift had become a convert to
Mr. Rockefeller’s theory of the “good of the oil business,” and as we
have seen, had gone into the National Refiners’ Association as
vice-president. Later he became a director in the Standard Oil Company.
In 1874 he sold a one-third interest of his great pipe-line system to
Standard men, and the line was reorganised in the interests of that
company. That is, the Standard Oil Combination in 1876 was a large
transporter of oil, for the directors and leading stockholders owned and
operated fully forty per cent. of the pipe-lines of the Oil Regions,
owned all but a very few of the tank cars on both the Central and Erie
roads, and controlled under leases two great oil terminals, those of the
Erie and Central roads. It was little wonder that Colonel Potts watched
this rapid concentration of transportation and refining interests with
dread. It was more dangerous than the single shipper, and he had always
fought that idea on the ground of policy. “In the first place, it
concentrates great power in the hands of one party over the trade of the
road,” he told an investigating committee of Congress in 1888. “They can
remove it at pleasure. In the second place I think a large number of
parties engaged in the same trade are very apt to divide themselves into
two different classes as to the way of viewing markets; one class will
be hopeful, and the other the reverse. The result will be there will be
always one or the other class engaged in shipping some of the
traffic.... The whole question seems to me to resolve itself into
determining what policy will bring the largest volume in the most
regular way to the carrier; and it is my opinion, based upon such
experience as I have had, that a hundred shippers of a carload a day
would be sure to give to a carrier a more regular volume of business,
and I think, probably, a larger total volume of business in a year’s
time than one shipper of a hundred cars a day.”[53]
Holding this theory, Colonel Potts had opposed the rebate to the
Standard granted by the Pennsylvania in 1875. Three years later he
described in a communication, published anonymously, the effect of the
rebates granted at that time:
“The final agreement with the railways was scarcely blotter-dried
ere stealthy movements toward the whole line of outside refiners
were evident, although rather felt than seen. As long as
practicable, they were denied as mere rumours, but as they gradually
became accomplished victories, as one refiner after another, through
terror, through lack of skill in ventures, through financial
weakness, fell shivering with dislike into the embrace of this
commercial octopus, a sense of dread grew rapidly among those
independent interests which yet lived, and notably among a portion
of the railroad transporters.”
The chief “railroad transporter” who shared with the independents the
sense of dread which Mr. Rockefeller’s absorption of refineries awakened
was Mr. Potts himself. As he saw the independents of Pittsburg,
Philadelphia, New York and the creek, shutting down, selling out, going
into bankruptcy, while the Standard and its allies grew bigger day by
day, as he saw the Standard interest developing a system of
transportation greater than his own, he concluded to prevent, if
possible, the one shipper in the oil business. “We reached the
conclusion,” said Colonel Potts in 1888, “that there were three great
divisions in the petroleum business—the production, the carriage of it,
and the preparation of it for market. If any one party controlled
absolutely any one of those three divisions, it practically would have a
very fair show of controlling the others. We were particularly
solicitous about the transportation, and we were a little afraid that
the refiners might combine in a single institution, and some of them
expressed a strong desire to associate themselves permanently with us.
We therefore suggested to the Pennsylvania road that we should do what
we did not wish to do—associate ourselves. That is, our business was
transportation and nothing else; but, in order that we might reserve a
nucleus of refining capacity to our lines, we suggested we should become
interested in one or more refineries, and we became interested in two,
one in Philadelphia and one in New York. It was incidental merely to our
transportation. The extreme limit was 4,000 barrels a day only.”
It was in the spring of 1876 that the Empire began to interest itself in
refineries. No sooner did Mr. Rockefeller discover this than he sought
Mr. Scott and Mr. Cassatt, then the third vice-president of the
Pennsylvania, in charge of transportation. It was not _fair_! Mr.
Rockefeller urged. The Empire was a transportation company. If it went
into the refining business it was not to be expected that it would deal
as generously with rivals as with its own factories; besides, it would
disturb the one shipper who, they all had agreed, was such a benefit to
the railroads. Mr. Scott and Mr. Cassatt might have reminded Mr.
Rockefeller that he was as truly a transporter as the Empire, but if
they did they were met with a prompt denial of this now well-known fact.
He was an oil refiner—only that and nothing more. “They tell us that
they do not control the United Pipe Lines,” Mr. Cassatt said in his
testimony in 1879. Besides, urged Mr. Rockefeller, if they have
refineries of course they will give them better terms than they do us.
Mr. Flagler told the Congressional Committee of 1888 that the Standard
was unable to obtain rates through the Empire Transportation Company
over the Pennsylvania Railroad for the Pittsburg or Philadelphia
refineries as low as were given by competing roads, and, added he, “from
the fact that the business during those years _was so very close as to
leave scarcely any margin of profit_ under the most advantageous
circumstances. And we, finding ourselves undersold in the markets by
competitors whom we knew had not the same facilities in the way of
mechanical appliances for doing the business, knew that there was but
one conclusion to be reached, and that was that the Empire
Transportation Company favoured certain other shippers, I would say
favoured its own refineries to our injury.”
As the Standard Oil Company paid a dividend of about fourteen per cent.
in both 1875 and 1876, besides spending large sums in increasing its
plants and facilities, the margin of profit cannot have been so low as
it seemed to Mr. Flagler in 1888 to have been; naturally enough, for he
saw dividends of from fifty to nearly 100 per cent. later.
[Illustration:
A. J. CASSATT IN 1877
Third vice-president of the Pennsylvania Railroad in charge of
transportation when first contract was made by that road with the
Standard Oil Company.
]
[Illustration:
GENERAL GEORGE B. MCCLELLAN
President of the Atlantic and Great Western Railroad at the time of
the South Improvement Company. General McClellan did not sign the
contract.
]
[Illustration:
GENERAL JAMES H. DEVEREUX
Who in 1868 as vice-president of the Lake Shore and Michigan Southern
Railroad first granted rebates to Mr. Rockefeller’s firm.
]
[Illustration:
JOSEPH D. POTTS
President of the Empire Transportation Company. Leader in the struggle
between the Pennsylvania Railroad and the Standard Oil Company in
1877.
]
Mr. Vanderbilt and Mr. Jewett soon joined their protests to Mr.
Rockefeller’s. “The steps it (the Empire) was then taking,” said Mr.
Jewett, “unless checked would result in a diversion largely of the
transportation of oil from our roads; the New York Central road and our
own determined that we ought not to stand by and permit those
improvements and arrangements to be made which, when completed, would be
beyond our control.”[54] These protests increased in vehemence, until
finally the Pennsylvania officials remonstrated with Mr. Potts. “We
endeavoured,” says Mr. Cassatt, “to try to get those difficulties
harmonised, talked of getting the Empire Transportation Company to lease
its refineries to the Standard Oil Company, or put them into other
hands, but we did not succeed in doing that.” “Rather than do that,”
Colonel Potts told Mr. Cassatt, when he proposed that the Empire sell
its refineries, “we had rather you would buy us out and close our
contract with you.”
When the Standard Oil Company and its allies, the Erie and Central,
found that the Pennsylvania would not or could not drive the Empire from
its position, they determined on war. Mr. Jewett, the Erie president, in
his testimony of 1879 before the Hepburn Commission, takes the burden of
starting the fight. “Whether the Standard Oil Company was afraid of the
Empire Line as a refiner,” he said, “I have no means of knowing. I never
propounded the question. We were opposed to permitting the Empire Line,
a creature of the Pennsylvania Railroad, to be building refineries, to
become the owners of pipe-lines leading into the oil field and leading
to the coast, without a contest, and we made it without regard to the
Standard Oil Company or anybody else; but when we did determine to make
it, I have no doubt we demanded of the Standard Oil Company during the
contest to withdraw its shipments from the Pennsylvania.” Mr. Flagler
gave the following version of the affair to the Congressional Committee
of 1888:—
We made an agreement with the Empire Transportation Company for
shipments over the Pennsylvania Railroad on behalf of the
Pennsylvania interests, which were then owned by the Standard Oil
Company, simply because there was no alternative. It was the only
vehicle by which these Pittsburg refineries and the Philadelphia
refineries carried their crude oil over the Pennsylvania Railroad.
There was no other medium by which business could be done over the
Pennsylvania Railroad, except through the Empire Transportation
Company, a subsidiary company of the Pennsylvania Railroad Company.
The Empire Transportation Company was not only the owner of
pipe-lines in the Oil Regions, and tank-cars on the Pennsylvania
Railroad, but also of refineries at Philadelphia and New York, and
to that extent were our competitors. We, _having no interest
whatever in transportation_,[55] naturally felt jealous of the
Empire Transportation Company, and drew the attention of the
northern lines. By that I mean the New York Central and the Erie
railroads. With the peculiar position of the oil business on the
Pennsylvania Railroad, their attention was called to this very soon
after the Empire Transportation Company began the business of
refining. The position taken by the two Northern trunk lines in
their intercourse with the Pennsylvania Railroad, as was admitted by
Mr. Cassatt in his testimony, and stated to me by the
representatives of the two Northern roads, Mr. Vanderbilt and Mr.
Jewett, was that it was unfair to them that the Pennsylvania
Railroad did not divest itself of the manufacturing business.
Backed by the Erie and Central, Mr. Rockefeller, in the spring of 1877,
finally told Mr. Cassatt that he would no longer send any of his freight
over the Pennsylvania unless the Empire gave up its refineries. The
Pennsylvania refused to compel the Empire to this course. According to
Mr. Potts’s own story, the road was partially goaded to its decision by
a demand for more rebates, which came from Mr. Rockefeller at about the
time he pronounced his ultimatum on the Empire. “They swooped upon the
railways,” says Colonel Potts, “with a demand for a vast increase in
their rebate. They threatened, they pleaded, it has been said they
purchased—however that may be, they conquered. Minor officials intrusted
with the vast power of according secret rates conceded all they were
asked to do, even to concealing from their superiors for months the real
nature of their illegal agreements.” Probably it was at this time that
there took place the little scene between Mr. Vanderbilt and Mr.
Rockefeller and his colleagues, of which the former told the Hepburn
Commission in 1879. The Standard people were after more rebates. They
affirmed other roads were giving larger rebates than Mr. Vanderbilt, and
that their contract with him obliged him to give as much as anybody else
did.
“Gentlemen,” he told them, “you cannot walk into this office and say we
are bound by any contract to do business with you at any price that any
other road does that is in competition with us; it is only on a fair
competitive basis, a fair competition for business at a price that I
consider will pay the company to do it.”
Soon after this interview, so rumour says, Mr. Vanderbilt sold the
Standard stock he had acquired as a result of the deals made through the
South Improvement Company. “I think they are smarter fellows than I am,
a good deal,” he told the commission, somewhat ruefully. “And if you
come in contact with them I guess you will come to the same conclusion.”
Spurred on then by resentment at the demands for new rebates, as well as
by the injustice of Mr. Rockefeller’s demand that the Empire give up its
refineries, the Pennsylvania accepted the Standard’s challenge, resolved
to stand by the Empire, and henceforth to treat all its shippers alike.
No sooner was its resolution announced in March, 1877, than all the
freight of the Standard, amounting to fully sixty-five per cent. of the
road’s oil traffic, was taken away. An exciting situation, one of
out-and-out war, developed, for the Empire at once entered on an
energetic campaign to make good its loss by developing its own
refineries, and by forming a loyal support among the independent oil
men. Day and night the officers worked on their problem, and with
growing success. When Mr. Rockefeller saw this he summoned his backers
to action. The Erie and Central began to cut rates to entice away the
independents. It is a sad reflection on both the honour and the
foresight of the body of oil men who had been crying so loudly for help,
that as soon as the rates were cut on the Standard lines many of them
began to attempt to force the Pennsylvania to follow. “They found the
opportunity for immediate profits by playing one belligerent against the
other too tempting to resist,” says Colonel Potts. “We paid them large
rebates,” said Mr. Cassatt; “in fact, we took anything we could get for
transporting their oil. In some cases we paid out in rebates more than
the whole freight. I recollect one instance where we carried oil to New
York for Mr. Ohlen, or someone he represented, I think at eight cents
less than nothing. I do not say any large quantities, but oil was
carried at that rate.”
While the railroads were waging this costly war the Standard was
carrying the fight into the refined market. The Empire had gone
systematically to work to develop markets for the output of its own and
of the independent refineries. Mr. Rockefeller’s business was to prevent
any such development. He was well equipped for the task by his system of
“predatory competition,” for in spite of the fact that Mr. Rockefeller
claimed that underselling to drive a rival from a market was one of the
evils he was called to cure, he did not hesitate to employ it himself.
Indeed, he had long used his freedom to sell at any price he wished for
the sake of driving a competitor out of the market with calculation and
infinite patience. Other refiners burst into the market and undersold
for a day; but when Mr. Rockefeller began to undersell, he kept it up
day in and day out, week in and week out, month in and month out, until
there was literally nothing left of his competitor. A former official of
the Empire Transportation Company, who in 1877 took an active part in
the war his company was waging against the Standard, once told the
writer that in every town, North or South, East or West, in which they
already had a market for their refined oil, or attempted to make one,
they found a Standard agent on hand ready to undersell. The Empire was
not slow in underselling. It is very probable that in many cases it
began it, for, as Mr. Cassatt says, “They endeavoured to injure us and
our shippers all they could in that fight, and we did the same thing.”
In spite of the growing bitterness and cost of the contest, the Empire
had no thought of yielding. Mr. Potts’s hope was in a firm alliance with
the independent oil men, many of the strongest of whom were rallying to
his side. At the beginning of the fight he had very shrewdly enlisted in
his plan one of the largest independent producers of the day, B. B.
Campbell, of Butler. “Being a pleasure and a duty to me,” says Mr.
Campbell, “I entered into the service with all the zeal and power that I
have. I made a contract with the Empire Line wherein I bound myself to
give all my business to this line.” At the same time Mr. Potts sought
the help of the man who was generally accepted as the coolest, most
intelligent, and trustworthy adviser in matters of transportation the
Oil Regions had, E. G. Patterson, of Titusville. Mr. Patterson was a
practical railroad man, and an able and logical opponent of the rebate
and “one shipper” systems. He had been prominent in the fight against
the South Improvement Company, and since that time he had persistently
urged the independents to wage war only on the practice of rebates—to
refuse them themselves and to hold the railroads strictly to their duty
in the matter. Several conferences were held, and finally, in the early
summer, Mr. Potts read the two gentlemen a paper he had drawn up as a
contract between the producers and the Empire. It speaks well for the
fair-mindedness of Mr. Potts that when he read this document to Mr.
Campbell and Mr. Patterson, both of whom were skilled in the ways of the
transporter, they “accepted it in a moment.”
“It was made the duty of Mr. Patterson and myself to get signatures of
producers to this agreement,” says Mr. Campbell, “in a sufficient amount
to warrant the Pennsylvania road entering into a permanent agreement.
The contract, I think, was for three years.” The attempt to enlist a
solid body of oil men in the scheme was at once set on foot, but hardly
was it under way before troubles of most serious import came upon the
Pennsylvania road. A great and general strike on all its branches tied
up its traffic for weeks. In Pittsburg hundreds of thousands of dollars’
worth of property were destroyed by a mob of railroad employees. It is
not too much to say that in these troubles the Pennsylvania lost
millions of dollars; it is certain that as a result of them the company
that fall and the coming spring had to pass its dividends for the first
time since it commenced paying them, and that its stock fell to
twenty-seven dollars a share (par being fifty dollars). Overwhelmed by
the disasters, Mr. Scott and Mr. Cassatt felt that they could not afford
any longer to sustain the Empire in its fight for the right to refine as
well as transport oil.
While the coffers of the Pennsylvania were empty, those of the Standard
were literally bursting with profits; for the Standard, the winter
before this fight came on, had carried to completion for the first time
the work which it had been organised to accomplish, that is, it had put
up the price of refined oil, in defiance of all laws of supply and
demand, and held it up for nearly six months. The story of this dramatic
commercial hold-up is told in the next chapter; it is enough for present
purposes to say that in the winter of 1876–1877 millions of gallons of
oil were sold by Mr. Rockefeller and his partners at a profit of from
fifteen to twenty-five cents a gallon. The curious can compute the
profits; they certainly ran into the multi-millions. A dividend of fifty
per cent. was paid for the year following the scoop, and “there was
plenty of money made to throw that dividend out twice over and make a
profit,” Samuel Andrews, one of the Standard’s leading men, told an Ohio
investigating committee in 1879. The Standard then had a war budget big
enough for any opposition, and it is not to be wondered at that the
Pennsylvania, knowing this and finding its own treasury depleted, was
ready to quit.
It was August when Mr. Scott and Mr. Cassatt decided to give up the
fight. Peace negotiations were at once instituted, Mr. Cassatt going to
Cleveland to see Messrs. Rockefeller and Flagler, and Mr. Warden, who
was visiting them there. Later, the same gentlemen met Mr. Scott and Mr.
Cassatt at the St. George Hotel, in Philadelphia. “The subject of
discussion at these meetings,” said Mr. Cassatt in 1879, when under
examination, “was whether we could not make some contract or agreement
with the Standard Oil Company by which this contest would cease. They
insisted that the first condition of their coming back on our line to
ship over our road must be that the Empire Transportation Company, which
company represented us in the oil business, must cease the refining of
oil in competition with them. The Empire Transportation Company objected
to going out of the refining business.” The result of this objection
Colonel Potts stated in 1888: “Our contract with the Pennsylvania road
gave to them the option, at any time they saw proper, upon reasonable
notice, of buying our entire plant; they exercised that option.” “Was
that at your request or desire?” the chairman asked the Colonel. “No,
sir. It was at the request of the Pennsylvania road through their
officials.” The question then came up as to who should buy the plant of
the Empire Transportation Company. “The Standard wanted us to do so,”
says Mr. Cassatt. “They wanted us to buy the pipe-lines and cars; we
objected to buying the pipe-lines, and it resulted in their buying them
and the refining plants. The negotiations were carried on in
Philadelphia, Mr. Rockefeller and Mr. Flagler mainly representing the
Standard. A substantial agreement was reached about the last of October.
The agreement would have been probably perfected about that time except
that the counsel for the Empire Line thought it was necessary that they
should advertise the fact that they were going to sell their property,
and have a meeting of their stockholders, and get their assent to the
sale before the papers were finally signed.”
This meeting of which Mr. Cassatt speaks was held on October 17. Colonel
Potts made a statement to the stockholders, which he began by a brief
review of the growth of the company from the point when twelve years
before it had started as a new route charged with the duty of meeting
formidable competitors. He pointed out that at the close of the twelfth
year the company was the owner of a large fleet of lake vessels, of
elevators and docks at the City of Erie, of improved piers in New York
City, of nearly 5,000 cars, of over 500 miles of pipe-lines, of valuable
interests in refineries, of all the appliances of a great business. In
these twelve years, Colonel Potts told his stockholders, the
organisation had collected more than one hundred million dollars, and in
the last year their cars had moved over 30,000 miles of railway. He
explained to the stockholders the condition of the oil business which
had made it necessary, in his judgment, for the Empire Transportation
Company to go into the refining business. It was done with the greatest
reluctance, Colonel Potts declared, but it was done because he and his
colleagues believed that there was no other way for them to save to the
Pennsylvania road permanently the proportion of the oil traffic which
they had acquired in the twelve years in which they had been in
business. He reviewed, dispassionately, the circumstances which had led
the Pennsylvania road to ask the company to give up its refineries. He
stated his reasons for deciding that it was wiser for the Empire to
resign its contracts with the Pennsylvania and go into liquidation than
to submit to the demands of the Standard interests. Colonel Potts
followed his statement by an abstract of the agreements which had been
made between the Standard people and the Empire. By these agreements the
Standard Oil Company bought of the Empire Transportation Company their
pipe-line interest for the sum of $1,094,805.56, their refining
interests in New York and Philadelphia for the sum of $501,652.78,
$900,000 worth of Oil Tank Car Trust, and they also settled with outside
refiners and paid for personal property to the extent of $900,000 more,
making a total cash payment of $3,400,000. Two millions and a half of
this money, Colonel Potts told the stockholders, would be paid that
evening by certified checks if the agreements were ratified. “Not
knowing what your action might be at this meeting,” he concluded, “we
are still in active business. We could not venture to do anything that
would check our trade, that would repel customers, that would drive any
of them away from us. We must be prepared if you said no to go right
along with our full machinery under our contract, or under such
modification of that as we could fight through. We could not stop moving
a barrel of oil. We must be ready to take any offered to us; we must
supply parties taking oil. There was nothing we could do but what was
done; nothing was stopped, nothing is stopped, everything is going on
just as vigorously at this moment through as wide an extent of country
as ever it did, and it will continue to do so until after you take
action, until after we get these securities or the money. That, we
suppose, will be about six o’clock to-day, if you act favourably, and at
that time we shall, if everything goes through, telegraph to every man
in our service, and to the heads of departments what has been done, and
at twelve o’clock to-night we shall cease to operate anything in the
Empire Transportation Company.”
The stockholders accepted the proposition, and that night at Colonel
Potts’s office on Girard Street, Philadelphia, Mr. Scott and Mr.
Cassatt, of the Pennsylvania Railroad, Colonel Potts and two of his
colleagues in the Empire, and two of the refiners with whom he was
affiliated, met William Rockefeller, Mr. Flagler, Mr. Warden, Mr.
Lockhart, Charles Pratt, Jabez A. Bostwick, Daniel O’Day, and J. J.
Vandergrift, and their counsel, and the papers and checks were signed
and passed, wiping out of existence a great business to which a body of
the best transportation men the state of Pennsylvania has produced had
given twelve years of their lives. After the meeting was over, there
were sent out from Philadelphia to scores of employees of the Empire
Transportation Company scattered throughout the state, telegrams stating
that at twelve o’clock that night the company would cease to exist. For
twelve years the organisation had been doing a growing business. On the
date of this telegram its operations were more extensive, its
opportunities more promising, under fair play, than they had ever been
before in its history. The band of men who had built it up to such
healthy success were not giving it up because they had lost faith in it,
or because they believed there were larger opportunities for them in
some other business; they were giving it up because they were compelled
to, and probably men never went out of business in this country with a
deeper feeling of injustice than that of the officials of the Empire
Transportation Company on October 17, 1877, when they sent out the
telegrams which put their great creation into liquidation.
The pipe-lines thus acquired were at once consolidated with the other
Standard lines. Only a few independent lines, and only one of these of
importance—the Columbia Conduit—now remained in the Oil Regions. This
company had been doing business, since 1875, under the difficulties
already described. Dr. Hostetter, the chief stockholder, had become
heartily sick of the oil business and wanted to sell. He had approached
the Empire Line, and there had been some negotiations. Then came the
fall of the Empire and Dr. Hostetter sought the United Pipe Line. Intent
on stopping every outlet of oil not under their control the Standard
people bought the Columbia Conduit. By the end of the year the entire
pipe-line system of the Oil Regions was in Mr. Rockefeller’s hands. He
was the only oil gatherer. Practically not a barrel of oil could get to
a railroad without his consent. He had set out to be simply the only oil
refiner in the country, but to achieve that purpose he had been obliged
to make himself an oil transporter. In such unforeseen paths do great
ambitions lead men!
The first effect of the downfall of the Empire was a new railroad pool.
Indeed when it became evident that the Pennsylvania would yield, the
Erie, Central and the Standard had begun preparing a new adjustment, and
the papers for this were ready to be signed on October 17, with those
transferring the pipe-line property. Never had there been an arrangement
which gathered up so completely the oil outlets, for now the Baltimore
and Ohio road came into a pool for the first time. Mr. Garrett had
always refused the advances of the other roads, but when he saw that the
Columbia Conduit Line, his chief feeder, was sure to fall into Standard
hands; when he began to suspect the Baltimore refiners were going into
the combination, he realised that if he expected to keep an oil traffic
he must join the other roads. The new pool, therefore, was between four
roads. Sixty-three per cent. of the oil traffic was conceded to New
York, and of the sixty-three per cent. going there the Pennsylvania road
was to have twenty-one per cent. Thirty-seven per cent. of the traffic
was to go to Philadelphia and Baltimore, and of this thirty-seven per
cent. the Pennsylvania had twenty-six per cent. The Standard guaranteed
the road not less than 2,000,000 barrels a year, and if it failed to
send that much over the road it was to pay it a sum equal to the profits
it would have realised upon the quantity in deficit. In return for this
guarantee of quantity the Standard was to pay such rates as might be
fixed from time to time by the four trunk lines (which rates it was
understood should be so fixed by the trunk lines as to place them on a
parity as to cost of transportation by competing lines), and it was to
receive weekly a commission of ten per cent. on its shipments it
controlled.[56] No commission was to be allowed any other shipper unless
he should guarantee and furnish such a quantity of oil that after
deducting any commission allowed, the road realised from it the same
amount of profits as it did from the Standard trade. The points in the
agreement were embodied in a letter from William Rockefeller to Mr.
Scott. This letter and the answer declaring the arrangement to be
satisfactory to the company are both dated October 17.[57]
Four months later Mr. Rockefeller was able to take another step of great
advantage. He was able to put into operation the system of drawbacks on
other people’s shipments which the South Improvement Company contracts
had provided for, and which up to this point he seems not to have been
securely enough placed to demand. There were no bones about the request
now. Mr. O’Day, the general manager of the American Transfer Company, a
pipe-line principally in Clarion County, Pennsylvania, which, including
its branches, was from eighty to 100 miles in length, a company now one
of the constituents of the United Pipe Line, wrote to Mr. Cassatt:
“I here repeat what I once stated to you, and which I wish you to
receive and treat as strictly confidential, that we have been for
many months receiving from the New York Central and Erie Railroads
certain sums of money, in no instance less than twenty cents per
barrel on _every barrel of crude oil carried by each of these
roads_.” Continuing, Mr. O’Day says: “Co-operating as we are doing
with the Standard Oil Company and the trunk lines in every effort to
secure for the railroads paying rates of freight on the oil they
carry, I am constrained to say to you that in justice to the
interests I represent we should receive from your company at least
twenty cents on each barrel of crude oil you transport.... In
submitting this proposition I find that I should ask you to let this
date from November 1, 1877, but I am willing to accept as a
compromise (which is to be regarded as strictly a private one
between your company and ours) the payment by you of twenty cents
per barrel on all crude oil shipments commencing with February 1,
1878.”[58]
Mr. Cassatt complied with Mr. O’Day’s request. In a letter to the
comptroller of the road he said that he had agreed to allow this
commission after having seen the receipted bills, showing that the New
York Central allowed them a commission of thirty-five cents a barrel,
and the Erie Railroad a commission of twenty cents a barrel on Bradford
oil and thirty cents on all other oils. Thus the Standard Oil Company,
through the American Transfer Company, received, in addition to rebates
on its own shipments, from twenty to thirty-five cents drawback a barrel
on all crude oil which was sent over the trunk lines by other people as
well as by itself.[59]
The effect of this new concentration of power was immediate in all the
refining centres of the country. Most of the Baltimore refiners, some
eight in number, which up to this time had remained independent, seeing
themselves in danger of losing their oil supply, were united at the end
of 1877 into the Baltimore United Oil Company, with J. N. Camden at
their head. Mr. Camden was president of the Camden Consolidated Company
of Parkersburg, West Virginia, a concern already in the Standard
alliance, and he and his partners held the majority stock in the
Baltimore concern. The method of reaching the Baltimore independents who
looked with dislike or fear on the Standard was a familiar one: An
officer of one of the concerns owned by the Standard Oil Company would
approach the outsider who was feeling the pressure and propose a sale or
a lease to himself personally. It was an escape, and it usually ended in
the complete absorption of the plant by the Standard. A few of the
Baltimore interests refused to go into the Baltimore United Oil Company.
Among them was a woman, a widow, Mrs. Sylvia C. Hunt, who had conducted
a successful refinery there for several years, and whose business
ability and energy had been the admiration of all those with whom she
had come in contact. Her interests had been particularly cherished by
the Empire Line, “Mrs. Hunt’s cars” being given precedence many a time
by agents at Titusville or other shipping points who knew her story. In
the summer of 1877 her works burned out. With a courage which was
generally commented on at the time Mrs. Hunt at once rebuilt and in less
than six months had her plant in running order. Then came the fall of
the Empire Transportation Company, the sale of the Columbia Conduit
Company, and the entrance of the Baltimore and Ohio into the Oil Pool.
Every refiner in Baltimore knew what that meant, and the wise sold when
Mr. Camden proposed it. Mrs. Hunt, however, did not want to sell. She
distrusted the new company. Finally with many misgivings she leased for
five years at $5,000 a year. It was less than half she had been making,
so she claimed, and among her old friends there was much indignation.
Colonel Potts, indeed, in telling her story in his “Brief History of the
Standard Oil Company,” said: “It could fairly have been expected that
something of chivalrous feeling would be inspired by the sight of this
indomitable spirit who had wrought so noble a work against such great
odds. But though fine sentiments and generous words find frequent exodus
from the lips of the Standard managers, they are never seconded by
generous deeds. They crushed her business and her spirit as
remorselessly as they would have killed a dog.” These are bitter words
written when Colonel Potts was still smarting from his defeat. They were
written, too, without reflection that Mrs. Hunt, if allowed to have all
the oil she wanted, allowed equal rates, allowed to use her ability and
experience, allowed freedom to sell in the markets she had built up,
would undoubtedly have increased her business. She would have profited
by the high prices of refined oil which Mr. Rockefeller was taking all
this trouble to secure. She might have grown a formidable competitor
even, and disturbed the steadiness of the working of the great machine.
Colonel Potts forgot that if the Great Purpose was realised nobody must
do business except under Mr. Rockefeller’s control.
In New York City the new tariff and pooling arrangements caused the
greatest uneasiness, for here was the largest group of prosperous
independent refiners. They had all allied themselves with the Empire
Transportation Company in the spring of 1877 when its fight with the
Standard had begun, but they had been dropped immediately when peace
negotiations were begun, and a letter of remonstrance they sent Mr.
Scott at the time was never answered.[60] The experiences of several of
these independents have been recorded in court testimony. One or two
will suffice here. For instance, among the Eastern refiners was the firm
of Denslow and Bush; their works were located in South Brooklyn. They
had begun in a very small way in 1870, and by 1879 were doing a business
of nearly 1,000 barrels of crude a day. They had transported nearly all
their oil by the Empire Line. After that line went out of business in
October, 1877, the contract with Denslow and Bush was transferred to the
Pennsylvania Railroad Company. This contract terminated on the first day
of May, 1878. Some time in March they received formal notice of its
expiration, and solicited an interview with the officers of the
Pennsylvania Railroad in order to make some arrangements for the further
transportation of their oil. Mr. Cassatt named New York. The meeting was
held at Mr. Denslow’s office, 123 Pearl Street. Besides Mr. Bush, there
were present to meet Mr. Cassatt, Messrs. Lombard, Gregory, King, H. C.
Ohlen, and C. C. Burke, all independents. When Mr. Bush was under
examination in the suit against the Pennsylvania Railroad in 1879 he
gave an account of what happened at this interview:
“We asked Mr. Cassatt what rate of freight we should have after the
expiration of these contracts, whether we should have as low a rate
of freight as the Standard Oil Company or any other shipper? He
said, ‘No,’ We asked why. ‘Well, in the first place, you can’t ship
as much oil as the Standard Oil Company,’ ‘Well, if we could ship as
much oil’—I think Mr. Lombard put this question—‘would we then have
the same rate?’ He said, ‘No,’ ‘Why?’ ‘Why, you could not keep the
road satisfied; it would make trouble.’ And he remarked in
connection with that, that the Standard Oil Company was the only
party that could keep the roads harmonised or satisfied. He
intimated, I believe, that each road had a certain percentage of the
oil business, and they could divide that up and give each road its
proportion, and in that way keep harmony, which we could not do.
Right after that he made the remark that he thought that we ought to
fix it up with the Standard; we ought to do something so as to all
go on and make some money, and I think we gave him very distinctly
to understand that we didn’t propose to enter into any ‘fix up’
where we would lose our identity, or sell out, or be under anybody
else’s thumb. I believe that he went so far as to say that he would
see the Standard, and do everything he could to bring that thing
about. We told him very clearly that we didn’t want any interference
in that direction, and if there was anything to be done, we thought
we were quite capable of doing it. The interview perhaps lasted an
hour. There was a great deal of talk of one kind and another, but
this is, I think, the substance. This interview was in March, 1878,
I think.
“Another interview at which I was present was either in June or
July. Mr. Scott was present. This interview was brought about
because we had been deprived, as we believed, of getting a
sufficient number of cars we were entitled to. We had telegraphed or
written to Mr. Cassatt—at least, Mr. Ohlen, our agent, had, on
several occasions, and tried to get an interview, and finally this
one was appointed, at which Mr. Scott would be present. When we
arrived there we found Mr. Brundred, from Oil City; and Mr. Scott
went on to state that he thought that we were receiving our fair
proportion of cars. They tried to make us believe and feel, I
suppose, that we were getting our due proportion, when for some
considerable time previous to this we had not been able to do any
business in advance; we could only do business from hand to mouth.
We could not sell any refined oil unless we absolutely had the crude
oil in our possession in New York, and Mr. Lombard, one of our
number, had sold a cargo of crude oil, I think, of 9,000 barrels,
and Denslow and Bush absolutely stopped their refinery for three
weeks consequently, in order to let their oil go to Ayres and
Lombard to finish their vessel, because they would only get three or
four cars a day; and we stopped our place for three weeks to give
them our crude oil, all we could give—our proportion—in order to
lift them out and get their vessel cleared. After trying to impress
upon us that we were getting our proportion of cars, we asked Mr.
Scott substantially the same question we asked Mr. Cassatt in New
York, whether we could have, if there was any means by which we
could have, the same rate of freight as other shippers got, and he
said flatly, ‘No’; and we asked him then if we shipped the same
amount of oil as the Standard, and he said, ‘No,’ and gave the same
reasons Mr. Cassatt had in New York, that the Standard Oil Company
were the only parties that could keep peace among the roads. We
stated to Mr. Scott that we would like to know to what extent we
would be discriminated against, because we wanted to know what
disadvantage we would have to work under. And we went away very much
dissatisfied. All the information we got on that point was from Mr.
Cassatt in New York, when he stated that the discrimination would be
larger on a high rate of freight than on a low rate of freight,
which led us to infer that it was a percentage discrimination. That
is all the point that I recollect we ever got as to the amount of
the commission. We told Mr. Scott that if they hadn’t sufficient
cars on their road we would like to put some on, and he told us
flatly that they had just bought out one line and they would not
allow another one to be put on; that if they hadn’t cars enough they
would build them. He seemed to show considerable feeling that
afternoon, and he said: ‘Well, you have cost us in fighting for you
now a million dollars’ (or a million and a half, something like
that—a very large sum), ‘and we don’t propose to go into another
fight.’”[61]
Strange as it may seem there were not only men in the refining business
who were willing to fight under these conditions, there were men among
the very ones who had succumbed at the opening of the Standard’s
onslaught who were ready to try the business again. Among these was
William Harkness, whose experience up to 1876 was related in the
preceding chapter. Mr. Harkness’s next experience in the oil business
was related to the same committee as that already mentioned:
“When I was compelled to succumb,” he said, “I thought it was only
temporarily; that the time would come when I could go into the
business I was devoted to. We systematised all our accounts and knew
where the weak points were. I was in love with the business. I
selected a site near three railroads and the river. I took a run
across the water—I was tired and discouraged and used up in 1876,
and was gone three or four months. I came back refreshed and ready
for work, and had the plans and specifications and estimates made
for a refinery that would handle 10,000 barrels of oil a day, right
on this hundred acres of land. I believed the time had arrived when
the Pennsylvania Railroad would see their true interest as common
carriers, and the interest of their stockholders and the business
interest of the city of Philadelphia, and I took those plans,
specifications, and estimates, and I called on Mr. Roberts,
president of the Pennsylvania Railroad Company. I had consulted one
or two other gentlemen, whose advice was worth having, whether it
would be worth my while to go to see President Roberts. I went there
and laid the plans before him, and told him I wanted to build a
refinery of 10,000 barrels capacity a day. I was almost on my knees
begging him to allow me to do that. He said; ‘What is it you want?’
I said; ‘I simply ask to be put upon an equality with everybody
else, and especially the Standard Oil Company.’ I said; ‘I want you
to agree with me that you will give me transportation of crude oil
as low as you give it to the Standard Oil Company or anybody else
for ten years, and then I will give you a written assurance that I
will do this refining of 10,000 barrels of oil a day for ten years.’
I asked him if that was not an honest position for us to be in; I,
as a manufacturer, and he, the president of a railroad. Mr. Roberts
said there was a great deal of force in what I said, but he could
not go into any written assurance. He said he would not go into any
such agreement, and I saw Mr. Cassatt. He said in his frank way;
‘That is not practicable, and you know the reason why.’”
As this work of absorption went on steadily, persistently, the
superstitious fear of resistance to proposals to lease or sell which
came from parties known or suspected to be working in harmony with the
Standard Oil Company, which had been strong in 1875, grew almost
insuperable. In Cleveland this was particularly true. A proposal from
Mr. Rockefeller was certainly regarded popularly as little better than a
command to “stand and deliver.” “The coal-oil business belongs to us,”
Mr. Rockefeller had told Mr. Morehouse. “We have facilities; we must
have it. Any concern that starts in business we have sufficient money
laid aside to wipe out”[62]—and people believed him! The feeling is
admirably shown in a remarkable case still quoted in Cleveland—and which
belongs to the same period as the foregoing cases, 1878—a case which
took the deeper hold on the public sympathy because the contestant was a
woman, the widow of one of the first refiners of the town, a Mr. B——,
who had begun refining in Cleveland in 1860. Mr. B——’s principal
business was the manufacture of lubricating oil. Now at the start the
Standard Oil Company handled only illuminating oil, and accordingly a
contract was made between the two parties that Mr. B—— should sell to
Mr. Rockefeller his refined oil, and that the Standard Oil Company
should let the lubricating business in Cleveland alone. This was the
status when in 1874 Mr. B—— died. What happened afterwards has been told
in full in affidavits made in 1880,[63] and they shall tell the story;
the only change made in the documents being to transfer them for the
sake of clarity from the legal third person to the first, and to
condense them on account of space.
Mrs. B——’s story as told in her affidavit is as follows:
“My husband having contracted a debt not long prior to his death for
the first time in his life, I, for the interest of my fatherless
children, as well as myself, thought it my duty to endeavour to
continue the business, and accordingly took $92,000 of the stock of
the B—— Oil Company and afterwards reduced it to $72,000 or $75,000,
the whole stock of the company being $100,000, and continued
business from that time until November, 1878, making handsome
profits out of the business during perhaps the hardest years of the
time since Mr. B—— had commenced. Some time in November, 1878, the
Standard Oil Company sent a man to me by the name of Peter S.
Jennings, who had been engaged in the refining business and had sold
out to the Standard Oil Company. I told Mr. Jennings that I would
carry on no negotiations with him whatever, but that if the Standard
Oil Company desired to buy my stock I must transact the business
with its principal officer, Mr. Rockefeller. Mr. Jennings, as
representing the Standard Oil Company, told me that the president of
the company, Mr. Rockefeller, said that said company would control
the refining business, and that he hoped it could be done in one or
two years; but if not, it would be done, anyway, if it took ten
years to do it.
“After two or three days’ delay Mr. Rockefeller called upon me at my
residence to talk over the negotiation with regard to the purchase
of my stock. I told Mr. Rockefeller that I realised the fact that
the B—— Oil Company was entirely in the power of the Standard Oil
Company, and that all I could do would be to appeal to his honour as
a gentleman and to his sympathy to do with me the best that he
could; and I begged of him to consider his wife in my position—that
I had been left with this business and with my fatherless children,
and with a large indebtedness that Mr. B—— had just contracted for
the first time in his life; that I felt that I could not do without
the income arising from this business, and that I had taken it up
and gone on and been successful, and I was left with it in the
hardest years since my husband commenced the business. He said he
was aware of what I had done, and that his wife could never have
accomplished so much. I called his attention to the contract that my
husband had made with him in relation to carbon oil, whereby the
Standard Oil Company agreed not to touch the lubricating branch of
the trade carried on by my husband, and reminded him that I had held
to that contract rigidly, at a great loss to the B—— Oil Company,
but did so because I regarded it a matter of honour to live up to
it. I told him that I had become alarmed because the Standard Oil
Company was getting control of all the refineries in the country,
and that I feared that the said Standard Oil Company would go into
the lubricating trade, and reminded him that he had sent me word
that the Standard Oil Company would not interfere with that branch
of the trade. He promised, with tears in his eyes, that he would
stand by me in this transaction, and that I should not be wronged;
and he told me that, in case the sale was made, I might retain
whatever amount of the stock of the B—— Oil Company I desired, his
object appearing to be only to get the controlling stock of the
company. He said that while the negotiations were pending he would
come and see me, and I thought that his feelings were such on the
subject that I could trust him and that he would deal honourably by
me.
“Seeing that I was compelled to sell out, I wanted the Standard Oil
Company to make me a proposition, and endeavoured to get them to do
so, but they would not make a proposition. I then made a proposition
that the whole stock of the B—— Oil Company with accrued dividends
should be sold to said Standard Oil Company for $200,000, which was,
in fact, much below what the stock ought to have been sold for; but
they ridiculed the amount, and at last offered me only $79,000, not
including accounts, and required that each stockholder in the B——
Oil Company should enter into a bond that within the period of ten
years he or she would not directly or indirectly engage in or in any
way be concerned in the refining, manufacturing, producing, piping,
or dealing in petroleum or in any of its products within the county
of Cuyahoga and state of Ohio, nor at any other place whatever.
“Seeing that the property had to go, I asked that I might, according
to the understanding with the president of the company, retain
$15,000 of my stock, but the reply to this request was; ‘No
outsiders can have any interest in this concern; the Standard Oil
Company has “dallied” as long as it will over this matter; it must
be settled up to-day or go,’ and they insisted upon my signing the
bond above referred to.
“The promises made by Mr. Rockefeller, president of the Standard Oil
Company, were none of them fulfilled; he neither allowed me to
retain any portion of my stock, nor did he in any way assist me in
my negotiations for the sale of my stock; but, on the contrary, was
largely instrumental in my being obliged to sell the property much
below its true value, and requiring me to enter into the oppressive
bond above referred to.
“After the arrangements for the sale of the refinery and of my stock
were fully completed and the property had been sold by myself and
the other stockholders, and after I had made arrangements for the
disposition of my money, I received a note from Mr. Rockefeller, in
reply to one that I had written to him threatening to make the
transaction public, saying that he would give me back the business
as it stood, or that I might retain stock if I wished to, but this
was after the entire transaction was closed, and such arrangements
had been made for my money that I could not then conveniently enter
into it; and I was so indignant over the offer being made at that
late day, after my request for the stock having been made at the
proper time, that I threw the letter into the fire and paid no
further attention to it.”[64]
The letter which Mrs. B—— destroyed was included in the affidavit in
which Mr. Rockefeller answered Mrs. B——’s statement. It reads:
“November 13, 1878. DEAR MADAM: I have held your note of 11th inst.,
received yesterday, until to-day, as I wished to thoroughly review
every point connected with the negotiations for the purchase of the
stock of the B—— Oil Company, to satisfy myself as to whether I had
unwittingly done anything whereby you could have any right to feel
injured. It is true that in the interview I had with you I suggested
that if you desired to do so, you could retain an interest in the
business of the B—— Oil Company, by keeping some number of its
shares, and then I understood you to say that if you sold out you
wished to go entirely out of the business. That being my
understanding, our arrangements were made in case you concluded to
make the sale that precluded any other interests being represented,
and therefore, when you did make the inquiry as to your taking some
of the stock, our answer was given in accordance with the facts
noted above, but not at all in the spirit in which you refer to the
refusal in your note. In regard to the reference that you make as to
my permitting the business of the B—— Oil Company to _be taken_ from
you, I say that in this, as all else that you have written in your
letter of 11th inst., you do me most grievous wrong. It was of but
little moment to the interests represented by me whether the
business of the B—— Oil Company was purchased or not. I believe that
it was for your interest to make the sale, and am entirely candid in
this statement, and beg to call your attention to the time, some two
years ago, when you consulted Mr. Flagler and myself as to selling
out your interests to Mr. Rose, at which time you were desirous of
selling at _considerably less price_, and upon time, than you have
now received in cash, and which sale you would have been glad to
have closed if you could have obtained satisfactory security for the
deferred payments. As to the price paid for the property, it is
certainly three times greater than the cost at which we could
construct equal or better facilities; but wishing to take a liberal
view of it, I urged the proposal of paying the $60,000, which was
thought much too high by some of our parties. I believe that if you
would reconsider what you have written in your letter, to which this
is a reply, you must admit having done me great injustice, and I am
satisfied to await upon innate sense of right for such admission.
However, in view of what seems your present feelings, I now offer to
restore to you the purchase made by us, you simply returning the
amount of money which we have invested and leaving us as though no
purchase had been made. Should you not desire to accept this
proposal, I offer to you one hundred, two hundred, or three hundred
shares of the stock at the same price that we paid for the same,
with this addition, that we keep the property we are under
engagement to pay into the treasury of the B—— Oil Company, an
amount which, added to the amount already paid, would make a total
of $100,000, and thereby make the shares $100 each.
“That you may not be compelled to hastily come to conclusion, I will
leave open for three days these propositions for your acceptance or
declination, and in the meantime believe me,
Yours very truly,
“JOHN D. ROCKEFELLER.”
Mr. Rockefeller says further in the affidavit from which this letter is
drawn: “It is not true that I made any promises that I did not keep in
the letter and spirit, and it is not true that I was instrumental to any
degree in her being obliged to sell the property much below its true
value, and I aver that she was not obliged to sell out, and that such
was a voluntary one upon her part and for a sum far in excess of its
value; and that the construction which was purchased of her could be
replaced for a sum not exceeding $20,000.”[65]
It is probably true, as Mr. Rockefeller states, that he could have
reproduced Mrs. B——’s plant for $20,000; but the plant was but a small
part of her assets. She owned one of the oldest lubricating oil
refineries in the country, one with an enviable reputation for good work
and fair dealing, and with a trade that had been paying an annual net
income of from $30,000 to $40,000. It was this income for which Mr.
Rockefeller paid $79,000; this income with the old and honourable name
of the B—— Oil Company, with not a few stills and tanks and agitators.
It is undoubtedly true, as Mr. Rockefeller avers, that Mrs. B—— was not
obliged to sell out, but the fate of those who in this period of
absorption refused to sell was before her eyes. She had seen the twenty
Cleveland refineries fall into Mr. Rockefeller’s hands in 1872. She had
watched the steady collapse of the independents in all the refining
centres. She had seen every effort to preserve an individual business
thwarted. Rightly or wrongly she had come to believe that a refusal to
sell meant a fight with Mr. Rockefeller, that a fight meant ultimately
defeat, and she gave up her business to avoid ruin.
CHAPTER SEVEN
THE CRISIS OF 1878
A RISE IN OIL—A BLOCKADE IN EXPORTS—PRODUCERS DO NOT GET THEIR SHARE
OF THE PROFITS—THEY SECRETLY ORGANISE THE PETROLEUM PRODUCERS’ UNION
AND PROMISE TO SUPPORT PROPOSED INDEPENDENT PIPE-LINES—ANOTHER
INTERSTATE COMMERCE BILL DEFEATED AT WASHINGTON—“IMMEDIATE
SHIPMENT”—INDEPENDENTS HAVE TROUBLE GETTING CARS—RIOTS
THREATENED—APPEAL TO GOVERNOR HARTRANFT—SUITS BROUGHT AGAINST UNITED
PIPE-LINES, PENNSYLVANIA RAILROAD AND OTHERS—INVESTIGATIONS
PRECIPITATED IN OTHER STATES—THE HEPBURN COMMISSION AND THE OHIO
INVESTIGATION—EVIDENCE THAT THE STANDARD IS A CONTINUATION OF THE
SOUTH IMPROVEMENT COMPANY—PRODUCERS FINALLY DECIDE TO PROCEED
AGAINST STANDARD OFFICIALS—ROCKEFELLER AND EIGHT OF HIS ASSOCIATES
INDICTED FOR CONSPIRACY.
It was clear enough by the opening of 1878 that Mr. Rockefeller need no
longer fear any serious trouble from the refining element. To be sure
there were scattered concerns still holding out and some of them doing
very well; but his latest move had put him in a position to cut off or
at least seriously to interfere with the very raw material in which they
worked. It was hardly to be expected after the defeat of the
Pennsylvania that any railroad would be rash enough to combine with even
a strong group of refiners. As for independent pipe-lines, there were so
many ways of “discouraging” their building that it did not seem probable
that any one would ever go far. It was only a matter of time, then, when
all remaining outside refiners must come into his fold or die. Mr.
Rockefeller’s path would now have been smooth had it not been for the
oil producers. But the oil producers, naturally his enemy, he being the
buyer and they the seller, had become in the six years before Mr.
Rockefeller had made himself the only gatherer of their oil,
irreconcilable opponents of whatever he might do. The South Improvement
Company they regarded rightly enough as devised to control the price of
their product, and that scheme they wrongfully laid entirely at Mr.
Rockefeller’s door. Mr. Rockefeller had been only one of the originators
of the South Improvement Company, but the fact that he had become later
practically its only supporter, that he was the only one who had
profited by it, and that he had turned his Cleveland plant into a
machine for carrying out its provisions, had caused the oil country to
fix on him the entire responsibility. Then the oil men’s experience with
Mr. Rockefeller in 1873 had been unfortunate. They charged the failure
of their alliance to his duplicity. There is no doubt that Mr.
Rockefeller played a shrewd and false game with the oil men in 1873, but
the failure of their alliance was their own fault. They did not hold
together—they failed to limit their production as they agreed, they
suspected one another, and at a moment, when, if they had been as
patient and wise as their great opponent they would have had the game in
their own hands, and him at their feet, as he had been in 1872, for the
sake of immediate returns, they abandoned some of the best features of
their organisation, and allied themselves with a man they distrusted.
When that alliance failed they threw on Mr. Rockefeller’s shoulders a
blame which they should have taken on their own.
Another very real cause for their anxiety and dislike was that as the
refiners’ alliance progressed the refiners made a much larger share of
the profits than the producers thought fair. The abandoning of their
alliance in 1873 had of course put an end to their measures for limiting
production and for holding over-production until it could be sold at the
prices they thought profitable. The drill had gone on merrily through
1873, 1874, and 1875, regardless of consumption or prices. By the end of
1874 there were over three and a half million barrels of oil in stock,
more than twice what there had ever been before. Production was well to
a million barrels a month and prices that year averaged but $1.15 a
barrel. For men who considered three dollars a starvation price this was
indeed hard luck. Things looked better by the end of 1875, for
production was falling off. By March, 1876, stocks had been so reduced
that there was strong confidence that the price of crude oil must
advance. By June the Oil City Derrick began to prophesy “three-dollar
oil” and to advise oil men to hold crude for that price. In August three
dollars was reached in the Oil City exchange. It had been nearly four
years since that price had been paid for oil, and the day the point was
reached (August 25) the brokers fairly went mad. They jumped on their
chairs, threw up their hats, beat one another on the back, while the
spectators in the crowded galleries, most of them speculators, yelled in
sympathy. Before six o’clock that day oil reached $3.11¼. Nobody thought
of stopping because it was supper time. The exchange was open until
nearly midnight, prices booming on to $3.17½. It seemed like old times
in the Oil Region—the good old flush times when people made a fortune
one day and threw it away the next!
Of course refined oil went up steadily with crude. Refined reached 21⅜
cents in New York the day of this boom at Oil City. The day following
the rise was one of the most exciting the oil exchange had ever seen.
“Never before,” declared the Derrick in its report, “was so much
business done.” From early in the morning until ten o’clock at night the
exchange was crowded by frantic speculators. Their awful excitement was
clear from their blanched faces and wild voices. Fully 800,000 barrels
of oil exchanged hands that day, the advance between the time the
exchange opened and its close was over fifty-five cents. Refined in New
York advanced in accordance with the market on the creek, closing at
twenty-four cents. This went on for several days, when a new element in
the situation began to force itself on the oil men’s attention. One of
the chief reasons on which they based their confidence in high prices
for crude oil was the fact that the foreigners were short of refined
oil. It was the custom then, as now, for exporters to buy their oil for
the winter European trade in the late summer and early fall. When the
boom began the harbour at New York was beginning to fill up with ships
for cargoes. But to the consternation of the oil men intent on keeping
up the boom, the exporters were refusing to buy. They were declaring the
price to which refined had risen to be out of proportion to the price of
crude. More, they declared the latter a speculative price—only once,
they argued, had it touched four dollars, and the refiners were not
buying at that price for manufacture. They were holding refined too
high. It was early in September when the realisation came upon the Oil
Regions that a new element was in the problem—a veritable blockade in
exports. As the days went on they saw that this was no temporary affair.
They saw that Mr. Rockefeller’s combination was at last carrying out
just what it had been organised to do—forcing the price it wanted for
refined. Day after day refined was held at twenty-six cents. Day after
day the exporters refused to buy. It was not until the end of September,
in fact, that they began to yield—as it was inevitable they should do,
for the game was certainly in the hands of the refiners, and Europe had
to have its light. The exporters began to see too that if they held off
longer they might have to pay higher prices, for it was rumoured that
the Standard Combination was shutting down its factories, literally
making refined scarce, while crude oil was piling up in Pennsylvania!
With the yielding of the exporter exactly what they feared occurred, the
price was raised! The exporters balked again. The matter began to
attract public attention. The New York Herald was particularly active in
airing the situation and did not hesitate to denounce it as a “Petroleum
Plot.” The leaders were interviewed, among them Mr. Rockefeller. Mr.
Rockefeller still held to his theory that to make oil dear was worthy of
public approval. They had aimed to control the price of oil in a
perfectly legitimate way, he told the Herald reporter, and the exporters
would have to yield to their prices. By the end of October New York
harbour was full of vessels—a mute protest against the corner—and it was
not until November that the exporters fully gave in and began to take
all the oil they could get at prices asked, which ranged from twenty-six
to thirty-five cents. And these prices were held all through the winter
of 1876–77, up to February 22. They were held regardless of the price of
crude, for, do their utmost, the producers could not keep their oil up
to the corresponding price of refined. According to the scale of
relative prices then accepted, twenty-six cents a gallon for refined
meant five dollars a barrel for crude, yet there was not a month in the
entire period of this hold-up that crude averaged that price. In
December, when the average price of refined was 29⅜ cents, crude was but
$3.78⅛ a barrel. The producers held meetings and passed resolutions,
cursed the refiners and talked of building independent refineries,
filled the columns of the Derrick with open letters advocating a
shut-down, an alliance of their own, restrictive legislation, an oil
men’s railway, and what was more to the point some of them supported,
with more or less fidelity, the efforts to build up counter movements
noted in the last chapter: the Columbia Conduit Line, the seaboard
pipe-line, and especially the alliance with the Empire Transportation
Company, attempted in the spring of 1877. There seemed more hope in this
last combination than in any other movement, for they had faith in
Colonel Potts, and besides they were accustomed to seeing the
Pennsylvania Railroad get what it wanted. The defeat of the Pennsylvania
was therefore the heavier blow. Indeed, the news of the sale of the
Empire pipe-lines to the Standard was like the sounding of the tocsin in
the angry and baffled Oil Regions. It revived the spirit of 1872. But it
was the spirit of 1872 with new dignity and a discretion such as had
never been before seen in the blatant region. In every town from McKean
County southwest to Butler the oil towns hastened to organise themselves
into a secret society. Little by little it came out that a Producers’
Union had been organised. From all that could be learned it looked very
much as if the Petroleum Producers’ Union had come into existence to do
business. On November 21, 1877, the first meeting of the new
organisation was held, “the Petroleum Parliament” or “Congress” it was
called. This Congress, which met in Titusville, was composed of 172
delegates. It was claimed that it represented at least 2,000 oil
producers, and not less than seventy-five millions in money. It is
certain it included the representative men of the Oil Regions, those to
whose daring, hard work, and energy the discovery and development of the
oil fields, as they were known at that time, were entirely due.
[Illustration:
WOODEN CAR TANKS
]
[Illustration:
BOILER TANK CARS
]
[Illustration:
WOODEN TANKS FOR STORING OIL
]
[Illustration:
RAILROAD TERMINAL OF AN EARLY PIPE LINE
]
For four days the Congress was in session, and it is a remarkable
comment on the seriousness with which it had undertaken its work that,
although reporters from all parts of the country interested in oil were
present, nothing leaked out. In December a second session of four days
was held in Titusville, but no announcement of what was doing was made
to the press. Indeed, it was only as lines of action developed that the
public became familiar with what the producers had resolved on in the
days of secret session which they had held.
Their resolutions had been eminently wise and they undertook their
support vigorously and intelligently. First and foremost they resolved
to stand by all efforts to secure an outlet to the seaboard independent
of the Standard and the allied railroads. Two enterprises were put
before them at once. The first was what was known as the Equitable
Petroleum Company, an organisation started by one of the most
resourceful and active independent men in the oil country, one of whom
we are to hear more, Lewis Emery, Jr. This company, in which some 200
oil producers in the Bradford field had taken stock, proposed to lay a
pipe-line to Buffalo and to ship their oil thence by the Erie Canal.
They had acquired a right of way to Buffalo and had capital pledged to
carry out the project. The second enterprise to come before the newly
formed union was much more ambitious. It was nothing less than a revival
of Mr. Harley’s enterprise which had attracted so much attention in
1876. It was revived now by the three men who had been operating the
Columbia Conduit Line under a lease—Messrs. Benson, McKelvy and Hopkins,
who had been set free by the sale of that property to the Standard.
Their experience with the pipe-line business had convinced them it was
one of the most lucrative departments of the oil industry. They believed
too that oil could be pumped over the mountains, and no sooner were they
free than they took up Mr. Harley’s old idea and engaged the same
engineer he had brought into the enterprise, General Herman Haupt, to
survey a route from Brady’s Bend on the Allegheny River to Baltimore,
Maryland—a distance of 235 miles. To both of these projects the General
Council of the Union gave promise of support.
The demand for interstate commerce legislation was renewed at once by
the Union, and in December E. G. Patterson, the head of the committee
having the matter in hand, prepared the first draft of an act which was
put in formal shape by George B. Hibbard, of Buffalo, counsel employed
by the Union for this purpose. Mr. Hibbard also prepared a memorandum of
the law on the subject. The bill prepared by Mr. Patterson and Mr.
Hibbard was introduced into the House of Representatives in May, 1878,
by Lewis F. Watson, whose home was in Warren County, Pennsylvania. It
was called into committee and came out as the Regan bill and as such was
passed at the end of the year by the House, but only to be smothered
later in the Senate. At the same time that the effort was going in
Washington for relief the Legislature of Pennsylvania was being besieged
again for a free pipe-line bill and an anti-discrimination bill. Both of
these projects failed, and the committee having them in charge said
bitterly in its report to the Union: “How well we have succeeded at
Harrisburg you all know. It would be in vain for your committee to
describe the efforts of the Council in this direction. It has been
simply a history of failure and disgrace. If it has taught us anything,
it is that our present law-makers, as a body, are ignorant, corrupt and
unprincipled; that the majority of them are, directly or indirectly,
under the control of the very monopolies against whose acts we have been
seeking relief.... There has been invented by the Standard Oil Company
no argument or assertion, however false or ridiculous, which has not
found a man in the Pennsylvania Legislature mean enough to become its
champion.”
On every side indeed the producers hastened to protect themselves
against the Lord of the Oil Regions, as Mr. Rockefeller, not inaptly,
was called, on the completion of his pipe-line monopoly. That they were
not merely alarmists in thinking that they must do something to protect
their interests was demonstrated sooner than was anticipated. The
demonstration was hurried by an unforeseen and difficult situation—a
great outpouring of oil in a new field—the Bradford or Northern Field in
McKean County, Pennsylvania. About the time that Mr. Rockefeller’s
lordship was realised it became certain that a deposit of oil had been
discovered which was going to lead soon to a production vastly in excess
of the consumption, as well as in excess of the then existing facilities
for gathering and storing oil. If Mr. Rockefeller wished to keep his
monopoly he must, it was evident, enter upon a campaign of expansion
calling for an immense expenditure of energy and money. He must lay
pipes in a hundred directions to get the output of new wells; he must
build tanks holding thousands of barrels to receive the oil. And all of
this must be done quickly if rivals were to be kept out of the way.
There was no hesitation on the part of the United Pipe Lines. One of the
greatest construction feats the country has ever seen was put through in
the years 1878, 1879 and 1880 in the Bradford oil field by the Standard
interests. It was a wonderful illustration of the surpassing
intelligence, energy and courage with which the Standard Oil Company
attacks its problems. But while it was putting through this feat it
instituted a policy toward the producers which was regarded by them as
tyrannical and unjustifiable. The first manœuvre in this new policy hit
the producer in a very tender spot, for it concerned the price he was to
receive for oil.
The method which prevailed at the time in handling and buying and
selling oil was this: At the request of the well owner connected with a
pipe-line his oil was run and credited to him in the pipe-line office.
Here he could hold it as long as he wished by paying a storage charge.
If he wished to sell his “credit balance,” as oil to his account was
called, he simply gave the buyer an order on the line for the oil, and
it was transferred to the account of the new buyer. The pipe-lines
frequently had hundreds of thousands of barrels of oil in hand, and they
traded with this oil as banks do with their deposits—that is, they
issued certificates for each 1,000 barrels of oil on hand, and these
certificates were negotiable like any other paper. Now the United Pipe
Lines acknowledged itself a common carrier, and so was obliged to
discharge the duty of collecting oil on demand, or at least within a
reasonable time after the demand of its patrons.
But in December, 1877, after the monopoly was completed, they refused to
discharge their obligations in the customary way. On the plea that they
had not sufficient tankage to carry oil in the Bradford field, they
issued an order that no oil would be run in that district for any one
unless it was sold for “immediate shipment”—that is, no oil would be
taken to hold for storage; it would be taken for shipping only. At the
same time the Standard buyer, J. A. Bostwick, decreed that henceforth no
Bradford oil would be bought for immediate shipment unless it was
offered at _less_ than the market price. No fixed discount was set. The
seller was asked what he would take; his offer was, of course, according
to his necessities. Even then an answer was not always immediately
given. The seller was told to come back in five or ten days and he would
be told if his oil would be taken. A feature of the new order,
particularly galling to the oil men, was the manner in which it was
enforced. Formerly the buyer and seller had met freely in the oil
exchanges and their business offices, and transactions had been carried
on as among equals. Now the producers were obliged to form in line
before the United Pipe Lines’ offices and to enter one at a time to
consult the buyer. A line of a hundred men or more often stood during
the hours set before the office, waiting their turn to dispose of their
oil. It should be said in justice to Mr. Bostwick that he was not the
first buyer to take oil at a discount. The producers themselves
frequently offered oil at less than the market price when in need of
money, but Mr. Bostwick was the first buyer in a situation to force them
to make the discount regularly. When these orders came, few of the
producers had sufficient private tankage to take care of any amount of
oil. Here was the situation then: to keep oil from running on the ground
the producer must sell it; but if he sold it he must take a price from
two to twenty-five cents or more below the market.
The immediate shipment order was not an invention of the United Pipe
Lines. It had been enforced more than once for brief periods by various
lines when they found their capacity overcrowded by some unexpected
situation. In 1872 epizootic among the horses so upset things in the Oil
Regions that for a short time an immediate shipment order was enforced.
In 1874, when the pipe-lines were overtaxed by a great outpouring of oil
in the Lower Field, immediate shipment had been attempted, but at that
time there were still so many independent pipes struggling for business
that the movement met no success. Now, however, the United Pipe Lines
had things its own way. That they were not ready to meet the growing
Bradford production is plain from a study of the figures. There were in
the Oil Regions at the close of 1877, according to the Oil City Derrick,
4,000,000 barrels of tankage. There was on hand at this time 3,127,837
barrels of oil, but the empty tankage was in the wrong place. In the
Bradford field, where the daily production had suddenly increased from
2,000 barrels in January to 8,451 barrels in December, there was only a
little over 200,000 barrels of tankage.[66] In order to take care of the
oil the pipe-lines began to make nearly all their shipments from that
field, and oil piled up in the Lower Region to the great dissatisfaction
of the producers there.
As soon as the situation of the Bradford field was realised both the
United Pipes and the producers began a furious campaign of tank
building. By the beginning of April, 1878, the tankage there had been
increased to 1,152,028 barrels.[67] Between April 1 and November 1
seventy tanks of from 10,000 to 25,000 barrels capacity were built in
McKean County. The greater number of these belonged to the producers.
According to the United Pipe Lines’ statement, there was under their
control in the entire Oil Regions in October 5,200,000 barrels of
tankage, two-thirds of which belonged to producers, but was held by them
under a lease.[68] But oil poured from the ground faster than tanks
could be built. In six months—that is, by July, 1878,—the daily output
of Bradford had become over 18,000 barrels, an increase of 10,000
barrels a day over that of the previous December. That it was a most
difficult situation for everybody is evident. There was but one way to
prevent loss—shut down the wells and stop the drill; but this the
producers refused to consider. Of course the price of oil went down
rapidly, so far did the production exceed consumption. But why, cried
the producer, when oil is already so low, take advantage of our
necessity and force us into competition with each other; why enforce
this immediate shipment? They answered their question themselves, and
began then to make a charge against the Standard, which they continue to
make to-day; that is, that it habitually meets the extraordinary
expenses to which it is put by depressing the price of crude oil—“taking
it out of the producer.” The Bradford region demanded great investments,
therefore immediate shipment. “The producer pays.” The writer has no
documentary proof that this is Mr. Rockefeller’s policy, but there is no
question that the Oil Region believes it is, and this belief must be
taken into account if one attempts to explain the long warfare of the
oil country on him and his company. It is a common enough thing to-day,
indeed, to hear oil producers in Northwestern Pennsylvania remark
facetiously when a new endowment to Chicago University is reported:
“Yes, I contributed so much on such a day. Don’t you remember how the
market slumped without a cause? The university needed the money, and so
Mr. Rockefeller called on us to stand and deliver.”
A few months after “immediate shipment” was begun a new cause for
dissatisfaction arose. More or less private tankage leased to the lines
had always been in existence. It enabled a producer to carry his oil
without paying storage, and, of course, it was the business of the
company to empty this storage within a reasonable time after the owner
demanded it. But in the spring the lines, under the same plea of under
capacity, refused to carry out this duty to the tank owner; that is,
they refused to give him his tankage, although he had sold his oil. Thus
A owns 5,000 barrels of tankage. It is full. He sells a portion of it to
Mr. Bostwick and asks the United Pipe Lines to run the oil accumulated
at his wells. But the United Pipe Lines refuses on the ground that the
line is full. The loss to producers incident upon these orders was
terrible. All over the Bradford field men saw their oil running on the
ground, though they offered to sell it at ruinous prices, and though
they might have thousands of barrels of tankage leased to the United
Lines. Yet they did not riot; conscious that their own reckless drilling
had brought on the trouble, they cursed the Standard, and put down more
wells!
But in the spring of 1878 Mr. Rockefeller and his colleagues instituted
a series of manœuvres which shattered the last remnant of confidence the
oil men had in the sincerity of their claim that they were doing their
utmost to relieve the distressed Oil Regions, and that their measures
were necessary to hold the producers in check. The pipe-lines began to
refuse to load cars for the shippers who supplied the few independent
refiners with oil. The experiences of many of these independent oil men
have been told before the courts. For instance, W. H. Nicholson, the
representative of Mr. Ohlen, of New York, a shipper of petroleum,
testified[69] that in May, 1878, he began to have difficulty in getting
cars. At Olean, one day, 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 says, he saw Mr. O’Day, the manager
of the United Pipe Lines, in which his oil was stored, and told him that
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, although at that
time he had ten thousand barrels of oil in the United Pipe Lines, and an
order for 100 cars from the officials of the Erie road in his hand.
B. B. Campbell, at that time president of the Producers’ Union, gave his
experience at this time in the suit of the Commonwealth against the
Pennsylvania Railroad:
I never heard of a scarcity of cars until the early part of June,
1878; I came to Parker 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 amount, 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. I used all the influence I had to
prevent an outbreak and destruction of railroad and pipe-lines; I at
once went over to the Allegheny Valley Railroad office and
telegraphed to John Scott, president of the Allegheny Valley
Railroad Company:
“‘The refusal of the United to run oil unless sold upon immediate
shipment, and of the railroad to furnish cars, has created such a
degree of excitement here that the more conservative part of the
citizens will not be able to control the peace, and I fear that the
scenes of last July will be repeated on an aggravated scale.’ That
message I left in the office about seven o’clock in the evening. I
got up the next morning before seven and received an answer:
“‘What do you advise should be done? John Scott.’ I answered: ‘Will
meet you to-morrow morning,’ which would be Saturday.
“On Saturday morning I came in on an early train and met at the
depot Mr. Shinn, then, I believe, vice-president of the Allegheny
Valley Railroad Company, David A. Stewart, one of the directors of
the road, and Thomas M. King, assistant superintendent. I spoke very
plainly to Mr. Shinn, 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, when
business required, the railroads could carry day after day from
50,000 to 60,000 barrels of oil. Mr. Shinn stated clearly that I
knew that the Allegheny Valley Railroad Company did not control the
oil business over its line, but was governed entirely and
exclusively by orders received from the Pennsylvania Railroad
Company. I then 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.
After further conversation we parted. My interview with them was not
as officials of the Allegheny Valley Railroad Company, but as
representatives of the oil traffic carried and controlled by the
Pennsylvania road. 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_.”[70]
In June another exasperating episode occurred, growing out of the
attempts of the oil men to secure independent routes to the seaboard. As
we have seen, two enterprises had been launched late in 1877 under the
patronage of the Petroleum Producers’ Union. As soon as the Equitable
had acquired its right of way to Buffalo, Mr. Emery, the head of the
company, his papers in hand, sought an interview with representatives of
the Buffalo and McKean road, and told them if they did not consent that
the Equitable lay a pipe-line to their road, and did not contract to
carry the oil from that connection to Buffalo, the pipe-line to Buffalo
would be laid. After considerable negotiation a contract was made with
the railroad, and by June the new company was ready with pipe-line, cars
and barges to carry oil to New York. But no sooner did they attempt to
begin operations than the railroad, under pressure from the Pennsylvania
Railroad it was claimed, refused to carry out its contracts. The cars
the Equitable ordered sent to the loading track were refused, a side
track it had laid was torn up, the frog torn out; everything, indeed,
was done to prevent the Equitable doing business, though finally a
vigorous appeal to the law brought the road to terms, and in July oil
began to flow Eastward by this indirect route. No sooner did the
Standard find that the Equitable people were really doing business than
they appealed to the railroads. A meeting of the representatives of the
trunk lines was held at Saratoga in July, and the rates on crude
Eastward were dropped to eighty cents to meet the new competition.
While this fight was going on against the Equitable all sorts of
interference were being put in the way of the seaboard line between
Brady’s Bend and Baltimore. It was ridiculed as chimerical to attempt to
pump oil over the mountains, and General Haupt was declared to be a
visionary engineer with a record of failures. All the old stories
retailed in 1876 were dragged out again. The farmers were told that the
leakage from the pipe-line would ruin their fields and endanger their
buildings, and an active campaign to excite prejudice was carried on
again in the farmers’ papers. Philadelphia and Pittsburg both fought the
plan, the press and chambers of commerce opposing the free pipe bill at
that time before the Legislature, and the project generally. In
Pittsburg the opposition created almost a riot, for the oil producers of
the Lower Field, who had long bought their supplies there, now
threatened to boycott the city if the pipe-line was fought. So strong
was the opposition that capital took fright and the company found it
most difficult to secure funds. This opposition to the pipe-line was, of
course, charged against the Standard and the Pennsylvania Railroad.
Now, while the railroads were refusing cars to independent shippers,—or
if they gave an order for them, the United Pipe Lines were refusing to
load them,—while the Standard and the railroads were doing their utmost
to prevent the Equitable Line doing business, and were discouraging in
every way the seaboard pipe-line—new routes which would take care of a
proportion, at least, of the oil which they claimed they could not
handle—thousands of barrels of oil were running on the ground in
Bradford, and two of the independent refineries of New York shut down
entirely in order that a third of their number might get oil enough to
fill an order.
This interference with the outside interests, thus preventing the small
degree of relief which they would have afforded, and a growing
conviction that the Standard meant to keep up the “immediate shipment”
order, at least until it had built the pipes and tanks needed in the
Bradford field, finally aroused the region to a point where riot was
imminent. The long line of producers who filed into the United Pipe
Lines’ office day after day to sell their oil at whatever prices they
could get for it, and who, having put in an offer which varied according
to their necessities, were usually told to come back in ten days, and
the buyer would see whether he wanted it or not—this long line of men
began to talk of revolution. Crowds gathered about the offices of the
Standard threatening and jeering. Mysterious things, cross-bones and
death-heads, were found plentifully sprinkled on the buildings owned by
the Standard interests. More than once the slumber of the oil towns was
disturbed by marching bodies of men. It was certain that a species of
Kuklux had hold of the Bradford region, and that a very little spark was
needed to touch off the United Pipe Lines. In the meantime things were
scarcely less exciting in the Lower Fields. The “immediate shipment”
order was looked upon there as particularly outrageous, because there
was no lack of lines or tanks in that field, and when, in the summer of
1878, there was added to this cause an unjustifiable scarcity of cars,
excitement rose to fever heat.
The only thing which prevented a riot at this time and great destruction
of property, if not of life, was the strong hand the Petroleum
Producers’ Union had on the country. Fearing that if violence did occur
the different movements they had under way would be prejudiced, they
sent a committee of twenty-five men to Harrisburg to see Governor
Hartranft. They laid before him and the attorney-general of the state
the grievance of the oil producers in an “appeal” reviewing the history
of the industry.[71] They demanded that the United Pipe Lines be made to
perform its duty as a public carrier, and the railroads be made to cease
their discrimination against shippers both in the matter of rebates and
in furnishing cars. They called the Governor’s attention to the fact
that there were already existing laws touching these matters which, in
their judgment, met the case, and if the existing laws did not give them
relief, that it was the plain duty of the executive to call a meeting of
the Legislature and pass such acts as would do so. Governor Hartranft
was much stirred by the story of the producers. He went himself to the
Oil Regions to see the situation, and in August directed the producers
to put their demands into the form of an appeal. This was done, and it
was decided to bring proceedings by writ of _quo warranto_ against the
United Pipe Lines, and by separate bills in equity against the
Pennsylvania Railroad and the other lines doing business in the state.
It was September before the state authorities began their investigation
of the United Pipe Lines, the hearings being held in Titusville. Many
witnesses summoned failed to appear, but enough testimony was brought
out in this investigation to show that the railroads had refused to
furnish cars for independents when they had them empty, and that the
United Pipe Lines had clearly violated its duty as a common carrier. In
his report on this investigation the secretary of internal affairs,
William McCandless, rendered a verdict that the charges of the oil
producers had not been substantiated in any way that demanded action.
The indignation which followed this report was intense. It found a vent
in the hanging in effigy of McCandless, who was universally known in the
state as “Buck.” In the oil exchange at Parker, on the morning of
October 19, the figure of a man was found hanged by the neck to a
gallows, and the producers left it hanging there all day, so that they
might jeer and curse it. Across the forehead of the effigy in large
blood-red letters were the words:
...........................
. .
. PENNSYLVANIA RAILROAD .
. .
...........................
Pinned to the gallows there was a card bearing a quotation from
Secretary McCandless’s report:
.....................................................
. .
. The charges of the oil producers have not been .
. substantiated in any way that demands action. .
. .
.....................................................
In Bradford a huge effigy hung in the streets all day, and in the
village of Tarport, near by, another swayed on the gallows. They pulled
down the effigy at Bradford, and drew from a pocket what purported to be
a check signed by John D. Rockefeller, president of the Standard Oil
Company, in favour of “Buck” McCandless, for $20,000, and endorsed by
the Pennsylvania Railroad Company. That represented the price, they
said, that McCandless got for signing the report. Throughout the oil
country there was hardly an oil producer to be found not associated with
the Standard Oil Company who did not believe that McCandless had sold
himself and his office to the Standard Oil Combination for $20,000, and
used the money to help in his Congressional canvass.
The excitement in the Oil Regions spread all over the country. Something
of the importance the press attached to it may be judged from the way
the New York Sun handled the question. For six weeks it kept one of the
ablest members of its staff in the Oil Regions. Six columns of the first
page of the issue for November 13 was taken up with the story of the
excitement, coupled with the full account of the South Improvement
Company, and the development of the Standard Oil Company out of that
concern. On November 23 the first page contained four columns more under
blazing headings.
Early in 1879 the hearing in the suits in equity brought by the
commonwealth against the various transportation companies of which the
producers had been complaining were begun. The witnesses subpœnaed
failed at first to appear, and when on the stand they frequently refused
to reply; but it soon became apparent to them that the state authorities
were in earnest, and that they must “answer or go to Europe.” By March,
1879, an important array of testimony had been brought out. Among the
Standard men who had appeared had been John D. Archbold, William Frew,
Charles Lockhart and J. J. Vandergrift. A score or more of producers
also appeared. The most important witness from the railroad circles,
and, indeed, the most important witness who appeared, was A. J. Cassatt.
Mr. Cassatt’s testimony was startling in its candour and its
completeness, and substantiated in every particular what the oil men had
been claiming: that the Pennsylvania Railroad had become the creature of
the Standard Oil Company; that it was not only giving that company rates
much lower than to any other organisation, but that it was using its
facilities with a direct view of preventing any outside refiner or
dealer in oil from carrying on an independent business.[72]
The same or similar conditions, not only in oil, but in other products,
which led to these suits, led to investigations in other states. Toward
the end of 1878 the Chamber of Commerce of New York City demanded from
the Legislature of the state an investigation of the New York railroads.
This investigation was carried on from the beginning of 1879. The
revelations were amazing. Before the Hepburn Commission, as it was
called from the name of the chairman, was through with its work there
had appeared before it to give testimony in regard to the conduct of the
Standard Oil Company and of the relation of the Erie and the Central
roads to it, H. H. Rogers, J. D. Archbold, Jabez A. Bostwick and W. T.
Sheide. A large number of independent oil men had also appeared. William
H. Vanderbilt had been examined, and G. H. Blanchard, the freight agent
of the Erie road, had given a full account of the relation of the Erie
to the Standard, perhaps the most useful piece of testimony, after that
of Mr. Cassatt, belonging to this period of the Standard’s history.[73]
At the same time that the Pennsylvania suits were going on, and the
Hepburn Commission was doing its work, the Legislature of Ohio
instituted an investigation. It was commonly charged that this
investigation was smothered, but it was not smothered until H. M.
Flagler had appeared before it and given some most interesting facts
concerning rebates. A number of gentlemen who were finding it hard to do
oil business also appeared before the Ohio committee and told their
stories.[74] By April, 1879, there had been brought out in these various
investigations a mass of testimony sufficient in the judgment of certain
of the producers to establish the truth of a charge which they had long
been making, and that was that the Standard was simply a revival of the
South Improvement Company. Now the verdict of the Congressional
Committee had been that the South Improvement Company was a conspiracy.
Therefore, said the producers, the Standard Oil Company is a conspiracy.
Their hope had been, from the first, to obtain proof to establish this
charge. Having this they believed they could obtain judgment from the
courts against the officials of the company, and either break it up or
put its members in the penitentiary. The more hotheaded of the producers
believed that they now had this evidence.
If one will examine the testimony which had been given thus far in the
course of the various examinations one will see that there was reason
for their belief. In the first place, it had been established that all
the stockholders of the South Improvement Company, excepting four, were
now members of the Standard Oil Combination. Indeed, the only persons
holding high positions in the new combination at this date who were not
South Improvement Company men were, Charles Pratt, J. J. Vandergrift, H.
H. Rogers and John D. Archbold.
The South Improvement Company had been a secret organisation. So was the
new Standard alliance; that is, the most strenuous efforts had been made
to keep it secret; for instance, the sale of the works of Lockhart,
Warden and Pratt to the Standard was kept from the public. Indeed, it
was a year after these sales before even the Erie Railroad knew that Mr.
Rockefeller had any affiliations besides those with Pratt and Company,
and it made its contracts with him on this assumption. When purchases of
refineries were made it was the custom to continue the business under
the name of the original concern; thus, when Mrs. B., of Cleveland, sold
in 1878, as recounted in the last chapter, the persons selling were
obliged to keep the sale secret even from the employees of the concern.
“The understanding was with regard to the sale of the property to the
Standard Oil Company,” said the shipping clerk in his affidavit, “that
it should not be known outside of their own parties, that it was to be
kept a profound secret, and that the business was to be carried on as if
the B—— Oil Company was still a competitor.” The secret rites with which
the contract was made in 1876 between Mr. Rockefeller and Scofield,
Shurmer and Teagle have already been described.
To keep the relations of the various Standard concerns secret Mr.
Rockefeller went so far, in 1880, as to make an affidavit like the
following: “It is not true, as stated by Mr. Teagle in his affidavit,
that the Standard Oil Company, directly or indirectly through its
officers or agents, owns or controls the works of Warden, Frew and
Company, Lockhart, Frew and Company, J. A. Bostwick and Company, C.
Pratt and Company, Acme Refining Company, Imperial Refining Company,
Camden Consolidated Company, and the Devoe Manufacturing Company; nor is
it true that the Standard Oil Company, directly or indirectly through
its officers or agents, owns or controls the refinery at Hunter’s Point,
New York. It is not true that the Standard Oil Company, directly or
indirectly through its officers or agents, purchased or acquired the
Empire Transportation Company, or furnished the money therefor; nor is
it true that the Standard Oil Company inaugurated or began or induced
any other person or corporation to inaugurate or begin a war upon the
Pennsylvania Railroad Company or the Empire Transportation Company, as
stated in the affidavit of Mr. Teagle.”[75]
There may be a technical explanation of this affidavit, although the
writer knows of none. There is certainly abundant testimony in existence
that the works of Messrs. Pratt, Lockhart and Warden, at least, had been
bought long before this affidavit was made, and paid for in Standard Oil
Company stock, and that they were working in alliance with that company.
It was shown in the last chapter that on October 17, 1877, the Standard
Oil Company paid $2,500,000 in certified checks on the purchasing price
of the plant of the Empire Transportation Company.
While none of the other members of the Standard Oil Company examined in
1879 was quite so sweeping in his denials, all of them evaded direct
answers. The reason they gave for this evasion was that the
investigations were an interference with their rights as private
citizens, and that the government had no business to inquire into their
methods. Consequently when asked questions they refused to answer “by
advice of counsel.” Ultimately the gentlemen did answer a great many
questions. But taking the testimony all in all through these years it
certainly is a mild characterisation to say that it totally lacks in
frankness. The testimony of the Standard officials before the Hepburn
Commission was so evasive that the committee in making its report spoke
bitterly of the company as “a mysterious organisation whose business and
transactions are of such a character that its members decline giving a
history or description of it lest this testimony be used to convict them
of a crime.” The producers certainly were right in claiming that secrecy
was a characteristic of the Standard as it had been of the South
Improvement Company.
The new Standard Combination, like the South Improvement Company, aimed
at controlling the entire refining interest. “The coal-oil business
belongs to us,” Mr. Rockefeller once told a recalcitrant refiner. His
associates were saying the same on all sides; “the object of the
Standard Oil Company is to secure the entire refining business of the
world,” a member of the concern told B. F. Nye, an Ohio producer.[76]
The method the Standard depended upon to secure this control was the
same as the method of the South Improvement Company—special privileges
in transportation. We have seen how intelligently and persistently Mr.
Rockefeller worked to secure these special privileges until, in 1877, he
had made with all the trunk lines contracts which in every particular
paralleled the contracts which in January, 1872, Messrs. Scott, Gould,
Vanderbilt and McClellan made with the South Improvement Company. He now
had a rebate on every barrel of oil he shipped, and this was given with
the understanding that the railroad should allow no rebate to any other
shipper unless that shipper could guarantee and furnish a quantity of
oil for shipment which would, after deduction of his commission, realise
to the road the same amount of profit realised from the Standard trade.
He also had a drawback on every barrel his rivals shipped. No clause in
the South Improvement Company’s contract with railroads had given more
offence to the oil world than that which called for a drawback to the
company on the oil shipped by outsiders. It will be remembered that the
beneficiaries of this contract were to receive drawbacks of $1.06 a
barrel on all crude oil that outside parties shipped from the Oil
Regions to New York, and a proportionate drawback on that shipped from
other points. The rebate system was considered illegal and unjust, but
men were more or less accustomed to it. The drawback on other people’s
shipment was a new device, and it threw the Oil Region into a frenzy of
rage. It did not seem possible that the Standard would attempt to revive
this practice again, and yet when it had got its hand strongly on the
four trunk lines it made a demand for the drawback. It has already been
recounted how, on February 15, 1878, four months after the Pennsylvania
succumbed to the Standard’s demand, Mr. O’Day wrote to Mr. Cassatt: “I
here repeat what I once stated to you, and which I wish you to receive
and treat as strictly confidential, that we have been for many months
receiving from the New York Central and Erie Railroads certain sums of
money, in no instance less than twenty cents per barrel on _every barrel
of crude oil carried by each of these roads_.... Co-operating as we are
doing with the Standard Oil Company and the trunk lines in every effort
to secure for the railroads paying rates of freight on the oil they
carry, I am constrained to say to you that in justice to the interests I
represent we should receive from your company at least twenty cents on
each barrel of crude oil you transport.” And Mr. Cassatt after seeing
the freight bills showing that both the Central and Erie allowed a
drawback gave orders that the Pennsylvania pay one of 22½ cents. When
Mr. Cassatt was under examination in 1874 the examiner remarked:
“I understand, Mr. Cassatt, that this 22½ cents paid to the American
Transfer Company is not restricted to all oil that passed through their
lines.”
“No, sir; it is paid on all oil received and transferred by us.”
Among the interesting documents presented at this inquiry was a
statement of the crude oil shipments over the Pennsylvania road for
February and March, 1878.[77] They footed up to a total of 343,767½
barrels. On this amount a discount of twenty cents a barrel was allowed
to the Standard Oil Company through its agent, the American Transfer
Company. Among other independents who shipped this oil was H. C. Ohlen.
In all, Mr. Ohlen shipped 29,876 barrels, and on this the Standard Oil
Company received twenty cents a barrel! That is, after Mr. Ohlen had
paid for his oil, paid for having it carried by the pipe-line to the
railroad, and paid the railroad the full rate of freight without the
commission the Standard received, the Pennsylvania was obliged to turn
over to the Standard Oil Company twenty cents of the amount he had paid
on each barrel!
The examiner tried very hard to find out if there was a legitimate
reason why such an allowance should have been made to the American
Transfer Company on oil it did not handle. “We pay that,” Mr. Cassatt
said, “as a commission to them to aid in securing us our share of
trade.” “We pay it,” said the comptroller, “for procuring oil to go over
the lines in which the Pennsylvania Railroad Company is interested as
against the New York lines and the New York Central.”
“Do you understand,” the examiner questioned of one of the auditors,
“that the American Transfer Company secured to the Pennsylvania road the
traffic of the outside refiners of New York (mentioned in the statement
quoted above)?” “I never raised a question of that kind in my mind,”
answered the adroit auditor.
But the answer was evident. The American Transfer Company had nothing
whatever to do with the oil shipped by Mr. Ohlen or Ayres, Lombard and
Company or J. Rousseaux or any one of the other independents mentioned
in the statement, unless perchance that oil had come originally from the
lines of the American Transfer Company. In that case the shipper had
paid the line for the service rendered, at the time he bought the
oil—the custom then and now. The tax was paid by the Pennsylvania solely
because the Standard Oil Company had the power to demand it. The demand
was made in the name of the American Transfer Company as a blind.
Naturally the proof that the Standard had revived the most obnoxious
feature of the South Improvement Company aroused intense bitterness and
disgust among the oil men.
Another offensive clause of the 1872 contracts was that pledging the
railroads to lower or raise the gross rates of transportation for such
times and to such extent as might be necessary to overcome competition.
Now, the new contracts of the Standard provided the same arrangement;
that is, they stipulated that the rates were to be lowered if necessary
so as to place the Standard on a parity with shippers by competing
lines. The workings of the clause were illustrated when the producers
got the Equitable Line through in 1878, the railroads dropping their
charge to eighty cents a barrel, and in some cases even less. The
producers certainly had evidence enough for their claim that the
contracts of the South Improvement Company and the Standard Oil Company
with the railroads were similar in every particular as far as principles
were concerned—that they differed alone in the amounts of the rebates
and drawbacks.
There was plenty of evidence brought out, also, to show that the object
of the Standard operations was like that of the South Improvement
Company—keeping up the price of refined oil. Both combinations were
formed to keep the refined article scarce on the market by controlling
all the refineries and by refusing to sell under competition. The
officials of the South Improvement Company stated under oath that they
hoped to raise the price fifty per cent. The Central Organisation hoped
to put up the price of refined from fifteen to twenty-five cents. As a
matter of fact that organisation when it finally got control of the
market put up the price considerably more. The spectacular demonstration
in the winter of 1876 and 1877 of what could be done in keeping up the
price of refined was still rankling in the minds of the oil men. They
saw that it was by that coup that the Standard had gotten the ready
money to pay for the plant of the Empire Transportation Company—the
money to buy in whatever it wanted—the money to pay the fifty per cent.
dividend to which one of its members testified in the Ohio
Investigation. They remembered that while the refiners had been selling
refined around thirty cents a gallon they had sold crude at less than
four dollars a barrel. Little wonder then that they felt they had
evidence that the Standard had actually done what they had always
claimed it would do if it got hold of the refining interests as it
planned. Even in the case where certain large producers had entered into
a partnership with the Standard on condition that they pay them prices
for crude commensurate with the price of refined, these producers
claimed the agreement had not been kept. One of these cases came to
light in a suit instituted in 1878. It seems that some time in December,
1874, the large oil company of H. L. Taylor and Company sold one-half
interest in its property to the Standard Oil Company. The reason for the
sale the plaintiffs stated in their complaint to be as follows:
The extent of their (the Standard’s) business and control over
pipe-lines and refineries had enabled them to procure, and they had
procured from the railways, more favourable terms for transportation
than others could obtain. These advantages and facilities placed it
within their power to obtain, and they did obtain, far better and
more uniform prices for petroleum than could be obtained by the
plaintiffs. The said organisation and firms, by virtue of their
monopoly of the business of refining and transportation of oil, had
been at times almost the only buyers in the market, and at such
times had been enabled to dictate and establish a price for crude
oil far below its actual value, as determined by prices of refined
oil at same dates, and they thus obtained a large share of the
profits which should have fallen to the plaintiffs and other
purchasers. The sale was made, and in consideration of the foregoing
premises, and upon the promise and agreement on the part of the
defendants that the partnership thus formed should have the benefit
of the advantage and facilities of the said defendants, and the
organisations and firms managed and controlled by defendants, in
marketing its oil; that the firm should have to the extent of its
production the advantage of the sales of refined by the defendants
or said Standard Oil Company, either for present or future delivery,
so that there should be at no time any margin or difference between
the ruling price of refined oil, and the price which defendants
would pay the partnership for the crude by it produced, beyond the
necessary cost of refining. This thing formed the inducement and the
larger part of the consideration for the sale of said property to
defendants. The amount actually received for said interest was far
beneath its actual value, and without the agreement on the part of
the defendants to pay to the partnership for its product prices at
all times commensurate with the prices of refined oil, they would
not have sold the said interest nor entered into said partnership.
* * * * *
The defendants, although requested to do so, have not only failed,
neglected, and refused to comply with this agreement, but have, by
false and erroneous statements, misled the plaintiffs, and induced
them to consent to the sale to them and to the Standard Oil Company
of large quantities of crude petroleum, produced by the partnership
at prices far below its actual value, to the great loss and damage
of the orators. That on or about December 16, 1876, refined was
selling at a price equivalent to seven dollars for crude oil, at
which time plaintiffs called upon defendants for a compliance with
their agreement, and asked that they take or purchase 210,000
barrels of the production of the partnership at a price commensurate
with the price of refined at the time. This, defendants neglected
and refused to do, and the partnership was forced to sell the same
at prices varying from three to four dollars, making a loss to the
partnership upon this one transaction of from $600,000 to
$1,000,000, for which said defendants neglect and refuse to account.
* * * * *
That the said defendants for themselves, and for the said Standard
Oil Company, and other organisations and firms aforesaid, have since
the formation of the partnership received from the railways a rebate
or drawback in the shape of wheelage, or otherwise, at times as high
as one dollar per barrel upon all oil shipped by them to the
seaboard. That instead of using these advantages which they possess
for the benefit and profit of the partnership, as they covenanted to
do, they have used them against its interest by restraining trade,
preventing competition, and forcing plaintiffs to accept any price
which defendants, the said Standard Oil Company, or the other
organisations aforesaid, might offer for their production. That the
amount of oil produced and sold by the partnership for the three
years beginning with the date of its formation, and ending December
1, 1877, was 2,657,830 barrels. That the profits of defendants upon
oil refined by them during said period, taking into consideration
the rebates and drawbacks received from the railways, have averaged
at least one dollar per barrel over and above the cost of refining,
and at times as high as four and five dollars. That these profits,
under the partnership agreement that no margin should exist between
crude and refined prices, should to the extent of the production of
the partnership have been paid by defendants to the partnership.
That the amount lost by the partnership and realised by the
defendants, by reason of the failure and refusal of said defendants
to comply with their agreement, is not less than $2,500,000, for
one-half of which defendants should account to your orators, but
which they neglect and refuse to do.
Naturally enough the producers now pointed out that the case of the H.
L. Taylor Company was a demonstration of what they had claimed in 1872,
when the South Improvement Company, alarmed at the uprising, offered
them a contract, and what they had always claimed since when the
Standard offered contracts for oil on a sliding scale, viz., that such
contracts were never meant to be kept; that they were a blind to enable
the Standard to make scoops such as they had made in the winter of 1876
and 1877.
Taking all these points into consideration—
First—That the Standard Oil Company, like the South Improvement Company,
was a secret organisation;
Second—That both companies were composed in the main of the same
parties;
Third—That it aimed, like its predecessors, at getting entire control of
the refining interest;
Fourth—That it used the power the combination gave it to get rebates on
its own oil shipments and drawbacks on the shipments of other people;
Fifth—That it arranged contracts which compelled the railroads to run
out all competition by lowering their rates.
Sixth—That it aimed to put up the price of refined without allowing the
producer a share of the profits—
Taking all these points into consideration, many of the producers,
including the president of the Petroleum Producers’ Union, B. B.
Campbell, and certain members of his Council, came to the conclusion
that as they had sufficient evidence against the members of the Standard
Combination to insure conviction for criminal conspiracy, they should
proceed against them. Strenuous opposition to the proceedings, as hasty
and ill-advised, developed in the Council and the Legal Committee, but
the majority decided that the prosecution should be instituted. Mr.
Scott and Mr. Cassatt were omitted from the proposed indictment on the
ground that they were already weary of the Standard, and would cease
their illegal practices gladly if they could.
On the 29th day of April, 1879, the Grand Jury of the County of Clarion
found an indictment against John D. Rockefeller, William Rockefeller,
Jabez A. Bostwick, Daniel O’Day, William G. Warden, Charles Lockhart,
Henry M. Flagler, Jacob J. Vandergrift and George W. Girty. (Girty was
the cashier of the Standard Oil Company.) There were eight counts in the
indictment, and charged, in brief, a conspiracy for the purpose of
securing a monopoly of the business of buying and selling crude
petroleum, and to prevent others than themselves from buying and selling
and making a legitimate profit thereby; a combination to oppress and
injure those engaged in producing petroleum; a conspiracy to prevent
others than themselves from engaging in the business of refining
petroleum, and to secure a monopoly of that business for themselves; a
combination to injure the carrying trade of the Allegheny Valley and
Pennsylvania Railroad Companies by preventing them from receiving the
natural petroleum traffic; to divert the traffic naturally belonging to
the Pennsylvania carriers to those of other states by unlawful means;
and to extort from railroad companies unreasonable rebates and
commissions, and by fraudulent means and devices to control the market
prices of crude and refined petroleum and acquire unlawful gains
thereby.[78]
Four of the persons mentioned in the indictment—Messrs. O’Day, Warden,
Lockhart and Vandergrift—all citizens of Pennsylvania, gave bail, and
early in June application was made to Governor Hoyt of Pennsylvania to
issue a requisition before the Governor of New York for the extradition
of the other five gentlemen.
With damaging testimony piling up day by day in three states, and with
an indictment for conspiracy hanging over the heads of himself and eight
of his associates, matters looked gloomy for John D. Rockefeller in the
spring of 1879. “The good of the oil business” certainly seemed in
danger.
CHAPTER EIGHT
THE COMPROMISE OF 1880
THE PRODUCERS’ SUIT AGAINST ROCKEFELLER AND HIS ASSOCIATES USED BY THE
STANDARD TO PROTECT ITSELF—SUITS AGAINST THE TRANSPORTATION
COMPANIES ARE DELAYED—TRIAL OF ROCKEFELLER AND HIS ASSOCIATES FOR
CONSPIRACY POSTPONED—ALL OF THE SUITS WITHDRAWN IN RETURN FOR
AGREEMENTS OF THE STANDARD AND THE PENNSYLVANIA TO CEASE THEIR
PRACTICES AGAINST THE PRODUCERS—WITH THIS COMPROMISE THE SECOND
PETROLEUM PRODUCERS’ UNION COMES TO AN END—PRODUCERS THEMSELVES TO
BLAME FOR NOT STANDING BEHIND THEIR LEADERS—STANDARD AGAIN ENFORCES
ORDERS OBJECTIONABLE TO PRODUCERS—MORE OUTBREAKS IN THE OIL
REGIONS—ROCKEFELLER HAVING SILENCED ORGANISED OPPOSITION PROCEEDS TO
SILENCE INDIVIDUAL COMPLAINT.
No doubt the indictment of Mr. Rockefeller in the spring of 1879 seemed
to him the work of malice and spite. By seven years of persistent effort
he had worked out a well-conceived plan for controlling the oil business
of the United States. Another year and he had reason to believe that the
remnant of refiners who still rebelled against his intentions would
either be convinced or dead and he could rule unimpeded. But here at the
very threshold of empire a certain group of people—“people with a
private grievance,” “mossbacks naturally left in the lurch by the
progress of this rapidly developing trade,” his colleagues described
them to the Hepburn Commission—stood in his way. “You have taken
deliberate advantage of the iniquitous practices of the railroads to
build up a monopoly,” they told him. “We combined to overthrow those
practices so far as the oil business was concerned. You not only refused
to support us in this contention, you persuaded or forced the railroads
to make you the only recipient of their illegal favours; more than that,
you developed the unjust practices, forcing them into forms unheard of
before. Not only have you secured rebates of extraordinary value on all
your own shipments, you have persuaded the railroads to give you a
commission on the oil that other people ship. You are guilty of plotting
against the prosperity of an industry.” And they indicted him with eight
of his colleagues for conspiracy.
The evidence on which the oil men based this serious charge has already
been analysed. At the moment they brought their suit for conspiracy what
was their situation? They had several months before driven the
commonwealth of Pennsylvania to bring suits against four railroads
operating within its borders and against the Standard pipe-lines for
infringing their duties as common carriers. Partial testimony had been
taken in the case against the Pennsylvania road and in that against the
United Pipe Lines. These suits, though far from finished, had given the
Producers’ Union the bulk of the proof on which they had secured the
indictment of the Standard officials for conspiracy. Now, since the
railroads and the pipe-lines were the guilty ones—that is, as it was
they who had granted the illegal favours, and as they were the only ones
that could surely be convicted, it seems clear that the only wise course
for the producers would have been to prosecute energetically and
exclusively these first suits. But evident as the necessity for such
persistency was, and just after Mr. Cassatt had startled the public and
given the Union material with which it certainly in time could have
compelled the commonwealth to a complete investigation, the producers
interrupted their work by bringing their spectacular suit for
conspiracy—a suit which perhaps might have been properly instituted
after the others had been completed, but which, introduced now,
completely changed the situation, for it gave the witnesses from whom
they were most anxious to hear a loophole for escape.
For instance, the officials of the Standard pipe-lines had been
instructed to appear on the 14th of May, 1879, to answer questions which
earlier in the trial they had refused to answer “on advice of counsel.”
Now the president of the United Pipe Lines, J. J. Vandergrift, and the
general manager, Daniel O’Day, were both included in the indictment for
conspiracy. The evening before the interrogatory the producers’ counsel
received a telegram from the attorney-general of the state, announcing
that the pipe-line people were complaining that the testimony which they
would be called on to give on the morrow would be used against them in
the conspiracy trial—as it undoubtedly would have been—and that he
thought it only fair that their hearing be postponed until after that
suit. And so the defendants gained time—the chief desideratum of
defendants who do not wish to fight.
Soon after, the conspiracy case was again used to excellent advantage by
the Standard people in the investigation which was being conducted in
New York before the Hepburn Commission. Mr. Bostwick, the Standard Oil
buyer, whose order to buy immediate shipment oil only at a discount had
been one of the oil men’s chief grievances for a year and a half, was
summoned as a witness; but Mr. Bostwick too was under indictment for
conspiracy, and when the examiners began to put questions to him which
the producers were eager to have answered, he asked: “How can I, a man
soon to be tried for conspiracy, be expected to answer these questions?
I shall incriminate myself.” He was sustained in his plea, and about all
the Hepburn Commission got out of him was, “I refuse to answer, lest I
incriminate myself.” This, then, was the first fruit of the producers’
hasty and vindictive suit. It had shut the mouths of the important
Standard witnesses.
Discouraging as this discovery was, however, there was no reason why the
suits against the railroads should not have been pushed through, and the
testimony the officials unquestionably could be made to give, now that
Mr. Cassatt had set the pace, have been obtained. But the Producers’
Union had lost sight for the moment of the fact that the fundamental
difficulty in the trouble was the illegal discrimination of the common
carriers. The Union was so much more eager to punish Mr. Rockefeller
than it was to punish the railroads, that in bringing the suit for
conspiracy it was even guilty of leniency toward the officials of the
Pennsylvania. Certainly, if there was to be an indictment for
conspiracy, all the supposed conspirators should have been included. It
was by discriminations clearly contrary to the constitution of the state
that the Pennsylvania Railroad had made it possible for Mr. Rockefeller
to achieve his monopoly in Pennsylvania. The Union had proof of these
rebates, but they let off Mr. Scott and Mr. Cassatt because “they
professed the greatest desire to get rid of Standard domination, and
were loudly asserting that they had been victimised and compelled at
times to carry oil freights at less than cost.”[79] Evidently the fate
of the settlement the oil men had made seven years before with Mr. Scott
and the presidents of the other oil-bearing roads had been forgotten.
Naturally enough the railroads took advantage of these signs of leniency
on the part of the producers, and brought all their enormous influence
to bear on the state authorities to delay hearings and bring about a
settlement. The Pennsylvania secured delays up to December, 1879, and
then the Governor ordered the attorney-general to stop proceedings
against the road until the testimony had been taken in the other four
cases; that is, in the cases against (1) the United Pipe Lines; (2) the
Lake Shore and Michigan Southern; (3) the Dunkirk, Allegheny and
Pittsburg, and (4) the Atlantic and Great Western. It was a heavy blow
to the Union, for at the moment its hands were tied by the conspiracy
case, as far as the United Pipe Lines were concerned, and the three
railroads were foreign corporations, only having branches in
Pennsylvania, and accordingly very difficult to reach. The testimony
could have been obtained, however, if the Union had been undivided in
its interests. It would have been done, of course, if the state
authorities had been willing to do what was their obvious duty. But the
state authorities really asked nothing better than to escape further
prosecution of the railroads. The administration was Republican, the
Governor being Henry M. Hoyt. Mr. Hoyt had been elected in the fall of
1878 and so had inherited the suits from Governor Hartranft. He was
pledged, however, to see them through, for before the election the
Producers’ Union had sent him the following letter:
“TITUSVILLE, October 23, 1878.
“HENRY M. HOYT:
_Sir_—During the past few months, the Association of Producers of
Petroleum, long oppressed in their immediate business and kindred
industries by the persistent disregard of law by certain great
corporations exercising their powers within the state of
Pennsylvania, and daily subjected to incalculable loss by a powerful
and corrupt combination of these corporations and individuals, have
appealed to the executive, legislative and judiciary branches of the
government for relief and protection.
The questions which they raise for the consideration of the
authorities and the people affect not only themselves but the whole
public, not only the particular calling in which they are engaged,
but nearly all kinds of business in the commonwealth and the nation.
The Legislature has not responded to the demands made that the
provisions of the constitution shall be speedily enforced by
appropriate legislation.
The present executive has caused proceedings to be instituted in the
courts looking to relief, if it can be had by process of law, and
these are still pending, while others may be begun.
In view of the grave duties which will devolve upon you, should you
be chosen to the high office to which you aspire, on behalf of the
Petroleum Producers’ Association I ask from you a definite
expression of your views upon the following subjects:
First—Will you, if elected, recommend to the Legislature the passage
of laws to carry into effect the third and twelfth sections of the
sixteenth, and the third, seventh and twelfth sections of the
seventeenth articles of the constitution of Pennsylvania?
Second—If such laws should be passed as referred to in the preceding
question, will you, as Governor, approve them, if constitutional?
Third—Will you, as Governor, recommend and approve such other
remedial legislation as may be required to cure the evils set forth
in a memorial to Governor Hartranft of August 15, 1878?
Fourth—In the selection of the law officer of the state, will you,
if elected, secure the services of one who will prosecute with
vigour all proceedings already commenced or that may be instituted,
having in view the subjection of corporations to the laws of the
land?
Very respectfully,
A. N. PERRIN,
_Chairman Committee_.”
Governor Hoyt’s answers were eminently satisfactory:
“There were provisions in the constitution,” he wrote, “intended to
compel the railroads and canal companies of the state to the
performance of their duties as common carriers with fairness and
equality, without discrimination, to all persons doing business over
their lines. This policy is just and right.
“If called to a position requiring official action, I would
recommend and approve any legislation necessary and appropriate to
carry into effect the sections of the constitution referred to.
“It would be my duty, if elected, to see that no citizen, or class
of citizens even, were subjected to hardship or injustice in their
business, by illegal acts of corporations or others, where relief
lay within executive control. Any proper measures or legislation
which would effectually remedy the grievances set forth in the
memorial addressed to Governor Hartranft would receive my
recommendation and approval.
“It would be my duty, if elected, to select only such officers as
would enforce obedience to the constitution and laws, both by
corporations and individuals, without fear or favour, and all such
officers would be held by me to strict accountability for the full
and prompt discharge of all their official duties.”
Governor Hoyt had indeed begun the suits, all of the testimony in regard
to the Pennsylvania having been taken in his administration. This
testimony must have proved to him that the transgressions of the road
had been far more flagrant than anyone dreamed of—that they had amounted
simply to driving certain men out of business in order to build up the
business of certain other men. His evident duty, as his letter to the
producers shows clearly enough that he realised, was to push the suits
against the railroads even if the oil men entirely withdrew, but instead
of that it became evident in the spring that he was using every
opportunity to delay. Indeed, one reason the producers gave for bringing
the conspiracy suit was that it would give the state authorities a
scapegoat; that they would gladly act vigorously against the Standard if
they were let off from prosecuting the Pennsylvania. Governor Hoyt now
availed himself fully of the vacillation of the Union toward the
railroads, using it as an excuse for not prosecuting the railroad cases.
But if the producers were half-hearted toward the railroads they were
whole-hearted enough toward the Standard. In spite of the fact that they
had gotten in their own way, so to speak, by bringing their conspiracy
suit, they felt convinced that they had material enough to win it on,
and they sought the extradition of the non-residents who had been
indicted.
Early in June Governor Hoyt was called upon to issue a requisition for
the extradition of John D. Rockefeller, William Rockefeller, H. M.
Flagler, J. A. Bostwick, Daniel O’Day, Charles Pratt and G. W. Girty. A
full agreement was made before the state officials, but a decision was
deferred repeatedly. Finally, worn out with waiting, Mr. Campbell, in a
telegram to the Governor on July 29, threatened, if there was longer
delay, to make his request for extradition through the public press. The
answer from Harrisburg was that the attorney-general was sick and could
not attend to the matter. Mr. Campbell wired back that he was tired of
“addition, division, and silence,” and he sent out the following letter:
“FAIRFIELD, July 31, 1879.
“TO HIS EXCELLENCY HENRY M. HOYT,
Governor of the Commonwealth of Pennsylvania.
_Sir_—On behalf of the producers of oil, whom I represent as
president of their General Council, I most respectfully ask a
decision at your hands, of the requisition on the Governor of the
state of New York, for the surrender of the officers of the Standard
Oil Company, indicted by the Grand Jury of Clarion County, and now
believed to be within the limits of the state of New York.
The case was exhaustively argued before you, more than four weeks
ago, and the great oil interest which I have the honour to represent
has a right to a prompt decision on this vital question. If these
parties—who for their own profit and its ruin control Pennsylvania’s
most valuable product, and compel its greatest carrier to undertake
their warfare and to do their bidding at the sacrifice of its
innocent stockholders—can, under the plea of being ‘aliens,’ defy
the law of Pennsylvania and laugh at our impotent attempts to reach
them, the sooner it is known the better. It is possible that if we
are denied protection within the limits of our commonwealth, we may
obtain justice by appealing to the courts of a sister state, where
at least the defendants will be obliged to admit that they are
residents.
Your obedient servant,
B. B. CAMPBELL,
_President of Producers’ Council_.”
The Governor remained obdurate, nor was the request ever granted. In a
message sent out in January, 1881, Governor Hoyt gave a review of the
case—as he was compelled to do, so great was the popular criticism of
his course in not pushing the suits and in refusing the request for
extradition—in which he attributed his refusal to the negotiations begun
between the railroads and the Producers’ Union.
“The details of these negotiations, of course, need not, and did
not, reach the office of the executive department,” he said. “As a
part of them, however, requests were presented in the interest of
the petitioners (the Producers’ Union) to the Governor, not to issue
the requisition, followed again by requests that they be allowed to
go out. Finding that the highest process of the commonwealth was
being used simply as leverage for and against the parties to these
negotiations between contending litigants, and that, however entire
and perfect might have been the good faith in which the criminal
proceedings in Clarion County had been commenced, they were being
regarded and treated as a mere make-weight in the stages of private
diplomacy, I deemed it my duty, in the exercise of a sound
discretion, to suspend action on the requisitions.”
[Illustration:
E. G. PATTERSON
From 1872 to 1880 the chief advocate in the Oil Region of an
interstate commerce law. Assisted in drafting the bills of 1876 and
1880. Abandoned the independent interests at the time of the
compromise of 1880.
]
[Illustration:
ROGER SHERMAN
Chief counsel of the Petroleum Producers’ Union from 1878 to 1880.
From 1880 to 1885 counsel for the Standard Oil Company. From 1885 to
his death in 1893 counsel of the allied independents.
]
[Illustration:
BENJ. B. CAMPBELL
President of the Petroleum Producers’ Union from 1878 to 1880.
Independent refiner and operator until his death.
]
[Illustration:
JOSIAH LOMBARD
Prominent independent refiner of N. Y. City, whose firm was the only
one to keep its contract with the Tidewater Pipe Line Company in
1880.
]
The writer has examined all the private correspondence which passed at
this time between the litigants, but finds no proof of Governor Hoyt’s
statement that the Union at one time ceased its demands for Mr.
Rockefeller’s extradition.
The conspiracy suit had been set for the August session of the Clarion
County court. When August came the Standard sought a continuance, and it
was granted. The delay did not in any way discourage the producers, and
when Mr. Rockefeller became convinced of this he tried conciliation.
“Come, let us reason together,” has always been a favourite proposition
of Mr. Rockefeller. He would rather persuade than coerce, rather silence
than fight. He had been making peace overtures ever since the suits
began. The first had been in the fall of 1878, soon after they were
instituted, when he sent the following letter to Captain Vandergrift:
“CAPTAIN J. J. VANDERGRIFT:
_My dear Sir_—We are now prepared to enter into a contract to refine
all the petroleum that can be sold in the markets of the world at a
low price for refining. Prices of refined oil to be made by a joint
committee of producers and refiners, and the profits to be
determined by these; profits to be divided equitably between both
parties. This joint interest to have the lowest net rates obtainable
from railroads. If your judgment approves, you may consult some of
the producers upon this question. This would probably require the
United Pipe Lines to make contracts and act as a clearing house for
both parties.
Very respectfully yours,
J. D. ROCKEFELLER.”
Captain Vandergrift handed the letter to the executive committee of the
Producers’ Union. It was returned to him without a reply. The producers
had tried an arrangement of this kind with Mr. Rockefeller’s National
Refiners’ Association in the winter of 1872 and 1873, and it had failed.
The refiners had thrown up their contract when they found they could get
all the oil they wanted at a lower price than they had contracted to pay
the Producers’ Union, from men who had not gone into that organisation.
The oil country was familiar, too, with the case of the H. L. Taylor
Company, whose complaint against the Standard was referred to in the
last chapter. Contracts of that sort were never meant to be kept, they
declared. They were meant as “sops, opiates.” In November, 1878, after
the testimony which had been brought out by the suit against the United
Pipe Lines had been pretty well aired in the New York Sun and other
papers, and one or two private suits against the railroads were creating
a good deal of public discussion, an effort to secure a conference
between the representatives of the Union and the Standard officials was
made. The Union refused to go into it officially. A meeting was held,
however, in New York on November 29, at which several well-known oil men
were present. It was announced to the press in advance that it was to be
an important but secret meeting between the oil producers, refiners and
Standard men; that its object was to settle all grievances, and to
secure a withdrawal of the impending suits. As soon as the news of this
proposed meeting reached the Oil Regions, the officials of the Union
promptly denied their connection with it.
Although these early efforts to get a wedge into the Producers’ Union
and thus secure a staying of the suits had no results, the Standard was
not discouraged—it never is: there is no evidence in its history that it
knows what the word means. Not being able to handle the Union as a
whole, the Standard began working on individuals. By March, 1879, the
idea of a compromise had become particularly strong in Oil City. Indeed,
one of the several reasons advanced for bringing the conspiracy suits
was that such a proceeding would defeat the efforts the Oil City branch
were making to bring about a settlement with Mr. Rockefeller.
Accordingly, when it became apparent to Mr. Rockefeller in the fall of
1879 that the producers meant to fight through the conspiracy suit,
though they might dally over the others, he notified Roger Sherman,
counsel for the Union, that he wished to lay before him a proposition
looking to a settlement. The president, Mr. Campbell, was in favour of
receiving the proposition. “I have no idea they will present anything we
can accept,” he wrote Mr. Sherman. “Still it will furnish a first-rate
gauge to test how badly they are scared.” And the Standard was told that
the Union would consider what they had to offer. “But it is a serious
question—this of settlement,” replied Mr. Rockefeller. “Our trial is set
for October 28. We cannot get ready for that and prepare a proposition
too. Why not postpone the trial?” This was done—December 15 being set.
But no proposition was made to the producers for over six weeks—then
they were asked to meet the Standard men on November 29 in New York
City. Piqued at the delay, the producers informed the Standard that they
could no longer consider their proposition and that the trial would be
pushed.
But again the Standard secured delay—this time by petitioning that the
case be argued before the Supreme Court of the state. They declared that
such was the state of public feeling in Clarion County that they could
not obtain justice there. They charged the judges with bias and
prejudice, declared secret societies were working against them, and
called attention to the civil suits which were still hanging fire. Over
this petition serious trouble arose in court—there was a wrangle between
the judge and the Standard’s counsel. The newspapers took it up—the
whole state divided itself into camps, and the case was again postponed,
this time until the first of the year. Postponement obtained, compromise
was again proposed upon the basis of abandonment of all those methods of
doing business which the producers claimed injured them, and as a mark
of their sincerity the United Pipe Lines on December 24, 1879, issued an
order announcing the abandonment of immediate shipment throughout the
region. A meeting between the legal advisers of the two parties to
discuss the proposed terms was arranged for January 7, 1880, at the
Fifth Avenue Hotel in New York City—the very time to which the trial of
the case for conspiracy had been postponed. It was hardly to be expected
that when such negotiations were going on in New York the trial in
Clarion County would be pushed very briskly. It was not. There was a
hitch again, and for the fourth time proceedings were stayed. The
conferences, however, went on.
These negotiations with the Standard continued for a month, and then,
early in February, Mr. Campbell, the president of the Union, called a
meeting of the Grand Council for February 19, 1880, in Titusville,
Pennsylvania. For several weeks the Oil Regions had known that President
Campbell and Roger Sherman, the leading lawyer of the Union, were in
conference with the Standard officials. It was rumoured that they were
arranging a compromise, and it was suspected that the meeting now called
was to consider the terms. Naturally the proposition to be made was
looked for with suspicion and curiosity. The meeting was the largest the
Grand Council had held for many months. It was supposed to be secret,
like all gatherings of the Union, but before the first session was over,
the word spread over the Oil Regions that Mr. Campbell had brought to
the meeting contracts with both Mr. Rockefeller and Mr. Scott, and that
they were receiving harsh criticism from the Grand Council. The very
meagre accounts which exist of this gathering, historic in oil annals,
show that it was one of the most exciting which was ever held in the
country, and one can well believe this when one considers the bitter
pill the council was asked to swallow that day. Mr. Campbell began the
session by reporting that all the suits at which they had been labouring
for nearly two years had been withdrawn, and that in return for their
withdrawal the Standard and the Pennsylvania Railroad officials had
signed contracts to cease certain of the practices of which the
producers complained.
The Standard contract, which Mr. Campbell then presented, pledged Mr.
Rockefeller, and some sixteen associates, whose names were attached to
the document, to the following policy:
1. They would hereafter make no opposition to an entire abrogation of
the system of rebates, drawbacks and secret rates of freight in the
transportation of petroleum on the railroads.
2. They withdrew their opposition to secrecy in rate making—that is,
they promised that they would not hereafter receive any rebate or
drawback that the railroad company was not at liberty to make known and
to give to other shippers of petroleum.
3. They abandoned entirely the policy which they had been pursuing in
the management of the United Pipe Lines—that is, they promised that
there should be no discrimination whatever hereafter between their
patrons; that the rates should be reasonable and not advanced except on
thirty days’ notice; that they would make no difference between the
price of crude in different districts excepting such as might be
properly based upon the difference in the quality of the oil; that they
would receive, transport, store and deliver all oil tendered to them, up
to a production of 65,000 barrels a day. And if the production should
exceed that amount they agreed that they would not purchase any
so-called “immediate shipment” oil at a discount on the price of
certificate oil.
4. They promised hereafter that when certificates had been given for oil
taken into the custody of the pipe-lines, the transfer of these
certificates should be considered as a delivery of the oil, and the
tankage of the seller would be treated as free.[80]
Mr. Rockefeller also agreed in making this contract to pay the
Producers’ Union $40,000 to cover the expense of their litigation. In
return for this money and for the abandonment of secret rebates and of
the pipe-line policy to which he had held so strenuously, what was he to
receive? He was not to be tried for conspiracy. And that day, after the
contract had been presented to the Grand Council, Mr. Campbell sent the
following telegram:
“TITUSVILLE, February 19, 1880.
“TO HIS EXCELLENCY HENRY M. HOYT,
Governor of the Commonwealth of Pennsylvania.
_Sir_—As prosecutor in the case of the Commonwealth _vs._ J. D.
Rockefeller, Number 25, April Sessions of Clarion County, I consent
to the withdrawal of the requisition asked of you for extradition of
J. D. Rockefeller _et al._, the same having been in your hands
undecided since July last and a _nolle prosequi_ having been entered
by leave of Court of Clarion County in the case, and I will request
William L. Hindman, the prosecuting attorney, to forward a formal
withdrawal.
Your obedient servant,
B. B. CAMPBELL.”
The contract with the Pennsylvania which was signed by Mr. Scott agreed,
in consideration of the withdrawal of the suit against the road, to the
following policy:
1. That it would make known to all shippers all rates of freight charged
upon petroleum. [This was an abolition of secret rates.]
2. If any rates of freight were allowed one shipper as against another,
on demand that rate was to be made known.
3. There should be no longer any discrimination in the allotment and
distribution of cars to shippers of petroleum.
4. Any rebate allowed to a large shipper was to be reasonable.[81]
There were both humiliation and bitterness in the Council when the
report was read—humiliation and bitterness that after two years of such
strenuous fighting all that was achieved was a contract which sacrificed
what everybody knew to be the fundamental principle, the principle which
up to this point the producers had always insisted must be recognised in
any negotiation—that the rebate system was wrong and must not be
compromised with. Hard speeches were made, and Mr. Campbell’s head was
bowed more than once while big tears ran down his cheeks. He had worked
long and hard. Probably most of the members of the Grand Council who
were present had a consciousness that no one of them had done anywhere
near what Mr. Campbell had done toward prosecuting their cause, and
though they might object to the compromise, they could not blame him,
knowing all the difficulties which had been put in the way. So they
accepted the report, thanking him for his fidelity and energy, but not
failing to express their disapproval of the reservation in regard to the
rebate system. They ended their meeting by a resolution bitterly
condemning the courts, the state administration at Harrisburg, and
corporations in general:
“We declare that by the inefficiency and weakness of the secretary
of internal affairs in the year 1878; by the interposition on more
than one occasion of the attorney-general in 1879, by which the
taking of testimony was prevented; by the failure of the present
government for many months, either to grant or deny the requisition
for criminals indicted for crime, within the commonwealth of
Pennsylvania, fugitives to other states; and by the interference of
some of the judges of the Supreme Court, by an extraordinary and,
according to the best legal judgment of the land, unlawful
proceeding, by which the trial of an indictment for misdemeanour
pending in a local court was delayed and prevented, the alarming and
most dangerous influence of powerful corporations has been
demonstrated. While we accept the inevitable result forced upon us
by these influences, we aver that the contest is not over and our
objects not attained, but we all continue to advocate and maintain
the subordination of all corporations to the laws, the constitution,
and the will of the people, however and whenever expressed; that the
system of freight discrimination by common carriers is absolutely
wrong in principle, and tends to the fostering of dangerous
monopolies; and that it is the duty of the government, by
legislation and executive action, to protect the people from their
growing and dangerous power.”
And with this resolution the second Petroleum Producers’ Union formed to
fight Mr. Rockefeller came to an end.
By the morning of February 20 the Oil Regions knew of the compromise.
The news was received in sullen anger. It was due to the cowardice of
the state officials, the corrupting influence of corporations, the oil
men said. They blamed everybody but themselves, and yet if they had done
their duty the suits would never have been compromised. The simple fact
is that the mass of oil men had not stood by their leaders in the hard
fight they had been making. These leaders, Mr. Campbell the president,
Mr. Sherman the chief counsel, and Mr. Patterson the head of the
legislative committee, had given almost their entire time for two years
to the work of the Union. The offices of Mr. Campbell and Mr. Patterson
were both honorary, and they had both often used their private funds in
prosecuting their work. Mr. Sherman gave his services for months at a
time without pay. No one outside of the Council of the Union knew the
stress that came upon these three men. Up to the decision to institute
the conspiracy suit they had worked in harmony. But when that was
decided upon Mr. Patterson withdrew. He saw how fatal such a move must
be, how completely it interfered with the real work of the Union,
forcing common carriers to do their duty. He saw that the substantial
steps gained were given up and that the work would all have to be done
over again if their suit went on. Mr. Campbell believed in it, however,
and Mr. Sherman, whether he believed in it or not, saw no way but to
follow his chief. The nine months of disappointment and disillusion
which followed were terrible for both men. They soon saw that the forces
against them were too strong, that they would never in all probability
be able to get the conspiracy suit tried, and that so long as it was on
the docket the proper witnesses could not be secured for the suits
against the railroads. Finally it came to be a question with them what
out of the wreck of their plans and hopes could they save? And they
saved what the compromise granted. If the oil producers they
represented, a body of some 2,000 men, had stood behind them throughout
1879 as they did in 1878 the results would have been different. Their
power, their means, were derived from this body, and this body for many
months had been giving them feeble support. Scattered as they were over
a great stretch of country, interested in nothing but their own oil
farms, the producers could only be brought into an alliance by hope of
overturning disastrous business conditions. They all felt that the
monopoly the Standard had achieved was a menace to their interests, and
they went willingly into the Union at the start, and supported it
generously, but they were an impatient people, demanding quick results,
and when they saw that the relief the Union promised could only come
through lawsuits and legislation which it would take perhaps years to
finish, they lost interest and refused money. At the first meeting of
the Grand Council of the Union in November, 1878, there were nearly 200
delegates present—at the last one in February, 1880, scarcely forty.
Many of the local lodges were entirely dead. Not even the revival in the
summer of 1879 of the hated immediate shipment order, which had caused
so much excitement the year before, but which had not been enforced long
because of the uprising, brought them back to the Union. In July the
order had been put in operation again in a fashion most offensive to the
oil men, it being announced by the United Pipe Lines that thereafter oil
would be bought by a system of sealed bids. Blanks were to be furnished
the producers, the formula of which ran:
BRADFORD, PENNSYLVANIA,........ 187..
I hereby offer to sell J. A. Bostwick .... barrels crude oil, of
forty-two gallons per barrel, at .... cents, at the wells, for
shipment from the United Pipe Lines, within the next five (5) days,
provided that any portion of the oil not delivered to you within the
specified time shall be considered cancelled.
There was a frightful uproar in consequence. The morning after this
announcement several hundred men gathered in front of the United Pipe
Line’s office in Bradford, and held an open-air meeting. They had a band
on the ground which played “Hold the Fort”; and the following
resolutions were adopted:
“Resolved, That the oil producers of the Northern District in
meeting assembled do maintain and declare that the present shipment
order is infamous in principle and disreputable in practice, and we
hereby declare that we will not sell one barrel of oil in conformity
with the requirements of the said order. And we pledge our lives,
our fortunes and our sacred honour to resort to every legal means,
to use every influence in our power to prevent any sales under the
said order. And we also declare that the United Pipe Lines shall
hereafter perform their duty as common carriers under the law.”
That night a battalion of some 300 masked men in robes of white marched
through the streets of Bradford, groaning those that they suspected of
being in sympathy with the Standard methods, and cheering their friends.
Again there appeared there, that night, all over the upper oil country,
cabalistic signs, which had been seen there often the year before. The
feeling was so intense, and the danger of riot so great, that
twenty-four hours after the order for sealed bids was given, it was
withdrawn. The outbreak aroused Mr. Campbell’s hope that it might be
possible at this moment to arouse the lodges, and he wrote a prominent
oil man of Bradford asking his opinion. In reply he received the
following letter. It shows very well what the leaders had to contend
against. It shows, too, the point of view of a very frank and
intelligent oil producer:
“BRADFORD, PENNSYLVANIA, July 30, 1879.
“B. B. CAMPBELL,
Parnassus, Pennsylvania.
_Dear Sir_—Your despatch of yesterday from O. C. has only just
reached me. As I cannot say what I want to over the wires I reply by
mail.
You ask if the high-sounding wording of the declaration of rights of
the producers made at their mass-meeting, held here on Monday, in
which they pledged their lives, fortunes and sacred honours, means
liberal subscriptions to the Council funds. I reply with sorrow and
humiliation—_I fear not_. All this high-flown talk is buncombe of
the worst kind. The producers are willing to meet in a mass-meeting
held out of doors where it costs nothing even for rent of a hall,
and pass any kind of a resolution that is offered. It costs nothing
to do this, but when asked to contribute a dollar to the legal
prosecution of these plunderers, robbers, and fugitives from
justice, whom they are denouncing in their resolution, they either
positively refuse, say that the Council is doing nothing, that the
suits are interminable and will never end, that there is no justice
to be obtained in the courts of Pennsylvania, etc., etc., or else
plead poverty and say they have contributed all that they are able
to.
True, the producers are poor and the suits and legal proceedings are
slow, and there is much to discourage them, but I tell you, my
honoured chief, that the true inwardness of this state of affairs
is, that the people of the Oil Regions have by slow degrees and easy
stages been brought into a condition of bondage and serfdom by the
monopoly, until now, when they have been aroused to a realisation of
their condition, they have not the courage and manhood left to
enable them to strike a blow for liberty. And these are the people
for whom you and your few faithful followers in the Council are
labouring, spending (I fear wasting) your substance—neglecting your
own interest to advance theirs, and all for what good—“_cui bono_”?
I fear you will say that I am discouraged. No, not discouraged, but
disgusted with the poor, spiritless, and faint-hearted people whom
you are labouring so hard to liberate from bondage. As to the
prospects of raising funds for the prosecution of the suits by
subscription or assessments on the Unions, I am sorry to say that I
fear it is impossible—at least it is impossible for me to make any
collections—and right here let me make a suggestion. I often feel
that the fault may not be with the people, but with the writer. I
would therefore suggest that you select from among the members of
the Council any good man whom you think has the power of convincing
these people that their only hope of relief lies in sustaining you
in the prosecution of the suits, and therefore they must contribute
to the fund. If you will do this, I will promise you that he will be
hospitably received and favourably introduced by the writer. But as
for depending on the unaided efforts of myself to raise funds, I
fear it would be useless.
I do not write this, my friend, with a view of throwing any
discouragement in your path, which, God knows, is rugged and thorny
enough, but I must give vent to my righteous indignation in some
way, and ask you are the producers as a class (nothing but a d—d
cowardly, disorganised mob as they are) worth the efforts you are
putting forth to save them?
As for myself, a single individual (and I can speak for no others),
I am determined to stand with you until the end, with my best
strength and my last dollar.”
Now, what was this loose and easily discouraged organisation opposing? A
compact body of a few able, cold-blooded men—men to whom anything was
right that they could get, men knowing exactly what they wanted, men who
loved the game they played because of the reward at the goal, and, above
all, men who knew how to hold their tongues and wait. “To Mr.
Rockefeller,” they say in the Oil Regions, “a day is as a year and a
year as a day. He can wait, but he never gives up.” Mr. Rockefeller knew
the producers, knew how feeble their staying qualities in anything but
the putting down of oil wells, and he may have said confidently, at the
beginning of their suits against him, as it was reported he did say,
that they would never be finished. They had not been finished from any
lack of material. If the suits had been pushed but one result was
possible, and that was the conviction of both the Standard and the
railroads; they had been left unfinished because of the impatience and
instability of the prosecuting body and the compactness, resolution and
watchfulness of the defendants.
The withdrawal of the suits was a great victory for Mr. Rockefeller.
There was no longer any doubt of his power in defensive operations.
Having won a victory, he quickly went to work to make it secure. The
Union had surrendered, but the men who had made the Union remained; the
evidence against him was piled up in indestructible records. In time the
same elements which had united to form the serious opposition just
overthrown might come together, and if they should it was possible that
they would not a second time make the mistake of vacillation. The press
of the Oil Regions was largely independent. It had lost, to be sure, the
audacity, the wit, the irrepressible spirit of eight years before when
it fought the South Improvement Company. Its discretion had outstripped
its courage, but there were still signs of intelligent independence in
the newspapers. Mr. Rockefeller now entered on a campaign of
reconciliation which aimed to placate, or silence, every opposing force.
Many of the great human tragedies of the Oil Regions lie in the
individual compromises which followed the public settlement of 1880; for
then it was that man after man, from hopelessness, from disgust, from
ambition, from love of money, gave up the fight for principle which he
had waged for seven years. “The Union has surrendered,” they said; “why
fight on?” This man took a position with the Standard and became
henceforth active in its business; that man took a salary and dropped
out of sight; this one went his independent way, but with closed lips;
that one shook the dust of the Oil Regions from his feet and went out to
seek “God’s country,” asking only that he should never again hear the
word “oil.” The newspapers bowed to the victor. A sudden hush came over
the region, the hush of defeat, of cowardice, of hopelessness. Only the
“poor producer” grumbled. “You can’t satisfy the producer,” Mr.
Rockefeller often has had occasion to remark benignantly and pitifully.
The producer alone was not “convinced.” He still rehearsed the series of
dramatic attacks and sieges which had wiped out independent effort. He
taught his children that the cause had been sold, and he stigmatised the
men who had gone over to the Standard as traitors. Scores of boys and
girls grew up in the Oil Regions in those days with the same feeling of
terrified curiosity toward those who had “sold to the Standard” that
they had toward those who had “been in jail.” The Oil Regions as a whole
was at heart as irreconcilable in 1880 as it had been after the South
Improvement Company fight, and now it had added to its sense of outrage
the humiliation of defeat. Its only immediate hope now was in the
success of one of the transportation enterprises which had come into
existence with the uprising of 1878 and to which it had been for two
years giving what support it could. This enterprise was the seaboard
pipe-line which, as we have seen, Messrs. Benson, McKelvy and Hopkins
had undertaken.
APPENDIX
NUMBER 1 (See page 1007)
PROFESSOR SILLIMAN’S REPORT ON PETROLEUM
[From “The Early and Later History of Petroleum,” by J. T. Henry,
pages 38–54.]
MESSRS. EVELETH, BISSELL AND REED.
_Gentlemen_:—I herewith offer you the results of my somewhat
extended researches upon the rock-oil, or petroleum, from Venango
County, Pennsylvania, which you have requested me to examine with
reference to its value for economical purposes.
Numerous localities, well known in different parts of the world,
furnish an oily fluid exuding from the surface of the earth,
sometimes alone in “tar springs,” as they are called in the Western
United States; frequently it is found floating upon the surface of
water in a thin film, with rainbow colours, or in dark globules,
that may, by mechanical means, be separated from the fluid on which
it swims.
In some places wells are sunk for the purpose of accumulating the
product in a situation convenient for collection by pumping the
water out. The oil exudes on the shores of lakes and lagoons, or
rises from springs beneath the beds of rivers. Such are the springs
of Baku, in Persia, and the wells of Amiano, in the duchy of Parma,
in Italy. The usual geological position of the rocks furnishing this
natural product is in the coal measures—but it is by no means
confined to this group of rocks, since it has been found in deposits
much more recent, and also in those that are older—but in whatever
deposits it may occur, it is uniformly regarded as a product of
vegetable decomposition. Whether this decomposition has been
effected by fermentation only, or by the aid of an elevated
temperature, and distilled by heated vapour, is perhaps hardly
settled.
It is interesting, however, in this connection to remember that the
distillation, at an elevated temperature, of certain black,
bituminous shales in England and France has furnished large
quantities of an oil having many points of resemblance with naphtha,
the name given to this colourless oil, which is the usual product of
distilling petroleum. The very high boiling point of most of the
products of the distillation of the rockoil from Venango County,
Pennsylvania, would seem to indicate that it was a pyrogenic
(fire-produced) product.
Bitumen, asphaltum, mineral pitch, chapapote, etc., etc., are names
variously given to the more or less hard, black, resinous substance
which is produced usually from the exposure of petroleum to the air,
and is found either with or without the fluid naphtha or petroleum.
The most remarkable examples of the occurrence of these substances,
so intimately connected with the history of rock-oil, are the Lake
Asphaltites of the Dead Sea, so memorable in history, the well-known
Bitumen Lake of Trinidad, and the deposits of mineral pitch or
chapapote in Cuba. In one of the provinces of India, vast quantities
of petroleum are annually produced, the chief consumption being
local, for fuel and lights, but a portion is also exported to Europe
for the production of naphtha. In the United States, many points on
the Ohio and its tributaries are noted as producing this oil; nearly
all of them within the coal measures. A detailed history of these
various localities can be found recorded in books of science, and
their repetition here would be out of place.
GENERAL CHARACTER OF THE CRUDE PRODUCT
The crude oil, as it is gathered on your lands, has a dark brown
colour, which, by reflected light, is greenish or bluish. It is
thick even in warm weather—about as thick as thin molasses. In very
cold weather it is somewhat more stiff, but can always be poured
from a bottle even at 15° below zero. Its odour is strong and
peculiar, and recalls to those who are familiar with it the smell of
bitumen and naphtha. Exposed for a long time to the air, it does not
thicken or form a skin on its surface, and in no sense can it be
called a drying oil. The density of the crude oil is .882, water
being 1.000. It boils only at a very high temperature, and yet it
begins to give off a vapour at a temperature not greatly above that
of boiling water. It takes fire with some difficulty and burns with
an abundant smoky flame. It stains paper with the appearance of
ordinary fat oils, and feels smooth and greasy between the fingers.
It is frequently used in its crude state to lubricate coarse
machinery. In chemical characters, it is entirely unlike the fat
oils. Most of these characters are common to petroleum from various
places. In one important respect, however, the product of your lands
differs from that obtained in other situations, that is, it does
not, by continued exposure to the air, become hard and resinous like
mineral pitch or bitumen. I have been informed by those who have
visited the locality, that on the surface of the earth above the
springs which furnish your oil there is no crust or deposit of this
sort such as I have seen in other situations where petroleum or
mineral tar is flowing. This difference will be seen to be of
considerable importance, as it is understood and represented that
this product exists in great abundance upon your property, that it
can be gathered wherever a well is sunk in the soil, over a great
number of acres, and that it is unfailing in its yield from year to
year. The question naturally arises, Of what value is it in the
arts, and for what uses can it be employed? These researches answer
these inquiries.
EXAMINATION OF THE OIL
To determine what products might be obtained in the oil, a portion
of it was submitted to fractional distillation.[82] The temperature
of the fluid was constantly regulated by a thermometer, the heat
being applied first by a water bath, and then by a bath of linseed
oil. This experiment was founded upon the belief that the crude
product contained several distinct oils, having different boiling
points. The quantity of material used in this experiment was 304
grammes. The thermometer indicated the degrees of the Centigrade
scale, but, for convenience, the corresponding degrees of
Fahrenheit’s scale are added. The water bath failed to distil any
portion of the oil at 100° C. (= 212° F.), only a small quantity of
acid water came over. An oil bath, linseed oil, was then
substituted, and the temperature was regularly raised by slow
degrees until distillation commenced. From that point the heat was
successively raised by stages of ten degrees, allowing full time at
each stage for complete distillation of all that would rise at that
temperature before advancing to the next stage. The results of this
tedious process are given in the annexed table—304 grammes of crude
oil, submitted to fractional distillation, gave
TEMPERATURE QUANTITY
1st Prod. at 100° C. = 213° F.(acid water) 5 gms.
2nd Prod. at 140° C. to 150° C.= 284° to 302° F. 26 gms.
3rd Prod. at 150° C. to 160° C.= 302° to 320° F. 29 gms.
4th Prod. at 160° C. to 170° C.= 320° to 388° F. 38 gms.
5th Prod. at 170° C. to 180° C.= 338° to 367° F. 17 gms.
6th Prod. at 180° C. to 200° C.= 356° to 392° F. 16 gms.
7th Prod. at 200° C. to 220° C.= 392° to 428° F. 17 gms.
8th Prod. at 220° C. to 270° C.= 428° to 518° F. 12 gms.
Whole quantity distilled by this method 160 gms.
———
Leaving residue in the retort 144 gms.
———
Original quantity 304 gms.
_Product No. 1_, as above remarked, was almost entirely water, with
a few drops of colourless oil, having an odour similar to the
original fluid, but less intense.
_Product No. 2_ was an oil perfectly colourless, very thin and
limpid, and having an exceedingly persistent odour, similar to the
crude oil, but less intense.
_Product No. 3_ was tinged slightly yellow, perfectly transparent,
and apparently as limpid as the second product, with the same odour.
_Product No. 4_ was more decidedly yellowish than the last, but was
in no other respect distinguishable from it.
_Product No. 5_ was more highly coloured, thicker in consistence,
and had a decided empyreumatic odour.
_Product No. 6._ This and the two subsequent products were each more
highly coloured and denser than the preceding. The last product had
the colour and consistency of honey, and the odour was less
penetrating than that of the preceding oils. The mass of crude
product remaining in the retort (equal 47.4 per cent.) was a dark,
thick, resinous-looking varnish, which was so stiff when cold that
it could be inverted without spilling. This showed no disposition to
harden or skin over by exposure to the air. The distillation was
arrested at this point in glass, by our having reached the limit of
temperature for a bath of linseed oil. The _density_ of the several
products of this distillation shows a progressive increase, thus:
DENSITY
No. 2 733
No. 3 752
No. 4 766
No. 5 776
No. 6 800
No. 7 848
No. 8 854
To form an idea of the comparative density of these several
products, it may be well to state that sulphuric ether, which is one
of the lightest fluids known, has a density of .736, and alcohol,
when absolutely pure, .800.
The _boiling points_ of these several fluids present some anomalies,
but are usually progressive, thus, No. 2 gave signs of boiling at
115° C. (= 239° F.), and boiled vigorously and remained constant at
225° C. to 228° C. (= 437° to 442° F.). No. 3 began to boil 120° (=
248° F.), rose to 270° (= 518° F.), where it remained constant. No.
4 began to vapourise at 140° (= 284° F.), rose to 290° (= 554° F.),
where it remained constant. On a second heating the temperature
continued to rise, and passed 305° (= 581° F.). No. 5 gave
appearance of boiling at 160° (= 320° F.), boiling more vigorously
as the heat was raised, and was still rising at 308° (= 581° F.).
No. 6 commenced boiling at 135° (= 275° F.), boiled violently at
160° (= 320° F.), and continued rising above the range of the
mercurial thermometer. No. 7 commenced ebullition at the same
temperature as No. 6, and rose to 305° (= 581° F.), where the
ebullition was not very active. Much time was consumed in obtaining
these results. We infer from them that the rock-oil is a mixture of
numerous compounds, all having essentially the same chemical
constitution, but differing in density and boiling points, and
capable of separation from each other, by a well-regulated heat.
The uncertainty of the boiling points indicates that the products
obtained at the temperatures named above were still mixtures of
others, and the question forces itself upon us, whether these
several oils are to be regarded as _educts_ (i. e., bodies
previously existing, and simply separated in the process of
distillation), or whether they are not rather produced by the heat
and chemical change in the process of distillation. The continued
application of an elevated temperature alone is sufficient to effect
changes in the constitution of many organic products, evolving new
bodies not before existing in the original substance.
PROPERTIES OF THE DISTILLED OILS
Exposed to the severest cold of the past winter, all the oils
obtained in this distillation remained fluid. Only the last two or
three appeared at all stiffened by a cold of 15° below zero, while
the first three or four products of distillation retained a perfect
degree of fluidity. Exposed to air, as I have said, they suffer no
change. The chemical examination of these oils showed that they were
all composed of carbon and hydrogen, and probably have these
elements in the same numerical relation. When first distilled they
all had an acid reaction, due to the presence of a small quantity of
free sulphuric acid, derived from the crude oil. This was entirely
removed by a weak alkaline water, and even by boiling on pure water.
Clean copper remained untarnished in the oil which had thus been
prepared, showing its fitness for lubrication, so far as absence of
corrosive quality is concerned. The oils contain no oxygen, as is
clearly shown by the fact that clean potassium remains bright in
them. Strong _sulphuric acid_ decomposes and destroys the oil
entirely. _Nitric acid_ changes it to a yellow, oily fluid, similar
to the changes produced by nitric acid on other oils.
_Hydrochloric_, _chromic_, and _acetic acids_ do not affect it.
_Litharge_ and other metallic oxyds do not change it, or convert it
in any degree to a drying oil. _Potassium_ remains in it unaffected,
even at a high temperature. _Hydrates of potash_, _soda_, and _lime_
are also without action upon it. _Chloride of calcium_ and many
other salts manifest an equal indifference to it. Distilled with
_bleaching powders_ (chloride of lime) and water in the manner of
producing chloroform, the oil is changed into a product having an
odour and taste resembling chloroform. Exposed for many days in an
open vessel, at a regulated heat below 212°, the oil gradually rises
in vapour, as may be seen by its staining the paper used to cover
the vessel from dust, and also by its sensible diminution. Six or
eight fluid ounces, exposed in this manner in a metallic vessel for
six weeks or more, the heat never exceeding 200°, gradually and
slowly diminished, grew yellow, and finally left a small residue of
dark brown, lustrous-looking resin, or pitchy substance, which in
the cold was hard and brittle. The samples of oil employed were very
nearly colourless. This is remarkable when we remember that the
temperature of the distillation was above 500° F. The oil is nearly
insoluble in pure alcohol, not more than 4 or 5 per cent. being
dissolved by this agent. In ether the oil dissolves completely, and
on gentle heating is left unchanged by the evaporisation of the
ether. India-rubber is dissolved by the distilled oil to a pasty
mass, forming a thick, black fluid which, after a short time,
deposits the India-rubber. It dissolved a little amber, but only
sufficient to colour the oil red. It also dissolves a small portion
of copal in its natural state, but after roasting, the copal
dissolves in it as it does in other oils.
USE FOR GAS-MAKING
The crude oil was tried as a means of illumination. For this
purpose, a weighed quantity was decomposed, by passing it through a
wrought-iron retort filled with carbon, and ignited to full redness.
The products of this decomposition were received in a suitable
apparatus. It produced nearly pure carburetted hydrogen gas, the
most highly illuminating of all the carbon gases. In fact, the oil
may be regarded as chemically identical with illuminating gas in a
liquid form. The gas produced equalled ten cubic feet to the pound
of oil. It burned with an intense flame, smoking in the ordinary gas
jet, but furnishing the most perfect flame with the Argand burner.
These experiments were not prosecuted further, because it was
assumed that other products, now known and in use, for gas-making,
might be employed at less expense for this purpose, than your oil.
Nevertheless, this branch of inquiry may be worthy of further
attention.
DISTILLATION AT A HIGHER TEMPERATURE
The results of the distillation at a regulated temperature in glass
led us to believe that in a metallic vessel, capable of enduring a
high degree of heat, we might obtain a much larger proportion of
valuable products. A copper still, holding five or six gallons, was
therefore provided, and furnished with an opening, through which a
thermometer could be introduced into the interior of the vessel.
Fourteen imperial quarts (or, by weight, 560 ounces) of the crude
product were placed in this vessel, and the heat raised rapidly to
about 280° C. (= 536° F.), somewhat higher than the last temperature
reached in the first distillation. At this high temperature the
distillation was somewhat rapid, and the product was easily
condensed without a worm. The product of the first stage was 130
ounces (or over 28 per cent.), of a very light-coloured thin oil,
having a density of .792. This product was also acid, and as before,
the acid was easily removed by boiling with fresh water. The
temperature was now raised to somewhat above 300° C. (= 572° F.),
and 123 ounces more distilled, of a more viscid and yellowish oil,
having a density of .865. This accounts for over 43 per cent. of the
whole quantity taken. The temperature being raised now above the
boiling point of mercury, was continued at that until 170 ounces, or
over 31 per cent., of a dark brown oil had been distilled, having a
strong empyreumatic odor. Upon standing still for some time, a dark
blackish sediment was seen to settle from this portion, and on
boiling it with water the unpleasant odour was in a great degree
removed, and the fluid became more light-coloured and perfectly
bright. (It was on a sample of this that the photometric experiments
were made.) The next portion, distilled at about 700° F., gave but
about 17 ounces, and this product was both lighter in colour and
more fluid than the last. It now became necessary to employ dry
hickory wood as a fuel, to obtain flame and sufficient heat to drive
over any further portions of the residue remaining in the alembic.
It will be seen that we have already accounted for over 75 per cent.
of the whole quantity taken. There was a loss on the whole process
of about 10 per cent. made up, in part, of a coaly residue that
remained in the alembic, and partly of the unavoidable loss
resulting from the necessity of removing the oil twice from the
alembic, during the process of distillation, in order to change the
arrangements of the thermometer, and provide means of measuring a
heat higher than that originally contemplated.
About 15 per cent. of a very thick, dark oil completed this
experiment. This last product, which came off slowly at about 750°
F., is thicker and darker than the original oil, and when cold, is
filled with a dense mass of pearly crystals. These are paraffine, a
peculiar product of the destructive distillation of many bodies in
the organic kingdom. This substance may be separated, and obtained
as a white body, resembling fine spermaceti, and from it beautiful
candles have been made. The oil in which the crystals float is of a
very dark colour, and by reflected light is blackish green, like the
original crude product. Although it distills at so high a
temperature, it boils at a point not very different from the denser
products of the first distillation. The paraffine, with which this
portion of the oil abounds, does not exist ready-formed in the
original crude product; but it is a result of the high temperature
employed in the process of distillation, by which the elements are
newly arranged.
I am not prepared to say, without further investigation, that it
would be desirable for the company to manufacture this product in a
pure state, fit for producing candles (a somewhat elaborate chemical
process); but I may add that, should it be desirable to do so, the
quantity of this substance produced may probably be very largely
increased by means which it is now unnecessary to mention.
Paraffine derives its name from the unalterable nature of the
substance, under the most powerful chemical agents. It is white, in
brilliant scales of a greasy lustre; it melts at about 116°, and
boils at over 700° F.; it dissolves in boiling alcohol and ether,
and burns in the air with a brilliant flame. Associated with
paraffine are portions of a very volatile oil, _eupione_, which
boils at a lower temperature, and by its presence renders the
boiling point of the mixture difficult to determine. I consider this
point worthy of further examination than I have been able at present
to give it, i.e., whether the last third, and possibly the last
half, of the petroleum, may not be advantageously so treated as to
produce from it the largest amount of paraffine which it is able to
produce.
The result of this graduated distillation, at a high temperature, is
that we have obtained over 90 per cent. of the whole crude product
in a series of oils, having valuable properties, although not all
equally fitted for illumination and lubrication.
A second distillation of a portion of the product which came over in
the later stages of the process (a portion distilled at about 650°
F., and having a high colour), gave us a thin oil of density about
.750, of light yellow colour and faint odour.
It is safe to add that, by the original distillation, about 50 per
cent. of the crude oil is obtained in a state fit for use as an
illuminator without further preparation than simple clarification by
boiling a short time with water.
DISTILLATION BY HIGH STEAM
Bearing in mind that by aid of high steam, at an elevated
temperature, many distillations in the arts are affected which
cannot be so well accomplished by dry heat, I thought to apply this
method in case of the present research. Instances of this mode of
distillation are in the new process for Stearine candles, and in the
preparation of rosin oil. I accordingly arranged my retort in such a
manner that I could admit a jet of high steam into the boiler, and
almost at the bottom of the contained petroleum. I was, however,
unable to command a jet of steam above 275° to 290° F., and although
this produced abundant distillation, it did not effect a separation
of the several products, and the fluid distilled had much the same
appearance as the petroleum itself, thick and turbid. As this trial
was made late in the investigation, I have been unable to give it a
satisfactory issue, chiefly for want of steam of a proper
temperature. But I suggest, for the consideration of the company,
the propriety of availing themselves of the experience already
existing on this subject, and particularly among those who are
concerned in the distillation of rosin oil—a product having many
analogies with petroleum in respect to its manufacture.
USE OF THE NAPHTHA FOR ILLUMINATION
Many fruitless experiments have been made in the course of this
investigation which it is needless to recount. I will, therefore,
only state those results which are of value.
1. I have found that the only lamp in which this oil can be
successfully burned is the camphene lamp, or one having a button to
form the flame, and an external cone to direct the current of air,
as is now usual in all lamps designed to burn either camphene, rosin
oil, sylvic oil, or any other similar product.
2. As the distilled products of petroleum are nearly or quite
insoluble in alcohol, burning fluid (i. e., a solution of the oil in
alcohol) cannot be manufactured from it.
3. As a consequence, the oil cannot be burned in a hand lamp, since,
with an unprotected wick, it smokes badly. Neither can it be burned
in a Carcel’s mechanical lamp, because a portion of the oil being
more volatile than the rest, rises in vapour on the elevated wick
required in that lamp, and so causes it to smoke.
I have found all the products of distillation from the copper still
capable of burning well in the camphene lamp, except the last third
or fourth part (i.e., that portion which came off at 700° F. and
rising, and which was thick with the crystals of paraffine). Freed
from acidity by boiling on water, the oils of this distillation
burned for twelve hours without injuriously coating the wick, and
without smoke. The wick may be elevated considerably above the level
required for camphene, without any danger of smoking, and the oil
shows no signs of crusting the wick tubes with a coating of rosin,
such as happens in the case of camphene, and occasions so much
inconvenience. The light from the rectified naphtha is pure and
white, without odour. The rate of consumption is less than half that
of camphene, or rosin oil. The Imperial pint, of 20 fluid ounces,
was the one employed—a gallon contains 160 such ounces. A camphene
lamp, with a wick one inch thick, consumed of rectified naphtha in
one hour, 1¾ ounces of fluid. A Carcel’s mechanical lamp of ⅞–inch
wick, consumed of best sperm oil, per hour, 2 ounces. A “Diamond
Light” lamp, with “sylvic oil,” and a wick 1½–inch diameter,
consumed, per hour, 4 ounces.
I have submitted the lamp burning petroleum to the inspection of the
most experienced lampists who were accessible to me, and their
testimony was, that the lamp burning this fluid gave as much light
as any which they had seen, that the oil spent more economically,
and the uniformity of the light was greater than in camphene,
burning for twelve hours without a sensible diminution, and without
smoke. I was, however, anxious to test the amount of light given,
more accurately than could be done by a comparison of opinions. With
your approbation I proceeded therefore to have constructed a
_photometer_, or apparatus for the measurement of light, upon an
improved plan. Messrs. Grunow, scientific artists of this city,
undertook to construct this apparatus, and have done so to my entire
satisfaction. This apparatus I shall describe elsewhere—its results
only are interesting here. By its means I have brought the petroleum
light into rigid comparison with the most important means of
artificial illumination. Let us briefly recapitulate the results of
these
PHOTOMETRIC EXPERIMENTS
The _unit_ adopted for comparison of intensities of illumination is
Judd’s Patent Sixes Sperm Candle.
The sperm oil used was from Edward Mott Robinson, of New Bedford—the
best winter sperm remaining fluid at 32° F. The colza oil and
Carcel’s lamps were furnished by Dardonville, lampist, Broadway, New
York. The gas used was that of the New Haven Gas Light Co., made
from best Newcastle coal, and of fair average quality.
The distance between the standard candle, and the illuminator sought
to be determined, was constantly 150 inches—the photometer traversed
the graduated bar in such a manner as to read, at any point where
equality of illumination was produced, the ratio between the two
lights. I quote only single examples of the average results, and
with as little detail as possible, but I should state that the
operation of the photometer was so satisfactory that we obtained
constantly the same figures when operating in the same way, evening
after evening, and the sensitiveness of the instrument was such that
a difference of one-half inch in its position was immediately
detected in the comparative illumination of the two equal discs of
light in the dark chamber. This is, I believe, a degree of accuracy
not before obtained by a photometer.
TABLE OF ILLUMINATING POWER OF VARIOUS ARTIFICIAL LIGHTS COMPARED WITH
JUDD’S PATENT CANDLES AS A UNIT
SOURCE OF LIGHT RATIO TO
CANDLE—1
Gas burning in Scotch fish-tail tips, 4 feet to the hour 1 : 5.4
Gas burning in Scotch fish-tail tips, 6 feet to the hour 1 : 7.55
Gas burning in Cornelius fish-tail tips, 6 feet to the hour 1 : 6.3
Gas burning in English Argand burner, 10 feet to the hour 1 : 16
Rock-oil, burning in 1–inch wick camphene lamp, consuming 1¾
ounces of fluid to the hour 1 : 8.1
Carcel’s mechanical lamp, burning best sperm oil, 2 ounces of
fluid to the hour, wick ⅞ of an inch 1 : 7.5
Carcel’s mechanical lamp, burning best sperm oil, 2 ounces of
colza oil to the hour, wick of ⅞ an inch 1 : 7.5
Camphene lamp (same size as rock-oil above) burning best
camphene, 4 fluid ounces per hour 1 : 11
“Diamond Light” by “sylvic oil,” in 1½–inch wick, 4 ounces
per hour 1 : 8.1
From this table it will be seen that the rock-oil lamp was somewhat
superior in illuminating power to Carcel’s lamp of the same size,
burning the most costly of all oils. It was also equal to the
“Diamond Light” from a lamp of one-half greater power, and
consequently is superior to it in the same ratio in lamps of equal
power. The camphene lamp appears to be about one-fifth superior to
it, but, on the other hand, the rock-oil surpasses the camphene by
more than one-half in economy of consumption (i.e., it does not
consume one-half so much fluid by measure), and it burns more
constantly. Compared with the sylvic oil and the sperm, the rock-oil
gave on the ground glass diaphragm the whitest disc of illumination,
while in turn the camphene was whiter than the rock-oil light. By
the use of screens of different coloured glass, all inequalities of
_colour_ were compensated in the use of the photometer, so that the
intensity of light could be more accurately compared. Compared with
gas, the rock-oil gave more light than any burner used except the
costly Argand consuming ten feet of gas per hour. To compare the
_cost_ of these several fluids with each other, we know the price of
the several articles, and this varies very much in different places.
Thus, gas in New Haven costs $4 per 1,000 feet, and in New York
$3.50 per 1,000, in Philadelphia $2.00 per 1,000, and in Boston
about the same amount.
Such sperm oil as was used costs $2.50 per gallon, the colza about
$2, the sylvic oil 50 cents, and the camphene 68 cents; no price has
been fixed upon for the rectified rock-oil.
I cannot refrain from expressing my satisfaction at the results of
these photometric experiments, since they have given the oil of your
company a much higher value as an illuminator than I had dared to
hope.
USE OF THE ROCK-OIL AS A LUBRICATOR FOR MACHINERY
A portion of the rectified oil was sent to Boston to be tested upon
a trial apparatus there, but I regret to say that the results have
not been communicated to me yet. As this oil does not gum or become
acid or rancid by exposure, it possesses in that, as well as in its
wonderful resistance to extreme cold, important qualities for a
lubricator.
CONCLUSION
In conclusion, gentlemen, it appears to me that there is much ground
for encouragement in the belief that your company have in their
possession a raw material from which, by simple and not expensive
process, they may manufacture very valuable products.
It is worthy of note that my experiments prove that nearly the
_whole_ of the raw product may be manufactured without waste, and
this solely by a well-directed process which is in practice one of
the most simple of all chemical processes.
There are suggestions of a practical nature, as to the economy of
your manufacture, when you are ready to begin operations, which I
shall be happy to make, should the company require it; meanwhile, I
remain, gentlemen,
Your obedient servant,
B. SILLIMAN, JR.,
_Professor of Chemistry in Yale College_.
NEW HAVEN, April 16, 1855.
NUMBER 2 (See page 1044)
FIRST ACT OF INCORPORATION OF THE STANDARD OIL COMPANY
_KNOW ALL MEN BY THESE PRESENTS_: That we, _John D. Rockefeller_,
_Henry M. Flagler_, _Samuel Andrews_, and _Stephen V. Harkness_, of
_Cleveland, Cuyahoga County, Ohio_, and _William Rockefeller_, of
the _City_, _County_, and _State_ of _New York_, have associated
ourselves together under the provisions of the Act of the
Legislature of the State of Ohio, entitled An Act to provide for the
creation and regulation of incorporated companies in the State of
Ohio, passed May 1, 1852, and the Acts supplementary thereto passed
April 8, 1856, and the Act to amend the last-named Act, passed
February 14, 1861, and other laws of the State of Ohio applicable
thereto, for the purpose of forming a body corporate for
manufacturing petroleum and dealing in petroleum, and its products
under the corporate name of _THE STANDARD OIL COMPANY_.
And we do certify that the purpose for which said body corporate is
formed is the manufacture of petroleum and to deal in petroleum and
its products.
That the capital stock necessary for said company, and the amount
agreed on as composing the capital stock, is the sum of _One Million
Dollars_.
That the amount of each share of capital stock is _One Hundred
Dollars_.
That the name of the place where said manufacturing establishment
shall be located for doing business is _Cleveland City, Cuyahoga
County, State of Ohio_.
That the name and style by which said manufacturing establishment
shall be known is _THE STANDARD OIL COMPANY_.
JOHN D. ROCKEFELLER,
HENRY M. FLAGLER,
SAMUEL ANDREWS,
STEPHEN V. HARKNESS,
WILLIAM ROCKEFELLER.
CLEVELAND, OHIO, January 10, 1870.
NUMBER 3 (See page 1047)
AFFIDAVIT OF JAMES H. DEVEREUX
[In the case of the Standard Oil Company _vs._ William C. Scofield
_et al._ in the Court of Common Pleas, Cuyahoga County, Ohio.]
J. H. Devereux, being first duly sworn, says that he is forty-eight
years of age, and is president of the New York, Pennsylvania and
Ohio Railroad; that in 1868 he became vice-president of the Lake
Shore Railroad, and remained in that position as well as president
and general manager till 1873. That he has heard read the statements
of Robert Hanna and George O. Baslington, in their affidavits filed
herein in respect to transportation of oil, and in regard thereto he
has to say that his experience with the oil traffic began in 1868
when he went upon the Lake Shore Railroad as vice-president,
succeeding Mr. Stone who retired from ill health; that the only
written memoranda connected with the business of the company with
which he was furnished was a book in which it was stated—probably in
Mr. Stone’s handwriting—that the representatives of the various oil
interests of Cleveland would agree to pay a rate of 1 cent. per
gallon on crude oil moved from the regions to Cleveland; that in
addition to the inevitable friction arising from the competition of
these refiners of Cleveland—probably aggregating twenty-five in
number, was the further difficulty of the patent right which the
Pennsylvania Railroad claimed to the transportation of oil, and the
peculiar differences made by them in the rates given to refiners at
Titusville, Pittsburg, and other places all thoroughly in
competition with the then very limited refining capacity of
Cleveland; that he took up the subject as to whether the Lake Shore
Railroad could hope to compete for the transportation of oil, and
the end of the matter was that the Jamestown and Franklin Railroad
was extended from Franklin to Oil City, the then centre of the
producing district, and a sharper contest than ever was produced,
growing out of the opposition of the Pennsylvania Railroad in
competition; that such rates and arrangements were made by the
Pennsylvania Railroad, that it was publicly proclaimed in the public
print in Oil City, Titusville, and other places that Cleveland was
to be wiped out as a refining centre as with a sponge, and without
exception the oil refiners of Cleveland came to affiant as a
representative of transportation, and with a single exception
expressed their fears that they would have either to abandon their
business here or move to Titusville or other points in the Oil
Regions; that the only exception to this decision was that offered
by Rockefeller, Andrews and Flagler, who on its assurance that the
Lake Shore Railroad could and would handle oil as cheaply as the
Pennsylvania Company, proposed to stand their ground at Cleveland
and fight it out on that line. That later, about 1870, the first
move was made to transport refined oil by rail regularly and
throughout the entire year from Cleveland to New York. That prior to
that time the export business from Cleveland was comparatively
limited and was confined to the summer months, most of that portion
of the traffic refined at Cleveland in competition with Pittsburg,
Titusville, and other places being shipped by lake and canal, and as
affiant remembers at a rate of about one dollar per barrel, and with
a certainty of its being reduced to ninety cents. That the rail rate
was nominally two dollars on refined oil from Cleveland to New York.
That Mr. Flagler, at this time representing Rockefeller, Andrews and
Flagler, proposed to make regular monthly shipments by rail
throughout the year provided a proper rate could be made for the
business then offered, this rate to cover transportation of crude
from the region to Cleveland, and when refined from Cleveland to New
York. Rockefeller, Andrews and Flagler being the only refiners here
who proposed to compete for the export business or offered oil for
the entire haul from the regions to Cleveland and thence to New
York; that Mr. Flagler’s proposition was to assure to the Lake Shore
Railroad sixty carloads of refined oil per day[83] from Cleveland to
New York at a rate of $1.75 per barrel from the regions to New York,
being thirty-five cents per barrel for crude from the regions to
Cleveland and $1.30 per barrel for refined from Cleveland to New
York; and Rockefeller, Andrews and Flagler were to assume all risk
and losses from fire or other accidents. That affiant took this
proposition into consideration and made careful computation of the
cost of this transportation to the railroad, which cost is the
proper basis in fixing the rate to be charged; that affiant found
that the then average time for a round trip from Cleveland to New
York for a freight car was thirty days; to carry sixty cars per day
would require 1,800 cars at an average cost of $500 each, making an
investment of $900,000 necessary to do this business, as the
ordinary freight business had to be done; but affiant found that if
sixty carloads could be assured with absolute regularity each and
every day, the time for a round trip from Cleveland to New York and
return could be reduced to ten days, by moving these cars in solid
trains instead of mixing oil cars in other trains, as would be
necessary when transported in small quantities and by moving the oil
trains steadily without regard to other cars; that by thus reducing
the time to ten days for a round trip, only six hundred cars would
be necessary to do this business with an investment therefore of
only $300,000. That the regularity of the traffic would insure
promptness in the unloading and return of the cars; that upon these
considerations affiant concluded that Mr. Flagler’s proposition
offered to the railroad company a larger measure of profit than
would or could ensue from any business to be carried under the old
arrangements, and such proved to be pre-eminently the case; that the
proposition of Mr. Flagler was therefore accepted, and in affiant’s
judgment this was the turning-point which secured to Cleveland a
considerable portion of the export traffic. That this arrangement
was at all times open to any and all parties who would secure or
guarantee a like amount of traffic or an amount sufficient to be
treated and handled in the same speedy and economical way, the
charges for transportation being always necessarily based upon the
actual cost of the service to the railroad, and whenever any shipper
or shippers will unite to reduce the cost of transportation to the
railroad, to refuse to give them the benefit of such reduction would
be to the detriment of the public, the consumers, who in the end pay
the transportation charges. Affiant says that this legitimate and
necessary advantage of the large shipper over the smaller he
explained to Mr. Hanna and Mr. Baslington, and they recognised its
propriety, and affiant offered them the same terms if by themselves
or with others they would assure him like quantities with like
regularity, thus securing like speed and economy in transportation.
And further affiant saith not.
J. H. DEVEREUX.
Subscribed in my presence and sworn to before me this thirteenth day
of November, 1880.
J. C. CANNON,
_Notary Public in and for Said County_.
NUMBER 4 (See page 1055)
TESTIMONY OF HENRY M. FLAGLER ON THE SOUTH IMPROVEMENT COMPANY
[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3112, pages 289–290.]
_A._ ... Neither of the Messrs. Rockefeller, Colonel Payne, nor
myself, nor any one connected with the Standard Oil Company, ever
had any confidence in or regard for the scheme known as the South
Improvement Company. We did not believe in it, but the view
presented by other gentlemen was pressed upon us to such an extent
that we acquiesced in it to the extent of subscribing our names to a
certain amount of the stock, which was never paid for. The company
never did a dollar’s worth of business, and never had any existence
other than its corporative existence, which it obtained through its
charter. Through its president it negotiated certain railroad
contracts, which, as I remember now, were signed by the company and
by the officers of the railroad. Those contracts were held in escrow
a few weeks and were destroyed or cancelled by mutual consent.
_Q._ Who presented these views to you gentlemen? Who was the person
that had charge of this South Improvement Company’s scheme?
_A._ I think Mr. Warden and the Messrs. Logan were the great leaders
in the South Improvement Company policy.
NUMBER 5 (See page 1062)
CONTRACT BETWEEN THE SOUTH IMPROVEMENT COMPANY AND THE PENNSYLVANIA
RAILROAD COMPANY, DATED JANUARY 18, 1872
[Proceedings in Relation to Trusts, House of Representatives, 1888.
Report Number 3112, pages 357–361.]
Agreement made and entered into this eighteenth day of January, in
the year eighteen hundred and seventy-two, by and between the South
Improvement Company, a corporation organised and existing under the
laws of the State of Pennsylvania, party hereto of the first part,
and the Pennsylvania Railroad Company, on its own behalf and on
behalf of all other railroad companies, whose roads are controlled,
owned, or leased by it, or with which it has sufficient running
arrangements, which other roads are herein described as the
connections of the said Pennsylvania Railroad Company, party hereto
of the second part.
WITNESSETH:
_Whereas_, the party hereto of the first part has been organized for
the purpose, among other things, of increasing, facilitating, and
developing the trade in and the conveyance and transportation of
petroleum and its products, and for that purpose proposes, among
other things, to expend large sums of money in the purchase,
erection, and construction of, and maintaining and conducting works
for storage, distillation, and refining, warehousing and
transportation, and in various other ways, upon the inducement,
among other things, of this contract.
_And Whereas_, the magnitude and extent of the business and
operations proposed to be carried on by the party hereto of the
first part will greatly promote the interest of the party hereto of
the second part, and make it desirable for it, by fixing certain
rates of freight, drawbacks, and rebates, and by the other
provisions of this _agreement_, to encourage the outlay proposed by
the party hereto of the first part, and to facilitate and increase
the transportation to be received from it.
_And Whereas_, it has been agreed by and between the party hereto of
the second part, for itself and its connections, the Erie Railroad
Company, for itself and its connections, and the New York Central
Railroad Company, for itself and its connections, that the business
of transporting, by railroad, crude petroleum and its products,
toward the Atlantic coast, from the points of production and
refining, on their lines of road, shall be allotted by the party
hereto of the first part, to the said three companies, in the
proposition of forty-five (45) per cent. of the whole to the
Pennsylvania Railroad Company, for itself and its connections,
including the Philadelphia and Erie Railway, the Northern Central
Railway, the Alleghany Valley Railroad, Camden and Amboy Railway,
the Pennsylvania Company, and all other railroads which are, or may
be, controlled, owned, and leased by it, or with which it has, or
may have, sufficient running arrangements; twenty-seven and a half
(27½) per cent. of the whole to the Erie Railway Company, for itself
and its connections, and twenty-seven and a half (27½) per cent. of
the whole to the New York Central Railroad Company for itself and
its connections, and that the transportation beyond Cleveland and
Pittsburg over the railroads of the said companies and their
connections, in other directions than toward the Atlantic coast,
west from said points of production and refining, shall be allotted
by the party hereto of the first part, in the proportion of
one-third thereof, to the party hereto of the second part, for
itself and its western connections, and the remainder to other
railroads.
Now, therefore, this agreement witnesseth: That the parties hereto
for themselves and their successors, in consideration of the
promises, of the mutual execution hereof, and of the mutual
advantages hereby conferred, have covenanted and agreed, and hereby
do covenant and agree each with the other, as follows:
ARTICLE FIRST
The party hereto of the first part covenants and agrees:
1. To furnish to the party hereto of the second part for
transportation, such a proportion of the crude petroleum and its
products, owned or controlled by the party hereto of the first part,
as shall give to the party hereto of the second part forty-five (45)
per cent. of all the crude petroleum and its products, sent from the
points of production and refining toward the Atlantic coast, by the
said Pennsylvania, the Erie, and the New York Central railroads and
their connections, and thirty-three and one-third (33⅓) per cent.
that which is sent west of Pittsburg and Cleveland by those
railroads and their connections.
2. To provide suitable tankage at the points where petroleum is
produced, on the railroads of the party hereto of the second part
and its connections in which to receive crude petroleum preparatory
to shipment, with the necessary pipes, pumps, racks, and other
appliances for its convenient transfer in bulk into railroad cars.
3. To deliver to the railroads of the party hereto of the second
part, and its connections, at the places of shipment, and to receive
from them, at the places of destination, all crude petroleum and its
products transported over their roads for the party of the first
part.
4. To provide at the places of destination on the seaboard,
necessary and suitable yards, wharves, warehouses, sheds, tanks,
pipes, pumps, and motive power, for the reception of petroleum and
its products, and loading vessels therewith.
5. To provide, maintain, and operate the works necessary to refine
crude petroleum upon the largest scale practicable, and with such
skill, and on such a system of organisation and division of labour,
as will secure both efficiency and economy; and for that purpose and
for the purpose of developing and increasing the petroleum trade of
the country, to provide and maintain all suitable and necessary
means and facilities.
6. To keep records of the transportation over the railroads of the
party hereto of the second part, and its connections, and so far as
it can obtain the same, over the Erie and the New York Central
railroads and their connections, of all petroleum and its products,
showing the number of barrels of forty-five gallons each in bulk,
and the number of barrels of forty-seven gallons each in barrels,
carried by each road with the points of receiving and delivery, and
the amount of freight received by each road for such transportation,
which records shall at all reasonable times be open to the
inspection of the duly constituted representatives of the party
hereto of the second part.
Monthly abstracts of all such records shall be regularly sent to the
party of the second part.
7. To pay the party of the second part weekly for all transportation
over its roads and its connections, of petroleum and its products,
such gross rates and half-rates of freight as are hereinafter
specified, less the rebates and drawbacks hereinafter provided to be
retained by the party hereto of the first part for its own use.
ARTICLE SECOND
The party hereto of the second part covenants and agrees:
1. That the party hereto of the second part will pay and allow to
the party hereto of the first part, for its own use, in all
petroleum and its products, transported over the railroads of the
party hereto of the second part and its connections, for the party
hereto of the first part, rebates, and on all transported for
others, drawbacks, at the rates hereinafter provided, except in the
case specified in Article Third.
2. To deliver to the party hereto of the first part all petroleum
and its products in packages, transportation over the railroads, of
the party hereto of the second part, and its connections, by
whomsoever shipped, and consigned to the party of the first part, at
the warehouses of the party of the first part, at the seaboard, and
inland, at the depots of the party of the second part, at the places
of destination, and to deliver all petroleum and its products, in
bulk, owned by or consigned to the said party of the first part, at
any point required on the line of the railroads, of the party of the
second part and its connections.
3. To transport and deliver petroleum and its products over the
railroads of the party of the second part and its connections, at
gross rates, which shall at no time exceed the following, without
the consent of both parties hereto.
From any point on the Oil Creek and Allegheny River Railroad to Oil
City, Union, Corry or Irvineton, which are herein designated as
_common points_, on each barrel of forty-five gallons in bulk, and
on each barrel of forty-seven gallons in barrels, thirty cents.
ON CRUDE PETROLEUM
From any common point to Cleveland, for each barrel of 45 gallons $0.80
From any common point to Pittsburg, for each barrel of 45 gallons .80
From any common point to New York, for each barrel of 45 gallons 2.56
From any common point to Philadelphia, for each barrel of 45
gallons 2.41
From any common point to Baltimore, for each barrel of 45 gallons 2.41
From any common point to Boston, for each barrel of 45 gallons 2.71
All other points, except those on the Oil Creek and Allegheny River
Railway, to the places of destination last named, the same rates as
from the _common points_.
ON REFINED OIL, BENZINE, AND OTHER PRODUCTS OF THE MANUFACTURE OF
PETROLEUM
From Pittsburg to New York, for each barrel $2.00
From Pittsburg to Philadelphia, for each barrel 1.85
From Pittsburg to Baltimore, for each barrel 1.85
From Cleveland to Boston, for each barrel 2.15
From Cleveland to New York, for each barrel 2.00
From Cleveland to Philadelphia, for each barrel 1.85
From Cleveland to Baltimore, for each barrel 1.85
From any common point to New York, for each barrel 2.92
From any common point to Philadelphia, for each barrel 2.77
From any common point to Baltimore, for each barrel 2.77
From any common point to Boston, for each barrel 3.07
From and to all points intermediate between the points aforesaid,
such reasonable rates as the party of the second part shall from
time to time establish, on both crude and refined.
From Pittsburg, Cleveland, and other points, to places west of
Pittsburg and Cleveland, such reasonable rates as the party of the
second part may deem it expedient from time to time to establish.
4. To pay and allow to the party hereto of the first part, on all
petroleum and its products, transportation for it over the railroads
of the party of the second part and its connections, the following
rebates, and on all transported for other parties, drawbacks of like
amounts, as the rebates from the gross rates, the same to be
deducted and retained by the party hereto of the first part, for its
own use from the amounts of freights, payable to the party of the
second part.
ON THE TRANSPORTATION OF CRUDE PETROLEUM
From the gross rate from any common point to Cleveland, a rebate
per barrel of $0.40
From the gross rate from any common point to Pittsburg, a rebate
per barrel of .40
From the gross rate from any common point to New York, a rebate
per barrel of 1.06
From the gross rate from any common point to Philadelphia, a
rebate per barrel of 1.06
From the gross rate from any common point to Baltimore, a rebate
per barrel of 1.06
From the gross rate from any common point to Boston, a rebate per
barrel of 1.06
From the gross rate from all other points, and the six places of
destination last named rebates the same as on the rates from the
common points.
ON THE TRANSPORTATION OF REFINED OIL, BENZINE, AND OTHER PRODUCTS OF
THE MANUFACTURE OF PETROLEUM
From the gross rates from Pittsburg to New York, a rebate per
barrel of $0.50
From the gross rates from Pittsburg to Philadelphia, a rebate per
barrel of .50
From the gross rates from Pittsburg to Baltimore, a rebate per
barrel of .50
From the gross rates from Cleveland to Boston, a rebate per
barrel of .50
From the gross rates from Cleveland to New York, a rebate per
barrel of .50
From the gross rates from Cleveland to Philadelphia, a rebate per
barrel of .50
From the gross rates from Cleveland to Baltimore, a rebate per
barrel of .50
From the gross rates from any common point to New York, a rebate
per barrel of 1.32
From the gross rates from any common point to Philadelphia, a
rebate per barrel of 1.32
From the gross rates from any common point to Baltimore, a rebate
per barrel of 1.32
From the gross rates from any common point to Boston, a rebate
per barrel of 1.32
From the gross rates to and from all points, intermediate between
the above points, a rebate or drawback of one-third of the gross
rate, shall be paid.
From the gross rates from Pittsburg, Cleveland, and other points, to
places west of the meridians of Pittsburg and Cleveland, a rebate or
drawback of one-third of the gross rate shall be paid.
5. To charge to all other parties (excepting such as are referred to
in Article 3d) for the transportation of petroleum and its products,
rates which shall not be less than the gross rates above specified,
and should at any time any less rate be charged, directly or
indirectly, either by way of rebate, commission, allowances, or upon
any pretext whatsoever, the same reduction per barrel shall be made
to the party hereto of the first part, from the net rates provided
for them, on all transportation for them during the period for which
such reduction shall be made to others.
6. To permit the party hereto of the first part, if, in its
judgment, the currents of trade should so require, temporarily to
increase or diminish the proportion, as herein provided to the party
hereto of the second part, for itself and its connections, as the
whole business of transporting petroleum and its products, as
between the party hereto of the second part, the Erie Railway
Company and the New York Central Railroad Company. The party of the
second part in such case, to receive from the party hereto of the
first part, in full payment or indemnity, for the excess or
deficiency, one-half the net schedule rates on such excess or
deficiency; the other half to be paid _pro rata_ to the said other
companies, whose apportioned quantity of transportation shall thus
be varied; but such diversion of business shall not, at any time,
exceed one week, nor be repeated without an interval of at least
sixty days, unless with the consent of the party hereto of the
second part. Also, that whenever from time to time, as aforesaid, a
temporary diversion of a part of the apportioned transportation of
the party of the second part, to the other railroads aforesaid, or
to either of them, shall become necessary, cars of the party of the
second part may be loaded by the party of the first part, and sent
away over such other railroads, or either of them, but the cars so
sent away shall be returned without unnecessary delay, and in as
good order as when taken to the railroads of the party of the second
part, and mileage at the usual rates paid for their use while
absent.
7. To furnish with as much regularity as possible, at all times,
good and sufficient cars, and other means suitable and necessary for
the safe and prompt transportation of all crude petroleum and its
products, either in bulk or in barrels, which the party hereto of
the first part shall desire to send from one point to another (and
which shall be supplied with as much regularity as possible), on or
over the railroads of the party of the second part and its
connections.
8. To make manifests or way-bills of all petroleum or its products,
transported over any portion of the railroads of the party of the
second part or its connections, which manifests shall state the name
of the consignor, the place of shipment, the kind and actual
quantity of the article shipped, the name of the consignee, and the
place of destination, with the rate and gross amount of freight and
charges, and to send daily to the principal office of the party of
the first part, duplicates of all such manifests or way-bills.
ARTICLE THIRD
And it is hereby further covenanted and agreed by and between the
parties hereto, that the rebates hereinbefore provided for the party
hereto of the first part, may be made to any other party who shall
furnish an equal amount of transportation, and who shall possess and
use works, means, and facilities for carrying on and promoting the
petroleum trade equal to those possessed and used by the party
hereto of the first part.
ARTICLE FOURTH
And it is hereby further covenanted and agreed by and between the
parties hereto, that the party hereto of the second part shall at
all times co-operate, as far as it legally may, with the party
hereto of the first part, to maintain the business of the party
hereto of the first part, against loss or injury by competition, to
the end that the party hereto of the first part may keep up a
remunerative, and so a full and regular business, and to that end
shall lower or raise the gross rates of transportation over its
railroads and connections, as far as it legally may, for such times,
and to such extent as may be necessary to overcome such competition.
The rebates and drawbacks to the party of the first part to be
varied _pari passu_ with the gross rates.
ARTICLE FIFTH
It is hereby mutually agreed by and between the parties hereto that
for the purpose of meeting such exigencies as may from time to time
require change of the rates of transportation herein provided, each
party, on ten days’ written notice from the other, shall appoint a
person on behalf of such party, and the two persons thus appointed,
shall have power to change and adjust the rates, which shall go into
effect on being approved by the said parties hereto.
ARTICLE SIXTH
It is further mutually agreed by and between the parties hereto that
the gross rates of freight to the party hereto of the first part
shall at all times be kept as near to the net rates as is consistent
with the interests of the party hereto of the first part, and that
whenever in the judgment of the party hereto of the first part it is
expedient to lower the rebate below the rate above specified, it may
do so, and from time to time raise the same again, not, however,
above the rate hereinbefore specified. The party hereto of the first
part, from time to time shall notify the party of the second part in
writing of the change required, whereupon the party hereto of the
second part shall forthwith make a corresponding change of such
gross rates.
ARTICLE SEVENTH
It is further mutually agreed by and between the parties hereto,
that this agreement shall continue and remain in force for the
period of not less than five years, and shall not then, nor
thereafter terminate, until one of the parties shall have given
twelve months’ written notice to terminate it.
ARTICLE EIGHTH
It is further mutually agreed by and between the parties hereto,
that if any doubt, question, difference, cause, or suit shall at any
time or times, hereafter, arise or happen between the said parties
to these presents, touching the construction of these presents, or
any clause, matter, or thing herein contained, or any other matters,
cause, or thing whatsoever, in any wise relating to or concerning
this agreement, and such doubt, question, difference, or dispute,
shall not be fully settled by the parties to these presents within
one calendar month after the same shall arise, then, in every such
case, upon the request in writing of either of the said parties
hereto, specifying such doubt, question, difference, or dispute, it
shall be committed and referred to the hearing and arbitration of
three disinterested persons; one of them to be chosen by the party
of the first part, another of them to be chosen by the party of the
second part, and each party on ten days’ notice in writing from the
other, shall make such choice, and appoint a disinterested person in
behalf of such party, but, if either party on such notice shall
within such ten days fail to make an appointment, the person
appointed by the other party shall choose the second disinterested
person, and the third disinterested person shall be chosen within
one calendar month next after such request; and the award, order, or
determination of the said three persons, to be chosen as aforesaid,
or any two of them, shall be binding and conclusive on the parties
hereto, and shall be performed and kept by them, without any further
suit or trouble whatsoever; provided such award, order, or
determination, be made in writing, under the hands of the said three
persons, or of any two of them, within the space of sixty days after
all the persons shall be so selected, as aforesaid. And for the
further and better enforcing the performance of the award, so to be
made, as aforesaid, the reference or submission for or in respect of
the same, may, at the option of any of the parties to these
presents, from time to time be made as a matter of course, a rule of
court in any court of record.
In witness whereof, the said South Improvement Company and
Pennsylvania Railroad Company have caused their respective corporate
seals to be hereto affixed, and these presents to be subscribed by
their respective presidents, the day and year first above written.
[SEAL]
SOUTH IMPROVEMENT COMPANY.
By P. H. WATSON,
_President_.
[SEAL]
PENNSYLVANIA RAILROAD COMPANY.
By J. EDGAR THOMPSON,
_President_.
Attest: JOSEPH LESLEY, _Secretary_.
NUMBER 6 (See page 1063)
STANDARD OIL COMPANY’S APPLICATION FOR INCREASE OF CAPITAL STOCK TO
$2,500,000 IN 1872
_To the Secretary of the State of Ohio_:
The undersigned, being a majority of the Board of Directors of _THE
STANDARD OIL COMPANY OF CLEVELAND, OHIO_, do hereby certify that on
the first day of January, A.D. 1872, at the annual meeting of the
stockholders of said company held at its office in Cleveland,
Cuyahoga County, Ohio, by a vote then and there taken, all the
stockholders of said company being present and voting therefor, it
was resolved and agreed by each and all of them, that the capital
stock of said company be increased the sum of _One Million Five
Hundred Thousand Dollars_, thereby making the capital stock of said
company _Two Millions Five Hundred Thousand Dollars_, which action
of the stockholders was as follows, to wit:
_Resolved_, and it is hereby agreed by each and all of us, that the
capital stock of this company, namely, _The Standard Oil Company of
Cleveland, Ohio_, be increased to the sum of _Two Millions Five
Hundred Thousand Dollars_, and it is also agreed, and the proper
officers of the company are hereby instructed to take the requisite
steps to so increase said capital stock.
JOHN D. ROCKEFELLER, O. B. JENNINGS, B. BREWSTER, WILLIAM
ROCKEFELLER, S. V. HARKNESS, H. M. FLAGLER, T. P. HANDY, S.
ANDREWS, A. STONE, JR., S. WITT, _Stockholders_.
_Cleveland, O., January 1st_, A.D. _1872._
_And afterward said meeting was adjourned._ HENRY M. FLAGLER,
_Secretary_.
And we further certify that the whole amount of such increase of
capital stock has been paid to said company, in money, that no note,
bill, bond, or other security has been taken for the same, or any
part thereof, and that the credit of the company has not been used
directly or indirectly to raise funds to pay the same or any part
thereof.
_IN WITNESS WHEREOF_, We hereunto set our names at _Cleveland,
Ohio_, this ninth day of February, A.D. 1872.
JOHN D. ROCKEFELLER, HENRY M. FLAGLER, SAMUEL ANDREWS, STEPHEN V.
HARKNESS, _Directors_.
NUMBER 7 (See page 1067)
AFFIDAVITS OF GEORGE O. BASLINGTON
[In the case of the Standard Oil Company _vs._ William C. Scofield,
_et al._, in the Court of Common Pleas, Cuyahoga County, Ohio.]
In the spring of 1869, they (Hanna, Baslington & Company) began the
construction of refining works just above the Atlantic depot on the
west side of the Cleveland and Columbus Railroad track, and invested
in the construction of the works about $67,000, which works were
completed so as to commence the refining business about the first of
June, 1869, and from that time up to about the first of July, 1870,
the works had netted a profit of $40,000 over all expenses of
running said works, being about 60 per cent. on the capital invested
per annum, and from that time on up to the first of April, 1872,
said firm cleared $21,000, being about 30 per cent. per annum on the
investment from the time that said firm commenced business.
Some time in February, 1872, the firm received a message from the
Standard Oil Company requesting said firm to have an interview as to
the disposal of the refining works of said firm; that they were
indisposed to enter into any arrangement for the disposition of said
works because the investment of capital in said works had proved
abundantly profitable to their satisfaction and they had no
disposition whatever to part with the works; but upon investigation
they were somewhat surprised to find that the Standard Oil Company
had already obtained the substantial control of the different
refineries in the City of Cleveland; that it had obtained such rates
of transportation of crude and refined oil from the different
railroads that it was impossible for them to compete with it, and
upon an interview which was had by Mr. Hanna and affiant with Mr.
Rockefeller who was at the time president of the Standard Oil
Company. Mr. Flagler, the secretary of the company, being present,
Mr. Rockefeller in substance declared or said that the Standard Oil
Company had such control of the refining business already in the
City of Cleveland that he thought said firm of Hanna, Baslington &
Company could not make any money; that there was no use for them to
attempt to do business in competition with the Standard Oil Company.
Affiant further says that after having had an interview both with
Mr. Watson, who was the president of a company called “The South
Improvement Company,” and Mr. Devereux, who was the general manager
of the Lake Shore Road, he became satisfied that no arrangement
whatever could be effected through which transportation could at
least be obtained on the Lake Shore Road that would enable their
firm to compete with the Standard Oil Company, the works of said
Hanna, Baslington & Company, being so situated that they could only
obtain their crude oil through the line of the Lake Shore Road. And
finding that the Standard Oil Company had such special rates of
transportation that unless the firm of Hanna, Baslington & Company
were enabled to bring as much oil as the Standard Oil Company, that
it was impossible for said firm of Hanna, Baslington & Company to
obtain a fair competing rate with the Standard Oil Company. They at
least came to the conclusion that it was better for them to take
what they could get from the Standard Oil Company and let their
works go.
And affiant further says that under these circumstances they sold
their works to the Standard Oil Company, which were on the day of
the sale worth at least $100,000, for $45,000 because that was all
they could obtain from them, and works too which in cash cost them
not less than $76,000, and which with a fair competition would have
paid them an income of not less than 30 per cent. per annum on the
investment.
Affiant further says that at the interviews which he had with Mr.
Rockefeller, Mr. Rockefeller told him that the Standard Oil Company
already had control of all the large refineries in the City of
Cleveland and there was no use for them to undertake to compete
against the Standard Oil Company, for it would only ultimate in
their being wiped out, or language to that effect.—(November 1,
1880.)
* * * * *
George O. Baslington being duly sworn (November 12, 1880) says: That
the firm of Hanna, Baslington & Company, the first year they were in
business, made profit amounting to a little less than $40,000 and
from the end of the first year up to the time of the sale to the
Standard Oil Company they made no profit at all. At the time of the
sale the firm reserved the privilege of running the works to close
up and run them up to about April 1, 1872, and during that time they
made profit to the amount of about $21,000. At the time my former
affidavit was drawn by Mr. Tyler, I stated these facts to him.
In the sale of the works to the Standard Oil Company we were given
the option to take cash or to take stock in the Standard Oil Company
at par. We decided to and did take cash, and one reason that
influenced us to take cash was that we were fearful that refining
oil at Cleveland might not be successful, and if so, the cash was
better than the stock, and affiant wanted the cash to enable him to
embark in other pursuits.
NUMBER 8 (See page 1072)
ORGANISATION OF THE PETROLEUM PRODUCERS’ UNION OF 1872
[From “A History of the Rise and Fall of the South Improvement
Company,” pages 8–10.]
1. The territory forming the Pennsylvania petroleum field shall be
divided into sixteen districts....
2. The producers in each district shall meet at some convenient
place and choose one or more (not to exceed five) men, from their
own number, through whose hands they shall pledge themselves to sell
all their crude oil.
3. It shall be the duty of these committeemen to sell the crude oil
coming into their hands: First, to the local refiners; second, to
the agents of the refiners located in distant cities, as may be
designated by the executive committee; and third, to such shippers,
dealers, and exporters as may be named by the executive committee,
and it shall be the further duty of said local committeemen to keep
the executive committee fully posted as to what is being done in
their respective districts with reference to the sale and removal of
all crude oil.
4. There shall be an executive committee composed of members of the
Petroleum Producers’ Union, to consist of one from each of the
sixteen districts, to be chosen by the local committee, whose duty
it shall be to meet from time to time, and take all necessary
measures to fully carry out this plan in all its details.
5. That for the purpose of paying the expenses of this committee,
one cent a barrel on all the crude oil shall be levied, collected,
and paid over by the local committeemen to the executive committee,
of which the executive committee shall keep an account to be
rendered to the producers at a future meeting.
6. It shall be the especial duty of the executive committee to take
such measures as they may find necessary to secure uniform mileage
rates of freights on all oil and merchandise of every kind, to and
from the Oil Region, and employ all lawful measures for the
abolition of the railway system of rebates or drawbacks.
PLEDGE
“I do hereby agree to sell all my production of oil through, or with
the consent of, the committee of the Petroleum Producers’ Union.”
_First._—That an organisation shall be immediately formed for the
exclusive purpose of advancing money to producers upon their
depositing proper Tank or Pipe Company receipts therefor with the
organisation or its agency.
_Second._—That the name of the organisation shall be the “PRODUCERS’
PROTECTIVE ASSOCIATION.”
_Third._—That its capital shall be one million dollars, with power
in the directors to increase it to such an amount as in their
judgment shall be necessary to accomplish the objects of the
organisation.
_Fourth._—That its headquarters shall be in Oil City, and its
co-operative agencies shall be located at all principal producing
points.
_Fifth._—That its stock shall be divided into shares of $100 each,
which stock shall be transferable only upon the books of the company
at its headquarters, with the consent of the board of directors.
_Sixth._—That the chairman of the general committee be requested to
appoint one person in each of the sixteen producing districts, who
shall open books to receive, and every producer, manufacturer, or
other party, directly or indirectly interested in our home
industries be invited to subscribe to the capital stock of this
organisation not exceeding fifty shares, or such part thereof as he
shall elect, and no person shall, at any time hold more than said
number of shares.
_Seventh._—That when the sum of one million dollars shall have been
subscribed and ten per cent. thereof paid to five trustees to be
appointed by the chairman of the general committee, the said
chairman shall give notice of an election of officers, who shall be
elected by the votes of the subscribers, each share being entitled
to a vote.
_Eighth._—That said officers shall consist of a president,
vice-president, and such a number of directors as shall give each
district a fair presentation.
_Ninth._—That the board of directors shall appoint some bank or
banker in each district its co-operative agency; or in the absence
of a bank or bankers such agencies be established as shall be most
convenient for the producer, which bank or agency shall, as
necessity requires, by draft or otherwise, obtain its funds from the
headquarters of the company, and be held strictly accountable
therefor.
_Tenth._—That every producer shall be entitled to go to his most
convenient agency, and deposit his certificate or receipt for oil,
which shall be passed to his credit, and he shall receive such an
advance thereof as the board of directors in their discretion shall
deem prudent to make.
_Eleventh._—That the association shall from time to time sell the
oil belonging to it, or held as security for advances overdue in
such quantities and at such prices as legitimate demand will justify
said prices to be daily telegraphed from headquarters to the several
agencies.
_Twelfth._—That every producer depositing oil in the hands of the
association on which no advance is made, may, if he so elect, have
his oil held until such time as he shall direct its sale, and that
the appropriation of oils sold from day to day shall be as follows:
First, all oils ordered sold by its owner, and the balance _pro
rata_ on oils on which advances have been made and shall then be
overdue.
_Thirteenth._—The association shall charge a reasonable rate of
interest on all advances made, such interest to be used in defraying
the expenses of the association and the surplus, if any, shall be
declared as dividends upon the full paid stock. That any surplus
stock remaining in the hands of the association shall be the
property of the association until taken and paid for by some party
entitled thereto under the foregoing provisions, but always at par.
_Fourteenth._—When the producers of each district shall have
appointed their committees, as provided in the second section of the
Producers’ Union, and have elected their chairman, he is requested
to send to the chairman of the general committee the names thereof.
_Fifteenth._—And it shall be the duty of the person appointed by the
general committee, as provided in section five, to use due diligence
in the circulation thereof, for subscriptions, and within one week
from the receipt thereof, he shall collect the ten per cent. of each
subscription, as provided by section seventh, and report the same to
the chairman of the general committee, together with a list of the
subscribers and the amount subscribed.
NUMBER 9 (See page 1078)
CHARTER OF THE SOUTH IMPROVEMENT COMPANY
[From The Laws of Pennsylvania for 1872.]
An Act to incorporate the South Improvement Company:
SECTION 1. _Be it enacted by the Senate and House of Representatives
of the Commonwealth of Pennsylvania in General Assembly met, and it
is hereby enacted by the authority of the same_, That S. S. Moon, R.
D. Barcley, John A. Fowler, or a majority of them, their associates,
successors, and assigns, be and they are hereby authorised and
empowered to form and be a body corporate, to be known as the South
Improvement Company, which shall be and is hereby vested with all
the powers, privileges, duties, and obligations conferred upon the
act to incorporate the Pennsylvania Company by the Act of the
Legislature of Pennsylvania, approved the seventh day of April, A.D.
one thousand eight hundred and seventy, and the supplements thereto.
SEC. 2. That the stockholders of said company, by and with the
consent of the holders of not less than two-thirds of the shares of
stock, be and they are hereby authorised to change the name and
title of the said company and designate the location of its general
office, which changes shall be valid after the filing of a
certificate in the office of the secretary of the Commonwealth,
signed by the president, and attested by the seal of the said
company.
Approved the sixth day of May, 1871.
The Act incorporating the Pennsylvania Company, referred to above,
is the one that details the powers conferred on the incorporators.
An Act to incorporate the Pennsylvania Company: